SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. 4)
Filed by the Registrant[ ]
Filed by a Party other than the Registrant[X]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
Citadel Holding Corporation
(Name of Registrant as Specified In Its Charter)
Dillon Investors, L.P.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act
Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
________________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
________________________________________________________________________
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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PRELIMINARY COPY - NOVEMBER [^] 29, 1994
DILLON INVESTORS, L.P.
__________
PROXY STATEMENT
In Opposition to the Board of Directors of
Citadel Holding Corporation
___________
ANNUAL MEETING OF STOCKHOLDERS
OF CITADEL HOLDING CORPORATION
To be held on December 12, 1994
To the Stockholders of Citadel Holding Corporation:
INTRODUCTION
This Proxy Statement, the accompanying letter and the
enclosed GREEN proxy card are furnished in connection with the
solicitation of proxies (the "Proxy Solicitation") by and on behalf
of Dillon Investors, L.P., a Delaware limited partnership
("Dillon"), to be used in connection with the Annual Meeting of
Stockholders (the "Annual Meeting") of Citadel Holding Corporation,
a Delaware corporation (the "Company"), [^] scheduled to be held on
December 12, 1994, and at any and all adjournments or postponements
thereof. Dillon is soliciting proxies pursuant to this Proxy Statement
to elect the nominees of Dillon named herein (the "Dillon Nominees")
to the Board of Directors of the Company (the "Board") and to
oppose the authorization of additional shares of common stock of
the Company, as proposed by the Company. The Annual Meeting is
scheduled to be held on December 12, 1994 at such time and place as
specified in the Company's Notice of Annual Meeting of Stockholders
and Proxy Statement (the "Company Proxy Statement"). This Proxy
Statement and the enclosed GREEN proxy card are first being furnished
to stockholders of the Company on or about November ___, 1994.
Based on 6,669,924 shares of common stock, par value $.01 per
share (the "Shares"), of the Company reported as outstanding as of
the November 14, 1994 record date in the preliminary copies of the
Notice of Annual Meeting of Stockholders and Proxy Statement (the
"Company Preliminary Proxy Statement") filed by the Company with
the Securities and Exchange Commission (the "Commission") on
November 17, 1994, Dillon, Roderick H. Dillon, Jr., Roderick H.
Dillon, Jr. - IRA and Roderick H. Dillon, Jr. Foundation (which are
sometimes referred to herein collectively as the "Dillon Entities")
hold 659,000 Shares or approximately 9.88% of the outstanding
Shares as of such date. On November 10, 1994, the Company issued
to its controlling stockholder, Craig Corporation ("Craig"),
1,329,114 shares of its 3% Cumulative Voting Convertible Preferred
Stock (the "New Preferred Stock"). Dillon is contesting such
issuance as improper (see "BACKGROUND OF THE PROXY SOLICITATION").
The New Preferred Stock, which is convertible into Shares at any
time, votes jointly with the Shares on most matters, including the
election of directors, on a share-for-share basis. The Shares and
the shares of New Preferred Stock are collectively referred to
herein as the "Voting Stock." Dillon holds approximately 8.24% of
the 7,999,038 Voting Stock outstanding as of the November 14 record
date.
By letter dated October 13, 1994, Dillon asked the Board to
promptly call a 1994 annual meeting of stockholders (which,
pursuant to the Company's By-Laws, should have been held in May
1994) and to respond publicly to inquiries concerning the current
business strategy of the Company and the best course of action to
maximize stockholder value. Other than scheduling the Annual
Meeting for December 12, 1994, the Board did not respond to
Dillon's letter. Dillon now seeks your votes in support of an
alternative slate of nominees at the Annual Meeting. Dillon
believes that you, the true owners of the Company, should have the
right to decide for yourselves how the Company should be operated.
THE ABILITY OF DILLON TO HOLD PROXIES FOR THE ELECTION OF THE
DILLON NOMINEES (BUT NOT WITH RESPECT TO OTHER MATTERS BEING
CONSIDERED AT THE ANNUAL MEETING) IS DEPENDENT UPON THE RECEIPT OF
ADVICE FROM THE OFFICE OF THRIFT SUPERVISION (THE "OTS") WITH
RESPECT TO THE APPLICABILITY OF THE OTS CONTROL REGULATIONS TO THE
SOLICITATION OF PROXIES FOR THE ELECTION OF DIRECTORS AT THE ANNUAL
MEETING. SEE "REGULATORY APPROVALS."
DILLON URGES YOU TO MARK, SIGN, DATE AND RETURN TO DILLON THE
ENCLOSED GREEN PROXY CARD TO VOTE FOR THE ELECTION OF THE DILLON
NOMINEES AS DIRECTORS AND AGAINST ALL OTHER PROPOSALS.
BACKGROUND OF THE PROXY SOLICITATION
The Dillon Entities purchased their 659,000 Shares from March
17, 1993 through March 16, 1994 at prices ranging from $20.22 per
Share to $4.54 per Share. On September 7, 1994, the reported low
for the Shares on the American Stock Exchange ("AMEX") was $3.50,
the lowest price at which the Shares had traded in the past ten
years. (On November [^] 23, 1994, the Shares sunk to a new low on
the AMEX of [^] $2.63). As a result of the weakness in the market
price of the Shares, and the results of the recapitalization and
restructuring involving the Company and its formerly wholly owned
subsidiary, Fidelity Federal Bank, a Federal Savings Bank
("Fidelity"), which were materially less favorable to the Company
than had been anticipated (see "REASONS TO REPLACE THE PRESENT
BOARD WITH THE DILLON NOMINEES"), the Dillon Entities began to
consider seeking a greater voice in the Company's affairs.
As set forth above, by letter dated October 13, 1994, Dillon
asked the Board to promptly call a 1994 annual meeting of
stockholders (which, pursuant to the Company's By-Laws, should have
been held in May 1994) and to respond publicly to inquiries
concerning the current business strategy of the Company and the
best course of action to maximize stockholder value. Other than
scheduling the Annual Meeting for December 12, 1994, with a record
date of November 4, 1994, the Board did not respond to Dillon's
letter. In that letter, Dillon stated its opinion that a
dissolution and liquidation of the Company's assets would seem to
be the best strategy to maximize the value of the Shares to
stockholders. Dillon does not believe that such value is maximized
through the current operation of the Company as a real estate
company, as evidenced by the recent market prices for the Shares.
On October 21, 1994, the Company sold 74,300 Shares to Craig,
which resulted in Craig's owning more than 10% of the outstanding
Shares. Craig's Chairman, James Cotter, and President, S. Craig
Tompkins, serve as the Company's Chairman and Vice Chairman,
respectively. The agreed upon purchase price was the LESSER of the
average trading price for the Shares on (a) the three trading days
preceding October 21, 1994 or (b) the five trading days following
October 21, 1994. The actual price paid by Craig for such
additional Shares was $3.85 per Share.(Footnote 1)
_______________
(Footnote 1) Craig had previously received approval from the OTS
to purchase more than 10% but less than 25% of the outstanding
Shares. However, such approval would have expired on October 23,
1994 if Craig's ownership of Shares did not exceed 10% on such
date. The issuance of the 74,300 Shares to Craig on October 21,
1994 enabled Craig to buy additional Shares without any further
regulatory delay, so long as its holdings did not exceed 25% of the
outstanding Shares. Craig had stated in Amendment No. 13 to its
Schedule 13D filed with the Commission on October 26, 1994 that it
would have been unwilling to file an agreement with the OTS to
avoid the regulatory delay because such an agreement "would have
substantially limited Craig's ability to exercise an influence over
the business and affairs of" the Company.
_______________
On November 4, 1994, Dillon filed an amendment to its
Schedule 13D stating its intention to solicit proxies to elect a
slate of nominees to the Board. Also on November 4, the Company
announced that the record date for the stockholders entitled to
vote at the Annual Meeting had been changed from November 4, 1994
to November 11, 1994.
On November 7, 1994, Dillon commenced litigation (the
"Delaware Litigation") in the Court of Chancery of the State of
Delaware in and for New Castle County against the Company, its
present directors James J. Cotter, Steve Wesson, Peter W. Geiger,
S. Craig Tompkins and Alfred Villasenor, Jr. (the "Individual
Defendants") and Craig alleging that the attempt by the Company's
Board to change the record date for the Annual Meeting was not for
a proper corporate or business purpose of the Company but to enable
the Individual Defendants to perpetuate themselves in office by
improperly manipulating the corporate machinery of the Company so
as to permit them to issue additional Shares to Craig or other
"friendly hands" prior to the new record date and, in addition,
alleging that the Company's issuance in October of the 74,300
Shares to Craig was done for inadequate consideration and not for
a proper business purpose of the Company but rather to enable the
Individual Defendants to maintain themselves in office and to
affect adversely and to impede the voting rights of Dillon and the
other stockholders of the Company at the Annual Meeting. The
complaint sought an order declaring that such 74,300 Shares were
improperly issued and enjoining Craig from voting such Shares at
the Annual Meeting, determining that any Shares issued by the
Company after November 4, 1994 shall not be voted or counted
towards a quorum at the Annual Meeting, and preliminarily and
permanently enjoining the Individual Defendants and the Company
from issuing any Shares prior to the Annual Meeting. Also on
November 7, Roderick H. Dillon, Jr. delivered a consent to the
Company, together with a letter announcing Dillon's intention to
engage in a consent solicitation.
On November 8, 1994, the Company announced that the record
date for purposes of the Annual Meeting was November 14, 1994, and
that the prior announcement "erroneously reported the record date
of the meeting." On November 11, 1994, the Company issued a press
release indicating that it had sold to Craig 1,329,114 shares of
New Preferred Stock on November 10, 1994 at a price of $3.95 per
share by exchanging such shares for $5.2 million of debt owed by
the Company to Craig. The New Preferred Stock votes jointly with
the Shares on most matters, including the election of directors,
on a share-for-share basis and is convertible into Shares at any
time, at the option of the holder, at a conversion ratio based upon
the market price of the Shares (up to a maximum price of $5.00).
The New Preferred Stock is redeemable at a premium at the option
of the Company after November 10, 1997. Holders of the New
Preferred Stock have the right to require the Company to purchase
their shares at a premium under certain circumstances, including
a change of control (which would include failure of the existing
directors or any persons elected or nominated by the existing
directors to constitute a majority of the Board).
On November 14, 1994, Dillon amended its complaint filed in
the Delaware Litigation to seek rescission of the sale of the New
Preferred Stock and to preliminarily and permanently enjoin the
voting of such stock at the Annual Meeting or otherwise. Such
amended complaint alleges that such issuance of New Preferred Stock
was in violation of the Board's fiduciary duties, as such stock was
issued for inadequate consideration and not for a proper business
or corporate purpose of the Company. The shares of New Preferred
Stock were issued at a share price below the closing sales price
for the Shares on the AMEX on such date, notwithstanding the fact
that such New Preferred Stock has superior liquidation, dividend
and redemption rights to the Shares, voting rights equal to the
Shares and is convertible into Shares. Dillon believes that the
New Preferred Stock was issued to Craig solely for the purposes of
improperly increasing Craig's voting power, diluting the voting
power of the Company's existing stockholders other than Craig and
entrenching the Company's management. On November 9, 1994, prior
to the Company's issuance of the New Preferred Stock to Craig, the
Court scheduled a trial beginning January 4, 1995, after
determining that a prompt trial after the Annual Meeting, together
with a status quo order preserving the parties in the position they
were from the time of the Annual Meeting through conclusion of the
trial, would afford sufficient relief. The Court did, however,
indicate that it would entertain a new request for injunctive
relief should significant events occur. Dillon has not
definitively determined whether to request relief from the Court
prior to the Annual Meeting, although Dillon will continue to
monitor the situation. If the Dillon Nominees are elected by vote
at the Annual Meeting or pursuant to written consent, it is
Dillon's intention to continue to prosecute the Delaware Litigation
to invalidate the issuance of the New Preferred Stock. If elected,
the Dillon Nominees will consider having the Company seek to
invalidate the issuance of the New Preferred Stock pursuant to
active participation in the Delaware Litigation or otherwise.
On November 16, 1994, the Company commenced litigation in
California seeking to forbid Dillon, among others, from soliciting
proxies or voting its own Shares at the Annual Meeting, and also
filed an answer and counterclaim in the Delaware Litigation seeking
to invalidate Dillon's proposed consent solicitation (see "Consent
Solicitation," below).(Footnote 2) The California Litigation
Defendants intend to vigorously defend against such claims in the
California Litigation, and Dillon intends to vigorously defend
against the counterclaim in the Delaware Litigation.
_______________
(Footnote 2) The action, commenced in the United States District
Court for the Central District of California (the "California
Litigation"), against the Dillon Entities and the Dillon Nominees
(collectively, the "California Litigation Defendants") alleges that
the California Litigation Defendants have violated Section 13(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations promulgated thereunder by
failing to disclose certain information in their Schedule 13D and
the amendments thereto. The Company's complaint seeks an order
forbidding the California Litigation Defendants from, among other
things, soliciting any proxies or consents related to the Shares
until the California Litigation Defendants have disclosed the
material information allegedly omitted from, and corrected the
information allegedly misstated in, their Schedule 13D and the
amendments thereto, voting any Shares pursuant to any proxy or
consent which may be granted pursuant to the Proxy Solicitation or
acquiring or attempting to acquire any further Shares, in either
case prior to the date ten days following public dissemination of
the corrective disclosures.
_______________
The Distribution, the Real Estate Sales and the Dissolution
Dillon believes that you, the true owners of the Company,
should have the right to decide for yourselves how the Company
should be operated. If elected, the Dillon Nominees intend to
propose, subject to their fiduciary duties, that the Company (i)
effect a pro rata distribution of the shares of Fidelity currently
held by the Company to the stockholders of the Company (the
"Distribution") as soon as practicable after March 31, 1995,
(ii) effect an orderly sale of the Company's real estate assets at
the best available price (the "Real Estate Sales") and
(iii) thereafter promptly dissolve and liquidate the Company (the
"Dissolution"). None of the Dillon Entities or their affiliates
would participate in any transaction with the Company regarding a
sale or liquidation of any of the Company's assets, other than
pursuant to their pro rata interest as stockholders.
Consent Solicitation
As an alternate means to facilitate the consummation of the
Distribution, the Real Estate Sales and the Dissolution, Dillon is
soliciting consents from stockholders of the Company (the "Consent
Solicitation"), concurrently with the Proxy Solicitation, to its
proposals to (i) remove all the incumbent directors of the Company,
(ii) elect the Dillon Nominees to the Board and (iii) amend the
Company's By-Laws to restrict the indemnification of (or
advancement of expenses to) its officers, directors, employees and
agents without the prior approval of the holders of a majority of
outstanding Shares. Dillon believes that the Consent Solicitation
is necessary because the record date for the Consent Solicitation
is before the issuance of 16.6% of the Voting Stock to Craig and
before the reset record date for the Annual Meeting. The earlier
record date for the Consent Solicitation of November 7, 1994,
rather than the Company's proposed November 14, 1994 record date
for the Proxy Solicitation, allows only the record holders of
Shares (as the only voting securities prior to the issuance of the
New Preferred Stock), to vote their Shares with respect to how the
Company should be operated. On November 16, 1994, the Company
filed an answer and counterclaim in the Delaware Litigation seeking
an order declaring invalid any removal of the Board either prior
to or after the Annual Meeting, declaring that the consent
procedure cannot be used to amend the Company's By-Laws in the
manner proposed by Dillon in the Consent Solicitation and declaring
that any such amendment is void even if approved by the Company's
stockholders. Dillon intends to vigorously defend against such
answer and counterclaim.
Assuming Dillon is successful in the Proxy Solicitation and
the Consent Solicitation is still pending, it is Dillon's current
intention not to pursue the completion of the Consent Solicitation
or the amendment of the Company's By-Laws in the manner provided
above.
DILLON URGES YOU TO MARK, SIGN, DATE AND RETURN TO DILLON THE
ENCLOSED GREEN PROXY CARD TO VOTE FOR THE ELECTION OF THE DILLON
NOMINEES AS DIRECTORS.
REASONS TO REPLACE THE PRESENT BOARD WITH THE DILLON NOMINEES
Poor Operating Performance
The Company has incurred significant operating losses during
recent years, primarily as a result of the poor performance of
Fidelity. The Company reported a net loss of $92.0 million ($13.95
per Share) for the second quarter of 1994, and a loss of $106.8
million ($16.19 per Share) for the six months ended June 30, 1994,
as reported in the Company's Quarterly Report on Form 10-Q for the
period ended June 30, 1994 (the "Form 10-Q"). As a result of such
losses, the Company commenced a series of steps to internally
reorganize in order to, among other things, strengthen Fidelity's
operations. The Company ultimately entered into a restructuring
and recapitalization transaction (the "Restructuring and
Recapitalization"), major aspects of which were consummated on
August 4, 1994.
Pursuant to the Restructuring and Recapitalization, Fidelity
transferred certain of its real estate assets to a newly-formed
subsidiary of the Company and made a public offering which resulted
in the reduction of the Company's equity interest in Fidelity from
100% to approximately 16.18%. The Board announced that, following
the Restructuring and Recapitalization, the Company would become
a real estate company and focus on the servicing and enhancement
of its real estate portfolio.
Unfortunately, as noted by the Company in the Form 10-Q, the
results of the Restructuring and Recapitalization were materially
less favorable to the Company than had previously been anticipated.
In light of such results, by letter dated October 13, 1994, Dillon
asked the Board to respond publicly to inquiries concerning the
current business strategy of the Company, the action required to
effect a pro rata distribution to the stockholders of the Company
of the shares of Fidelity currently held by the Company, whether
a dissolution of the Company and liquidation of its assets would
be the best strategy to maximize stockholder value, and why, in
light of the consummation of the Restructuring and
Recapitalization, the Company is still registered with the OTS as
a savings and loan holding company.
The Board did not respond to Dillon's inquiries and appears
unwilling to consider proposals to operate the Company in any
manner other than as a real estate company. The Board's only
action to date has been to reset the record date for the Annual
Meeting and, prior to such new date, issue securities having over
1.3 million votes to Craig for what Dillon believes was inadequate
consideration, so that Craig would be able to vote such securities
at the Annual Meeting for the existing directors, including Craig's
own Chairman and its President.
Dillon is concerned that the Board may dispose of the shares
of Fidelity held by the Company and may use the proceeds of such
disposition in furtherance of its stated plans to develop the
Company as a real estate company. Likewise, Dillon is concerned
that the Board, which is seeking stockholder approval at the Annual
Meeting to double the number of authorized Shares (see "MATTERS TO
BE CONSIDERED AT THE ANNUAL MEETING - PROPOSAL 2: AUTHORIZATION
OF ADDITIONAL SHARES OF COMMON STOCK"), will issue additional
Shares and use the proceeds of such issuances in furtherance of
such plans. Such issuances could also be utilized to further
increase the stock ownership of management and persons friendly to
management in order to provide them an even greater voice in
pursuing such plans.
Interested-Party Transactions
Dillon is also concerned that the current Board will continue
a pattern of interested-party transactions with its controlling
stockholder, Craig, and Craig's officers who also serve on the
Company's Board.
In August 1994, the Company entered into an $8.2 million line
of credit agreement with Craig (the "Craig Line of Credit") which
has a one year maturity (subject to an option to extend for a
period of six months). The Craig Line of Credit, among other
things, paid Craig a $205,000 up front "commitment fee," up to
$100,000 for "expenses" and interest at three percentage points
over the prime rate for a fully secured loan. $5.2 million of the
$6.2 million outstanding loan under the Craig Line of Credit was
then replaced only three months later by the issuance to Craig of
the New Preferred Stock, and Craig's commitment to extend any
further loans under the Craig Line of Credit was terminated. The
exchange of debt for New Preferred Stock took place at a price
below the current market price for the Shares, notwithstanding the
fact that the New Preferred Stock votes jointly with the Shares on
most matters, is convertible into Shares and has superior
liquidation, dividend and redemption rights to the Shares. In the
event of a change of control (including failure of the existing
directors or their nominees to constitute a majority of the Board),
such New Preferred Stock also gives Craig the right to cause the
Company to repurchase the New Preferred Stock for a price equal to
its $5.2 million issuance cost plus accrued dividends of 3% per
annum plus a premium equal to approximately $39,000 per month from
the date of issuance to the date of repurchase. Depending upon
whether the issuance of the New Preferred Stock is invalidated
pursuant to the Delaware Litigation or otherwise (see "BACKGROUND
OF THE PROXY SOLICITATION"), election of the Dillon Nominees would
either permit Craig to accelerate its original $6.2 million loan
to the Company or accelerate the remaining $950,000 loan and
require the Company to repurchase the New Preferred Stock.
Although Dillon has not approached any financing sources with
respect to the Company's obtaining funds to enable it to meet such
obligations, Dillon believes that refinancing secured by such
assets would be available (see "DILLON'S STRATEGY FOR THE COMPANY -
Potential Adverse Consequences"). There can be no assurance on
this point, however.
In addition, Dillon notes that the Company Preliminary Proxy
Statement indicates that the annual fees paid to the Company's
Chairman, James Cotter, who is also the Chairman of Craig, were
more than doubled to $100,000 in December 1993, retroactive to
October 1991. Following such retroactive increase and payment, in
August 1994 the Board reduced future payments to Mr. Cotter to
$45,000 per year. The Company's Vice Chairman, S. Craig Tompkins,
who is the President of Craig, receives a fee of at least $35,000
per year from the Company.
Dillon's investment of over $3.8 million in the Company was
intended to be an investment in a savings and loan with real estate
assets, not in a real estate company. Dillon further believes that
most other stockholders did not intend to invest in a real estate
company. Dillon now seeks your votes in support of an alternative
slate of nominees at the Annual Meeting. Dillon believes that you,
the true owners of the Company, should have the right to decide for
yourselves how the Company should be operated. Our nominees are
committed to maximizing value for ALL stockholders by establishing
the stockholders' direct investment in Fidelity, selling the real
estate assets of the Company and dissolving the Company and
liquidating any remaining assets, as described below. None of the
Dillon Entities or their affiliates would participate in any
transaction with the Company regarding a sale or liquidation of
any of the Company's assets, other than pursuant to their pro rata
interest as stockholders.
YOU CAN TAKE SOME IMMEDIATE STEPS TO HELP OBTAIN THE MAXIMUM
VALUE FOR YOUR SHARES BY MARKING, SIGNING, DATING AND RETURNING
YOUR GREEN PROXY CARD FOR THE ELECTION OF THE DILLON NOMINEES TO
THE BOARD.
DILLON'S STRATEGY FOR THE COMPANY
The Distribution
In connection with the Restructuring and Recapitalization,
the Company's equity interest in Fidelity was reclassified into
4,202,243 shares of Fidelity's non-voting Class B Common Stock (the
"Fidelity Class B Stock"), representing approximately 16.18% of the
outstanding shares of Fidelity.
Dillon believes that, to maximize value for all stockholders
and establish the stockholders' direct investment in Fidelity, the
Board should effect a pro rata distribution of the shares of
Fidelity currently held by the Company to the stockholders of the
Company (the "Distribution") as soon as practicable after March 31,
1995. Dillon believes that the value of such shares of Fidelity
are being discounted by the market due to the operation of the
Company as a real estate company, wherein such shares are mixed
with the Company's real estate assets. While there is not an
active market for Fidelity shares, which are currently
unregistered, Dillon has been informed by J.P. Morgan Securities
Inc., the principal market maker for the Fidelity voting Class A
Common Stock (the "Fidelity Class A Stock") (into which the
Fidelity Class B Stock is automatically convertible upon transfer
by the Company to an unaffiliated party) that since the offering
of Fidelity common stock at $5.25 per share pursuant to the
Restructuring and Recapitalization, the Fidelity Class A Stock has
traded between [^] $4.88 and $5.75 per share. These prices would be
equal to approximately [^] $3.07 to $3.62 per Share (on a primary
basis, not including as outstanding Shares issuable upon conversion
of the New Preferred Stock issued to Craig). Dillon therefore
believes that the shares of Fidelity would be more valuable to the
stockholders of the Company if held by them directly, as opposed
to being held by the Company.
If elected, the Dillon Nominees intend to fix a record date
for the Distribution as soon as practicable after March 31, 1995
and distribute to each holder of Shares on such record date, on a
pro rata basis, shares of Fidelity. As a result of the
Distribution, stockholders of the Company would hold shares in both
the Company and Fidelity.
All stockholders of the Company would likely receive shares
of Fidelity Class A Stock as a result of the Distribution.
Currently, the Company holds shares of Fidelity Class B Stock.
However, the terms of the Fidelity Class B Stock provide that such
shares will automatically be converted into shares of Fidelity
Class A Stock when they are received by any person who is not a
holder of at least 5% or more of Fidelity's outstanding common
stock or a member of a "group" under Section 13(d) of the Exchange
Act which holds at least 5% or more of Fidelity's outstanding
common stock (collectively, a "Fidelity 5% Holder"). In addition,
the terms of the Fidelity Class B Stock provide that all shares of
Fidelity Class B Stock will automatically be converted into shares
of Fidelity Class A Stock at such time as all shares of Fidelity
Class B Stock represent less than 10% of the outstanding common
stock of Fidelity on a fully diluted basis. Since the Fidelity
Class B Stock currently represents approximately 16.18% of the
outstanding fully diluted common stock of Fidelity and since,
according to the Company Preliminary Proxy Statement and Fidelity's
offering materials in the Restructuring and Recapitalization, less
than 25% of the Company's stockholders could be considered Fidelity
5% Holders, the Distribution would likely cause all stockholders
of the Company to receive Fidelity Class A Stock. The preferences
and privileges of the Fidelity Class A Stock and the Fidelity Class
B Stock are the same except with respect to voting rights and
conversion rights.
The exact timing and details of the Distribution will depend
on a variety of factors and legal requirements, including
determination by the Dillon Nominees that the Fidelity shares
received in the Distribution by the Company's stockholders (other
than affiliates, if any, of Fidelity) will be freely transferable.
This may require registration of the Fidelity shares pursuant to
existing registration rights for such shares, which rights are not
exercisable by the Company until March 31, 1995 (the date on which
Fidelity's Report on Form 10-K for the fiscal year ended December
31, 1994 is due). If for any reason Fidelity were not to honor
such registration rights in accordance with their terms, the
Distribution could be delayed until such registration is effected.
In addition, the Company has indicated that Fidelity shares
currently are required to trade in minimum blocks of 100,000
shares. Such restriction will expire upon the filing of Fidelity's
Annual Report on Form 10-K for the year ended December 31, 1994,
which is due no later than March 31, 1995.
Notwithstanding their present belief that the Distribution
would maximize stockholder value, in the event that the Dillon
Nominees, following their election and after careful review of then
available information, were to determine, pursuant to the exercise
of their fiduciary duties, that stockholder values would be
maximized by other alternatives, such as a block or other sale of
the Fidelity shares and distribution of the net proceeds to the
Company's stockholders, the Dillon Nominees would pursue such
alternatives.
Real Estate Sales
As set forth above, Dillon's investment of over $3.8 million
in the Company was not made for the purpose of investing in a real
estate company. Dillon also believes that most of the Company's
other stockholders did not intend to invest in a real estate
company. Based upon statements made by the Company in the Form 10-
Q, Dillon believes that the Company's real estate assets (including
assets on which the Company holds purchase options) have a market
value in excess of their purchase price or option exercise
price.(Footnote 3) Therefore, Dillon believes that, to maximize
stockholder value, the Board should effect an orderly sale of the
real estate assets of the Company at the best available price (the
"Real Estate Sales"). The timing of the Real Estate Sales will be
determined after consideration of all relevant factors, including
detailed information then available regarding the status of the
properties and the condition of the relevant property markets at
that time, in order to maximize proceeds to the Company and its
stockholders. See "MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
- -Proposal 1: Election of Directors - Dillon Nominees," for
information with respect to the extensive real estate experience
of the Dillon Nominees.
_______________
(Footnote 3) The Form 10-Q states that with "active management
and certain capital expenditures, the Company's owned properties
"if sold on an individual basis, could be worth more than [the
Company] purchased them for in [connection with the Restructuring
and Recapitalization], but there can be no assurance on this
point." In addition, the Form 10-Q states that the value of the
options could be "up to $3 million above the exercise price of [the
options], before costs the Company would incur in connection with
the exercise, which may be significant." The terms of the options
indicate that they are transferable prior to exercise.
_______________
The Dissolution
Following the consummation of the Distribution and the Real
Estate Sales, the Dillon Nominees intend to dissolve and liquidate
the Company as promptly as practicable (the "Dissolution").
Dillon's recommendation to effect the Dissolution is based on its
determination that no reasonable business alternatives will exist
for the Company following the Distribution and the Real Estate
Sales. Therefore, Dillon believes that, at such time, the
Dissolution is the most appropriate course of action.
In the Dissolution, the Company will take all necessary steps
to dissolve pursuant to the provisions of the DGCL, including the
filing of a Certificate of Dissolution with the Delaware Secretary
of State. Upon such a filing, the Company will cease business
operations. The Company's corporate existence will continue
thereafter, but solely for the purpose of liquidating any remaining
assets, winding up its business affairs, paying its liabilities and
distributing any cash remaining to stockholders.
The exact timing and details of the Distribution, the Real
Estate Sales and the Dissolution will depend on a variety of
factors and legal requirements. Dillon and the Dillon Nominees can
give no assurance that the Distribution, the Real Estate Sales and
the Dissolution will each be consummated or as to the timing of
such events if they are consummated. Although the Dillon Nominees
currently intend to propose the Distribution, the Real Estate Sales
and the Dissolution generally on the terms described above, it is
possible that, as a result of substantial delays in the ability of
the Dillon Nominees to effect such transactions, information
hereafter obtained by the Dillon Nominees, changes in general
economic or market conditions or in the business of the Company or
other presently unforeseen factors, the Distribution, the Real
Estate Sales and the Dissolution may not be so proposed, or may be
delayed or abandoned (whether before or after stockholder
authorization or consent). Although it has no current intention
to do so, the Dillon Nominees expressly reserve the right to
propose the Distribution, the Real Estate Sales and the Dissolution
on terms other than described above, if they, in the exercise of
their fiduciary duties, believe such action to be appropriate.
Valuation
While Mr. Dillon has from time to time publicly expressed his
views as to potential ranges of values for the Shares, neither
Dillon nor any of the Dillon Entities has conducted any formal
valuation or liquidation analyses with respect to the Company or
its properties, and neither Dillon nor any of the Dillon Entities
is able to accurately determine or predict the value of the amounts
which would be received by the Company's stockholders pursuant to
the Distribution, the Real Estate Sales and the Dissolution.
Potential Adverse Consequences
Dillon is not aware of any adverse consequences to the
Company with respect to its proposed strategy other than with
respect to triggering change of control provisions installed by
Craig in the Craig Line of Credit and the New Preferred
Stock.(Footnote 4) Dillon does not believe the other adverse
consequences discussed in the Company Preliminary Proxy Statement
are applicable or would foreclose such strategy. Specifically,
Dillon has stated that any distribution of Fidelity shares to
stockholders would only be of freely transferable shares and would
occur after March 1995 when registration rights would be available
and the current restriction on market trading in 100,000 share
blocks would have terminated. Dillon also has indicated that the
Dillon Nominees intend to exercise their fiduciary duties in
maximizing stockholder values and would consider alternatives to
the Distribution such as a block sale of the Fidelity shares and
a distribution of the proceeds if this were to be in the best
interest of all stockholders. The Dillon Nominees further intend
to conduct an orderly sale of the Company's real estate properties
in order to maximize the sales proceeds to the Company. Dillon
believes the Company can realize the value of the real estate
options held by the Company through the sale of such options, which
are all transferable prior to exercise. Finally, in formulating
its proposed strategy, Dillon considered the Company's disclosed
liabilities, including its liability of up to $3.9 million to
Fidelity, and any plan of dissolution recommended by the Dillon
Nominees would, as required by Delaware law, take into account all
liabilities of the Company.
_______________
(Footnote 4) The election of the Dillon Nominees would, depending
upon whether the issuance of the New Preferred Stock is
invalidated, pursuant to the Delaware Litigation or otherwise (see
"BACKGROUND OF THE PROXY SOLICITATION"), either permit Craig to
accelerate its original $6.2 million loan to the Company or to
accelerate the remaining $950,000 loan and require the Company to
repurchase the New Preferred Stock at a premium, for a total cost
to the Company of $6.2 million plus accrued dividends of 3% per
annum plus a premium of approximately $39,000 per month, pro rated,
from the date of issuance to the date of redemption of the New
Preferred Stock. Although Dillon has not approached any financing
sources with respect to the Company's obtaining funds to enable it
to meet such obligations, Dillon believes that financing, secured
by such assets, would be available, based upon the fact that Craig
was willing to supply the Craig Line of Credit and the Company's
statements with respect to its real estate assets in the Form 10-
Q (see "DILLON'S STRATEGY FOR THE COMPANY - Real Estate Sales"),
although there can be no assurance on this point. To Dillon's
knowledge, the Company has only one employment agreement
outstanding, a two-year contract with its President, Steve Wesson,
for $225,000 per year expiring in August 1996, and such contract
does not terminate upon a change of control of the Company. Dillon
is not aware of any other costs which would be occasioned by a
change of control of the Company.
_______________
Stockholder Vote
Pursuant to Section 271 and Section 275 of the Delaware
General Corporation Law (the "DGCL"), respectively, the approval
of stockholders owning a majority of the outstanding stock of the
corporation entitled to vote thereon is required to effect a sale
of substantially all of the assets, or a dissolution, of such
corporation. The Dissolution will require a vote pursuant to
Section 275 of the DGCL. Whether the Distribution and/or the Real
Estate Sales will require stockholder approval may depend upon the
order and timing of such transactions which, as stated above, will
be determined by the Dillon Nominees, if elected, consistent with
their fiduciary duties. The Dillon Nominees intend to seek any
such approvals necessary in order to carry out such transactions,
but will not submit any such transactions to a stockholder vote
unless then required under Delaware law. If any vote is taken,
Dillon and its affiliates intend to vote any Shares owned by them
in favor of such actions.
Federal Income Tax Consequences
Dillon does not have sufficient financial information to
determine the exact federal income tax consequences of its planned
strategy upon the Company and its stockholders. In general, Dillon
believes that the Distribution and the Real Estate Sales will be
taxable events to the Company causing the Company to recognize
gains or losses on its holdings of Fidelity shares and real estate
assets upon their distribution or sale, respectively. Dillon
believes that the Company has net operating losses available which
may be carried forward to offset gains in this respect. In
addition, Dillon believes that the distribution to a stockholder
of Fidelity shares at any time and the distribution to a
stockholder of cash upon complete liquidation of the Company will
each be treated as a return of such stockholder's basis in the
Shares to the extent of such stockholder's basis, and a capital
gain to the extent that such distribution exceeds the stockholder's
basis, in the Shares.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES
IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE.
ACCORDINGLY, EACH STOCKHOLDER SHOULD CONSULT HIS OR HER OWN TAX
ADVISOR WITH RESPECT TO TAX CONSEQUENCES, INCLUDING THE
APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX
LAWS.
REGULATORY APPROVALS
Because the Company is registered with the OTS as a savings
and loan holding company, questions exist as to the applicability
to the Proxy Solicitation and the Consent Solicitation, insofar as
they relate to the election of more than one-third of the Board,
of the OTS regulations set forth in Part 574 of Title 12 of the
Code of Federal Regulations governing acquisitions of control of
savings associations and savings and loan holding companies (the
"OTS Control Regulations"). By letter dated November 3, 1994 (the
"OTS Letter"), Dillon has sought interpretive advice from the OTS
regarding the applicability of the OTS Control Regulations to the
Proxy Solicitation and the Consent Solicitation. The OTS Letter
also requests a determination from the OTS that, if the OTS
concludes that the OTS Control Regulations apply to the Company by
virtue of its holding company registration status and without
regard to whether or not the Company has control of a savings
association, the OTS will refrain from initiating or recommending
enforcement action against the Dillon Entities if Dillon acquires
and exercises proxies or obtains a written consent of stockholders
enabling Dillon to elect more than one-third of the Board without
first filing a change of control notice or rebuttal of control
submission pursuant to the OTS Control Regulations.
Although the OTS has indicated that it will respond promptly
to Dillon's November 3, 1994 letter, there can be no assurance
whether a favorable response will be received prior to the Annual
Meeting. If the OTS advises Dillon that the Proxy Solicitation and
the Consent Solicitation are governed by the OTS Control
Regulations, or if Dillon determines that it would otherwise be
more expeditious than waiting for a response to its November 3
letter, it is Dillon's present intention then to file with the OTS
a rebuttal of control submission or a change of control notice.
A rebuttal of control submission by Dillon would [^] set
forth the facts and circumstances which support Dillon's contention
that no actual control relationship would exist, within the meaning
of the OTS Control Regulations and applicable federal law, if
Dillon acquired proxies enabling it to elect the Dillon Nominees.
Within 20 days of its receipt of a rebuttal submission, the OTS may
accept or reject the submission or request additional information.
If additional information is requested, the OTS must notify Dillon
within 15 days of its receipt of such additional information
whether the rebuttal submission is deemed to be sufficient. Once
the submission is deemed sufficient, the Consent Solicitation could
begin.
In lieu of a rebuttal submission or in the event that a
rebuttal submission is not deemed sufficient by the OTS, Dillon may
file a change of control notice with the OTS. The period for
determining the completeness of a change of control filing is 30
days. During such 30 day period, the OTS may request additional
information. If additional information is provided, the OTS must
notify Dillon within 15 days of the receipt of such additional
information as to the sufficiency of the notice. Once the notice
is deemed sufficient, the OTS must accept or reject the notice
within 60 days, subject to extension for up to 30 days and further
extension for two additional periods of 45 days each.
Actions Prior to OTS Clearance; Adjournment and Withholding Proxies
to Defeat Quorum
Dillon's GREEN proxy card by its terms may not be voted for
the election of directors unless and until Dillon has received
advice from the OTS confirming that the OTS Control Regulations
will not preclude Dillon from holding proxies to vote for the
directors at the Annual Meeting or Dillon is otherwise able to hold
such proxies without violating such Regulations. The GREEN proxy
card by its terms may be voted against Proposal 2 (seeking
authorization of additional shares), unless the stockholder
otherwise directs, and against Proposal 3 (granting authority to
the Board to adjourn the Annual Meeting), if presented.
Furthermore, pursuant to the discretionary authority conferred in
Dillon's GREEN proxy card, Dillon may vote its proxies to adjourn
the Annual Meeting from time to time prior to the vote for election
of directors or determine not to present its proxies at the Annual
Meeting or any adjournment thereof in order to defeat a quorum if
Dillon is not permitted pursuant to OTS Control Regulations to hold
proxies to vote for the election of the Company's Board of
Directors. Dillon's choice of alternative will depend upon which
alternative Dillon believes most likely to achieve its objective
of delaying a vote on the election of directors until it is
permitted to vote its proxies in such election and will take into
account the known facts and circumstances at such time, including
the number of valid, unrevoked proxies it then believes it holds
and its view of management's holdings. If a quorum is not present
at the Annual Meeting or any adjournment thereof, no action may be
taken by stockholders then present other than to adjourn the
Meeting. In such event, it would be Dillon's intention to seek to
adjourn or otherwise delay the Annual Meeting until such time as
it [^] is permitted pursuant to OTS Control Regulations to hold
proxies to vote for the election of more than one-third of the
Company's Board of Directors in accordance with the OTS Control
Regulations. If any motion to adjourn the Annual Meeting is
defeated prior to the time that Dillon is permitted pursuant to OTS
Control Regulations to hold proxies for the election of directors,
then Dillon would be unable to vote for the election of directors
and will vote its proxies against Proposal 2, unless the
stockholder otherwise directs, and in its discretion on any other
proposal to come before the Annual Meeting. In the event Dillon
were to abandon its attempts to elect the Dillon Nominees, either
because Dillon determined it could not ultimately satisfy the OTS
Control Regulations or otherwise, it would be Dillon's intention
to cease any further attempt to adjourn or otherwise delay the
Annual Meeting and, at such Annual Meeting, would [^] be unable
to vote any proxies as to the election of directors and would vote
any proxies it held against Proposal 2, unless the stockholder
otherwise directs. Until the Annual Meeting is held with a quorum
present and a vote is taken on the election of directors, the
Company's current Board of Directors will continue to serve. While
Dillon cannot predict the length of the potential delay, if
required, caused by Dillon's actions to comply with the OTS Control
Regulations, Dillon expects that any such delay would [^] be
approximately 90 days. [^] Dillon has been advised by the OTS and
Delaware counsel that the above-described course of action is
permissible pursuant to the OTS Control Regulations and under
Delaware law, respectively.[^]
[^] Dillon will publicly announce the OTS responses to the OTS Letter as
promptly as practicable upon receipt thereof by making a release to the
Dow Jones News Service. Stockholders can obtain information as to the
current status of OTS clearance by calling the following toll-free
number: 1-800-455-6034.
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
Proposal 1: Election of Directors
Dillon proposes that the Dillon Nominees named below be
elected as directors of the Company, to serve until the next Annual
Meeting of Stockholders and until their successors shall have been
duly elected and qualified.
The accompanying GREEN proxy card will be voted in accordance
with the stockholder's instructions on such GREEN proxy card. As
to the election of directors, stockholders may vote for the
election of the entire slate of Dillon Nominees or may withhold
their votes by marking the proper box on the GREEN proxy card.
Stockholders also may withhold their votes from any of the Dillon
Nominees by writing the name of such Dillon Nominee in the space
provided on the GREEN proxy card. If the enclosed GREEN proxy card
is signed and returned and no direction is given, it will be voted
FOR the election of each of the Dillon Nominees.
The directors are to be elected by a plurality of the votes
cast. Withheld votes and broker non-votes (i.e., Shares held by
a broker or nominee which are represented at the Annual Meeting,
but with respect to which such broker or nominee is not empowered
to vote on a particular proposal) will not be counted toward a
nominee's achievement of a plurality but may be counted for
purposes of obtaining a quorum at the Annual Meeting.
Each of the Dillon Nominees has consented to serve as a
director of the Company, if elected. Dillon does not expect that
any of the Dillon Nominees will be unable to stand for election,
but in the event that one or more vacancies in the slate of Dillon
Nominees should occur unexpectedly, Shares represented by the
accompanying GREEN proxy card will be voted for a substitute
candidate or candidates selected by Dillon, provided that Dillon
does not intend to vote proxies received for any substitute for an
unaffiliated Dillon Nominee who is not also unaffiliated with
Dillon.
Delaware law provides, in effect, that the Board shall
consist of such number of persons as is fixed by, or in the manner
provided in, the Company's By-Laws. The By-Laws of the Company
provide that there shall be five directors. In the event the Board
acts to reduce the number of directors to fewer than five, the
persons named as proxies on the enclosed GREEN proxy card will vote
in favor of the appropriate number of Dillon Nominees (or
substitute nominees as provided above). Should the Board act to
increase the number of directors to greater than five, such proxies
will vote in favor of the five Dillon Nominees (or substitute
nominees as provided above) and will abstain as to any remaining
positions, since the proxies named on the enclosed GREEN proxy card
cannot vote for more than five nominees. In such event, Dillon
presently intends to nominate additional nominees and distribute
new proxy cards in compliance with the rules of the Commission.
Of the five Dillon Nominees, one (Mr. Dillon) is employed by
or otherwise affiliated with Dillon, and the remaining four are
neither employed by nor affiliated with Dillon. None of the Dillon
Nominees is affiliated with or has or has had any business
relationship with the Company, other than as a stockholder.
The Dillon Nominees are listed below and have furnished to
Dillon the following information concerning their principal
occupations, business addresses and certain other matters. All
Dillon Nominees are citizens of the United States.
Dillon Nominees
Roderick H. Dillon, Jr., 38, has served as Chief Investment
Officer of Dillon Capital Management Limited Partnership, an
investment advisory and management firm which manages over $50
million in assets, since July 1993. In such capacity, Mr. Dillon
actively manages investments in over 50 public companies, including
over five companies in the thrift industry. From June 1986 through
June 1993, Mr. Dillon was Vice President of Loomis, Sayles & Co.,
Inc., an investment advisory firm. In such capacity, Mr. Dillon
managed approximately $300 million in separate equity portfolios
and co-managed the Loomis Sayles Small Cap Fund. Investments
managed by Mr. Dillon included those in numerous financial
institutions such as Coast Savings, Westcorp and First Republic.
Mr. Dillon's business address is Suite 1410, 21 East State Street,
Columbus, Ohio 43215-4228.
Bradley C. Shoup, 36, is a Partner in Batchelder & Partners,
Inc., a financial advisory firm, and has held such position since
1988. In such capacity, Mr. Shoup has served as a financial
advisor to various public companies. From 1987 until 1988, Mr.
Shoup was an independent corporate finance consultant engaged in
the venture capital and energy industries. Mr. Shoup was a
Financial Analyst with Mesa Petroleum Co. from 1984 until 1986,
responsible for identifying and evaluating investment
opportunities. Mr. Shoup's business address is 4180 La Jolla
Village Drive, Suite 560, La Jolla, California 92037.
Timothy M. Kelley, 36, is Secretary, Treasurer and General
Counsel of Donald W. Kelley & Associates, Inc., a real estate
consulting and development firm, and has held such position since
1984. In such capacity, Mr. Kelley is actively engaged in real
estate development, investment, acquisition and financing
activities, as the firm and affiliated entities own more than 4,300
apartment units. Mr. Kelley also serves as Vice President,
Secretary and a director of an affiliated company, Oakwood
Management Company, which manages over 80 apartment projects
consisting of more than 8,800 apartment units. Mr. Kelley's
business address is 250 E. Broad Street, 11th Floor, Columbus, Ohio
43215.
Ralph V. Whitworth, 39, has served as President of Whitworth
& Associates, a corporate consulting firm, since 1988. From 1986
until 1993, Mr. Whitworth was President of United Shareholders
Association, a prominent shareholder rights group. In such
capacity, Mr. Whitworth served as chief strategist, spokesman and
negotiator for, among other things, negotiations which resulted in
agreements with 46 public companies to improve corporate governance
and shareholder rights. From 1989 until 1992, Mr. Whitworth served
as President of Development at United Thermal Corporation which
owns the district heating systems for the cities of Baltimore,
Philadelphia, Boston and St. Louis. Mr. Whitworth also served on
United Thermal's Board of Directors until December 1993 when the
company was merged with Trigen Energy Corporation. Mr. Whitworth
currently serves on the Boards of Directors of Catalyst Vidalia
Corporation, the developer and manager of a 200 megawatt
hydroelectric facility on the Mississippi River, and CD Radio,
Inc., a satellite radio company. Mr. Whitworth's business address
is 801 Pennsylvania Avenue, N.W., Suite 747, Washington, D.C.
20004.
Jordan M. Spiegel, 32, is Executive Vice President of A. B.
Laffer, V. A. Canto & Associates, an economic consulting firm, and
has held such position since 1987. In such capacity, Mr. Spiegel
manages the firm's corporate finance advisory business through its
wholly owned subsidiary Laffer Advisors Incorporated, and currently
serves as a financial advisor to over 20 different companies.
Prior to 1987, Mr. Spiegel was an equity securities analyst with
Crowell, Weedon & Co., the largest private regional brokerage house
in Southern California, specializing in, among other things, real
estate investment trusts. Mr. Spiegel's business address is
Regents Square One, 4275 Executive Square, Suite 330, La Jolla,
California 92037.
Dillon has agreed to indemnify each of the Dillon Nominees
against all liabilities, including liabilities under the federal
securities laws, in connection with this proxy solicitation and
such person's involvement in the operation of the Company,
including the Distribution, the Real Estate Sales and the
Dissolution, and to reimburse such Dillon Nominee for his
out-of-pocket expenses.
Dillon strongly encourages you to vote on the enclosed GREEN
proxy card FOR each of the Dillon Nominees listed above.
The ability of Dillon to hold proxies for the election of the
Dillon Nominees (but not with respect to other matters being
considered at the Annual Meeting) is dependent upon the receipt of
advice from the OTS with respect to the applicability of the OTS
Control Regulations to the solicitation of proxies for the election
of directors at the Annual Meeting. See "REGULATORY APPROVALS."
Therefore, the GREEN proxy card provides that it cannot be voted
with respect to the election of directors unless and until Dillon
has received advice from the OTS confirming that the OTS Control
Regulations will not preclude Dillon from holding proxies to vote
for directors at the Annual Meeting, or Dillon is otherwise able
to hold such proxies without violating such Regulations. Unless
such condition is met prior to the date of the Annual Meeting, or
any adjournment thereof (see "ADJOURNMENT AND WITHHOLDING PROXIES
TO DEFEAT QUORUM"), then the GREEN proxy cards will not be voted
with respect to the election of directors.
Proposal 2: Authorization of Additional Shares of Common Stock
The Company Preliminary Proxy Statement indicates that the
Company's current Board has approved and is seeking the approval
of the Company's stockholders of an amendment to the Company's
Restated Certificate of Incorporation to double the authorized
number of Shares from the 10,000,000 currently authorized to
20,000,000. Currently, according to the Company Preliminary Proxy
Statement, only 6,669,924 Shares are outstanding, as well as
1,329,114 shares of New Preferred Stock which are convertible into
Shares.
Dillon believes that the Company's stockholders should not
approve such an increase in the authorized number of Shares. The
Dillon Nominees believe that, since the Shares are currently
trading at or near all-time low levels and the current actions of
the Board are not maximizing stockholder value, the Company's
stockholders should not authorize additional Shares for sale at
this time. The Company Preliminary Proxy Statement does not offer
any specific plan for such additional Shares, and does not offer
any rationale for such proposal other than to "have flexibility to
raise equity capital in the future," or to conduct a rights
offering. Dillon believes that a rights offering would not be in
the interest of the Company's public stockholders, absent a
substantial increase in the market price for the Shares. Dillon
and the Dillon Nominees have already indicated above their plans
for the Company in the event the Dillon Nominees are elected. The
Distribution, the Real Estate Sales and the Dissolution will not
require any additional Shares to be issued.
Furthermore, as Dillon believes the issuance of the New
Preferred Stock demonstrates, authorized but unissued Shares could
be used in the future by the Company in ways that would diminish
the relative equity and voting rights of public stockholders or
otherwise make it more difficult to effect a change in control of
the Company or replace the Company's Board of Directors, for
instance through a private sale to purchasers allied with
management to increase management's voting "bloc" or to decrease
the percentage stock ownership of a third party seeking to gain
control of the Company. Any such share issuances could also have
the effect of impeding an offer for the Shares, or an unsolicited
business combination or asset sale proposal, even if such an offer
or proposal were favored by a majority of the Company's
stockholders not affiliated with the Company.
Stockholders are referred to the Company Preliminary Proxy
Statement for a description of the Company's existing common stock
and the Company's undetermined plans with respect to additional
issuances of common stock, other than a possible rights offering.
The accompanying GREEN proxy card will be voted in accordance
with the stockholder's instruction on such GREEN proxy card. As
to the Company's Proposal 2, stockholders may vote for or against
or abstain from voting on such Proposal. If the enclosed GREEN
proxy card is signed and returned and no direction is given, it
will be voted AGAINST Proposal 2. In order to become effective,
Proposal 2 would require the affirmative vote of a majority of the
Shares outstanding and of a majority of the Voting Stock
outstanding. Withheld votes and broker non-votes will, therefore,
have the same effect as a vote against Proposal 2.
Dillon intends to vote AGAINST the Company's Proposal 2 and
strongly recommends that all other stockholders also vote AGAINST
such Proposal.
Proposal 3: Adjournment
The Company Preliminary Proxy Statement indicates a proposal
to authorize the Board to adjourn the Annual Meeting in its
discretion to a later date and states that the proposal will
require the affirmative vote of a majority of the Voting Stock
present in person or by proxy at the Annual Meeting. Pursuant to
the discretionary authority granted in the GREEN proxy card, it is
Dillon's intention to vote its proxies against Proposal 3. See
"ADJOURNMENT AND WITHHOLDING PROXIES TO DEFEAT QUORUM" for a
further discussion of Dillon's intentions with respect to an
adjournment of the Annual Meeting.
ADJOURNMENT AND WITHHOLDING PROXIES TO DEFEAT QUORUM
The GREEN proxy card confers upon the holders the right to
vote upon any other matters as may properly come before the Annual
Meeting, including but not limited to any proposal to adjourn or
postpone the Annual Meeting from time to time. The GREEN proxy
card does not permit Dillon to hold proxies to vote with respect
to the election of directors unless and until Dillon has received
advice from the OTS confirming that the OTS Control Regulations
will not preclude Dillon from holding proxies to vote for directors
at the Annual Meeting, or Dillon is otherwise able to hold such
proxies without violating such Regulations (see "REGULATORY
APPROVALS"). Unless such condition is met prior to the date of the
Annual Meeting or any adjournment thereof, then Dillon will be
unable to vote the GREEN proxy cards [^] with respect to the
election of directors. It is Dillon's current intention to vote
its proxies for an adjournment of the Annual Meeting from time to
time, or to determine not to present its proxies at the Annual
Meeting or any adjournment thereof in order to defeat a quorum if
at the time of the Annual Meeting or any adjournment thereof Dillon
has not received advice from the OTS confirming that the OTS
Control Regulations will not preclude Dillon from holding proxies
to vote for the Board of Directors at the Annual Meeting and Dillon
is not otherwise able to hold such proxies without violating such
Regulations. Dillon's choice of alternative will depend on which
alternative Dillon believes most likely to achieve its objective
of delaying a vote on the election of directors until it is
permitted pursuant to OTS Control Regulations to vote its proxies
in such election and will take into account the known facts and
circumstances at such time, including the number of valid,
unrevoked proxies it then believes it holds and its view of
management's holdings. If any motion to adjourn the Annual Meeting
is defeated prior to the time that Dillon is permitted pursuant to
OTS Control Regulations to hold proxies for the election of
directors, then Dillon would be unable to vote for the election of
directors and will vote its proxies against Proposal 2, unless the
stockholder otherwise directs, and in its discretion on any other
proposal to come before the Annual Meeting. Until the Annual
Meeting is held with a quorum present and a vote is taken on the
election of directors, the Company's current Board of Directors
will continue to serve. While Dillon cannot predict the length of
the potential delay, if required, caused by Dillon's actions to
comply with the OTS Control Regulations, Dillon expects that any
such delay would [^] be approximately 90 days. Dillon will publicly
announce the OTS response to the OTS Letter as promptly as practicable
upon receipt thereof by making a release to the Dow Jones News Service.
Stockholders can obtain information as to the current status of OTS
clearance by calling the following toll-free number: 1-800-455-6034.
The affirmative vote of a majority of the Voting Stock
present in person or by proxy at the Annual Meeting is required to
adjourn the Meeting. A quorum could be defeated if a majority of
the Voting Stock was not present in person or by proxy at the
Annual Meeting. Withheld votes and broker non-votes will not be
counted toward achievement of such majority vote for an adjournment
but may be counted for purposes of obtaining a quorum at the Annual
Meeting.
VOTING AND PROXY PROCEDURES
Shares represented by properly executed GREEN proxy cards
will be voted as directed or, if no direction is indicated, will
be voted FOR the election of each of the Dillon Nominees (Proposal
1) and AGAINST the authorization of additional Shares (Proposal
2). A GREEN proxy card will not be voted for the election of all
the Dillon Nominees as directors if authority to do so is
specifically withheld on the GREEN proxy card and will not be voted
for the election of any Dillon Nominee whose name is written in the
indicated space on the GREEN proxy card. Dillon may vote its
proxies to adjourn the Annual Meeting, or determine not to present
its proxies at the Annual Meeting in order to defeat a quorum if
Dillon has not received advice from the OTS confirming that the OTS
Control Regulations will not preclude Dillon from holding proxies
to vote for the election of directors at the Annual Meeting, and
Dillon is not otherwise able to hold such proxies without violating
such Regulations. In the event that compliance with the OTS
Control Regulations is necessary for Dillon to hold proxies to
elect more than one-third of the Board and Dillon has not obtained
the required approval prior to the Annual Meeting or any
adjournment thereof, the GREEN proxy card will not, by its terms,
be voted for the election of directors but will be voted against
Proposals 2 (seeking authorization of additional Shares) and 3
(seeking to grant discretion to the current Board to adjourn the
Annual Meeting), unless otherwise directed. If any other matters
are properly brought before the Annual Meeting, such proxies will
be voted on such matters as Dillon, in its sole discretion and
consistent with the federal proxy rules, may determine. Unless
voted or revoked in the manner provided below, such proxy will
expire twelve months from the date executed.
For the proxy solicited hereby to be voted, the enclosed
GREEN proxy card must be signed, dated and returned to Dillon, c/o
Garland Associates, Inc., P.O. Box 3355, Grand Central Station, New
York, New York 10163-3355, in time to be voted at the Annual
Meeting. Execution of a GREEN proxy card will not affect your
right to attend the Annual Meeting and to vote in person. Any
proxy may be revoked at any time prior to the Annual Meeting by
delivering written notice of revocation or a later dated proxy to
Dillon, c/o Garland Associates, Inc., or to the Secretary of the
Company at Citadel Holding Corporation, 600 North Brand Boulevard,
Glendale, California 91203, or by voting in person at the Annual
Meeting. ONLY YOUR LATEST DATED PROXY WILL COUNT AT THE ANNUAL
MEETING.
Subject to any court action (see "BACKGROUND OF THE PROXY
SOLICITATION"), only holders of record as of the close of business
on November 14, 1994 (the "Record Date") will be entitled to vote
at the Annual Meeting. If you sold your Shares before the Record
Date (or acquired them without voting rights attached after the
Record Date), you may not vote such Shares. If you were a
stockholder of record on the Record Date, you will retain the
voting rights in connection with the Annual Meeting even if you
sell or sold such Shares after the Record Date. Accordingly, it
is important that you vote the Shares held by you on the Record
Date or grant a proxy to vote such Shares whether or not you still
own such Shares.
If your Shares are held in the name of a brokerage firm, bank
or nominee on the Record Date, only it can vote your Shares and
only upon receipt of your specific instructions. Accordingly,
please contact the person responsible for your account and give
instructions for your Shares to be voted.
According to the Company Preliminary Proxy Statement,
6,669,924 Shares were outstanding as of November 14, 1994 and
eligible to vote. On November 10, 1994, the Company issued
1,329,114 shares of New Preferred Stock. Each Share and each share
of the New Preferred Stock outstanding is entitled to one vote,
voting as a single class, on each matter to be voted at the Annual
Meeting. There were 7,999,038 Voting Stock outstanding as of
November 14, 1994.
SOLICITATION EXPENSES AND PROCEDURES
The entire expense of preparing, assembling, printing and
mailing this Proxy Statement and the accompanying form of proxy,
and the cost of soliciting proxies, will be borne by Dillon.
Dillon intends to seek reimbursement from the Company for these
expenses if the Dillon Nominees are elected to the Board, and such
reimbursement will not be submitted to a vote of the stockholders
of the Company, since Dillon will benefit only to the extent that
all stockholders benefit from its efforts.
In addition to the use of the mails, proxies may be solicited
by the Dillon Nominees and certain employees or affiliates of
Dillon by telephone, telegram, personal solicitation, and live or
prerecorded audio or video presentations, for which no compensation
will be paid to such individuals. Banks, brokerage houses and
other custodians, nominees and fiduciaries will be requested to
forward the solicitation material to the customers for whom they
hold Shares, and Dillon will reimburse them for their reasonable
out-of-pocket expenses.
Dillon has retained Garland Associates, Inc. for advisory,
information agent and proxy solicitation services, for which
Garland Associates, Inc. will be paid a fee of $4,000, and will be
reimbursed for its expense charges, which are anticipated to be
approximately $2,500. Dillon has also agreed to indemnify Garland
Associates, Inc. against certain liabilities and expenses in
connection with its engagement, including certain liabilities under
the federal securities laws. Garland Associates, Inc. will solicit
proxies from individuals, brokers, bank nominees and other
institutional holders. Approximately five persons will be utilized
by Garland Associates, Inc. in its solicitation efforts, which may
be made by telephone, telegram, facsimile and in person.
Dillon estimates that total expenditures relating to the
Proxy Solicitation will be approximately $__________ (of which
$_________ is estimated to be incurred with respect to litigation
filed by the Company), including fees payable to Garland
Associates, Inc. directly attributable to the Proxy Solicitation.
To date, Dillon has spent approximately $__________ of such total
estimated expenditures.
STOCKHOLDER PROPOSALS FOR 1995 ANNUAL MEETING
Any proposal of a stockholder to be presented at the 1995
Annual Meeting of Stockholders must be received in the Office of
the Secretary of the Company by the date specified in the Company
Proxy Statement in order to be considered for inclusion in the
Board's Proxy Statement and form of proxy relating to that Meeting.
VOTING YOUR SHARES
Whether or not you plan to attend the Annual Meeting, we urge
you to vote FOR the election of the DILLON NOMINEES (Proposal 1)
and AGAINST the authorization of additional Shares (Proposal 2) by
so indicating on the enclosed GREEN proxy card and immediately
mailing it in the enclosed envelope. You may do this even if you
have already sent in a different proxy solicited by the Board. It
is the latest dated proxy that counts. Execution and delivery of
a proxy by a record holder of Shares will be presumed to be a proxy
with respect to all Shares held by such record holder unless the
proxy specifies otherwise.
YOUR VOTE IS IMPORTANT.
PLEASE MARK, SIGN, DATE AND RETURN THE GREEN PROXY CARD TODAY.
IF YOU HAVE ALREADY SENT A PROXY CARD TO THE BOARD, YOU MAY REVOKE
THAT PROXY AND VOTE FOR THE ELECTION OF THE DILLON NOMINEES AND
AGAINST PROPOSAL 2 BY MARKING, SIGNING, DATING AND MAILING THE
ENCLOSED GREEN PROXY CARD.
SCHEDULE I
PARTICIPANTS IN THE PROXY SOLICITATION
Set forth below is the name, business address and present
occupation or employment or business of the "participants" in the
Proxy Solicitation, other than the Dillon Nominees. None of the
participants has been convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors) during the past ten
years.
Participant Business Address Description of Business or
Present Principal Occupation
Dillon Investors, L.P. Suite 1410
21 East State Street
Columbus, OH 43215-4228
A limited partnership,
of which Roderick H.
Dillon, Jr. is the sole
general partner,
principally engaged in
the purchase and sale of
securities for its own
account.
Roderick H. Dillon, Jr.
- - IRA Suite 1410
21 East State Street
Columbus, OH 43215-4228
An individual retirement
account, of which
Roderick H. Dillon, Jr.
is the sole beneficiary.
Roderick H. Dillon, Jr.
Foundation Suite 1410
21 East State Street
Columbus, OH 43215-4228
A charitable foundation,
of which Roderick H.
Dillon, Jr. is the sole
trustee.
Bradley C. Shoup - IRA Suite 560
4180 La Jolla
Village Drive
La Jolla, CA 92037 An individual retirement
account, of which
Bradley C. Shoup is the
sole beneficiary.
SCHEDULE II
BENEFICIAL OWNERSHIP OF
COMPANY SHARES BY PARTICIPANTS IN THE SOLICITATION
On the date hereof, Dillon is the record holder of 647,000
Shares, and together with the other Dillon Entities beneficially
owns, directly or indirectly, an aggregate of 659,000 Shares,
including the Shares held of record by Dillon (representing in the
aggregate approximately 9.88% of the 6,669,924 Shares outstanding
and approximately 8.24% of the 7,999,038 Voting Stock outstanding,
both as of November 14, 1994, according to the Company Preliminary
Proxy Statement).(Footnote 1) Mr. Shoup, through an IRA for which
he is the sole beneficiary, beneficially owns 2,000 Shares
(representing approximately .03% of the outstanding Shares and
approximately .025% of the outstanding Voting Stock). Messrs.
Kelley, Whitworth and Spiegel do not own any Shares. The Shares
now owned by each "participant" in the Proxy Solicitation were
purchased in the transactions described in Schedule IV hereto.
Except as otherwise set forth in this Schedule II, none of
Dillon, the Dillon Nominees or any associate of any of the
foregoing persons or any other person who may be deemed a
"participant" in the Proxy Solicitation is the beneficial or record
owner of any Shares. Except as otherwise set forth in this
Schedule II or in Schedule IV, none of Dillon, the Dillon Nominees
or any associate of any of the foregoing persons or any other
person who may be deemed a "participant" in the Proxy Solicitation
has purchased or sold any Shares within the past two years,
borrowed any funds for the purpose of acquiring or holding any
Shares, or is or was within the past year a party to any contract,
arrangement or understanding with any person with respect to any
Shares. There is not any currently proposed transaction to which
the Company or any of its subsidiaries was or is a party, in which
any of Dillon, the Dillon Nominees or any associate or immediate
family member of any of the foregoing persons or any other person
who may be deemed a "participant" in the Proxy Solicitation had or
will have a direct or indirect material interest. None of Dillon,
the Dillon Nominees or any associate or any of the foregoing
persons or any other person who may be deemed a "participant" in
the Proxy Solicitation has any arrangement or understanding with
any person with respect to any future employment by the Company or
its affiliates, or with respect to any future transactions to which
the Company or its affiliates will or may be a party.
_______________
(Footnote 1) The 659,000 Shares include (i) 647,000 Shares held
by Dillon, (ii) 5,000 Shares held by Roderick H. Dillon, Jr., (iii)
5,000 Shares held by Roderick H. Dillon Jr. - IRA, and (iv) 2,000
Shares held by Roderick H. Dillon, Jr. Foundation.
_______________
SCHEDULE III
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AS A GROUP
The following table sets forth, based solely on the Company
Preliminary Proxy Statement, the security ownership of certain
persons, other than the participants in the Proxy Solicitation, who
have advised the Company that as of November 14, 1994, each
"beneficially" owned more than 5% of the outstanding Shares or
Voting Stock, and the beneficial ownership of Shares and Voting
Stock by all directors and officers of the Company as a group as
of November 14, 1994.
Amount and Nature
of Beneficial Percentage
Name and Address Ownership(Fn 1) of Class
Craig Corporation 1,996,126(Fn 2) 10.0% of Shares
116 North Robertson Boulevard 24.9% of Voting Stock
Los Angeles, CA 90048
Lawndale Capital Management, Inc., 420,100 6.3% of Shares
Andrew E. Shapiro, Diamond A Partners, 5.25% of Voting Stock
L.P., and Diamond A Investors, L.P.
One Sansome Street, Suite 3900
San Francisco, CA 94104
All directors and 1,996,126(Fn 2) 10.0% of Shares
executive officers 24.9% of Voting Stock
as a group (5 persons)
Except as otherwise noted, the information concerning the
Company contained in this Proxy Statement has been taken from or
is based upon documents and records on file with the Commission and
other publicly available information. Although Dillon does not
have any knowledge that would indicate that any statements
contained herein based upon such documents and records are untrue,
Dillon does not take any responsibility for the accuracy or
completeness of the information contained in such documents and
records, or for any failure by the Company to disclose events that
may have occurred and may affect the significance or accuracy of
any such information but which are unknown to Dillon.
_______________
(Footnote 1 ["fn 1"]) Except as otherwise indicated, the persons listed
as beneficial owners of the Shares have the sole voting and
investment power with respect to such Shares.
(Footnote 2 ["fn 2"]) Includes the 1,329,114 shares of New Preferred Stock
issued by the Company to Craig on November 10, 1994, which shares
are immediately convertible into Shares.
_______________
SCHEDULE IV
TRANSACTIONS IN SHARES OF CITADEL HOLDING CORPORATION
BY PARTICIPANTS IN THE SOLICITATION
Purchases since November ___, 1992 were made as shown below.
All transactions were effected in open market transactions and,
unless otherwise indicated, entered into by Dillon.
<TABLE>
<CAPTION>
Transaction Number Per Share
Date of Shares Price(Fn 1) Total Price
<C> <C> <C> <C>
03/17/93(Fn 2) 5,000 $20.22 $101,104
03/17/93(Fn 3) 1,000 20.22 20,224
05/04/93(Fn 4) 5,000 12.72 63,604
05/04/93(Fn 5) 1,000 12.72 12,724
01/27/94 27,500 6.27 172,299
01/28/94 75,000 7.05 528,775
02/04/94 10,000 6.43 64,275
02/04/94 75,000 6.55 491,275
02/04/94 8,000 6.55 52,425
02/07/94 7,500 6.31 47,350
02/08/94 7,500 6.19 46,412
02/09/94 10,000 6.30 63,025
02/09/94 200 6.43 1,285
02/15/94 700 6.34 4,435
02/16/94 5,800 6.44 37,348
02/22/94 20,800 6.38 132,789
02/23/94 10,000 6.55 65,525
02/24/94 11,200 6.18 69,185
02/25/94 15,000 6.18 92,650
03/02/94 1,200 5.95 7,135
03/04/94 28,000 6.05 169,425
03/08/94 30,000 5.80 174,025
03/14/94 55,100 5.00 275,729
03/16/94 248,500 4.54 1,128,215
04/22/94(Fn 6) 2,000 6.07 12,140
TOTALS: 661,000 $3,833,378
</TABLE>
______________________
(Footnotes to chart)
1) Rounded to the nearest cent.
2) Purchased by Roderick H. Dillon, Jr. - IRA.
3) Purchased by Roderick H. Dillon, Jr. Foundation.
4) Purchased by Roderick H. Dillon, Jr.
5) Purchased by Roderick H. Dillon, Jr. Foundation.
6) Purchased by Bradley C. Shoup - IRA.
______________________
If your Shares are held in the name of a brokerage firm, bank
or bank nominee, only they can vote your Shares and only upon your
specific instructions. Accordingly, please contact the persons
responsible for your account and instruct them to execute the GREEN
proxy card.
_________________________________________________________________
WE URGE YOU TO VOTE FOR THE ELECTION OF THE DILLON NOMINEES AND
AGAINST PROPOSAL 2 BY MARKING, SIGNING, DATING AND MAILING THE
ENCLOSED GREEN PROXY CARD. THE FAILURE TO DO SO MAY BE THE
EQUIVALENT OF A VOTE AGAINST MAXIMIZING STOCKHOLDER VALUE.
__________________________________________________________________
If you have any questions or require any additional
information concerning the vote of your Shares at the Annual
Meeting, please contact:
Garland Associates, Inc.
PROXY SOLICITORS
________
(212) 866-0095
- ------------------ COMPARISON OF FOOTNOTES ------------------
- -FOOTNOTE 1-
[^] Craig had previously received approval [^] from the OTS to
purchase [^] more than 10% but less than 25% of the outstanding
Shares [^]. However, such approval would have expired on October
23, 1994 [^] if Craig's ownership of Shares did not exceed 10% on
such date. The issuance of the 74,300 Shares to Craig on October
21, 1994 enabled Craig to buy additional Shares [^] without any
further regulatory delay, so long as its holdings did not exceed
25% of the outstanding Shares. Craig had stated in Amendment No.
13 to its Schedule 13D filed with the Commission on October 26,
1994 that it would have been unwilling to file an agreement with
the OTS to avoid [^] the regulatory delay because such an agreement
"would have substantially limited Craig's ability to exercise an
influence over the business and affairs of" the Company.
- -FOOTNOTE 2-
The action, commenced in the United States District Court for the
Central District of California (the "California Litigation"),
against the Dillon Entities and the Dillon Nominees (collectively,
the "California Litigation Defendants") alleges that the California
Litigation Defendants have violated Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules and regulations promulgated thereunder by failing to disclose
certain information in their Schedule 13D and the amendments
thereto. The Company's complaint seeks an order forbidding the
California Litigation Defendants from, among other things,
soliciting any proxies or consents related to the Shares until the
California Litigation Defendants have disclosed the material
information allegedly omitted from, and corrected the information
allegedly misstated in, their Schedule 13D and the amendments
thereto, voting any Shares pursuant to any proxy or consent which
may be granted pursuant to the Proxy Solicitation or acquiring or
attempting to acquire any further Shares, in either case prior to
the date ten days following public dissemination of the corrective
disclosures.
- -FOOTNOTE 3-
The Form 10-Q states that with "active management and certain
capital expenditures, the Company's owned properties "if sold on
an individual basis, could be worth more than [the Company]
purchased them for in [connection with the Restructuring and
Recapitalization], but there can be no assurance on this point."
In addition, the Form 10-Q states that the value of the options
could be "up to $3 million above the exercise price of [the
options], before costs the Company would incur in connection with
the exercise, which may be significant." The terms of the options
indicate that they are transferable prior to exercise.
- -FOOTNOTE 4-
The election of the Dillon Nominees would, depending upon whether
the issuance of the New Preferred Stock is invalidated, pursuant
to the Delaware Litigation or otherwise (see "BACKGROUND OF THE
PROXY SOLICITATION"), either permit Craig to accelerate its
original $6.2 million loan to the Company or to accelerate the
remaining $950,000 loan and require the Company to repurchase the
New Preferred Stock at a premium, for a total cost to the Company
of $6.2 million plus accrued dividends of 3% per annum plus a
premium of approximately $39,000 per month, pro rated, from the
date of issuance to the date of redemption of the New Preferred
Stock. Although Dillon has not approached any financing sources
with respect to the Company's obtaining funds to enable it to meet
such obligations, Dillon believes that financing, secured by such
assets, would be available, based upon the fact that Craig was
willing to supply the Craig Line of Credit and the Company's
statements with respect to its real estate assets in the Form
10-Q (see "DILLON'S STRATEGY FOR THE COMPANY -Real Estate Sales"),
although there can be no assurance on this point. To Dillon's
knowledge, the Company has only one employment agreement
outstanding, a two-year contract with its President, Steve Wesson,
for $225,000 per year expiring in August 1996, and such contract
does not terminate upon a change of control of the Company. Dillon
is not aware of any other costs which would be occasioned by a
change of control of the Company.
- -FOOTNOTE 1-
The 659,000 Shares include (i) 647,000 Shares held by Dillon, (ii)
5,000 Shares held by Roderick H. Dillon, Jr., (iii) 5,000 Shares
held by Roderick H. Dillon Jr. - IRA, and (iv) 2,000 Shares held
by Roderick H. Dillon, Jr. Foundation.
- -FOOTNOTE 1-
Except as otherwise indicated, the persons listed as beneficial
owners of the Shares have the sole voting and investment power with
respect to such Shares.
- -FOOTNOTE 2-
Includes the 1,329,114 shares of New Preferred Stock issued by the
Company to Craig on November 10, 1994, which shares are immediately
convertible into Shares.
- -FOOTNOTE 1-
Rounded to the nearest cent.
- -FOOTNOTE 2-
Purchased by Roderick H. Dillon, Jr. - IRA.
- -FOOTNOTE 3-
Purchased by Roderick H. Dillon, Jr. Foundation.
- -FOOTNOTE 4-
Purchased by Roderick H. Dillon, Jr.
- -FOOTNOTE 5-
Purchased by Roderick H. Dillon, Jr. Foundation.
- -FOOTNOTE 6-
Purchased by Bradley C. Shoup - IRA.
- ------------------ COMPARISON OF FOOTERS ------------------
- -FOOTER 1-
#
- -FOOTER 2-
T:\CGARNER\DILLON\[^] PROXY.010
PRELIMINARY COPY
[front of proxy card]
PROXY - Citadel Holding Corporation - Solicited by Dillon
Investors, L.P.
for Annual Meeting December 12, 1994
The undersigned, revoking all other proxies heretofore given,
appoints Roderick H. Dillon, Jr. and Bradley C. Shoup, and each of
them, with full power of substitution, as proxy or proxies, to vote
all shares of the undersigned of Common Stock of Citadel Holding
Corporation at the Annual Meeting of Stockholders on December 12,
1994, and at any adjournment or postponement thereof (the "Annual
Meeting"), as instructed below upon the proposals which are more
fully set forth in the Proxy Statement of Dillon Investors, L.P.
("Dillon"), dated November ____, 1994 (receipt of which is
acknowledged) and in their discretion upon any other matters as may
properly come before the meeting, including but not limited to, any
proposal to adjourn or postpone the meeting, provided, however,
that this appointment shall not be effective to vote with respect
to Proposal 1 (Election of Directors) unless and until Dillon has
received advice from the Office of Thrift Supervision ("OTS")
confirming that the OTS Control Regulations will not preclude
Dillon from holding proxies to vote for directors at the Annual
Meeting, or Dillon is otherwise able to hold such proxies without
violating such Regulations.
Dillon Investors, L.P. Recommends a Vote FOR all Nominees listed
and AGAINST Proposal 2
1. ELECTION OF
DIRECTORS: ___ FOR all ___ WITHHOLD AUTHORITY to
nominees vote for all nominees
listed listed below
below (except as
marked to the contrary
below)
Roderick H. Dillon, Jr., Bradley C. Shoup, Timothy M. Kelley,
Ralph V. Whitworth and Jordan M. Spiegel
(INSTRUCTION: To vote for all nominees listed here, mark the "FOR"
line above; to withhold authority for all nominees listed here,
mark the "WITHHOLD AUTHORITY" line above; and to withhold authority
to vote for any individual nominee listed here, mark the "FOR" line
above and write the nominee's name in the space below):
2. AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION TO INCREASE
AUTHORIZED COMMON STOCK FROM 10,000,000 TO 20,000,000 SHARES:
FOR ___ AGAINST ___ ABSTAIN ___
(Continued on reverse side)
[REVERSE OF PROXY CARD]
The shares represented hereby will be voted in accordance with
the directions given in this proxy. If not otherwise directed
herein, shares represented by this proxy will be voted FOR all
nominees listed in Proposal 1 and AGAINST Proposal 2. The shares
represented hereby may be voted to adjourn the Annual Meeting, or
the proxies named herein may determine not to present this proxy
at the Annual Meeting in order to defeat a quorum, if Dillon has
not received advice from the OTS confirming that the OTS Control
Regulations will not preclude Dillon from holding proxies to vote
for directors at the Annual Meeting, and Dillon is not otherwise
able to hold such proxies without violating such Regulations. If
any other matters are properly brought before the Annual Meeting,
such proxies will be voted on such matters as such persons, in
their sole discretion and consistent with the federal proxy rules,
may determine.
Dated: __________________________, 1994
(Signature)
(Signature if jointly held)
Title:
Please sign exactly as name appears herein. When shares are held
by joint tenants, both should sign; when signing as an attorney,
executor, administrator, trustee or guardian, give full title as
such. If a corporation, sign in full corporate name by President
or other authorized officer. If a partnership, sign in
partnership name by authorized partner.
PLEASE MARK, SIGN, DATE AND MAIL PROMPTLY IN THE POSTAGE-PAID
ENVELOPE ENCLOSED.
PRELIMINARY COPY [^] - NOVEMBER [^] 29, 1994
DILLON INVESTORS, L.P.
21 East State Street, Suite 1410
Columbus, [^] Ohio 43215-4228
[^] (614) 222-4200
Dear Fellow Stockholders of Citadel Holding Corporation:
Dillon Investors, L.P. ("Dillon"), the beneficial owner
of 659,000 shares of Common Stock of Citadel Holding Corporation
(the "Company"), seeks your proxy to elect its nominees to the
Board of Directors of the Company and to defeat [^] a proposal
to double the authorized shares of Common Stock to be put forth
by the Company's management at the Annual Meeting of Stockholders
scheduled for December 12, 1994. [^] We are asking you to vote
FOR PROPOSAL 1 and AGAINST PROPOSAL 2 on the endorsed GREEN
proxy card.
Like most of you, Dillon is simply an investor in the
Company -- it has no ties to management, nor any interest in the
business of the Company beyond its pro rata equity interest as a
stockholder. Like most of you, Dillon has seen the market value
of its investment decline precipitously, to a 10-year low of
[^] $2.63 on November [^] 23, 1994. Like most of you, Dillon has
seen its percentage interest in the Company substantially diluted
by the recent issuance of convertible preferred stock to Craig
Corporation, the controlling stockholder of the Company whose
Chairman and President serve as the current Chairman and Vice
Chairman, respectively, of the Company.
Dillon's sole interest in conducting a proxy contest is
to elect a Board which will have as its sole aim maximizing value
for ALL stockholders. Unlike James Cotter, current Chairman of
both the Company and Craig Corporation, who is publicly reported
to have extracted "greenmail" from many companies in the past(Footnote 1),
Dillon and its affiliates have no interest in a deal with the
Company at the expense of other stockholders.
Dillon's nominees are young and energetic, with
substantial experience in investment management (in particular,
investments in a variety of public financial institutions),
financial advisory services, real estate consulting and development
and securities analysis. One, as president of a prominent
shareholder rights group, negotiated agreements with 46 public
companies to improve corporate governance and shareholder rights.
If elected, the Dillon nominees presently intend, subject
to their fiduciary duties, to propose that the Company (i) effect
a pro rata distribution of the shares of Fidelity Federal Bank
("Fidelity") currently held by the Company to the stockholders of
the Company (the "Distribution"), (ii) effect an orderly sale of
the Company's real estate assets at the best available price (the
"Real Estate Sales") and (iii) thereafter promptly dissolve and
liquidate the Company (the "Dissolution"). Based upon their
present understanding of the Company, the Dillon nominees believe
that the Distribution, Real Estate Sales and Dissolution, taking
place over a reasonable time period, are the best way to maximize
value for all the stockholders. Neither Dillon nor any of its
affiliates would participate in any transaction with the Company
regarding a sale or liquidation of any of the Company's assets,
other than pursuant to their pro rata interest as stockholders.
The proposed Distribution, Real Estate Sales and Dissolution are
fully described [^] under the caption "DILLON'S STRATEGY FOR THE
COMPANY" in the enclosed Proxy Statement, and we urge you to read
the description carefully. Although management may raise certain
"objections" or "concerns," we believe our materials fully address
such concerns. In particular, our nominees will not effect any
distribution of Fidelity shares unless all Company stockholders
receive freely transferable shares.
_______________
(Footnote 1)
An article entitled "What's wrong with a little greenmail?" in the March 6,
1989 issue of Forbes, Inc. profiled Cotter, reporting that "dozens of
companies have coughed up greenmail to get rid of Cotter." (Permission
to use this quote was neither sought from nor given by Forbes, Inc.)
_______________
The Company's last annual meeting was held in May 1993,
although its By-Laws called for the holding of this year's meeting
on May 19, 1994. The current Board of Directors and management
scheduled this year's meeting for December 12th only after
receiving a letter from Dillon in October requesting that they do
so. Since that time, Dillon believes that all the Board and
management have done, as the market price for the Company's Common
Stock has continued to decline, is act to attempt to prevent Dillon
from offering you a choice and to dilute your voice in the Company
by increasing the voting power of Craig Corporation. We have
described both our reasons for undertaking this proxy contest and
management's responses both to our concerns as a stockholder and
our efforts to exercise our stockholder rights [^] under the
caption "BACKGROUND OF THE PROXY SOLICITATION" in our Proxy Statement.
[^] YOUR SUPPORT IS VITAL, NO MATTER HOW MANY SHARES YOU OWN!
Citadel's current Board reset the record date for the Annual Meeting
[^] from November 4, 1994 to November 14, 1994, thereby permitting
[^] the Company to issue 1,329,114 shares of voting preferred stock,
or approximately 16.6% of the voting power of the Company, to
Craig Corporation[^].
[^] DO NOT LET MANAGEMENT STIFLE YOUR VOICE. Read our materials
and decide for yourself whether you would be better off with our director
nominees as your Board of Directors - a completely independent Board committed
to maximizing value for ALL stockholders.
[^] PLEASE MARK, DATE, SIGN AND RETURN THE ENCLOSED GREEN PROXY
CARD voting FOR Proposal 1, our director nominees, and AGAINST Proposal 2,
authorization of additional Common Stck. Please return our GREEN
proxy card promptly[^] and do not [^] return any management blue
proxy cards.
[^] Thank you for your consideration and support on this important
matter.
Very truly yours,
Roderick H. Dillon, Jr.
on behalf of Dillon Investors, L.P.
IMPORTANT: If your Company shares are held in the name of
a broker, bank or other nominee, only they can execute a proxy on
your behalf. To ensure that your shares are voted, we urge you to
telephone the individual responsible for your account TODAY and
direct him or her to execute a [^] GREEN proxy card on your behalf.
[^] For more information, contact Roderick H. Dillon, Jr., General
Partner of Dillon Investors, L.P., at (614) 222-4200 (call collect), or:
[^] GARLAND ASSOCIATES, INC.
Proxy Solicitors
212-866-0095
(call collect)
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