<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to _____________________
Commission file number 1-6123
CRAIG CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 95-1620188
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
550 South Hope Street
Suite 1825 Los Angeles CA 90071
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (213) 239-0555
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No ______
-------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. There were 4,289,970 shares of
------------------------------
Common Stock, $0.25 par value per share, and 1,645,000 shares of Class A Common
-------------------------------------------------------------------------------
Preference Stock, $0.01 par value per share, as of May 12, 1995.
----------------------------------------------------------------
================================================================================
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
INDEX
-----
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART 1. Financial Information
------
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1995 (Unaudited)
and September 30, 1994............................................ 3
Consolidated Statements of Operations for the Three and Six Months
Ended March 31, 1995 and 1994 (Unaudited)......................... 4
Consolidated Statements of Cash Flows for Six Months Ended
March 31, 1995 and 1994 (Unaudited)............................... 5
Notes to Consolidated Financial Statements.......................... 6
Item 2. Management's Discussion and Analysis of the Consolidated
Statements of Operations........................................ 14
PART 2. Other Information
------
Item 6. Exhibits and Reports on Form 8-K................................ 20
Signatures............................................................... 21
</TABLE>
2
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, September 30,
1995 1994
--------------------------
(In thousands of dollars)
<S> <C> <C>
ASSETS
------------------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 20,017 $ 21,205
Note receivable from affiliate 950 --
Other current assets, including
103 and 94 from affiliates, respectively 654 150
------- -------
Total current assets 21,621 21,355
Investments in affiliates 55,909 49,131
Note receivable from affiliate -- 6,200
Excess of cost over net assets acquired, net 2,314 2,347
Other assets 944 994
------- -------
Total assets $ 80,788 $ 80,027
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
--------------------------------------------
CURRENT LIABILITIES
Accounts payable $ 131 $ 77
Accrued expenses 233 326
------- ------
Total current liabilities 364 403
Other long-term liabilities 80 104
Option to sell investment in affiliate 14,650 14,650
Deferred tax liabilities 4,440 3,785
SHAREHOLDERS' EQUITY
Preferred stock, par value $.25,
1,000,000 shares authorized, none issued -- --
Class A common preference stock, par value
$.01, 10,000,000 shares authorized,
1,645,000 issued and outstanding 16 16
Class B common stock, par value $.01,
20,000,000 shares authorized, none issued -- --
Common stock, par value $.25,
7,500,000 shares authorized, 5,444,065
shares issued 1,361 1,361
Additional paid-in capital 30,793 30,793
Affiliate's unrealized security losses (47) (171)
Retained earnings 41,268 40,400
Cost of treasury shares, 1,154,095 and 1,064,095 (12,137) (11,314)
------- -------
Total shareholders' equity 61,254 61,085
------- -------
Total liabilities and shareholders' equity $ 80,788 $ 80,027
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1995 1994 1995 1994
---------------- ----------------
(In thousands of dollars, except per
share amounts)
<S> <C> <C> <C> <C>
Service income from affiliate $ 375 $ 5,099 $ 750 $ 5,099
Equity in earnings of affiliates 395 2,741 1,118 4,512
Interest and dividend income 459 100 867 191
Other income -- 1,303 -- 1,303
------ ------- ------ -------
1,229 9,243 2,735 11,105
------ ------- ------ -------
Costs and expenses:
Loss on long term investment -- -- -- 6,495
Operating, general and
administrative expenses 482 445 1,212 1,039
Interest expense -- 155 -- 355
------ ------- ------ -------
482 600 1,212 7,889
------ ------- ------ -------
Earnings before taxes
and extraordinary item 747 8,643 1,523 3,216
Provision for taxes 300 2,900 655 750
------ ------- ------ -------
Net earnings before extraordinary item 447 5,743 868 2,466
Extraordinary item -
Equity losses from affiliate's debt
refinancing, net of $1,610 tax benefit -- (2,408) -- (2,408)
------ ------- ------ -------
Net earnings $ 447 $ 3,335 $ 868 $ 58
====== ======= ====== =======
Earnings per common and
common equivalent share
Continuing operations $ 0.07 $ 0.91 $ 0.14 $ 0.39
Extraordinary items -- (0.38) -- (0.38)
------ ------- ------ -------
$ 0.07 $ 0.53 $ 0.14 $ 0.01
====== ======= ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
March 31,
1995 1994
----------------------
(In thousands of dollars)
<S> <C> <C>
OPERATING ACTIVITIES
Net Earnings $ 868 $ 58
Adjustments to reconcile net income to net
cash provided by operating activities:
Loss on long-term investment -- 6,495
Amortization of excess purchase price 33 233
Amortization of deferred finance costs -- 24
Undistributed earnings of affiliates (1,118) (494)
Depreciation 46 48
Decrease in deferred tax liability 655 (1,200)
Changes in operating assets and liabilities:
(Increase) decrease in other current assets (504) 200
(Increase) decrease in other assets (10) 20
(Decrease) increase in accounts payable (63) (108)
(Decrease) increase in income tax liability -- 340
------- -------
Net cash provided by (used in) operating activities (93) 5,616
INVESTING ACTIVITIES
Acquisition of stock of affiliate (287) --
Redemption of long term investment -- 1,800
Purchase of stock investment (442) --
Sale of stock investment 457 --
------- -------
Net cash provided by (used in) investing activities (272) 1,800
FINANCING ACTIVITIES
Treasury stock repurchase (823) --
Option payment received -- 2,650
Proceeds from issuance of long-term debt -- 600
Payments of long-term debt -- (14,000)
Dividend received from equity affiliate -- 20,000
------- -------
Net cash provided by financing activities (823) 9,250
Increase (decrease) in cash and cash
equivalents (1,188) 16,666
Cash and cash equivalents at beginning
of period 21,205 727
------- -------
Cash and cash equivalents at end
of period $ 20,017 $ 17,393
======= =======
</TABLE>
SUPPLEMENTAL DISCLOSURES:
Interest paid during the six months ended March 31, 1995 and 1994 was
approximately $0 and $450,000, respectively.
See accompanying notes to consolidated financial statements.
5
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------
Basis of Presentation
---------------------
The consolidated financial statements include the accounts of Craig Corporation
and its wholly-owned subsidiaries (the "Company"). In the opinion of
management, the accompanying unaudited consolidated financial statements contain
all adjustments of a recurring nature considered necessary for a fair
presentation of its financial position as of March 31, 1995 and September 30,
1994, the results of operations for the three months and six months ended March
31, 1995 and 1994, and its cash flows for the six months ended March 31, 1995
and 1994. The results of operations for the three and six month periods ended
March 31, 1995 and 1994 are not necessarily indicative of the results of
operations to be expected for the entire year.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and, therefore, do not include
all information and footnotes required to be in conformity with generally
accepted accounting principles. The financial information provided herein,
including the information under the heading, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," is written with the
presumption that the users of the interim financial statements have read, or
have access to, the most recent Annual Report on Form 10-K which contains the
latest audited financial statements and notes thereto, together with the
Management's Discussion and Analysis of Financial Condition and Results of
Operations as of September 30, 1994 and for the year then ended.
Investments in affiliates in which the Company holds a 20 to 50% percent voting
ownership interest are accounted for using the equity method (Note 2).
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. Included in cash and cash
equivalents at March 31, 1995 and September 30, 1994 is approximately $19.3
million and $20.4 million, respectively, which is being held in institutional
money market mutual funds.
Earnings Per Share
------------------
Earnings per share is based on 5,964,970 and 6,336,374 shares, the
weighted average number of shares of common stock outstanding during the three
months ended March 31, 1995 and 1994, and 5,994,970 and 6,336,374 shares during
the six months ended March 31, 1995 and 1994, respectively. Common stock
equivalents (stock options) have been excluded from the computations because
their dilutive effect, if any, is not material.
6
<PAGE>
CRAIG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 2 - INVESTMENTS IN AFFILIATES
----------------------------------
The Company's investment in affiliates at March 31, 1995 and September 30, 1994
consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, September30,
1995 1994
------------ ------------
<S> <C> <C>
Stater Bros. Holdings Inc.("SBH") $ 18,209 $ 16,467
Reading Company ("Reading") 31,059 31,108
Citadel Holding Corporation ("CHC") 6,641 1,556
--------- --------
$ 55,909 $ 49,131
--------- --------
</TABLE>
Stater
------
Investments in affiliates include the Company's 50% interest (48% voting
interest) in Stater Bros. Holdings Inc. ("SBH" and collectively with its
operating subsidiaries, "Stater"). The remaining 50% interest (52% voting
interest) in Stater is owned by La Cadena Investments ("La Cadena"), a general
partnership consisting of key management executives of Stater.
In 1994, the Company received $14.65 million from SBH pursuant to an agreement
which pertains to an option granted by the Company to Stater, which in turn
provides the means by which the Company's continuing 50% economic interest in
Stater may, in the future, be acquired by Stater, at Stater's option. The
$14.65 million received is included in the balance sheet as a deferred credit
under the caption "Option to sell investment in affiliate". The option exercise
price at March 8, 1994 amounted to $60 million, which adjusts upward at an
annual rate of approximately 8.833%. The option has an initial term ending on
March 8, 1996, but may be extended for ten additional years, if Stater converts
the Company's common stock interest in SBH to preferred stock on or before
March 8, 1996. The reciprocal option rights held by the Company and La Cadena
Investments under the existing Shareholder Agreement are suspended for the life
of the option. The preferred stock, if issued prior to the March 8, 1996, will
have a liquidation value of $69.4 million and a cumulative dividend preference
beginning at 10.5%, increasing to 12% after 78 months, and further increasing
every twelve months thereafter by an additional 1%, to a terminal cumulative
dividend rate of 15%. In the event dividends on the preferred stock for two or
more quarterly dividend periods remain unpaid by SBH, the Company will have the
right to elect a majority of the Board of Directors. The Company has the right
to have the preferred stock redeemed at any time following the fifteenth
anniversary of the granting of the option.
Effective March 8, 1994, the Company entered into a consulting agreement with
SBH pursuant to which the Company has agreed, among other things, to render
consulting services to SBH for a five year period. SBH has the right to
terminate the agreement without a refund of any amounts previously paid if it
exercises the option described above and acquires the Company's interest in SBH.
In accordance with this agreement, SBH paid the Company $5 million in March 1994
7
<PAGE>
and committed to pay $1.5 million a year, payable quarterly, through the term of
the agreement. Included in service income from affiliate for the three months
and six months ended March 31, 1995 is $375,000 and $750,000 and $5,099,000 for
the six months ended March 31, 1994 earned pursuant to this agreement.
Stater files periodic reports with the Securities and Exchange Commission (SEC).
Copies of these reports are available from the SEC. Summarized unaudited
financial information of Stater for the thirteen and twenty-six week periods
ended March 26, 1995 and March 27, 1994 is as follows:
<TABLE>
<CAPTION>
March 26, September 30,
1995 1994
---------------------------
(in thousands)
<S> <C> <C>
CONDENSED BALANCE SHEET
Current assets $ 150,429 $ 151,108
Property, plant and equipment, net 111,896 111,645
Other assets 44,830 43,736
Current liabilities 107,775 109,686
Long-term debt 173,611 174,187
Other liabilities 15,765 15,765
Shareholders' common equity 10,004 6,851
</TABLE>
The payment of dividends by Stater to the Company is restricted subject to
various financial covenants in the Stater credit agreements.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
March 26, March 27, March 26, March 27,
1995 1994 1995 1994
------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $390,574 $385,765 $781,216 $768,417
Costs and Expenses 380,062 372,339 760,386 743,966
Standstill agreement -- 4,000 -- 4,000
Depreciation and amortization 2,875 2,810 5,676 5,446
Interest expense, net 4,973 3,055 9,901 5,549
Income before taxes and
extraordinary items 2,664 3,561 5,253 9,456
Income taxes 1,064 1,495 2,100 3,971
Cumulative change in
accounting for income taxes -- -- -- 372
Extraordinary loss from early
debt extinguishment -- 8,036 -- 8,036
Net income (loss) 1,600 (5,970) 3,153 (2,179)
</TABLE>
Reading
-------
At March 31, 1995 and September 30, 1994, the Company held 2,334,957 shares of
Reading with a purchase price of $31,365,000. Based on the closing price per
share of Reading at March 31, 1995 of $11.00, the aggregate market value of the
Company's investment in Reading at that date was approximately $25,685,000.
8
<PAGE>
Summarized financial information of Reading for the three and six months ended
March 31, 1995 and 1994 are as follows (in thousands):
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1995 December 31, 1994
--------------------------------------
(in thousands)
<S> <C> <C>
Current assets $ 46,710 $ 47,111
Property and equipment,net 6,997 7,006
Intangible assets 16,226 16,453
Other assets 2,144 2,146
Current liabilities 2,942 3,728
Other long-term liabilities 2,941 2,902
Shareholders' common equity 66,194 66,086
</TABLE>
At March 31, 1995 and December 31, 1994, Reading included as a separate
component of shareholders' equity $99,000 and $286,000, respectively, reflecting
the net adjustment for unrealized holding losses on available for sale
securities. Accordingly, the Company has reflected its 47% ownership allocation
of such valuation reserve as a separate component of shareholder's equity,
titled affiliate's unrealized security losses.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1995 1994 1995 1994
------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Theatre $ 3,205 $ -- $ 6,381 $ --
Other 603 755 1,281 1,812
-------- -------- --------- --------
3,808 755 7,662 1,812
Theatre costs 2,805 -- 5,805 --
General and administrative 941 880 2,084 2,023
-------- -------- --------- --------
3,746 880 7,889 2,023
Net income (loss) before taxes 62 (125) (227) (211)
Net income (loss) (79) (125) (368) (199)
</TABLE>
Reading files periodic reports with the Securities and Exchange Commission
(SEC). Copies of these reports are available from Reading.
9
<PAGE>
Citadel
-------
CHC, whose common stock is traded on the American Stock Exchange, was prior to
the recapitalization of Fidelity Federal Bank, ("Fidelity"), the holding company
for Fidelity. CHC is referred to collectively with its wholly owned
subsidiaries as "Citadel". As a consequence of the refinancing in August 1994,
Citadel's equity interest in Fidelity was reduced to approximately 16%. At March
31, 1995 Citadel's assets consisted of its ongoing interest in Fidelity, real
estate and cash. At March 31, 1995 and September 30, 1994, the Company owned
667,012 (10%) and 592,712 (9%) shares of the outstanding CHC Common Stock. Based
on the closing price of CHC's common stock of $2.06 at March 31, 1995, the
aggregate market value of the Company's common stock interest in CHC at that
date was approximately $1,374,000.
In October 1994, the Company increased its common stock ownership in CHC to
slightly more than 10% through the purchase of 74,200 shares from CHC for
approximately $286,000. In addition, in November 1994 the Company agreed to
acquire, in satisfaction of $5.25 million of a $6.2 million outstanding
indebtedness of Citadel to the Company, 1,329,114 shares of a newly issued CHC
3% Cumulative Convertible Preferred Stock. The preferred shares represent
approximately 16.6% of the voting power of CHC at March 31, 1995, and together
with the common shares owned by the Company represent approximately 24.9% of the
voting power of CHC at March 31, 1995.
At September 30, 1994, the carrying value, as adjusted for market declines
considered to be other than temporary, of CHC common stock amounted to $1.556
million or $2.625 per share. As described above, the Company increased its
ownership and voting control in CHC to 24.9% through the purchase of common
stock (an additional 1% common equity ownership) and preferred stock
(representing 16.6% of the vote). Based on the increase in voting ownership,
the investment in CHC common stock meets the criteria for using the equity
method of accounting. As a result of the Company's previous writedowns of the
CHC common stock investment below CHC book value, considered to be other than
temporary, no retroactive adjustment to the results of operations was reported.
For financial statement presentation, the Company continues to reflect
writedowns considered to be other than temporary, recorded prior to December 31,
1994 in the statement as loss on long-term investments. In accordance with
accounting for the investment under the equity method, the Company has
reclassified its investment in CHC to investment in equity affiliates.
Subsequent to the quarter ended March 31, 1995, CHC reported a net loss for its
fourth quarter ended December 31, 1994 amounting to $8,890,000 and net income
amounting to $1,346,000 for its first quarter ended March 31, 1995. Included in
equity earnings from affiliates is the Company's portion of such operating
results less preferred dividends amounting to a loss of $451,000.
Summarized financial information of CHC for the three months ended March 31,
1995 is as follows (in thousands):
10
<PAGE>
<TABLE>
<CAPTION>
March 31, 1995 December 31, 1994
-------------- -----------------
CONDENSED BALANCE SHEETS
<S> <C> <C>
Cash and cash equivalents $ 6,174 $ 4,805
Investment in Fidelity Federal 13,405 13,405
Rental properties 14,798 19,858
Other assets 1,736 1,844
Mortgage liabilities 10,174 13,896
Other liabilities 6,755 8,178
Stockholder's equity 19,184 17,838
</TABLE>
Subsequent to March 31, 1995, CHC entered into a Stock Exchange and Settlement
Agreement with a group of shareholders pursuant to which such shareholders
purchased from CHC 1,295,000 shares of Fidelity Federal in consideration for
$2.22 million, surrendering 660,000 shares of CHC stock held by such
shareholders and the settlement of certain litigation. In addition, in May
1995 CHC sold for cash of approximately $9.7 million, its remaining investment
in Fidelity Federal, which together with the proceeds from the sale made as part
of the settlement transaction, approximated the carrying value of such Fidelity
stock as of March 31, 1994.
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1995
------------------
CONDENSED STATEMENT OF OPERATIONS
<S> <C>
Rental and other income $1,113
Real estate operating expenses (545)
Depreciation (100)
Interest expense (238)
General and administrative expenses (425)
Gain on sale of rental property 1,541
------
Net earnings $1,346
------
</TABLE>
The Preferred stock was issued to the Company pursuant to a stock purchase
Agreement and Certificate of Designation which provides, among other things,
that (i) the preferred shares carry a liquidation preference equal to their
stated value and bear a cumulative (noncompounded) annual dividend equal to 3%
of the stated value, (ii) are convertible under certain circumstances into
shares of common stock of CHC, (iii) are redeemable at the option of CHC at any
time after November 1997 and (iv) are redeemable (subject to Delaware
limitations upon distributions to shareholders) at the option of the Company in
the event of a change of control of CHC. For financial statement purposes, the
Company carries its preferred stock investment at cost amounting to $5.25
million as of March 31, 1995. Dividends earned and included in other current
assets for the three months and six months ended March 31, 1995 amounted to
approximately $39,000 and $62,000, respectively.
In November 1994, an action was filed against the Company, CHC and the directors
of CHC in the Delaware Court of Chancery claiming that the individual
defendants, directors of CHC (two of which are directors of the Company), in the
face of a purported proxy fight, breached their fiduciary duties by causing CHC
to issue shares of common stock and preferred stock to the Company for purposes
of perpetuating the individual defendants as directors of CHC. The Company was
alleged to knowingly have participated in the purported breaches of fiduciary
11
<PAGE>
duty by the director defendants. As of April 12, 1995, the Company entered into
a Settlement Agreement with the plaintiff pursuant to which the Company agreed
not to exercise the conversion feature of its preferred stock prior to February
4, 1996, without the prior approval of the CHC common shareholders. In
consideration of this agreement by the Company, CHC granted the Company a two
year option to purchase 660,000 shares of CHC common stock at a purchase price
of $3.00 per share and agreed to reimburse the Company for its litigation costs
in an amount not to exceed $75,000.
NOTE 3 - NOTE RECEIVABLE FROM AFFILIATE
---------------------------------------
At March 31, 1995, the Company is owed $950,000 in accordance with the terms of
a credit agreement between the Company and Citadel. Such loan was paid in full
in May 1995 and the credit agreement canceled.
NOTE 4 - TAXES ON INCOME
------------------------
At March 31, 1995 and September 30, 1994, the deferred tax liability components
consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 31, 1995 September 30, 1994
-------------- ------------------
<S> <C> <C>
Deferred tax liabilities:
Undistributed earnings from
equity investments $12,640 $12,060
Other 80 --
Total deferred tax liabilities 12,720 12,060
Deferred tax assets:
Unrealized capital loss from
writedown of securities (7,680) (7,680)
Federal benefit of state taxes (575) (545)
Other (25) (50)
Total deferred tax assets (8,280) (8,275)
-------- --------
Net deferred taxes $ 4,440 $ 3,785
-------- --------
</TABLE>
As of March 31, 1995, the reported deferred tax assets are expected to be
realized as an offset against reversing temporary differences which create net
future tax liabilities.
NOTE 5 - COMMON AND CLASS A COMMON PREFERENCE STOCK
---------------------------------------------------
In December 1994, the Board of Directors provided authorization to the Company
to repurchase up to $3 million of the Company's outstanding Common and/or Class
A Common Preference stock. During the three months ended March 31, 1995, the
Company repurchased 90,000 shares of Common Stock at a purchase price of
approximately $823,000.
NOTE 6 - SUBSEQUENT EVENT
-------------------------
On May 12, 1995, the Company and Reading Company ("Craig") submitted joint bids
for the acquisition of two movie exhibition theater circuits located in Europe,
both of which are owned by Credit Lyonnais S.A. ("CL"). The MGM United Kingdom
("MGM-UK") circuit operates 120 theaters in the United Kingdom and the Irish
Republic and would be acquired by a newly formed company owned in part by the
12
<PAGE>
Company, Reading and Virgin Communications Ltd., a member of the Virgin Group of
Companies. The MGM Netherlands ("MGM-NL") circuit operates 22 theaters in the
Netherlands. The Company believes that it is one of five finalists for the
acquisition of MGM-UK and one of four finalists for the acquisition of MGM-NL.
The bids for MGM-UK and MGM-NL are independent of one another. Even if the
Company were to have submitted the highest bid for the circuits, no assurances
can be given that either of the bids will be selected by CL or that either of
the circuits will be acquired. Ultimate acquisition of the circuits is subject
to, among other things, further negotiations, due diligence, documentation and
approval of the French government. If the MGM-UK and MGM-NL acquisitions are
completed, Craig would be required to utilize substantially all of its liquid
funds and also be required to obtain additional corporate funding in order to
fund its share of the acquisition price.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company's investments in Stater Bros. Holdings Inc. ("SBH" and,
collectively with its operating subsidiaries, "Stater"), Reading Company
(collectively with its operating subsidiaries, "Reading") and Citadel Holding
Corporation ("CHC" and, collectively with its operating subsidiaries "Citadel")
are included in the Company's Consolidated Financial Statements on the equity
method of accounting. See Notes 1 and 2 of Notes to the Consolidated Financial
Statements.
Results of Operations
---------------------
The following is a comparison of the results of operations for the three
months ended March 31, 1995 (1995 Quarter) with the three months ended March 31,
1994 (1994 Quarter) and a comparison of the results of operations for the six
months ended March 31, 1995 (the "1995 Six Months") with the six months ended
March 31, 1994 (the "1994 Six Months").
The Company's net earnings for the 1995 Quarter was $447,000 or $0.07 per
share, as compared with net earnings of $3,335,000 or $0.53 per share for the
1994 Quarter. The net earnings for the 1995 Six Months was $868,000 or $0.14
per share, as compared to $58,000 or $0.01 per share for the 1994 Six Months.
The 1994 Quarter and Six Months includes an extraordinary charge amounting to
$2.4 million or $0.38 per share representing the Company's share of after tax
debt refinancing costs included in Stater's operating results.
The Company's operating results have varied significantly reflecting the
Company's share of the operating results of its equity affiliates, Stater,
Reading and Citadel. Comparisons between the Quarters and Six Months is
difficult due to (i) the Stater restructuring that occurred in March 1994, (ii)
the acquisition by Reading of TAPR, and (iii) the increase by the Company of its
voting interest in Citadel to the position where it is appropriate to report
such interest on the equity method of accounting.
The Stater restructuring consisted of a series of transactions which
resulted in the Company receiving $30 million in proceeds during the 1994
Quarter. The net income decrease in the 1995 Quarter as compared to the 1994
Quarter is principally a result of the 1994 Quarter inclusion of $5 million of
revenue reported with respect to proceeds received from SBH pursuant to a
consulting agreement executed in March 1994, and a gain of approximately $1.3
million on the sale of property, offset in part by the respective provision for
income taxes. The impact of these items to the reported 1994 Six Month net
income was offset by a charge of $6,495,000 pertaining to a writedown of the
Company's investment in CHC during the first quarter ended December 31, 1994.
Service Income
--------------
In connection with the SBH restructuring consummated in March 1994, the
Company entered into a consulting agreement with SBH pursuant to which the
Company has agreed, among other things, to render consulting services for a five
year period. In accordance with this agreement, SBH paid the Company $5 million
in March 1994 and committed to remit $1.5 million a year, payable quarterly,
through the term of the agreement. SBH has the right to terminate the agreement
14
<PAGE>
without a refund of any amounts previously paid if it exercises the option
discussed below and acquires the Company's interest in SBH. Included in service
income for the 1995 and 1994 Quarter is $5,099,000 and $375,000, respectively
earned pursuant to that agreement.
Equity in earnings of affiliates
--------------------------------
Equity in earnings of affiliates reflects the Company's share of net
earnings or losses of Stater, Reading and Citadel before extraordinary items
reported by the affiliate and after preferred dividends. The following table
sets forth the contribution by affiliate of the equity in earnings or losses of
affiliates:
Equity in Earnings of Affiliates - Contribution by Affiliates
-------------------------------------------------------------
( In thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1995 1994 1995 1994
-------------------- ------------------
<S> <C> <C> <C> <C>
SBH - reported as equity
earnings of affiliate $ 883 $ 2,799 $ 1,742 $ 4,605
CHC - reported as equity
earnings of affiliate (451) -- (451) --
Reading - reported as equity
earnings of affiliate (37) (58) (173) (93)
------- ------- ------- -------
Equity earnings 395 2,741 1,118 4,512
SBH - reported as extra-
ordinary item -- (4,018) -- (4,018)
------- ------- ------- -------
Contribution by affiliates $ 395 $(1,277) $ 1,118 $ 494
------- ------- ------- -------
</TABLE>
Stater
------
On March 8, 1994, the Company and Stater consummated a series of restructur
ing transactions. Concurrently with the closing of the restructuring transac
tions, Stater obtained $165 million in new debt, the proceeds of which were
primarily used to retire certain outstanding indebtedness together with a
prepayment premium, pay a dividend to the holders of SBH Common Stock, and to
acquire an option from the Company to purchase the SBH Common Stock held by the
Company. The significant increase in debt resulted in Stater interest expense
increasing in the 1995 Quarter to $5.1 million from $3.1 million in the 1994
Quarter. SBH reported net income of $1.6 for the 1994 Quarter as compared to a
net loss of $6.0 million for the 1994 Quarter and reported net income of
approximately $3.2 million for the 1995 Six Months as compared to a net loss of
$2.2 million for the 1994 Six Months.
Stater sales amounted to $390.6 million for the 1995 Quarter, an increase of
1.25% when compared to $385.8 million for the 1994 Quarter. Sales for the 1995
Six Months increased 1.67% and amounted to $781.2 million compared to $768.4
million for the 1994 Six Months. Sales from like stores decreased .8% for the
1995 Quarter and decreased .31% for the 1995 Six Months, compared to the same
15
<PAGE>
periods in 1994. Stater operated 111 stores at March 26, 1995 and 109 stores at
March 27, 1994.
Stater's gross profits for the 1995 Quarter amounted to $86.2 million or 22.07%
of sales compared to $86.5 million or 22.41% of sales in the 1994 Quarter. The
decrease in gross profits was due to a reduction in calendar year end forward
buying opportunities available to Stater, which typically increase gross profits
during the quarters ended March. For the 1995 Six Month period, gross profit
increased to $172.9 million or 22.13% of sales compared to $169.6 million or
22.07% of sales in the 1994 Six Months. The increase in gross profits for the
1995 Six Months is due to increased efficiencies in Stater's warehousing and
transportation departments and the introduction of higher gross margin products,
such as prepackaged gourmet vegetables and fresh cut flowers and a decrease in
sustained competitive activity in the current year when compared to the 1994 Six
Months.
Selling, general and administrative expenses for the 1995 Quarter increased
$2.4 million and amounted to $75.4 million or 19.31% of sales compared to $73
million or 18.91% of sales in the 1994 Quarter. Selling, general and administra
tive expenses increased $6.3 million in the 1995 Six Months to $151.4 million or
19.38% of sales as compared to $145.1 million or 18.88% of sales in the 1994 Six
Months. The 1995 Quarter and Six Months were negatively impacted by increased
costs in paper and plastic bags and related store supplies. Such increases were
offset, in part, by improved efficiencies in labor and reductions in worker's
compensation and general liability insurance expenses. Selling, general and
administrative expenses in the 1994 periods reflect reductions in employer
contributions to collective bargaining expenses of $3.3 million for the quarter
and $7.1 million for the Six Months. Stater reached a three year agreement in
October 1993 with the Retail Clerks collective bargaining unit. In addition to
wage increases, the agreement with the Retail Clerks collective bargaining unit
provided for a credit of $13 million against future employer contributions for
benefits for employees covered by such collective bargaining unit. Such credit
was recovered monthly through fiscal 1994 and the entire credit was recovered by
September 1994.
Stater interest expense amounted to $5.1 million and $3.1 million for the
1995 and 1994 Quarters, respectively. For the 1995 Six months, interest expense
amounted to $10.2 million as compared to $5.6 million for the 1994 Quarter. The
increase in interest expense is due to additional debt incurred to facilitate
the March 1994 recapitalization, in which the Company received approximately $42
million in proceeds.
Stater's income before the cumulative effect of a change in accounting for
income taxes and extraordinary item for the 1995 and 1994 Quarters amounted to
$1.6 million and $2.1 million, respectively, and for the 1995 and 1994 Six
Months amounted to $3.2 million and $5.5 million, respectively.
Stater's net income results in the 1993 Quarter includes a credit of
approximately $372,000 resulting from Stater's adoption of the Statement of
Financial Accounting Standard No. 109 "Accounting for Income Taxes".
In connection with the March 8, 1994 Restructuring, Stater entered into a
series of transactions that included the sale of $165 million of 11% Senior
Notes due 2001 and the early retirement of certain other financings. The net
proceeds
16
<PAGE>
from the debt refinancing were used to consummate the Restructuring and replace
outstanding Stater debt of $96.7 million. In connection with the early
redemption of Stater's outstanding debt securities, Stater recorded an
extraordinary charge of $8 million, net of tax benefits amounting to $5.9
million, for costs related to the redemption premium to holders of the previous
outstanding senior notes which were replaced. Accordingly, the Company has
reported its 50% share of Stater's debt retirement costs as an extraordinary
item.
Net income for the 1995 Quarter amounted to $1.6 million compared to a net
loss of $6 million for the 1994 Quarter. For the 1995 Six Months, Stater
reported net income of $3.2 million, compared to a net loss of $2.2 million in
the 1994 Six Months.
Reading
-------
On August 17, 1994, Reading acquired Theater Acquisitions of Puerto Rico,
Inc. ("TAPR") for an aggregate purchase price of approximately $22.7 million.
TAPR operates motion picture exhibition theaters in six leased locations with a
total of 36 screens in the Commonwealth of Puerto Rico currently under the
Wometco Theaters name. Accordingly, the operating results of TAPR are only
included in the operating results of Reading for the 1995 Quarter and Six
Months. Additionally, TAPR's business is seasonal and the 1995 Quarter has
historically provided less than a proportionate share of annual revenues and
earnings. Therefore, the results of TAPR included in the 1995 Quarter and Six
Months may not be indicative of TAPR's annual operating results.
For the 1995 Quarter, Reading incurred a net loss of approximately $79,000
(the Company's share amounting to approximately $37,000), as compared to a net
loss of $125,000 in the 1994 Quarter (the Company's share amounting to $58,000).
The Company's share of net losses from Reading amounted to 173,000 for the 1995
Six Months as compared to $93,000 for the 1994 Six Months.
Revenues in the 1995 Quarter increased $3,053,000 to $3,808,000 from
$755,000 in the 1994 Quarter. As discussed above, Reading's significant increase
in revenue in the 1994 Quarter reflects inclusion of the operating results of
TAPR which the Reading acquired in 1994. The increase in Reading's revenues was
offset somewhat by a decrease in interest and dividend revenue due to lower
investable fund balances (due mainly to the $22.7 million cash purchase of
TAPR), offset in part, by higher interest yields.
Reading general and administrative expenses increased in the 1995 Quarter
$61,000 from $880,000 in the 1994 Quarter. This was due to the addition of
approximately $281,000 associated with TAPR's general and administrative
expenses offset partially by a reduction in professional fees of approximately
$52,000 and a $148,000 decrease in development expenses related to the Oz Resort
totaling $186,000 which were included in the 1994 Quarter.
At March 31, 1995, Reading has significant liquidity including $45.3 million
of cash and available for sale securities. In addition, Reading has no debt
outstanding. Reading intends to continue to expand its theater exhibition
business. Reading, together with the Company, is currently making a joint bid
to acquire a major European theater exhibition circuit, MGM Cinemas, currently
held for sale by Credit Lyonnais. See "Liquidity".
17
<PAGE>
Citadel
-------
At September 30, 1994, the Company reported its common stock investment in
CHC at $2.625 per share or $1.556 million. The book value of CHC at such date
was $3.26. In October 1994, the Company increased the Company's common stock
ownership in CHC to slightly more than 10% through the purchase from CHC of
74,200 common shares for approximately $286,000. In addition, in November 1994,
the Company agreed to acquire in satisfaction for $5.25 million of a $6.2
million outstanding indebtedness of Citadel to the Company, 1,329,114 shares of
a newly issued CHC 3% Cumulative Convertible Preferred Stock. The preferred
shares represent approximately 16.6% of the voting power of CHC and together
with the common shares owned by the Company represent approximately 24.9% of the
voting power of CHC as of March 31, 1995.
Based on the increase in voting ownership in November 1994, the investment
in CHC Common Stock meets the criteria for using the equity method of accounting
since December 1994. As a result of the Company's previous writedowns of the CHC
Common stock investment considered to be other than temporary, no retroactive
adjustment to the results of operations was reported. For financial statement
presentation, the Company continues to reflect these writedowns in the statement
of operations as loss on long term investment. In accordance with accounting for
this investment under the equity method of accounting, the Company has
reclassified its investment in CHC to investment in equity affiliates.
Subsequent to the quarter ended March 31, 1995, CHC reported a net loss for
its fourth quarter ended December 31, 1994 amounting to $8,890,000 and reported
net income of approximately $1,346,000 for the 1995 Quarter (the Company's share
of such operating results after preferred dividends amounted to a loss of
approximately $451,000). The 1995 Quarter earnings include gains from the sale
of two properties amounting to $1,540,000. At March 31, 1995, Citadel's assets
consisted of principally its 16.6% interest in Fidelity Federal Bank (carrying
value of $13.4 million), real estate and cash. Subsequent to March 31, 1995, CHC
disposed in a series of transactions, for approximately $11.9 million and the
return of 660,000 shares of its outstanding common stock, substantially all of
its stock in Fidelity. The net proceeds approximated the carrying value of the
Fidelity stock at March 31, 1995.
The preferred stock described above was issued to the Company pursuant to a
Stock Purchase Agreement and Certificate of Designation which provides, among
other things, that (i) the preferred shares carry a liquidation preference equal
to their stated value and bear a cumulative (noncompounded) annual dividend
equal to 3% of the stated value, (ii) are convertible under certain
circumstances into shares of common stock of Citadel, (iii) are redeemable at
the option of CHC at any time after November 1997 and (iv) are redeemable
(subject to Delaware limitations upon distributions to shareholders) at the
option of the Company in the event of a change of control of CHC. For financial
statement purposes the Company carries its preferred stock investment at cost
amounting to $5.25 million as of December 31, 1994. Included in interest and
dividends are dividends earned on the preferred stock holdings amounting to
$39,000 and $62,000 for the 1995 Quarter and Six Months, respectively. In
connection with the settlement of certain litigation against CHC, its directors
and the Company, the Company agreed not to exercise its option to convert the
preferred stock into CHC Common Stock until after February 4, 1996. In
consideration of that agreement, CHC granted to the Company a two year option to
purchase 640,000 CHC common stock at a purchase price
18
<PAGE>
of $3.00 per share and agreed to reimburse the Company for its litigation costs
in an amount not to exceed $75,000.
Operating, general and administrative expenses
----------------------------------------------
Operating, general and administrative expenses of the Company amounted to
$482,000 in the 1995 Quarter as compared to $445,000 in the 1994 Quarter.
Operating, general and administrative expenses increased $173,000 in the 1995
Six Months to $1,212,000 as compared to $1,039,000 in the 1994 Six Months. The
increase is attributable to an increase in wages and outside professional fees,
partially offset by a decrease in goodwill amortization.
Interest income and expense
---------------------------
Interest and dividend income increased in the 1995 Quarter to $459,000 as
compared to $100,000 in the 1994 Quarter and increased in the 1995 Six Months to
$867,000 as compared to $191,000 in the 1994 Six Months. In the 1994 Quarter
and Six Months interest income was earned on the Company's cash investments in
institutional money market mutual funds as well as, for a portion of the 1995
Six Months, a $6.2 million loan accruing interest at prime plus 3% to Citadel.
In November 1994, the Company agreed to acquire $5.25 million of preferred stock
in CHC in satisfaction of $5.25 million of the $6.2 million loan to Citadel.
The remaining outstanding balance of $950,000 was paid in full in May 1995.
Included in interest and dividend income is approximately $78,000 and $221,000
earned pursuant to this agreement in the 1995 Quarter and 1995 Six Months,
respectively. Such amounts include $51,000 per quarter of loan point
amortization.
Interest expense was eliminated in the 1995 Quarter as a result of the
expiration of the Company's credit agreement upon the repayment of $14 million
in debt obligations in March 1994.
Liquidity
---------
At March 31, 1995 the Company has cash and cash equivalents totaling
approximately $20 million and no debt outstanding. The Board of Directors in
December 1994 provided authorization to the management of the Company to spend
up to $3 million to purchase from time to time shares of the Company's Common
and/or Class A Common Preference Stock. In connection with this authorization,
the Company repurchased 90,000 shares of Common Stock in February 1995 at a
purchase price of approximately $823,000.
On May 12, 1995, the Company and Reading Company ("Craig/Reading") submitted
joint bids for the acquisition of two movie exhibition theater circuits located
in Europe, both of which are owned by Credit Lyonnais S.A. ("CL"). The MGM
United Kingdom ("MGM-UK") circuit operates approximately 120 theaters in the
United Kingdom and the Irish Republic and would be acquired by a newly formed
company owned in part by the Company, Reading and Virgin Communications Ltd., a
member of the Virgin Group of Companies. The MGM Netherlands ("MGM-NL") circuit
operates 22 theatres in the Netherlands. The Company believes that it is one of
five groups which were selected by CL to submit final bids on MGM-UK and one of
four groups to submit bids on MGM-NL. The bids are independent of one another.
Even if Craig/Reading were to have submitted the highest bid for the circuits,
no assurances can be given that either of the bids will be selected by CL or
that either of the circuits will be acquired. Ultimate acquisition of the
circuits
19
<PAGE>
is subject to, among other things, further negotiations, due diligence,
documentation and the approval of the French government. If the MGM-UK and MGM-
NL acquisitions are completed, the Company would be required to utilize
substantially all of its liquid funds and also be required to obtain additional
corporate funding in order to fund its share of the acquisition price.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
A. The following exhibit is filed as part of this report:
10.40. Conversion Deferral, Warrant and Reimbursement Agreement
27 Financial Data Schedule, Article 5
B. No reports on Form 8-K were filed during the quarter ended March
31, 1995.
20
<PAGE>
SIGNATURES
----------
Pursuant to the requirements 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.
CRAIG CORPORATION
-----------------
By: /s/ S. Craig Tompkins
------------------------
President
May 22, 1995
By: /s/ Robin W. Skophammer
------------------------
Chief Financial Officer
May 22, 1995
21
<PAGE>
EXHIBIT 10.40
CONVERSION DEFERRAL,
WARRANT AND REIMBURSEMENT AGREEMENT
This Warrant and Settlement Agreement (the "Agreement"), is made and
entered into as of April 11, 1995, by and between Citadel Holding Corporation, a
Delaware corporation ("Citadel"), and Craig Corporation, a Delaware corporation
("Craig").
RECITALS
A. Craig owns shares of common stock, par value $.01 per share (the
"Common Stock"), and 3% Cumulative Voting Convertible Preferred Stock, par value
$.01 per share (the "Preferred Stock"), of Citadel.
B. Citadel and Craig are defendants in a lawsuit filed by Dillon
Investors, L.P., a Delaware partnership ("Dillon LP"), in the Court of Chancery
of the State of Delaware in and for New Castle County (C.A. No. 13867) (the
"Delaware Action").
C. Citadel is the plaintiff in a lawsuit filed by it in the United
States District Court, Central District of California (Case No. CV-94-7735 R)
(the "Federal Action", and collectively with the Delaware Action, the
"Actions"), naming as defendants Dillon LP, Roderick H. Dillon, Jr. ("Dillon"),
Roderick H. Dillon, Jr. Foundation, an Ohio trust ("Dillon Trust"), and Roderick
H. Dillon, Jr.-IRA ("Dillon IRA"; Dillon LP, Dillon, Dillon Trust and Dillon IRA
are collectively referred to herein as the "Dillon Parties"), and certain other
individuals.
D. Citadel, Craig and the Dillon Parties have executed agreements to
settle the Actions and to provide mutual releases of all claims related thereto
(the Settlement Agreements"), pursuant to which, among other things, (i) Citadel
is acquiring from the Dillon Parties 666,000 shares of Common Stock and (ii)
Craig has agreed that, prior to February 4, 1996, Craig will not, absent the
approval of a majority of the outstanding shares of Common Stock of Citadel,
exercise its right to tender any share or shares of the Preferred Stock for
conversion into common stock of Citadel pursuant to Section 7 of the Certificate
of Designation of the Preferred Stock.
NOW, THEREFORE, in consideration of the foregoing and the provisions
set forth below, the parties hereto agree as follows:
1. Conversion Deferral. In conformity with the Settlement
-------------------
Agreements, Craig hereby agrees, effective on the Closing Date (as defined
below), that, prior to February 4, 1996, Craig will not, absent the approval of
a majority of the outstanding shares of Common Stock of Citadel, exercise its
right to tender any share or shares of the Preferred Stock for conversion into
Common Stock of Citadel pursuant to Section 7 of the Certificate of Designation
of the Preferred Stock (the "Conversion Deferral")
<PAGE>
2. Warrant.
-------
2.1 In consideration of Craig's agreement to the Conversion Deferral,
Citadel hereby grants to Craig, effective on the Closing Date, a warrant (the
"Warrant"), exercisable on or prior to the second anniversary of the date of
this Agreement in whole or from time to time in part, to purchase 666,000 shares
(the "Warrant Shares") of Common Stock of Citadel, representing the number of
shares of Common Stock purchased by Citadel from the Dillon Parties pursuant to
the Settlement Agreements, at a price per share, payable in cash, of $3.00 (the
"Warrant Price"). If the outstanding shares of Common Stock are increased or
decreased, or are changed into or exchanged for a different number or kind of
shares or securities, as a result of one or more reorganizations,
recapitalizations, mergers, consolidations, stock splits, reverse stock splits,
stock dividends, rights offering or similar event, appropriate adjustments shall
be made to the number and type of Warrant Shares and the Warrant Price to
reflect any such event(s), and if Citadel undertakes a rights offering to the
holders of Common Stock of the type described in Exhibit A attached hereto, the
appropriate adjustments shall be those set forth in Exhibit A attached hereto
and incorporated herein by reference.
2.2 The Warrant Shares shall be deemed to be included in the term
"Shares" for purposes of Article Three of that Stock Purchase Agreement dated
October 21, 1994 (the "1994 Agreement") between Citadel and Craig and shall
accordingly be eligible for registration under the Securities Act of 1933, as
amended, in accordance with the terms of the 1994 Agreement; provided, however,
that the date applicable to the Warrant Shares set forth in Section 3.1(b)(vi)
of the 1994 Agreement shall be April 17, 1996.
3. Reimbursement of Expenses. In further consideration of Craig's
-------------------------
agreement to the Conversion Deferral, Citadel hereby agrees, effective the
Closing Date, to reimburse Craig for its legal fees and expenses, up to a
maximum of $75,000, incurred by Craig in defense of the Delaware Action upon
submission to Citadel of appropriate written invoices and receipts itemizing
such fees and expenses in reasonable detail.
4 Closing Date; Termination. As used herein, the terms "Closing" and
-------------------------
"Closing Date" shall mean the Closing and Closing Date, respectively,
contemplated by the Stock Exchange and Settlement Agreement dated April 3, 1995
(the "Settlement Agreement") among Citadel and the Dillon Parties. All
provisions of this Agreement are subject to the approval of the Boards of
Directors of Citadel and Craig. If (i) this Agreement has not been approved by
the Boards of Directors of Citadel and Craig on or before April 13, 1995, or
(ii) the Settlement Agreement is terminated for any or no reason prior to the
occurrence of the Closing, then this Agreement shall thereupon immediately and
automatically terminate and shall thereafter have no legal force or effect
whatsoever.
5. Miscellaneous.
-------------
5.1 Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be deemed given if delivered personally
or by facsimile transmission (with subsequent letter confirmation by mail) or
two days after being mailed by certified or registered mail, postage prepaid,
return receipt requested, to the parties, their successors in interest or their
assignees at the following addresses, or at such other addresses as the parties
may designate by written notice in the manner aforesaid:
2
<PAGE>
If to Craig: Craig Corporation
116 N. Robertson Blvd.
Los Angeles, California 90048
Telecopy: (310) 659-9120
Attention: President
If to Citadel: Citadel Holding Corporation
4565 Colorado Street
Los Angeles, California
Telecopy: (818) 549-3564
Attention: President
5.2 Assignability and Parties in Interest. This Agreement shall not
-------------------------------------
be assignable by either of the parties, except that (a) affiliates of Craig may
participate in registrations as contemplated by Section 2.2 and (b) the rights
of Craig under Section 2.2 may be assigned to one acquiror of all Warrant Shares
and Shares under the 1994 Agreement in a private purchase from Craig and its
affiliates if and when such acquiror delivers to Citadel such acquiror's written
agreement to assume all of the obligations of Craig under Article Three of the
1994 Agreement. This Agreement shall inure to the benefit of and be binding
upon the parties and their respective permitted successors and assigns.
5.3 Governing Law. This Agreement shall be governed by, and
-------------
construed and enforced in accordance with, the internal law, and not the law
pertaining to conflicts or choice of law, of the State of California.
5.4 Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
5.5 Complete Agreement. This Agreement contains the entire agreement
------------------
between the parties with respect to the subject matter hereof and shall
supersede all previous oral and written and all contemporaneous oral
negotiations, commitments and understandings.
5.6 Modifications, Amendments and Waivers. This Agreement may be
-------------------------------------
modified, amended or otherwise supplemented only by a writing signed by both of
the parties. No waiver of any right or power hereunder shall be deemed
effective unless and until a writing waiving such right or power is executed by
the party waiving such right or power.
5.7 Attorneys' Fees and Costs. Should any party institute any
-------------------------
arbitration, action, suit or other proceeding arising out of or relating to this
Agreement, the prevailing party shall be entitled to receive from the losing
party reasonable attorneys' fees and costs incurred in connection therewith.
3
<PAGE>
5.8 Contract Interpretation; Construction of Agreement.
--------------------------------------------------
(a) The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Article, section, party and recital references are to this
Agreement unless otherwise stated.
(b) Neither party, nor its respective counsel, shall be deemed the
drafter of this Agreement for purposes of construing the provisions of this
Agreement, and all language in all parts of this Agreement shall be construed in
accordance with its fair meaning, and not strictly for or against either party.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
CRAIG CORPORATION
By: /s/ S. CRAIG TOMPKINS
-----------------------------------------
Title: President
--------------------------------------
CITADEL HOLDING CORPORATION
By: /s/ STEVE WEISS
-----------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
4
<PAGE>
EXHIBIT A
Adjustment for Conventional Rights Issue. If Citadel distributes any
----------------------------------------
conventional rights, options or warrants to all holders of its Common Stock,
entitling them to purchase shares of Common Stock at a price per share less than
the Current Market Price per share (as defined below) on the record date
described below, the number of unissued Warrant Shares and the Warrant Price
shall be adjusted as follows:
The number of unissued Warrant Shares shall be adjusted pursuant to
the following formula:
O + A
-----------
WS' = WS X O + PxA
---
M
The Warrant Price shall be adjusted pursuant to the following formula:
O + PxA
---
WP' = WP X M
-----------
O + A
where:
WS' = the adjusted number of Warrant Shares.
WS = the current number of unissued Warrant Shares.
WP' = the adjusted Warrant Price.
WP = the current Warrant Price.
O = the number of shares of Common Stock outstanding on the
record date.
A = the number of additional shares of Common Stock offered.
P = the offering price per share of additional shares.
M = the "Current Market Price" per share of Common Stock on
the record date, determined by averaging the closing
prices for the Common Stock on the American Stock Exchange
(or other principal exchange or market system on which the
Common Stock then trades) for the ten trading days
immediately preceding the record date.
5
<PAGE>
The adjustment shall be made successively whenever any such rights, options
or warrants are issued and shall become effective immediately after the record
date for the determination of stockholders entitled to receive the rights,
options or warrants. If at the end of the period during which such rights,
options or warrants are exercisable, not all rights, options or warrants shall
have been exercised, the number of unissued Warrant Shares and the Warrant Price
shall be immediately readjusted to what they would have been if "A" in the above
formula had been the number of shares actually issued.
Unconventional Rights Offerings. If Citadel distributes any unconventional
-------------------------------
rights, options or warrants to all holders of its Common Stock, entitling them
to purchase shares of Common Stock at a price per share less than the Current
Market Price per share on the record date, the parties will negotiate in good
faith for adjustments to the number of unissued Warrant Shares and the Warrant
Price that are fair, just and equitable.
6
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> MAR-31-1995
<CASH> 20,017
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 21,621
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 80,788
<CURRENT-LIABILITIES> 364
<BONDS> 0
<COMMON> 16
0
0
<OTHER-SE> 61,254
<TOTAL-LIABILITY-AND-EQUITY> 80,788
<SALES> 0
<TOTAL-REVENUES> 2,735
<CGS> 0
<TOTAL-COSTS> 1,212
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,523
<INCOME-TAX> 655
<INCOME-CONTINUING> 868
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 868
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0
</TABLE>
