Page 2 THE TRUST On September 25, 1985, pursuant to the Plan of Complete Liquidation and Dissolution of City Investing Company ("City") approved by stockholders of City on December 12, 1984, City transferred all its remaining assets and liabilities ("Trust Estate") to the City Investing Company Liquidating Trust (the "Trust") to assure compliance with Section 337 of the Internal Revenue Code. The common stock transfer books of City were permanently closed on September 25, 1985, and the holders of record of common stock of City as of the close of business on that date became holders of beneficial interest in the Trust on the basis of one unit of beneficial interest for each share of common stock of City held on September 25, 1985. After September 25, 1985, the outstanding certificates that formerly represented shares of common stock of City are deemed to evidence the same number of units of beneficial interest in the Trust.
The City Investing Company Liquidating Trust Agreement ("Trust Agreement") provides that the Trust is organized for the sole purpose of liquidating the Trust Estate in a manner calculated to conserve and protect the Trust Estate, and to collect and distribute to the beneficiaries proceeds therefrom in as prompt and orderly a fashion as possible after the payment of, or provision for, expenses and liabilities. The Trustees are required to distribute to the beneficiaries cash or other property comprising a portion of the Trust Estate as the Trustees may, in their sole discretion, determine may be distributed without detriment to the ability of the Trust to pay or discharge claims, expenses, charges, liabilities and obligations. The existence of the contingent liabilities referred to in Note 7 to the Trusts's Financial Statements will affect the timing of future distributions of Trust assets, see Item 8 - Note 7, "Litigation and Other Contingent Liabliities".
On July 23, 2001, the Trustees extended the time limit of the Trust's existence to September 25, 2002 from September 25, 2001 in order to continue the orderly disposal of assets and the settlement of claims and obligations of the Trust.
ITEM 3. LEGAL PROCEEDINGS
In accordance with the Trust Agreement, the Trust has assumed the obligation to make payments, where required, to discharge certain litigation and other contingent liabilities of City which existed at September 25, 1985 or which have subsequently arisen. For a description of litigation and claims currently pending or threatened which affect the Trust, see Item 8 - Note 7, "Litigation and Other Contingent Liabliities".
ITEM 5. MARKET PRICE OF UNITS
The Trust's Units of Beneficial Interest ("Units") trade on The Nasdaq stock exchange and appear daily in the list entitled Small Capitalization Issues, under the symbol CITYINVLQ or CNVLZ. Selected contemporaneous trading information is available on the Internet and can be accessed as follows - http://www.nasdaq.com. The high and low prices for the Units during 2001 and 2000 were as follows:
As of December 31, 2001, there were approximately 13,200 holders of the Trust's Units of Beneficial Interest. No cash distributions were made in either 2001 or 2000.
The Internal Revenue Service ("IRS") determined not to appeal the decision of the United States Tax Court on May 23, 2001, that City (and therefore AmBase Corporation ("AmBase") which had not assumed the tax liability under an Assignment and Assumption Agreement dated August 30, 1985) was not obligated to pay tax on interest payments made to a Netherlands affiliate of City. Accordingly, the risk of the Trust's contingent liability for some $140 million of potential tax liability (including accrued interest) had AmBase been unable to respond to an adverse determination has been eliminated. The Trust may have a contingent liability to the United States Environmental Protection Agency and other third parties.
The Trust recorded net income of $5,337,000 ($0.14 per unit) in 2001 compared with $3,387,000 ($0.09 per unit) in 2000 and $2,799,000 ($0.07 per unit) in 1999. It is difficult to compare amounts in comparable periods, as the financial statements of the Trust are prepared on the basis of accounting used for Federal income tax purposes; that is, amounts are reflected in the financial statements when amounts are received or paid.
In February 2000, the Trust sold 39 percent of its real estate acreage for $2,410,000 in cash, which resulted in a recognized long-term capital gain of $610,000. In May 2000, the Trust sold the remaining real estate acreage for $478,000 cash and a non-recourse promissory note of approximately $3,683,000 payable in five equal annual installments, bearing interest at 8 percent. The May 2000 sale resulted in a recognized long-term capital gain of $171,000. On June 1, 2001, the first of five annual installments, $960,000 in cash, was received, which resulted in a recognized long-term gain, net of expenses of sale, of $183,000 and net interest of $274,000. The deferred gain of $938,000 and $1,173,000 at December 31, 2001 and December 31, 2000, respectively, is reflected as a reduction to the mortgage receiveable of $2,946,000 and $3,683,000 at December 31, 2001 and December 31, 2000, respectively.
In February 2000, the Trust received $20,000 as the final liquidating distribution from Global Bancorporation which resulted in a long-term capital loss of $562,000.
The remaining amount of charges to the losses on dispositions of assets of $451,000 in 2001, compared to $257,000 in 2000 and $105,000 in 1999 consisted prinicipally of legal fees attributable to issues that relate to periods before the liquidation of City.
Interest, dividend and other income of $5,953,000 in 2001, $3,711,000 in 2000 and $3,185,000 in 1999, was principally derived from interest earned on investment securities. In 2001, the increase was essentially due to the Trust collecting annual interest on Treasury Bills, as well as semi-annual interest from Treasury notes.
Administrative expenses were $348,000 in 2001, $286,000 in 2000 and $281,000 in 1999. The increase in 2001 was primarily due to an increase in legal expenses.
At December 31, 2001, the Trust had cash and cash equivalents, investment securities and restricted funds of $79,641,000. The Trustees believe that such cash resources and investment securities are sufficient to meet all anticipated liquidity requirements.
No cash distributions have been made since May 12, 1990. For information regarding considerations affecting the future distribution of Trust assets, see Item 8 - Note 8, "Future Distributions of Trust Assets."
We have audited the accompanying balance sheets of the City Investing Company Liquidating Trust (the "Trust") as of December 31, 2001 and 2000, and the related statements of operations, cash flows and changes in trust equity for each of the years in the three-year period ended December 31, 2001. These financial statements are the responsibility of the Trust's Trustees. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Trustees, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As described in Note 2 to the financial statements, the Trust's policy is to prepare its financial statements on the basis of accounting used for Federal income tax reporting purposes. Accordingly, the accompanying financial statements are not intended to present financial position, income and expenses, cash flows and changes in trust equity in conformity with accounting principles generally accepted in the United States of America.
See Note 7 to the financial statements for a description of litigation and other contingent liabilities.
In our opinion, the financial statements referred to above present fairly, in all material respects, the assets, liabilities, and trust equity of City Investing Company Liquidating Trust as of December 31, 2001 and 2000, and its income and expenses, cash flows and changes in trust equity for the years then ended, on the basis of accounting described in Note 2.
New York, New York STATEMENTS OF OPERATIONS
December 31
Page 7 Year Ended December 31
Year Ended December 31
Page 8 Notes to Financial Statements Note 1 - Organization The City Investing Company Liquidating Trust (the "Trust") was created on September 25, 1985, pursuant to an Agreement and Declaration of Trust ("Trust Agreement") by and between City Investing Company ("City") and the three trustees of the Trust ("Trustees"). The Trust Agreement is governed by the laws of the State of Delaware.
On September 25, 1985, pursuant to a Plan of Complete Liquidation and Dissolution approved by stockholders of City on December 12, 1984, City transferred all its remaining assets and liabilities ("Trust Estate") to the Trust to assure compliance with Section 337 of the Internal Revenue Code. The sole purpose of the Trust is to liquidate the Trust Estate in a manner calculated to conserve and protect the Trust Estate, and to collect and distribute to the beneficiaries the income and proceeds therefrom in as prompt and orderly a fashion as possible after the payment of, or provision for, expenses and liabilities.
The common stock transfer books of City were permanently closed on September 25, 1985, and the holders of record of common stock of City as of the close of business on that date became holders of units of beneficial interest in the Trust on the basis of one unit of beneficial interest for each share of common stock of City held on September 25, 1985. After September 25, 1985, the outstanding certificates that formerly represented shares of common stock of City are deemed to evidence the same number of units of beneficial interest in the Trust.
The Trust Agreement, signed on September 25, 1985, set forth a time limit of three years for the disposition of the Trust's assets and distribution to the unit holders unless a later termination was required by the Trustees. As a result of the protracted nature of certain litigation and other claims asserted against the Trust, on September 7, 1988, April 23, 1990, September 2, 1992, June 16, 1994, June 27, 1996, July 28, 1998, July 8, 1999 and July 17, 2000, the Trustees extended the time limit of the Trust's existence to September 25, 1990, September 25, 1992, September 25, 1994, September 25, 1996, September 25, 1998, September 25, 1999, September 25, 2000, September 25, 2001, and then to September 25, 2002, respectively.
Note 2 - Significant Accounting Policies
Basis of presentation: The accompanying financial statements have been prepared on the basis of accounting used for Federal income tax purposes. Accordingly, certain revenue and the related assets are recognized when received rather than when earned; certain expenses are recognized when paid rather than when the obligation is incurred; and assets are reflected at their tax basis.
Valuation of assets and liabilities: The Trust Equity balance on September 25, 1985 was established at an amount equivalent to the number of units of beneficial interest outstanding (38,979,372) multiplied by the average of the high and low trading prices of such units on the first day of trading ($3.1875), or an aggregate of $124.2 million. The fair market value for Federal income tax purposes of each asset other than cash and cash equivalents was determined by that asset's proportionate share of the Trust Equity increased by accounts payable and decreased by cash and cash equivalents at September 25, 1985. The proportionate share of each of these assets was determined by the estimated value of such Trust asset in relation to the estimated value of all of the Trust assets other than cash and cash equivalents. In determining the estimated value of Trust assets, the Trustees evaluated, where appropriate, such factors as City's historical carrying values, expected amounts and dates of realization, prevailing interest rates, available market prices and restrictions with respect to disposition.
Income taxes: For Federal income tax purposes, the September 25, 1985 transfer of assets and liabilities to the Trust and distribution to stockholders of units in the Trust was treated as a distribution of assets and liabilities by City to its stockholders and a contribution by the stockholders of such net assets to the Trust in
Notes to Financial Statements (continued) return for units. The Trust is treated as a grantor trust and not as a corporation. Accordingly, any income or loss of the Trust will not be taxable to the Trust but will be taxable to the unit holders as if the unit holders had themselves realized the income or loss from their undivided interests in Trust assets.
Losses on dispositions of assets: Losses on dispositions of assets, net of gains, includes legal fees attributable to issues that relate to periods before the liquidation of City.
Net income per unit: Net income per unit is calculated by dividing net income of the Trust by the number of outstanding Units of Beneficial Interest.
Cash and cash equivalents: The Trust considers all investments in money market funds as cash equivalents.
Note 3 - Investment Securities
Investment securities at December 31, 2001 and December 31, 2000 consist of U.S. Treasuries and are carried at original cost, net of premium amortization. The fair value of U.S. Treasuries is based on quoted market prices.
Investment securities at December 31, consist of the following:
Note 4 - Restricted Funds
Restricted funds at December 31, 2001 and 2000 represent a rent deposit of $,5,000 and $4,000, respectively.
Note 5 - Investments
The Trust held 10,000 shares of Global Bancorporation which were carried at their tax basis. In February 2000, the Trust collected a final liquidating distribution of $20,000 from Global Bancorporation which resulted in a long-term capital loss of $562,000. As a result of a 10 for 1 reverse split, the Trust holds 310,810 shares of Oklahoma Energy Corp. common stock, which are carried at their tax basis.
At December 31, 2001 and 2000, the fair value of the Oklahoma Energy stock, based on quoted market prices, was $310 and $15,000 respectively.
Notes to Financial Statements (continued) In February 2000, the Trust sold 39 percent of its real estate acreage for $2,410,000 in cash, which resulted in a recognized long-term capital gain of $610,000. In May 2000, the Trust sold the remaining real estate acreage for $478,000 cash and a non-recourse promissory note of approximately $3,683,000 payable in five equal annual installments including interest, bearing interest at 8 percent. The May 2000 sale resulted in a recognized long-term capital gain, net of expenses of sale, of $171,000. On June 1, 2001, the first of five annual installments, $960,000 in cash, was received, which resulted in a recognized long-term gain, net of expenses of sale, of $183,000 and net interest of $274,000. The deferred gain of $938,000 and $1,173,000 at December 31, 2001 and December 31, 2000, respectively, is reflected as a reduction to the mortgage receiveable of $2,946,000 and $3,683,000 at December 31, 2001 and December 31, 2000, respectively. Note 7 - Litigation and Other Contingent Liabilities In accordance with the Trust Agreement, the Trust has assumed the obligation to make payments, where required, to discharge certain litigation and other contingent liabilities of City which existed at September 25, 1985 or which have subsequently arisen. The Trust may have a contingent liability with respect to certain issues described below:
AmBase Corporation v. City Investing Company Liquidating Trust, et al. (01 Civ. 0771): On January 30, 2001 AmBase Corporation ("AmBase") filed a Complaint in the United States District Court for the Southern District of New York claiming that the Trust was primarily liable for certain potential tax liabilities of City and seeking to recover expenses incurred by AmBase in defending against those liabilities in the Tax Court of the United States. Although a subsequent decision by the Tax Court concluding that City was not liable for the taxes in question has mooted any claim for reimbursement of the tax liability, AmBase's claim seeking recovery of its expenses remains at issue. A virtually identical suit by AmBase against the Trust in the Delaware Chancery Court was dismissed on statute-of-limitations grounds on January 3, 2001. The Trust moved for dismissal of this case on the same grounds. On January 11, 2002, Judge Louis Stanton granted the Trust's motion and dismissed the action based on the statute of limitations.
AmBase Corporation v. City Investing Company Liquidating Trust, et al. (01 Civ. 10761): An action was brought against AmBase Corporation by Marshall Manley, who had served as AmBase's Chief Executive Officer, seeking indemnification for certain liabilities alleged to arise from Mr. Manley's employment agreements with AmBase. Mr. Manley secured a jury verdict and judgement of $1.8 million in the first trial of his claim. Judge Robert Ward vacated that judgement and ordered a new trial which resulted in a jury verdict for AmBase. Mr. Manley has appealed that decision. On November 29, 2001, AmBase commenced an action against the Trust in the United States District Court for the Southern District of New York to recover its expenses in defending against Mr. Manley's claims. Should Mr. Manley prevail in his appeal and Mr. Manley's prior judgement for $1.8 million be reinstated, the Trust anticipates that AmBase would also seek to recover from the Trust any amounts paid by it to Mr. Manley. The Trust has moved to dismiss the AmBase action on the grounds that neither City nor the Trust were parties to Mr. Manley's employment agreement and that neither is otherwise responsible. The parties have agreed to a briefing schedule for consideration of the Trust's motion which would submit the motion for decision in April 2002. While the Trust has been advised by its counsel that it is not liable for any liability or expense arising out of Mr. Manley's claims against AmBase, no assurance can be given as to the outcome of the litigation at this time.
Notes to Financial Statements (continued) Marina Pacifica: Environmental Protection Agency Claim. The U.S. Environmental Protection Agency ("EPA") has identified Marina Pacifica as a Potentially Responsible Party ("PRP") under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") with respect to the Operating Industries, Inc. Site in Monterey, California ("Site"). The Site, a landfill for municipal and industrial waste, was included on the National Priorities List in May 1986.
Marina Pacifica was a California limited partnership, the general partner of which was a subsidiary of City Investing Company. Marina Pacifica was in the business of developing and selling condominiums. Development of one construction site required the relocation of six oil wells. Drilling muds generated during the relocation activities were allegedly disposed of at the Site.
In September 1990, EPA sent a special notice letter to all PRPs, including Marina Pacifica, demanding payment of the total costs incurred by the government since June 1, 1988, which EPA estimated were at least $15.3 million. EPA also requested a good faith offer to perform or pay for the remedy selected for the third remedial stage. Marina Pacifica did not make a counter offer. Counsel for Marina Pacifica notified EPA that Marina Pacifica had been dissolved and would be unable to participate in any settlements. On September 30, 1997, the EPA sent a further special notice letter to all PRPs, including Marina Pacifica, that requested a good-faith offer to perform or pay for, among other things, the final remedial measures covered by the September 1996 Record of Decision. The EPA included an updated list of 280 PRPs on which Marina Pacifica appeared 84th in volumetric terms. Marina Pacifica did not make a counter offer, and has not received anything further from EPA.
The EPA has conducted site control and monitoring activities at the Site since May 1986. In addition, EPA has conducted a number of removal actions and studies at the Site to stabilize site conditions and to evaluate the extent of contamination. Other PRP's have entered into several consent decrees requiring clean-up work or payments to EPA, including a December 2001 decree that awaits court approval and requires work estimated to cost $340 million. Based on its volumetric share and other material factors, counsel would expect actual payments, if any, required of Marina Pacifica to be a small fraction of the total costs (estimated at $340 million) at the Site. Given that City Investing Company had nothing to do with day-to-day operations of Marina Pacifica or its general partner, it is the opinion of counsel that the Trust should not be liable for any clean-up responsibilities of Marina Pacifica.
Admiral Home Appliances Site. By letter of July 12, 2000, EPA sent Rheem Manufacturing Co. ("Rheem") a request for information pursuant to Section 104 of CERCLA respecting the Admiral Home Appliances Site ("Admiral") in Willison, South Carolina. By letter of September 18, 2000, Edward D. Barnhill, Jr., counsel for Rheem advised the Trust of EPA's July 12 letter and purported to put the Trust on notice of a potential liability respecting Admiral. The Trust replied on October 4, 2000, that there was no apparent basis for regarding the Trust as liable respecting Admiral. See below for information concerning litigation subsequently commenced by Rheem.
By letter of October 31, 2000, to the Trust, EPA requested information pursuant to Section 104 of CERCLA about Admiral. The Trust responded to this request on December 6, 2000, advising among other things that City Investing Company had had nothing to do with day-to-day operations of its first- and second-tier subsidiaries which conducted manufacturing operations at Admiral from 1968 to 1981, or with Admiral, and, on the basis of advice of counsel, was not liable for clean-up costs at Admiral. The Trust has not received anything further from EPA about Admiral.
Rheem Manufacturing Co. v. The City Investing Company et al: On October 23, 2001, Rheem Manufacturing Company ("Rheem") filed a Third-Party Complaint against the Trust in the United States District Court for
Notes to Financial Statements (continued) the District of South Carolina in connection with environmental claims arising out of the operations at Admiral. It is alleged by Rheem that City Investing Company, as the owner of the stock of first and second-tier subsidiaries which conducted manufacturing operations at Admiral from 1968 to 1981, is liable under CERCLA for an equitable share of any remediation costs incurred as a result of an alleged discharge of hazardous waste at Admiral. The Trust has moved to dismiss the Complaint for lack of in personam jurisdiction and for failure to state a cause of action. While the Trust has been advised by its counsel that it is not liable for any remediation costs arising out of Admiral, no assurance can be given as to the outcome of this litigation at this time.
Other Matters. The Trust also remains subject to possible claims by other third parties.
Lease Commitment. The Trust entered into a one-year lease of office space that expires June 30, 2002 with a monthly rental payment of $2,750. Rent expense was $31,000 in 2001, $26,000 in 2000, and $22,000 in 1999.
Note 8 - Future Distributions of Trust Assets
The existence of the contingent liabilities referred to in Note 7 will affect the timing of future distributions of Trust assets.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Trustees of the Trust are Eben W. Pyne, John J. Quirk and Lester J. Mantell. Each Trustee will serve for the term of the Trust subject to his earlier resignation or removal. There are no family relationships between the Trustees.
Eben W. Pyne (84) was a director of AmBase Corporation until January 26, 1993. Mr. Pyne retired in 1982 as a Senior Vice President of Citibank, N.A. He was also a director of City.
John J. Quirk (58) is an investment banker at Morgan Lewis Githens & Ahn. He was a principal at Churchill Capital, Inc., a private equity firm, from 1998 to 2001. He was the Chairman and Co-founder of Quirk Carson Peppet Inc. from 1985 to 1998. He served as Senior Vice President and Treasurer of City prior to 1985.
Lester J. Mantell (64) was an Assistant Vice President - Tax of AmBase Corporation from April 1995 to December 1996. He served as a Vice President of City prior to 1985.
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to Section 9.1 of the Trust Agreement, the Trustees, in lieu of commissions or other compensation fixed by law for Trustees, receive as compensation for services thereunder the aggregate sum of $36,000 per year to be allocated equally among the Trustees. Each Trustee is also reimbursed from the Trust Estate for all expenses reasonably incurred by him in the performance of his duties pursuant to the Trust Agreement.
There are no plans, pursuant to which cash or non-cash compensation was paid or distributed during the last fiscal year, or is proposed to be paid or distributed in the future, to the Trustees, except for amounts that one Trustee may receive as a holder of Units of Beneficial Interest.
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following are the only persons known to the Trust to own beneficially (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934) more than five percent of the Trust's Units of Beneficial Interest. The information provided below was obtained from Form 4 of Goldman, Sachs & Co., as filed with the Securities and Exchange Commission ("SEC") as of August 10, 2001, from Form 4 of Farallon Capital Management, L.L.C. filed with the SEC as of January 09, 2002, and from Amendment No. 2 to Schedule 13G as filed with the SEC by Franklin Mutual Advisers, LLC as of January 18, 2000.
The following table shows the Units of Beneficial Interest of the Trust beneficially owned by each Trustee and the Trustees as a group as of January 7, 2002.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The foregoing summary of the December 20, 2001 press release is qualified in its entirety by the complete text of such document.
SIGNATURES:
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 22nd day of January 2002.
CITY INVESTING COMPANY LIQUIDATING TRUST
LESTER J. MANTELL
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant on the 22nd day of January 2002.
A majority of the Trustees:
EBEN W. PYNE
JOHN J. QUIRK
LESTER J. MANTELL
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