<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________________ to _____________________
Commission file number 1-8625
CITADEL HOLDING CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 95-3885184
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
550 South Hope Street
Suite 1825 Los Angeles CA 90071
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (213) 239-0540
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [x] No ______
-------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. There were 6,669,924 shares of
Common Stock, $0.01 par value per share, as of November 10, 1997.
<PAGE>
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
INDEX
-----
<TABLE>
<CAPTION>
PART 1. Financial Information Page
- ------ ----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1997 (Unaudited)
and December 31, 1996......................................... 3
Consolidated Statements of Operations for the Three Months and
Nine Months Ended September 30, 1997 and 1996 (Unaudited)..... 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1997 and 1996 (Unaudited)................. 5
Notes to Consolidated Financial Statements...................... 6
Item 2. Management's Discussion and Analysis of the Consolidated
Statements of Operations................................... 12
<CAPTION>
PART 2. Other Information
- ------
Item 1. Legal Proceedings............................................ 17
Item 2. Changes in Securities........................................ 17
Item 3. Defaults Upon Senior Securities.............................. 17
Item 4. Submission of Matters to a Vote of Security Holders.......... 17
Item 5. Other Information............................................ 17
Item 6. Exhibits and Reports on Form 8-K............................. 17
Signatures........................................................... 18
</TABLE>
2
<PAGE>
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
-------------------------
(In thousands of dollars)
<S> <C> <C>
ASSETS
- ----------------------------------------------
ASSETS
Cash and cash equivalents $ 7,015 $ 6,356
Properties held for sale -- 1,145
Rental properties, net 13,605 13,288
Investment in shareholder affiliate 7,000 7,000
Capitalized leasing costs, net 1,439 1,576
Other receivables 93 311
Other assets 658 616
-------- --------
Total assets $ 29,810 $ 30,292
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------
LIABILITIES:
Security deposits payable $ 91 $ 76
Deferred rental revenue 483 164
Accounts payable and accrued liabilities 1,011 2,025
Mortgage notes payable 9,435 10,303
-------- --------
Total liabilities 11,020 12,568
Commitments and contingencies
STOCKHOLDERS' EQUITY
Serial preferred stock, par value $.01;
5,000,000 shares authorized, 3% Cumulative
Voting Convertible, none outstanding -- --
Serial preferred stock, par value $.01;
5,000,000 shares authorized, Series B
3% Cumulative Voting Convertible,
none outstanding -- --
Common stock, par value $.01, 10,000,000
shares authorized, 6,669,924 shares
issued and outstanding 67 67
Paid-in capital 59,603 59,020
Retained (deficit) (38,882) (39,948)
Note receivable from shareholder upon
common stock issuance (1,998) --
Cost of 666,000 treasury shares -- (1,415)
-------- --------
Total stockholders' equity 18,790 17,724
-------- --------
Total liabilities and stockholders' equity $ 29,810 $ 30,292
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---------------------- ------------------
(In thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C>
Revenues:
Rental income $1,318 $1,029 $3,712 $3,912
Consulting fees from shareholder 60 42 180 127
Interest income from shareholder 43 -- 81 --
Interest income 65 249 238 678
------ ------ ------ ------
1,486 1,320 4,211 4,717
Real estate operating expenses 543 485 1,527 1,999
Depreciation and amortization 102 75 301 296
Interest expense 249 262 761 1,056
General and administrative expenses 284 321 821 878
------ ------ ------ ------
Total expenses 1,178 1,143 3,410 4,229
Gain on sale of rental property -- 20 (16) 1,493
Dividends from investment in Reading 114 -- 341 --
Gain (loss) of and Write-Down of
Investment in Fidelity -- -- -- 4,000
------ ------ ------ ------
Earnings before income taxes 422 197 1,126 5,981
Income tax expense 15 -- 60 --
------ ------ ------ ------
Net Earnings $ 407 $ 197 $1,066 $5,981
====== ====== ====== ======
Earnings per common and common
equivalent share $0.06 $ 0.02 $0.17 $0.74
====== ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
------------------
(In thousands of dollars)
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 1,066 $ 5,981
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Gain from investment in Fidelity -- (4,000)
Loss (gain) on sale of rental property 16 (1,493)
Amortization of deferred loan items 39 79
Depreciation and amortization of property 267 296
Amortization of lease costs 160 --
Changes in operating assets and liabilities:
Decrease (increase) in other receivables 218 295
Decrease (increase) in other assets 146 (185)
Increase (decrease) in security deposits 15 (167)
Increase (decrease) in deferred rental income 319 --
Increase (decrease) in accrued liabilities (1,014) (199)
------- -------
Net cash provided by (used in) operating activities 1,232 607
------- -------
INVESTING ACTIVITIES
Proceeds from sale of rental properties 1,128 9,361
Purchase deposit for real estate interest (250) --
Additions to rental properties (583) (434)
------- -------
Net cash provided by (used in) investing activities 295 8,927
------- -------
FINANCING ACTIVITIES
Repayments of long-term mortgage borrowings (868) (5,853)
Dividends paid on Preferred Stock -- (157)
------- -------
Net cash provided by (used in) financing activities (868) (6,010)
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 659 3,524
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 6,356 16,291
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,015 $19,815
======= =======
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest on mortgages $ 723 $ 944
Non-cash transactions:
Common stock issued in exchange
for secured note payable 1,998 --
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Basis of Presentation
- ---------------------
The consolidated financial statements include the accounts of Citadel Holding
Corporation ("Citadel") and its wholly owned subsidiaries (collectively the
"Company"). In the opinion of management, the accompanying unaudited consolidat-
ed financial statements contain all adjustments of a recurring nature considered
necessary for a fair presentation of its financial position as of September 30,
1997 and December 31, 1996, the results of operations for the three months and
nine months ended September 30, 1997 and 1996 and the results of its cash flows
for the nine months ended September 30, 1997 and 1996. The results of operations
for the three and nine month periods ended September 30, 1997 are not
necessarily indicative of the results of operations to be expected for the
entire year.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and, therefore, do not include
all information and footnotes required to be in conformity with generally
accepted accounting principles. The financial information provided herein,
including the information under the heading, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," is written with the
presumption that the users of the interim financial statements have read, or
have access to, the most recent Annual Report on Form 10-K which contains the
latest audited financial statements and notes thereto, together with the
Management's Discussion and Analysis of Financial Condition and Results of
Operations as of December 31, 1996 and for the year then ended.
Certain amounts in previously issued financial statements have been reclassified
to conform with the current period presentation.
Cash and Cash Equivalents
- -------------------------
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. Included in cash and cash
equivalents at September 30, 1997 is approximately $5.9 million which is being
held in institutional money market mutual funds.
Earnings Per Share
- ------------------
Earnings per common and common equivalent share is based on 6,669,349 and
8,050,708 shares, the weighted average number of shares of common stock and
common stock equivalents outstanding during the three months ended September 30,
1997 and 1996, respectively, and 6,427,520 and 8,050,708 shares during the nine
months ended September 30, 1997 and 1996, respectively. For the 1996 periods
the calculation of the weighted average number of shares of common stock
outstanding included the effect of shares assumed to be issued on the conversion
of the Preferred Stock as of the beginning of the periods being reported. The
number of shares assumed converted as of January 1, 1996 amounted to 2,046,784
and was
6
<PAGE>
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
calculated based on the terms of the Preferred Stock conversion terms prior to
their repurchase in December 1996.
NOTE 2 - RENTAL PROPERTIES AND PROPERTIES HELD FOR SALE
- -------------------------------------------------------
The Company's rental properties at September 30, 1997 and December 31, 1996
consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---------------- -------------
(In Thousands)
<S> <C> <C>
Land $ 4,438 $ 4,438
Building and improvements 9,972 9,389
--------- -------
Total $ 14,410 $13,827
Less accumulated depreciation (805) (539)
--------- -------
Rental properties, net $ 13,605 $13,288
--------- -------
</TABLE>
At September 30, 1997 and December 31, 1996, rental properties consisted of two
commercial buildings. In January 1997, the property held for sale at December
31, 1996 was sold resulting in a loss of approximately $16,000. Concurrent with
the sale of such property the outstanding mortgage loan amounting to
approximately $.755 million was paid in full.
NOTE 3 - INVESTMENT IN SHAREHOLDER AFFILIATE
- --------------------------------------------
On October 15, 1996, the Company consummated a transaction contemplated by an
exchange agreement (the "Exchange Agreement") with its shareholder affiliates,
Craig Corporation ("Craig") and Reading Entertainment, Inc. ("REI" and
collectively with its consolidated subsidiaries, "Reading"). Pursuant to the
terms of the Exchange Agreement, the Company contributed cash in the amount of
$7 million to REI in exchange for 70,000 shares of Reading Series A Voting
Cumulative Convertible Preferred Stock ("REI Series A Preferred Stock") and an
option to transfer all or substantially all (subject to certain limitations) of
its assets to REI for REI Common Stock (the "Asset Put Option"). The Asset Put
Option is exercisable through a date 30 days after REI's Form 10-K is filed with
respect to its year ended December 31, 1999, and gives the Company the right to
exchange up to $20 million in aggregate appraised value of the Company's assets
for REI Common Stock determined by dividing the value of the Company's assets by
$11.75 per share if the notice is received by October 31, 1997, and thereafter,
at $12.25 per share. If the appraised value of the Company's assets is in
excess of $20 million, REI is obligated to pay for the excess by issuing REI
Common Stock at the then fair market value up to a maximum of $30 million of
assets. As of November 6, 1997, the closing price per share of REI Common Stock
was $13.00 per share. In late October, the Company determined not to exercise
the Asset Put Option by October 31, 1997, but rather to continue to hold the
Assett Put Option.
As of September 30, 1997, the Company held approximately 5% of the voting power
of REI and Craig held approximately 78% of the voting power of REI. As of
September 30, 1997, REI holds approximately 23.4% and Craig holds approximately
10% of then outstanding common stock of Citadel.
7
<PAGE>
The REI Series A Preferred Stock acquired by the Company has a liquidation
preference of $100 per share or $7 million ("Stated Value"), (ii) bears a
cumulative dividend of 6.5%, payable quarterly, and (iii) is convertible any
time after April 1998 (or earlier upon a change of control of REI) into shares
of REI Common Stock at a conversion price of $11.50 per share. REI, may at its
option, redeem the Series A Preferred Stock at any time after October 15, 2001,
in whole or in part, at a redemption price equal to a percentage of the Stated
Value (initially 108% and decreasing 2% per annum until the percentage equals
100%). The Company has the right for a 90-day period beginning October 15, 2001
(provided the Company has not exercised the Asset Put Option), or in the event
of a change of control of REI to require REI to repurchase the REI Series A
Preferred Stock for their aggregate Stated Value plus accumulated dividends. In
addition, if REI fails to pay dividends for four quarters, the Company has the
option to require REI to repurchase such shares at their aggregate liquidation
value plus accumulated dividends.
The Company accounts for its investment in REI at cost. Included in the
Statements of Operations for the three and nine months ended September 30, 1997,
is dividend income of approximately $114,000 and $341,000, respectively, earned
pursuant to the terms of the REI Series A Preferred Stock.
REI is a publically traded company whose shares are listed on the NASDAQ
National Market System. Reading through its subsidiaries, operates motion
picture exhibition theaters in Puerto Rico, Australia and New York, New York and
is currently developing multiplex cinemas in Puerto Rico, multiplex art and
specialty cinemas in the United States and the development of a new chain of
multiplex cinemas and entertainment centers in Australia.
Summarized financial information of REI and subsidiaries as of September 30,
1997 and December 31, 1996 and for the three and nine months ended September 30,
1997 follows:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS:
Sept. 30, 1997 December 31, 1996
-------------- -----------------
(In Thousands)
<S> <C> <C>
Cash and cash equivalents $108,994 $ 48,680
Other current assets 4,972 7,765
-------- --------
Total current assets 113,966 56,445
Equity investment in Citadel 4,809 4,850
Preferred Stock of Stater -- 67,978
Property and equipment, net 25,827 21,130
Intangible assets 25,108 26,229
Other assets 4,339 5,122
-------- --------
Total assets $174,049 $181,754
======== ========
Current liabilities $ 6,180 $ 13,716
Other liabilities 6,267 5,084
Series A Preferred stock
held by Citadel 7,000 7,000
Shareholders' equity (inclusive
of a foreign currency translation
adjustment of $2.013 million at
9/30/97) 154,602 155,954
-------- --------
Total liabilities and equity $174,049 $181,754
======== ========
</TABLE>
8
<PAGE>
During the third quarter, Stater Bros. Holdings Inc. ("Stater") redeemed the
Stater Preferred Stock owned by Reading Australia Pty. Limited (an indirectly
Wholly owned subsidiary of REI). The exercise price paid at the closing amounted
to $74.5 million, inclusive of accumulated dividends and a payment for a
covenant not to compete amounting to approximately $5.1 million. A gain of
$2.002 million (inclusive of $.615 million of fee income) was recorded by
Reading upon the redemption of the Stater Preferred Stock during the three
months ended September 30, 1997. In addition to the gain on the redemption of
the Stater Preferred Stock, included below in Reading's Statement of Operations,
is dividend income earned on the Stater Preferred Stock prior to its redemption
of approximately $.698 million and $4.310 million for the three months and nine
months ended September 30, 1997, respectively.
CONDENSED STATEMENT OF OPERATIONS:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1997 September 30, 1997
------------------- -------------------
(In Thousands)
<S> <C> <C>
Revenue:
Theater $ 7,594 $ 19,937
Real estate 40 140
Interest and dividends 1,408 6,272
------- --------
Total revenue 9,042 26,349
Theater costs (5,765) (15,533)
Depreciation and amortization (660) (1,893)
General and administrative (2,455) (6,730)
------- --------
Income from operations 162 2,193
Equity in earnings of Citadel 69 204
Gain from Stater Stock redemption 2,002 2,002
Other income, net (4) 236
------- --------
Earnings before income taxes
and minority interest 2,229 4,635
Income taxes (377) (699)
Minority interest (77) (181)
------- --------
Net income 1,775 3,755
Less preferred stock dividends
and amortization of asset put option (1,078) (3,231)
------- --------
Net (loss) income applicable to
common shareholders $ 697 $ 524
======= ========
</TABLE>
NOTE 4 - GAIN OR LOSS RELATED TO INVESTMENT IN FIDELITY FEDERAL BANK
- --------------------------------------------------------------------
Under a Stockholders' Agreement, Citadel agreed to reimburse its previously
owned subsidiary, Fidelity Federal Bank ("Fidelity"), for certain losses
incurred by Fidelity in either curing breached representations or repurchasing
assets sold under a bulk sales agreement, subject to a $4 million aggregate
limit, in the event Fidelity were to be determined to have breached certain
representations made in connection with certain bulk sales of loans and
properties in 1994. As a significant number of material issues were unresolved
with regards to the
9
<PAGE>
Company's ultimate exposure with respect to the indemnity clause negotiated with
Fidelity, the Company included $4 million on its balance sheet at December 31,
1995 as "Deferred proceeds from bulk sales agreement". During 1996, Fidelity
reached a settlement with the purchaser regarding the bulk sales claims and
released the Company from the indemnity given to Fidelity. Accordingly, the
Statement of Operations for the nine months ended September 30, 1996 includes a
non-recurring gain related to its previous investment in Fidelity, which
resulted from the reversal of the $4 million deferral.
NOTE 5 - TAXES ON INCOME
- ------------------------
The provision for income taxes for the three months and nine months ended
September 30, 1997 and 1996 amounted to approximately $15,000 and $60,000,
respectively, representing a provision for estimated Federal AMT and state
taxes. For the three and nine months ended September 30, 1996, no federal
provision for income taxes was required due to the realization for financial
statement purposes of deferred tax assets previously reserved.
NOTE 6 - COMMON STOCK
- ---------------------
On April 11, 1997, Craig exercised its warrant to purchase 666,000 shares of the
Company's common stock at an exercise price of $3.00 per share or $1.998
million. Such exercise was consummated pursuant to delivery by Craig of its
secured promissory note (the "Craig Secured Note") in the amount of $1.998
million, secured by 500,000 shares of REI Common Stock owned by Craig. The
Craig Secured Note, in the amount of $1.998 million, is included in the Balance
Sheet as a contra equity account under the caption "Note receivable from
shareholder" at September 30, 1997. Interest is payable quarterly in arrears at
the prime rate (amounting to 8.5%) computed on a 360 day-year. Principal and
accrued but unpaid interest is due upon the earlier of April 11, 2002 or 120
days following the Company's written demand for payment. The Craig Secured Note
may be prepaid, in whole or in part, at any time by Craig without penalty or
premium.
NOTE 7 - POSSIBLE ACQUISITION OF AGRICULTURAL REAL ESTATE INTEREST
- ------------------------------------------------------------------
During the three months ended September 30, 1997, the Company formed a new
subsidiary, Citadel Agriculture, Inc., to engage in the business of owning and
farming agricultural land. The new company's first transaction is expected to be
the acquisition of partnership interests representing an approximately 80%
interest in three partnerships newly formed to acquire from The Prudential
Insurance Company of America approximately 1600 acres of agricultural land
located in the Central Valley of California and commonly known as Big 4 Ranch.
The remaining approximately 20% interest in these partnerships is being acquired
by a company controlled by James J. Cotter, the Company's Chairman, and owned by
Mr. Cotter and members of his family. The Company and Mr. Cotter will contribute
to the capital of the partnerships and share in the allocation of profits and
losses and in any distributions from the partnerships on the same 80/20 basis.
10
<PAGE>
The Big 4 Ranch is being acquired for a purchase price of $6.75 million, plus
the reimbursement of certain cultural costs related to the 1998 crop. Of this
amount $4.05 million is being financed by Prudential. The Big 4 Ranch currently
consists of approximately 960 acres of mature citrus orchards, approximately 640
acres of open agricultural land, and various agricultural improvements (such as
irrigation facilities and wind machines).
Included in the Balance Sheet at September 30, 1997 as "Other Assets" is a
$250,000 escrowed deposit for such property. Such deposit together with an
additional deposit of $750,000 made in November 1997 is refundable upon certain
terms and conditions until December 15, 1997. If the Company were to breach its
obligations under its agreement with Prudential, these funds would be subject to
forfeiture as liquidated damages.
In order to comply with Federal water regulations, it is currently anticipated
that 50% of Citadel's 80% interest will be spun off to shareholders immediately
prior to the closing of the acquisition of Big 4 Ranch by the partnerships.
Every stockholder of Citadel would receive with respect to each share of Citadel
stock owned by such stockholder on the record date one share in a new company
which would in turn, hold a 40% interest in the partnerships owning and farming
the Big 4 Ranch.
While no assurances can be given, it is currently anticipated that shares of the
new company will be dividended to Citadel stockholders and the acquisition will
close before December 31, 1997. No record date has been fixed with respect to
any such dividend.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Citadel Holding Corporation, a Delaware corporation ("Citadel" and
collectively with its wholly owned subsidiaries, the "Company") has been engaged
primarily in the ownership and management of commercial and residential property
since August 1994. However in February 1997, the Company sold its last
remaining residential property. Accordingly, its real property holdings
currently consist of two commercial buildings located in Glendale, California
and Phoenix, Arizona.
In October 1996, the Company contributed cash to Reading Entertainment,
Inc. ("REI" and collectively with its consolidated subsidiaries, "Reading") in
the amount of $7 million in exchange for 70,000 shares of REI Series A Voting
Cumulative Convertible Preferred Stock (the "REI Series A Preferred Stock") and
an option which gives the Company the right, through approximately April 1999,
to exchange for shares of REI Common Stock all or substantially all of the
Company's assets. Pursuant to the terms of the Asset Put Option, the Company
has the right to exchange up to $20 million in aggregate appraised value of the
Company's assets for REI Common Stock determined by dividing the value of the
Company's assets by $11.75 per share if the notice is received by October 31,
1997, and thereafter, at $12.25 per share. If the appraised value of the
Company's assets is in excess of $20 million, REI is obligated to pay for the
excess by issuing REI Common Stock at the then fair market value up to a maximum
of $30 million of assets. As of November 6, 1997, the closing price per share
of REI Common Stock was $13.00 per share. In late October, the Company
determined not to exercise the Asset Put Option by October 31, 1997, but rather
to continue to hold the Asset Put Option.
The REI Series A Preferred Stock is convertible at any time after April 15,
1998 into shares of REI Common Stock at a conversion price of $11.50 per share.
The REI Preferred Stock represents approximately 5% of REI's voting securities.
REI owns approximately 23.4% of the Company's outstanding common stock. In
addition, Craig Corporation ("Craig"), which owns approximately 78% of REI's
voting securities, owns approximately 10% of the Company's outstanding Common
Stock.
In April 1997, Craig purchased its 10% interest through the exercise of
outstanding warrants to purchase 666,000 shares of the Company's common stock at
$3.00 per share. The Craig purchase was consummated through the delivery by
Craig of a secured promissory note (the "Craig Secured Note") in the amount of
$1.998 million. Principal and any unpaid interest, which accrues at prime and
is payable quarterly, is due upon the earlier of April 11, 2002 or 120 days
following the Company's written demand for payment. The Craig Secured Note is
secured by 500,000 shares of REI Common Stock and may be prepaid, in whole or in
part, at any time by Craig without penalty or premium. Included in the
Statement of Operations for the three and nine months ended September 30, 1997
is interest income earned and paid by Craig, amounting to $43,000 and $81,000,
respectively, to Citadel pursuant to the terms of the $1.998 million Secured
Promissory Note.
During the three months ended September 30, 1997, the Company formed a new
subsidiary, Citadel Agriculture, Inc., to engage in the business of owning and
farming agricultural land. The new company's first transaction is expected to
be the acquisition of partnership interests representing an approximately 80%
interest in three partnerships newly formed to acquire from The Prudential
Insurance Company of
12
<PAGE>
America approximately 1600 acres of agricultural land located in the Central
Valley of California and commonly known as Big 4 Ranch. The remaining
approximately 20% interest in these partnerships is being acquired by a company
controlled by James J. Cotter, the Company's Chairman, and owned by Mr. Cotter
and members of his family. The Company and Mr. Cotter will contribute to the
capital of the partnerships and share in the allocation of profits and losses
and in any distributions from the partnerships on the same 80/20 basis.
The Big 4 Ranch is being acquired for a purchase price of $6.75 million,
plus the reimbursement of certain cultural costs related to the 1998 crop. Of
this amount $4.05 million is being financed by Prudential. The Big 4 Ranch
currently consists of approximately 960 acres of mature citrus orchards,
approximately 640 acres of open agricultural land, and various agricultural
improvements (such as irrigation facilities and wind machines).
Included in the Balance Sheet at September 30, 1997 as "Other Assets" is a
$250,000 escrowed deposit for such property. Such deposit together with an
additional deposit of $750,000 made in November 1997 is refundable upon certain
terms and conditions until December 15, 1997. If the Company were to breach its
obligations under its agreement with Prudential, these funds would be subject to
forfeiture as liquidated damages.
In order to comply with Federal water regulations, it is currently
anticipated that 50% of Citadel's 80% interest will be spun off to shareholders
immediately prior to the closing of the acquisition of Big 4 Ranch by the
partnerships. Every stockholder of Citadel would receive with respect to each
share of Citadel stock owned by such shareholder on the record date one share in
a new company which would in turn, hold a 40% interest in the partnerships
owning and farming the Big 4 Ranch.
While no assurances can be given, it is currently anticipated that shares
of the new company will be dividended to Citadel stockholders and the
acquisition will close before December 31, 1997. No record date has been fixed
with respect to any such dividend.
RESULTS OF OPERATIONS
The following is a comparison of the results of operations for the three
months ended September 30, 1997 ("1997 Quarter") with the three months ended
September 30, 1996 ("1996 Quarter") and for the nine months ended September 30,
1997 (the "1997 Nine Months") with the nine months ended September 30, 1996 (the
"1996 Nine Months"). Due to the nature of the Company's business activities,
revenues and earnings have varied significantly reflecting the operating results
of its managed real estate and asset sales during those periods. Accordingly,
period to period comparisons of operating results will not necessarily be
indicative of future financial results.
The Company's net earnings for the 1997 Quarter amounted to $407,000 or
$0.06 per common and common equivalent share as compared to the net earnings of
$197,000 or $0.02 per common and common equivalent share for the 1996 Quarter.
Net earnings for the 1997 Nine Months was $1,066,000 or $0.17 per common and
common equivalent share as compared to $5,981,000 or $0.74 per common and common
equivalent share for the 1996 Nine Months. Earnings per common and common
equivalent share is based upon the weighted average number of common and common
stock equivalents of 6,669,924 and 8,050,708 shares for the 1997 and 1996
Quarters, respectively, and 6,427,520 and 8,050,708 shares for the 1997 and 1996
13
<PAGE>
Nine Months, respectively. The calculation of the weighted average of common
and common stock equivalents outstanding for the 1996 Quarter and 1996 Nine
Months included the effect of 2,046,784 shares assumed to be issued on the
conversion of the then outstanding Citadel Convertible Preferred Stock. The
Convertible Preferred Stock was redeemed in December 1996.
Included in net earnings for the 1996 Nine Months is (i) approximately
$1,493,000 from the sale of an apartment building and a parcel of land and (ii)
non-recurring income amounting to $4 million resulting from the recognition of
previously deferred proceeds from the bulk sale of loans and properties by
Citadel's previously owned subsidiary, Fidelity Federal Bank ("Fidelity").
Included in the net earnings for the 1997 Quarter and 1997 Nine Months is
dividend income of approximately $114,000 and $341,000, respectively, earned
with respect to the Company's October 1996 investment in REI Preferred Stock.
Rental income amounted to $1,318,000 for the 1997 Quarter as compared to
$1,029,000 for the 1996 Quarter and rental income amounted to $3,712,000 for the
1997 Nine Months as compared to $3,912,000 for the 1996 Nine Months. The
changes in rental income reflects the reduction of the number of rental
properties owned by the Company during the periods offset by increased revenues
from the two remaining properties. Rental income for the 1997 Quarter and 1997
Nine Months includes revenue from the Company's two commercial rental
properties. Since the 1996 Quarter and 1996 Nine Months the Company sold two
apartment buildings. The 1996 Quarter and 1996 Nine Months includes rental
income from these sold properties amounting to approximately $41,000 and
$839,000, respectively. Such decrease, as compared to the 1997 periods, was
partially offset by an increase in rental income from the two remaining
commercial properties of approximately $331,000 and $633,000 for the 1997
Quarter and 1997 Nine Months, respectively.
Real estate operating expenses increased to $543,000 in the 1997 Quarter as
compared to $485,000 in the 1996 Quarter and decreased approximately $472,000 to
$1,527,000 in the 1997 Nine Months as compared to $1,999,000 in the 1996 Six
Months. The overall decrease in the 1997 Nine Months as compared to the 1996
Nine Months is attributable to the sale of the two apartment properties during
1996, offset by the increase in the remaining two commercial properties. Real
estate operating expenses for these two commercial properties increased
approximately $82,000 and $114,000 in the 1997 Quarter and 1997 Nine Months,
respectively, as compared to the relevant 1996 periods.
The 1997 Quarter and Nine Months included approximately $60,000 and
$180,000, respectively, in fee income for consulting services provided by
employees of the Company to Reading as compared to approximately $42,000 and
$127,000 for the 1996 Quarter and 1996 Nine Months, respectively.
Interest income decreased during the 1997 periods and amounted to $65,000
in the 1997 Quarter as compared to $249,000 in the 1996 Quarter and amounted to
approximately $238,000 in the 1997 Nine Months as compared to $678,000 in the
1996 Nine Months. Such 1997 period decreases reflect the significant decrease
in investable fund balances between the periods. Cash and cash equivalents
amounted to $7.015 million at September 30, 1997 as compared to $19.815 million
at September 30, 1996. In October 1996, the Company made a $7 million
investment in REI and in December 1996 redeemed from REI the Company's
previously issued 3%
14
<PAGE>
Cumulative Voting Convertible Preferred Stock at a redemption price amounting to
approximately $6.19 million.
General and administrative expenses in the 1997 Quarter and 1997 Nine
Months decreased, primarily as a result of a reduction in professional costs,
compared to the respective 1996 periods and amounted to $284,000 in the 1997
Quarter as compared to $321,000 in the 1996 Quarter and amounted to $821,000 in
the 1997 Nine Months as compared to $878,000 in the 1996 Nine Months. General
and administrative expenses for each of the 1997 and 1996 Quarters and Nine
Months include administrative and rent expense paid to Craig in the amount of
$24,000 and $72,000, respectively.
Interest expense was $249,000 in the 1997 Quarter as compared to $262,000
in the 1996 Quarter and was $761,000 in the 1997 Nine Months as compared to
$1,056,000 in the 1996 Nine Months. The decrease in interest expense
principally is due to the payoff of two mortgage loans since the 1996 periods.
In May 1996, the Company repaid a mortgage loan on the sale of a rental property
in the amount of approximately $5.7 million and in January 1997 repaid a
mortgage loan in the amount of approximately $.755 million.
REAL ESTATE INTERESTS
- ---------------------
The table below provides an overview of the properties which constituted
all of the real properties owned by the Company at September 30, 1997.
<TABLE>
<CAPTION>
Address Type Units/ % Major Remaining
Sq. Feet Leased Tenants * Lease Term
- ---------------------- ------- ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
ARBOLEDA Office/ 178,000 99 American
1661 Camelback Rd. Restaurant Express (56%) Feb. 1999
Phoenix, Arizona Others 1-5 Years
BRAND Office 89,000 100 Disney (87%) Feb. 2007
600 N. Brand Fidelity(13%) May 2005
Glendale, CA
</TABLE>
* Percent of rentable space leased.
Arboleda, Phoenix
-----------------
This property was fully leased at September 30, 1997 with American Express
occupying approximately 56% (100,252 sq. feet) of the property.
Brand, Glendale
---------------
This property was acquired by the Company for approximately $7.12 million
in May 1995 and is leased 87% to Disney Enterprises, Inc. ("Disney") and 13% to
Fidelity Federal Bank ("Fidelity"), with Fidelity occupying the ground floor.
The base rental rate for the first five years of the Fidelity lease term is
$26,000 per month (including parking) with annual rental increases at a rate
15
<PAGE>
equal to the lower of the increase in the Consumer Price Index or 3%. The
rental rate of the Fidelity lease at March 31, 1997 was approximately $26,600
per month. After the first five years of the lease term, the rental rate will
be adjusted to the higher of (a) $1.50 per square foot increased by the annual
rental rate increase applied during the first five years as described in the
preceding sentence or (b) the then current market rate. Fidelity has an option
to extend its lease for two consecutive five year terms, at a market rental
rate.
The rental rate for the first five years of the Disney lease term beginning
February 1, 1997 is approximately $148,000 per month (excluding parking) and
approximately $164,000 (excluding parking) for the remaining five-year term.
Disney has an option to renew the lease for two consecutive five-year terms. In
addition to approximately $1.4 million of costs incurred by the Company as of
September 30, 1997 for certain building upgrades, lease commissions and legal
fees, the Disney lease provides that the Company will pay for additional tenant
improvements and additional common area upgrades, which the Company estimates
will cost approximately $2.1 million.
BUSINESS PLAN, CAPITAL RESOURCES AND LIQUIDITY
Cash and cash equivalents increased approximately $659,000 from $6.356
million at December 31, 1996 to $7.015 million at September 30, 1997. Net cash
provided by investing activities amounted to $295,000 in the 1997 Nine Months
and is comprised of approximately $1,128,000 provided from the sale of a rental
property, offset by $583,000 used to make leasehold improvements to rental
properties and a $250,000 refundable deposit for the purchase of a real estate
interest. Net cash used in financing activities amounted to $868,000 in the
1997 Nine Months and resulted from the repayment of long-term mortgage loans
inclusive of the mortgage on the property sold in January 1997.
The Company expects that its sources of funds in the near term will include
(i) cash on hand and related interest income, (ii) cash flow from the operations
of its rental properties, (iii) consulting fee income from Reading of approxi-
mately $60,000 quarterly and (iv) a preferred stock dividend, payable quarterly,
from REI amounting to approximately $455,000 annually.
In the short term, uses of funds are expected to include (i) funding of the
Glendale Building leasehold and tenant improvements of approximately $2.1
million, (ii) operating expenses, and (iii) debt service pursuant to the
property mortgages; and may include the acquisition of the additional
agricultural real interest, net of financing proceeds, described above.
Management believes that its sources of funds will be sufficient to meet
its cash flow requirements for the foreseeable future. The investment in REI
described above, provides the Company with the opportunity to make an initial
investment in REI, and the ability thereafter, to review the implementation by
REI of its business plan and, if it approves of the progress made by REI, to
make a further investment in REI through the exercise of the option to exchange
all or substantially all of its assets for Reading Common Stock. The Company
has the right to require REI to redeem the REI Preferred Stock after five years
or sooner, if REI fails to pay dividends on such securities for four quarters.
16
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM 1 - LEGAL PROCEEDINGS
- --------------------------
Various legal actions and claims are pending against the Company. The
Company believes that it has meritorious defenses to these claims, and has not
reserved any amounts with respect thereto. However, the damages claimed by
certain plaintiffs are in an unspecified amount, and accordingly, no assurance
can be given that the ultimate resolution of such pending claims will not have a
material adverse effect on the Company's consolidated financial position or its
results of operations.
Citadel, Hecco Ventures I and James J. Cotter were defendants in a civil
action filed in 1980 by Alfred Roven. In 1995, Citadel, Hecco Ventures I and
James J. Cotter were granted summary judgment on all causes of action asserted
in the 1980 complaint, which Roven appealed. On August 1, 1997 the United
States Court of Appeals for the Ninth District affirmed the United States
District Courts decision of summary judgment in favor of Citadel, Hecco Ventures
I and James J. Cotter.
For a description of legal proceedings, please refer to Item 3 entitled
Legal Proceedings contained in the Company's Form 10-K for the fiscal year ended
December 31, 1996.
ITEM 2 - CHANGES IN SECURITIES
- ------------------------------
Not applicable.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
- ----------------------------------------
Not applicable.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
Not applicable.
ITEM 5 - OTHER INFORMATION
- --------------------------
Not applicable.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
A. Exhibits
10.61 Agreement for Purchase and Sale of Real Property
between Prudential Insurance Company of America
an Big 4 Farming LLC dated August 29, 1997.
10.62 Second Amendment to Agreement of Purchase and Sale
between Prudential Insurance Company of America and
Big 4 Farming LLC dated November 5, 1997.
27. Financial Data Schedule.
B. Reports on Form 8-K
None.
17
<PAGE>
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CITADEL HOLDING CORPORATION
---------------------------
By: /s/ Steve Wesson
-------------------------
President and Chief
Executive Officer
November 13, 1997
/s/ S. Craig Tompkins
-------------------------
Principal Accounting Officer
November 13, 1997
18
<PAGE>
EXHIBIT 10.61
AGREEMENT FOR PURCHASE AND SALE
OF
REAL PROPERTY
KERN COUNTY, CALIFORNIA
THIS AGREEMENT IS made and entered into as of August 29, 1997, by and
between THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation
("Seller"), and BIG 4 FARMING, LLC, a limited liability company ("Buyer").
ARTICLE 1. DEFINITIONS
-----------
Unless the context otherwise specifies or requires, for the purposes of
this Agreement, the following terms shall have the meanings set forth in this
Article 1:
- ---------
Section 1.1 Close of Escrow or Closing. The terms "Close of Escrow" or
--------------------------
"Closing" shall mean the event of the transfer of title to the Property from
Seller to Buyer.
Section 1.2 Closing Date. The term "Closing Date" shall mean the date that
------------
the Closing shall occur, which shall be a date no later than sixty (60) days
following execution of this Agreement.
Section 1.2A Crops. The term "Crops" shall mean all growing crops
-----
associated with the Land. Buyer recognizes that as of the date of this
Agreement, the 1997 Valencia Crop has not been harvested, but will be harvested
prior to the Closing Date. The Purchase Price does not include any amount
attributable to the 1997 Valencia Crop, which shall remain the sole property of
Seller.
Section 1.3 Due Diligence Period. The term "Due Diligence Period" shall
--------------------
mean a period expiring thirty (30) days following execution of this Agreement.
Section 1.4 Improvements. The term "Improvements" shall mean all
------------
improvements, and all appurtenances thereto, located on the Land, including,
without limitation, all irrigation and pumping equipment, buildings and all
other auxiliary amenities located on or used in the operation of the Property.
Section 1.5 Intangible Property. The term "Intangible Property" shall
-------------------
mean all water rights currently owned by Seller and used for the benefit of the
Land, including, without limitation, underground water, surface water, ditch
water, canal water, riparian rights, artesian well water and any ownership
interest or any stock in any water company or organization, and any mineral
rights held by Seller relating to the land (provided the foregoing water and
mineral rights shall be transferred without representation or warranty
whatsoever), any contracts affecting the Property, any names by which the
Property is generally known, the Permits, and any other intangible property
owned by Seller which is essential to the operation of or relates exclusively to
the Property.
Section 1.6 Land. The term "Land" shall mean the real property consisting
----
of 1,612.18 gross APN acres, more or less, (Assessor's Parcel Nos. 051-110-10,
051-110-12, 051-110-19, 051-110-37, 051-110-38, 051-110-56, 051-300-02, 051-131-
01, 051-131-03, 051-131-04, and 051-131-05), located in Kern County, California,
including permanent plantings and any growing crops located on the Land at the
time of Closing, exclusive of the Improvements, Personal Property and Intangible
Property, more particularly described in Exhibit F.
---------
Section 1.7 [Intentionally Deleted]
Section 1.8 Permits. The term "Permits" shall mean any and all permits and
-------
other governmental authorizations related to the operation of the Property that
are assignable to Buyer.
Section 1.9 Permitted Excetions. The term "Permitted Exceptions" shall
-------------------
have the meaning given such term in Section 3.1.
-----------
Section 1.10 Personal Property. The term "Personal Property" shall mean
-----------------
all personal property relating exclusively to the Land and Improvements and all
replacements of such property, except such property as may constitute "Crops".
<PAGE>
Section 1.11 Preliminary Title Report. The term "Preliminary Title
------------------------
Report" shall mean a current preliminary title report with respect to the Land
and Improvements issued by the Title Company and delivered to Buyer in
accordance with this Agreement.
Section 1.12 Property. The term "Property" shall mean the Land,
--------
the Improvements, the Crops, the Personal Property and the Intangible Property.
Section 1.13 Title Company. The term "Title Company" shall mean
-------------
Commonwealth Title Insurance Company, 1318 East Shaw Ave., Fresno, California
93710.
Section 1.14 Title Documents. The term "Title Documents" shall have the
---------------
meaning given such term in Section 3.3.
-----------
Section 1.15 Water Approvals. The Term "Water Approvals" shall have the
---------------
meaning given such term in Section 4.1(f).
--------------
ARTICLE 2. PURCHASE AND SALE OF THE PROPERTY
---------------------------------
Section 2.1 Purchase and Sale. Seller agrees to sell the Property to
-----------------
Buyer, and Buyer agrees to purchase the Property from Seller, upon all of the
terms, covenants and conditions set forth in this Agreement.
Section 2.2 Purchase Price. The Purchase Price for the Property (the
--------------
"Purchase Price") shall be SIX MILLION SEVEN HUNDRED FIFTY THOUSAND DOLLARS
($6,750,000.00). Buyer shall pay to Seller the Purchase Price in the following
manner:
(a) Buyer shall, within five (5) business days of the execution of
this Agreement, deposit TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000.00) with
the Title Company, which the Title Company shall deposit in an interest bearing
account. Such funds and all interest earned thereon shall be referred to as the
"Deposit". The Deposit shall be non-refundable upon the earlier of (i) Buyer's
written approval of all due diligence matters related to the Property pursuant
to Article 4 or (ii) the expiration of the Due Diligence Period, except as
provided in Section 4.5 which provides for a refund of the Deposit in case of a
-----------
termination of this Agreement due to Seller's inability or unwillingness to cure
or for any other reason specified in Section 4.5.
-----------
(b) Seller shall provide purchase money financing in the amount of Four
Million Fifty Thousand Dollars ($4,050,000) (the "Purchase Money Financing"),
subject, however, to the terms and conditions of an Application for First
Mortgage Loan to be made by Buyer in favor of Seller and the other terms and
conditions set forth in Section 4.8.
-----------
(c) On the Closing Date, Buyer shall deposit with Escrow Holder by federal
wire transfer or cashier's check the remaining balance of the Purchase Price
(i.e., minus the Deposit purchase money financing), plus or minus closing
adjustments and prorations, if any.
Section 2.3 Allocation of Purchase Price. The total consideration to be
----------------------------
paid for the Property shall be allocated as reasonably agreed by the parties
during the Due Diligence Period. The final statement submitted into Escrow by
the parties pursuant to Article 7 shall reflect the final agreed allocation.
ARTICLE 3. TITLE
-----
Section 3. 1 Condition of Title. Seller shall convey to Buyer fee simple
------------------
title to the Land and Improvements by good and sufficient Grant Deed in the form
of Exhibit D (the "Deed"), subject to no exceptions other than:
---------
(a) The lien for local real estate taxes not yet due or payable; and
(b) Any other exceptions in the Preliminary Title Report approved by Buyer
in writing pursuant to this Article 3.
---------
2
<PAGE>
The foregoing exceptions are herein referred to collectively as the "Permitted
Exceptions".
Section 3.2 Evidence of Title. Close of Escrow shall be conditioned upon
-----------------
the willingness of the Title Company to issue, upon payment of its normal
premium, a CLTA Owners Policy of Title Insurance with extended coverage,
together with such endorsements thereto as may be requested by Buyer (the "Title
Policy"), insuring Buyer in the amount of the Purchase Price that fee simple
title to the Land and Improvements is vested in Buyer subject only to the
Permitted Exceptions.
Section 3.3 Title Review. Seller has delivered to Buyer the Preliminary
------------
Title Report and shall no later than five (5) business days after the date of
this Agreement deliver to Buyer copies of all recorded documents referred to as
exceptions to title therein (collectively, the "Title Documents"). Buyer shall
have the Due Diligence Period to review matters of title.
Section 3.4 Objections to Title. Buyer shall notify Seller in writing
-------------------
no later than the end of the Due Diligence Period of any objections Buyer may
have, as determined in Buyer's sole discretion, to any of the exceptions to
title in the Title Documents. Any title exceptions disapproved by Buyer shall be
hereinafter referred to as "Title Defects". If Buyer fails to timely provide
notification of Title Defects, Buyer will be deemed to have accepted the matters
disclosed by the Title Documents. In the event Buyer objects to any matters
affecting title, such matters will be deemed to be subject to the termination
procedure specified in Section 4.5 hereof.
-----------
ARTICLE 4. CONDITIONS TO AGREEMENT
-----------------------
Section 4.1 Conditions Precedent. Buyer's obligation to purchase the
--------------------
Property or otherwise to perform any obligation provided in this Agreement shall
be expressly conditioned upon the fulfillment of each of the following
conditions precedent:
(a) The timely performance by Seller of each and every covenant and
obligation to be performed by Seller hereunder;
(b) The delivery to Buyer upon Close of Escrow of title to the Property,
and the issuance of the Title Policy, pursuant to Article 3;
----------
(c) Buyer's review and approval or deemed approval on or before the
expiration of the Due Diligence Period of the matters referred to in
Section 6.1(a);
- --------------
(d) Buyer's approval or deemed approval on or before the expiration of the
Due Diligence Period of the results of any inspection, test, examination, audit,
study, review, analysis, or other review conducted by or for Buyer pursuant to
Section 4.2;
- -----------
(e) Seller's issuance of a commitment for the Purchase Money Financing and
the issuance of the Purchase Money Financing on the terms of the Commitment; and
(f) Receipt by Buyer on or before the end of the Due Diligence Period, of
any and all govemmental approvals, confirmations and/or permits (collectively,
the "Water Approvals") required in order to obtain adequate federal water for
the farming of all of the Land.
Section 4.2 Property Inspection. At all reasonable times prior to the
-------------------
expiration of the Due Diligence Period, Buyer, and its agents and
representatives, shall be entitled to enter onto the Land and Improvements on
reasonable prior notice to Seller, in the case of any inspection or test, to
perform such inspections and tests of the Property as Buyer shall deem necessary
or appropriate. Buyer shall provide Prudential with evidence of a CGL Policy in
the amount of at least $1 Million per occurrence in form and substance
satisfactory to Prudential, prior to any entry on the Property under the
provisions of this paragraph. Buyer's tests may include, without limitation,
inspections and tests designed to verify, among other matters, the conditions of
any crops, the absence of asbestos, PCBs, and all other toxic, hazardous or
dangerous substances, wastes or materials in, on or under the Property,
provided, however, any consultant performing testing for such substances wastes
or materials and the procedures to be employed by any such consultant shall be
subject to the reasonable pre-approval of and supervision by Seller of such
consultant's testing activities on the Property. Buyer shall also be entitled to
enter upon the Land to make any inspections as it may deem appropriate of (i)
the Personal Property; (ii) any and all roofs, foundations, walls
3
<PAGE>
and other structural components of the Improvements, if any, and any electrical,
plumbing, heating, ventilating, air conditioning, refrigeration and other
mechanical systems within the Improvements, and (iii) soil conditions, ground
water, irrigation water supplies, delivery condition and yields of wells, the
condition of the water delivery systems, the condition of the pumping system,
building materials and utility areas. In addition to any physical inspections
or tests of the Property, Buyer shall, during the Due Diligence Period, make any
and all studies as it shall deem appropriate of zoning laws applicable to the
Property, and water laws and regulations applicable to the availability of water
to the Buyer (and/or any permitted assignees) with respect to the Property; or
market studies, operating expense and other financial projections and analyses,
real estate tax analyses, income tax analyses, and any other studies or analyses
relating to the value of the Property as Buyer may deem appropriate and shall
conduct such personal interviews with the operators of the Property as it shall
deem appropriate. Buyer and its agents hereby agree to indemnify and hold
harmless Seller and its officers, directors, agents, and employees from any and
all loss, costs, damages or expense (including, without limitation, reasonable
attorneys' fees) arising out of or in an any way connected with the activities
of Buyer or Buyer's agents on the Property in connection with any inspection or
testing, except to the extent that such liabilities, claims or damages arise out
of the negligence or willful misconduct of Seller or its agents, or a breach by
Seller of this Agreement.
Section 4.3 Due Diligence Review Procedure. Buyer shall notify
------------------------------
Seller in writing on or before the expiration of the Due Diligence Period of its
approval or disapproval of the subject matters of Buyer's review. Buyer may
terminate the agreement for any reason, or for no reason at any time during the
Due Diligence Period, in which case the Deposit will be returned to Buyer and
neither party will have any further obligation to the other. If, for any reason,
Buyer shall fail to provide notice of objection to any matter related to the
Property or of its decision to decline to purchase the Property on or before the
expiration of the Due Diligence Period, Buyer shall be deemed to have approved
such matter and waived any condition to closing relative to such matter.
Section 4.4 Waiver. Buyer may, at any time or times on or
------
before the Closing Date, at its election, waive in writing, in part or in whole
any of the conditions precedent to Buyer's obligation to perform its obligations
hereunder, and Buyer's consent to the Close of Escrow pursuant to this Agreement
shall waive all such conditions. No such waiver shall reduce or eliminate the
rights or remedies of Buyer by reason of any breach of any obligation, agreement
or covenant of Seller hereunder.
Section 4.5 Termination. Upon receipt by Seller of any notice
-----------
of objection to any matter related to the Property, by written notice to Buyer,
Seller may elect to cure the matter objected to by Buyer, provided Seller will
provide Buyer with notice no later than five (5) days after receipt of Buyer's
notice that it has made such election. If Seller does not provide a notice of
intention to cure as specified in the foregoing sentence, it will be deemed to
have elected not to cure and this agreement will terminate unless Buyer, by
written notice provided to Seller within five (5) days after the last date upon
which Seller could have provided its notice of intention to cure, waives the
matter which was the subject of its objection. In the event that any of the
matters objected to by Buyer as to which Seller has made an election to cure are
not cured by Seller on or before ten (10) business days before the Closing Date,
and any of the foregoing matters are not waived by Buyer pursuant to Section
-------
4.4, or in the event of any other circumstance (including damage or destruction
- ---
to any Improvements, Buyer's declining to purchase the property for no stated
reason, failure of Buyer to satisfy the terms and conditions of the Application
as set forth in Section 4.8 or failure of Seller to provide the Purchase Money
Financing or failure of the parties to agree on the form of purchase-money loan
documents or the failure to occur of any of the conditions to Closing of either
party provided in the Agreement) under which Buyer or Seller has a right to
terminate this Agreement, the party exercising the right to terminate, by
written notice given to the other party, may terminate this Agreement and be
released from all obligations hereunder. If any of the foregoing events shall
occur, all funds theretofore deposited in escrow by Buyer, including the
Deposit, together with all interest accrued thereon or paid by Buyer to Seller
outside of escrow, shall immediately be returned to Buyer, and all documents
theretofore deposited in escrow by Buyer or Seller shall be returned to the
party on whose behalf they were deposited.
Section 4.6 "AS-IS" Sale. Except to the extent specifically
------------
provided to the contrary in this paragraph, Buyer shall rely solely on its own
investigations with respect to all matters related to the Property, including,
without limitation, the physical or environmental condition of the Property and
any water rights or the sufficiency of any water supplies to the Property, or
matters related to the zoning, marketability, economic viability or the value of
the Property. Buyer acknowledges that (a) Seller has not made, nor shall Buyer
rely on any statements or representations made by Seller with respect to any
matters related to the Property, other than any representations and warranties
set forth in this Agreement, including any and all exhibits thereto (which
representations and warranties shall be deemed to include the warranties of
title implicit in the
4
<PAGE>
Grant Deed); (b) that all documents and instruments delivered to or made
available to Buyer have been provided without representation or warranty
whatsoever, other than the representations and warranties set forth in this
Agreement and (c) Buyer has represented to Seller, and Seller has expressed its
reliance upon Buyer's representation that Buyer is a sophisticated investor in
properties such as the Property and has or has available to it the expertise to
properly and fully investigate all matters related to the physical condition,
zoning, marketability, economic viability or value of the Property. Buyer shall
accept the Property in "AS-IS" condition without representation or warranty of
Seller whatsoever, except as expressly set forth in this Agreement and the
exhibits thereto (including any warranties as to title set implicit in the Grant
Deed).
Buyer agrees that, from and after the Closing Date, Buyer, for itself and
its agents, affiliates, successors and assigns, hereby RELEASES AND FOREVER
DISCHARGES Seller, its agents, affiliates, successors and assignees from, and
waives any right to proceed against Seller for, any and all rights, claims and
demands at law or in equity relating to the physical, environmental, economic or
legal condition of the Property. Notwithstanding the foregoing, Buyer expressly
reserves any and all claims and demands at law or in equity arising from (i)
breach of any warranties as to title implicit in the Grant Deed; (ii) the
falseness, inaccuracy or breach of any representations, warranties and/or
indemnities contained in any bill of sale transferring title to Personal
Property and/or improvements and/or in the Assignment of Intangible Property or
(iii) the knowing falseness or inaccuracy of any representation, warranty or
covenant specifically set forth in this Agreement and/or any exhibits thereto
(iv) any fraud or intentional misrepresentations. WITHOUT LIMITING THE
FOREGOING, BUYER HEREBY SPECIFICALLY WAIVES, IN CONNECTION WITH THE MATTERS
RELEASED ABOVE (PROVIDED THE CLAIMS AND DEMANDS AT LAW AND IN EQUITY
SPECIFICALLY RESERVED TO BUYER HEREIN ARE EXPRESSLY EXCLUDED FROM THE WAIVER OF
SUCH PROVISION), THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542 WHICH
PROVIDE:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR."
BUYER HEREBY ACKNOWLEDGES THAT BUYER HAS CAREFULLY REVIEWED THIS SUBSECTION AND
DISCUSSED ITS IMPACT WITH LEGAL COUNSEL, AND THAT THE PROVISIONS OF THIS
SUBSECTION ARE A MATERIAL PART OF THIS AGREEMENT.
/s/ S. Craig Tompkins
---------------------
BUYER
Section 4.7 Corporate Approval. Buyer's obligation to purchase the
------------------
Property is conditioned on the approval on or before the expiration of the Due
Diligence Period, of the terms and conditions of this Agreement, by the Board of
Directors of Buyer.
Section 4.8 Purchase Money Mortgage. It shall be a condition to Buyer's
-----------------------
obligation to purchase the Property that it obtain the Purchase Money Financing
from Seller in the amount of $4,050,000, which shall generally be on the terms
and conditions contained in the Application attached hereto as Schedule I (the
----------
"Application"). If the parties are unable to reasonably agree on the form of
Loan Documents pursuant to the Application on or before the expiration of the
Due Diligence Period, either party shall have the right to terminate this
contract pursuant to Section 4.5 hereof. Buyer shall submit the Application,
-----------
together with any relevant fees on or before five (5) days after the date of the
Expiration of the Due Diligence Period. The Interest Rate (as defined in the
Application) shall be determined as of the date Buyer submits the Application
and fees. Provided all of the terms and conditions of the Application shall be
satisfied and Buyer shall not have terminated, breached or repudiated this
Agreement or a Termination Event (as defined in the Application) shall have
occurred, Lender shall issue its Commitment on or before five (5) business days
prior to the Closing Date, subject to the conditions of the Application.
Section 4.9 Matters Related to Lead-Based Paint. Buyer acknowledges that
-----------------------------------
there is a residential structure located on the property, which may have been
constructed prior to 1978. This contract is contingent upon a risk assessment or
inspection of the property for the presence of lead-based paint and/or lead-
based paint hazards at the Buyer's expense provided Buyer shall have until 9:OO
P.M. on the expiration of the Due Diligence Period to complete its assessment.
This contingency will be deemed
5
<PAGE>
satisfied on above date unless the Buyer (or Buyer's agent) delivers to Seller
(or Seller's agent) a written contract addendum listing the specific existing
deficiencies and corrections needed, together with a copy of the inspection
and/or risk assessment report. The Seller may, at the Seller's option within
five (5) days after delivery of the addendum, elect in writing whether to
correct the condition(s) prior to the Closing Date. If the Seller will correct
the condition(s), the Seller shall furnish Buyer with certification from a risk
assessment or inspector demonstrating that the condition(s) has been remedied
before the Closing Date. If the Seller does not elect to make the repairs, or if
the Seller makes a counter-offer, the Buyer shall, within one (1) business day,
respond to the counter-offer or remove this contingency and accept the property
in "as-is" condition, or this contract shall become void. The Buyer may waive
this condition at any time, with or without cause. In addition, it shall be a
condition of Seller's obligation to complete the sale of the Property hereunder,
that Buyer execute and return to Seller the attachment in the form of Exhibit E
---------
to this contract covering matters related to lead-based paint, promptly after
execution of this Agreement.
Section 4.9 [Intentionally Deleted]
ARTICLE 5. REPRESENTATIONS AND WARRANTIES
------------------------------
Section 5.1 Seller's Representations and Warranties. Seller hereby makes
---------------------------------------
the following representations and warranties. Where the term "best knowledge" is
used, it shall be construed to mean the actual knowledge of Roderick T.
Robertson, who is the person within Seller who has responsibility for matters
related to the management of the Property:
(a) To the best knowledge of Seller, all management, maintenance,
operating, service and all other written contracts of similar nature affecting
the Property which were entered into by Seller or are in Seller's possession
have been delivered to Buyer.
(b) To the best knowledge of Seller, except for the management,
maintenance, operating, service and other agreements affecting the Property, and
the documents referenced in the Preliminary Title Report, Seller has not entered
into or undertaken any written or oral commitments, agreements or obligations of
any kind currently affecting the Property.
(c) Seller is duly organized and existing under the laws of the state of
New Jersey and is qualified to do business in California. As of the date of
execution of this Agreement by Seller, Seller has the full right and authority
to enter into this Agreement, consummate the sale, transfers and assignments
contemplated herein and otherwise perform its obligations under this Agreement
and no further approvals are required to consummate the transactions
contemplated hereby.
ARTICLE 6. COVENANTS OF SELLER
-------------------
Section 6.1 Covenants. In addition to the covenants of Seller contained
---------
elsewhere in this Agreement, Seller hereby covenants with Buyer as follows,
each of which covenants is material and being relied upon by Buyer:
(a) (i) Seller has delivered or shall deliver to Buyer within five (5)
business days after execution of this Agreement the following documents:
(A) all equipment rental agreements or leases, all service,
maintenance and operating contracts affecting the Property; and
(B) a list certified by Seller describing all Personal Property, if
any is included.
(ii) Seller shall deliver to Buyer within three (3) business days
after Buyer's request such other written information relating to the Property as
Buyer may reasonably request, in writing, prior to the expiration of the Due
Diligence Period if such information shall be in the possession of Seller.
6
<PAGE>
(b) Seller shall not (i) enter into any contract with respect to the
Property which will survive the Close of Escrow or otherwise affect the use,
operation or enjoyment of the Property after the Close of Escrow or (ii) change,
modify, supplement, amend or cancel any existing contract or agreement relating
to the Property if such change modification or supplement would survive the
Close of Escrow.
(c) At all times prior to the Close of Escrow, Seller shall (i) operate
and manage or to the extent within the control of Seller, cause to be operated
and managed the Property in a manner consistent with prior years' maintenance,
including ordinary, reasonable and necessary cultural practices, provided,
however, Seller shall reasonably consult with Buyer on matenal cultural
practices, such as, for example, block selection for growth regulator spraying,
and provided further, if actual expenses are expected to exceed the 1997 budget
of $523,377.00 for the months of July through October, Seller will notify Buyer
and consult with respect to any over-budget expenses (the above amount plus any
additional expenses approved in writing by Buyer is referred to herein as the
"Approved Budget"), (ii) maintain the Property in a state of repair and working
order comparable to prior years' maintenance, subject to the proviso contained
in the foregoing subsection and (iii) perform when due all of Seller's
obligations under any agreements relating to the Property. Seller shall not
remove any of the Personal Property or fixtures from the Property unless
replaced by personal property or fixtures of comparable value. Seller shall
deliver the Personal Property at the Close of Escrow in a condition comparable
to the condition of the Personal Property on the date of this Agreement.
(d) Seller shall pay in full, prior to the Closing Date, all bills and
invoices for labor, goods, material and services of any kind relating to the
Property, utility charges relating to the period pnor to the Closing Date.
(e) After the date hereof and prior to the Closing Date, Seller shall not
alienate, encumber or otherwise transfer any part of the Property or any
interest therein.
(f) Prior to the Close of Escrow, Seller shall pay in full all general,
special or other assessments relating to the Property that are then due and
owing and attributable to the period of Seller's ownership.
ARTICLE 7. TITLE, ESCROW AND CLOSING
-------------------------
Section 7.1 Escrow. Seller has opened Escrow No 19996.10 (the "Escrow")
------
with the Title Company for the purpose of consummating the purchase and sale of
the Property. On or before the Closing Date (as defined below), Buyer and Seller
shall provide separate escrow instructions to the Title Company consistent with
the terms and conditions of this Agreement.
Section 7.2 Closing Date. Buyer and Seller shall consummate the
------------
transaction contemplated herein through Escrow on the Closing Date.
Section 7.3 Deposit of Documents and Funds.
------------------------------
(a) Seller shall deposit or cause to be deposited with Buyer or into
escrow with the Title Company on or before the Closing Date the following
documents:
(i) The duly executed and acknowledged Deed;
(ii) A duly executed Bill of Sale in the form attached hereto as
Exhibit A;
---------
(iii) A duly executed Assignment of Warranties, Contracts and
Intangible Property in the form attached hereto as Exhibit B;
---------
(iv) A duly executed FIRPTA Certificate in the form attached
hereto as Exhibit C;
---------
(v) A certificate updating the representations and warranties
contained in Article 5 of this Agreement as of the Closing
Date; and
(vi) Seller's written escrow instructions to close escrow in
accordance with the terms of this Agreement, including
directions to pay the commission of the Brokers.
(b) Buyer shall deposit or cause to be deposited with Seller or into
escrow with the Title
7
<PAGE>
Company on or before the Closing Date the following funds and documents:
(i) Cash or certified funds by wire transfer in the amount of
the Purchase Price less the Deposit and any other credits
in favor of Buyer ("Seller's Funds");
(ii) [INTENTIONALLY DELETED]
(iii) A dully executed counterpart of the Assignment of
Warranties, Contracts and Intangible Property in the form
attached hereto as Exhibit B; and
---------
(iv) Buyer's written escrow instructions to close escrow in
accordance with the terms of this Agreement.
Section 7.4 Closing. The Title Company shall close escrow on the
-------
Closing Date when it is in a position to issue the Title
Policy. The Title Company shall close escrow by:
(a) Recording the Deed;
(b) Issuing to Buyer the Title Policy;
(c) If such documents are required to be deposited into escrow by
Seller, delivering to Buyer the Bill of Sale, an executed counterpart of the
Assignment of Warranties, Contracts and Intangible Property and the FIRPTA
Certificate;
(d) Delivering to Seller the Seller's Funds, less funds sufficient to
pay the commission of CAPS, Seller's share of closing costs and any adjustments
for prorations, and, if deposited in Escrow, duly executed counterparts of the
Assignment Warranties, Contracts and Intangible Property.
Section 7.5 Prorations. Real estate taxes and payments under any
----------
contracts affecting the property that shall survive the Close of Escrow shall
be prorated between Seller and Buyer as of the Closing Date. Any sales taxes
assessed on the transfer of the Personal Property shall be the responsibility of
Buyer, and Buyer hereby agrees to indemnify Seller for the payment of any such
taxes, which indemnity will survive the Closing hereunder.
Section 7.5A Cultural Costs. Buyer will reimburse Seller, though the
--------------
Escrow for ordinary, reasonable and necessary cultural costs for the care,
management and maintenance of the Property incurred subsequent to July 1, 1997
through the Closing Date, including any costs or expenses included in an
Approved Budget. If there are any expenditures that are reasonable and
necessary cultural costs for the care, management and maintenance of the
Property incurred subsequent to July 1, 1997 through the Closing Date and are
made other than in compliance with an Approved Budget, the parties shall agree
in writing as to whether all or a portion of such costs or expenses shall be
paid through Escrow. If the parties are unable to reasonably agree on the
amount of the reimbursement of any costs or expenses reasonable and necessary
for the care, management and maintenance of the Property incurred by Seller but
not included in the Approved Budget, either party may send a notice to the other
and if agreement is not reached in ten (10) days, the parties shall submit the
matter to an individual mutually acceptable to the parties (the "Arbitrator")
for arbitration, provided (a) the Arbitrator will have fifteen (15) days after
his or her appointment to render a decision; (b) each party will specify in the
notice the amount it claims for such expenses; (b) the Arbitrator shall make its
decision consistent with custom and practice in Kern County, California for
citrus crops and such arbitration shall be conducted in compliance with the
rules of the AAA as to such arbitration, or as otherwise agreed by the parties
and indicated in writing in their notice to the Arbitrator in connection with
the Arbitrator's appointment and (d) the losing party to such arbitration shall
pay the cost of the arbitration (the losing party being defined as the party
whose claim for expenses varies the most from the amount determined by the
arbitrator to be owing as cultural costs). At the conclusion of such
arbitration, the parties will provide joint direction to Escrow Holder as to the
treatment of cultural costs in Escrow, consistent with the result of the
arbitration.
Section 7.6 Closing Costs. Seller shall pay the cost of the portion
-------------
of the title insurance premium attributable to a CLTA Owner's Standard Policy
and the title premium associated with any title policy obtained in connection
with the Purchase Money Financing. Buyer shall pay (a) all recording fees and
transfer, documentary stamp or similar taxes or charges, including recording
charges associated with the Purchase Money Financing and (b) the portion of the
title insurance premium attributable to extended owner's coverage. Seller and
Buyer shall each pay their own attorneys' fees. Escrow fees of the Title
Company shall be divided equally between Seller and Buyer, provided any party
breaching this Agreement
8
<PAGE>
shall pay the full amount of such fees if the transaction contemplated by this
Agreement is not consummated by reason of such party's breach of this Agreement.
Section 7.7 Possession. Right to possession of the Property
----------
shall transfer to Buyer on the Closing date.
ARTICLE 8. REMEDIES
--------
If Seller shall have failed to perform any of the covenants and
agreements contained herein to be performed by Seller within the time for
performance as specified herein (including Seller's obligation to close), Buyer
may elect to terminate Buyer's obligations under this Agreement by written
notice to Seller. The rights and remedies of Buyer set forth in this Section
shall be in addition to all rights and remedies otherwise applicable to or
provided in this Agreement or otherwise available at law or in equity, it being
understood that Buyer's rights and remedies under this Agreement shall be non-
exclusive and cumulative and that the exercise of one remedy or form of relief
available to Buyer shall not be exclusive or constitute a waiver of any other.
ARTICLE 9. DAMAGE AND DESTRUCTION; EMINENT DOMAIN
--------------------------------------
(a) If, prior to the Closing Date, any of the Property is the subject of
any eminent domain or condemnation proceedings, whether actual or threatened,
temporary or permanent, partial or total (collectively, a "Condemnation
Action"), and such Condemnation Action would, in Buyer's judgment, adversely
affect the use of the Property or result in the diminution in value of the
Property by more than Fifty Thousand Dollars ($50,000.00), Buyer may, at its
option, either (i) terminate this Agreement as provided in Section 4.5, or (ii)
-----------
close the transaction contemplated herein, in which event Seller shall assign to
Buyer all of Seller's right, title and interest with respect to such
Condemnation Action and any awards, damages or other compensation arising from
such Condemnation Action (collectively, the "Condemnation Rights and Awards").
Unless or until Buyer has exercised its right to terminate this Agreement,
Seller shall take no action with respect to such Condemnation Action without the
prior written consent of Buyer. If, prior to the Closing Date, any of the Land
and/or the Improvements are the subject of a Condemnation Action, and such
Condemnation Action would not, in Buyer's judgment, adversely affect the use of
the Property or result in the diminution in value of the Property by more than
Fifty Thousand Dollars ($50,000.00), the Closing shall occur and Seller shall
assign to Buyer all of Seller's Condemnation Rights and Awards. Seller shall
immediately give Buyer written notice of any Condemnation Action.
(b) If the Property, or any part thereof, is materially damaged or
destroyed and not restored to the satisfaction of Buyer prior to the Closing
Date, the Purchaser may terminate this Agreement, in which case the Deposit
shall be returned to Buyer and neither party will have any further obligation to
the other. If Buyer, however, elects to accept the Property, all proceeds of
insurance paid or payable to Seller by reason of the damage or destruction
(including, without limitation, for lost profits from tree or crop damage or
destruction) shall be paid over or assigned to Buyer, and Seller shall also pay
to Buyer the amount of any deductible or coinsurance under any policy. In the
event of nonmaterial damage to the Property, which damage Seller is unwilling or
unable to repair prior to Closing, Buyer shall be entitled to a reduction in the
Purchase Price (which shall be applicable to the cash portion thereof payable at
Close of Escrow) to the extent of the cost of repairing the damage.
<PAGE>
ARTICLE 10. COMMISSIONS.
-----------
Seller and Buyer each warrant to the other that their sole contact with
the other or with the Property regarding this transaction has been through the
Fresno, California office of Capital Agricultural Property Services, Inc.
("CAPS"), as the representative of Seller and James D. Vandever ("Vandever;" and
both are collectively referred to herein as "Brokers"). Seller shall pay, at
closing, through escrow a commission to Brokers equal to four percent (4%) of
the Purchase Price, which shall be paid 50% to CAPS and 50% to Vandever. Seller
and Buyer warrant that, other than the commission payable to the Brokers, no
person or entity can properly claim a right to a commission, finder's fee or
other compensation based upon contacts or understandings between such claimant
and Buyer or Seller with respect to the transaction contemplated by this
Agreement and Buyer and Seller each agrees to protect, defend and indemnify the
other against and to hold it harmless from any claim, loss, cost or expense,
including, without limitation, attorneys' fees and returned commissions,
resulting from any claim for a commission, finder's fee or other compensation by
any person or entity based upon such contacts or understandings.
ARTICLE 11. GENERAL PROVISIONS
------- ----------
Section 11.1 Notices. Any notices required to be given hereunder shall be
-------
given in writing and shall be served either personally, overnight delivery by a
recognized express company with acknowledgment of receipt by addressee, by
telecopier provided receipt thereof is immediately confirmed telephonically with
the person identified below, or delivered by certified or registered mail,
return receipt requested, postage prepaid and addressed to the following:
TO SELLER: The Prudential Insurance Company of America
Woodward Centre
7108 N. Fresno Street, Ste 400
Fresno, California 93720
Attention: Roderick T. Robertson, Vice President, Agricultural
Investments
WITH COPIES TO: Capital Agricultural Property Services, Inc.
Woodward Centre
7108 N. Fresno Street, Ste 401
Fresno, California 93720
Attention: Dave Moore
AND: The Prudential Realty Group
Four Embarcadero Center, Suite 2700
San Francisco, California 94111
Attention: Regional Counsel
TO BUYER: Big 4 Farming LLC
c/o Citadel Holding Corporation
550 South Hope Street, Suite 1825
Los Angeles, CA 90071
Attn: S. Craig Tompkins, Vice Chairman
Notices shall be deemed received at the earlier of actual receipt or the date on
which receipt is acknowledged.
Section 11.2 Entire Agreement. This Agreement, together with the exhibits
----------------
hereto, contains all representations and the entire understanding between the
parties hereto with respect to the subject matter hereof. Any prior
correspondence, memoranda or agreements are replaced in total by this Agreement
and the exhibits hereto.
Section 11.3 Time. Time is of the essence in the performance of the
----
parties' respective obligations hereunder.
Section 11.4 Attorneys' Fees. In the event of any dispute between the
---------------
parties hereto, whether
10
<PAGE>
relating to this Agreement or any agreement or instrument executed in connection
herewith, the prevailing party shall be reimbursed for all reasonable costs
incurred, including reasonable attorneys' fees. The words "attorneys' fees" as
sued in this Section 11.4 and elsewhere in this Agreement shall include, in
------------
addition to the reasonable fees and costs of outside counsel retained by a
party, the cost of in-house counsel, as determined by the employer of such
counsel, which may be based on the market rate prevailing in the community where
such in-house counsel is located for attorneys of comparable experience and
reputation, and any court costs.
Section 11.5 [Intentionally Deleted]
Section 11.6 Successors and Assigns. Seller may assign this Agreement
----------------------
without the consent of Buyer. This Agreement may be assigned by buyer, to one or
more persons or entities, so long as Buyer shall remain liable on this Agreement
and the sale of the Property to any assignee shall not violate any applicable
law, including ERISA. Buyer will give notice to Seller of the final vesting not
later than fifteen (15) days prior to the Closing Date. Subject to the foregoing
provisions, this Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns.
Section 11.7 Counterparts. This Agreement and the exhibits hereto may be
------------
executed in one or more counterparts and all so executed shall constitute one
contract, binding on all of the parties hereto, notwithstanding that all of the
parties are not signatory to the same counterpart.
Section 11.8 Construction. The parties acknowledge that each party and
------------
its counsel have reviewed and revised this Agreement and that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement or
any amendments or exhibits hereto. The use in this Agreement, or in any
agreement, instrument or certificate delivered in connection herewith, of the
words "including", "such as", or words of similar import, when following any
general term, statement or matter shall not be construed to limit such
statement, term or matter to the specific items or matters, whether or not
language of non-limitation such as "without limitation" or "but not limited to",
or words of similar import are used with reference thereto, but rather shall be
deemed to refer to all other items or matters that could reasonably fall within
the broadest possible scope of such statement, term or matter.
Section 11.9 Governing Law. This Agreement and, unless otherwise
-------------
specifically provided therein, all agreements or instruments executed in
connection herewith, shall be governed by and in accordance with the laws of the
State of California.
Section 11.10 Third Parties. Nothing contained in this Agreement, express
-------------
or implied, is intended to or shall confer upon any person or entity, other than
the parties hereto and their permitted successors or assigns, any rights or
remedies under or by reason of this Agreement.
Section 11.11 Severability. If any one or more of the provisions in this
------------
Agreement shall for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision hereof, and this Agreement shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
11
<PAGE>
SECTION 11.12 LIQUIDATED DAMAGES. IN THE EVENT ALL OF THE CONDITIONS TO
------------------
BUYER'S OBLIGATION TO PURCHASE THE PROPERTY HAVE BEEN SATISFIED OR WAIVED AND
BUYER DOES NOT PURCHASE THE PROPERTY, PROVIDED SELLER HAS PERFORMED EACH AND
EVERY OBLIGATION ON ITS PART TO PERFORM HEREUNDER, SELLER SHALL HAVE THE RIGHT
TO TERMINATE THIS AGREEMENT FORTHWITH AND WITHOUT FURTHER OBLIGATIONS TO
BUYER AND TO OBTAIN IMMEDIATE DISBURSEMENT OF AND TO RETAIN THE DEPOSIT THEN
HELD BY ESCROW HOLDER. SUCH RETENTION OF THE DEPOSIT IS NOT INTENDED AS A
FORFEITURE OR PENALTY, BUT INSTEAD IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES
TO SELLER. THE PARTIES ACKNOWLEDGE THAT THE ACTUAL DAMAGES WHICH WOULD
RESULT TO SELLER AS A RESULT OF SUCH FAILURE WOULD BE EXTREMELY DIFFICULT TO
ESTABLISH. IN ADDITION, BUYER DESIRES TO HAVE A LIMITATION PUT UPON ITS
POTENTIAL LIABILITY TO SELLER IN THE EVENT THAT THIS TRANSACTION SHALL FAIL TO
CLOSE. BY PLACING THEIR RESPECTIVE INITIALS IN THE SPACES HEREINAFTER PROVIDED,
THE PARTIES ACKNOWLEDGE THAT UPON A DEFAULT BY BUYER UNDER THE TERMS OF THIS
AGREEMENT SELLER SHALL BE ENTITLED TO LIQUIDATED DAMAGES IN THE AMOUNT OF THE
DEPOSIT.
INITIALS: /s/ SCT /s/ RTR
----------- --------------
BUYER SELLER
Section 11.13 Exchange. Seller may wish to dispose of the Property by
--------
means of a like-kind exchange qualifying for tax-free treatment pursuant to
Internal Revenue Code Section 1031 (an "Exchange"). Buyer will cooperate with
Seller in effecting an Exchange, provided that such cooperation does not delay
the Closing and that Seller would (a) bear and pay for all additional
transaction costs attributable to the Exchange and (b) indemnify Buyer against
any and all losses and liabilities that Buyer may incur as a result of its
participation in the Exchange, in connection with its acquisition of the
Property.
Section 11.14 Expressions of Interest. Upon execution of this contract
-----------------------
neither Seller nor Broker will seek or accept other offers or expressions of
interest on the Property until such time as the Due Diligence Period terminates.
If Seller or CAPS receives any offer or expressions of interest during this
period, the party receiving such offer or expression will promptly advise
Purchaser that such offer or expression has been made. Seller will not accept
any offer unless Buyer terminates this contract pursuant to Section 4.5 hereof
after the Due Diligence Period. The Confidentiality Agreement dated May 21,
1997, which is incorporated herein by this reference, will remain in effect
until the Due Diligence Period shall terminate, as provided in the
Confidentiality Agreement.
Section 11.15 Survival. The obligations, representations and warranties
--------
and the remedies for any breach of such obligations, representations and
warranties contained in this Agreement or the exhibits thereto, shall survive
the Closing, to the extent not released pursuant to Section 4.6 hereof.
-----------
IN WITNESS WHEREOF, Buyer and Seller have executed this
Agreement as of the date and year first above written.
SELLER:
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, A
NEW JERSEY CORPORATION
By: /s/ R. T. Robertson
-----------------------------------
Its: Vice President
-----------------------
BUYER:
BIG 4 FARMING, LLC, a limited liability company
By: /s/ S. Craig Tompkins
-----------------------------------
Its: President
-----------------------
12
<PAGE>
EXHIBIT 10.62
SECOND AMENDMENT TO AGREEMENT
OF PURCHASE AND SALE
THIS SECOND AMENDMENT TO AGREEMENT OF PURCHASE AND SALE (the "Amendment")
is made as of this 5th day of November, 1997 by and between BIG 4 FARMING LLC,a
limited liability company ("Buyer"), and THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA, a New Jersey corporation ("Seller").
RECITAL
Buyer and Seller entered into a certain Agreement for Purchase and Sale
dated as of August 29, 1997, which was further amended by a First Amendment to
Agreement of Purchase and Sale dated September 26, 1997 (collectively, the
"Agreement"). Buyer and Seller wish to amend the Agreement to (a) provide that
the Due Diligence Period, as defined in the Agreement, shall expire on a date no
later than November 5, 1997, except as provided herein; (b) provide for an
increase in the Deposit required of Buyer hereunder; (c) provide for an
indemnity of Buyer by Seller on the terms and conditions provided herein and in
the attached Exhibit A, and to make certain conforming changes to the Agreement
---------
in connection therewith (d) to provide that the Closing Date shall be a date no
later than December 15, 1997, unless extended as provided herein; (e) provide
that Seller shall use reasonable efforts, during the Due Diligence Period, to
issue to the Kern/Tulare Water Storage District a corrective deed to certain
reservoir property more particularly described in Exhibit B to this Agreement.
---------
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Buyer and Seller agree as follows:
1. DEFINITIONS. All capitalized terms used in this Amendment and not defined in
-----------
this Amendment shall have the meanings ascribed in the Agreement. From and after
the date of this Amendment, the term "Agreement", as used in the Agreement shall
mean the Agreement as amended by this Amendment.
2. DUE DILIGENCE PERIOD. Seller agrees that notwithstanding anything to the
--------------------
contrary contained in the Agreement, the Due Diligence Period shall be extended
to NOVEMBER 5, 1997.
3. AMENDMENTS TO AGREEMENT.
------------------------
a) SECTION 2.2 of the Agreement is hereby deleted and replaced in its
entirety with the following (substantive changes are indicated by bold
underlined text):
Section 2.2 Purchase Price. The Purchase Price for the Property
--------------
(the "Purchase Price") shall be Six Million Seven Hundred Fifty Thousand
Dollars ($6,750,000.00). Buyer shall pay to Seller the Purchase Price in
the following manner:
-1-
<PAGE>
(a) BUYER HAS DEPOSITED TWO HUNDRED FIFTY THOUSAND DOLLARS
------------------------------------------------------
($250,000.00) WITH THE TITLE COMPANY, WHICH THE TITLE COMPANY HAS PLACED IN
---------------------------------------------------------------------------
AN INTEREST BEARING ACCOUNT. AT THE EXPIRATION OF THE DUE DILIGENCE PERIOD,
---------------------------------------------------------------------------
PROVIDED THAT BUYER HAS NOT ELECTED TO WITHDRAW AS PROVIDED IN SECTION 4.3,
---------------------------------------------------------------------------
BUYER SHALL DEPOSIT AN ADDITIONAL SEVEN HUNDRED FIFTY THOUSAND DOLLARS
---------------------------------------------------------------------------
($750,000.00) WITH THE TITLE COMPANY WHICH THE TITLE COMPANY SHALL PLACE IN
---------------------------------------------------------------------------
THE SAME INTEREST BEARING ACCOUNT, SO THAT THE TOTAL DEPOSIT SHALL EQUAL
---------------------------------------------------------------------------
ONE MILLION DOLLARS ($1,000,000.00) PLUS ACCRUED INTEREST. Such funds, when
----------------------------------------------------------
deposited with the Title Company, and all interest earned thereon, shall be
referred to as the "Deposit." The Deposit shall be non-refundable upon the
earlier of (i) Buyer's written approval of all due diligence matters
related to the Property pursuant to Article 4 or (ii) the expiration of the
Due Diligence Period, except as provided in Section 4.5 which provides for
-----------
a refund of the Deposit in case of a termination of this Agreement due to
Seller's inability or unwillingness to cure or for any other reason
specified in Section 4.5.
-----------
(b) IN THE EVENT THAT, AT BUYER'S REQUEST AND DELIVERY OF THE NOTICE
-------------------------------------------------------------------
DESCRIBED IN PARAGRAPH 5 OF THIS SECOND AMENDMENT, THE CLOSING DATE IS
---------------------------------------------------------------------------
EXTENDED TO THE EXTENDED CLOSING DATE (AS DEFINED BELOW), THE TITLE COMPANY
---------------------------------------------------------------------------
SHALL IMMEDIATELY AND WITHOUT FURTHER INSTRUCTION, NOTICE OR REQUEST FROM
---------------------------------------------------------------------------
EITHER PARTY, RELEASE AND DELIVER THE ENTIRE DEPOSIT TO SELLER.
---------------------------------------------------------------------------
NOTWITHSTANDING THE FOREGOING, IF BUYER PERFORMS ALL OF ITS OBLIGATIONS
---------------------------------------------------------------------------
UNDER THIS AGREEMENT ON OR BEFORE THE EXTENDED CLOSING DATE, THEN UPON THE
---------------------------------------------------------------------------
CLOSE OF ESCROW, SELLER WILL CREDIT THE PURCHASE PRICE FOR BUYER'S BENEFIT
---------------------------------------------------------------------------
IN AN AMOUNT EQUAL TO THE DEPOSIT DISBURSED TO SELLER. CONCURRENTLY WITH
---------------------------------------------------------------------------
BUYER'S NOTICE AND REQUEST FOR EXTENSION OF THE CLOSING DATE AS PROVIDED
---------------------------------------------------------------------------
IN PARAGRAPH 5 OF THIS SECOND AMENDMENT, BUYER SHALL DEPOSIT AN ADDITIONAL
---------------------------------------------------------------------------
ONE MILLION DOLLARS ($1,000,000.00) WITH THE TITLE COMPANY, WHICH THE
---------------------------------------------------------------------------
TITLE COMPANY SHALL DEPOSIT INTO AN INTEREST BEARING ACCOUNT. SUCH
---------------------------------------------------------------------------
ADDITIONAL FUNDS AND ALL INTEREST EARNED THEREON SHALL BE REFERRED TO AS
---------------------------------------------------------------------------
THE "EXTENSION DEPOSIT." THE EXTENSION DEPOSIT SHALL BE NON-RUFUNDABLE AND
---------------------------------------------------------------------------
SHALL BE PAID TO SELLER ON ACCOUNT OF THE PURCHASE PRICE AT THE CLOSE OF
---------------------------------------------------------------------------
ESCROW OR AS LIQUIDATED DAMAGES IN THE EVENT OF BUYER'S DEFAULT AS
---------------------------------------------------------------------------
PROVIDED IN SECTION 11.12, EXCEPT AS PROVIDED IN SECTION 4.5 WHICH
---------------------------------------------------------------------------
PROVIDES FOR A REFUND OF THE DEPOSIT OR THE EXTENSION DEPOSIT IN CASE OF A
---------------------------------------------------------------------------
TERMINATION OF THIS AGREEMENT DUE TO SELLER'S INABILITY OR UNWILLINGNESS
---------------------------------------------------------------------------
TO CURE OR FOR ANY OTHER REASON SPECIFIED IN SECTION 4.5.
---------------------------------------------------------
(c) Seller shall provide purchase money financing in the amount of Four
Million Fifty Thousand Dollars ($4,050,000.00) (the "Purchase Money
Financing"), subject, however, to the terms and conditions of an
Application for First Mortgage Loan to be made by Buyer in favor of Seller
and the other terms and conditions set forth in Section 4 8.
-----------
-2-
<PAGE>
(d) On The Closing Date OR THE EXTENDED CLOSING DATE, AS THE
------------------------------------
CASE MAY BE, Buyer shall deposit with TITLE COMPANY by federal wire
----------- -------------
transfer or cashier's check the remaining balance of the PURCHASE PRICE
(I.E., MINUS THE DEPOSIT AND THE EXTENSION DEPOSIT, IF APPLICABLE, HELD BY
--------------------------------------------------------------------------
TITLE COMPANY OR SELLER, AND THE PURCHASE MONEY FINANCING), plus or minus
----------------------------------------------------------
closing adjustments and prorations, if any.
b) SECTION 4.5 of the Agreement is hereby amended by replacing the
-----------
last sentence thereof with the following (substantive changes are indicated
by bold underlined text):
If any of the foregoing events shall occur, all funds theretofore
deposited in escrow by Buyer OR PAID BY BUYER TO SELLER OUTSIDE OF ESCROW
--------------------------------------------
OR RELEASED FROM ESCROW TO SELLER, including the Deposit AND THE EXTENSION
--------------------------------- -----------------
DEPOSIT, together with all interest accrued thereon, shall immediately be
-------
returned to Buyer, and all documents theretofore deposited in escrow by
Buyer or Seller shall be returned to the party on whose behalf they were
deposited.
c) SECTION 4.6 of the Agreement is hereby deleted and replaced in its
-----------
entirety with the following (substantive changes are indicated by bold
underlined text):
Section 4.6 "AS-IS" Sale. Except to the extent specifically
------------
provided to the contrary in this paragraph, Buyer shall rely solely
on its own investigations with respect to all matters related to
the Property, including, without limitation, the physical or
environmental condition of the Property and any water rights or the
sufficiency of any water supplies to the Property, or matters
related to the zoning, marketability, economic viability or the
value of the Property. Buyer acknowledges that (a) Seller has not
made, nor shall Buyer rely on any statements or representations
made by Seller with respect to any matters related to the Property,
other than any representations and warranties OR WRITTEN
----------
INDEMNITIES set forth in this Agreement, INCLUDING ANY AMENDMENTS
----------- ------------------------
THERETO AND any and all exhibits thereto (which representations and
-----------
warranties shall be deemed to include the warranties of title
implicit in the Grant Deed); (b) all documents and instruments
delivered to or made available to Buyer have been provided without
representation or warranty whatsoever, other than the
representations and warranties set forth in this Agreement and (c)
Buyer has represented to Seller, and Seller has expressed its
reliance upon Buyer's representation that Buyer is a sophisticated
investor in properties such as the Property and has or has
available to it the expertise to properly and fully investigate
all matters related to the physical condition, zoning,
marketability, economic viability or value of the Property. Buyer
shall accept the Property in "AS-IS" condition without
representation or warranty of Seller whatsoever, except as
expressly set forth in this Agreement and the exhibits thereto
(including any warranties as to title set implicit in the Grant
Deed).
-3-
<PAGE>
Buyer agrees that, from and after the Closing Date, Buyer, for
itself and its agents, affiliates, successors and assigns, hereby
RELEASES AND FOREVER DISCHARGES Seller, its agents, affiliates,
successors and assignees from, and waives any right to proceed
against Seller for, any and all rights, claims and demands at law
or in equity relating to the physical, environmental, economic or
legal condition of the Property. Notwithstanding the foregoing,
Buyer expressly reserves any and all claims and demands at law or
in equity arising from (i) breach of any warranties as to title
implicit in the Grant Deed; (ii) the falseness, inaccuracy or
breach of any representations, warranties and/or indemnities
contained in any bill of sale transferring title to Personal
Property and/or improvements and/or in the Assignment of Intangible
Property (iii) the knowing falseness or inaccuracy of any
representation, warranty or covenant specifically set forth in this
Agreement and/or any exhibits thereto (iv) any fraud or intentional
misrepresentations OR (V) ANY CLAIMS, DEMANDS OR RIGHTS OF BUYER
---------------------------------------------
UNDER THAT CERTAIN ENVIRONMENTAL INDEMNITY ATTACHED AS AN EXHIBIT
-----------------------------------------------------------------
TO THIS AGREEMENT, PURSUANT TO THE SPECIFIC TERMS AND CONDITIONS,
-----------------------------------------------------------------
AND SUBJECT TO THE LIMITATIONS SET FORTH THEREIN. WITHOUT LIMITING
------------------------------------------------
THE FOREGOING, BUYER HEREBY SPECIFICALLY WAIVES, IN CONNECTION WITH
THE MATTERS RELEASED ABOVE (PROVIDED THE CLAIMS AND DEMANDS AT LAW
AND IN EQUITY SPECIFICALLY RESERVED TO BUYER HEREIN ARE EXPRESSLY
EXCLUDED FROM THE WAIVER OF SUCH PROVISION), THE PROVISIONS OF
CALIFORNIA CIVIL CODE SECTION 1542 WHICH PROVIDE:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT
THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM
MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR."
BUYER HEREBY ACKNOWLEDGES THAT BUYER HAS CAREFULLY REVIEWED THIS
SUBSECTION AND DISCUSSED ITS IMPACT WITH LEGAL COUNSEL, AND THAT
THE PROVISIONS OF THIS SUBSECTION ARE A MATERIAL PART OF THIS
AGREEMENT.
/s/ S. Craig Tompkins
---------------------------
BUYER
d) SECTION 11.12 of the Agreement is hereby deleted and replaced in
-------------
its entirety with the following (substantive changes are indicated by bold
underlined text):
SECTION 11.12 LIQUIDATED DAMAGES. IN THE EVENT ALL OF THE
------------------
CONDITIONS TO BUYER'S OBLIGATION TO PURCHASE THE PROPERTY HAVE BEEN
SATISFIED OR WAIVED AND BUYER DOES NOT PURCHASE THE PROPERTY,
PROVIDED SELLER HAS PERFORMED EACH AND EVERY OBLIGATION ON ITS PART
TO PERFORM HEREUNDER, SELLER SHALL HAVE THE RIGHT TO TERMINATE THIS
AGREEMENT FORTHWITH AND WITHOUT
-4-
<PAGE>
FURTHER OBLIGATIONS TO BUYER AND TO OBTAIN IMMEDIATE DISBURSEMENT
OF AND TO RETAIN THE DEPOSIT AND, PROVIDED THE CLOSING DATE HAS
----------------------------------
BEEN EXTENDED TO THE EXTENDED CLOSING DATE, THE EXTENSION DEPOSIT
-----------------------------------------------------------------
THEN HELD BY TITLE COMPANY. SUCH RETENTION OF THE DEPOSIT AND THE
------------- ---------------
EXTENSION DEPOSIT IS NOT INTENDED AS A FORFEITURE OR PENALTY, BUT
-----------------
INSTEAD IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO SELLER. THE
PARTIES ACKNOWLEDGE THAT THE ACTUAL DAMAGES WHICH WOULD RESULT TO
SELLER AS A RESULT OF SUCH FAILURE WOULD BE EXTREMELY DIFFICULT TO
ESTABLISH. IN ADDITION, BUYER DESIRES TO HAVE A LIMITATION PUT UPON
ITS POTENTIAL LIABILITY TO SELLER IN THE EVENT THAT THIS
TRANSACTION SHALL FAIL TO CLOSE. BY PLACING THEIR RESPECTIVE
INITIALS IN THE SPACES HEREINAFTER PROVIDED, THE PARTIES
ACKNOWLEDGE THAT UPON A DEFAULT BY BUYER UNDER THE TERMS OF THIS
AGREEMENT SELLER SHALL BE ENTITLED TO LIQUIDATED DAMAGES IN THE
AMOUNT OF THE DEPOSIT AND, PROVIDED THE CLOSING DATE HAS BEEN
---------------------------------------
EXTENDED TO THE EXTENDED CLOSING DATE, THE EXTENSION DEPOSIT.
------------------------------------------------------------
SCT RTR
------------- -------------
INITIALS: BUYER SELLER
4. ENVIRONMENTAL INDEMNITY. As a Closing document, Seller shall
-----------------------
deliver an Environmental Indemnity in the form attached hereto as Exhibit
-------
A.
-
5. CLOSING DATE. The Closing Date, as defined in this Agreement, is
------------
hereby changed to be a date no later than December 15, 1997. However,
subject to the provisions contained herein, the Closing Date will be
extended twenty-eight (28) days to January 12, 1998 (the "Extended Closing
Date") provided that, in the reasonable opinion of Buyer's counsel, such
additional time is needed in order for the Buyer to comply with any and all
securities laws and/or blue sky laws applicable to the distribution by
Citadel Holding Corporation to its shareholders of shares of capital stock
of a newly formed corporate partner of Buyer's anticipated assignees. Buyer
shall request such extension in writing and shall affirmatively represent
in writing that Buyer is diligently proceeding with the transaction, and
that Buyer believes that it will be able to comply with applicable
securities laws and/or blue sky laws by not later than January 12, 1998.
The extension to the Extended Closing Date shall not be deemed a waiver of
Seller's right to require complete performance of Buyer's obligations by
the Extended Closing Date, and shall not be construed as consent to any
further or future extensions.
6. BUYER'S CONDITION PRECEDENT WITH RESPECT TO RESERVOIR PARCEL. As a
------------------------------------------------------------
condition precedent to Buyer's obligation to purchase the Property, the
Kern/Tulare Water Storage District (the "District") shall have accepted and
Seller shall have recorded on or before the Closing Date, a corrective deed
to and covenant relating to the operation of that certain parcel described
in
-5-
<PAGE>
Exhibit B hereto, which constitutes a reservoir (the "Reservoir") that was
---------
defectively conveyed to the District by Seller's predecessor in interest,
provided (a) Seller shall not be required to expend any significant sums to
do so, nor to burden any property of Seller as a condition to such
conveyance, (b) if the County of Kern shall require, as a condition to the
approval of any such conveyance any condition that shall burden the
Property after the Closing Date, Seller will obtain Buyer's approval before
agreeing to any such condition, and (c) if despite reasonable efforts
Seller is unable to meet the conditions for the recording of such
corrective deed on or before the Closing Date, such failure shall not be a
default under the Agreement. Buyer hereby consents to Seller's grant to the
District of easements or licenses required by District to enable it to
access, operate and maintain the Reservoir in substantially the manner that
it has during Seller's ownership of the Property, including easements for
access, ingress and egress to the Reservoir, the operation, maintenance and
repair of the Reservoir, including dams and embankments, the placement of
equipment to be used in connection with the Reservoir, the maintenance and
repair thereof and to use, repair, maintain and replace existing pipelines
that transport irrigation water into the reservoir or otherwise distribute
it to the Property. Any other easements required by the District shall be
subject to the prior approval of Buyer which shall not be unreasonably
withheld or delayed.
7. BUYER'S CONDITION PRECEDENT WITH RESPECT TO REPRESENTATION LETTER.
-----------------------------------------------------------------
As a condition precedent to Buyer's obligation to purchase the property,
Seller shall have delivered to Buyer not later than thirty (30) days prior
to the Closing Date, an executed representation letter prepared by Buyer's
accountants in a form not materially different from the form attached
hereto as Exhibit C, provided that if the representation letter prepared by
---------
Buyer's accountants is materially different from the form attached hereto
as Exhibit C and is unacceptable to Seller, the parties shall in good faith
---------
work together with Buyer's accountants to reach agreement on the form of
such representation letter on commercially reasonable terms. If the parties
are unable to reach agreement on the form of such representation letter by
November 17, 1997, either party may terminate this Agreement by giving
written notice of termination to the other party, which such termination
shall be deemed a failure of a condition precedent to the Closing for
purposes of Section 4.5.
8. ASSIGNMENT. Buyer acknowledges that Seller's rights and duties
----------
under the Agreement may be assigned and delegated by Seller to a third
party or parties and the Property conveyed to such third parties subject to
Seller's rights and duties under the Agreement at any time without the
consent of Buyer. Provided that Buyer shall perform all of its obligations
and the transaction shall close on or before the Closing Date or Extended
Closing Date if applicable, the Deposit and Extension Deposit (if
applicable), shall be credited in partial payment of the Purchase Price
regardless of whether such Deposits have been assigned or retained by
Seller.
9. PURCHASE PRICE ALLOCATION. The parties agree that for financial and
-------------------------
income tax reporting of this transaction, the Purchase Price shall be
allocated among the property purchased as set forth on Exhibit D attached
---------
hereto and incorporated herein by reference.
10. NO OTHER AMENDMENT. Except as amended hereby, the Agreement shall
------------------
continue to be of full force and effect.
-6-
<PAGE>
11. REVISED LOAN APPLICATION. Attached hereto as ExhibiT E, IS A
------------------------ ---------
revised purchase-Money First Mortgage Loan Application, which the parties
agree shall replace and supersede the Purchase-Money First Mortgage Loan
Application attached to the Agreement as Schedule I and shall constitute
the "Application" as such term is defined in the Agreement. The parties
agree that the form of Loan Documents attached to the Purchase-Money First
Mortgage Loan Application attached hereto as Exhibit E have been approved
---------
by the parties.
6A
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of
the year and date first above written.
THE PRUDENTIAL INSURANCE BIG 4 FARMING LLC,
COMPANY OF AMERICA, a limited liability company
a New Jersey corporation
By: /s/ R.T. ROBERTSON By: /s/ S. Craig Tompkins
--------------------- -------------------------
Title: Vice President Title: President
------------------ ---------------------
-7-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 7,015
<SECURITIES> 0
<RECEIVABLES> 93
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,108
<PP&E> 14,410
<DEPRECIATION> (805)
<TOTAL-ASSETS> 29,810
<CURRENT-LIABILITIES> 1,585
<BONDS> 9,435
0
0
<COMMON> 67
<OTHER-SE> 18,723
<TOTAL-LIABILITY-AND-EQUITY> 29,810
<SALES> 3,712
<TOTAL-REVENUES> 4,211
<CGS> 1,527
<TOTAL-COSTS> 3,410
<OTHER-EXPENSES> (325)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 761
<INCOME-PRETAX> 1,126
<INCOME-TAX> 60
<INCOME-CONTINUING> 1,066
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,066
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
