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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Act of 1934
Date of Report (date of earliest event reported): November 10, 1994
CITADEL HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 1-8625 95-3885184
(State or other (Commission File (I.R.S. Employer
jurisdiction of Number) Identification No.)
incorporation)
600 North Brand Boulevard, Glendale, California 91203
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 551-7450
None
(Former name or former address, if changed since last report)
Page 1 of 3 pages
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Item 5. Other Events.
See Press release described in Response to Item 7.
Item 7. Financial Statements and Exhibits.
(c) Exhibits
1. Press Release of Citadel Holding Corporation, dated November 10,
1994
2. Preferred Stock Purchase Agreement, dated November 10, 1994, by
and between Citadel Holding Corporation, a Delaware corporation, and Craig
Corporation, a Delaware corporation
3. Certificate of Designations of the 3% Cumulative Voting
Convertible Preferred Stock of Citadel Holding Corporation, as filed with the
Secretary of State of the State of Delaware on November 10, 1994
4. Opinion of Wedbush Morgan Securities, dated November 10, 1994
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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 hereunto duly authorized.
CITADEL HOLDING CORPORATION, a
Delaware corporation
By: /s/ Steve Wesson
-----------------
Name: Steve Wesson
Title: President and Chief
Executive Officer
November 11, 1994
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PRESS RELEASE
CITADEL HOLDING CORPORATION
RESTRUCTURES BALANCE SHEET
Glendale, California (November 11, 1994) -- Citadel Holding Corporation
announced today that it restructured its balance sheet to replace $5.25 million
of short-term debt with equity through the issuance of 1,329,114 shares of newly
authorized 3% Cumulative Voting Convertible Preferred Stock. The shares were
issued to Craig Corporation on November 10 at a price of $3.95 per share. The
preferred shares represent 16.6% of Citadel's outstanding voting securities,
after giving effect to the issuance. Craig also holds 10% of Citadel's
outstanding common stock (representing approximately 8.3% of all voting
securities after the issuance).
The canceled debt constituting the consideration for the preferred shares
was owed by Citadel to Craig under a short-term line of credit provided by Craig
to finance the acquisition of Citadel's current real estate holdings as part of
the restructuring and recapitalization of Fidelity Federal Bank, FSB.
A committee of independent directors of the Citadel Board approved the
terms of Craig's preferred stock investment. The Citadel Board received an
opinion from Wedbush Morgan Securities as to the fairness, from a financial
point of view, to Citadel's public stockholders of the consideration received by
Citadel in the preferred stock issuance.
Steve Wesson, President and Chief Executive Officer of Citadel, stated
"This stock issuance strengthens our financial position by replacing short-term
debt with equity and improving our cash flow. In the absence of this equity
infusion, Citadel may have been forced to liquidate assets under pressure to
meet its liabilities, including the Craig line of credit, thereby reducing our
prospects for maximizing the value of our assets."
The preferred stock is subject to automatic conversion into common stock
under certain circumstances if Citadel undertakes a rights offering of common
stock to its stockholders. In addition, holders of the preferred stock will have
the right to convert into common stock at any time at a conversion ratio based
upon the market price of common stock, subject to certain limitations.
Citadel has the option to redeem the preferred stock at any time after
November 10, 1997 at a premium. Holders of preferred stock have the right to
require Citadel to purchase their shares at a premium under certain
circumstances, including a change of control.
The preferred stock votes jointly (not as a separate class) with the
Citadel common stock on most matters, including the election of directors, with
each share of preferred stock entitled to one vote. Holders of the preferred
stock will have the opportunity to purchase part of any new issuance of voting
securities of Citadel to preserve their respective percentage voting interests.
Craig will be the holder of the preferred stock on the record date of
November 14, 1994 set by the Citadel Board for the determination of stockholders
entitled to vote at Citadel's Annual Stockholders' Meeting scheduled for
December 12, 1994.
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Craig's ownership of these shares on the record date was a condition to Craig's
agreement to convert its debt to equity.
A copy of this press release will be filed by Citadel with the Securities
and Exchange Commission as an exhibit to a Current Report on Form 8-K. The
Certificate of Designation establishing the voting powers, preferences and
relative rights of the preferred stock and the Preferred Stock Purchase
Agreement pursuant to which Craig Corporation purchased the shares will be
exhibits to such filing.
Citadel's common stock trades on the American Stock Exchange under the
symbol CDL.
Contact: Steve Wesson, President and Chief Executive Officer, Citadel
Holding Corporation, (818) 551-7450.
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PREFERRED STOCK PURCHASE AGREEMENT
This Preferred Stock Purchase Agreement (this "Agreement") is made and
entered into on November 10, 1994 by and between Citadel Holding Corporation, a
Delaware corporation ("Citadel"), and Craig Corporation, a Delaware corporation
("Craig").
R E C I T A L
- - - - - - -
A. Citadel desires to sell to Craig, and Craig desires to purchase
from Citadel, newly-issued shares of preferred stock of Citadel that would be
convertible into shares of Citadel's common stock, par value $.01 per share
("Common Stock").
B. On October 21, 1994, Craig purchased 74,300 shares (the "Prior
Shares") of Common Stock, for a price of $286,055 (the "Common Stock Purchase
Price") pursuant to a Stock Purchase Agreement dated October 21, 1994 (the
"Common Stock Agreement") between Citadel and Craig.
NOW, THEREFORE, in consideration of the foregoing and the provisions
set forth below, the parties hereto agree as follows:
Article One
Agreement to Sell and Purchase
1.1 Issuance and Sale of Stock. On the terms and subject to the
--------------------------
conditions set forth herein, concurrently with the execution and delivery of
this Agreement by the parties, Citadel is issuing and selling to Craig, and
Craig is purchasing from Citadel, 1,329,114 shares (the "Shares") of Citadel's
3% Cumulative Voting Convertible Preferred Stock, par value $.01 per share and
stated value $3.95 per share, having the rights, preferences and privileges set
forth on Exhibit A hereto (the "Preferred Stock"). It is the intent of the
parties that Citadel issue the Shares to Craig and that Craig own the Shares on
November 10, 1994, and Citadel shall take all steps necessary to cause Craig to
become a preferred stockholder of record on this date.
1.2 Purchase Price. Craig is paying to Citadel a purchase price (the
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"Purchase Price") for the Shares equal to $3.95 per Share, or $5,250,000.30 in
the aggregate. The Purchase Price is being paid by means of cancellation of
$5,250,000.30 of the outstanding indebtedness under the Credit Agreement dated
as of August 2, 1994 (the "Credit Agreement") among Citadel Realty, Inc.,
Citadel, and Craig. In consideration of the issuance of the Shares, Craig
hereby releases and discharges Citadel from the obligation to pay, and forgives
and cancels indebtedness of, $5,250,000.30 of the outstanding principal balance
due under the Credit Agreement.
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Article Two
Registration Rights
2.1 Definitions.
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(a) The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act of 1933, as amended (the "Securities Act")
and the declaration or ordering of effectiveness of such registration statement
by the Securities and Exchange Commission.
(b) The term "Registrable Securities" refers to shares of Common Stock
issuable upon conversion of the Shares, the Prior Shares (the shares of Common
Stock issuable upon conversion of the Shares and the Prior Shares shall be
referred to herein collectively as the "Common Shares") and any Common Stock of
Citadel issued as a dividend or other distribution with respect to, or in
exchange or in replacement of, the Shares or the Common Shares (which shall be
deemed included in the term Common Shares), except that Common Shares shall
cease to be Registrable Securities (i) when a registration statement with
respect to the sale of such Common Shares has become effective under the
Securities Act and the Common Shares have been disposed of in accordance with
such registration statement; (ii) when such Common Shares may be sold to the
public pursuant to paragraph (k) of Rule 144 under the Securities Act ("Rule
144") or any successor provision; (iii) when such Common Shares shall have been
transferred (under Rule 144 or otherwise), new certificates for the Common
Shares not bearing a legend restricting further transfer shall have been
delivered by Citadel and subsequent disposition of the Common Shares does not
require registration or qualification under the Securities Act or state law then
in force in the opinion of legal counsel for Citadel; (iv) when such Common
Shares cease to be beneficially owned by Craig or its affiliates (as defined in
Rule 144), unless all Common Shares are transferred by Craig or its affiliates
to a single acquiror, in which event, subject to the other provisions of this
Section 2.1(b) and the receipt by Citadel of such acquiror's written agreement
to assume all of the obligations of Craig under this Article Two, such Common
Shares shall remain Registrable Securities; (v) when such Common Shares cease to
be outstanding; or (vi) on or after November 10, 1996 if and when all
outstanding Common Shares represent less than 1% of all outstanding shares of
Common Stock.
2.2 Request for Registration.
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(a) Subject to Sections 2.2(b) and (c), commencing on May 1, 1995, if
Citadel shall receive a written request (specifying that it is being made
pursuant to this Section 2.2) from Craig that Citadel file a registration
statement under the Securities Act, or a similar document pursuant to any other
statute then in effect corresponding to the Securities Act, covering the
registration of all Registrable Securities for sale in a firmly underwritten
public offering, then Citadel shall use its best efforts to cause all
Registrable Securities to be registered under the Securities Act.
(b) Notwithstanding the foregoing, (i) Citadel shall not be obligated
to effect a registration pursuant to this Section 2.2 during the period starting
with the date 60 days prior to Citadel's estimated date of filing of, and ending
on a date six months following the effective date of, a registration statement
pertaining to an underwritten public offering of securities for the account of
Citadel, provided that Citadel is actively employing in good faith all
reasonable efforts to cause such registration statement to become effective and
that Citadel's estimate of the date of filing such registration statement is
made in good faith; and
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(ii) if Citadel shall furnish to Craig a certificate signed by the President of
Citadel stating that in the good faith judgment of the Board of Directors it
would be seriously detrimental to Citadel or its shareholders for a registration
statement to be filed in the near future, then Citadel's obligation to use its
best efforts to file a registration statement shall be deferred for a period not
to exceed six months; provided, however, that Citadel shall furnish such a
certificate to Craig only once in any one-year time period.
(c) Citadel shall be obligated to effect only two registrations
pursuant to this Section 2.2.
2.3 Company Registration.
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(a) Subject to Section 2.3(b), if at any time Citadel determines to
register any of its Common Stock under the Securities Act in connection with the
public offering of such securities solely for cash on a form that would also
permit the registration of the Registrable Securities, Citadel shall, each such
time while Registrable Securities are outstanding, promptly give Craig written
notice of such determination. Upon the written request of Craig given within 20
days after mailing of any such notice by Citadel, Citadel shall use its best
efforts to cause to be registered under the Securities Act all of the
Registrable Securities that Craig has requested be registered.
(b) Citadel shall not be required under this Section 2.3 to include
any Registrable Securities in such underwriting unless the holders thereof
accept the terms of the underwriting as agreed upon between Citadel and the
underwriters selected by it, and then only in such quantity as will not, in the
written opinion of the underwriters, jeopardize the success of the offering by
Citadel.
2.4 Agreements and Conditions.
-------------------------
(a) It shall be a condition precedent to the obligations of Citadel to
take any action pursuant to Article Two that Craig and its affiliates shall:
(i) Furnish to Citadel such information regarding them, the
Registrable Securities held by them, and the intended method of disposition
of such securities as Citadel shall reasonably request and as shall be
required to effect such registration;
(ii) Execute and deliver customary underwriting agreements,
including customary indemnification and contribution provisions; and
(iii) Provide indemnification and contribution to Citadel and
its affiliates, officers, directors and agents with respect to information
supplied by Craig and its affiliates for inclusion in the registration.
(b) In connection with any registration under this Article Two,
Citadel shall:
(i) Execute and deliver a customary underwriting agreement,
including customary indemnification and contribution provisions;
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(ii) Qualify the Registrable Securities for sale under the "Blue
Sky" laws of such states as Craig shall designate, provided that Citadel
shall not be required to file a general consent to service of process;
(iii) Provide indemnification and contribution to Craig and its
affiliates, officers, directors and agents with respect to information
supplied by Citadel and its affiliates for inclusion in the registration;
and
(iv) Provide Craig and its affiliates with such number of
prospectuses included in such registration as Craig may reasonably request.
2.5 Expenses of Registration.
------------------------
(a) All expenses incurred by Citadel in connection with a registration
pursuant to Article Two (excluding underwriters' discounts and commissions),
including without limitation all registration and qualification fees, printers'
and accounting fees, and fees and disbursements of counsel for Citadel, shall be
borne by Citadel; provided, however, that Citadel shall not be required to pay
for any expenses of any registration proceeding begun pursuant to Section 2.2 if
the registration request is subsequently withdrawn by Craig, unless Craig agrees
to forfeit its right to a demand registration pursuant to Section 2.2.
(b) In any registration under this Article Two, Craig and its
affiliates shall bear the expense of their own counsel.
2.5 Effect of this Article Two on the Common Stock Agreement. This
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Article Two replaces and supersedes Article Three of the Common Stock Agreement,
and Article Three of the Common Stock Agreement is hereby terminated.
Article Three
Representations and Warranties
3.1 Mutual Representations and Warranties. Each party hereby represents
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and warrants to the other as follows:
(a) It is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware and is duly qualified and
authorized to do business in the State of California.
(b) It has full power and authority to enter into this Agreement and
to consummate the transactions contemplated hereby. This Agreement is its valid
and binding agreement, enforceable against it in accordance with its terms.
(c) Neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will violate, result in a
breach of any of the terms or provisions of, constitute a default (or any event
that, with the giving of notice or the passage of time or both would constitute
a default) under, accelerate any obligations under, or conflict with, (i) any
agreement, indenture or other instrument to which it is party or by which it or
its properties are bound, (ii) any judgment, decree, order or award of any
court,
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governmental body or arbitrator to which it is subject, or (iii) any law,
rule or regulation applicable to it.
3.2 Representations and Warranties of Citadel. Citadel hereby
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represents and warrants to Craig as follows:
(a) Upon the issuance of the Shares and payment therefor in accordance
with the terms of this Agreement, the Shares will be duly and validly authorized
and issued, fully paid and nonassessable, and Craig will own the Shares free and
clear of any liens, encumbrances, pledges, security interests or other
restrictions, other than those imposed by applicable law or by the terms of this
Agreement.
(b) The Shares have the rights, preferences and privileges set forth
in the Certificate of Designation attached hereto as Exhibit A (the "Certificate
of Designation").
3.3 Representations and Warranties of Craig. Craig hereby represents
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and warrants to Citadel as follows:
(a) Craig understands and acknowledges that the Shares are being
issued without registration or qualification under federal or state securities
laws pursuant to private placement exemptions thereunder. Craig is acquiring
the Shares for investment, for its own beneficial account, without a view to the
distribution or sale thereof and without any present or foreseeable economic
need to consider disposition of such Shares.
(b) Craig is an "accredited investor" within the meaning of Regulation
D promulgated by the SEC under the Securities Act.
Article Four
Other Agreements
4.1 Credit Agreement. The parties agree that no further borrowings
----------------
shall be made under the Credit Agreement. Citadel and Craig shall, at the
request either party, execute an appropriate amendment to the Credit Agreement
to reduce the outstanding principal amount of indebtedness thereunder and to
limit the credit available thereunder as contemplated herein.
4.2 Right of Rescission. If a court of competent jurisdiction issues
-------------------
any ruling, judgment, injunction, decree or order (a "Judicial Determination")
that prohibits Craig from voting the Shares or Common Shares at any meeting of
Citadel stockholders or pursuant to any written consent of Citadel stockholders,
in which vote or consent the Shares would otherwise be entitled to participate
under the terms of the Certificate of Designation, or invalidates any such vote
or consent of such Shares, then Craig shall have the right to rescind the
transactions contemplated by this Agreement, exercisable by delivery of written
notice of such exercise, accompanied by certificates evidencing all of the
Shares and Common Shares (other than the Prior Shares), to Citadel within 30
days of the date of the Judicial Determination. Upon such deliveries, (i) all
outstanding Shares and Common Shares (other than the Prior Shares) shall be
canceled, (ii) the Credit Agreement, the indebtedness canceled thereunder
pursuant to Section 1.2, and the interest that would have accrued on such
canceled
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indebtedness if such indebtedness had not been canceled shall be reinstated on
their original terms, and (iii) this Agreement shall terminate in all respects.
None of the foregoing actions shall be deemed to have occurred or be effective
unless all have occurred and are effective.
4.3 Citadel Rights Offering. If Citadel determines to undertake a
-----------------------
rights offering of Common Stock to its stockholders that closes on or before
October 31, 1995, and if the exercise price to purchase shares of Common Stock
therein shall be between 75% and 90% of the then-prevailing market price for
Common Stock, Craig agrees to exercise the rights it receives in not less than
the same proportion as all other rights are exercised, and payment for such
exercise may be made in the form of cancellation of indebtedness, if any, owed
by Citadel to Craig (including, without limitation, under the Credit Agreement).
The parties agree that any such rights issued by Citadel shall be listed on the
American Stock Exchange (if the Common Stock is so listed) and transferable.
4.4 Stock Legend. All certificates evidencing any of the Shares or
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any shares of Common Stock issuable upon conversion thereof shall bear a legend
to the effect that such shares have been issued without registration or
qualification under the Securities Act or state securities laws and that such
shares will be restricted from further transfer unless transfers are made in
compliance therewith or pursuant to exemptions thereunder.
4.5 Further Assurances. Each party hereto shall execute and deliver
------------------
such further agreements and instruments, and take such further actions, as the
other party may reasonably request in order to carry out the purpose and intent
of this Agreement.
Article Five
Miscellaneous
5.1 Notices. All notices, requests, demands and other communications
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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:
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
700 N. Central Ave.
Glendale, California 91203
Telecopy: (818) 551-7456
Attention: President
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5.2 Assignability and Parties in Interest. This Agreement shall not
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be assignable by either of the parties, except that (a) affiliates of Craig may
participate in registrations as contemplated by Article Two and (b) the rights
of Craig under Article Two may be assigned to one acquiror of all Shares and
Common Shares 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 Two. 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
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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.
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.
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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first above written.
CRAIG CORPORATION
By:
------------------------
Title:
---------------------
CITADEL HOLDING CORPORATION
By:
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Title:
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Accepted and Agreed To:
CITADEL REALTY, INC.
By:
-------------------------
Title:
----------------------
LC943130.073/1+
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CERTIFICATE OF DESIGNATION
OF THE 3% CUMULATIVE VOTING CONVERTIBLE PREFERRED STOCK
(Par Value $.01 Per Share)
OF
CITADEL HOLDING CORPORATION
----------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
----------------------
Citadel Holding Corporation, a Delaware corporation (the "Company"),
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certifies that pursuant to the authority conferred upon the Board of Directors
of the Company (the "Board of Directors") by the Certificate of Incorporation of
------------------
the Company (the "Certificate of Incorporation"), and in accordance with the
----------------------------
provisions of Section 151 of the General Corporation Law of the State of
Delaware, as amended (the "GCL"), the Board of Directors, on November 10, 1994,
---
adopted the following resolution creating a series of its Preferred Stock, par
value $.01 per share:
RESOLVED, that a class of the Company's authorized preferred stock, par
value $.01 per share, which shall consist of 1,329,114 shares of Preferred
Stock, be hereby created, and that the designation and amount thereof and the
voting powers, preferences, limitations, restrictions and relative rights and
the qualifications, limitations and restrictions thereof are as follows:
1. Designation, Issuance and Stated Value. The designation of such series
---------------------------------------
of the Preferred Stock authorized by this resolution shall be the 3% Cumulative
Voting Convertible Preferred Stock (the "Preferred Stock"). The maximum number
---------------
of shares of Preferred Stock shall be 1,329,114. The shares of Preferred Stock
shall be issued by the Company for their Stated Value (as defined herein), in
such amounts, at such times and to such persons as shall be specified by the
Board of Directors from time to time. For the purposes hereof, the "Stated
------
Value" of each share of Preferred Stock (regardless of its par value) shall be
- -----
$3.95 per share.
2. Rank. The Preferred Stock shall, with respect to dividend rights and
----
rights upon liquidation, winding up and dissolution, rank prior to the Company's
common stock, par value $.01 per share (the "Common Stock"), and to all other
------------
classes and series of equity securities of the Company now or hereafter
authorized, issued or outstanding (the Common Stock and such other classes and
series of equity securities may be referred to herein collectively as the
"Junior Stock"), other than any class or series of equity securities of the
- -------------
Company ranking on a parity with (the "Parity Stock") or senior to (the "Senior
------------ ------
Stock") the Preferred Stock as to dividend rights and/or rights upon
- -----
liquidation, dissolution or winding up of the Company. The Preferred Stock
shall be subordinate to and rank junior to all indebtedness of the Company now
or hereafter outstanding. The Preferred Stock shall be subject to creation of
Senior Stock, Parity Stock and Junior Stock, to the
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extent not expressly prohibited by the Certificate of Incorporation, with
respect to the payment of dividends and/or rights upon liquidation, dissolution
or winding up of the Company.
3. Cumulative Dividends; Priority.
-------------------------------
(a) Payment of Dividends. The holder of record of each share of
---------------------
Preferred Stock shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available therefor, a quarterly per
share dividend (the "Quarterly Dividend") equal to (i) one-fourth of 3% of the
------------------
Stated Value of such share (pro-rated for any portion of a Dividend Period (as
defined below) that such share shall have been issued and outstanding), plus
(ii) accrued but unpaid per share dividends as to which a Dividend Payment Date
(as defined below) has occurred. Dividends shall accrue from the date of
issuance and be payable (subject to declaration) quarterly on the fifteenth day
of January, April, July and October in each year (or if such day is a non-
business day, on the next business day), commencing on January 15, 1995, in
respect of the immediately preceding calendar quarter (each of such dates a
"Dividend Payment Date"). Each declared dividend shall be payable to holders of
- ----------------------
record as they appear on the stock books of the Company at the close of business
on such record dates as are determined by the Board of Directors or a duly
authorized committee thereof (each of such dates a "Record Date"), which Record
-----------
Dates shall be not more than 45 calendar days nor fewer than ten calendar days
preceding the Dividend Payment Dates therefor. Quarterly dividend periods (each
a "Dividend Period") shall be the calendar quarters that commence on and include
---------------
the first day of January, April, July and October of each year and shall end on
and include the end of the calendar quarter that commenced with each of such
dates. Dividends on the Preferred Stock shall be fully cumulative and shall
accrue (whether or not declared), on a daily basis, from the first day of each
Dividend Period; provided, however, that the initial quarterly dividend payable
on January 15, 1995, and the amount of any dividend payable for any other
Dividend Period shorter than a full Dividend Period shall be computed on the
basis of a 360-day year composed of twelve 30-day months and the actual number
of days elapsed in the relevant Dividend Period.
(b) Priority as to Dividends. No full dividend shall be declared by
------------------------
the Board of Directors or paid or set apart for payment by the Company on any
Parity Stock for any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum set apart
sufficient for such payment on the Preferred Stock through the most recent
Dividend Payment Date. If any dividends are not paid or set apart in full, as
aforesaid, upon the shares of the Preferred Stock and any Parity Stock, all
dividends declared upon the Preferred Stock and any Parity Stock shall be
declared pro rata so that the amount of dividends declared per share on the
Preferred Stock and such Parity Stock shall in all cases bear to each other the
same ratio that accrued dividends per share on the Preferred Stock and such
Parity Stock bear to each other. Unless full cumulative dividends, if any,
accrued on all outstanding shares of the Preferred Stock have been or
contemporaneously are declared and paid or declared and a sum set apart
sufficient for such payment through the most recently completed Dividend Period,
no dividend shall be declared or paid or set aside for payment or other
distribution declared or made upon the Common Stock or upon any other Junior
Stock (other than a dividend or distribution paid in shares of, or warrants,
rights or options exercisable for or convertible into, Common Stock or any other
Junior Stock), nor shall any Common Stock nor any other Junior Stock be
redeemed, purchased or otherwise acquired for any consideration, nor may any
moneys be paid to or made available for a sinking fund for the redemption of any
shares of any such securities, by the Company, except by conversion into or
exchange for Junior Stock. Unless full cumulative dividends, if any, accrued on
all outstanding shares of the Senior Stock have been or contemporaneously are
declared and paid or declared and a sum set apart sufficient for such payment
through the most recently completed dividend period therefor, no dividend shall
be declared or paid or set aside for payment or other distribution declared or
made upon the Preferred Stock (other than a dividend or distribution paid in
shares of, or warrants, rights or options exercisable for or convertible into,
Preferred Stock), nor shall any Preferred Stock be redeemed, purchased or
otherwise acquired for any consideration, nor may any moneys be paid to or made
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available for a sinking fund for the redemption of any shares of any such
securities, by the Company, except by conversion into or exchange for Junior
Stock. Unless full cumulative dividends, if any, accrued on all outstanding
shares of the Senior Stock have been or contemporaneously are declared and paid
or declared and a sum set apart sufficient for such payment through the most
recently completed dividend period therefor, no dividend shall be declared or
paid or set aside for payment or other distribution declared or made upon the
Preferred Stock (other than a dividend or distribution paid in shares of, or
warrants, rights or options exerciseable for or convertible into, Preferred
Stock), nor shall any Preferred Stock be redeemed, purchased or otherwise
acquired for any consideration, nor may any moneys be paid to or made available
for a sinking fund for the redemption of any shares of any such securities, by
the Company, except by conversion into or exchange for Preferred Stock, Parity
Stock or Junior Stock. Holders of the shares of the Preferred Stock shall not be
entitled to any dividends, whether payable in cash, property or stock, in excess
of full cumulative dividends as provided in Section (3)(a).
(c) Miscellaneous Provisions Relating to Dividends. Payment of
----------------------------------------------
dividends shall be subject to the following provisions:
(i) Subject to the foregoing provisions of this Section 3, the
Board of Directors may declare and the Company may pay or set apart for payment
dividends and other distributions on any of the Junior Stock or Parity Stock,
and may redeem, purchase or otherwise acquire out of funds legally available
therefor any Junior Stock, and the holders of the shares of the Preferred Stock
shall not be entitled to share therein;
(ii) Any dividend payment made on shares of the Preferred Stock
shall first be credited against the earliest accrued but unpaid dividend due
with respect to shares of the Preferred Stock;
(iii) All dividends paid with respect to shares of the Preferred
Stock pursuant to this Section 3 shall be paid pro rata to the holders entitled
thereto; and
(iv) Holders of shares of the Preferred Stock shall be entitled to
receive the dividends provided for in this Section 3 in preference to and in
priority over any dividends upon any of the Junior Stock; and
(v) Accrued but unpaid dividends on Preferred Stock shall not
earn interest or compound.
4. Redemption at the Option of the Company.
----------------------------------------
(a) General. Except as expressly provided herein, the Company shall
-------
not have any right to redeem shares of the Preferred Stock prior to the third
anniversary of the original date of issuance of the Preferred Stock (the "Date
of Issuance"). Thereafter, the Company shall have the right, at its sole option
and election, subject to Section 6, to redeem outstanding shares of the
Preferred Stock, in whole or in part, at any time and from time to time at a per
share price (the "Redemption Price") equal to the sum of:
----------------
3
<PAGE>
(i) the Stated Value; plus
(ii) all accrued but unpaid Quarterly Dividends, whether or not
declared, plus
(iii) the "Premium," which shall mean:
-------
(A) if the Redemption Date (as defined below) is on or
prior to the fourth anniversary of the Date of Issuance, an amount equal to
an accrual on the Stated Value of 9% per annum (not compounded) from the
Date of Issuance to the Redemption Date; or
(B) if the Redemption Date is after the fourth and on or
prior to the fifth anniversary of the Date of Issuance, an amount equal to
an accrual on the Stated Value of 8% per annum (not compounded) from the
Date of Issuance to the Redemption Date; or
(C) if the Redemption Date is after the fifth and on or
prior to the sixth anniversary of the Date of Issuance, an amount equal to
an accrual on the Stated Value of 7% per annum (not compounded) from the
Date of Issuance to the Redemption Date; or
(D) if the Redemption Date is after the sixth and on or
prior to the seventh anniversary of the Date of Issuance, an amount equal
to an accrual on the Stated Value of 6% per annum (not compounded) from the
Date of Issuance to the Redemption Date; or
(E) if the Redemption Date is after the seventh and on or
prior to the eighth anniversary of the Date of Issuance, an amount equal to
an accrual on the Stated Value of 5% per annum (not compounded) from the
Date of Issuance to the Redemption Date; or
(F) if the Redemption Date is after the eighth and on or
prior to the ninth anniversary of the Date of Issuance, an amount equal to
an accrual on the Stated Value of 4% per annum (not compounded) from the
Date of Issuance to the Redemption Date; or
(G) if the Redemption Date is after the ninth and on or
prior to the tenth anniversary of the Date of Issuance, an amount equal to
an accrual on the Stated Value of 3% per annum (not compounded) from the
Date of Issuance to the Redemption Date; or
(H) if the Redemption Date is after the tenth and on or
prior to the 11th anniversary of the Date of Issuance, an amount equal to
an accrual on the Stated Value of 2% per annum (not compounded) from the
Date of Issuance to the Redemption Date; or
(I) if the Redemption Date is after the 11th and on or
prior to the 12th anniversary of the Date of Issuance, an amount equal to
an accrual on the Stated Value of 1% per annum (not compounded) from the
Date of Issuance to the Redemption Date; or
(J) if the Redemption Date is after the 12th anniversary
of the Date of Issuance, zero.
4
<PAGE>
Holders of shares of Preferred Stock to be redeemed who fail to claim the
Redemption Price on the Redemption Date shall not be entitled to interest on the
Redemption Price after the Redemption Date.
(b) Notice of Redemption. The Company shall mail notice of redemption
--------------------
of the Preferred Stock (a "Redemption Notice") at least 30, but no more than 60,
-----------------
days prior to the date fixed for redemption (the "Redemption Date") to each
---------------
holder of Preferred Stock to be redeemed, at such holder's address as it appears
on the books of the Company.
(c) Deposit. If such notice of redemption shall have been so mailed,
-------
and if on or before the Redemption Date specified in such notice all said funds
necessary for such redemption shall have been irrevocably deposited in trust
(which deposit shall not be made sooner than the 15th day following the date of
the Company's mailing of the notice of redemption pursuant to Section 4(b)), for
the account of the holder of the shares of the Preferred Stock to be redeemed
(and so as to be and continue to be available therefor), with a bank or trust
company named in such notice doing business in the State of California and
having combined capital and surplus of at least $50,000,000, thereupon and
without awaiting the Redemption Date, all shares of the Preferred Stock with
respect to which such notice shall have been so mailed and such deposit shall
have been so made shall be deemed to be no longer outstanding, and all rights
with respect to such shares of the Preferred Stock shall forthwith upon such
deposit in trust cease and terminate, except only the right of the holders
thereof on or after the Redemption Date to receive from such deposit the amount
payable on redemption thereof, but without interest, upon surrender (and
endorsement or assignment to transfer, if required by the Company) of their
certificates. In case the holders of shares of the Preferred Stock that shall
have been redeemed shall not within two years (or any longer period if required
by law) after the Redemption Date claim any amount so deposited in trust for the
redemption of such shares, such bank or trust company shall, upon demand and if
permitted by applicable law, pay over to the Company any such unclaimed amount
so deposited with it, and shall thereupon be relieved of all responsibility in
respect thereof, and thereafter the holders of such shares shall, subject to
applicable escheat laws, look only to the Company for payment of the redemption
price thereof, but without interest.
5. Redemption Following Change in Control.
--------------------------------------
(a) Redemption at Option of Holder of Preferred Stock. In the event
-------------------------------------------------
of a Change in Control (as defined below), each holder of shares of Preferred
Stock shall have the right, at the sole option and election of such holder
exercisable on or before the 90th day following the earliest event constituting
a Change in Control, to require the Company to redeem some or all of the shares
of Preferred Stock owned by such holder at the Redemption Price. For purposes
of this Section 5, a "Change in Control" shall mean the occurrence of either of
------------------
the following events:
(i) any person, entity or "group" (as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and the rules thereunder) other than Craig Corporation, a Delaware
corporation ("Craig"), and its successors and affiliates, acquires
beneficial ownership of over 35% of the outstanding voting securities of
the Company ("affiliate" of a person shall mean any person directly or
---------
indirectly controlling, controlled by or under common control with such
person, and
5
<PAGE>
"control" of a person shall mean the power to direct the affairs of such
-------
person by reason of ownership of voting stock, contract or otherwise); or
(ii) the directors of the Company as of October 10, 1994 (the
"Current Directors"), and any future directors ("Continuing Directors") of
------------------ --------------------
the Company who have been elected or nominated by a majority of the Current
Directors or the Continuing Directors cease to constitute a majority of the
Board of Directors.
(b) Exercise of Redemption Rights. The holder of any shares of the
-----------------------------
Preferred Stock seeking to exercise its redemption rights pursuant to Section
5(a) may exercise its right to require the Company to redeem such shares by
surrendering for such purpose to the Company, at its principal office or at such
other office or agency maintained by the Company for that purpose, a certificate
or certificates representing the shares of Preferred Stock to be redeemed
accompanied by a written notice stating that such holder elects to require the
Company to redeem all or a specified integral number of such shares in
accordance with the provisions of this Section 5. As promptly as practicable,
and in any event within ten business days after the surrender of such
certificates and the receipt of such notice relating thereto, the Company shall
deliver or cause to be delivered to the holder of the shares being redeemed
payment for such shares in immediately available funds and, if less than the
full number of shares of the Preferred Stock evidenced by the surrendered
certificate or certificates are being redeemed, a new certificate or
certificates, of like tenor, for the number of shares evidenced by such
surrendered certificate or certificates less the number of shares redeemed.
Such redemptions shall be deemed to have been made at the close of business on
the date of such payment and the rights of the holder thereof, except for the
right to receive the payment for the redeemed shares in accordance herewith,
shall cease on such date.
6. General Provisions Relating to Redemptions. Redemptions pursuant to
------------------------------------------
Sections 4 and 5 shall be subject to the following terms and conditions:
(a) Pro-Rata Redemption. If less than all of the Preferred Stock at
-------------------
the time outstanding is to be redeemed, the shares so to be redeemed shall be
selected by lot, pro-rata or in such other manner as the Board of Directors may
determine to be fair and proper.
(b) Payment of Taxes. The Company shall not be required to pay any
----------------
tax that may be payable in respect of any payment in respect of a redemption of
shares of Preferred Stock to a name other than that of the registered holder of
Preferred Stock redeemed or to be redeemed, and no such redemption payment shall
be made unless and until the person requesting such payment has paid to the
Company the amount of any such tax or has established, to the satisfaction of
the Company, that such tax has been paid.
(c) Status of Shares Redeemed. Shares of Preferred Stock redeemed,
-------------------------
purchased or otherwise acquired for value by the Company shall, after such
acquisition, be retired, and shall thereafter have the status of authorized and
unissued shares of preferred stock and may be reissued by the Company at any
time as shares of any series of preferred stock.
(d) Conversion Prior to Redemption. From the date of a Redemption
------------------------------
Notice until the earlier of the Redemption Date or the date the deposit of funds
in trust is made pursuant to Section 4(c), holders of shares of Preferred Stock
subject
6
<PAGE>
to a Redemption Notice shall retain their right to an Optional Conversion (as
defined in Section 7) of their shares.
7. Optional Conversion. Subject to the provisions of this Section 7 and
-------------------
of Section 9, shares of Preferred Stock shall be convertible, at the option of
the holder thereof (an "Optional Conversion"), into shares of Common Stock at a
-------------------
conversion ratio (the "Conversion Ratio") of one share of Preferred Stock for a
----------------
fraction of a share of Common Stock, the numerator of which is the sum of the
Stated Value plus any accrued but unpaid per share Quarterly Dividends, and the
denominator of which is the average of the closing prices per share of the
Common Stock on the American Stock Exchange (the "AMEX") for each of the 60
----
business days immediately preceding the Original Conversion Date (as defined
below), as quoted in The Wall Street Journal, or if the Common Stock is not
listed or admitted to trade on AMEX, the average of the closing prices per share
of the Common Stock on the principal national securities exchange on which the
Common Stock is listed or admitted to trade for each of the 60 business days
immediately preceding the Original Conversion Date (as defined below), as quoted
in The Wall Street Journal, or if the Common Stock is not listed or admitted to
trade on any such exchange, the average of the closing bid and asked prices for
Common Stock as reported by NASDAQ for each of the 60 business days immediately
preceding the Original Conversion Date (as defined below), as quoted in The Wall
Street Journal, or other similar organization if NASDAQ is no longer reporting
such information, or if not so available, the fair market price as determined in
good faith by the Board of Directors of the Company (the "Market Price"),
------------
subject to the following:
(a) Limits on Market Price. If the Market Price for any Optional
----------------------
Conversion would exceed $5.00, the Conversion Ratio shall be calculated as if
the Market Price were $5.00.
(b) Option of the Company to Redeem Tendered Preferred Stock. Subject
--------------------------------------------------------
to the provisions of this Section 7(b), if the Market Price for any Optional
Conversion shall be below $3.00, the Company shall have the option, exercisable
for 30 days after receipt by the Company of the Notice of Conversion (as defined
below) by written notice to the holder, to redeem any or all of the shares of
Preferred Stock that have been tendered for conversion by the holder thereof
(the "Tendered Preferred Stock") at the Redemption Price pursuant to Section
------------------------
4(a); provided, however, that the Company shall complete such redemption within
90 days of the Company's notice of redemption and the Premium shall be
calculated through the date of redemption using the accrual rate, as provided in
Section 4(a)(iii), in effect on the Original Conversion Date (as defined below).
(c) Exercise of Optional Conversion Rights. The holder of any shares
--------------------------------------
of the Preferred Stock seeking to exercise its optional conversion rights
pursuant to Section 7(a) may exercise its right to require the Company to
convert such shares by surrendering for such purpose to the Company, at its
principal office or at such other office or agency maintained by the Company for
that purpose, a certificate or certificates representing the shares of Tendered
Preferred Stock to be converted accompanied by a written notice stating that
such holder elects to require the Company to convert all or a specified integral
number of such shares into shares of Common Stock in accordance with the
provisions of this Section 7 (the "Notice of Conversion"), and the date of
--------------------
delivery to the Company of such Notice of Conversion shall be the "Original
--------
Conversion Date" for such shares of Tendered Preferred Stock. Subject to
- ---------------
Section 7(b), as promptly as practicable, the Company shall deliver or cause to
be delivered to the holder of the shares of Tendered
7
<PAGE>
Preferred Stock, (i) a new certificate or certificates representing the number
of shares of Common Stock into which the Tendered Preferred Stock has been
converted, and (ii) if less than the full number of shares of Preferred Stock
evidenced by the surrendered certificate(s) are being converted, a new
certificate or certificates, of like tenor, for the number of shares of
Preferred Stock that have not been converted and that the holder shall retain.
Such conversions shall be deemed to have been made at the close of business on
the Original Conversion Date and the rights of the holder thereof, except the
right to receive the new certificate or certificates, shall cease on the
Original Conversion Date or the Final Conversion Date (as defined below), as
applicable.
8. Automatic Conversion. In the event the Company completes an offering
--------------------
(the "Rights Offering") of rights to its stockholders to purchase shares of
---------------
Common Stock (the "Rights") prior to October 31, 1995, which Rights Offering
provides the Company with at least $2,500,000 in Independent Proceeds (as
defined below), a number of shares of Preferred Stock (up to the total number of
such shares then outstanding) equal to the quotient of (i) the Independent
Proceeds divided by (ii) the sum of the Stated Value plus any accrued but unpaid
per share Quarterly Dividends on the closing date of the Rights Offering shall
automatically convert (the "Automatic Conversion") on the fifth day following
--------------------
the closing date of the Rights Offering (the "Automatic Conversion Date" or
-------------------------
"Original Conversion Date") into shares of Common Stock at a conversion ratio of
- -------------------------
one share of Preferred Stock for a fraction of a share of Common Stock, the
numerator of which is the sum of the Stated Value plus any accrued but unpaid
per share Quarterly Dividends, and the denominator of which is the price per
share of Common Stock in the Rights Offering. "Independent Proceeds" shall mean
--------------------
the gross proceeds received by the Company in the Rights Offering from the sale
of shares of Common Stock pursuant to exercise of the Rights, excluding any
amounts received by the Company from Craig and its affiliates. If the shares of
Preferred Stock are held by more than one holder on the Automatic Conversion
Date, the same proportion of each holder's shares of Preferred Stock shall be
automatically converted hereunder.
9. General Provisions Relating to Conversion. Conversions pursuant to
-----------------------------------------
Sections 7 and 8 shall be subject to the following terms and conditions:
(a) Conversion Restrictions Pursuant to AMEX Rules. If an Optional
----------------------------------------------
Conversion or an Automatic Conversion would result, on the Original Conversion
Date, in the issuance of a number of shares of Common Stock (the "Issuable
--------
Common Stock") that exceeds 20% of the then-outstanding shares of Common Stock
- ------------
and if the AMEX rules and regulations, including, but not limited to, (S)713 of
the AMEX Company Guide (the "AMEX Rules") shall require the affirmative vote of
----------
the stockholders of the Company with respect to such issuance before it will
approve such excess shares of Issuable Common Stock for listing on AMEX (the
"Ineligible Common Stock"), then, subject to any rights the Company may have to
- ------------------------
redeem the Preferred Stock in accordance with Section 7(b), the Company shall
convert into Common Stock only the number of shares of Preferred Stock that will
not result in the issuance of any Ineligible Common Stock, and shall deliver to
the holder of the shares of Preferred Stock that were the subject of the
Optional Conversion or Automatic Conversion a certificate for evidencing the
shares of Preferred Stock that would have been converted but for the issuance of
Ineligible Common Stock (the "Unconverted Preferred Stock"). The holder shall
---------------------------
retain the Unconverted Preferred Stock until the next annual or special meeting
of the stockholders of the Company at which the Company, subject to any rights
it may have to redeem the Unconverted Preferred Stock in accordance with Section
7(b),
8
<PAGE>
shall submit a proposal for stockholder approval of the issuance of the
Ineligible Common Stock. Pending such stockholder approval, the Unconverted
Preferred Stock shall continue to be outstanding and entitled to all rights and
privileges hereunder.
(i) If such stockholder approval is obtained, the Unconverted
Preferred Stock shall, as soon as practically possible and on a date selected by
the Board of Directors (the "Final Conversion Date"), be converted into shares
---------------------
of Common Stock at the ratio applicable to the Original Conversion Date upon (A)
surrender to the Company of the certificate(s) representing the Unconverted
Preferred Stock, (B) the Company's remittance to the holder of such Unconverted
Preferred Stock of the benefits such holder would have received had the
Unconverted Preferred Stock been converted into the Ineligible Common Stock on
the Original Conversion Date, including, but not limited to, the benefits of any
cash dividends, stock dividends, stock splits, reverse stock splits, and
recapitalizations of the Common Stock, declared (and not rescinded) or
effective, during the period from the Original Conversion Date through the Final
Conversion Date (the "Stockholder Approval Period"), and (C) such holder's
forfeiture or refund to the Company of any Quarterly Dividends on the
Unconverted Preferred Stock that have accrued or been paid in respect of the
Unconverted Preferred Stock during the Stockholder Approval Period.
(ii) If such stockholder approval is not obtained, the Company shall
redeem the Unconverted Preferred Stock at the Redemption Price; provided,
however, that the Premium shall be calculated through the date of redemption
using the accrual rate in effect on the Original Conversion Date.
(b) Request of Majority for Stockholder Vote. At any time before a
----------------------------------------
conversion described in Section 9(a) occurs, the Company shall, upon the request
of a majority of the outstanding shares of Preferred Stock, submit a proposal
for stockholder approval of the issuance of all shares of Common Stock issuable
upon conversion of the Preferred Stock, including, without limitation, the
Ineligible Common Stock, at the next meeting of stockholders of the Company that
follows such request.
(c) Conversion Restrictions Pursuant to Number of Authorized Shares of
------------------------------------------------------------------
Common Stock. If there are an insufficient number of authorized shares of
- ------------
Common Stock to satisfy an Optional Conversion or an Automatic Conversion, the
number of shares of Preferred Stock that would have been converted in the
absence of such insufficiency shall be exchanged by the Company for a new class
of preferred shares (the "New Shares") having the same aggregate stated value as
the shares exchanged therefor and a stated value per share equal to, (i) in the
case of an Automatic Conversion, the price per share of Common Stock in the
Rights Offering, and (ii) in the case of an Optional Conversion, the Market
Price (up to a maximum of $5.00), as applicable; provided, however, that such
new class shall have identical rights, privileges and preferences as those of
the Preferred Stock, except as stated in this Section 9(c). If there are an
insufficient number of authorized New Shares to satisfy such exchange, the
holders of shares of Preferred Stock to be so exchanged shall each receive a pro
rata allocation of available New Shares for such exchange, and each such holder
shall have the right, exercisable by written notice of such exercise delivered
to the Company within 30 days of such exchange accompanied by certificates
evidencing the remainder of their shares of Preferred Stock that would have been
so exchanged but for such insufficiency, to require the Company to redeem such
remaining shares at the Redemption Price in
9
<PAGE>
effect on the date of such exchange and in accordance with the provisions of
Section 6.
(d) Pro-Rata Conversion. If less than all of the Preferred Stock at
-------------------
the time outstanding is to be converted, the shares so to be converted shall be
selected by lot, pro-rata or in such other manner as the Board of Directors may
determine to be fair and proper.
(e) No Fractional Shares. No fractional shares or scrip representing
--------------------
fractional shares of Common Stock shall be issued upon the conversion of any
shares of Preferred Stock. Instead of any fractional interest in a share of
Common Stock that would otherwise be deliverable upon the conversion of
Preferred Stock, the Company shall pay to the holder an amount in cash (computed
to the nearest cent) equal to the price per share in the Rights Offering, or the
Market Price, as applicable. If more than one share shall be surrendered for
conversion at one time by the same holder, the number of full shares of Common
Stock issuable upon conversion thereof shall be computed on the basis of the
aggregate number of shares of Preferred Stock so surrendered.
(f) Payment of Taxes. The Company will pay any and all documentary,
----------------
stamp or similar issue or transfer taxes payable in respect of the issue or
delivery of shares of Common Stock on the conversion of shares of Preferred
Stock pursuant to this Section 9; provided, however, that the Company shall not
be required to pay any tax that may be payable in respect of any registration of
transfer involved in the issue or delivery of shares of Common Stock in a name
other than that of the registered holder of Preferred Stock converted or to be
converted, and no such issue or delivery shall be made unless and until the
person requesting such issue has paid to the Company the amount of any such tax
or has established, to the satisfaction of the Company, that such tax has been
paid.
(g) Status of Shares Converted. Shares of Preferred Stock converted
--------------------------
by the Company, shall, after such conversion, be retired, and shall thereafter
have the status of authorized and unissued shares of preferred stock and may be
reissued by the Company at any time as shares of any series of preferred stock.
10. Voting Rights. The holders of Preferred Stock shall have the
-------------
following voting rights:
(a) One Vote Per Share. Except as provided herein or by law, each
------------------
share of Preferred Stock shall entitle the holder thereof to one vote on all
matters submitted to a vote of the Company's stockholders.
(b) Voting With Common Stock. Except as otherwise provided herein or
------------------------
by law, the holders of Preferred Stock and the holders of Common Stock shall
vote together as one class on all matters submitted to a vote of the Company's
stockholders.
(c) Dividend Arrearages and Election of Director. If dividends in an
--------------------------------------------
amount equal to two Quarterly Dividends have accrued and remain unpaid for two
consecutive Dividend Periods, the holders of the Preferred Stock will thereupon
have the right to vote as a separate class to elect one special director to the
Board of Directors (in addition to the then authorized number of directors) and
at each succeeding annual meeting of stockholders thereafter until such right is
terminated
10
<PAGE>
as hereinafter provided. Upon payment of all dividend arrearages, the holders of
Preferred Stock will be divested of such voting rights (until any future time
when dividends in an amount equal to two Quarterly Dividends have accrued and
remained unpaid for two consecutive Dividend Periods) and the term of the
special director will thereupon terminate and the authorized number of directors
will be reduced by one.
(d) Parity or Senior Stock. So long as any shares of the Preferred
----------------------
Stock are outstanding (except when notice of the redemption of all outstanding
shares of Preferred Stock has been given pursuant to Section 4(b) and shares of
Common Stock and any necessary funds have been deposited in trust for such
redemption pursuant to Section 4(c)), the Company shall not, without the
affirmative vote or consent of the holders of at least a majority of the
outstanding shares of Preferred Stock and any other series of preferred stock
entitled to vote thereon at the time outstanding voting or consenting, as the
case may be, together as one class, given in person or by proxy, either in
writing or by resolution adopted at an annual or special meeting called for the
purpose, create, authorize or issue any new class of Parity Stock or Senior
Stock.
(e) Matters Affecting the Rights of Holders of Preferred Stock. So
----------------------------------------------------------
long as any shares of the Preferred Stock are outstanding (except when notice of
the redemption of all outstanding shares of Preferred Stock has been given
pursuant to Section 4(b) and shares of Common Stock and any necessary funds have
been deposited in trust for such redemption pursuant to Section 4(c)), the
Company shall not, without the affirmative vote or consent of the holders of at
least a majority of the outstanding shares of Preferred Stock and any other
series of preferred stock entitled to vote thereon at the time outstanding
voting or consenting, as the case may be, together as one class, given in person
or by proxy, either in writing or by resolution adopted at an annual or special
meeting called for the purpose, amend the Certificate of Incorporation or this
Certificate of Designation, directly or indirectly, whether through a merger or
otherwise, so as to affect materially and adversely the specified rights,
preferences, privileges or voting rights of holders of shares of Preferred
Stock.
(f) Matters Deemed Not to Affect the Rights of Holders of Preferred
---------------------------------------------------------------
Stock. Except as set forth in Section 10(d) above, the creation, authorization
- -----
or issuance of any shares of any Junior Stock, Parity Stock or Senior Stock, the
creation of any indebtedness of any kind of the Company, or the increase or
decrease in the amount of authorized capital stock of any class, including
Preferred Stock, shall not require the consent of the holders of Preferred Stock
and shall not be deemed to affect materially and adversely the rights,
preferences, privileges or voting rights of holders of shares of Preferred
Stock.
(g) Nomination of Director. Subject to the fiduciary duty of the
----------------------
Board of Directors, the holders of a majority of the outstanding shares of the
Preferred Stock shall have, in addition to their rights under Section 10(c), the
right to nominate one director nominee to the slate of director nominees
submitted to the stockholders of the Company by the Board of Directors.
11. No Sinking Fund. No sinking fund will be established for the
---------------
retirement or redemption of shares of Preferred Stock.
12. Preemptive Rights. Each holder of any of the shares of Preferred
-----------------
Stock shall be entitled to a preemptive right to purchase or subscribe for any
unissued
11
<PAGE>
voting stock of any class of the Company, or any unissued stock or unissued
other instrument which is, or may, upon the occurrence of certain condition(s),
be convertible into voting stock of the Company, that the Board of Directors may
propose to issue by means of an increase of the outstanding shares of capital
stock of any class, or the issuance of bonds, certificates of indebtedness,
debentures or other securities convertible into voting stock of the Company (the
"Proposed Voting Securities"). Such preemptive rights shall extend only to the
extent necessary to allow such holder of shares of Preferred Stock to maintain
its proportionate share of the outstanding voting stock of the Company and the
number of shares (or dollar amount, as applicable) of Proposed Voting Securities
each holder of Preferred Stock shall be entitled to purchase or subscribe for
shall be the amount determined by multiplying the number of shares (or dollar
amount, as applicable) of Proposed Voting Securities by a fraction, the
numerator of which shall be the number of shares of Preferred Stock held by such
holder, and the denominator of which shall be the number votes entitled to be
cast by all outstanding voting securities of the Company before the proposed
issuance.
IN WITNESS WHEREOF, this Certificate has been signed by Steve Wesson as of
November 10, 1994.
CITADEL HOLDING CORPORATION
By:
--------------------------------------
Name: Steve Wesson
Title: President and Chief Executive Officer
12
<PAGE>
[LETTERHEAD OF WEDBUSH MORGAN SECURITIES APPEARS HERE]
November 10, 1994
The Board of Directors
Citadel Holding Corporation
600 North Brand Boulevard
Glendale, California 91203
Gentlemen:
You have requested our opinion (the "Opinion"), as of the date hereof, as to the
fairness, from a financial point of view, to the public shareholders (the
"Shareholders") of Citadel Holding Corporation (the "Company") of the
consideration ("Consideration") to be received by the Company in connection with
a proposed financing (the "Financing") whereby the Company will issue 1,329,114
shares of Cumulative Voting Convertible Preferred Stock (the "Transaction") to
Craig Corporation ("Craig") for an aggregate purchase price of $5,250,000.
Wedbush Morgan Securities is an investment banking firm and a member of the New
York Stock Exchange and other principal stock exchanges in the United States,
and is regularly engaged as part of its business in the valuation of businesses
and securities for corporate, estate tax and other purposes in connection with
mergers and acquisitions, private placements and negotiated underwritings. We
will receive a fee from the Company for our services in connection with this
Opinion.
Our Opinion is limited to a determination of the fairness of the Consideration
and does not pass on the merits of the Transaction in any other respect. We
assume that the factual circumstances and terms, as they exist as of the date
of our Opinion, will remain substantially unchanged through the time the
Transaction is completed. We do not undertake to update our Opinion for any
changes occurring between the date of the Opinion and the Transaction.
In arriving at our Opinion set forth below, we have among other things, reviewed
the following information:
1. The publicly available financial and operating history of the Company and
Fidelity Federal Bank.
2. Price and trading activity for the Company's common stock.
3. The Presentation to Craig Corporation, Proposal for Equity Investment dated
November 7, 1994.
4. The Citadel Holding Corporation, Board of Directors Meeting Agenda dated
October 10, 1994.
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The Board of Directors November 10, 1994
Citadel Holding Corporation Page 2 of 3
5. The Term Sheet for equity infusion from Craig Corporation dated
November 4, 1994.
6. The Credit Agreement among Citadel Realty, Inc., Citadel Holding Corporation
and Craig Corporation dated as of August 2, 1994.
7. The Real Estate Purchase Agreement between Fidelity Federal Bank and Citadel
Realty, Inc.--draft dated August 17, 1994.
8. The Stockholders' Agreement dated as of June 30, 1994 between Citadel
Holding Corporation and Fidelity Federal Bank.
9. The Citadel Holding Corporation--draft of Proxy Statement dated October 26,
1994.
10. The appraisal of the property located at 3939 Veselich Avenue, Los Angeles,
California, by Blanchard & Associates dated June 16, 1994.
11. The appraisal of the property located at 600 North Brand Boulevard,
Glendale, California, by Charles R. Wilson & Associates, Inc. dated
February 25, 1994.
12. The appraisal of the property located at 1661 East Camelback Road, Phoenix,
Arizona, by Winius Montandon, Inc. dated June 30, 1994.
13. The appraisal of the property located at 14455 Ventura Boulevard, Sherman
Oaks, California, by Charles R. Wilson & Associates, Inc. dated May 1994.
14. The appraisal of the property located at 21028 Parthenia Street, Canoga
Park, California, by P. Scott Voltz & Associates dated October 11, 1993.
15. The appraisal of the property located at the southwest corner of Padua
Avenue & Mt. Baldy Road, Claremont, California, by MT Associates, Inc.
dated July 18, 1994.
16. The appraisal of the property located at 23200 South Western Avenue, Los
Angeles, California, by P. Scott Voltz & Associates dated June 23, 1994.
17. The Investment Offering of the Sherman Oaks property by Marcus & Millichap.
18. The Company's press releases dated; August 1, 1994; August 4, 1994;
September 1, 1994; October 20, 1994; and October 24, 1994.
19. The report by Marshall and Stevens dated November 8, 1994.
20. Description of Fidelity Class B Common Stock by Gibson, Dunn & Crutcher
dated November 8, 1994.
21. Certificate of Designation.
22. Preferred Stock Purchase Agreement dated November 11, 1994.
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The Board of Directors November 10, 1994
Citadel Holding Corporation Page 3 of 3
We compared the financial and stock market information for the Company with
similar information for certain other companies whose securities are publicly
traded. We also considered the likelihood that the Company could sell its
Cumulative Voting Convertible Preferred Stock or a similar security to another
purchaser on better terms.
In rendering our Opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information publicly available or furnished to or otherwise discussed with us,
and do not assume any responsibility with respect to any of such information.
With respect to financial forecasts and other information provided to or
otherwise discussed with us, we assumed that such forecasts and other
information were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the management of the Company as to the
expected future financial performance of the Company. We were provided with and
have relied upon third party appraisals of the real property owned by the
Company. We have not made or been provided with an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of the Company,
except for the third party real property appraisals referred to above.
We have not negotiated, or participated in any way in the negotiation of, the
terms of the Transaction. We have not been asked to consider, and our Opinion
does not address, the relative merits of the Transaction as compared to any
alternative business strategies that might exist for the Company or the effect
of any other transaction in which the Company might engage. Our opinion is
necessarily based upon financial, business, economic, stock market and other
conditions and circumstances as they exist and can be evaluated by us at the
date of this letter, and we assume no obligation to monitor future events
relating to any of the matters addressed herein, or to update this Opinion with
respect thereto.
Based upon and subject to the foregoing, our experience as investment bankers,
our work as described above and other factors we deemed relevant, we are of the
Opinion that, as of the date hereof, the Consideration is fair, from a financial
point of view, to the Shareholders.
Sincerely,
/s/ Wedbush Morgan Securities
WEDBUSH MORGAN SECURITIES
