SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. 2)
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:
________________________________________________
2) Form, Schedule or Registration Statement No.:
________________________________________________
3) Filing Party:
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4) Date Filed:
________________________________________________
PRELIMINARY COPY - NOVEMBER [^] 21, 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"), 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 and the grant of authority
to the current Board to adjourn the Annual Meeting in its
discretion, as proposed by the Company. The Annual Meeting will
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 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 17, 1994, the
Shares sunk to a new low on the AMEX of $3.44). 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(1).
____________
(Footnote 1 above)
OTS approval for Craig to purchase in excess of 10% of the outstanding Shares
was scheduled to expire on October 23, 1994; thus, the issuance of such
Shares, at what Dillon believes to be depressed market prices, enabled Craig
to buy additional Shares in the future without regulatory delay. 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 such 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
prosecute the Delaware Litigation in order to invalidate the
issuance of the New Preferred Stock.
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)(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 above)
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"), (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.
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 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 at a premium equal to approximately $39,000
per month from the date of issuance to the date of repurchase.
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 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"). 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 $5.00 and $5.75 per share. These prices would
be equal to approximately $3.15 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 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(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 above)
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(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 likely 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 above)
The election of the Dillon Nominees would, depending upon the outcome of the
Delaware Litigation (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 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 financial sources with
respect to the Company's obtaining funds to enable it to meet such obliga-
tions, 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.
_________________
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 [^]. 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 upon complete liquidation of
the Company will 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 would respond
promptly to Dillon's November 3, 1994 letter, there can be no
assurance as to whether such response will be received a
sufficient amount of time prior to the Annual Meeting or any adjournment
thereof. In such event, 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, or 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, in its sole discretion, it believes such action to be
desirable in furtherance of its stated objectives. In addition,
it is Dillon's present intention then to file with the OTS a [^]
rebuttal of control submission[^] or a change of control notice
[^]. Upon receipt of OTS approval thereof, Dillon intends to
pursue the Consent Solicitation to replace the Board with 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.
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 50 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."
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 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."
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.
The [^] Company Preliminary Proxy Statement contains 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. 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 to a value approximating the
Company's asset values.
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 that the
Company's current Board is seeking stockholders' approval to allow
the Board to adjourn the Annual Meeting, in its discretion and without
any further involvement of stockholders, until a later date, "due to the
uncertainty regarding the outcome of the litigation relating to the Annual
Meeting, events relating to the proxy contest and Dillon's proposed consent
solicitation." Dillon believes this is simply another way for the Board to
avoid listening, and responding, to its public stockholders. The By-Laws of
the Company provide for the annual meeting of stockholders to be held on the
third Thursday in May. The last stockholders' meeting was held in May 1993,
and it appears that the Annual Meeting was called by the current Board only
in response to Dillon's letter of October 13, 1993. Now, the Board wants you
to give it the ability to further delay if, in its sole discretion, it would
be advantageous to its cause to do so; for example, if it appears that the
Dillon Nominees might be elected, even in the face of Craig's 24.9% voting
position.
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 3, 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 3. In order to
become effective, Proposal 3 would require the affirmative vote
of a majority of the Voting Stock present in person or by proxy
at the session of the Annual Meeting to be adjourned. Withheld
votes and broker non-votes will not be counted toward achievement
of such majority but may be counted for purposes of obtaining a
quorum at the Annual Meeting.
Dillon intends to vote AGAINST the Company's Proposal [^] 3
and strongly recommends that all other stockholders also vote
AGAINST such Proposal.
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) [^], AGAINST the authorization of additional Shares
(Proposal 2) and AGAINST the grant of authority to the current
Board to adjourn the Annual Meeting in its discretion (Proposal
3). 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. 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, or
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, in its sole discretion, it believes
such action to be desirable in furtherance of its stated
objectives. 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) [^], AGAINST the authorization of additional Shares
(Proposal 2) and AGAINST the grant of authority to the current
Board to adjourn the Annual Meeting, in its discretion (Proposal
3) 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 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 [^] PROPOSALS 2 AND 3 BY 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.
[CAPTION]
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)(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.
_____________
(Footnote 1 above)
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.
_____________
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.
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(1) [^] of Class
Craig Corporation 1,996,126(2) 10.0% of Shares
116 North Robertson Boulevard 24.9% of Voting Stock
Los Angeles, CA 90048
[^] Lawndale Capital Management, Inc., 420,1006.3% 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 1,996,1262(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.
______________
(Footnotes 1 and 2 above)
(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.
(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(1) Total Price
<C> <C> <C> <C>
03/17/93(2) 5,000 $20.22 $101,104
03/17/93(3) 1,000 20.22 20,224
05/04/93(4) 5,000 12.72 63,604
05/04/93(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(6) 2,000 6.07 12,140
TOTALS: 661,000 $3,833,378
</TABLE>
______________
(Footnotes in 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
[^] PROPOSALS 2 AND 3 BY 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
<PAGE>
- ------------------ COMPARISON OF FOOTNOTES ------------------
- -FOOTNOTE 1-
[^] OTS approval for Craig to purchase in excess of 10% of the
outstanding Shares was scheduled to expire on October 23, 1994;
thus, the issuance of such Shares, at what Dillon believes to be
depressed market prices, enabled Craig to buy additional Shares
in the future without regulatory delay. 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 such 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 [2] 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 the
outcome of the Delaware Litigation (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 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.
- -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.
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:
FOR ___ AGAINST ___ ABSTAIN ___
3. GRANT OF AUTHORITY TO CURRENT BOARD TO ADJOURN ANNUAL
MEETING:
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 [^] Proposals 2 and 3.
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,
in their sole discretion, they believe such action to be
desirable in furtherance of Dillon's stated objectives. 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 SIGN, DATE AND MAIL PROMPTLY IN THE POSTAGE-PAID ENVELOPE
ENCLOSED.
