<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______ to ______
Commission File No. 1-8625
-----------------
CITADEL HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-3885184
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
90071
550 SOUTH HOPE STREET, SUITE 1825 (ZIP CODE)
LOS ANGELES, CA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (213) 239-0540
Securities Registered pursuant to Section 12(b) of the Act:
Title of each class Names of each exchange on which registered
- --------------------------------------------------------------------------------
Common Stock, $0.01 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether 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 12 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K of any amendments to
this Form 10-K. [___]
The aggregate market value of voting stock held by non-affiliates of the
Registrant was $12,208,000 as of March 20, 1997.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of March 20, 1997, there
were 6,003,924 shares of Common Stock, par value $.01 per share outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
NONE.
<PAGE>
CITADEL HOLDING CORPORATION
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 1996
INDEX
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
<C> <S> <C>
PART I.
Item 1. Business 1
Item 2. Properties 3
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 6
PART II.
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters 7
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations ("MD&A") 11
Item 8. Financial Statements and Supplementary Data 19
Item 9. Change in and Disagreements with Accountants on Accounting and
Financial Disclosure 41
PART III.
Item 10. Directors and Executive Officers of the Registrant 42
Item 11. Executive Compensation 43
Item 12. Security Ownership of Certain Beneficial Owners and Management 46
Item 13. Certain Relationships and Related Transactions 48
PART IV.
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K 49
Signatures 56
</TABLE>
-i-
<PAGE>
PART I
ITEM 1: BUSINESS
GENERAL
Citadel Holding Corporation, a Delaware corporation ("Citadel" and
collectively with its wholly owned subsidiaries, the "Company") was organized in
1983 and has been engaged in recent periods primarily in the business of owning
and managing its commercial and residential properties and in the offering of
various real estate consulting services to its affiliates. During 1996, the
Company also considered certain opportunities to move into other businesses,
including the land based entertainment industry and in October 1996 invested $7
million to acquire 70,000 shares of the Series A Voting Cumulative Convertible
Preferred Stock (the "Series A Preferred Stock") of Reading Entertainment, Inc.
("REI" and collectively with its consolidated subsidiaries, "Reading") and the
Asset Put Option described below (the "Reading Investment Transaction"). Until
April 1994, Citadel was engaged principally in the business of serving as the
holding company for Fidelity Federal Bank, FSB ("Fidelity").
At December 31, 1996, the Company's assets had a book value of $30.3
million, consisting principally of two office buildings (located in Glendale,
California and Phoenix, Arizona), the Company's investment in Reading and cash
and cash equivalents, and long term liabilities of $10.3 million.
The Reading Investment Transaction provided the Company an opportunity to
make an initial investment in the movie exhibition industry, and the ability,
thereafter, to review the implementation by Reading of its business plan and, if
it approves of the progress made by Reading, to make a further investment in
this industry through the exercise of its Asset Put Option. The Company has the
right to require Reading to redeem the securities issued to it in the Reading
Investment Transaction after five years, or sooner if Reading fails to pay
dividends on such securities for four quarters.
As set forth in the Asset Put and Registration Rights Agreement, (the
"Asset Put Agreement"), the Asset Put Option is exercisable any time after
October 15, 1996 and until approximately April 2000. The Asset Put Option gives
the Company the right to require Reading to acquire, for shares of Reading
Common Stock, substantially all of the Company's assets and assume related
liabilities (such as mortgages) (the "Asset Put"). In exchange for up to $20
million in aggregate appraised value of such assets, Reading is obligated to
deliver to the Company that number of shares of Reading Common Stock determined
by dividing the value of Citadel's assets by $11.75 per share if the notice is
received by October 31, 1997 and thereafter $12.25 per share. If the appraised
value of the Company's assets is in excess of $20 million, Reading is obligated
pay for the excess by issuing Common Stock at the then fair market value, up to
a maximum of $30 million of assets. If the average trading price of Reading
Common Stock exceeds 130% of the then applicable exercise price for more than 60
days (the "Repricing Trigger"), then the exercise price will adjust to the fair
market of the Reading Common Stock from time to time, unless the Company
exercises the Asset Put within 120 days of receipt of notice from Reading of the
occurrence of the Repricing Trigger. The Asset Put Agreement has been filed as
Exhibit 10.52 to this Report. Any description of the rights granted by that
agreement is necessarily summary in nature and qualified by reference to the
definitive terms of the Asset Put Agreement.
Reading is currently involved in conventional multiplex cinema exhibition
in Puerto Rico through its Cine Vista Cinemas chain, in the exhibition of art
and specialty film through its interest in the Angelika Film Center (a specialty
art multiplex cinema and cafe complex located in the Soho area of New York
City), and the development of a new chain of conventional multiplex cinema and
entertainment center complexes in Australia. Reading opened its first multiplex
cinema in Australia in December 1996. In addition, Reading
1
<PAGE>
intends to expand the Angelika Film Center concept to other U.S. cities. Reading
has executed a lease to develop an 8-plex art cinema and cafe complex as a part
of the Bayou Place development in Houston, Texas, and is currently reviewing a
number of potential locations suitable for such complexes. At December 31, 1996,
Reading owns approximately 26% of the Company's outstanding common stock.
Reading is a publicly traded company whose shares are quoted on the
NASD/NMS and listed for trading on the NASDAQ Philadelphia Stock Exchange. Set
forth as Exhibit 10.58 to this report is the Report on Form 10K filed by Reading
with respect to the fiscal year ended December 31, 1996. Reading is currently
controlled by Craig Corporation, a Delaware corporation ("Craig") which owns
common and preferred stock in Reading representing approximately 78% of the
voting power of that company. Craig also holds options to acquire 666,000 shares
of Citadel stock at $3.00 per share, which options are due to expire on April
11, 1997. Craig has advised the Company that it intends to exercise such
options.
On August 4, 1994, Citadel and Fidelity completed a recapitalization and
restructuring transaction (the "Restructuring"), which resulted in, among other
things, the reduction of Citadel's interest in Fidelity from 100% to
approximately 16%, the acquisition by the Company from Fidelity of certain real
estate assets, and the receipt by way of dividend from Fidelity of options to
acquire at book value certain other real estate assets. During fiscal 1995,
substantially all of the Company's remaining interest in Fidelity was sold.
Citadel currently intends, at least for the near term, to continue to
manage its real estate assets, to provide real estate consulting services to its
affiliates, to work to resolve the outstanding litigation claims against it, and
to monitor the progress of Reading in its Beyond-the-Home entertainment
business. Depending upon the success of Reading in the implementation of its
business plan, the Company may exercise its Asset Put Option or elect to hold or
dispose of its current preferred stock interest in Reading, or to convert such
preferred stock interest into Reading common stock pursuant to the exercise of
the conversion feature of such preferred stock and/or to hold or dispose of such
Reading common stock. Alternatively or additionally, the Company may seek or
consider, if offered, some further transaction or transactions with Reading
and/or Craig which would permit the Company's stockholders to further
participate, directly or indirectly, in Reading's Beyond-the-Home entertainment
business. However, no such transaction is currently under consideration by the
Company. Furthermore, in the view of the Company, the continued presence of
various litigation claims constitute an impediment to a merger or liquidation of
the Company at the present time. No assurance can be given that the currently
outstanding litigation claims against the Company will necessarily be resolved
in the near term or on terms favorable to the Company or that any one or more
transactions with respect to Craig and/or Reading will be forthcoming. The
Company may, from time to time, also consider other real estate transactions.
Real estate consulting services are currently being provided by the Company
to Reading under an arrangement pursuant to which Reading reimburses Citadel for
its costs in providing such services. The Company believes that this arrangement
is beneficial to the Company, since the Company would not otherwise have
sufficient cash flow to maintain the level of executive talent currently
available to it and since this arrangement allows its executives to monitor and
to provide input with respect to the development of Reading's land based
entertainment businesses. During fiscal 1996, Reading paid to Citadel $169,000
with respect to such consulting services. Citadel's management is currently
studying ways in which to further reduce the Company's net overhead and general
administrative expenses, however, no assurances can be given to this regard.
MANAGEMENT
Steve Wesson is the President and Chief Executive Officer of the Company.
From 1989 until he joined the Company in 1993, Mr. Wesson served as CEO of
Burton Property Trust Inc., the U.S. real estate subsidiary of The Burton Group
PLC. In this position he was responsible for the restructuring and eventual
disposal of the Company's assets in the U.S.
2
<PAGE>
S. Craig Tompkins became the Secretary/Treasurer of Citadel in September,
1994. Mr. Tompkins is also the Vice Chairman and a director of Citadel, the
President and a director of Craig and the Vice Chairman and a director of
Reading. Prior to joining Craig and Reading in March, 1993, Mr. Tompkins was a
partner in the law firm of Gibson, Dunn & Crutcher.
Brett Marsh is responsible for the real estate activities of the Company.
Prior to joining the Company, Mr. Marsh was the Senior Vice President of Burton
Company Trust, Inc., the U.S. real estate subsidiary of the Burton Group PLC.
In this position, Mr. Marsh was responsible for the real estate portfolio of
that company.
The Company has one additional employee, and shares space and has
contracted for certain administrative and accounting services with Craig.
ITEM 2: PROPERTIES
REAL ESTATE INTERESTS
The table below provides an overview of the real estate assets owned by the
Company at December 31, 1996.
<TABLE>
<CAPTION>
UNITS/SQUARE % LEASED AT 12/31/96 MAJOR TENANTS REMAINING
ADDRESS TYPE FEET * LEASE TERMS
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ARBOLEDA Office/ 178,000 99 American Express (56%) February 1999
1661 Camelback Rd. Restaurant Others 1-5 Years
Phoenix, Arizona
Glendale Building Office 89,000 100 Fidelity (13%) May 2005
600 No. Brand Blvd.
Glendale, CA Disney (87%) February 2007
PARTHENIA Apartment 27 80 None 6-12 months
21028 Parthenia 26,000
Canoga Park, Calif.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
*% of rentable space leased
ARBOLEDA, PHOENIX
- -----------------
This property was acquired by the Company for $6.4 million in August 1994
and is substantially leased to American Express Company, which occupies 56%
(100,252 sq. ft.) of the property.
BRAND, GLENDALE
- ---------------
This property was acquired by the Company for $7.12 million in May 1995 and
is leased 87% to Disney Enterprises, Inc. ("Disney") and 13% to Fidelity, with
Fidelity occupying the ground floor.
3
<PAGE>
The base rental rate for the first five years of the Fidelity lease term is
$26,000 per month (including parking). With the lease providing for annual
rental increases at a rate equal to the lower of the increase in the Consumer
Price Index or 3%, the rental rate of the Fidelity lease at December 31, 1996 is
$26,600 per month. After the first five years of the lease term, the rental
rate will be adjusted to the higher of the then current market rate or $1.50 per
square foot increased by the annual rental rate increase applied during the
first five years of the lease as described in the preceding sentence. Fidelity
has the option to extend the lease of the ground floor for two consecutive five
year terms at a market rental rate.
On October 1, 1996, the Company entered into a ten year full service lease
for all of the floors, excluding the ground floor (approximately 80,000 square
feet), with Disney. The rental rate for the first five years of the 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 the option to renew the lease for two consecutive five
year terms. The lease provides that the Company will contribute towards tenant
improvements and common area upgrades approximately $2.3 million. In addition,
the Company anticipates incurring costs for other building upgrades,
governmental compliance, commissions and legal fees amounting to approximately
$1.2 million. Concurrently with the execution of the Disney lease, the Company
amended its then existing lease with Fidelity resulting in 1) termination of the
Fidelity lease with respect to floors four through six, resulting in a reduction
of rent payments amounting to approximately $75,000 per month after January 31,
1997, 2) termination of Fidelity's option to purchase the Glendale Building, 3)
a modification of the mortgage with Fidelity on the building to eliminate the
prepayment penalty and 4) reimbursement on February 1, 1997 by the Company to
Fidelity of rental payments in the amount of approximately $450,000 (See Note 3
to the Consolidated Financial Statements).
PARTHENIA
- ---------
The Parthenia property was sold in January 1997 for $1,210,000, which
amount, net of closing costs, approximated book value.
EXECUTIVE OFFICES
- -----------------
The Company currently shares executive office space with Craig, under an
arrangement whereby the Company and Craig allocate the costs of such office
space and certain support facilities. During fiscal 1996, the Company's share of
such office space and support facilities approximated $24,000. The Company
believes that this arrangement is beneficial to the Company in that it permits
the Company to maintain quality executive office facilities at a lesser cost
that would be the case if the Company were to maintain comparable facilities
separate and apart from Craig.
FINANCING OF REAL ESTATE INTERESTS
The Company's 1994 acquisition of the Arboleda and Parthenia properties was
100% leveraged: Financing was obtained through the combination of a conventional
mortgage loan from Fidelity on the Arboleda Property with the balance of the
Arboleda purchase price and the entire purchase price of the Parthenia Property
financed through drawdowns on an $8.2 million line of credit from Craig (the
"Craig Line of Credit").
The loan secured by the Arboleda Property has a seven-year term, amortizing
over 25 years, with an adjustable rate of interest tied to a 30 day LIBOR rate
plus 4.5% per annum, with an initial rate of 9.25% per annum. The interest rate
on this loan is currently 9.875%.
4
<PAGE>
The Craig Line of Credit was initially committed in the amount of $8.2
million, of which $6.2 million was immediately drawn down. On November 10, 1994,
the Company retired $5.25 million of the Craig Line of Credit by issuance to
Craig of 1,329,114 shares of 3% Cumulative Voting Convertible Preferred Stock
(the "Preferred Stock"). In May of 1995, the remaining balance of $950,000 on
the Craig line of credit was paid in full and the line of credit was canceled.
With regard to the purchase of the Glendale Building, Fidelity extended a
five year loan, amortizing over twenty years, at an adjustable rate of interest
tied to the 30-day LIBOR rate plus 4.5% per annum, adjustable monthly. The
interest rate on this loan is currently 9.875%.
In May, 1995, Citadel obtained a loan of $765,000 from American Savings on
the Parthenia property. The loan provided for a term of 30 years, amortizing
over 30 years, at a fixed rate of interest of 2.950 over the 11th District Cost
of Funds. This loan was repaid in full in January 1997, concurrent with the
sale of the Parthenia Property.
ITEM 3: LEGAL PROCEEDINGS
ROVEN LITIGATION
Citadel, Hecco Ventures I and James J. Cotter are defendants in a civil
action filed in 1990 by Alfred Roven in the United Sates District Court for the
Central District of California. The complaint alleged fraud by Citadel in a
proxy solicitation relating to Citadel's 1987 Annual Meeting of Stockholders and
breach of fiduciary duty. The complaint sought compensatory and punitive damages
in an amount alleged to exceed $40 million. The complaint grew out of and was
originally asserted as a counter claim in an action brought by Citadel against
Roven to recover alleged short swing profits (the "Section 16 Action"). Citadel
believes it has meritorious defenses to these claims and has not reserved any
amounts with respect thereto. In October 1995, Citadel, Hecco Ventures I and
James J. Cotter were granted summary judgment on all causes of action asserted
in the 1990 complaint in federal court. Roven has appealed that judgment.
In 1995, Roven filed a complaint in the California Superior Court against
Citadel, Hecco Ventures I and James J. Cotter and, in addition, S. Craig
Tompkins and certain other persons, including Citadel's outside counsel and
certain former directors of Citadel (which directors are currently directors of
Craig and/or Reading), alleging malicious prosecution in connection with the
Section 16 Action. Citadel believes that it has meritorious defenses to these
claims, and has not reserved any amounts with respect thereto. Defense of the
action has been accepted by Citadel's insurers. In August 1996, the Los Angeles
County Superior Court ordered summary judgment in favor of Citadel and all other
defendants. Roven has appealed that judgment.
FIDELITY EMPLOYEE LITIGATION
A former Fidelity employee, William Strocco, brought a wrongful termination
and defamation action against Fidelity and Citadel, which was filed in Los
Angeles County Superior Court on March 9, 1995. Citadel was named as a defendant
on the basis that Citadel allegedly conspired with and induced Fidelity to
breach its employment agreement with Strocco. In July 1996, the Superior Court
ordered summary judgment in favor of Citadel. The case was subsequently settled
by Fidelity and the plaintiff.
5
<PAGE>
SECURITIES LITIGATION
In July 1995, Citadel was named as a defendant in a lawsuit alleging
violations of federal and state securities laws in connection with the offering
of common stock of Citadel's then wholly owned subsidiary, Fidelity, in 1994
(the "Harbor Finance Litigation"). The suit was filed by Harbor finance Partners
in an alleged class action complaint in the United States District Court -
Central District of California, and named as defendants Citadel, Fidelity,
Richard M. Greenwood (Fidelity's chief executive officer and Citadel's former
chief executive officer), J.P. Morgan Securities, Inc. and Deloitte & Touche
LLP. The complaint which has been amended on three occasions in response to
motions to dismiss brought by Fidelity and Citadel, and which as amended, has
deleted defendants, J.P. Morgan Securities, Inc. and Deloitte & Touche LLP,
alleged that false and misleading information was provided by the defendants in
connection with Fidelity's stock offering and the defendants knew and failed to
disclose negative information concerning Fidelity. Defendant has also alleged
that defendants should have advised it of its legal rights with respect to
withdrawal from the offering after it had executed subscription documentation.
Defense of the action has been accepted by Fidelity under the terms of the
Stockholders Agreement entered into between Citadel and Fidelity as part of the
restructuring of Citadel's interest in Fidelity, and Citadel, to date, has not
retained separate counsel with respect to this litigation and is not incurring
outside costs of defense. In August 1996, the Federal District Court for the
Central District of California dismissed with prejudice all federal claims in
the case against Citadel, Fidelity and Greenwood and dismissed all state claims
without prejudice to the ability of the plaintiff to file such claims in a new
state court action. The plaintiff has appealed this judgment. In October 1996,
the plaintiff filed a class action suit in the Los Angeles Superior Court
alleging claims substantially similar to those previously filed in federal
court, to which Citadel and the remaining defendants demurred. In March 1997,
the Superior Court sustained this demurrers without leave to amend. In light of
the Plaintiff's appeal of the Federal District Court's dismissal of its Federal
claims, the Company assumes that the Plaintiff will likewise appeal the Superior
Court's dismissal of its State claims. Citadel believes that it has meritorious
defenses to these claims, and has not reserved any amounts with respect thereto.
However, the damages claimed by the plaintiff are in an unspecified amount, and
the proceeds of the offering which is the subject of the complaint were in
excess of the net worth of the Company.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 1996.
6
<PAGE>
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's common stock is listed and quoted on the American Stock
Exchange ("AMEX"). The following table sets forth the high and low closing bid
prices of the common stock of the Company as reported by AMEX for each of the
following quarters:
<TABLE>
<CAPTION>
HIGH LOW
(IN DOLLARS)
<S> <C> <C>
1996:
Fourth Quarter 2 13/16 2 7/16
Third Quarter 2 13/16 2 1/4
Second Quarter 2 1/2 2 1/4
First Quarter 2 9/16 2 1/4
1995:
Fourth Quarter 2 1/2 2
Third Quarter 2 3/8 2
Second Quarter 2 7/16 2
First Quarter 3 1/8 2 1/16
</TABLE>
HOLDERS OF RECORD
The number of holders of record of the Company's common stock at March 20,
1997 was 250.
DIVIDENDS ON COMMON STOCK
While Citadel has never declared a dividend on its Common Stock and has no
current plan to declare a dividend, it is Citadel's policy to review this matter
on an ongoing basis.
DIVIDENDS ON 3% VOTING CUMULATIVE CONVERTIBLE PREFERRED STOCK
On November 10, 1994, the Company issued 1,329,114 shares of 3% Cumulative
Voting Convertible Preferred Stock ("Preferred Stock") at a stated value of
$3.95 per share, or $5,250,000, to Craig in satisfaction of certain indebtedness
owed by the Company under the Craig Line of Credit. The Preferred Stock carried
a liquidation preference equal to its stated value and bears a cumulative
(noncompounded) annual dividend equal to 3% of the stated value. Incident to the
Reading Investment Transaction, Craig transferred the Preferred Stock to
Reading, and Reading and the Company exchanged the Preferred Stock for an equal
number of shares of the Company's Series B 3% Cumulative Voting Convertible
Preferred Stock (the "Series B Preferred Stock" and collectively with the
Preferred Stock, the "CHC Preferred Stock"), such Series B Preferred Stock
included certain revised terms as negotiated by the Company in the context of
the Reading Investment Transaction. In December 1996, the Company redeemed such
Series B Preferred Stock pursuant to the exercise of certain
7
<PAGE>
redemption rights in favor of the Company, as set forth in the Certificate of
Designation, for approximately $6.19 million.
During 1996, the Board of Directors declared and paid dividends on the CHC
Preferred Stock in the amount of approximately $232,000.
8
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The table below sets forth certain historical financial data regarding the
Company. This information is derived in part from, and should be read in
conjunction with, the consolidated financial statements of the Company.
<TABLE>
<CAPTION>
At or for the Year Ended December 31,
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- -----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Income from real estate
operations $ 5,871 $ 6,112 $ 2,115
Gain on property sales 1,493 1,541
Net interest income after
provision for estimated
loan losses $ 36,101 $ 79,601
Gains (losses) on sale of
loans, net 194 1,117
Gains (losses) on sale of
mortgage-back securities 1,342
Gains (losses) on sales of
investment securities (54)
Other income (expense) (35,870) (6,602)
Administrative charge from
Fidelity 916
Gain (Loss) of and Write-down
of investment in Fidelity (6) 4,000 (41) (171,964)
Operating expense (4,938) (6,214) (4,060) (105,341) (77,911)
---------- ---------- ---------- ---------- ----------
Earnings (loss) before
income taxes 6,426 1,398 (174,825) (103,628) (3,795)
Income tax expense (benefit) (36,467) (5,841)
---------- ----------
---------- ---------- ---------- ---------- ----------
Net earnings (loss) $ 6,426 $ 1,398 $ (174,825) $ (67,161) $ 2,046
========== ========== =========== ========== ==========
Earnings (loss) per
common and common
equivalent share $0.80 $0.17 $(26.45) $(11.56) $0.62
Average common and common
equivalent shares (1)(2)(5) 7,983,416 8,233,174 6,610,280 5,809,570 3,297,812
Balance sheet Data:
Total assets $ 30,292 $ 39,815 $ 39,912 $4,389,519 $4,698,326
Cash and investments 6,356 16,291 4,805 238,220 177,599
Total loans, net 3,713,383 3,991,781
Deposits 3,368,643 3,457,918
Borrowings 10,303 16,186 14,846 734,230 908,400
Subordinated notes 60,000 60,000
Stockholders' equity 17,724 17,720 17,838 187,403 223,186
Cash dividends declared
on Preferred Stock 232 101 -- --
</TABLE>
9
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA (CONT'D)
<TABLE>
<CAPTION>
At or for the Year Ended December 31,
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Other Data:
Real estate loans funded $422,355 $435,690
Average interest rate on
new loans 6.75% 7.77%
Loans sold $137,870 $204,435
Nonperforming assets to
total assets 5.37% 4.99%
Number of deposit accounts 241,093 233,037
Interest rate margin at
end of period (3) 2.19% 2.68%
Interest rate margin for
the period (3) 2.28% 2.67%
Retail branch offices (4) 42 43
</TABLE>
(1) Net of treasury shares, where applicable.
(2) 1993 data includes 3,297,812 shares issued in March 1993 in connection with
a stock rights offering, which produced net proceeds to the Company of $31.4
million.
(3) Excluding the writedowns of core deposit intangibles of $5.2 million,
interest rate margins at and for the year ended December 31, 1993, would
have been 2.32% and 2.39%.
(4) All retail branches were located in Southern California.
(5) The 1996 and 1995 data includes the effect of shares assumed to be issued on
the conversion of the then outstanding 3% Cumulative Voting Convertible
Preferred Stock amounting to 2,046,784 common shares.
(6) The 1996 gain resulted from a non-recurring recognition of previously
deferred proceeds from the bulk sale of loans and properties by the
Company's previously owned subsidiary, Fidelity.
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSIONS 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. During this time period, the Company has considered
acquisitions outside of the ownership and management of commercial and
residential properties, and as a consequence of the real estate advisory and
consulting services provided on a fee basis to its shareholder affiliate,
Reading Entertainment, Inc. ("REI" and collectively with its consolidated
subsidiaries, "Reading"), has gained familiarity with the cinema exhibition
industry and the operations and prospects of Reading.
In May 1996, the Company's shareholder affiliates, Reading and Craig
Corporation ("CC" and collectively with its consolidated subsidiaries, "Craig")
authorized their respective managements to work together to develop one or more
proposals to provide Reading with the capital funding necessary to pursue its
entertainment industry business plan. In June 1996, the Company authorized its
management to cooperate with such efforts and formed a special committee of the
Board composed of outside directors unaffiliated with Craig and/or Reading to
participate in the negotiation and review of any such potential transaction (the
"Independent Committee"). The Independent Committee retained legal counsel and
investment banking advisors to assist it in this process.
On October 15, 1996, the Company, with the approval of the Board of
Directors, consummated the transaction (the "Reading Investment Transaction")
contemplated by an exchange Agreement (the "Exchange Agreement") dated as of
September 4, 1996 by and among Citadel, Reading and Craig and certain of their
respective affiliates. Pursuant to the terms of the Exchange Agreement, the
Company contributed cash in the amount of $7 million to Reading in exchange for
70,000 shares of Reading Series A Voting Cumulative Convertible Preferred Stock
(the "Series A Preferred Stock") and the Asset Put Option. Craig contributed
assets in exchange for 2,476,190 shares of Reading Common Stock and 550,000
shares of Reading Series B Voting Cumulative Convertible Preferred Stock. The
assets transferred by Craig consisted of 693,650 shares of Series B Preferred
Stock of Stater Bros. Holdings Inc., Craig's 50% membership interest in Reading
International Cinemas LLC, and 1,329,114 shares of the Company's Preferred
Stock. Upon consummation of the transaction, Craig and the Company held in the
aggregate approximately 82.4% of the voting power of Reading, with Craig's
holdings representing approximately 77.4% of the voting power of Reading and the
Company's holdings representing approximately 5% of such voting power. See
footnote 4 of the Notes to Consolidated Financial Statements for more detailed
information concerning the provisions of the Exchange Agreement.
In accordance with the Exchange Agreement, Reading exchanged the Preferred
Stock of the Company received from Craig for an equal number of shares of the
Company's Series B 3% Cumulative Voting Convertible Preferred Stock (the "Series
B Preferred Stock"). The terms of the Company's Series B Preferred Stock were
substantially identical to the terms of the Company's previously issued
Preferred Stock except (i) the Redemption Accrual Percentage was reduced from 9%
to 3% after October 15, 1996 and (ii) except upon a change of control of the
Company, the holders of the Series
11
<PAGE>
B Preferred Stock would no longer have the right to convert the Series B
Preferred Stock into Company Common Stock during the one year period commencing
on the fifteenth day following the filing of the Company's Annual Report on Form
10-K for the year ended December 31, 1996. In December 1996, Reading notified
the Company of its exercise of its conversion rights. On December 20, 1996,
Citadel redeemed the Series B Preferred Stock from Reading pursuant to the
exercise of certain redemption rights set forth in the Certificate of
Designation with respect to the Series B Preferred Stock. Such redemption price
amounted to approximately $6.19 million. As a consequence of the Series B
Preferred Stock redemption, Reading's ownership of Citadel decreased to reflect
its approximately 26% common stock holdings.
The Asset Put Option is exercisable any time after October 15, 1996 through
a date thirty days after Reading's Form 10-K is filed with respect to its year
ended December 31, 1999, and gives the Company the right to exchange, for shares
of Reading Common Stock, all or substantially all of the Company's
assets, as defined, together with any debt encumbering such assets (the "Asset
Put"). In exchange for up to $20 million in aggregate appraised value of the
Company's assets on the exercise of the Asset Put Option, Reading is obligated
to deliver to the Company that number of shares of Reading 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, $12.25 per share. If
the appraised value of the Company's assets is in excess of $20 million, Reading
is obligated to pay for the excess by issuing Common Stock at the then fair
market value up to a maximum of $30 million of assets. If the average trading
price of Reading Common Stock exceeds 130% of the then applicable exchange price
for more than 60 days, then the exchange price will thereafter be the fair
market of the Reading Common Stock from time to time, unless the Company
exercises the Asset Put within 120 days of receipt of notice from Reading of the
occurrence of such average trading price over such 60 day period.
The Reading Investment Transaction provides the Company an opportunity to
make an initial investment in the Beyond-the-Home segment of the entertainment
industry, and the ability, thereafter, to review the implementation by Reading
of its business plan and, if it approves of the progress made by Reading, to
make a further investment in this industry through the exercise of its Asset Put
Option to exchange all or substantially all of its assets for Reading Common
Stock. The Company has the right to require Reading to redeem the securities
issued to it in the Reading Investment Transaction after five years or sooner if
Reading fails to pay dividends on such securities for four quarters.
Reading is a publicly traded company whose shares are listed on the NASDAQ.
Reading is currently involved in conventional multiplex cinema exhibition in
Puerto Rico through its Cine Vista Cinemas chain, in the exhibition of art and
specialty film through its interest in the Angelika Film Center (a specialty art
multiplex cinema and cafe complex located in the Soho area of New York City),
and the development of a new chain of conventional multiplex cinemas and
entertainment centers in Australia. Reading opened its first multiplex cinema in
Australia in December 1996. In addition, Reading expects to expand the Angelika
Film Center concept to other U.S. cities, has executed a lease to develop an 8-
plex art cinema and cafe complex as a part of the Bayou Place development in
Houston, Texas, and is currently reviewing a number of potential locations
suitable for such complexes.
12
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
Due to the nature of the Company's business activities the Company's
historical and future revenues have varied significantly reflecting the results
of real estate sales and the disposition of its previously owned subsidiary,
Fidelity. In addition, rental income and earnings may vary significantly
depending upon the properties owned by the Company during the periods being
reported. Accordingly, year to year comparisons of operating results will not
be indicative of future financial results.
YEAR ENDED DECEMBER 31, 1996 ("FISCAL 1996) VERSUS YEAR ENDED DECEMBER 31, 1995
- -------------------------------------------------------------------------------
("FISCAL 1995")
- ---------------
The Company's net earnings for Fiscal 1996 amounted to approximately
$6,426,000 or $0.80 per share, as compared to $1,398,000 or $0.17 per share for
Fiscal 1995. Included in net earnings for Fiscal 1996 is (1) approximately
$1,493,000 from the sale of an apartment property and an undeveloped parcel of
land and (2) non-recurring income amounting to $4,000,000 resulting from the
recognition for financial statement purposes of previously deferred proceeds
from the bulk sale of loans and properties by Citadel's previously owned
subsidiary, Fidelity Federal Bank ("Fidelity"). At the time of the bulk sale in
1994 by Fidelity, Citadel agreed to indemnify Fidelity, up to $4,000,000, with
respect to certain losses that might be incurred by Fidelity in the event of a
breach by Fidelity of certain representations made to the purchaser of such
loans and properties. During 1996, Fidelity reached a settlement with the
purchaser regarding such bulk sale claims and released Citadel from the
indemnity. Included in the 1995 Fiscal Year net earnings is approximately
$1,541,000 from the sale of two rental properties.
Interest and dividend income amounted to $939,000 in Fiscal 1996 as
compared to $710,000 in Fiscal 1995. The increase between Fiscal 1996 and 1995
was due to higher investable fund balances during most of 1996. Cash balances
decreased in October 1996 as a result of the Company's $7 million investment in
Reading and again in December 1996 as a result of the Company's $6.19 million
redemption of its Series B Preferred Stock. Included in interest and dividend
income in Fiscal 1996 is dividend income of approximately $95,000 earned with
respect to the Company's Reading Series A Preferred Stock.
Rental income amounted to approximately $4,932,000 in Fiscal 1996 as
compared to $5,402,000 in Fiscal 1995. The decrease in Fiscal 1996 is
principally due to a reduction of the number of rental properties owned by the
Company between the periods. The apartment building held for sale at December
31, 1996 was sold in January 1997 for an amount, net of expenses, approximating
book value. An apartment building (the "Veselich Building") was sold in May
1996, resulting in a reduction of rental income amounting to approximately $1
million as compared to Fiscal 1995. Such decrease was partially offset by an
increase in rental income amounting to approximately $270,000 resulting, in
part, from the two-year lease renewal of approximately 58% of the Arboleda
property at increased rates and an increase in rental income amounting to
approximate ly $300,000 resulting from an entire years ownership of a six floor
commercial building located in Glendale, California (the "Glendale Building").
As of December 31, 1996 rental properties consisted of one apartment building
(held for sale) and two commercial buildings as compared to two apartment
buildings and two commercial buildings (one of which was purchased in May 1995)
as of December 31, 1995.
13
<PAGE>
The Glendale Building was purchased in May 1995 from Fidelity. Two floors
of the Glendale Building were leased to Public Storage until April 1996 and four
floors, including the ground floor, were leased to Fidelity under a long-term
lease. In October 1996, the Company amended the office lease with Fidelity for
the Glendale Building resulting in, among other things, the termination of
Fidelity's lease of floors four through six, and concurrently with such
amendment, entered into a ten year lease with Disney Enterprises Inc. ("Disney")
for all the floors, excluding the ground floor, which continues to be leased by
Fidelity. The rental rate for the first five years of the Disney lease term
beginning February 1, 1997 is approximately $148,000 per month and approximately
$164,000 for the remaining five year term (in each case excluding parking).
Disney has the option to renew the lease for two consecutive five year periods.
The lease provides that the Company will contribute towards tenant improvements
and common area upgrades approximately $2.3 million. In addition, the Company
anticipates incurring costs for other building upgrades, governmental
compliance, commissions and legal fees prior to the commencement of lease
payments by Disney of approximately $1.2 million. The commissions, legal fees
and reimburse ment to Fidelity, totaling approximately $1,326,000 are included
in the Balance Sheet at December 31, 1996 as "Capitalized leasing costs" and are
being amortized over the term of the lease.
Real estate operating costs decreased in Fiscal 1996 to $2,481,000 as
compared to $2,660,000 in Fiscal 1995, principally as a result of the sale of
the Veselich Building. This decrease was partially offset by costs associated
with operating the Glendale Building purchased in May 1995.
Interest expense was comparable in Fiscal 1996 and 1995 and amounted to
approximately $1,317,000 in Fiscal 1996 as compared to $1,327,000 in Fiscal
1995. The comparability of such amounts reported as interest expense is a
result of the time periods mortgage loans were outstanding during each of the
two fiscal years. The Company obtained two mortgages aggregating approximately
$6.1 million in the second quarter of 1995. In May 1996, the Company upon the
sale of a rental property for approximately $8.941 million, net of expenses,
repaid a mortgage loan on said property amounting to approximately $5.7 million.
Accordingly, outstanding mortgages decreased approximately $5,882,000 between
December 31, 1996 and December 31, 1995 and in January 1997 decreased
approximately $755,000 due to an additional early repayment of a mortgage loan
upon the sale of the Parthenia property. The interest rate on the remaining
outstanding loans approximated 9.875% at December 31, 1996.
General and administrative expenses decreased to approximately $745,000 in
Fiscal 1996 as compared to $1,807,000 in Fiscal 1995. The $880,000 decrease
reflected in Fiscal 1996 is primarily attributable to (i) a $290,000 reduction
in outside legal and professional expenses, (ii) a decrease in directors fees of
approximately $250,000 in the Fiscal 1996, (iii) an $89,000 insurance
reimbursement of legal costs and (iv) the non-recurrence of approximately
$250,000 of costs incurred in Fiscal 1995 associated with a parcel of land which
was sold in Fiscal 1996. In addition, Fiscal 1996 general and administrative
expenses includes approximately $169,000 in fee income for consulting services
provided by employees of the Company to Reading as compared to $120,000 in
Fiscal 1995.
14
<PAGE>
YEAR ENDED DECEMBER 31, 1995 ("FISCAL 1995) VERSUS YEAR ENDED DECEMBER 31, 1994
- -------------------------------------------------------------------------------
("FISCAL 1994")
- ---------------
Prior to a restructuring in August 1994, Citadel was a financial services
holding company engaged in the savings bank business through Fidelity. It
conducted virtually no operations at the holding company level. In the
Restructuring, Citadel's interest in Fidelity was reduced from 100% to 16.2% and
Citadel transferred the stock of its other subsidiary, Gateway, to Fidelity
leaving Citadel with no historical operating business. As a result, effective
January 1, 1994, Citadel ceased including the results of Fidelity and Gateway on
a consolidated basis in its financial statements and began accounting for its
investment in Fidelity on the cost basis. Since the Restructuring, Citadel has
been engaged primarily in the ownership and management of commercial and
residential real property. Therefore, no meaningful comparisons can be made
between Citadel's results of operations for the years ended December 31, 1995
(twelve months of real estate operations) and December 31, 1994 (5 months of
real estate operations).
In addition to the reduction of Citadel's interest in Fidelity, in the
Restructuring, (1) the Company acquired from Fidelity four real properties for a
purchase price of approximately $19.8 million (Fidelity's book value) of which
$13.9 million was financed by Fidelity on a secured basis and the balance was
financed by Craig, under a short-term line of credit; (2) the Company received,
by way of dividend from Fidelity, options to acquire at book value ($9.3
million) two office buildings used by Fidelity in its operations (the "Building
Options"); (3) the Company acquired, again by way of a dividend, Fidelity's
interest in certain outstanding litigation, and (4) Citadel agreed to indemnify
Fidelity, up to a limit of $4 million, with respect to certain representations
and warranties made by Fidelity to certain third party buyers in connection with
bulk sales made as part of the Restructuring (the "Bulk Sale Indemnity").
The Company reported net income for the year ended December 31, 1995 of
$1,398,000 or $0.16 per share, including a gain of approximately $1,541,000 from
the sale of an office building in Sherman Oaks, California and a residential
property in Harbor City, California. The Company reported a net loss of $174.8
million or $26.45 per share in Fiscal 1994 comprised of (i) a $112.1 million
loss from the operations of its former subsidiary, Fidelity, through the date of
the Restructuring, (ii) writedowns of $59.9 million on the Company's investment
in Fidelity at and following the Restructuring, (iii) a $900,000 administrative
charge paid to Fidelity prior to the Restructuring, and (iv) a $1.9 million loss
from its ongoing operations.
During the first quarter of Fiscal 1995, the Company exercised the Building
Options and on March 23, 1995 purchased and immediately sold the Sherman Oaks
Building for a gain of approximately $560,000. On May 18, 1995, the Company
purchased the Glendale Building for an exercise price of approximately $7.12
million. Concurrent with the purchase, the Company entered into a ten year,
full service gross lease with Fidelity for four of the six floors of the
Glendale Building providing for a base rent, subject to annual escalations, of
approximately $1,220,000 annually. At December 31, 1995 rental properties
consisted of one apartment building and two commercial buildings as compared to
three apartment buildings and one commercial building at December 31, 1994.
Properties held for sale at December 31, 1995 was comprised of one apartment
building with a book value of $7,542,000 and an undeveloped parcel of land with
a book value of $400,000.
15
<PAGE>
During the second quarter of fiscal 1995, the Company sold substantially
all of its remaining interest in Fidelity and settled certain litigation, which
resulted in the Company receiving net cash proceeds of approximately $11,938,000
and the return of 666,000 shares of the Company's common stock. The Fiscal 1995
net earnings includes a loss of approximately $41,000 from the sale of such
Fidelity shares calculated by comparing (i) the net cash proceeds combined with
the amount ascribed to the common stock received ($2.125 per share), to (ii)the
carrying value of such Fidelity stock included in the balance sheet as
Investment in Fidelity held for sale at December 31, 1994. The Company has
reflected the return of the Company's common stock as treasury stock in the
amount of $1,415,000.
The sale of the real properties and the sale of the Fidelity stock
attributed to the significant increase in cash and cash equivalents during
December 31, 1995. The increase in cash and cash equivalents was offset, in
part, by the purchase of the Glendale Building for approximately $7.12 million
which was funded with $1.78 million of cash and a mortgage of approximately
$5.34 million. Cash and cash equivalents amounted to $4,805,000 at December 31,
1994 as compared to $16,291,000 at December 31, 1995. Accordingly, interest
income increased significantly during the third and fourth quarter of Fiscal
1995. The Company's net operating results for Fiscal 1995 include interest
income amounting to $710,000, as compared to $45,000 in Fiscal 1994.
Rental income amounted to $5,402,000 in fiscal 1995 as compared to
$2,070,000 for fiscal 1994. Rental income may vary significantly depending upon
the properties owned by the Company during the periods being reported. As
described above, the Company did not engage in the ownership and management of
commercial and residential properties until the Restructuring in August 1994.
Accordingly, Fiscal 1994 reflects rental income for only five months as compared
to twelve months in Fiscal 1995. In addition, Fiscal 1995 includes rental
income from the Company's May acquisition of the Glendale Building, somewhat
offset, by a reduction in rental income resulting from the sale of the Harbor
City residential property in the first quarter of 1995.
During Fiscal 1995, the Company made a decision to sell the Veselich
residential property and, accordingly, included this property with a carrying
value of $7,542,000 at December 31, 1995 in Properties held for sale. On March
26, 1996, the Company entered into a Purchase and Sale Agreement to sell the
Veselich property, whereby the Buyer agreed to purchase said property for
approximately $9.3 million which closed in May 1996.
Interest expense amounted to $1,327,000 in Fiscal 1995 and $649,000 in
Fiscal 1994. As described above, at the date of the Restructuring, the Company
purchased the properties from Fidelity with an acquisition price of $19.8
million with mortgage financing from Fidelity and a short-term line of credit
amounting to $6.2 million from Craig. Fiscal 1994 interest expense reflects
interest for the five month period on the indebtedness incurred at the
Restructuring and includes $266,000 paid to Craig under the terms of the Craig
line of credit.
On November 10, 1994, the Company issued 1,329,114 shares of 3% Cumulative
Voting Convertible Preferred Stock ("Preferred Stock") at a stated value of
$3.95 per share. The sales price of the 1,329,114 shares sold was $5,250,000
which was paid through the conversion of a portion of the $6.2 million
indebtedness to Craig, resulting in a reduction in interest costs. Subsequent
to the sale of the Fidelity shares in April 1995, the Company paid in full the
remaining $950,000 loan from Craig. Included in interest expense for Fiscal
1995 is approximately $59,000 related to the loan from Craig. The reduction in
interest costs associated with the pay-off and
16
<PAGE>
conversion of the Craig loan to Preferred shares and the assignment of the
mortgage indebtedness as part of the sale of the Harbor City property was
offset, in part, by $5.34 million of mortgage financing obtained to purchase the
Glendale Building in Fiscal 1995.
General and administrative expenses from real estate operations amounted to
$1,807,000 in Fiscal 1995 as compared to $1,785,000 in Fiscal 1994. During
Fiscal 1995, the Company incurred additional legal fees pertaining to
outstanding litigation and paid bonuses and directors fees for past services
aggregating approximately $302,500, which were authorized by the Board to the
Chairman, Vice-Chairman and President. Such employee related costs were offset
by a payment of approximately $120,000 by affiliates of Craig to the Company for
real estate consulting services provided by employees to such affiliates.
Fiscal 1994 general and administrative expenses represented only five
months of operations and included approximately $1.1 million related to a
contested proxy, solicitation, litigation defense and settlement costs. Such
legal costs included the costs of defending a lawsuit filed in the Court of
Chancery of the State of Delaware by a stockholder, Dillon Investors L.P., in
November 1994, naming as defendants the Company, its directors and Craig. On
April 13, 1995, the Company, Craig and Dillon Investors and its affiliates (the
"Dillon Parties") entered into settlement agreements to resolve this litigation.
Under the settlement agreements, the Dillon Parties purchased from Citadel
1,295,000 shares of Class B common stock of Fidelity owned by the Company in
exchange for which the Company received from Dillon Parties $2.22 million and
666,000 shares of the Company's common stock, and all existing litigation among
the Company, Craig and the Dillon Parties was terminated, with mutual releases
executed and delivered. The Dillon Parties also agreed for a period of one year
following the closing, not to purchase or acquire any other beneficial interests
in any of the Company's securities, and not to engage in any solicitations of
consents or proxies.
The settlement terms also included an agreement by Craig with the Dillon
Parties not to exercise, prior to February 4, 1996, its right to tender any
shares of the Preferred Stock for conversion into the Company's common stock
without the prior written consent of the holders of a majority of the
outstanding shares of the Company's common stock. In exchange for such
concession from Craig, the Company agreed to grant Craig a two year warrant to
acquire the 666,000 shares of the Company's common stock acquired from the
Dillon Parties at a price of $3.00 per share, and reimbursed Craig for certain
legal costs associated with the litigation amounting to approximately $62,000.
BUSINESS PLAN, CAPITAL RESOURCES AND LIQUIDITY OF THE COMPANY
- -------------------------------------------------------------
Fiscal 1996
- -----------
Fiscal 1996 cash and cash equivalents decreased by approximately $9,932,000
from $16,291,000 at December 31, 1995 to $6,359,000 at December 31, 1996. Net
cash provided by investing activities for the year ended December 31, 1996
amounted to $1,460,000 and net cash used in financing activities amounted to
approximately $12,305,000. The principal sources of liquid funds in Fiscal 1996
was from the sale of properties amounting to $9,361,000. The principal uses of
liquid funds in 1996 included (i) a $7 million investment in its shareholder,
Reading, (ii) a $5,883,000 repayment of mortgage loans including $5,690,000
repaid as a result of a rental property sale in May 1996, (iii) the Company's
redemption from Reading of its Series
17
<PAGE>
B Preferred Stock in the amount of $6,190,000, (iv) improvements to rental
properties amounting to $504,000 and (v) the payment of preferred stock
dividends amounting to $232,000.
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 real estate properties, (iii) approximately $350,000 of proceeds from the
sale of a rental property net of a mortgage loan repayment with respect to an
apartment building sold in January 1997, (iv) consulting fee income from Reading
and (v) a quarterly preferred stock dividend from Reading amounting to
approximately $455,000 annually.
In the short-term, uses of funds are expected to include (i) funding of the
Glendale Building leasehold improvements and building upgrades required under
the terms of the Disney lease amounting to approximately $3 million, (ii)
operating expenses, (iii) payment of December 31, 1996 accrued liabilities
including approximately $870,000 of unpaid commissions and releasing costs
incurred in releasing the Glendale Building, and (iv) debt service pursuant to
the property mortgages.
Management believes that the Company's sources of funds will be sufficient
to meet its cash flow requirements for the foreseeable future. The October 1996
Reading Investment Transaction, described above, provided the Company with the
opportunity to make an initial investment in the Beyond-the-Home segment of the
entertainment industry, and the ability thereafter, to review the implementation
by Reading of its business plan and, if it approves of the progress made by
Reading, to make a further investment in this industry through the exercise of
its Asset Put Option to exchange all or substantially all of its assets for
Reading Common Stock. The Company has the right to require Reading to redeem
the securities issued to it in the Exchange Transaction after five years or
sooner if Reading fails to pay dividends on such securities for four quarters.
Fiscal 1995
- ------------
Cash and cash equivalents increased by approximately $11,486,000 in Fiscal 1995
to $16,291,000 at December 31, 1995. Net cash provided by investing activities
amounted to $11,165,000 including cash proceeds from the sale of its remaining
Fidelity stock and proceeds from the sale of properties amounting to $11,938,000
and $8,837,000, respectively. Fiscal 1995 proceeds from long-term mortgage
financing amounted to approximately $6,104,000. During Fiscal 1995, principal
uses of funds included the purchase and improvement of rental properties
amounting to $9,610,000 and the repayment of long-term and short-term principal
borrowings of approximately $4,764,000.
Fiscal 1994
- -----------
Cash and cash equivalents decreased by approximately $141,156,000 in Fiscal
1994, inclusive of a decrease of approximately $143,677,000, resulting from the
deconsolidation of the Company's previously owned subsidiary, Fidelity. In
August 1994, Citadel completed a restructuring in which among other things,
Citadel's ownership interest in Fidelity was reduced to 16% and the Company
formed a new subsidiary which purchased four real properties using funds of
approximately $20,055,000. Proceeds to purchase such properties was obtained
through long-term mortgage debt amounting to approximately $13,930,000 and a
$6,200,000 short-term credit line from the Company's shareholder affiliate,
Craig.
18
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
INDEX PAGE
- ----- ----
<S> <C>
Report of Independent Auditors.................... 20
Consolidated Balance Sheets
Years Ended December 31, 1996 and 1995.......... 21
Consolidated Statements of Operations
Years Ended December 31, 1996, 1995 and 1994.... 22
Consolidated Statements of Stockholders' Equity
Three Years Ended December 31, 1996............. 23
Consolidated Statements of Cash Flows
Years Ended December 31, 1996, 1995 and 1994.... 24
Notes to Consolidated Financial Statements........ 25
Financial Statement Schedule - III - Real Estate
and Accumulated Depreciation.................... 40
</TABLE>
19
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Citadel Holding Corporation
We have audited the consolidated balance sheets of Citadel Holding Corporation
and subsidiaries as of December 31, 1996 and 1995 and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1996. Our audits also included the
financial statement schedule listed in the Index at Item 8. These financial
statements and the financial statement schedule are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Citadel Holding Corporation and
subsidiaries as of December 31, 1996 and 1995, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Los Angeles, California
March 20, 1997
20
<PAGE>
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1996 1995
------------ ------------
(In thousands of dollars)
<S> <C> <C>
ASSETS
- ------
Cash and cash equivalents $ 6,356 $ 16,291
Properties held for sale 1,145 7,942
Rental properties, less accumulated depreciation 13,288 14,251
Investment in shareholder affiliate 7,000 --
Capitalized leasing costs 1,576 70
Other receivables 311 447
Other assets 616 814
-------- --------
Total assets $ 30,292 $ 39,815
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
LIABILITIES
Security deposits payable $ 76 $ 253
Accounts payable and accrued liabilities 2,189 1,656
Deferred proceeds from bulk sales agreement -- 4,000
Mortgage notes payable 10,303 16,186
-------- --------
Total liabilities 12,568 22,095
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Serial preferred stock, par value $.01,
5,000,000 shares authorized, 3% Cumulative
Voting Convertible, ($3.95 per share or
$5,250,000 stated value) 1,329,114 shares
issued and outstanding at December 31, 1995 -- 13
Serial preferred stock, par value $.01,
5,000,000 shares authorized, 3% Cumulative
Voting Convertible, none outstanding -- --
Common stock, par value $.01, 20,000,000
shares authorized, 6,669,924 shares issued
and outstanding at December 31, 1996
and 1995 67 67
Additional paid-in capital 59,020 65,197
Deficit (39,948) (46,142)
Cost of treasury shares, 666,000 shares (1,415) (1,415)
-------- --------
Total stockholders' equity 17,724 17,720
-------- --------
Total liabilities and stockholders' equity $ 30,292 $ 39,815
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
------- -------- ----------
(In thousands of dollars,
except per share amounts)
<S> <C> <C> <C>
Real Estate Operations:
Rental income $4,932 $5,402 $ 2,070
Interest income 939 710 45
------ ------ ---------
5,871 6,112 2,115
Real estate operating expenses 2,481 2,660 1,350
Depreciation and amortization 395 420 276
Interest expense 1,317 1,327 649
General and administrative expenses 745 1,807 1,785
------ ------ ---------
Total expenses 4,938 6,214 4,060
Gain on sale of properties 1,493 1,541 --
------ ------ ---------
Earnings (loss) from Real Estate Operations 2,426 1,439 (1,945)
------ ------ ---------
Administrative Charge from Fidelity -- -- (916)
Gain (Loss) of and Write-down of Investment
in Fidelity 4,000 (41) (171,964)
------ ------ ---------
Earnings (loss) before taxes 6,426 1,398 (174,825)
Income tax expense (benefit) -- -- --
------ ------ ---------
Net earnings (loss) $6,426 $1,398 $(174,825)
====== ====== =========
Net earnings (loss) per common and
common equivalent share $0.80 $0.17 $(26.45)
====== ====== =========
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1996
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------- -------------- Treasury Stock-
Shares Par Shares Par Paid-In Retained Stock, holders'
Value Value Capital Earnings At Cost Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
January 1, 1994 6,596 $66 $60,052 $ 127,285 $ 187,403
Issuance of common
stock 74 1 285 286
Issuance of preferred
stock, net of
issuance costs of
$275 1,329 $ 13 4,961 4,974
Net (loss) (174,825) (174,825)
------ ---- ----- --- -------- -------- ------ --------
Balances at
Dec. 31, 1994 1,329 13 6,670 67 65,298 (47,540) -- 17,838
Asset exchange for
666,000 shares of
common stock $(1,415) (1,415)
Net earnings 1,398 1,398
Preferred stock
dividends (101) (101)
------ ---- ----- --- -------- -------- ------ --------
Balances at
Dec. 31, 1995 1,329 13 6,670 67 65,197 (46,142) (1,415) 17,720
Redemption of
Preferred stock (1,329) (13) (6,177) (6,190)
Net earnings 6,426 6,426
Preferred stock
dividends (232) (232)
------ ---- ----- --- -------- -------- ------ --------
Balances at
Dec. 31, 1996 $ -- 6,670 $67 $59,020 $ (39,948) $(1,415) $ 17,724
====== ==== ===== === ======= ========= ======= =========
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
--------- --------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) $ 6,426 $ 1,398 $(174,825)
Adjustments to reconcile net earnings (loss) to
net cash provided (used) by operating activities:
Deconsolidation of Fidelity -- -- 111,988
(Gain) Loss from investment in Fidelity (4,000) 41 59,892
Deferred proceeds from Bulk Sales Agreement -- -- 4,000
Depreciation and amortization 395 420 276
Gain on sale of rental property (1,493) (1,541) --
Amortization of deferred loan costs 88 58 --
(Increase) decrease in other receivables 137 382 (1,219)
(Increase) decrease in other assets (129) (216) (625)
Increase in security deposits payable (177) 26 227
Increase (decrease) in accrued liabilities (337) (1,345) 3,001
-------- ------- ---------
Net cash provided by (used in) operating activities 910 (777) 2,715
INVESTING ACTIVITIES
Proceeds from sale of Fidelity stock -- 11,938 --
Purchase of Reading Entertainment, Inc. securities (7,000) -- --
Proceeds from sale of properties 9,361 8,837 --
Payment of capitalized leasing costs (397) -- --
Purchase of and additions to real estate (504) (9,610) (20,055)
-------- ------- ---------
Net cash provided by (used in) investing activities 1,460 11,165 (20,055)
FINANCING ACTIVITIES
Redemption of Preferred Stock from shareholder
affiliate (6,190) -- --
Proceeds from long-term mortgage borrowings -- 6,104 13,930
Repayments of long-term borrowings (5,883) (3,814) (34)
Short-term borrowings from affiliates -- -- 6,200
Repayment of borrowings from affiliates -- (950) --
Dividends paid (232) (101) --
Capitalized financing costs -- (141) (246)
Costs of preferred stock issuance -- -- (275)
Proceeds from issuance of common stock -- -- 286
-------- ------- ---------
Net cash provided by (used in) financing activities (12,305) 1,098 19,861
Less cash and cash equivalents of Fidelity at
beginning of period -- -- (143,677)
-------- ------- ---------
Net increase (decrease) in cash and cash equivalents (9,935) 11,486 (141,156)
Cash and cash equivalents at beginning of year 16,291 4,805 145,961
-------- ------- ---------
Cash and cash equivalents at end of year $ 6,356 $16,291 $ 4,805
======== ======= =========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest on mortgages and line of credit $ 1,269 $ 1,292 $ 548
Noncash transactions:
Conversion of line of credit to preferred stock,
net of loan costs -- -- 4,974
Common stock received in exchange for Fidelity stock -- 1,415 --
Additions to real estate owned (other assets)
through foreclosure -- 400 --
</TABLE>
See notes to accompanying consolidated financial statements.
24
<PAGE>
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
- --------------------------------------------------------------
The consolidated financial statements include the accounts of Citadel Holding
Corporation ("Citadel") and its wholly owned subsidiaries (collectively the
"Company"). All significant intercompany balances and transactions have been
eliminated in consolidation.
On October 15, 1996, the Company consummated the transaction (the "Exchange
Transaction") contemplated by an exchange agreement (the "Exchange Agreement")
with its shareholder affiliates, Craig Corporation ("Craig") and Reading
Entertainment, Inc. ("Reading"). Pursuant to the terms of the Exchange
Agreement, the Company contributed cash in the amount of $7 million to Reading
in exchange for 70,000 shares of Reading Series A Voting Cumulative Convertible
Preferred Stock (the "Series A Preferred Stock") and an option to transfer all
or substantially all (subject to certain limitations) of its assets to Reading
for Reading Common Stock (the "Asset Put Option"). See Note 4. The Company
accounts for its investment in Reading at cost.
As a result of a restructuring in August 1994, described in Note 5, effective
January 1, 1994, Citadel no longer consolidates its previously wholly owned
subsidiary, Fidelity Federal Bank ("Fidelity") in its financial statements;
rather it accounts for its investment in Fidelity on the cost basis. According
ly, information for the year ended December 31, 1994 presents the Company's
results of operations for the five months subsequent to the Restructuring
separate from the results of operations of Fidelity, which have been included in
the statement of operations as "Gain (Loss) of and Writedown of Investment in
Fidelity".
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
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 December 31, 1996 is approximately $5.75 million which is being
held in institutional money market mutual funds.
Depreciation and Amortization
- -----------------------------
Depreciation and amortization is generally provided using the straight-line
method over the estimated useful lives of the assets which range from 27 to 39
years. Leasehold improvements are amortized over the lives of respective leases
or the useful lives of the improvements, whichever is shorter.
25
<PAGE>
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONT'D)
- -------------------------------------------------------------
Deferred Financing Costs
- ------------------------
Costs incurred in connection with obtaining financing are amortized over the
terms of the respective loans on a straight line basis.
Capitalized Leasing Costs
- -------------------------
Commissions and other costs incurred in connection with obtaining leases are
amortized over the terms of the respective leases on a straight line basis.
Earnings (Loss) per Share Data
- ------------------------------
Earnings per share is based on 7,983,416, 8,233,174 and 6,610,280, the weighted
average number of shares of common stock and common stock equivalents
outstanding during the years ended December 31, 1996, 1995 and 1994,
respectively. The 3% Cumulative Voting Convertible Preferred Stock and the
outstanding Warrants and stock options are common stock equivalents. For 1996
and 1995, the calculation of the weighted average shares of common stock
outstanding included the effect of shares assumed to be issued on conversion of
the outstanding 3% Cumulative Voting Convertible Preferred Stock during the
period of time such stock was outstanding and the outstanding Warrants and stock
options. The number of shares assumed converted as of the beginning of the
period being reported amounted to 2,046,784 and was calculated in accordance
with the Preferred Stock conversion terms described in Note 8. The Preferred
Stock is not included in the 1994 calculation as its effect was anti-dilutive.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates.
Accounting for the Impairment of Long Lived Assets
- --------------------------------------------------
During the fiscal year ended December 31, 1996, the Company adopted Statement of
Accounting Standard No. 121 "Accounting for the Impairment of Long Lived Assets
and for Long Lived Assets to be Disposed of". Among other provisions, the
statement changed current accounting practices for the evaluation of the
impairment of long lived assets. The adoption did not have a material affect
on the Company's Consolidated Financial Statements.
26
<PAGE>
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 3 - RENTAL PROPERTIES AND PROPERTIES HELD FOR SALE
- -------------------------------------------------------
The Company's rental properties and properties held for sale at December 31,
1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(In thousands)
<S> <C> <C>
RENTAL PROPERTIES:
Land $ 4,438 $ 4,699
Building and improvements 9,389 9,855
------- -------
Total 13,827 14,554
Less accumulated depreciation (539) (303)
------- -------
Rental properties, net $13,288 $14,251
======= =======
PROPERTIES HELD FOR SALE:
Apartment building $ 1,230 $ 7,791
Accumulated depreciation (85) (249)
------- -------
Net 1,145 7,542
Undeveloped land -- 400
------- -------
Properties held for sale $ 1,145 $ 7,942
======= =======
</TABLE>
At December 31, 1996 rental properties consisted of two commercial buildings as
compared to one apartment building and two commercial building at December 31,
1995. In January 1997, the property held for sale at December 31, 1996 was sold
at an amount approximating book value.
In May 1996, the Company sold the apartment rental property held for sale at
December 31, 1995, for approximately $8.94 million, net of expenses. The sale
resulted in a gain of approximately $1.473 million. Concurrent with the sale,
the Company paid off the related mortgage note payable amounting to
approximately $5.7 million. In addition, in August 1996, the Company sold the
undeveloped parcel of land in Claremont for a price, net of expenses, which
resulted in a gain of approximately $20,000.
During 1995, the Company sold an apartment building for approximately $5.9
million, net of expenses. The sale resulted in a gain of approximately $981,000.
On February 2, 1995, the Company exercised the Building Options described in
Note 5 to purchase the two office buildings from Fidelity. On March 23, 1995,
the Company purchased and immediately sold the Sherman Oaks Building for a gain
of approximately $560,000. On May 18, 1995, the Company purchased the Glendale
Building at an exercise price of $7.12 million. In connection with the Glendale
Building the Company obtained a $5.34 million five year mortgage from Fidelity,
which amortizes on a twenty year basis with interest payable monthly at the 30
day LIBOR rate plus 4.5%. The Company paid Fidelity a loan fee of 1% plus normal
closing costs.
27
<PAGE>
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 3 - RENTAL PROPERTIES AND PROPERTIES HELD FOR SALE, CONT'D
- ---------------------------------------------------------------
In August 1994, the Company and Fidelity entered into a ten year, full service
gross lease for four of the six floors of an office building owned by the
Company in Glendale, California (the "Glendale Building"). The rental rate for
the first five years of the lease term was approximately $26,000 per month
(including parking) for the ground floor and approximately $75,000 per month
(including parking), for the fourth through sixth floors. On October 1, 1996,
the Company and Fidelity amended the office lease for the Glendale Building
resulting in (1) termination of the lease obligation for floors four through six
resulting in a reduction of rent payments amounting to approximately $75,000 per
month after January 31, 1997, (2) termination of Fidelity's option to purchase
the Glendale Building, (3) a modification of the mortgage with Fidelity on the
Glendale Building eliminating the prepayment penalty and (4) an obligation by
the Company to refund to Fidelity previous rents approximating $450,000 on
February 1, 1997. Concurrent with the amendment of the Fidelity lease and
mortgage, the Company entered into a ten year, full service lease for all of the
floors, excluding the ground floor (approximately 80,000 square feet), of the
Glendale Building with Disney Enterprises, Inc. ("Disney"). 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 the option to
renew the lease for two consecutive five year periods. The lease provides that
the Company will contribute towards tenant improvements and common area upgrades
approximately $2.3 million. In addition, the Company anticipates incurring costs
for other building upgrades, governmental compliance, commissions and legal fees
prior to the commencement of lease payments by Disney of approximately $1.2
million. The commissions, legal fees and the $450,000 payment due Fidelity,
totaling approximately $1,326,000 are included in the Balance Sheet at December
31, 1996 as "Capitalized leasing costs" and are being amortized over the term of
the lease .
NOTE 4 - INVESTMENT IN SHAREHOLDER AFFILIATE
- --------------------------------------------
On October 15, 1996, the Company, with the approval of the Board of Directors,
consummated the transaction (the "Reading Investment Transaction") contemplated
by an exchange Agreement (the "Exchange Agreement") dated as of September 4,
1996 by and among the Company, Reading and Craig and certain of their respective
affiliates. Pursuant to the terms of the Exchange Agreement, the Company
contributed cash in the amount of $7 million to Reading in exchange for 70,000
shares of Reading Series A Voting Cumulative Convertible Preferred Stock (the
"Series A Preferred Stock") and the Asset Put Option. Craig contributed assets
in exchange for 2,476,190 shares of Reading Common Stock and 550,000 shares of
Reading Series B Voting Cumulative Convertible Preferred Stock. The assets
transferred by Craig consisted of 693,650 shares of Series B Preferred Stock of
Stater Bros. Holdings Inc., Craig's 50% membership interest in Reading
International Cinemas LLC, and 1,329,114 shares of the Company's Preferred
Stock. In accordance with the Exchange Agreement, Reading exchanged the
Preferred Stock
28
<PAGE>
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 4 - INVESTMENT IN SHAREHOLDER AFFILIATE, CONT'D
- ----------------------------------------------------
of the Company received from Craig in the Exchange for an equal number of shares
of the Company's Series B 3% Cumulative Voting Convertible Preferred Stock (the
"Series B Preferred Stock"). Such Series B Preferred Stock received by Reading
in the Exchange Transaction was redeemed by the Company in December 1996 (Note
8).
Upon consummation of the transaction, Craig and the Company held in the
aggregate approximately 82.4% of the voting power of Reading, with Craig's
holdings representing approximately 77.4% of the voting power of Reading and the
Company's holdings representing approximately 5% of such voting power. In
February 1997, Craig increased its ownership in Reading resulting in an increase
in its voting power of Reading to 78%. At December 31, 1996, Reading holds
1,564,973 shares or approximately 26% of the Company's outstanding common stock.
Craig also holds a warrant, which expires in April 1997, to purchase 666,000
shares of the Company's Common Stock at a purchase price of $3.00.
The 70,000 shares of Series A Preferred Stock acquired by the Company has (i) 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 18 months from issuance (or earlier upon a change of control of
Reading) into shares of Reading Common Stock at a conversion price of $11.50 per
share. Reading 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 described below), or in the event of a change of control of Reading to
require Reading to repurchase the shares of the Series A Preferred Stock for
their aggregate Stated Value plus accumulated dividends. In addition, if Reading
fails to pay dividends for four quarters, the Company has the option to require
Reading to repurchase such shares at their aggregate liquidation value plus
accumulated dividends. Included in interest and dividend income is approximately
$95,000 representing dividends earned and paid to the Company with respect to
the Company's ownership of the Reading Series A Preferred Stock.
The Asset Put Option is exercisable any time after October 15, 1996 through a
date thirty days after Reading's Form 10-K is filed with respect to its year
ended December 31, 1999, and gives the Company the right to exchange all or
substantially all of its assets, as defined, together with any debt encumbering
such assets, for shares of Reading Common Stock (the "Asset Put"). In exchange
for up to $20 million in aggregate appraised value of the Company's assets on
the exercise of the Asset Put Option, Reading is obligated to deliver to the
Company a number of shares of Reading 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, $12.25 per share. If the appraised value of the
Company's assets is in excess of $20 million, Reading is obligated to pay for
the excess by issuing Common Stock at the then fair market value up to a maximum
of $30 million of assets. If the average trading price of Reading Common Stock
exceeds 130% of the then applicable exchange price for more than 60 days, then
the exchange price
29
<PAGE>
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 4 - INVESTMENT IN SHAREHOLDER AFFILIATE, CONT'D
- ----------------------------------------------------
will thereafter be the fair market of the Reading Common Stock from time to
time, unless the Company exercises the Asset Put within 120 days of receipt of
notice from Reading of the occurrence of such average trading price over such 60
day period. For financial reporting purposes the Company did not allocate any
value to the Asset Put Option, due to the Company's belief that the value is not
material and that the methods of valuing options include numerous subjective
assumptions and are not intended to value non-transferable options.
The Company has certain demand and piggy-back registration rights with respect
to Reading Common Stock issuable on conversion of the Series A Voting Cumulative
Convertible Preferred Stock or on exercise of the Asset Put. With respect to
the Reading Investment Transaction, Reading agreed to reimburse the Company for
its out of pocket costs, estimated to be approximately $265,000, up to a maximum
of $280,000.
Reading is a publicly traded company whose shares are listed on the NASDAQ.
Reading is currently involved in conventional multiplex cinema exhibition in
Puerto Rico through its Cine Vista Cinemas chain, in the exhibition of art and
specialty film through its interest in the Angelika Film Center (a specialty art
multiplex cinema and cafe complex located in the Soho area of New York City),
and the development of a new chain of conventional multiplex cinemas and
entertainment centers in Australia. Reading opened its first multiplex cinema in
Australia in December 1996. In addition, Reading expects to expand the Angelika
Film Center concept to other U.S. cities, has executed a lease to develop an 8-
plex art cinema and cafe complex as a part of the Bayou Place development in
Houston, Texas, and is currently reviewing a number of potential locations
suitable for such complexes.
Summarized financial information of Reading as of and for the three months and
twelve months ended December 31, 1996 follows:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEET:
December 31, 1996
-----------------
(In thousands)
<S> <C>
Cash and cash equivalents $ 48,680
Other current assets 7,765
Equity investment in Citadel 4,850
Preferred stock of Stater 67,978
Property and equipment 21,130
Intangible assets 26,229
Other assets 5,122
--------
Total Assets $181,754
========
Current liabilities $ 13,716
Other liabilities 5,084
Preferred Stock held by Citadel 7,000
Shareholders' equity 155,954
--------
Total Liabilities and Equity $181,754
========
</TABLE>
30
<PAGE>
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 4 - INVESTMENT IN SHAREHOLDER AFFILIATE, CONT'D
- ----------------------------------------------------
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF OPERATIONS:
Three Months Ended Year Ended
December 31, 1996 December 31, 1996
------------------- ------------------
(In thousands) (In thousands)
<S> <C> <C>
Revenue:
Theater $ 5,233 $ 18,236
Real Estate 332 543
Interest and dividends 2,695 4,165
------- --------
Total revenue 8,260 22,944
Theater costs (4,204) (14,452)
Depreciation and amortization (578) (1,793)
General and administrative (3,869) (7,106)
------- --------
(Loss) from operations (391) (407)
Equity in earnings of Citadel 51 1,526
Other income, net 3,263 4,327
------- --------
Earnings before income taxes 2,923 5,446
Income tax benefit 1,315 1,236
Minority interest 353 321
------- --------
Net income 4,591 7,003
Less preferred stock dividends (911) (911)
Net Income applicable to common
stock shareholders $3,680 $6,092
====== ======
</TABLE>
Included in income tax benefit for the three months and year ended December 31,
1996 is approximately $1.8 million resulting from the recognition of previously
reserved income tax assets, net of AMT tax. In addition, other income for the
three months and year ended December 31, 1996, includes legal settlements and
other non-recurring income of approximately $3.4 million and $4.6 million,
respectively.
NOTE 5 - INVESTMENT IN FIDELITY
- -------------------------------
On August 4, 1994, Citadel completed a restructuring in which, among other
things, Citadel's ownership interest in its previously wholly owned subsidiary,
Fidelity Federal Bank ("Fidelity"), was reduced to approximately 16% through the
issuance of 4,202,243 shares of Class A and Class C common stock of Fidelity to
new investors in a public offering.
During fiscal 1995, the Company's investment in Fidelity was reduced by (1) the
sale of 1,295,000 shares of the Class B Common Stock of Fidelity in
consideration for a cash payment of $2,220,000 and the return of 666,000 shares
of the Company's common stock as part of the settlement of litigation with
Dillon Investors (Note 11), and (2) the sale of 2,900,000 shares for
approximately $9,718,000, net of commissions. At December 31, 1996 the Company
holds for sale 1,810 shares of Fidelity stock.
31
<PAGE>
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 5 - INVESTMENT IN FIDELITY, CONT'D
------------------------------
The loss of and writedown of investment in Fidelity for the year ended December
31, 1994 consisted of the following:
<TABLE>
<CAPTION>
(in thousands)
------------
<S> <C>
Loss from operations of Fidelity through August 4, 1994 $112,072
Writedown of investment in Fidelity as of the date of
the Restructuring 52,811
Writedown representing other than temporary decline in
value from August 5, 1994 to December 31, 1994 7,081
--------
$171,964
========
</TABLE>
Included in the writedown of investment in Fidelity as of the date of
Restructuring is the effect of the proceeds received from the D&O Litigation,
the writedown of uncollectible loans, and the deferral of the $4 million of
proceeds received from the Bulk Sale Asset Agreement relating to a sale of
Fidelity loans described below. The loss from operations of Fidelity through
August 4, 1994 was partially offset by an income tax benefit of $16,524,000.
In addition to the reduction of Citadel's interest in Fidelity, several other
significant events occurred in the Restructuring, including:
a. The purchase by a newly formed subsidiary of Citadel, Citadel Realty, Inc.
("CRI") of four real properties from Fidelity for a purchase price of $19.8
million (Fidelity's book value) of which $13.9 million was financed by Fidelity
on a secured basis, and the balance was financed by Craig, under a short-term
line of credit.
b. The receipt by Citadel from Fidelity by way of a dividend of (i) a one-year
transferable option (subsequently contributed to CRI) to acquire two office
building in Sherman Oaks and Glendale, California (the "Office Buildings") used
in the operations of Fidelity for an aggregate exercise price of $9.3 million,
portions of which buildings to be leased back to Fidelity upon purchase by the
Company (Note 3), and (ii) Fidelity's interest in a lawsuit filed against the
former carrier of Fidelity's directors' and officers insurance policies,
involving certain coverage and indemnity issues (the "D & O Litigation), which
resulted in Citadel collecting approximately $2.5 million.
c. The execution and delivery by Citadel and Fidelity of a Stockholders'
Agreement, under which Citadel agreed to reimburse 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 regard to the Company's ultimate exposure with respect to the 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
32
<PAGE>
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 5 - INVESTMENT IN FIDELITY, CONT'D
- ---------------------------------------
"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 Company has
reflected in the Statements of Operations for the year ended December 31, 1996,
a non-recurring gain related to its previous investment in Fidelity, which
resulted from the reversal of the $4 million deferral.
NOTE 6 - OTHER ASSETS
- ---------------------
<TABLE>
<CAPTION>
Other assets are summarized as follows:
December 31,
1996 1995
----- -----
(in thousands)
<S> <C> <C>
Deferred financing costs $ 204 $ 271
Accumulated amortization (64) (43)
----- -----
Deferred financing costs, net 140 228
Impounds 354 291
Prepaid expenses 110 195
Other 12 100
----- -----
$ 616 $ 814
===== =====
</TABLE>
NOTE 7 - MORTGAGE NOTES PAYABLE
- -------------------------------
Mortgage notes payable at December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
December 31,
1996 1995
-------- --------
(in thousands)
<S> <C> <C>
Notes payable to Fidelity - principal and
interest paid monthly at rates equal to
LIBOR plus 4.5%, maturing through 2004 $ 9,548 $15,424
Note payable to American Savings Bank -
principal and interest paid monthly at a
rate equal to the 11th District cost of
funds plus 2.95%, maturing June 1, 2025 755 762
------- --------
$10,303 $16,186
======= ========
</TABLE>
As of December 31, 1996, the 30 day LIBOR interest rate was 5.375% and the 11th
District Cost of Funds was 4.839%.
33
<PAGE>
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
Aggregate future principal payments as of December 31, 1996 are as follows:
Year Ending
December 31, (in thousands)
------------ --------------
1997 $ 170
1998 188
1999 207
2000 228
2001 252
Thereafter 9,258
-------
$10,303
=======
NOTE 8 - 3% CUMULATIVE VOTING CONVERTIBLE PREFERRED STOCK
- ---------------------------------------------------------
On November 10, 1994, the Company issued 1,329,114 shares of 3% Cumulative
Voting Convertible Preferred Stock ("Preferred Stock") at a stated value of
$3.95 per share to its shareholder affiliate, Craig Corporation ("Craig"). The
sales price of the 1,329,114 shares sold was $5,250,000 which was paid through
the conversion of existing indebtedness to Craig. The Preferred Stock carried a
liquidation preference equal to its stated value and had a cumulative
(noncompounded) annual dividend equal to 3% of the stated value. Each share of
the Preferred Stock entitled the holder to one vote on all matters submitted to
a vote of the Company's stockholders.
The Preferred Stock was convertible at the option of the holder into common
stock. The conversion ratio was one share of Preferred Stock for a fraction of
a share of common, the numerator which is $3.95 per share plus any unpaid
dividends, and the denominator which is the average of the closing prices per
share of the Company's common stock, as defined ("Market Price"). If the Market
Price was below $3.00, the Company could redeem the Preferred Stock tendered for
conversion calculated as the sum of (1) $3.95 per share, (2) any unpaid
dividends, and (3) a premium at the redemption date equal to an accrual on the
Stated Value ranging from 9% per annum during the period from November 1994 to
November 1998 and thereafter reducing over time.
As described in Note 4, on October 15, 1996, the Company issued 1,329,114 shares
of Series B 3% Cumulative Convertible Preferred Stock ("Series B Preferred
Stock") to Reading in exchange for the Series A Preferred Stock. The terms of
the Series B Preferred Stock were substantially identical to the terms of the
Series A Preferred Stock except that (i) the Redemption Accrual Percentage was
reduced from 9% to 3% after October 15, 1996 and (ii) except upon a change
of control of the Company, the holders of the Series B Preferred Stock would no
longer have the right to convert the Series B Preferred Stock into Company
Common Stock during the one year period commencing on the fifteenth day
following the filing of the Company's Annual Report on Form 10-K for the year
ended December 31, 1996. In December 1996, Reading notified the Company of its
exercise of its
34
<PAGE>
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 8 - 3% CUMULATIVE VOTING CONVERTIBLE PREFERRED STOCK, CONT'D
- -----------------------------------------------------------------
conversion rights. On December 20, 1996, Citadel redeemed the Series B
Preferred from Reading pursuant to the exercise of certain redemption rights set
forth in the Certificate of Designation with respect to the Series B Preferred
Stock. Such redemption price amounted to approximately $6.19 million. As a
consequence of the Series B Preferred Stock redemption, Reading's voting
ownership of Citadel decreased to reflect their approximately 26% common stock
holdings.
Included as a reduction of stockholders' equity for the year ended December 31,
1996 and 1995 is $232,000 and $101,500, respectively, representing dividends
declared and paid for the period from the date of the Preferred Stock issuance
in November 1994 until the redemption of the Series B Preferred Stock in
December 1996.
NOTE 9 - FUTURE MINIMUM RENT
- ----------------------------
The Company has operating leases with tenants at its commercial properties that
expire at various dates through 2005 and are subject to scheduled fixed
increases or adjustments based on the Consumer Price Index. Future minimum rent
under operating leases, excluding tenant reimbursements of certain costs, is
summarized as follows:
<TABLE>
<CAPTION>
Year Ending
December 31, (in thousands)
------------ --------------
<S> <C>
1997 $ 4,503
1998 4,596
1999 2,814
2000 2,223
2001 2,129
Thereafter 14,111
-------
$30,376
=======
</TABLE>
Commencing in August 1995, the Company began renting corporate office space from
its affiliate, Craig, on a month to month basis. In addition, the Company
engaged Craig to provide certain administrative services. Included in general
and administrative expenses is $96,000 and $45,000 paid to Craig for such rent
and services for the years ended December 31, 1996 and 1995, respectively. In
addition, the Company provided real estate consulting services to Reading during
the years ended December 31, 1996 and 1995 for which the Company was paid
approximately $169,000 and $120,000, respectively. Such amounts are included in
the statement of operations as a reduction of general and administrative
expenses.
35
<PAGE>
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 10 - COMMITMENTS AND CONTINGENCIES
- ---------------------------------------
There are several legal actions and claims against the Company. Based on advice
of legal counsel management believes that the ultimate liability, if any, which
may result from any of these lawsuits will not materially effect the financial
position or results of operations of the Company.
In November 1994, a stockholder, Dillon Investors L.P. filed a lawsuit in the
Court of Chancery of the State of Delaware naming as defendants the Company, its
directors and Craig. On April 13, 1995, the Company, Craig and Dillon Investors
and its affiliates (the "Dillon Parties") entered into settlement agreements to
resolve this litigation. Under the settlement agreements, the Dillon Parties
purchased from Citadel 1,295,000 shares of Class B common stock of Fidelity
owned by the Company in exchange for which the Company received from the Dillon
Parties $2.22 million and 666,000 shares of the Company's common stock and all
existing litigation among the Company, Craig and the Dillon Parties was
terminated. For financial statement purposes the Company reflected the return of
the Company's common stock as treasury stock in the amount of $1,415,000, or
$2.125 per share.
The settlement terms also included an agreement by Craig with the Dillon Parties
not to exercise, prior to February 4, 1996, its right to tender any shares of
the Preferred Stock for conversion into the Company's common stock without the
prior consent of the holders of a majority of the outstanding shares of the
Company's common stock. In exchange for such concession from Craig Corporation,
the Company agreed to grant Craig Corporation a two year warrant to acquire the
666,000 shares of the Company's common stock acquired from the Dillon Parties at
a price of $3.00 per share, and the Company agreed to reimburse Craig
Corporation for certain expenses associated with the litigation which amounted
to $62,000.
NOTE 11 - STOCK OPTIONS
- -----------------------
Pursuant to an employment agreement, the Company granted to the President stock
options to purchase 33,000 shares of common stock at a price of $2.69 per share.
As of December 31, 1996, the 33,000 shares were exercisable. Effective October
1996, the Company adopted the Citadel 1996 Nonemployee Director Stock Option
Plan (the "1996 Stock Option Plan") which provides that each director who is not
an employee or officer of the Company will automatically be granted immediately
vested options to purchase 10,000 shares of Common Stock at an exercise price
that is greater or less than the fair market value, as defined, per share of
Common Stock on the date of grant by an amount equal to the amount by which
$3.00 per share is greater or less than the fair market value per share of
Common Stock on the effective date of the 1996 Stock Option Plan. At December
31, 1996, vested options to purchase 20,000 shares of Common Stock at an
exercise price of $3.00 per share are outstanding.
36
<PAGE>
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 12 - INCOME TAXES
- ----------------------
As of December 31, 1996, the Company has for income tax purposes net operating
loss carryforwards and capital loss carryforwards of approximately $2.1 million
and $7.4 million, respectively. These carryforwards will expire in the years
1999 through 2004 and are subject to certain limitations. Since, in view of the
Company's recent history of operating losses, realization of such tax benefits
may be unlikely, a full valuation reserve has been provided.
The tax sharing agreement between Citadel and Fidelity was terminated prior to
the Restructuring. In connection with such termination, Citadel and Fidelity
agreed that certain amounts, estimated to be approximately $3.2 million, that
would have otherwise become payable by Citadel to Fidelity under the terms of
such agreement as a result of losses recognized by Fidelity during the second
quarter of 1994, would not be payable.
At the time of the Restructuring, Citadel and Fidelity entered into a tax
disaffiliation agreement (the "Tax Disaffiliation Agreement"). In general under
the tax disaffiliation Agreement, Fidelity is responsible for (a) all
adjustments to the tax liability of Fidelity and its subsidiaries for the
periods before the Restructuring relating to operations of Fidelity, (b) any tax
liability of Fidelity and its subsidiaries for the taxable year that begins
before and ends after the Restructuring in respect to that part of the taxable
year through the date of the Restructuring, and (c) any tax liability of
Fidelity and its subsidiaries for periods after the Restructuring. For this
purpose any liability for taxes for periods on or before the Restructuring is
measured by Fidelity's actual liability for taxes after applying tax benefits
attributable to periods prior to the closing otherwise available to Fidelity.
With certain exceptions Fidelity is entitled to any refunds relating to those
liabilities. During 1996, the Company and Fidelity reached settlement with
respect to all open tax periods prior to 1991. Subsequent tax years are
currently under audit by the Internal Revenue Service.
In general Citadel is responsible for all tax liabilities of Citadel and its
subsidiaries (other than Fidelity and its subsidiaries) for all periods.
Deferred income taxes reflect the net tax effect of "temporary differences"
between the financial statement carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
During 1996, the Company finalized and filed its tax return for the year ended
December 31, 1995. Based upon these filings the Company has made certain
adjustments to deferred tax assets previously estimated for the year ended
December 31, 1995. The components of the deferred tax liabilities and assets
are as follows:
37
<PAGE>
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 12 - TAXES ON INCOME, CONT'D
- ---------------------------------
<TABLE>
<CAPTION>
December 31,
1996 1995
--------- --------
(in thousands)
<S> <C> <C>
FEDERAL:
Deferred tax assets:
Acquired and option properties 2,110 3,100
Capital losses from sale of Fidelity 2,600 3,430
Bulksale indemnification -- 1,400
Net operating loss carryforward 600 938
Other 385 385
------- -------
Gross deferred tax assets 5,695 9,253
------- -------
Valuation allowance $(5,695) (9,253)
------- -------
Net Deferred tax liability $ -- $ --
======= =======
STATE:
Deferred tax assets:
Acquired and option properties 570 850
Capital losses from sale of Fidelity 690 930
Bulk sale indemnification -- 372
Net operating loss carryforward 120 120
------- -------
Gross deferred tax assets 1,380 2,272
Valuation reserve (1,380) (2,272)
------- -------
Net deferred tax liability $ -- $ 0
======= =======
</TABLE>
The provision for income taxes is different from amounts computed by applying
the U.S. statutory rate to earnings (losses) before taxes. The reason for these
differences follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
-------- ------ ---------
(In thousands)
<S> <C> <C> <C>
Expected tax provision (benefit) $ 2,185 $ 475 $(67,439)
(Increase) reduction in taxes
resulting from:
Realization of deferred tax asset
from book and tax basis of
acquired properties sold (520) (530) --
Bulk sale indemnification not
taxable (1,400) -- --
Utilization of net operating losses (310) -- --
Losses for which no tax benefit
was recorded -- 55 50,915
Other 45 -- --
------- ----- --------
Actual tax provision $ -- $ -- $(16,524)
======= ===== ========
</TABLE>
As stated in Note 5, an income tax benefit of $16.524 million was recorded for
the year ended December 31, 1994 relating to and included in the loss from
operations of Fidelity.
38
<PAGE>
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 14 - QUARTERLY OPERATING DATA (UNAUDITED)
- ----------------------------------------------
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- -------- --------
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
1996
Real estate income $ 1,740 $ 1,572 $ 1,278 $ 1,281
Real estate general and
administrative expenses (1,497) (1,504) (1,101) (836)
Gain on sale of properties -- 1,473 20 --
Gain on Fidelity -- 4,000 -- --
Net income 243 5,541 197 445
Net income (loss) per share 0.02 0.69 0.03 0.06
1995
Real estate income $ 1,113 $ 1,432 $ 1,812 $ 1,755
Real estate general and
administrative expenses (1,308) (1,360) (1,907) (1,639)
Gain on sale of properties 1,541 -- -- --
Gain (Loss) of Fidelity -- (41) -- --
Net income (loss) 1,346 31 (95) 116
Net income (loss) per share 0.15 0.00 (0.02) 0.01
</TABLE>
The above unaudited quarterly financial information reflects all adjustments
that are, in the opinion of management, necessary for a fair presentation of the
results of the quarterly periods presented.
Pursuant to the conversion terms of the 3% Cumulative Voting Convertible
Preferred Stock, the number of shares contingently issuable while they were
outstanding was dependent on the preceeding 60 day average market price of the
stock at the date of conversion. Earnings per share for the first, second and
third quarters of 1996 has been retroactively restated to reflect the number of
shares contingently issuable upon the conversions of the Preferred Stock to
Common Stock based upon the values calculated as of December 19, 1996.
39
<PAGE>
Financial Statement Schedule III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996 (IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INITIAL COST COSTS
---------------------- CAPITALIZED
BUILDING AND SUBSEQUENT TO
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION
<S> <C> <C> <C> <C>
Commercial $ 4,344 $1,488 $4,507 $199
Apartment 755 261 970
Commercial 5,204 2,951 4,212 469
------- ------ ------ ----
$10,303 $4,700 $9,689 $668
======= ====== ====== ====
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996 LIFE
--------------------------------------------- ON WHICH
ACCUMULATED DATE DEPRECIATION
DESCRIPTION LAND BUILDING TOTAL DEPRECIATION ACQUIRED IS COMPUTED
<S> <C> <C> <C> <C> <C> <C>
Commercial $1,488 $ 4,706 $ 6,194 $277 8/4/94 40
Apartment 261 970 1,231 85 8/4/94 27.5
Commercial 2,951 4,681 7,632 262 5/8/95 40
------ ------- ------- ----
$4,700 $10,357 $15,057 $624
====== ======= ======= ====
</TABLE>
- -------------
(1) The properties listed above were acquired pursuant to agreements entered
into between the Company and Fidelity at the time of the Restructuring. The
aggregate gross cost of property held at December 31, 1996 for federal
income tax purposes approximated $20,972,000.
(2) The following reconciliation reflects the aggregate rollforward activity of
property held and accumulated depreciation for the three years ended
December 31, 1996:
<TABLE>
<CAPTION>
Gross Accumulated
Amount Depreciation
---------- ------------
<S> <C> <C>
Balance at December 31, 1993 $ -- $ --
Depreciation expense (197)
Acquisitions 20,055
------- -----
Balance at December 31, 1994 20,055 (197)
Depreciation expense (420)
Acquisitions 7,163
Improvements 166
Property received through
foreclosure on note receivable 400
Cost of real estate sold (5,038) 64
------- -----
Balance at December 31, 1995 $22,746 $(553)
Depreciation expense (395)
Acquisitions 504
Cost of real estate sold (8,193) 324
------- -----
Balance at December 31, 1996 $15,057 $(624)
======= =====
</TABLE>
40
<PAGE>
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
41
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS & EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
FIRST
BECAME
NAME AGE CURRENT OCCUPATION DIRECTOR
---- --- ------------------ --------
<S> <C> <C> <C>
James J. Cotter (1)(3) 59 Chairman of the Board of 1986
Citadel, Chairman of the
Board of Craig Corporation
("Craig"), and Chairman of the
Board of Reading Entertainment,
Inc. (`REI")
S. Craig Tompkins(3) 46 Secretary/Treasurer and 1993
Principal Accounting Officer
of Citadel, Vice Chairman of
the Board of Citadel,
President and Director of
Craig, Vice Chairman of the Board
of REI, and Director of G&L
Realty Corp.
Ronald I. Simon(2)(3) 58 Private Investor/Financial 1995
Consultant; Chairman and
Chief Financial Officer of
Sonant Corporation, Director
of each of Softnet Systems,
Inc., and Westcorp Investments.
Alfred Villasenor, Jr. 67 President of Unisure Insurance 1987
(1)(2). Services, Incorporated
</TABLE>
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of the Executive Committee.
Set forth below is certain information concerning the principal occupation
and business experience of each of the individuals named above during the past
five years.
Mr. Cotter was first elected to the Board in 1986, and resigned in 1988. He
was re-elected to the Board in June 1991, named Acting Chairman of the Board of
Directors of Citadel and Fidelity Federal Bank, a federal savings bank
(''Fidelity'') previously owned by Citadel in October 1991, and named Chairman
of the Board of Citadel on June 5, 1992. Mr. Cotter has been Chairman of the
Board of Craig since 1988 and a Director of that company since 1985. Since 1996,
Mr. Cotter has served as a Director of REI (motion picture exhibition and real
estate), which the company was formed pursuant to a reorganization of Reading
Company under a Delaware holding company, effective October 1996. Since 1990 Mr.
Cotter has also served as a Director of Reading Company, currently a wholly
owned subsidiary of REI, and since 1991, as the Chairman of the Board of that
company. Craig owns approximately 78% of the voting power of the outstanding
securities of REI. Mr. Cotter is also the Executive Vice President and a
Director of The Decurion Corporation (motion picture exhibition). Mr. Cotter
began his association with The Decurion Corporation in 1969. Mr. Cotter is also
a Director and Executive Vice President of Pacific Theatres, Inc., a wholly
owned subsidiary of the Decurion Corporation. Mr. Cotter has been the Chief
Executive Officer and a Director of Townhouse Cinemas Corporation (motion
picture exhibition) since 1987. Mr. Cotter is the General Partner of James J.
Cotter, Ltd., a general partner in Hecco Ventures I, a California General
Partnership and a general partner in Hecco Ventures II, a California General
Partnership (Hecco I and Hecco II are involved in investment activities and are
shareholders in Craig), and has been a Director of Stater Bros., Inc. (retail
grocery) since 1987.
42
<PAGE>
Mr. Simon has been a director of the Company since June 1995. Mr. Simon is
a financial consultant and private investor. He is currently Chairman and Chief
Financial Officer of Sonant Corporation, a manufacturer of interactive voice
response equipment, Westcorp Investments, a wholly owned subsidiary of
Westcorp, and Softnet Systems, Inc. Formerly, Mr. Simon was the Managing
Director of the Henley Group, Inc., a Director of Craig Corporation from 1987-
1990 and a Director of Reading Company from 1989 to 1995.
Mr. Tompkins was a partner of Gibson Dunn & Crutcher until March 1993 when
he resigned to become President of each of Craig and Reading. Mr. Tompkins has
served as a Director of each of Craig and Reading Company since February 1993
and has served as a Director of REI since its formation in 1996. Mr. Tompkins
was elected to the Board of Directors of G&L Realty Corp., a New York Stock
Exchange listed real estate investment trust, in December of 1993, and was
elected Vice Chairman of the Board of Citadel in July of 1994. Mr. Tompkins also
serves as the Secretary/Treasurer and Principal Accounting Officer for Citadel.
In February 1997, Mr. Tompkins resigned as President of REI and was made Vice
Chairman of REI.
Mr. Villasenor is the President and the owner of Unisure Insurance
Services, Incorporated, a corporation which has specialized in life, business
life and group health insurance for over 35 years. He is also a general partner
in the 2368 Torrance Partnership, a California real estate holding company. Mr.
Villasenor served on the Board of Directors of ELAR, a reinsurance company from
1986 to 1991. In 1987, Mr. Villasenor was elected to the Board of Directors of
Citadel and Fidelity and served on the Board of Fidelity until 1994. Mr.
Villasenor also served as a Director of Gateway Investments, Inc. (a wholly
owned subsidiary of Fidelity) from June 22, 1993 until February 24, 1995.
All officers are elected annually by the Board of Directors.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The officers of Citadel currently include Steve Wesson and S. Craig
Tompkins. The Summary Compensation Table sets forth the compensation earned for
the years ended December 31, 1996, 1995 and 1994 by each of the most highly
compensated executive officers of the company whose compensation exceeded
$100,000 in all capacities in which they served.
43
<PAGE>
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM
------------------------------------- COMPENSATION
SECURITIES
UNDERLYING
OTHER STOCK
ANNUAL OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) GRANTED COMPENSATION
- --------------------------- ---- ------ ----- --------------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Steve Wesson 1996 $175,000 $ 50,000 (1) -- --
President and Chief 1995 $175,000 $100,000 (1) -- --
Executive Officer 1994(2) $ 70,564 $ 25,000 (1) 33,000 $5,564
</TABLE>
(1) Excludes perquisites if the aggregate amount thereof is less than $50,000,
or 10% of salary plus bonus, if less.
(2) Includes compensation received as President and Chief Executive Officer of
Citadel from August 5, 1994 to December 31, 1995.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following summarizes options were granted in 1996.
<TABLE>
<CAPTION>
POTENTIALLY REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
------------------------------------------------------- ----------------------------
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES IN EXERCISE OR EXPIRATION
NAME GRANTED FISCAL YEAR BASE PRICE DATE 5% 10%
---- ------- ----------- ---------- ---- -- ---
<S> <C> <C>
Alfred Villasenor 10,000 50% $3.00 2006 $18,900 $47,800
Ronald I. Simon 10,000 50% $3.00 2006 $18,900 $47,800
</TABLE>
AGGREGATED OPTION/SAR IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTION/SARS
SHARES ACQUIRED VALUE AT FY-END (#) AT FY-END (#)
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- -------------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Steve Wesson N/A N/A 33,000/0 $ 2,062
Alfred Villasenor N/A N/A 10,000/0 0(1)
Ronald I. Simon N/A N/A 10,000/0 0(1)
</TABLE>
(1) The options are not in-the-money.
44
<PAGE>
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL AGREEMENTS
Citadel and Steve Wesson entered into an Executive Employment Agreement,
effective as of August 4, 1994 (the ''Employment Agreement''). The term of the
Employment Agreement is two years and is automatically renewed for subsequent
one-year terms unless either party gives notice of non-renewal. Mr. Wesson is
paid an annual salary of $175,000 and a minimum annual bonus of $50,000.
Pursuant to the Employment Agreement, Mr. Wesson was granted options to purchase
33,000 shares of Common Stock of Citadel.
On June 27, 1990 the Board authorized Citadel to enter into indemnity
agreements with its then current as well as future directors and officers. Since
that time, Citadel's officers and directors have entered such agreements. Under
these agreements, Citadel agrees to indemnify its officers and directors against
all expenses, liabilities and losses incurred in connection with any threatened,
pending or completed action, suit or proceeding, whether civil or criminal,
administrative or investigative, to which any such officer or director is a
party or is threatened to be made a party, in any manner, based upon, arising
from, relating to or by reason of the fact that he is, was, shall be or shall
have been an officer or director, employee, agent or fiduciary of Citadel. Each
of the current Citadel directors have entered into indemnity agreements with
Citadel. Similar agreements also exist between Citadel's subsidiaries and the
officers and directors of such subsidiaries.
COMPENSATION COMMITTEE
From August 4, 1994 to August 31, 1995, Citadel dissolved the Compensation
Committee and the entire Board of Directors took responsibility for the
compensation decisions. On August 31, 1995, the Compensation Committee was
reinstituted and currently includes include Directors Cotter and Villasenor. It
is currently Citadel's policy that directors who are executive officers and
whose compensation is at issue are not involved in the discussion of, or voting
on, such compensation.
Mr. Wesson and Mr. Tompkins are the executive officers of Citadel. In
accordance with Citadel's policy on executive officer compensation, Mr. Wesson
and Mr. Tompkins are not involved in the discussion of, or voting on, their
respective compensation. Mr. Tompkins receives no compensation for his services
as an executive officer, but received director's fees for his service as Vice
Chairman in the amount of $35,000 with respect to 1996.
Other than the Chairman of the Board, directors who are not officers or
employees of the Company receive, for their services as a director, an annual
retainer of $15,000 plus $1,500, if serving as Committee Chairman and $800 for
each meeting attended in person (or $300 in the case of a telephonic meeting).
The Chairman of the Board receives $45,000 annually. During 1996, Messrs.
Villasenor and Simon received $10,000 as additional fees for their participation
as members of the Independent Committee formed by the Company to review the
Reading Investment Transaction.
Additionally, pursuant to the Citadel Holding Corporation 1996 Nonemployee
Director Stock Option Plan effective October 1996 (the "1996 Stock Option
Plan"), each director of the Company who is not an employee or officer (for
purposes of the 1996 Stock Option Plan, the Chairman of the Board and the
Principal Accounting Officer of Citadel are deemed officers of the Company) of
the Company shall, upon becoming a member of the Board of Directors,
automatically be granted immediately vested option to purchase 10,000 shares of
Common Stock at an exercise price that is greater or less than the fair market
value (as such term is defined in the 1996 Stock Option Plan) per share of
Common Stock on the date of grant by an amount equal to the amount by which
$3.00 per share is greater or less than the fair market value per share of
Common Stock on the effective date of the 1996 Stock Option Plan (the "Plan
Effective Date"). The non-officer directors who were incumbent
45
<PAGE>
on the Plan Effective Date (Messrs. Simon and Villasenor) received immediately
vested options to purchase 10,000 shares of Common Stock at an exercise price of
$3.00 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Tompkins is President of Craig and a Director of Craig and REI. Mr.
Cotter is the Chairman of the Board of Craig and REI. Mr. Cotter is a member of
the executive committees of REI, which, among other things, is responsible for
the compensation of the executive officers of such companies.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers,
directors and persons who own more than 10% of the Company's Common Stock to
file reports to ownership and changes in ownership with the SEC. The SEC rules
also require such reporting persons to furnish the Company with a copy of all
Section 16(a) forms they file.
Based solely on a review of the copies of the forms which the Company
received and written representations from certain reporting persons, the Company
believes that, during the fiscal year ended December 31, 1996, all filing
requirements applicable to its reporting persons were complied with except Mr.
Alfred Villasenor filed one late Form 4 in December 1996 to report the sale of
900 shares of the Company's Common Stock, which transaction occurred in April
1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the shares of Common Stock, beneficially
owned as of March 20, 1997 by (i) each director and nominee, (ii) all directors
and executive officers as a group, and (iii) each person known to Citadel to be
the beneficial owner of more than 5% of the Common Stock. Except as noted, the
indicated beneficial owner of the shares has sole voting power and sole
investment power.
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------------------------
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP PERCENT OF CLASS(7)
- ------------------------------------ ----------------------- ----------------
<S> <C> <C>
James J. Cotter(1)(4) 2,230,473 33.2%
Steve Wesson(4) 33,000(2) *
Alfred Villasenor, Jr.(4) 10,000(3) *
S. Craig Tompkins(4) -- --
Ronald I. Simon(4) 10,000 shares(3) *
Craig Corporation(1)(4) 2,230,473 33.2%
Reading Holdings, Inc., an indirect 1,564,473 23.2%
wholly owned subsidiary of REI (1)
30 South Fifteenth Street, Suite 1300
Philadelphia, PA 19102-4813
Lawndale Capital Management, Inc., 579,000(6) 8.6%
One Sansome Street, Suite 3900
San Francisco, California 94104
Andrew E. Shapiro 579,000(6) 8.6%
One Sansome Street, Suite 3900
San Francisco, California 94104
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------------------------
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ------------------------------------ ----------------------- ----------------
<S> <C> <C>
Diamond A Partners, L.P 501,000(6) 7.5%
One Sansome Street, Suite 3900
San Francisco, California 94104
Diamond A Investors, L.P. 77,900(6) 1.2%
One Sansome Street, Suite 3900
San Francisco, California 94104
Private Management Group(5) 675,000 10.0%
20 Corporate Park, Suite 400
Irvine, CA 92606
All directors and executive 2,283,473 34%
officers as a Group (5 persons)(1)
</TABLE>
(1) Mr. Cotter is the Chairman of Craig and REI, and a principal stockholder of
Craig. Craig currently owns approximately 78% of the voting power of the
outstanding capital stock of REI. Craig owns directly a warrant (the
"Warrant") to purchase 666,000 shares of Common Stock at $3.00 per share.
Reading owns directly 1,564,473 shares of Common Stock. These securities
have been listed as beneficially owned by Mr. Cotter and Craig due to the
relationships between Mr. Cotter, Craig and REI. The Common Shares
underlying the Warrant (representing 666,000 shares) have been listed as
beneficially owned by Mr. Cotter and Craig even though the exercise price is
currently in excess of the current market value of such Common Stock. Mr.
Cotter disclaims beneficial ownership of all Citadel securities owned by
Craig and/or Reading.
(2) Pursuant to the terms of his Employment Agreement, Citadel granted Mr.
Wesson options to purchase 33,000 shares of Common Stock.
(3) Includes 10,000 shares of Common Stock which may be acquired through the
exercise of stock options granted pursuant to the 1996 Stock Option Plan.
(4) 550 South Hope Street, Suite 1825, Los Angeles, California 90071
(5) Based upon Schedule 13-G filed February 28, 1997.
(6) Includes 501,100 shares which are owned by Diamond A Partners, L.P., ("DAP")
and 77,900 shares which are owned by Diamond A Investors, L.P. ("DAI") but
have shared voting and dispositive power with Lawndale Capital Management,
LLC ("LCM") and Andrew E. Shapiro. According to Amendment No. 5 to the
Report on Schedule 13D filed on October 29, 1996, LCM is the investment
advisor to and general partner of DAP and DAI, which are investment limited
partnership. Andrew E. Shapiro is the sole manager of LCM.
(7) Based on ownership assuming conversion of the stock options (53,000 shares)
and the conversion of the Warrant to purchase 666,000 shares.
* Represents less than one percent of the outstanding shares of Citadel
Common Stock.
47
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN TRANSACTIONS
Reading Investment Transaction
In October 1996, Citadel and its wholly-owned subsidiary, Citadel
Acquisition Corp., Inc. ("CAC"), closed a transaction with Craig, REI and
Reading Company and certain affiliates thereof. Pursuant to the terms of an
Exchange Agreement, CAC contributed cash in the amount of $7 million to REI in
exchange for (i) 70,000 shares of Series A Preferred Stock of REI, (ii) the
granting to Citadel of an option, exercisable at any time until 30 days after
REI files its Annual Report on Form 10-K for the year ended December 31, 1999,
to exchange all or substantially all of its assets for shares of REI Common
Stock, subject to certain contractual limitations and (iii) the granting of
certain demand and piggy-back registration rights with respect to REI Common
Stock received on the conversion of the Series A Preferred Stock or on such
asset exchange. Additionally, pursuant to the terms of such Exchange Agreement,
REI issued (i) 125,098 shares of its Series B Preferred Stock and 563,210 shares
of its common stock to Craig in exchange for Craig's 50% interest in a cinemas
joint venture with a Reading Company affiliate and the 1,329,114 shares of
Citadel Series A 3% Cumulative Voting Convertible Preferred Stock, par value
$.01 per share (the "Citadel Series A Preferred Stock") owned by Craig and (ii)
424,902 shares of its Series B Preferred Stock and 1,912,980 shares of its
common stock to a Craig affiliate in exchange for 693,650 shares of stock of
State Bros. Holdings, Inc. Pursuant to the Exchange Agreement, REI exchanged the
Citadel Series A Preferred Stock for an equal number of shares of Citadel Series
B Preferred Stock. The terms of the Citadel Series A Preferred Stock were
substantially identical to the Citadel Series B Preferred Stock except that (i)
the Redemption Accrual Percentage was reduced to 3% from and after the closing
and (ii) except on a change of control of Citadel, the holders of the Citadel
Series B Preferred Stock did not have the right to convert the Citadel Series B
Preferred Stock into Common Stock during the one-year period commencing on the
15th day following the filing of Citadel's Annual Report on Form 10-K for the
year ending December 31, 1996.
Redemption of Series B Preferred Stock
In December 1996, REI notified to the Company of its exercise of its
conversion rights with respect to the Citadel Series B Preferred Stock. On
December 20, 1996, Citadel redeemed the Preferred Stock from Reading pursuant to
the exercise of its redemption rights. The redemption price amounted to $6.19
million.
Transactions with Craig Corporation and Reading Entertainment, Inc.
Commencing August 1995, Citadel began renting corporate office space from
Craig on a month-to-month basis and engaged Craig to provide Citadel with
certain administrative services. During fiscal 1996, $96,000 was paid to Craig
for such rent and services. In additional, Citadel provided real estate
consulting services to Reading Company during fiscal 1996, for which Citadel was
paid $169,000.
48
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a)(1) FINANCIAL STATEMENTS
DESCRIPTION PG. NO
----------- ------
<S> <C>
Report of Independent Auditors.................................... 20
Consolidated Balance Sheets as of December 31, 1996 and 1995...... 21
Consolidated Statements of operations for Each of the Three
Years in the Period Ended December 31, 1996...................... 22
Consolidated Statements of Stockholders' Equity for Each of the
Three Years in the Period Ended December 31, 1996................ 23
Consolidated Statements of Cash Flows for Each of the Three
Years in the Period Ended December 31, 1996...................... 24
Notes to Consolidated Financial Statements........................ 25
(a)(2) FINANCIAL STATEMENT SCHEDULE
Financial Statement Schedule III -- Real Estate and
Accumulated Depreciation......................................... 40
</TABLE>
(b) REPORTS ON FORM 8-K
(i) The Company filed a Report on Form 8-K on October 30, 1996,
reporting on Item 5, "Other Information."
(c) EXHIBITS (Items denoted by * represent management or compensatory
contract)
49
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
3.1 Certificate of Amendment of Restated Certificate of Incorporation of
Citadel Holding Corporation, (filed as Exhibit 3.1 to the Company's
Report on Form 10-K for the year-end December 31, 1994, and
incorporated herein by reference).
3.2 Restated By-laws of Citadel Holding Corporation (filed as Exhibit 3.2
to the company's Form 0-K for the year ended December 31, 1988, and
incorporated herein by reference)
3.3 Amendment to By-laws of Citadel Holding Corporation (filed as Exhibit
3.3 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
3.4 Amendment to By-laws of Citadel Holding Corporation (filed as Exhibit
3.4 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.)
3.5 Amendment to By-laws of Citadel Holding Corporation (filed as Exhibit
3.5 to the Company's Report on Form 8-K dated October 30, 1996.
4.1 Certificate of Designation of the 3% Cumulative Voting Convertible
Preferred Stock of Citadel Holding Corporation (filed as Exhibit 3 to
the Company's Report on Form 8-K, filed on November 14, 1994, and
incorporated herein by reference)
4.2 Certificate of Designation of the Series B 3% Cumulative Voting
Convertible Preferred Stock of Citadel Holding Corporation (filed
herewith)
10.1 Form of Investor Purchase Agreement between Fidelity Federal Bank and
the investors (filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1004, and
incorporated herein by reference)
10.2 Settlement Agreement between Fidelity Federal Bank, Citadel Holding
Corporation and certain lenders, dated as of June 3, 1994 (the
"Letter Agreement")(filed as Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1994, and
incorporated herein by reference)
10.3 Amendment No. 1 to the Letter Agreement, dated as of June 30, 1994
(filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994, and incorporated herein by
reference)
10.4 Amendment No. 2 to Letter Agreement, dated as of July 28, 1994 (filed
as Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1994, and incorporated herein by
reference)
10.5 Amendment No. 3 to Letter Agreement, dated as of August 3, 1994
(filed as Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994, and incorporated herein by
reference)
10.6 Mutual Release, dated as of August 4, 1994, between Fidelity Federal
Bank, Citadel Holding Corporation and certain lenders (filed as
Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994, and incorporated herein by reference)
10.7 Mutual Release between Fidelity Federal Bank, Citadel Holding
Corporation, and the Chase Manhattan Bank, N.A., dated June 17, 1994
(filed as Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994, and incorporated herein by
reference)
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
10.8 Loan and REO Purchase Agreement (Primary), dated as of July 13, 1994,
between Fidelity Federal Bank and Colony Capital, Inc. (filed as
Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994, and incorporated herein by reference)
10.9 Deposit Escrow Agreement, dated as of July 13, 1994, among Colony
Capital, Inc., Fidelity Federal Bank, and Morgan Guaranty Trust
Company of New York (filed as Exhibit 10.9 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1994, and
incorporated herein by reference)
10.10 Real Estate Purchase Agreement, dated as of August 3, 1994, between
Fidelity Federal Bank and Citadel Realty, Inc. (filed as Exhibit
10.10 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994, and incorporated herein by reference)
10.11 Loan and REO Purchase Agreement (Secondary), dated as of July 12,
1994, between fidelity Federal Bank and EMC Mortgage Corporation
(filed as Exhibit 10.11 to the Company's Quarterly Report on Form 10-
Q for the quarter ended June 30, 1994, and incorporated herein by
reference)
10.12 Deposit Escrow Agreement, dated as of July 13, 1994, between EMC
Mortgage Corporation, Fidelity Federal Bank, and Morgan Guaranty
Trust Company of New York (filed as Exhibit 10.12 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1994,
and incorporated herein by reference)
10.13 Loan and REO Purchase Agreement (Secondary), dated as of July 21,
1994, between Fidelity Federal Bank and Internationale Nederlanden
(US) Capital Corporation, Farallon Capital Partners, L.P., Tinicum
Partners, L.P., and Essex Management Corporation (filed as Exhibit
10.13 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994, and incorporated herein by reference)
10.14 Deposit Escrow Agreement, dated as of July 21, 1994, between Fidelity
Federal Bank and Internationale Nederlanden (US) Capital Corporation,
Farallon Capital Partners, L.P., Tinicum Partners, L.P., Essex
Management Corporation, and Morgan Guaranty Trust Company of New York
(filed as Exhibit 10.14 to the Company's Quarterly Report on Form 10-
Q for the quarter ended June 30, 1994, and incorporated herein by
reference)
10.15 Purchase of Assets and Liability Assumption Agreement by and between
Home Savings of America, FSB and Fidelity Federal Bank, FSB, dated as
of July 19, 1994 (filed as Exhibit 10.15 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1994, and
incorporated herein by reference)
10.16 Credit Agreement among Citadel Realty, Inc., Citadel Holding
Corporation and Craig Corporation, dated as of August 2, 1994 (filed
as Exhibit 10.16 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1994, and incorporated herein by
reference)
10.17 Promissory Note, dated as of August 2, 1994, by Citadel Realty Inc.
in favor of Craig Corporation (filed as Exhibit 10.17 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1994, and incorporated herein by reference)
10.18 Guaranty, dated as of August 2, 1994, by Citadel Holding Corporation
in favor of Craig Corporation (filed as Exhibit 10.18 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1994, and incorporated herein by reference)
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
10.19 Pledge Agreement, dated as of august 2, 1994, between Citadel Holding
Corporation and Craig Corporation (filed as Exhibit 10.19 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1994, and incorporated herein by reference)
10.20 Promissory Note, dated August 3, 1994, by Citadel Realty, Inc., in
favor of Fidelity Federal Bank (filed as Exhibit 10.20 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1994, and incorporated herein by reference)
10.21 Promissory Note, dated July 28, 1994, by Citadel Realty, Inc., in
favor of Fidelity Federal Bank (filed as Exhibit 10.21 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1994, and incorporated herein by reference)
10.22 Guaranty Agreement, dated August 3, 1994, by Citadel Holding
Corporation, in favor of Fidelity Federal Bank (filed as Exhibit
10.22 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994, and incorporated herein by reference)
10.23. Unsecured Environmental Indemnity Agreement dated as of August 3,
1994, by Citadel Realty, Inc., in favor of Fidelity Federal Bank
(filed as Exhibit 10.23 to the Company's Quarterly Report on Form 10-
Q for the quarter ended June 30, 1994, and incorporated herein by
reference)
10.24 Unsecured Environmental Indemnity Agreement dated as of July 28,
1994, by Citadel Realty, Inc. in favor of Fidelity Federal Bank
(filed as Exhibit 10.24 to the Company's Quarterly Report on Form 10-
Q for the quarter ended June 30, 1994, and incorporated herein by
reference)
10.25 Registration Rights Agreement dated as of June 30, 1994, between
Fidelity Federal Bank, Citadel Holding Corporation and certain
holders of Class C Common Stock of Fidelity Federal Bank (filed as
Exhibit 10.25 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994, and incorporated herein by reference)
10.26 Stockholders Agreement, dated as of June 30, 1994, between Citadel
Holding Corporation and Fidelity Federal Bank (filed as Exhibit 10.26
to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1994, and incorporated herein by reference)
10.27 Tax Disaffiliation Agreement, dated as of August 4, 1994, by and
between Citadel Holding Corporation and Fidelity Federal Bank (filed
as Exhibit 10.27 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1994, and incorporated herein by
reference)
10.28 Option Agreement, dated as of August 4, 1994, by and between Fidelity
Federal Bank and Citadel Holding Corporation (filed as Exhibit 10.28
to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1994, and incorporated herein by reference)
10.29 Assignment of Option Agreement, dated as of August 4, 1994, by and
between Citadel Holding Corporation and Citadel Realty, Inc. (filed
as Exhibit 10.29 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1994, and incorporated herein by
reference)
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
10.30 Amendment No. 2 to Executive Employment Agreement, dated as of August
4, 1994, between Richard M. Greenwood and Fidelity Federal Bank
(filed as Exhibit 10.30 to the Company's Quarterly Report on Form 10-
Q for the quarter ended June 30, 1994, and incorporated herein by
reference)
10.31 Amended and Restated Term Note, dated October 29, 1992, by Richard M.
Greenwood in favor of Citadel Holding Corporation (filed as Exhibit
10.31 to the Company's Quarterly Report on form 10-Q for the quarter
ended June 30, 1994, and incorporated herein by reference)
10.32 Letter Agreement dated August 4, 1994, between Richard M. Greenwood
and Citadel Holding Corporation (filed as Exhibit 10.32 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1994, and incorporated herein by reference)
10.33 Amended and Restated Charter S of Fidelity Federal Bank (filed as
Exhibit 10.33 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994, and incorporated herein by reference)
10.34 Amended Service Agreement between Fidelity Federal Bank and Citadel
Holding Corporation dated as of August 1, 1994 (filed as Exhibit
10.34 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994, and incorporated herein by reference)
10.35 Placement Agency Agreement, dated July 12, 1994 between JP Morgan
Securities, Inc., Fidelity Federal Bank and Citadel Holding
Corporation (filed as Exhibit 10.35 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1994, and incorporated
herein by reference)
10.36 Side letter, dated August 3, 1994, between Fidelity Federal Bank and
Citadel Realty, Inc. (filed as Exhibit 10.36 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1994,
and incorporated herein by reference)
10.37 Stock Exchange and Settlement Agreement, dated April 3, 1995, by and
among Citadel Holding Corporation, Dillon Investors, L.P., a Delaware
partnership, Roderick H. Dillon, Jr., an individual, Roderick H.
Dillon, Jr. Foundation, an Ohio trust, and Roderick H. Dillon, Jr.--
IRA (filed as Exhibit 10.1 to the Company's Report on Form 8-K, filed
on April 4, 1995, and incorporated herein by reference)
10.38 Stock Purchase Agreement, dated October 21, 1994, by and between
Citadel Holding Corporation and Craig Corporation, a Delaware
corporation (filed as Exhibit 2 to the Company's Report on Form 8-K,
filed on October 25, 1994, and incorporated herein by reference)
10.39 Preferred Stock Purchase Agreement, dated November 10, 1994, by and
between Citadel Holding Corporation and Craig Corporation, a Delaware
corporation (filed as Exhibit 2 to the Company's Report on Form 8-K,
filed on November 14, 1994, and incorporated herein by reference)
10.40 Conversion Deferral, Warrant and Reimbursement Agreement, dated as of
April 11, 1995, by and between Citadel Holding Corporation and Craig
Corporation, a Delaware corporation (filed as Exhibit 10.40 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1994 and incorporated herein by reference).
10.41* Employment Agreement between Citadel Holding Corporation and Steve
Wesson (filed as Exhibit 10.41 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994, and incorporated
herein by reference)
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
10.42 Standard Office lease, dated as of July 15, 1994, by and between
Citadel Realty, Inc. and Fidelity Federal Bank (filed as Exhibit
10.42 to the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995, and incorporated herein by reference)
10.43 First Amendment to Standard Office Lease, dated May 15, 1995, by and
between Citadel Realty, Inc. and Fidelity Federal Bank (filed as
Exhibit 10.43 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995, and incorporated herein by reference)
10.44 Form of Stock Purchase Agreement, dated April 17, 1995, entered into
by Citadel Holding Corporation and certain purchases of shares of
Class B Common Stock of Fidelity Federal Bank (filed as Exhibit 10.44
to the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995, and incorporated herein by reference)
10.45 Environmental Indemnity Agreement, dated May 15, 1995, by and among
Citadel Realty, Inc., in favor of Fidelity Federal Bank (filed as
Exhibit 10.45 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995, and incorporated herein by reference)
10.46 Promissory Note secured by Deed of Trust, dated May 15, 1995, made by
Citadel Realty, Inc., in favor of Fidelity Federal Bank (filed as
Exhibit 10.46 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995, and incorporated herein by reference)
10.47 Guaranty of Payment dated May 15, 1995 by Citadel Holding Corporation
in favor of Fidelity Federal Bank (filed as Exhibit 10.47 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1995, and incorporated herein by reference)
10.48 Deed of Trust, Assignment of Rents and Leases, Security Agreement and
Fixture Filing, dated as of may 15, 1995, made by Citadel Realty,
Inc. in favor of Fidelity Federal Bank (filed as Exhibit 10.48 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1995, and incorporated herein by reference)
10.49 Office Lease Modification between Citadel Realty, Inc. and American
Express Travel Related Services Company dated March 1. 1996 (filed as
Exhibit 10.49 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995 and incorporated herein by reference)
10.50 Letter of Intent dated August 12, 1996 by and between Reading
Company, Citadel Holding Corporation, Craig Corporation, Reading
Entertainment, Inc., Craig Management, Inc., and Citadel Acquisition
Corp., Inc. (filed as Exhibit 10.50 to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1996 and incorporated
herein by reference)
10.51 Exchange Agreement dated September 4, 1996 among Citadel Holding
Corporation, Citadel Acquisition Corp., Inc. Craig Corporation, Craig
Management, Inc., Reading Entertainment, Inc., Reading Company (filed
herewith)
10.52 Asset Put and Registration Rights Agreement dated October 15, 1996
among Citadel Holding Corporation, Citadel Acquisition Corp., Inc.,
Reading Entertainment, Inc., and Craig Corporation (filed herewith)
10.53 Certificate of Designation of the Series A Voting Cumulative
Convertible Preferred Stock of Reading Entertainment, Inc., (filed
herewith)
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
10.54 Lease between Citadel Realty, Inc., Lessor and Disney Enterprises,
Inc., Lessee dated October 1, 1996 (filed as Exhibit 10.54 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996 and incorporated herein by reference)
10.55 Second Amendment to Standard Office Lease between Citadel Realty,
Inc. and Fidelity Federal Bank dated October 1, 1996 (filed as
Exhibit 10.55 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996 and incorporated herein by
reference)
10.56 Modification Agreement to Loan No. 3038879 between Fidelity Federal
Bank and Citadel Realty, Inc. dated October 1, 1996 (filed as Exhibit
10.56 to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996 and incorporated herein by reference)
10.57 Citadel 1996 Nonemployee Director Stock Option Plan (filed herewith)
10.58 Reading Entertainment, Inc., Annual Report on Form 10-K for the year
ended December 31, 1996 (TO BE FILED BY AMENDMENT)
21 Subsidiaries of the Company (filed herewith)
27 Financial Data Schedule (filed herewith)
</TABLE>
55
<PAGE>
SIGNATURE
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
---------------------------
(Registrant)
Date: March 31, 1997 /s/ Steve Wesson
----------------------------------------
Steve Wesson
President and Chief Executive Officer
Date: March 31, 1997 /s/ S. Craig Tompkins
----------------------------------------
S. Craig Tompkins
Principal Accounting Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES AND EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF REGISTRANT
AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLES(S) DATE
--------- -------- ----
<S> <C> <C>
/s/ James J. Cotter Chairman of the Board and Director March 31, 1997
- -------------------------
James J. Cotter
/s/ S. Craig Tompkins Director, Secretary March 31, 1997
- -------------------------
S. Craig Tompkins
/s/ Ronald I. Simon Director March 31, 1997
- -------------------------
Ronald I. Simon
/s/ Alfred Villasenor, Jr. Director March 31, 1997
- -------------------------
Alfred Villasenor, Jr.
</TABLE>
56
<PAGE>
EXHIBIT 4.2
CERTIFICATE OF DESIGNATION
OF THE SERIES B 3% CUMULATIVE VOTING CONVERTIBLE PREFERRED STOCK
(Par Value $.01 Per Share)
OF
CITADEL HOLDING CORPORATION
______________________
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
______________________
Citadel Holding Corporation, a Delaware corporation (the "Company"),
-------
certifies that pursuant to the authority conferred upon the Board of Directors
of the Company (the "Board of Directors") by the Certificate of Incorporation of
------------------
the Company (the "Certificate of Incorporation"), and in accordance with the
----------------------------
provisions of Section 151 of the General Corporation Law of the State of
Delaware, as amended (the "GCL"), the Board of Directors, on
---
August 23, 1996, adopted the following resolution creating a series of
its Preferred Stock, par value $.01 per share:
RESOLVED, that a class of the Company's authorized preferred stock, par
value $.01 per share, which shall consist of 1,329,114 shares of Preferred
Stock, be hereby created, and that the designation and amount thereof and the
voting powers, preferences, limitations, restrictions and relative rights and
the qualifications, limitations and restrictions thereof are as follows:
1. Designation, Issuance and Stated Value. The designation of such series
---------------------------------------
of the Preferred Stock authorized by this resolution shall be the Series B 3%
Cumulative Voting Convertible Preferred Stock (the "Preferred Stock"). The
---------------
maximum number of shares of Preferred Stock shall be 1,329,114. The shares of
Preferred Stock shall be issued by the Company for their Stated Value (as
defined herein), in such amounts, at such times and to such persons as shall be
specified by the Board of Directors from time to time. For the purposes hereof,
the "Stated Value" of each share of Preferred Stock (regardless of its par
------------
value) shall be $3.95 per share.
2. Rank. The Preferred Stock shall, with respect to dividend rights and
----
rights upon liquidation, winding up and dissolution, rank prior to the Company's
common stock, par value $.01 per share (the "Common Stock"), and to all other
------------
classes and series of equity securities of the Company now or hereafter
authorized, issued or outstanding (the Common Stock and such other classes and
series of equity securities may be referred to herein collectively as the
"Junior Stock"), other than any class or series of equity securities of the
- -------------
Company ranking on a parity with (the "Parity Stock") or senior to (the "Senior
------------ ------
Stock") the Preferred Stock as to dividend rights and/or rights upon
- -----
liquidation, dissolution or winding up of the Company. The Preferred Stock
shall be subordinate to and rank junior to all indebtedness of the Company now
or hereafter outstanding. The Preferred Stock shall be subject to creation of
Senior Stock, Parity Stock and Junior Stock, to the extent not expressly
prohibited by the Certificate of Incorporation, with respect to the payment of
dividends and/or rights upon liquidation, dissolution or winding up of the
Company.
<PAGE>
3. Cumulative Dividends; Priority.
-------------------------------
(a) Payment of Dividends. The holder of record of each share of
--------------------
Preferred Stock shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available therefor, a quarterly per
share dividend (the "Quarterly Dividend") equal to (i) one-fourth of 3% of the
------------------
Stated Value of such share (pro-rated for any portion of a Dividend Period (as
defined below) that such share shall have been issued and outstanding), plus
(ii) accrued but unpaid per share dividends as to which a Dividend Payment Date
(as defined below) has occurred. Dividends shall accrue from the last Dividend
Payment Date (as defined below) prior to the Closing Date (the "Closing Date")
of the Exchange Agreement by and among Reading Company, the Company, Craig
Corporation, Reading Entertainment, Inc., Craig Management, Inc. and Citadel
Acquisition Corp., Inc. and be payable (subject to declaration) quarterly on the
fifteenth day of January, April, July and October in each year (or if such day
is a non-business day, on the next business day), commencing on the first
Dividend Payment Date to occur after the Closing Date, in respect of the
immediately preceding calendar quarter (each of such dates a "Dividend Payment
----------------
Date"). Each declared dividend shall be payable to holders of record as they
- ----
appear on the stock books of the Company at the close of business on such record
dates as are determined by the Board of Directors or a duly authorized committee
thereof (each of such dates a "Record Date"), which Record Dates shall be not
-----------
more than 45 calendar days nor fewer than ten calendar days preceding the
Dividend Payment Dates therefor. Quarterly dividend periods (each a "Dividend
--------
Period") shall be the calendar quarters that commence on and include the first
- ------
day of January, April, July and October of each year and shall end on and
include the end of the calendar quarter that commenced with each of such dates.
Dividends on the Preferred Stock shall be fully cumulative and shall accrue
(whether or not declared), on a daily basis, from the first day of each Dividend
Period; provided, however, that the initial quarterly dividend payable on the
first Dividend Payment Date to occur after the Closing Date, and the amount of
any dividend payable for any other Dividend Period shorter than a full Dividend
Period shall be computed on the basis of a 360-day year composed of twelve 30-
day months and the actual number of days elapsed in the relevant Dividend
Period.
(b) Priority as to Dividends. No full dividend shall be declared by
the Board of Directors or paid or set apart for payment by the Company on any
Parity Stock for any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum set apart
sufficient for such payment on the Preferred Stock through the most recent
Dividend Payment Date. If any dividends are not paid or set apart in full, as
aforesaid, upon the shares of the Preferred Stock and any Parity Stock, all
dividends declared upon the Preferred Stock and any Parity Stock shall be
declared pro rata so that the amount of dividends declared per share on the
Preferred Stock and such Parity Stock shall in all cases bear to each other the
same ratio that accrued dividends per share on the Preferred Stock and such
Parity Stock bear to each other. Unless full cumulative dividends, if any,
accrued on all outstanding shares of the Preferred Stock have been or
contemporaneously are declared and paid or declared and a sum set apart
sufficient for such payment through the most recently completed Dividend Period,
no dividend shall be declared or paid or set aside for payment or other
distribution declared or made upon the Common Stock or upon any other Junior
Stock (other than a dividend or distribution paid in shares of, or warrants,
rights or options exercisable for or convertible into, Common Stock or any other
Junior Stock), nor shall any Common Stock nor any other Junior Stock be
redeemed, purchased or otherwise acquired for any consideration, nor may any
moneys be paid to or made available for a sinking fund for the redemption of any
shares of any such securities, by the Company, except by conversion into or
exchange for Junior Stock. Unless full cumulative dividends, if any, accrued on
all outstanding shares of the Senior Stock have been or contemporaneously are
declared and paid or declared and a sum set apart sufficient for such payment
through the most recently completed dividend period therefor, no dividend shall
be declared or paid or set aside for payment or other distribution declared or
made upon the Preferred Stock (other than a dividend or distribution paid in
shares of, or warrants, rights or options exercisable for or convertible into,
Preferred Stock), nor shall any Preferred Stock be redeemed, purchased or
otherwise acquired for any consideration, nor may any moneys be paid to or made
available for a sinking fund for the redemption of any shares of any such
securities, by the Company, except by conversion into or exchange for Preferred
Stock, Parity Stock or Junior Stock. Holders of the shares of the Preferred
Stock shall not be entitled to any dividends, whether payable in cash, property
or stock, in excess of full cumulative dividends as provided in Section (3)(a).
2
<PAGE>
(c) Miscellaneous Provisions Relating to Dividends. Payment of
----------------------------------------------
dividends shall be subject to the following provisions:
(i) Subject to the foregoing provisions of this Section 3, the
Board of Directors may declare and the Company may pay or set apart for payment
dividends and other distributions on any of the Junior Stock or Parity Stock,
and may redeem, purchase or otherwise acquire out of funds legally available
therefor any Junior Stock, and the holders of the shares of the Preferred Stock
shall not be entitled to share therein;
(ii) Any dividend payment made on shares of the Preferred Stock
shall first be credited against the earliest accrued but unpaid dividend due
with respect to shares of the Preferred Stock;
(iii) All dividends paid with respect to shares of the Preferred
Stock pursuant to this Section 3 shall be paid pro rata to the holders entitled
thereto; and
(iv) Holders of shares of the Preferred Stock shall be entitled
to receive the dividends provided for in this Section 3 in preference to and in
priority over any dividends upon any of the Junior Stock; and
(v) Accrued but unpaid dividends on preferred stock shall not
earn interest or compound.
4. Redemption at the Option of the Company.
----------------------------------------
(a) General. Except as expressly provided herein, the Company shall
not have any right to redeem shares of the Preferred Stock prior to November
10, 1997. Thereafter, the Company shall have the right, at its sole option and
election, subject to Section 6, to redeem outstanding shares of the Preferred
Stock, in whole or in part at any, time and from time to time at a per share
price (the "Redemption Price") equal to the sum of:
----------------
(i) the Stated Value; plus
(ii) all accrued but unpaid Quarterly Dividends, whether or not
declared, plus
(iii) the "Premium," which shall mean:
-------
(A) if the Redemption Date (as defined below) is on or
prior to November 10, 1998, an amount equal to an accrual on the Stated
Value of 9% per annum (not compounded) from November 10, 1994 to the
Closing Date, plus an amount equal to an accrual on the Stated Value of 3%
per annum (not compounded) from the Closing Date to the Redemption Date; or
(B) if the Redemption Date is after November 10, 1998 and
on or prior to November 10, 1999, an amount equal to an accrual on the
Stated Value of 8% per annum (not compounded) from November 10, 1994 to the
Closing Date, plus an amount equal to an accrual on the Stated Value of 3%
per annum (not compounded) from the Closing Date to the Redemption Date; or
(C) if the Redemption Date is after November 10, 1999 and
on or prior to November 10, 2000, an amount equal to an accrual on the
Stated Value of 7% per annum (not compounded) from November 10, 1994 to the
Closing Date, plus an amount equal to an accrual on the Stated Value of 3%
per annum (not compounded) from the Closing Date to the Redemption Date; or
(D) if the Redemption Date is after November 10, 2000 and
on or prior to November 10, 2001, an amount equal to an accrual on the
Stated Value of 6% per annum (not
3
<PAGE>
compounded) from November 10, 1994 to the Closing Date, plus an amount
equal to an accrual on the Stated Value of 3% per annum (not compounded)
from the Closing Date to the Redemption Date; or
(E) if the Redemption Date is after November 10, 2001 and
on or prior to November 10, 2002, an amount equal to an accrual on the
Stated Value of 5% per annum (not compounded) from November 10, 1994 to the
Closing Date, plus an amount equal to an accrual on the Stated Value of 3%
per annum (not compounded) from the Closing Date to the Redemption Date; or
(F) if the Redemption Date is after November 10, 2002 and
on or prior to November 10, 2003, an amount equal to an accrual on the
Stated Value of 4% per annum (not compounded) from November 10, 1994 to the
Closing Date, plus an amount equal to an accrual on the Stated Value of 3%
per annum (not compounded) from the Closing Date to the Redemption Date; or
(G) if the Redemption Date is after November 10, 2003 and
on or prior to November 10, 2004, an amount equal to an accrual on the
Stated Value of 3% per annum (not compounded) from November 10, 1994 to the
Closing Date, plus an amount equal to an accrual on the Stated Value of 3%
per annum (not compounded) from the Closing Date to the Redemption Date; or
(H) if the Redemption Date is after November 10, 2004 and
on or prior to November 10, 2005, an amount equal to an accrual on the
Stated Value of 2% per annum (not compounded) from November 10, 1994 to the
Closing Date, plus an amount equal to an accrual on the Stated Value of 3%
per annum (not compounded) from the Closing Date to the Redemption Date; or
(I) if the Redemption Date is after November 10, 2005 and
on or prior to November 10, 2006, an amount equal to an accrual on the
Stated Value of 1% per annum (not compounded) from November 10, 1994 to the
Closing Date, plus an amount equal to an accrual on the Stated Value of 3%
per annum (not compounded) from the Closing Date to the Redemption Date; or
(J) if the Redemption Date is after November 10, 2006,
zero.
Holders of shares of Preferred Stock to be redeemed who fail to claim the
Redemption Price on the Redemption Date shall not be entitled to interest on the
Redemption Price after the Redemption Date.
(b) Notice of Redemption. The Company shall mail notice of redemption
--------------------
of the Preferred Stock (a "Redemption Notice") at least 30, but no more than 60,
-----------------
days prior to the date fixed for redemption (the "Redemption Date") to each
---------------
holder of Preferred Stock to be redeemed, at such holder's address as it appears
on the books of the Company.
(c) Deposit. If such notice of redemption shall have been so mailed,
-------
and if on or before the Redemption Date specified in such notice all said funds
necessary for such redemption shall have been irrevocably deposited in trust
(which deposit shall not be made sooner than the 15th day following the date of
the Company's mailing of the notice of redemption pursuant to Section 4(b)), for
the account of the holder of the shares of the Preferred Stock to be redeemed
(and so as to be and continue to be available therefor), with a bank or trust
company named in such notice doing business in the State of California and
having combined capital and surplus of at least $50,000,000, thereupon and
without awaiting the Redemption Date, all shares of the Preferred Stock with
respect to which such notice shall have been so mailed and such deposit shall
have been so made shall be deemed to be no longer outstanding, and all rights
with respect to such shares of the Preferred Stock shall forthwith upon such
deposit in trust cease and terminate, except only the right of the holders
thereof on or after the Redemption Date to receive from such deposit the amount
payable on redemption thereof, but without interest, upon surrender (and
4
<PAGE>
endorsement or assignment to transfer, if required by the Company) of their
certificates. In case the holders of shares of the Preferred Stock that shall
have been redeemed shall not within two years (or any longer period if required
by law) after the Redemption Date claim any amount so deposited in trust for the
redemption of such shares, such bank or trust company shall, upon demand and if
permitted by applicable law, pay over to the Company any such unclaimed amount
so deposited with it, and shall thereupon be relieved of all responsibility in
respect thereof, and thereafter the holders of such shares shall, subject to
applicable escheat laws, look only to the Company for payment of the redemption
price thereof, but without interest.
5. Redemption Following Change in Control.
--------------------------------------
(a) Redemption at Option of Holder of Preferred Stock. In the event
-------------------------------------------------
of a Change in Control (as defined below), each holder of shares of Preferred
Stock shall have the right, at the sole option and election of such holder
exercisable on or before the 90th day following the earliest event constituting
a Change in Control, to require the Company to redeem some or all of the shares
of Preferred Stock owned by such holder at the Redemption Price. For purposes
of this Section 5, a "Change in Control" shall mean the occurrence of either of
------------------
the following events:
(i) any person, entity or "group" (as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and the rules thereunder) other than Craig Corporation, a Delaware
corporation ("Craig"), and its successors and affiliates, acquires
beneficial ownership of over 35% of the outstanding voting securities of
the Company ("affiliate" of a person shall mean any person directly or
---------
indirectly controlling, controlled by or under common control with such
person, and "control" of a person shall mean the power to direct the
-------
affairs of such person by reason of ownership of voting stock, contract or
otherwise); or
(ii) the directors of the Company as of October 10, 1994 (the
"Current Directors"), and any future directors ("Continuing Directors") of
----------------- --------------------
the Company who have been elected or nominated by a majority of the Current
Directors or the Continuing Directors cease to constitute a majority of the
Board of Directors.
(b) Exercise of Redemption Rights. The holder of any shares of the
-----------------------------
Preferred Stock seeking to exercise its redemption rights pursuant to Section
5(a) may exercise its right to require the Company to redeem such shares by
surrendering for such purpose to the Company, at its principal office or at
such other office or agency maintained by the Company for that purpose, a
certificate or certificates representing the shares of Preferred Stock to be
redeemed accompanied by a written notice stating that such holder elects to
require the Company to redeem all or a specified integral number of such shares
in accordance with the provisions of this Section 5. As promptly as
practicable, and in any event within ten business days after the surrender of
such certificates and the receipt of such notice relating thereto, the Company
shall deliver or cause to be delivered to the holder of the shares being
redeemed payment for such shares in immediately available funds and, if less
than the full number of shares of the Preferred Stock evidenced by the
surrendered certificate or certificates are being redeemed, a new certificate or
certificates, of like tenor, for the number of shares evidenced by such
surrendered certificate or certificates less the number of shares redeemed.
Such redemptions shall be deemed to have been made at the close of business on
the date of such payment and the rights of the holder thereof, except for the
right to receive the payment for the redeemed shares in accordance herewith,
shall cease on such date.
6. General Provisions Relating to Redemptions. Redemptions pursuant to
------------------------------------------
Sections 4 and 5 shall be subject to the following terms and conditions:
(a) Pro-Rata Redemption. If less than all of the Preferred Stock at
-------------------
the time outstanding is to be redeemed, the shares so to be redeemed shall be
selected by lot, pro-rata or in such other manner as the Board of Directors may
determine to be fair and proper.
(b) Payment of Taxes. The Company shall not be required to pay any
----------------
tax that may be payable in respect of any payment in respect of a redemption of
shares of Preferred Stock to a name
5
<PAGE>
other than that of the registered holder of Preferred Stock redeemed or to be
redeemed, and no such redemption payment shall be made unless and until the
person requesting such payment has paid to the Company the amount of any such
tax or has established, to the satisfaction of the Company, that such tax has
been paid.
(c) Status of Shares Redeemed. Shares of Preferred Stock redeemed,
-------------------------
purchased or otherwise acquired for value by the Company shall, after such
acquisition, be retired, and shall thereafter have the status of authorized and
unissued shares of preferred stock and may be reissued by the Company at any
time as shares of any series of preferred stock.
(d) Conversion Prior to Redemption. From the date of a Redemption
------------------------------
Notice until the earlier of the Redemption Date or the date the deposit of funds
in trust is made pursuant to Section 4(c), holders of shares of Preferred Stock
subject to a Redemption Notice shall retain their right to an Optional
Conversion (as defined in Section 7) of their shares.
7. Optional Conversion. Subject to the provisions of this Section 7 and
-------------------
of Section 8, shares of Preferred Stock shall be convertible, at the option of
the holder thereof (an "Optional Conversion"), into shares of Common Stock at a
-------------------
conversion ratio (the "Conversion Ratio") of one share of Preferred Stock for a
----------------
fraction of a share of Common Stock, the numerator of which is the sum of the
Stated Value plus any accrued but unpaid per share Quarterly Dividends, and the
denominator of which is the average of the closing prices per share of the
Common Stock on the American Stock Exchange (the "AMEX") for each of the 60
----
business days immediately preceding the Original Conversion Date (as defined
below), as quoted in The Wall Street Journal, or if the Common Stock is not
listed or admitted to trade on AMEX, the average of the closing prices per share
of the Common Stock on the principal national securities exchange on which the
Common Stock is listed or admitted to trade for each of the 60 business days
immediately preceding the Original Conversion Date (as defined below), as quoted
in The Wall Street Journal, or if the Common Stock is not listed or admitted to
trade on any such exchange, the average of the closing bid and asked prices for
Common Stock as reported by NASDAQ for each of the 60 business days immediately
preceding the Original Conversion Date (as defined below), as quoted in The Wall
Street Journal, or other similar organization if NASDAQ is no longer reporting
such information, or if not so available, the fair market price as determined in
good faith by the Board of Directors of the Company (the "Market Price"),
------------
subject to the following:
(a) Limits on Market Price. If the Market Price for any Optional
----------------------
Conversion would exceed $5.00, the Conversion Ratio shall be calculated as if
the Market Price were $5.00.
(b) Option of the Company to Redeem Tendered Preferred Stock. Subject
--------------------------------------------------------
to the provisions of this Section 7(b), if the Market Price for any Optional
Conversion shall be below $3.00, the Company shall have the option, exercisable
for 30 days after receipt by the Company of the Notice of Conversion (as defined
below) by written notice to the holder, to redeem any or all of the shares of
Preferred Stock that have been tendered for conversion by the holder thereof
(the "Tendered Preferred Stock") at the Redemption Price pursuant to Section
------------------------
4(a); provided, however, that the Company shall complete such redemption within
90 days of the Company's notice of redemption and the Premium shall be
calculated through the date of redemption using the accrual rate, as provided in
Section 4(a)(iii), in effect on the Original Conversion Date (as defined below).
(c) Exercise of Optional Conversion Rights. The holder of any shares
--------------------------------------
of the Preferred Stock seeking to exercise its optional conversion rights
pursuant to Section 7(a) may exercise its right to require the Company to
convert such shares by surrendering for such purpose to the Company, at its
principal office or at such other office or agency maintained by the Company for
that purpose, a certificate or certificates representing the shares of Tendered
Preferred Stock to be converted accompanied by a written notice stating that
such holder elects to require the Company to convert all or a specified integral
number of such shares into shares of Common Stock in accordance with the
provisions of this Section 7 (the "Notice of Conversion"), and the date of
--------------------
delivery to the Company of such Notice of Conversion shall be the "Original
--------
Conversion Date" for such shares of Tendered Preferred Stock. Subject to
- ---------------
Section 7(b), as promptly as practicable, the Company shall deliver or cause to
be delivered to the holder of the shares of
6
<PAGE>
Tendered Preferred Stock,(i) a new certificate or certificates representing the
number of shares of Common Stock into which the Tendered Preferred Stock has
been converted, and (ii) if less than the full number of shares of Preferred
Stock evidenced by the surrendered certificate(s) are being converted, a new
certificate or certificates, of like tenor, for the number of shares of
Preferred Stock that have not been converted and that the holder shall retain.
Such conversions shall be deemed to have been made at the close of business on
the Original Conversion Date and the rights of the holder thereof, except the
right to receive the new certificate or certificates, shall cease on the
Original Conversion Date or the Final Conversion Date (as defined below), as
applicable.
(d) Limits on Time of Conversion. Holders of shares of Preferred
----------------------------
Stock shall not be entitled to convert shares of Preferred Stock into shares of
Common Stock for a one-year period commencing on the 15th day following the
filing of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, except in the event of a Change in Control of the Company.
8. General Provisions Relating to Conversion. Conversions pursuant to
-----------------------------------------
Sections 7 shall be subject to the following terms and conditions:
(a) Conversion Restrictions Pursuant to AMEX Rules. If an Optional
----------------------------------------------
Conversion would result, on the Original Conversion Date, in the issuance of a
number of shares of Common Stock (the "Issuable Common Stock") that exceeds 20%
---------------------
of the then-outstanding shares of Common Stock and if the AMEX rules and
regulations, including, but not limited to, (S)713 of the AMEX Company Guide
(the "AMEX Rules") shall require the affirmative vote of the stockholders of the
----------
Company with respect to such issuance before it will approve such excess shares
of Issuable Common Stock for listing on AMEX (the "Ineligible Common Stock"),
-----------------------
then, subject to any rights the Company may have to redeem the Preferred Stock
in accordance with Section 7(b), the Company shall convert into Common Stock
only the number of shares of Preferred Stock that will not result in the
issuance of any Ineligible Common Stock, and shall deliver to the holder of the
shares of Preferred Stock that were the subject of the Optional Conversion or
Automatic Conversion a certificate for evidencing the shares of Preferred Stock
that would have been converted but for the issuance of Ineligible Common Stock
(the "Unconverted Preferred Stock"). The holder shall retain the Unconverted
---------------------------
Preferred Stock until the next annual or special meeting of the stockholders of
the Company at which the Company, subject to any rights it may have to redeem
the Unconverted Preferred Stock in accordance with Section 7(b), shall submit a
proposal for stockholder approval of the issuance of the Ineligible Common
Stock. Pending such stockholder approval, the Unconverted Preferred Stock shall
continue to be outstanding and entitled to all rights and privileges hereunder.
(i) If such stockholder approval is obtained, the Unconverted
Preferred Stock shall, as soon as practically possible and on a date selected by
the Board of Directors (the "Final Conversion Date"), be converted into shares
---------------------
of Common Stock at the ratio applicable to the Original Conversion Date upon (A)
surrender to the Company of the certificate(s) representing the Unconverted
Preferred Stock, (B) the Company's remittance to the holder of such Unconverted
Preferred Stock of the benefits such holder would have received had the
Unconverted Preferred Stock been converted into the Ineligible Common Stock on
the Original Conversion Date, including, but not limited to, the benefits of any
cash dividends, stock dividends, stock splits, reverse stock splits, and
recapitalizations of the Common Stock, declared (and not rescinded) or
effective, during the period from the Original Conversion Date through the Final
Conversion Date (the "Stockholder Approval Period"), and (C) such holder's
forfeiture or refund to the Company of any Quarterly Dividends on the
Unconverted Preferred Stock that have accrued or been paid in respect of the
Unconverted Preferred Stock during the Stockholder Approval Period.
(ii) If such stockholder approval is not obtained, the Company shall
redeem the Unconverted Preferred Stock at the Redemption Price; provided,
however, that the Premium shall be calculated through the date of redemption
using the accrual rate in effect on the Original Conversion Date.
(b) Request of Majority for Stockholder Vote. At any time before a
----------------------------------------
conversion described in Section 8(a) occurs, the Company shall, upon the request
of a majority of the outstanding
7
<PAGE>
shares of Preferred Stock, submit a proposal for stockholder approval of the
issuance of all shares of Common Stock issuable upon conversion of the Preferred
Stock, including, without limitation, the Ineligible Common Stock, at the next
meeting of stockholders of the Company that follows such request.
(c) Conversion Restrictions Pursuant to Number of Authorized Shares of
------------------------------------------------------------------
Common Stock. If there are an insufficient number of authorized shares of
- ------------
Common Stock to satisfy an Optional Conversion or an Automatic Conversion, the
number of shares of Preferred Stock that would have been converted in the
absence of such insufficiency shall be exchanged by the Company for a new class
of preferred shares (the "New Shares") having the same aggregate stated value as
the shares exchanged therefor and a stated value per share equal to the Market
Price (up to a maximum of $5.00); provided, however, that such new class shall
have identical rights, privileges and preferences as those of the Preferred
Stock, except as stated in this Section 8(c). If there are an insufficient
number of authorized New Shares to satisfy such exchange, the holders of shares
of Preferred Stock to be so exchanged shall each receive a pro rata allocation
of available New Shares for such exchange, and each such holder shall have the
right, exercisable by written notice of such exercise delivered to the Company
within 30 days of such exchange accompanied by certificates evidencing the
remainder of their shares of Preferred Stock that would have been so exchanged
but for such insufficiency, to require the Company to redeem such remaining
shares at the Redemption Price in effect on the date of such exchange and in
accordance with the provisions of Section 6.
(d) Pro-Rata Conversion. If less than all of the Preferred Stock at
-------------------
the time outstanding is to be converted, the shares so to be converted shall be
selected by lot, pro-rata or in such other manner as the Board of Directors may
determine to be fair and proper.
(e) No Fractional Shares. No fractional shares or scrip representing
--------------------
fractional shares of Common Stock shall be issued upon the conversion of any
shares of Preferred Stock. Instead of any fractional interest in a share of
Common Stock that would otherwise be deliverable upon the conversion of
Preferred Stock, the Company shall pay to the holder an amount in cash (computed
to the nearest cent) equal to the Market Price. If more than one share shall be
surrendered for conversion at one time by the same holder, the number of full
shares of Common Stock issuable upon conversion thereof shall be computed on the
basis of the aggregate number of shares of Preferred Stock so surrendered.
(f) Payment of Taxes. The Company will pay any and all documentary,
----------------
stamp or similar issue or transfer taxes payable in respect of the issue or
delivery of shares of Common Stock on the conversion of shares of Preferred
Stock pursuant to this Section 8; provided, however, that the Company shall not
be required to pay any tax that may be payable in respect of any registration of
transfer involved in the issue or delivery of shares of Common Stock in a name
other than that of the registered holder of Preferred Stock converted or to be
converted, and no such issue or delivery shall be made unless and until the
person requesting such issue has paid to the Company the amount of any such tax
or has established, to the satisfaction of the Company, that such tax has been
paid.
(g) Status of Shares Converted. Shares of Preferred Stock converted
--------------------------
by the Company, shall, after such conversion, be retired, and shall thereafter
have the status of authorized and unissued shares of preferred stock and may be
reissued by the Company at any time as shares of any series of preferred stock.
9. Voting Rights. The holders of Preferred Stock shall have the
-------------
following voting rights:
(a) One Vote Per Share. Except as provided herein or by law, each
------------------
share of Preferred Stock shall entitle the holder thereof to one vote on all
matters submitted to a vote of the Company's stockholders.
(b) Voting With Common Stock. Except as otherwise provided herein or
------------------------
by law, the holders of Preferred Stock and the holders of Common Stock shall
vote together as one class on all matters submitted to a vote of the Company's
stockholders.
8
<PAGE>
(c) Dividend Arrearages and Election of Director. If dividends in an
--------------------------------------------
amount equal to two Quarterly Dividends have accrued and remain unpaid for two
consecutive Dividend Periods, the holders of the Preferred Stock will thereupon
have the right to vote as a separate class to elect one special director to the
Board of Directors (in addition to the then authorized number of directors) and
at each succeeding annual meeting of stockholders thereafter until such right is
terminated as hereinafter provided. Upon payment of all dividend arrearages,
the holders of Preferred Stock will be divested of such voting rights (until any
future time when dividends in an amount equal to two Quarterly Dividends have
accrued and remained unpaid for two consecutive Dividend Periods) and the term
of the special director will thereupon terminate and the authorized number of
directors will be reduced by one.
(d) Parity or Senior Stock. So long as any shares of the Preferred
----------------------
Stock are outstanding (except when notice of the redemption of all outstanding
shares of Preferred Stock has been given pursuant to Section 4(b) and shares of
Common Stock and any necessary funds have been deposited in trust for such
redemption pursuant to Section 4(c)), the Company shall not, without the
affirmative vote or consent of the holders of at least a majority of the
outstanding shares of Preferred Stock and any other series of preferred stock
entitled to vote thereon at the time outstanding voting or consenting, as the
case may be, together as one class, given in person or by proxy, either in
writing or by resolution adopted at an annual or special meeting called for the
purpose, create, authorize or issue any new class of Parity Stock or Senior
Stock.
(e) Matters Affecting the Rights of Holders of Preferred Stock. So
----------------------------------------------------------
long as any shares of the Preferred Stock are outstanding (except when notice of
the redemption of all outstanding shares of Preferred Stock has been given
pursuant to Section 4(b) and shares of Common Stock and any necessary funds have
been deposited in trust for such redemption pursuant to Section 4(c)), the
Company shall not, without the affirmative vote or consent of the holders of at
least a majority of the outstanding shares of Preferred Stock and any other
series of preferred stock entitled to vote thereon at the time outstanding
voting or consenting, as the case may be, together as one class, given in person
or by proxy, either in writing or by resolution adopted at an annual or special
meeting called for the purpose, amend the Certificate of Incorporation or this
Certificate of Designation, directly or indirectly, whether through a merger or
otherwise, so as to affect materially and adversely the specified rights,
preferences, privileges or voting rights of holders of shares of Preferred
Stock.
(f) Matters Deemed Not to Affect the Rights of Holders of Preferred
---------------------------------------------------------------
Stock. Except as set forth in Section 9(d) above, the creation, authorization
- -----
or issuance of any shares of any Junior Stock, Parity Stock or Senior Stock, the
creation of any indebtedness of any kind of the Company, or the increase or
decrease in the amount of authorized capital stock of any class, including
Preferred Stock, shall not require the consent of the holders of Preferred Stock
and shall not be deemed to affect materially and adversely the rights,
preferences, privileges or voting rights of holders of shares of Preferred
Stock.
(g) Nomination of Director. Subject to the fiduciary duty of the
----------------------
Board of Directors the holders of a majority of the outstanding shares of the
Preferred Stock shall have, in addition to their rights under Section 9(c), the
right to nominate one director nominee to the slate of director nominees
submitted to the stockholders of the Company by the Board of Directors.
10. No Sinking Fund. No sinking fund will be established for the
---------------
retirement or redemption of shares of Preferred Stock.
11. Preemptive Rights. Each holder of any of the shares of Preferred
-----------------
Stock shall be entitled to a preemptive right to purchase or subscribe for any
unissued voting stock of any class of the Company, or any unissued stock or
unissued other instrument which is, or may, upon the occurrence of certain
condition(s), be convertible into voting stock of the Company, that the Board
of Directors may propose to issue by means of an increase of the outstanding
shares of capital stock of any class, or the issuance of bonds, certificates of
indebtedness, debentures or other securities convertible into voting stock of
the Company (the "Proposed Voting Securities"). Such preemptive rights shall
extend only to the extent necessary to allow such holder of shares of Preferred
Stock to maintain its proportionate share of the outstanding voting stock of the
Company and the number of shares (or dollar amount, as applicable) of
9
<PAGE>
Proposed Voting Securities each holder of Preferred Stock shall be entitled to
purchase or subscribe for shall be the amount determined by multiplying the
number of shares (or dollar amount, as applicable) of Proposed Voting Securities
by a fraction, the numerator of which shall be the number of shares of Preferred
Stock held by such holder, and the denominator of which shall be the number of
votes entitled to be cast by all outstanding voting securities of the Company
before the proposed issuance.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation to be executed by Steve Wesson, its President as of
October 8, 1996.
CITADEL HOLDING CORPORATION
By: /s/ Steve Wesson
----------------------------------------
Name: Steve Wesson
Title: President and Chief Executive Officer
10
<PAGE>
EXHIBIT 10.51
EXCHANGE AGREEMENT
DATED AS OF SEPTEMBER 4, 1996
BY AND AMONG
READING ENTERTAINMENT, INC.
READING COMPANY
CRAIG CORPORATION
CRAIG MANAGEMENT, INC.
CITADEL HOLDING CORPORATION
AND
CITADEL ACQUISITION CORP., INC.
<PAGE>
TABLE OF CONTENTS
-----------------
Page
1. DEFINITIONS........................................................... 1
2. EXCHANGE.............................................................. 4
2.1 Assets to be Exchanged by Craig................................. 4
2.2 Assets to be Exchanged by CMI................................... 4
2.3 Assets to be Transferred by CAC................................. 4
2.4 Assets to be Exchanged by Reading Entertainment and Citadel..... 4
2.5 Instruments of Conveyance and Transfer.......................... 4
2.6 Closing......................................................... 4
2.7 Dividends....................................................... 4
3. REPRESENTATIONS AND WARRANTIES OF READING AND
READING ENTERTAINMENT................................................. 5
3.1 Organization and Authorization.................................. 5
3.2 Non-Contravention............................................... 5
3.3 Capital Stock................................................... 5
3.4 SEC Reports..................................................... 7
3.5 No Adverse Changes.............................................. 7
3.6 Approvals....................................................... 8
3.7 Litigation...................................................... 8
3.8 Regulatory Compliance........................................... 8
3.9 Brokers......................................................... 8
3.10 Accuracy of Information Furnished............................... 8
3.11 Investment Representation....................................... 8
3.12 Title to Assets................................................. 9
3.13 Further Investment Representation............................... 9
4. REPRESENTATIONS AND WARRANTIES OF CRAIG AND CMI....................... 10
4.1 Organization and Authorization.................................. 10
4.2 Non-Contravention............................................... 10
4.3 Approvals....................................................... 11
4.4 Interest in Reading International............................... 11
4.5 Title to Assets................................................. 11
4.6 Accuracy of Information Furnished............................... 11
4.7 Securities Law Compliance....................................... 11
4.8 Brokers......................................................... 12
4.9 Stater Financial Condition...................................... 12
4.10 Investment Representation....................................... 12
4.11 CMI............................................................. 12
5. REPRESENTATIONS AND WARRANTIES OF CITADEL AND CAC..................... 13
5.1 Organization and Authorization.................................. 13
5.2 Non-Contravention............................................... 13
5.3 Approvals....................................................... 13
5.4 Accuracy of Information Furnished............................... 13
5.5 Securities Law Compliance....................................... 14
<PAGE>
5.6 Brokers......................................................... 14
5.7 Investment Representation....................................... 14
5.8 Independent Continuing Directors................................ 15
5.9 Capital Stock................................................... 15
6. SHAREHOLDER APPROVAL; PROXY AND REGISTRATION FILINGS.................. 15
6.1 Shareholder Approval............................................ 15
6.2 Proxy Statement and Registration Statement...................... 15
7. COVENANTS............................................................. 16
7.1 Covenants of Craig, CMI, Citadel and CAC........................ 16
7.2 Covenants of Reading and Reading Entertainment.................. 17
7.3 Access.......................................................... 18
7.4 Citadel Contributions........................................... 18
8. CONDITIONS............................................................ 18
8.1 Conditions Precedent to the Obligations of All Parties.......... 18
8.2 Additional Conditions Precedent to the Obligations of Reading
and Reading Entertainment....................................... 19
8.3 Additional Conditions Precedent to the Obligations of Craig
and CMI......................................................... 20
8.4 Additional Conditions Precedent to the Obligations of CAC and
Citadel......................................................... 21
9. TERMINATION........................................................... 23
9.1 Termination..................................................... 23
9.2 Written Notice.................................................. 23
9.3 Effect of Termination........................................... 23
10. GENERAL PROVISIONS.................................................... 23
10.1 Survival of Representations and Warranties...................... 23
10.2 Notices......................................................... 23
10.3 Amendment and Waiver............................................ 24
10.4 Counterparts.................................................... 25
10.5 Assignability................................................... 25
10.6 Entire Agreement................................................ 25
10.7 Applicable Law.................................................. 25
10.8 Headings........................................................ 25
10.9 Costs and Expenses.............................................. 25
Exhibit 1 - Certificate of Designations, Preferences, and Rights of Series
A Voting Cumulative Convertible Preferred Stock and Series B
Voting Cumulative Convertible Preferred Stock of Reading
Entertainment, Inc.
ii
<PAGE>
Exhibit 5.9 - Certificate of Designation of the Series B 3% Cumulative
Voting Convertible Preferred Stock of Citadel Holding
Corporation.
Exhibit 8.4(e) - Asset Put and Registration Rights Agreement
iii
<PAGE>
EXCHANGE AGREEMENT
This Exchange Agreement (the "Agreement") is made and entered into as of
this 4th day of September, 1996 by and among Reading Entertainment, Inc., a
Delaware corporation ("Reading Entertainment"), Reading Company, a Pennsylvania
corporation ("Reading"), Craig Corporation, a Delaware corporation ("Craig"),
Craig Management, Inc., a California corporation ("CMI"), Citadel Holding
Corporation, a Delaware corporation ("Citadel"), and Citadel Acquisition Corp.,
Inc., a Delaware corporation ("CAC"), with reference to the following:
A. Reading and Reading Entertainment desire that Reading
Entertainment exchange its securities for assets, including cash, as described
herein, for the purpose of enhancing its capitalization to further the
development and expansion of its Beyond-the-Home Entertainment business.
B. Craig currently participates with Reading in its Beyond-the-Home
Entertainment business and Craig desires to broaden its participation in
Reading's Beyond-the-Home Entertainment business by acquiring a further equity
interest in Reading Entertainment.
C. Citadel, which as a result of a recapitalization of its principal
asset in 1994, has assets currently consisting of cash and certain illiquid
assets, desires to deploy a portion of its available liquid assets in Reading's
Beyond-the-Home Entertainment business by acquiring an equity interest in
Reading Entertainment.
D. The parties hereto intend that the transaction qualify for
nonrecognition treatment as an exchange pursuant to Section 351 of the Internal
Revenue Code of 1986, as amended (the "Code").
E. Prior to the exchange transaction described herein Reading
Entertainment intends to form a wholly owned subsidiary ("Entertainment
Subsidiary"), and Entertainment Subsidiary shall be merged into Reading in a
transaction qualifying as a reorganization under Section 368(a)(1)(A) of the
Code, with each holder of Reading Class A Common Stock and Reading Common Stock
receiving shares of Reading Entertainment Common Stock (the "Reorganization").
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties and agreements set forth herein the parties hereto
agree as follows:
1. DEFINITIONS
For purposes of this Agreement the following terms shall have the
meanings set forth:
"Asset Put" shall have the meaning set forth in the Option Agreement.
"CAC" shall have the meaning set forth in the preface to this Agreement.
CAC is a wholly owned subsidiary of Citadel.
"Certificate of Designations" shall have the meaning set forth in
Section 3.3(a) of this Agreement.
1.
<PAGE>
"Citadel" shall have the meaning set forth in the preface to this
Agreement.
"Citadel Certificate of Designation" shall have the meaning set forth in
Section 5.9 of this Agreement.
"Citadel Common Stock" shall mean the Common Stock of Citadel.
"Citadel Preferred Stock" shall mean the 3% Cumulative Voting Convertible
Preferred Stock of Citadel, stated value $3.95 per share.
"Closing" and "Closing Date" shall have the meanings set forth in
Section 2.6 of this Agreement.
"CMI" shall have the meaning set forth in the preface to this Agreement.
CMI is a wholly owned subsidiary of Craig.
"Code" shall have the meaning set forth in the preface to this Agreement.
"Craig" shall have the meaning set forth in the preface to this
Agreement.
"Entertainment Subsidiary" shall have the meaning set forth in the
preface to this Agreement.
"Exchange" refers to and means the exchange of assets for Reading
Entertainment Preferred Stock described in Sections 2.1, 2.2 and 2.3 to this
Agreement.
"LLC Agreement" shall have the meaning set forth in Section 4.4 to this
Agreement.
"Option Agreement" shall have the meaning set forth in Section 8.4(e) to
this Agreement.
"Original Citadel Certificate of Designation" shall mean the Certificate
of Designation of the Citadel Preferred Stock.
"Prospectus" shall have the meaning set forth in Section 6.2(c) of this
Agreement.
"Proxy Statement" shall have the meaning set forth in Section 6.2(a) of
this Agreement.
"Reading" shall have the meaning set forth in the preface to this
Agreement.
"Reading Class A Common Stock" shall mean the Class A Common Stock of
Reading.
"Reading Common Stock" shall mean the Common Stock of Reading.
"Reading Entertainment" shall have the meaning set forth in the preface
to this Agreement.
"Reading Entertainment Common Stock" shall mean the $0.001 par value
Common Stock of Reading Entertainment.
2.
<PAGE>
"Reading Entertainment Preferred Stock" shall mean the Reading
Entertainment Series A Preferred Stock and the Reading Entertainment Series B
Preferred Stock, collectively.
"Reading Entertainment Series A Preferred Stock" shall mean the Series A
Voting Cumulative Convertible Preferred Stock of Reading Entertainment, $100
stated value per share, having the rights, preferences and privileges set forth
in Exhibit 1 to this Agreement.
"Reading Entertainment Series B Preferred Stock" shall mean the Series B
Voting Cumulative Convertible Preferred Stock of Reading Entertainment, $100
stated value per share, having the rights, preferences and privileges set forth
in Exhibit 1 to this Agreement.
"Reading Holdings" shall mean Reading Holdings, Inc., a Delaware
corporation. Reading Holdings is a wholly owned subsidiary of Reading.
"Reading International" shall mean Reading International Cinemas LLC, a
Delaware limited liability company. Reading International is owned equally by
Craig and Reading Investment.
"Reading Investment" shall mean Reading Investment Company, Inc., a
Delaware corporation. Reading Investment is an indirect wholly owned subsidiary
of Reading.
"Reading SEC Reports" shall have the meaning set forth in Section 3.4 of
this Agreement.
"Reading's Stock Option Plans" shall mean the 1982 Incentive Stock Option
Plan, the 1982 Non-qualified Option Plan and the 1992 Non-qualified Stock Option
Plan.
"Reading Shareholders" shall have the meaning set forth in Section 6.1 of
this Agreement.
"Registration Statement" shall have the meaning set forth in
Section 6.2(c) of this Agreement.
"Reorganization" shall have the meaning set forth in the preface to this
Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Securities Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"SEC" shall mean the Securities and Exchange Commission.
"Series B Citadel Preferred Stock" shall mean the Series B 3% Cumulative
Voting Convertible Preferred Stock of Citadel, stated value $3.95 per share.
"Stater" shall mean Stater Bros. Holdings Inc., a Delaware corporation.
"Stater Preferred Stock" shall mean the Series B Preferred Stock of
Stater.
3.
<PAGE>
2. EXCHANGE
2.1 Assets to be Exchanged by Craig. Subject to the terms and
-------------------------------
conditions of this Agreement, at the Closing, Craig shall deliver to Reading
Entertainment all of Craig's right, title and interest in and to (i) its
ownership interest in Reading International and (ii) its 1,329,114 shares of
Citadel Preferred Stock, in exchange for 125,098 shares of Reading Entertainment
Series B Preferred Stock and 563,210 shares of Reading Entertainment Common
Stock.
2.2 Assets to be Exchanged by CMI. Subject to the terms and conditions
-----------------------------
of this Agreement, at the Closing, CMI shall deliver to Reading Entertainment
all of CMI's right, title and interest in and to 693,650 shares of Stater
Preferred Stock in exchange for 424,902 shares of Reading Entertainment Series B
Preferred Stock and 1,912,980 shares of Reading Entertainment Common Stock.
2.3 Assets to be Transferred by CAC. Subject to the terms and
-------------------------------
conditions of this Agreement, at the Closing, CAC shall purchase from Reading
Entertainment 70,000 shares of Reading Entertainment Series A Preferred Stock,
for an aggregate cash purchase price of $7.0 million, by wire transfer of
immediately available funds.
2.4 Assets to be Exchanged by Reading Entertainment and Citadel.
-----------------------------------------------------------
Subject to the terms and conditions of this Agreement, at the Closing, Reading
Entertainment shall deliver to Citadel all of Reading Entertainment's right,
title and interest in and to the 1,329,114 shares of Citadel Preferred Stock
which Craig shall have delivered to Reading Entertainment pursuant to
Section 2.1 above, in exchange for 1,329,114 shares of Series B Citadel
Preferred Stock. Upon such exchange, the 1,329,114 shares of Citadel Preferred
Stock shall be cancelled by Citadel.
2.5 Instruments of Conveyance and Transfer. The conveyance, transfer
--------------------------------------
and delivery to Reading Entertainment of the assets being exchanged by Craig and
CMI as herein provided, shall be effected by such stock powers, assignments,
bills of sale, checks and other instruments of transfer and conveyance as shall
be in form reasonably acceptable to Reading Entertainment.
2.6 Closing. Subject to the conditions set forth in Article 8, unless
-------
this Agreement shall have been terminated as provided in Article 9, the
consummation of the transactions described in Sections 2.1, 2.2, 2.3 and 2.4
above (the "Closing") shall take place at the offices of Duane, Morris &
Heckscher, 1201 Market Street, Suite 1500, Wilmington, Delaware 19801-0195, on
the day of the meeting of shareholders of Reading described in Article 6 of this
Agreement, or as soon thereafter as is practicable (the "Closing Date").
2.7 Dividends. At the Closing, Reading Entertainment shall pay to
---------
Craig, by certified or cashiers check, any and all accrued but unpaid dividends
with respect to the Citadel Preferred Stock and shall pay to CMI, by certified
or cashiers check, any and all accrued but unpaid dividends with respect to the
Stater Preferred Stock (in each case, excluding dividends which have been
declared and are payable to holders of record on a date prior to the Closing
Date).
4.
<PAGE>
3. REPRESENTATIONS AND WARRANTIES OF READING AND READING ENTERTAINMENT
Reading and Reading Entertainment hereby jointly and severally represent
and warrant to Craig, CMI, Citadel and CAC as follows:
3.1 Organization and Authorization. Reading and Reading Entertainment
------------------------------
are corporations duly organized, validly existing and in good standing under the
laws of the States of Pennsylvania and Delaware, respectively, and each has full
corporate power and all necessary authorizations to own all of its properties
and assets and to carry on its business as it is now being conducted. Reading
and Reading Entertainment are each duly qualified to do business and are in good
standing in each jurisdiction in which the nature of its or their business or
character of its or their properties requires such qualification and where the
failure to be so qualified would materially and adversely affect either
corporation or its or their business, properties or rights. Reading and Reading
Entertainment have delivered to Craig and Citadel complete and correct copies of
their Articles of Incorporation and Certificate of Incorporation, respectively,
and their By-Laws, as amended and in effect on the date of this Agreement.
Reading and Reading Entertainment each have all requisite corporate power to
execute, deliver and perform their obligations under this Agreement. The
execution, delivery and performance of this Agreement by Reading and Reading
Entertainment, and the consummation by each of them of the transactions
contemplated hereby, have been duly authorized by the Boards of Directors of
Reading and Reading Entertainment, subject only to obtaining shareholder
approval of the Reading Shareholders. This Agreement has been duly executed and
delivered by Reading and Reading Entertainment and constitutes a valid and
binding agreement of Reading and Reading Entertainment, enforceable in
accordance with its terms except to the extent the enforcement thereof may be
limited by bankruptcy, insolvency, rehabilitation, moratorium and similar laws
now or hereafter in effect relating to creditor's rights generally or by general
equitable principles.
3.2 Non-Contravention. The execution and delivery of this Agreement do
-----------------
not and the consummation of the transactions contemplated hereby will not
(a) violate the Articles of Incorporation or By-laws of Reading or the
Certificate of Incorporation or By-Laws of Reading Entertainment, (b) violate
any material provision of or result in the breach or the acceleration of or
entitle any party to accelerate (whether after the giving of notice or the lapse
of time or both) any material obligation under any material mortgage, lease,
agreement, judgment or decree, to which either Reading or Reading Entertainment
is a party or by which either is bound, (c) result in the creation or imposition
of any lien, charge, pledge, security interest or other encumbrance on any
property of Reading or Reading Entertainment, or (d) to the knowledge of either
Reading or Reading Entertainment, violate or conflict with any law, ordinance or
rule to which either is subject.
3.3 Capital Stock.
-------------
(a) The authorized and outstanding capital stock of Reading is
as set forth in the Reading SEC Reports (subject only to changes in the
outstanding Reading Class A Common Stock which may occur through the Closing
solely from the exercise of options granted pursuant to Reading's Stock Option
Plans or the exchange of shares of Reading Common Stock for shares of Reading
Class A Common Stock) and the outstanding capital stock of Reading Entertainment
will at the Closing consist solely of Reading Entertainment
5.
<PAGE>
Common Stock, of which not more than 4,973,175 shares will be issued and
outstanding (plus any shares which may be issued and outstanding as a result of
the exercise of options granted pursuant to Reading's Stock Option Plans and the
shares of Reading Entertainment Common Stock and Reading Entertainment Preferred
Stock to be issued hereunder). All of such issued and outstanding shares of
capital stock are validly issued and outstanding, fully paid and nonassessable.
The shares of Reading Entertainment Preferred Stock and Reading Entertainment
Common Stock to be issued pursuant to this Agreement have been duly authorized,
and, when issued and paid for pursuant to the terms hereof, will be validly
issued, fully paid and non-assessable and will be entitled to all the rights,
preferences and privileges set forth in the Certificate of Designations,
Preferences and Rights of Series A Voting Cumulative Convertible Preferred Stock
and Series B Voting Cumulative Convertible Preferred Stock of Reading
Entertainment, Inc. (the "Certificate of Designations"), attached as Exhibit 1
hereto. The shares of Reading Entertainment Common Stock issuable upon
conversion of the Reading Entertainment Preferred Stock have been duly
authorized and reserved for issuance upon such conversion and, when issued and
delivered on such conversion in accordance with the terms of the Certificate of
Designations, will be validly issued, fully paid and non-assessable. The
certificates representing the shares of Reading Entertainment Preferred Stock
and Reading Entertainment Common Stock to be issued pursuant to this Agreement
will be in due and proper form. All corporate action required to be taken for
the authorization and issuance of the Reading Entertainment Preferred Stock and
the Reading Entertainment Common Stock to be issued pursuant to this Agreement
has been duly and validly taken. At or prior to the Closing, the Certificate of
Designations will have been filed with the Secretary of State of the State of
Delaware.
(b) Except as described herein and in the Reading SEC Reports,
there are no outstanding subscriptions, options, conversion rights, warrants or
other agreements or commitments of any nature whatsoever obligating either
Reading or Reading Entertainment to issue, deliver or sell, or cause to be
issued, delivered or sold, any additional shares of capital stock of either
Reading or Reading Entertainment or obligating either Reading or Reading
Entertainment to grant, extend or enter into any such agreement or commitment.
The shareholders of Reading and Reading Entertainment do not have any preemptive
rights or other rights to subscribe for additional shares of Reading or Reading
Entertainment, and no preemptive or similar rights will arise as a result of the
transactions contemplated by this Agreement. Except as set forth in the Reading
SEC Reports, there are no voting trusts, voting agreements, irrevocable proxies
or other agreements to which either Reading or Reading Entertainment is a party,
or of which either Reading or Reading Entertainment has knowledge, in effect
relating to the voting or transfer of any shares of Reading or Reading
Entertainment capital stock.
(c) Upon acquisition of the Reading Entertainment Series A
Preferred Stock pursuant to Section 2.3 of this Agreement, CAC will not be
prohibited or otherwise limited in any manner, including without limitation
under Delaware General Corporation Law Section 160(a), from voting in all
respects its shares of Reading Entertainment Series A Preferred Stock in
accordance with the Certificate of Incorporation of Reading Entertainment,
except that no such representation or warranty is given with respect to such
shares of Reading Entertainment Series A Preferred Stock, if any, as are
required by generally accepted accounting principles to be reflected on the
financial statements of Reading Entertainment as a reciprocal stockholding.
6.
<PAGE>
3.4 SEC Reports. All reports required to be filed by Reading with the
-----------
SEC since December 1, 1995 (the "Reading SEC Reports") are in compliance in all
material respects with the respective report forms and were complete and correct
in all material respects as of the date on which the information was furnished.
As of the date each Reading SEC Report was filed with the SEC, such Reading SEC
Report did not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary in order to make the
statements made, in the light of the circumstances under which they were made,
not misleading. The financial statements of Reading contained in the Reading
SEC Reports were prepared in accordance with the books and records of Reading
and were prepared in accordance with generally accepted accounting principles
applied on a consistent basis and present fairly the financial condition of
Reading as of the respective dates indicated therein and the results of
operations and changes in financial position for the periods so indicated.
3.5 No Adverse Changes. Except as set forth in the Reading SEC
------------------
Reports, since March 31, 1996, Reading has conducted its business only in the
ordinary course, there has not been any material adverse change in the business,
financial condition, assets, liabilities, properties or business operations of
Reading or Reading Entertainment, and, except as contemplated by the
Reorganization or this Agreement, neither Reading nor Reading Entertainment has:
(a) issued or sold any stock, notes, bonds or other securities,
or any option to purchase the same, or entered into any agreement with respect
thereto, except the issuance of Reading Class A Common Stock upon the exercise
of options granted under Reading's Stock Option Plans or the issuance of Reading
Class A Common Stock in exchange for Reading Common Stock;
(b) declared, set aside or made any dividend or other
distribution on capital stock or redeemed, purchased or acquired any shares
thereof or entered into any agreement in effect to the foregoing;
(c) amended its Articles of Incorporation or By-Laws;
(d) other than in the ordinary course of business, purchased,
sold, assigned or transferred any material tangible assets (except for an
interest in the Angelika Film Center as to which Reading Investment has entered
into a binding contract of purchase) or any material license, franchise or other
intangible asset; except as disclosed in the SEC Reports, mortgaged, pledged,
granted or suffered to exist any lien or other encumbrance or charge on any
material assets or properties, tangible or intangible, other than liens for
taxes not yet delinquent and such other liens, encumbrances or charges which do
not materially adversely affect the business or financial condition of Reading
or Reading Entertainment; or waived any rights of material value or cancelled
any material debts or claims;
(e) entered into any material contract or commitment other than
contracts or commitments made in the ordinary course of business or pursuant to
or in connection with this Agreement or the Reorganization;
(f) made or suffered any material amendment, modification or
termination of any material contract, commitment or obligation to which Reading
is a party;
7.
<PAGE>
(g) borrowed or loaned any money other than pursuant to
agreements disclosed in the Reading SEC Reports;
(h) changed its method of accounting; or
(i) agreed, whether in writing or otherwise, to take any action
described in this Section 3.5.
3.6 Approvals. No consent, approval, order or authorization of, or
---------
registration, declaration or filing with any governmental authority is required
in connection with the execution and delivery of this Agreement by Reading and
Reading Entertainment or the consummation by Reading or Reading Entertainment of
the transactions contemplated hereby, except as contemplated by Article 6 of
this Agreement.
3.7 Litigation. Except as set forth in the Reading SEC Reports, there
----------
are no actions, suits or proceedings or investigations pending at law or in
equity in any court or before any foreign, federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
or, to the knowledge of Reading, threatened against or affecting it which, if
adversely determined would be reasonably likely to materially and adversely
affect the business, operations or financial condition of Reading or Reading
Entertainment.
3.8 Regulatory Compliance. Except as set forth in the Reading SEC
---------------------
Reports, each of Reading and Reading Entertainment is in substantial compliance
with all material federal, state, local and foreign laws and regulations
applicable to it, including, without limitation, environmental laws.
3.9 Brokers. All negotiations relating to this Agreement and the
-------
transactions contemplated hereby have been carried on without the intervention
of any person acting on behalf of either Reading or Reading Entertainment who
has or may have a valid claim against any of the parties to this Agreement for
any broker's or finder's fee or similar compensation, other than such fee as may
be payable by Reading to Berwind Financial Group, L.P., the financial advisor to
the Independent Committee of the Board of Directors of Reading.
3.10 Accuracy of Information Furnished. The certificates, statements,
---------------------------------
and other information furnished to Craig, CMI, Citadel and CAC in writing by or
on behalf of Reading or Reading Entertainment in connection with the
transactions contemplated hereby do not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that no representation is made as to any
financial projections contained in such information other than that any such
financial projections were prepared in good faith based upon assumptions that
Reading believes are reasonable.
3.11 Investment Representation. Reading Entertainment represents and
-------------------------
warrants to Craig and CMI that the shares of Stater Preferred Stock and Citadel
Preferred Stock to be received by Reading Entertainment pursuant to Sections 2.1
and 2.2 hereof and any shares of Citadel Common Stock received upon conversion,
if any, of the Citadel Preferred Stock are being or will be acquired for
investment and not with a view to the sale or distribution of any part thereof,
and that it has no present intention of selling, granting participation in or
8.
<PAGE>
otherwise distributing the same in a transaction which would result in a
violation of the Securities Act. Reading Entertainment and Reading further
represent that there is no contract, undertaking, agreement or arrangement with
any person to sell, transfer or grant participations to such person or to any
third person with respect to any of the shares of Stater Preferred Stock or
Citadel Preferred Stock being acquired pursuant to Sections 2.1 and 2.2 hereof.
Reading Entertainment understands that the shares being acquired by it as
described above have not been registered under the Securities Act on the ground
that the exchange provided for in this Agreement and the issuance of securities
are exempt pursuant to Sections 4(1) and 4(2) of the Securities Act, and that
Craig's and CMI's reliance on such exemption is predicated on the
representations set forth herein. Each certificate representing the Stater
Preferred Stock and the Citadel Preferred Stock and any shares of Citadel Common
Stock issued upon conversion of shares of the Citadel Preferred Stock may be
endorsed with the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED FOR
SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES AT OF 1933 (THE "ACT") OR
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT, THE
AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE
COMPANY.
Reading Entertainment understands that Stater and/or Citadel may instruct their
transfer agent not to register the transfer of any of its securities unless the
transfer is under conditions which do not violate the Securities Act.
3.12 Title to Assets. Upon consummation of the exchange contemplated by
---------------
Section 2.1 of this Agreement, Reading will own and have, and at the Closing
will deliver to Citadel, to the extent received from Craig, good and marketable
title to its interest in the Citadel Preferred Stock being transferred
hereunder, free and clear of any mortgage, lien, pledge, charge, claim,
conditional sales or other agreement, lease, right or encumbrance, other than
the provisions of the Original Citadel Certificate of Designation.
3.13 Further Investment Representation. Reading Entertainment
---------------------------------
represents and warrants to Citadel that the shares of Series B Citadel Preferred
Stock to be received by it pursuant to Section 2.4 hereof and any shares of
Citadel Common Stock received upon conversion of said shares of Series B Citadel
Preferred Stock are being or will be acquired for investment and not with a view
to the sale or distribution of any part thereof, and that Reading Entertainment
has no present intention of selling, granting participation in or otherwise
distributing the same in a transaction which would result in a violation of the
Securities Act. Reading Entertainment further represents that it has no
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person with
respect to any of the shares of Series B Citadel Preferred Stock being acquired
pursuant to Section 2.4 hereof. Reading Entertainment understands that the
shares of Series B Citadel Preferred Stock being acquired hereunder and the
shares of Citadel Common Stock received upon any conversion of the Series B
Citadel Preferred Stock have not been and will not be registered under the
Securities Act on the ground that the exchange provided for in this Agreement
and the issuance of such securities are exempt pursuant to Section 4(2) of the
Securities Act, and that Citadel's reliance on such exemption is predicated on
the
9.
<PAGE>
representations set forth herein. Each certificate representing the Series B
Citadel Preferred Stock and any shares of Citadel Common Stock issued upon
conversion of shares of Series B Citadel Preferred Stock may be endorsed with
the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED FOR
SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT, THE
AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE
COMPANY.
Citadel may also instruct its transfer agent not to register the transfer of any
securities unless the conditions specified in the foregoing legend are
satisfied.
4. REPRESENTATIONS AND WARRANTIES OF CRAIG AND CMI
Craig and CMI hereby jointly and severally represent and warrant to
Reading, Reading Entertainment, Citadel and CAC as follows:
4.1 Organization and Authorization. Craig and CMI are corporations
------------------------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware and California, respectively, and each has the full corporate
power and all necessary authorizations to own all of its properties and assets
and to carry on its business as it is now being conducted. Craig and CMI are
each duly qualified to do business and are in good standing in each jurisdiction
in which the nature of its or their business or character of its or their
properties requires such qualification and where the failure to be so qualified
would materially and adversely affect either corporation or its or their
business, properties or rights. Craig and CMI have each delivered to Reading and
Reading Entertainment complete and correct copies of their Certificate of
Incorporation and Articles of Incorporation, respectively, and their By-Laws, as
amended and in effect on the date of this Agreement. Craig and CMI each have all
requisite corporate power to execute, deliver and perform their obligations
under this Agreement. The execution, delivery and performance of this Agreement
by Craig and CMI, and the consummation by each of them of the transactions
contemplated hereby, have been duly authorized by the Boards of Directors of
Craig and CMI and the shareholder of CMI, and no shareholder approval of Craig
is required. Neither Craig nor CMI is an "investment company" as defined in the
Investment Company Act of 1940, as amended. This Agreement has been duly
executed and delivered by Craig and CMI and constitutes a valid and binding
agreement of Craig and CMI, enforceable in accordance with its terms except to
the extent the enforcement thereof may be limited by bankruptcy, insolvency,
rehabilitation, moratorium and similar laws now or hereafter in effect relating
to creditor's rights generally or by general equitable principles.
4.2 Non-Contravention. The execution and delivery of this Agreement do
-----------------
not and the consummation of the transactions contemplated hereby will not (a)
violate the Articles of Incorporation or By-Laws of CMI or the Certificate of
Incorporation or By-Laws of Craig, (b) violate any provision of or result in the
breach or the acceleration of or entitle any party to accelerate (whether after
the giving of notice or the lapse of time or both) any material obligation under
any mortgage, lease, agreement, license or instrument, or any order, arbitration
award, judgment or decree, to which Craig or CMI is a party or by which either
is bound, (c)
10.
<PAGE>
result in the creation or imposition of any lien, charge, pledge, security
interest or other encumbrance on any property of Craig or CMI, or (d) to the
knowledge of either Craig or CMI, violate or conflict with any law, ordinance or
rule to which either is subject.
4.3 Approvals. No consent, approval, order or authorization of, or
---------
registration, declaration or filing with any governmental authority is required
in connection with the execution and delivery of this Agreement by Craig and CMI
or the consummation by Craig or CMI of the transactions contemplated hereby.
4.4 Interest in Reading International. Craig owns a membership
---------------------------------
interest in Reading International entitling it to a 50% allocable share in the
net profits, net losses and similar items and in distributions from Reading
International. Craig's interest in Reading International is as set forth in
(i) the Limited Liability Company Agreement (the "LLC Agreement") entered into
as of November 9, 1995 between Craig and Reading Investment, which LLC Agreement
is in full force and effect and has not been modified or amended, and (ii) the
RC Revocable Trust dated as of November 9, 1995 between Craig, Reading
Investment and CMI as the trustee relating to rights upon the liquidation of
Reading International, which agreement is in full force and effect and has not
been modified or amended.
4.5 Title to Assets. Craig owns and has, and Reading Entertainment
---------------
will receive, good and marketable title to its interest in Reading International
and the Citadel Preferred Stock being transferred hereunder, free and clear of
any mortgage, lien, pledge, charge, claim, conditional sales or other agreement,
lease, right or encumbrance, other than the provisions of the LLC Agreement with
respect to the interest in Reading International and the provisions of the
Original Citadel Certificate of Designation and the Stock Purchase and Sale
Agreement dated as of March 27, 1996 by and between Craig and Reading Holdings,
Inc. with respect to the Citadel Preferred Stock. CMI owns and has, and Reading
Entertainment will receive, good and marketable title to the Stater Preferred
Stock being transferred to Reading Entertainment pursuant to Section 2.2 hereof,
free and clear of any mortgage, lien, pledge, charge, claim, conditional sales
or other agreement, lease, right or encumbrance, except for the provisions and
restrictions set forth in the Option Agreement described in Section 8.3(e) of
this Agreement.
4.6 Accuracy of Information Furnished. The certificates, statements,
---------------------------------
and other information furnished to Reading and Reading Entertainment in writing
by or on behalf of Craig or CMI in connection with the transactions contemplated
hereby, do not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that no representation is made as to any financial projections contained in such
information other than that any such financial projections were prepared in good
faith based upon assumptions that Craig believes are reasonable.
4.7 Securities Law Compliance. None of the information supplied by
-------------------------
Craig or CMI in writing for inclusion in the Proxy Statement, the Registration
Statement or the Prospectus, or any amendments thereof or supplements thereto,
at the time of mailing of such Proxy Statement or such amendments or
supplements, at the time of any meeting of shareholders to be held in connection
herewith, at the time the Registration Statement becomes effective and at the
mailing of the Proxy Statement and the Prospectus, will contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading.
11.
<PAGE>
4.8 Brokers. All negotiations relating to this Agreement and the
-------
transactions contemplated hereby have been carried on without the intervention
of any person acting on behalf of Craig or CMI who has or may have a valid claim
against any of the parties to this Agreement for any broker's or finder's fee or
similar compensation, other than such fee as may be payable by Craig to Houlihan
Lokey Howard & Zukin, the financial advisor to the Independent Committee of the
Board of Directors of Craig.
4.9 Stater Financial Condition. To the best knowledge of Craig and
--------------------------
CMI, there has been no material adverse change in the financial condition of
Stater from that reflected in its audited financial statements for the year
ended September 24, 1995.
4.10 Investment Representation. Craig and CMI each represent and
-------------------------
warrant to Reading Entertainment that the shares of Reading Entertainment Common
Stock and Reading Entertainment Series B Preferred Stock to be received by them
pursuant to Sections 2.1 and 2.2 hereof and any shares of Reading Entertainment
Common Stock received upon conversion of said shares of Reading Entertainment
Series B Preferred Stock are being or will be acquired for investment and not
with a view to the sale or distribution of any part thereof, and that neither
has any present intention of selling, granting participation in or otherwise
distributing the same in a transaction which would result in a violation of the
Securities Act. Craig and CMI further represent that neither has any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person with respect to any of the
shares of Reading Entertainment Common Stock and Reading Entertainment Series B
Preferred Stock being acquired pursuant to Sections 2.1 and 2.2 hereof. Craig
and CMI understand that the shares of Reading Entertainment Common Stock and
Reading Entertainment Series B Preferred Stock being acquired hereunder and the
shares of Reading Entertainment Common Stock received upon any conversion of the
Reading Entertainment Series B Preferred Stock have not been and will not be
registered under the Securities Act on the ground that the exchange provided for
in this Agreement and the issuance of such securities are exempt pursuant to
Section 4(2) of the Securities Act, and that Reading Entertainment's reliance on
such exemption is predicated on the representations set forth herein. Each
certificate representing the Reading Entertainment Common Stock and Reading
Entertainment Series B Preferred Stock and any shares of Reading Entertainment
Common Stock issued upon conversion of shares of Reading Entertainment Series B
Preferred Stock may be endorsed with the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED FOR
SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT, THE
AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE
COMPANY.
Reading Entertainment may also instruct its transfer agent not to register the
transfer of any securities unless the conditions specified in the foregoing
legend are satisfied.
4.11 CMI. Craig has no present intention to liquidate CMI or to sell,
---
transfer or assign its ownership interest in CMI, nor to cause CMI to sell,
transfer or assign any of the Reading Entertainment Common Stock or Reading
Entertainment Series B Preferred Stock to be received by CMI pursuant to this
Agreement. CMI has no present intention to liquidate or
12.
<PAGE>
to sell, transfer or assign any of the Reading Entertainment Common Stock or
Reading Entertainment Series B Preferred Stock to be received pursuant to this
Agreement.
5. REPRESENTATIONS AND WARRANTIES OF CITADEL AND CAC
Citadel and CAC hereby jointly and severally represent and warrant to
Reading, Reading Entertainment, Craig and CMI as follows:
5.1 Organization and Authorization. CAC and Citadel are corporations
------------------------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and each has the corporate power and all necessary
authorizations to own all of its properties and assets and to carry on its
business as it is now being conducted. CAC and Citadel are each duly qualified
to do business and are in good standing in each jurisdiction in which the nature
of its or their business or character of its or their properties requires such
qualification and where the failure to be so qualified would materially and
adversely affect CAC or Citadel or its or their business, properties or rights.
CAC and Citadel have each delivered to Reading and Reading Entertainment
complete and correct copies of their Certificates of Incorporation and By-Laws,
as amended and in effect on the date of this Agreement. CAC and Citadel have
all requisite corporate power to execute, deliver and perform their obligations
under this Agreement. The execution, delivery and performance of this Agreement
by CAC and Citadel, and the consummation by CAC and Citadel of the transactions
contemplated hereby, have been duly authorized by the Board of Directors of CAC
and Citadel, and, except as may be required with respect to an exercise by
Citadel of the Asset Put, no approval of Citadel or CAC shareholders is
required. This Agreement has been duly executed and delivered by CAC and
Citadel and constitutes a valid and binding agreement of CAC and Citadel,
enforceable in accordance with its terms except to the extent the enforcement
thereof may be limited by bankruptcy, insolvency, rehabilitation, moratorium and
similar laws now or hereafter in effect relating to creditor's rights generally
or by general equitable principles.
5.2 Non-Contravention. The execution and delivery of this Agreement do
-----------------
not and the consummation of the transactions contemplated hereby will not
(a) violate the Certificate of Incorporation or By-Laws of either CAC or
Citadel, (b) violate any provision of or result in the breach or the
acceleration of or entitle any party to accelerate (whether after the giving of
notice or the lapse of time or both) any material obligation under any mortgage,
lease, agreement, license or instrument, or any order, arbitration award,
judgment or decree, to which CAC or Citadel is a party or by which it is bound,
(c) result in the creation or imposition of any lien, charge, pledge, security
interest or other encumbrance on any property of CAC or Citadel, or (d) to the
knowledge of either Citadel or CAC, violate or conflict with any law, ordinance
or rule to which either is subject.
5.3 Approvals. No consent, approval, order or authorization of, or
---------
registration, declaration or filing with any governmental authority is required
in connection with the execution and delivery of this Agreement by CAC or
Citadel or the consummation by CAC or Citadel of the transactions contemplated
hereby, except as may be required with respect to an exercise by Citadel of the
Asset Put.
5.4 Accuracy of Information Furnished. The certificates, statements,
---------------------------------
and other information furnished to Reading and Reading Entertainment in writing
by or on behalf of CAC or Citadel in connection with the transactions
contemplated hereby, do not contain any
13.
<PAGE>
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that no representation is made as
to any financial projections contained in such information other than that any
such financial projections were prepared in good faith based upon assumptions
that Citadel believes are reasonable.
5.5 Securities Law Compliance. None of the information supplied by CAC
-------------------------
or Citadel in writing for inclusion in the Proxy Statement, the Registration
Statement or the Prospectus, or any amendments thereof or supplements thereto,
at the time of mailing of such Proxy Statement or such amendments or
supplements, at the time of any meeting of stockholders to be held in connection
herewith, at the time the Registration Statement becomes effective and at the
mailing of the Proxy Statement and the Prospectus, will contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading.
5.6 Brokers. All negotiations relating to this Agreement and the
-------
transactions contemplated hereby have been carried on without the intervention
of any person acting on behalf of CAC or Citadel who has or may have a valid
claim against any of the parties to this Agreement for any broker's or finder's
fee or similar compensation, other than such fee as may be payable by Citadel or
CAC to Crowell, Weedon & Co., the financial advisor to the Independent Committee
of the Board of Directors of Citadel.
5.7 Investment Representation. CAC represents and warrants to Reading
-------------------------
Entertainment that the shares of Reading Entertainment Series A Preferred Stock
to be received by CAC pursuant to Section 2.3 hereof and any shares of Reading
Entertainment Common Stock received upon conversion of said shares are being or
will be acquired for investment and not with a view to the sale or distribution
of any part thereof, and that it has no present intention of selling, granting
participation in or otherwise distributing the same in a transaction which would
result in a violation of the Securities Act. Citadel and CAC further represent
that there is no contract, undertaking, agreement or arrangement with any person
to sell, transfer or grant participations to such person or to any third person
with respect to any of the shares of Reading Entertainment Series A Preferred
Stock being acquired pursuant to Section 2.3 hereof. CAC understands that the
shares being acquired by it hereunder and the shares of Reading Entertainment
Common Stock received upon any conversion thereof have not been and will not be
registered under the Securities Act on the ground that the exchange provided for
in this Agreement and the issuance of such securities are exempt pursuant to
Section 4(2) of the Securities Act, and that Reading Entertainment's reliance on
such exemption is predicated on the representations set forth herein. Each
certificate representing the Reading Entertainment Series A Preferred Stock and
any shares of Reading Entertainment Common Stock issued upon conversion of
shares of Reading Entertainment Series A Preferred Stock may be endorsed with
the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED FOR
SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT, THE
AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE
COMPANY.
14.
<PAGE>
Reading Entertainment may also instruct its transfer agent not to register the
transfer of any securities unless the conditions specified in the foregoing
legend are satisfied.
5.8 Independent Continuing Directors. As of the date hereof and the
--------------------------------
Closing Date, CAC has and will have not less than two Independent Continuing
Directors (as defined in Article IX of the Certificate of Incorporation of CAC).
5.9 Capital Stock. The shares of Series B Citadel Preferred Stock to
-------------
be issued pursuant to this Agreement have been duly authorized, and, when issued
and paid for pursuant to the terms hereof, will be validly issued, fully paid
and non-assessable and will be entitled to all the rights, preferences and
privileges set forth in the Certificate of Designation of the Series B 3%
Cumulative Voting Convertible Preferred Stock of Citadel Holding Corporation
(the "Citadel Certificate of Designation"), attached as Exhibit 5.9 hereto. The
shares of common stock of Citadel issuable upon conversion of the Series B
Citadel Preferred Stock have been duly authorized and reserved for issuance upon
such conversion and, when issued and delivered on such conversion in accordance
with the terms of the Citadel Certificate of Designation, will be validly
issued, fully paid and non-assessable. The form of certificates representing the
shares of Series B Citadel Preferred Stock to be issued pursuant to this
Agreement will comply with the Delaware General Corporation Law, as amended. All
corporate action required to be taken for the authorization and issuance of the
Series B Citadel Preferred Stock to be issued pursuant to the Agreement has been
duly and validly taken. At or prior to the Closing, the Citadel Certificate of
Designation will have been filed with the Secretary of State of the State of
Delaware.
6. SHAREHOLDER APPROVAL; PROXY AND REGISTRATION FILINGS
6.1 Shareholder Approval. A meeting of the shareholders of Reading
--------------------
(the "Reading Shareholders") shall be held in accordance with the laws of the
State of Pennsylvania on or before November 30, 1996 (or such later date or
dates as may be approved by the Boards of Directors of all of the parties to
this Agreement) to, among other things, consider and act upon the Exchange and
the Reorganization.
6.2 Proxy Statement and Registration Statement.
------------------------------------------
(a) Reading has prepared and filed with the SEC a Proxy Statement
and related proxy material meeting the requirements of Regulation 14A of the
Securities Exchange Act to be mailed to shareholders in connection with the
meeting of the Reading Shareholders (the "Proxy Statement") referred to above,
and Reading shall use its commercially reasonable efforts to clear these
materials with the SEC and mail said materials to the Reading Shareholders on or
before October 21, 1996, or as soon as practicable thereafter. Reading further
covenants that the Proxy Statement at the time of mailing to the Reading
Shareholders and at the time of the meeting of shareholders held to approve the
Reorganization and Exchange will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading and the Proxy Statement will comply as to form in all material
respects with the provisions of the Securities Exchange Act.
(b) Craig, CMI, Citadel and CAC shall furnish in writing for
inclusion in the Proxy Statement and the Registration Statement, described
below, such information as may
15.
<PAGE>
be reasonably necessary to comply with the provisions of the Securities Act and
the Securities Exchange Act and the rules and regulations thereunder and shall
have been requested in writing by Reading.
(c) Reading shall prepare a registration statement (the
"Registration Statement") including a form of prospectus (the "Prospectus") and
one or more amendments thereto, on Form S-4 or other appropriate form covering
the shares of Reading Entertainment Common Stock to be issued pursuant to the
Reorganization and shall use its commercially reasonable efforts to cause the
Registration Statement to become effective on or before October 21, 1996, or as
soon as practicable thereafter. Reading shall deliver to Craig, CMI, Citadel and
CAC copies of the Registration Statement and each amendment thereto filed or
proposed to be filed (and of each related preliminary prospectus). The
Registration Statement and the Prospectus, as amended at the time the
Registration Statement becomes effective, are herein called the "Registration
Statement" and the "Prospectus." Reading shall advise Craig, CMI, Citadel and
CAC and shall confirm in writing (i) when the Registration Statement or any
post-effective amendment thereto shall have become effective and when any
amendment of or supplement to the Prospectus is filed with the SEC, (ii) when
the SEC shall make a request or suggestion for any amendment to the Registration
Statement or the Prospectus or for additional information and the nature and
substance thereof, relating solely to the Reorganization or Exchange, and (iii)
of the issuance by the SEC of a stop order suspending the effectiveness of the
Registration Statement, and shall use its commercially reasonable efforts to
prevent the issuance of a stop order and, if such order shall be issued, to
obtain the withdrawal thereof at the earliest possible time. Reading represents
and warrants to Craig, CMI, Citadel and CAC that the Registration Statement and
the Prospectus (including the information therein provided by Reading) and any
other amendments and supplements thereto, will, when they become effective,
conform in all material respects to the requirements of the Securities Act and
the rules and regulations thereunder, and will not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; provided,
however, that Reading makes no representation or warranty as to statements or
omissions therein supplied by Craig, CMI, Citadel and CAC.
(d) If, at any time prior to the Closing Date, it shall be
necessary to amend or supplement the Proxy Statement or the Registration
Statement to correct any statement or omission with respect to Reading, Reading
Entertainment, Craig, CMI, Citadel or CAC in order to comply with any applicable
legal requirements, the appropriate party to this Agreement shall supply in
writing the necessary information to Reading. To the extent necessary to comply
with applicable legal requirements, Reading shall amend or supplement the Proxy
Statement and amend or supplement the Registration Statement and Prospectus.
7. COVENANTS
7.1 Covenants of Craig, CMI, Citadel and CAC.
----------------------------------------
(a) Craig, CMI, Citadel and CAC each hereby covenant and agree
that from the date of this Agreement until the Closing Date (or until the items
referred to have either been accomplished or, in good faith, abandoned), except
with the prior written consent of Reading, it:
16.
<PAGE>
(i) shall use its commercially reasonable efforts to
promptly furnish such information to Reading or Reading Entertainment as shall
be necessary for Reading to comply with all filing and regulatory requirements
imposed on Reading or Reading Entertainment with respect to the Exchange and the
Reorganization; and
(ii) with respect to Craig and CMI, will not transfer,
pledge, encumber or allow a mortgage, lien or other charge to be placed upon any
of the assets to be transferred to Reading Entertainment pursuant to Section 2.1
or 2.2 hereunder.
(b) Subject to the terms of this Agreement, Craig agrees to vote
all shares of its Reading Class A Common Stock in favor of the Reorganization
and Exchange at the meeting of Reading Shareholders held to consider the same.
(c) Citadel hereby covenants and agrees that, so long as the
provisions of Article IX of the Certificate of Incorporation of CAC remain
applicable in accordance with their terms, Citadel (i) shall use its
commercially reasonable efforts to ensure that CAC at all times has at least one
Independent Continuing Director (as defined in such Article IX), and (ii) shall
not and shall not permit any of its subsidiaries to cause a "short-form" merger
of CAC into Citadel or any subsidiary of Citadel, or otherwise take any action
which, if taken by CAC, would violate the provisions of such Article IX.
(d) Craig covenants and agrees that at the Closing it will
transfer and assign to Reading Entertainment all of Craig's rights, and Reading
Entertainment covenants and agrees that it will assume all of Craig's
obligations, under the Preferred Stock Purchase Agreement entered into on
November 10, 1994. Citadel consents to such transfer, assumption and assignment
and agrees that the provisions of such Preferred Stock Purchase Agreement shall
apply to the Series B Citadel Preferred Stock (and the shares of Citadel Common
Stock issuable upon conversion of the Series B Citadel Preferred Stock) as if
such shares were the "Shares" as defined in such Preferred Stock Purchase
Agreement.
7.2 Covenants of Reading and Reading Entertainment.
----------------------------------------------
(a) Reading and Reading Entertainment hereby covenant and agree
that from the date of this Agreement until the Closing Date, except with the
prior written consent of Craig, CMI, Citadel and CAC, which will not be
unreasonably withheld or delayed, it:
(i) shall use its commercially reasonable efforts to
comply with all filing and regulatory requirements which may be imposed on
Reading and Reading Entertainment with respect to the Exchange and the
Reorganization, including the filing with the SEC of the Proxy Statement and the
Registration Statement;
(ii) shall use its commercially reasonable efforts to
obtain any consent, authorization or approval of, any governmental authority or
agency or other third party required to be obtained in connection with the
Exchange and the Reorganization or the taking of any action in connection with
the consummation thereof; and
(iii) use its commercially efforts to consummate the
Reorganization and hold a meeting of Reading Shareholders to approve the
Reorganization and the Exchange.
17.
<PAGE>
(b) Reading and Reading Entertainment hereby covenant and agree
that prior to the Closing, the Reading Entertainment Common Stock issuable upon
conversion of the Reading Entertainment Series A and Series B Preferred Stock
shall have been reserved for issuance by Reading Entertainment out of its
authorized but unissued shares of Common Stock and the Reading Entertainment
Common Stock issuable upon such conversion and the Reading Entertainment Common
Stock being issued pursuant to Section 2.1 and 2.2 hereof shall have been
approved for listing on NASDAQ National Market as well as any stock exchange
where Reading Entertainment Common Stock may be listed, subject to official
notice of issuance.
7.3 Access. From the date of this Agreement to the Closing Date,
------
Reading shall afford to Craig, CMI, Citadel and CAC and to the officers and
authorized representatives of each such entity (including, without limitation,
counsel, financial advisors and independent accountants) reasonable access to
its properties, personnel, books and records at such reasonable times and in
such manner as not to disrupt normal business operations; and the officers of
Reading will furnish such officers and representatives with such additional
financial and operating data and other information as to its business and
properties as may be reasonably requested. Likewise Craig shall afford to
Reading, Citadel and CAC and to the authorized representatives of each such
entity (including without limitation, counsel, financial advisors and
independent accountants) reasonable access to all information held by Craig with
respect to Stater. Each of the parties hereto shall insure that all
confidential information which such party or any of its officers, directors,
employees, counsel, agents, investment bankers, or accountants may receive under
this Section 7.3 or pursuant to Section 6.2(c)(ii) shall be kept confidential
and not published, disclosed, or made accessible by any of them to any other
person, except the persons referred to in this sentence who are advised of and
agree to maintain the confidential nature of such information; provided,
however, that the restrictions of this sentence shall not apply as may otherwise
be required by law, as may be necessary or appropriate in connection with the
enforcement of this Agreement, or to the extent such information shall have
otherwise become publicly available.
7.4 Citadel Contributions. Prior to the Closing, Citadel agrees to
---------------------
contribute $7.0 million to the capital of CAC to enable CAC to complete the
transfer described in Section 2.3 of this Agreement.
8. CONDITIONS
8.1 Conditions Precedent to the Obligations of All Parties.
------------------------------------------------------
Notwithstanding any other provision of this Agreement, the obligations of the
parties to effect the Exchange shall be subject to the fulfillment, as of the
Closing, of each of the following conditions (unless waived by the written
consent of the parties hereto):
(a) the Exchange and the Reorganization shall have been validly
approved and adopted by the affirmative vote of the holders of at least a
majority of the votes cast by the holders of the issued and outstanding shares
of Reading Class A Common Stock and Reading Common Stock, voting together as a
single class, at a duly called and held meeting of the Reading Shareholders at
which a quorum is present, and the Reorganization shall have been consummated;
18.
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(b) all permits, approvals and consents of any governmental body
or agency or other third party necessary or appropriate for consummation of the
Exchange and the Reorganization shall have been obtained;
(c) the Registration Statement shall have become effective under
the Securities Act and no stop order suspending the effectiveness of the
Registration Statement shall have been issued or proceedings for that purpose
instituted by the SEC; the Reading Entertainment Common Stock issuable upon
conversion of the Reading Entertainment Series A and Series B Preferred Stock
shall have been reserved for issuance by Reading Entertainment out of its
authorized but unissued shares of Common Stock and the Reading Entertainment
Common Stock issuable upon such conversion and the Reading Entertainment Common
Stock being issued pursuant to Section 2.1 and 2.2 hereof shall have been
approved for listing on NASDAQ National Market as well as any stock exchange
where Reading Entertainment Common Stock may be listed, subject to official
notice of issuance;
(d) there shall not be in effect an order or decision of a court
of competent jurisdiction or a governmental agency or authority which prevents,
or would materially alter the terms of, the Exchange or the Reorganization;
(e) there shall not be any action or proceeding commenced by or
before any governmental agency or authority or threatened by any governmental
agency or authority that enjoins, restrains or prohibits or seeks to enjoin,
restrain or prohibit the Exchange or the Reorganization;
(f) the requirement to close the transfers described in Sections
2.1, 2.2, 2.3 and 2.4 of this Agreement are conditioned on all such transfers
closing simultaneously;
(g) Reading and Reading Entertainment shall have received, on or
prior to the mailing date of the Proxy Statement, an opinion reasonably
satisfactory to them from Berwind Financial Group, L.P. to the effect that the
Exchange is fair from a financial point of view to Reading and Reading
Entertainment and said opinion shall not have been withdrawn or modified in a
manner which is not reasonably satisfactory to Reading or Reading Entertainment;
and
(h) the holders of Reading's Class A Common Stock shall not have
had any dissenter's rights under Pennsylvania law in connection with the
Reorganization.
8.2 Additional Conditions Precedent to the Obligations of Reading and
-----------------------------------------------------------------
Reading Entertainment. In addition to the conditions contained in Section 8.1,
- ---------------------
the obligations of Reading and Reading Entertainment to effect the Exchange
shall also be subject to the fulfillment as of the Closing Date of each of the
following conditions (unless waived in writing by Reading and Reading
Entertainment):
(a) the representations and warranties of Craig, CMI, Citadel and
CAC contained in Section 4 and 5, respectively, shall be true in all material
respects at and as of the date hereof and as of the Closing Date as if made at
and as of the Closing Date; Craig, CMI, Citadel and CAC shall have each duly
performed and complied in all material respects with all agreements, covenants
and conditions required by this Agreement to be performed or
19.
<PAGE>
complied with by them prior to or on the Closing Date; and each of Craig, CMI,
Citadel and CAC shall have delivered to Reading and Reading Entertainment a
certificate dated the Closing Date and signed by its President or its Chief
Financial Officer to the effect set forth in this subparagraph.
(b) Reading and Reading Entertainment shall have received an
opinion letter from Troy & Gould Professional Corporation, counsel to Craig and
CMI, dated the Closing Date, substantially in the form previously delivered to
counsel to Reading.
(c) Reading and Reading Entertainment shall have received an
opinion letter from Gibson, Dunn & Crutcher, special counsel to CAC, and
Citadel, dated the Closing Date, substantially in the form previously delivered
to counsel to Reading. Reading and Reading Entertainment shall have received an
opinion letter from its counsel, Duane, Morris & Heckscher, dated the Closing
Date, substantially in the form of the draft dated the date hereof, previously
delivered to Reading.
(d) All necessary corporation action on the part of the directors
of Craig, CMI, Citadel and CAC in connection with the transactions contemplated
in this Agreement shall have been duly and validly taken.
(e) From the date hereof, there shall have been no material
adverse change in the assets, business, financial condition or results of
operations of Stater and its subsidiaries, taken as a whole, or Citadel and its
subsidiaries, taken as a whole.
(f) The consummation of the Exchange and the Reorganization shall
not result in a "change of control" under the Code such that there would be a
material adverse impact on the net operating loss carryforwards of Reading or
Reading Entertainment.
(g) The Stater Stockholders Agreement, as amended, shall have been
terminated.
8.3 Additional Conditions Precedent to the Obligations of Craig and
---------------------------------------------------------------
CMI. In addition to the conditions contained in Section 8.1, the obligations of
- ---
Craig and CMI to effect the Exchange shall also be subject to the fulfillment at
the Closing Date of each of the following conditions (unless waived in writing
by Craig and CMI):
(a) the representations and warranties of Reading and Reading
Entertainment contained in Section 3 and the representations and warranties of
Citadel and CAC contained in Section 5 shall be true in all material respects at
and as of the date hereof and as of the Closing Date as if made at and as of the
Closing Date; Reading, Reading Entertainment, Citadel and CAC shall each have
duly performed and complied in all material respects with all agreements,
covenants and conditions required by this Agreement to be performed or complied
with prior to or at the Closing Date; and Reading, Reading Entertainment,
Citadel and CAC shall have each delivered to Craig and CMI a certificate dated
the Closing Date and signed by its President or Chief Financial Officer to the
respective effect set forth in this subparagraph;
(b) Craig and CMI shall have received an opinion letter from
Duane, Morris & Heckscher, counsel to Reading and Reading Entertainment, dated
the Closing Date,
20.
<PAGE>
substantially in the form previously delivered to counsel to Craig. Craig and
CMI shall have received an opinion letter from Duane, Morris & Heckscher, dated
the Closing Date, substantially in the form of the draft dated the date hereof,
previously delivered to counsel to Craig.
(c) All necessary corporate action on the part of the directors
and shareholders of Reading and the directors of Reading Entertainment and
Reading Entertainment Subsidiary and the directors and shareholder of CAC in
connection with the transactions contemplated in this Agreement shall have been
taken by the Closing.
(d) From the date hereof, there shall have been no material
adverse change in the assets, business, financial condition or results of
operations of Reading or Reading Entertainment and its or their subsidiaries,
taken as a whole.
(e) Reading Entertainment shall have delivered to CMI its
agreement to be bound by the provisions of Article I and II of that Option
Agreement entered into as of September 3, 1993 by and among Stater, Craig and
CMI with respect to the Stater Preferred Stock.
(f) Immediately prior to the Closing, Reading International and
Reading Investment shall have terminated any and all obligations of Craig and
CMI under that Amended and Restated Capital Funding Agreement entered into as of
March 8, 1996 by and among Craig, Reading Investment and CMI, and Reading
Holdings shall have terminated all of its rights with respect to the Warrant
Purchase Option set forth in Section 3.1 and the Preferred Purchase Option set
forth in Section 2.1 of the Stock Purchase and Sale Agreement entered into as of
March 27, 1996 by and between Craig and Reading Holdings.
(g) The opinion of the law firm of Morris, Nichols, Arsht &
Tunnell that no approval of the shareholders of Craig is required under Delaware
law in connection with the Exchange shall have been reissued and dated as of the
Closing Date and shall not have been modified in a manner not reasonably
satisfactory to legal counsel for Craig.
(h) The opinion of Duane, Morris & Heckscher dated as of the date
of this Agreement, and delivered to Craig and CMI shall have been reissued and
dated as of the Closing Date and shall not have been modified in a manner not
reasonably satisfactory to legal counsel for Craig.
(i) The fairness opinion of Houlihan Lokey Howard & Zukin
addressed to the Board of Directors of Craig and dated as of the date of this
Agreement shall not have been withdrawn or modified in a manner not reasonably
satisfactory to Craig.
(j) The total shareholders' equity of Reading as reflected in
financial statements set forth in the Form 10-Q filed with the SEC for the
quarter ended closest to the Closing shall not be less than $66,218,000.
8.4 Additional Conditions Precedent to the Obligations of CAC and
-------------------------------------------------------------
Citadel. In addition to the conditions contained in Section 8.1, the
- -------
obligations of CAC and Citadel to effect the Exchange shall also be subject to
the fulfillment at the Closing Date of each of the following conditions (unless
waived in writing by CAC and Citadel):
21.
<PAGE>
(a) the representations and warranties of Reading and Reading
Entertainment contained in Section 3 and the representations of Craig and CMI
contained in Section 4 shall be true in all material respects at and as of the
date hereof and as of the Closing Date as if made at and as of the Closing Date;
each of Reading, Reading Entertainment, Craig and CMI shall each have duly
performed and complied in all material respects with all agreements, covenants
and conditions required by this Agreement to be performed or complied with prior
to or at the Closing Date; and each of Reading, Reading Entertainment, Craig and
CMI shall have delivered to CAC and Citadel a certificate dated the Closing Date
and signed by its President or Chief Financial Officer to the respective effect
set forth in this subparagraph.
(b) CAC and Citadel shall have received an opinion letter from
Duane, Morris & Heckscher, counsel to Reading and Reading Entertainment, dated
the Closing Date, substantially in the form of the draft previously delivered to
counsel to Citadel. CAC and Citadel shall have received an opinion letter from
Duane, Morris & Heckscher, dated the Closing Date, substantially in the form of
the draft dated the date hereof previously delivered to counsel to Citadel.
(c) All necessary corporate action on the part of the directors
and shareholders of Reading and the directors of Reading Entertainment and
Reading Entertainment Subsidiary and the directors of Craig and CMI in
connection with the transactions contemplated in this Agreement shall have been
taken by the Closing.
(d) From the date hereof, there shall have been no material
adverse change in the assets, business, financial condition, or results of
operations of Reading or Reading Entertainment and its or their subsidiaries,
taken as a whole.
(e) Each of Reading Entertainment and Craig shall have executed
and delivered to Citadel and CAC an Asset Put and Registration Rights Agreement
substantially in the form attached hereto as Exhibit 8.4(e) (the "Option
Agreement").
(f) The fairness opinion of Crowell, Weedon & Co. addressed to the
Board of Directors of Citadel and dated as of the date of this Agreement shall
not have been withdrawn or modified in a manner not reasonably satisfactory to
Citadel.
(g) The opinion of Duane, Morris & Heckscher dated as of the date
of this Agreement and delivered to Citadel and CAC shall have been reissued and
dated as of the Closing Date and shall not have been modified in a manner not
reasonably satisfactory to legal counsel for Citadel.
(h) The total shareholders' equity of Reading as reflected in
financial statements set forth in the Form 10-Q filed with the SEC for the
quarter ended closest to the Company shall not be less than $66,218,000.
22.
<PAGE>
9. TERMINATION
9.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Closing Date, whether before or after approval by the Reading Shareholders;
(a) by mutual consent of the respective Boards of Directors of
Reading, Reading Entertainment, Craig, CMI, Citadel and CAC;
(b) by any of the respective Boards of Directors of Reading,
Craig, CMI, and Citadel if the Exchange and the Reorganization shall not have
been consummated on or before December 31, 1996, except as a result of the
wilful acts or omissions of the party (or, in the case of Reading, Citadel or
Craig, its wholly owned subsidiary, or, in the case of CMI, its parent) seeking
to cancel this Agreement.
9.2 Written Notice. In order to terminate this Agreement pursuant to
--------------
Section 9.1, the party or parties so acting shall give written notice of such
termination to the other parties.
9.3 Effect of Termination. In the event of the termination of this
---------------------
Agreement pursuant to Section 9.1, the provisions of this Agreement shall become
void and have no effect, with no liability on the part of any party or its
shareholders or directors or officers in respect thereof, unless such
termination shall have occurred as a result of the wilful breach of this
Agreement by any party hereto.
10. GENERAL PROVISIONS
10.1 Survival of Representations and Warranties. Other than with respect
------------------------------------------
to Sections 3.3, 3.11, 4.5, 4.10, 5.7 and 5.9 of this Agreement, the
representations and warranties set forth in this Agreement shall survive the
Closing for a period of one year. The representations and warranties set forth
in Sections 3.3, 3.11, 4.5, 4.10, 5.7 and 5.9 of this Agreement shall survive in
perpetuity.
10.2 Notices. All notices, requests, demands or other communications
-------
required or authorized or contemplated to be given by this Agreement shall be in
writing and shall be deemed to have been duly given made and received when
delivered against receipt, upon receipt of a facsimile transmission, when
deposited in the United States mails (first class postage prepaid) or when
deposited with Federal Express, and addressed as follows:
If to Reading or
Reading Entertainment: Reading Company
The Graham Building
One Penn Square West
30 South 15th Street,
Suite 1300
Philadelphia, PA 19102
Attn: James A. Wunderle
Fax: (215) 569-2862
Copies to: Duane, Morris & Heckscher
23.
<PAGE>
One Liberty Place
Philadelphia, PA 19103
Attn: Sheldon M. Bonovitz, Esq.
Fax: (215) 979-1020
and
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103
Attn: Henry N. Nassau, Esq.
Fax: (215) 994-2222
If to Craig or CMI: Craig Corporation
550 S. Hope Street,
Suite 1825
Los Angeles, CA 90071
Attn: Robin Skophammer
Fax: (213) 239-0548
Copy to: Troy & Gould Professional Corporation
1801 Century Park East,
16th Floor
Los Angeles, CA 90067
Attn: James C. Lockwood, Esq.
Fax: (310) 201-4746
If to CAC or Citadel: Citadel Holding Corporation
550 S. Hope Street
Suite 1825
Los Angeles, CA 90071
Attn: Steve Wesson
Fax: (213) 239-0549
Copy to: Gibson, Dunn & Crutcher LLP
333 S. Grand Avenue
Los Angeles, CA 90071
Attn: Dhiya El-Saden, Esq.
Fax: (213) 229-7520
or such other address and fax number as any of the parties hereto may from time
to time designate in writing, prior to the giving of such notice.
10.3 Amendment and Waiver. No amendment or waiver of any provision of
--------------------
this Agreement shall in any event be effective, unless the same shall be in
writing signed by the parties hereto, and then such amendment, waiver or consent
shall be effective only in a specific instance and for the specific purpose for
which given, except that the parties to this Agreement may (i) extend the time
for the performance of any of the obligations or other acts of the other
parties, (ii) waive any inaccuracies in the representations and warranties
contained
24.
<PAGE>
in this Agreement or in any document delivered pursuant hereto, and (iii) waive
compliance with any of the covenants or conditions contained in this Agreement.
10.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same Agreement.
10.5 Assignability. This Agreement shall not be assigned by any party
-------------
without the prior written consent of all of the parties hereto. In the event of
such assignment, this Agreement shall bind and inure to the benefit of the
parties named herein and their respective successors and assigns.
10.6 Entire Agreement. This Agreement and the documents referred to
----------------
herein contain the entire understanding among the parties with respect to the
transactions contemplated hereby and supersede all prior and contemporaneous
agreements and understandings whether oral or written, relating to the subject
matter hereof.
10.7 Applicable Law. This Agreement shall be governed by and construed
--------------
in accordance with the laws of the State of Delaware, notwithstanding any
Delaware or other conflict-of-law provisions to the contrary.
10.8 Headings. The section and other headings contained in this
--------
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of the terms and conditions contained therein or of
this Agreement.
10.9 Costs and Expenses. Each party hereto shall bear its own costs and
------------------
expenses (including fees and disbursements of legal counsel) incurred in
connection with the negotiation and preparation of this Agreement and the
consummation of the transactions provided for herein, except that Reading
Entertainment agrees to reimburse Citadel and CAC, regardless of whether the
Closing occurs, for their aggregate reasonable out-of-pocket costs and expenses
(including reasonable fees and expenses of legal counsel and financial advisors)
related to this Agreement and the transactions contemplated hereby up to a
maximum of $280,000.
25.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective duly authorized officers as of the date first above
written.
READING COMPANY
By: /S/ JAMES A. WUNDERLE
--------------------------------
Its: Chief Operating Officer
READING ENTERTAINMENT, INC.
By: /S/ JAMES A. WUNDERLE
-----------------------------
Its: Chief Operating Officer
CRAIG CORPORATION
By: /S/ S. CRAIG TOMPKINS
-------------------------------
Its: President
CRAIG MANAGEMENT, INC.
By: /S/ S. CRAIG TOMPKINS
-------------------------------
Its: President
CITADEL HOLDING CORPORATION
By: /S/ STEVE WESSON
------------------------------
Its: President
CITADEL ACQUISITION CORP., INC.
By: /S/ STEVE WESSON
-----------------------------
Its: President
26.
<PAGE>
EXHIBIT 10.52
-------------
ASSET PUT AND
REGISTRATION RIGHTS AGREEMENT
This Asset Put and Registration Rights Agreement (this "Agreement") is
---------
entered into as of this 15th day of October, 1996 by and among Reading
Entertainment, Inc., a Delaware corporation ("Reading Entertainment"), Citadel
---------------------
Holding Corporation, a Delaware corporation ("Citadel"), and Citadel Acquisition
-------
Corp., Inc., a Delaware corporation ("CAC"), with reference to the following:
---
A. The parties to this Agreement are also parties to an Exchange Agreement
dated as of August --, 1996 (the "Exchange Agreement") pursuant to which CAC is
------------------
purchasing 70,000 shares (the "Preferred Shares") of Reading Entertainment's
----------------
Series A Voting Cumulative Convertible Preferred Stock, stated value $100 per
share (the "Series A Preferred Stock"), for an aggregate cash purchase price of
------------------------
$7,000,000.
B. As conditions to CAC's purchase of the Preferred Shares, Reading
Entertainment has agreed that (i) Citadel shall have an option to exchange all
or substantially all of its assets (other than Excluded Assets as defined below)
for shares (the "Exchange Shares") of Reading Entertainment's Common Stock,
---------------
$0.001 par value (the "Common Stock"), and (ii) Reading Entertainment will under
------------
certain circumstances register under the Securities Act of 1933, as amended (the
"Act"), the Exchange Shares and any shares of Common Stock, received upon
---
conversion of the Preferred Shares (the "Conversion Shares"), all in accordance
-----------------
with and subject to the terms of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the agreements set
forth herein, the parties hereto agree as follows:
ARTICLE ONE
ASSET PUT
1.1 Asset Put.
---------
(a) Commencing on the date hereof, Citadel shall have the right, by
giving written notice to Reading Entertainment prior to 11:59 p.m. on the
thirtieth (30th) day following the date on which Reading Entertainment files its
Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (the
"Exchange Notice"), to exchange (the "Asset Put") all or substantially all of
---------------
its assets (other than the Excluded Assets as defined below), together with any
debt encumbering or related to such assets, including without limitation,
mortgages and leases (collectively, the "Citadel Assets"), for such number of
--------------
shares of Common Stock as are determined with reference to the Citadel Asset
Valuation and the Common Stock Value, as described below. The term "Excluded
--------
Assets" shall mean (i) all Preferred Shares and Conversion Shares (or all shares
- ------
of capital stock of CAC, if the sole assets of CAC are Excluded Assets), (ii)
such cash and/or marketable securities as a special committee comprised of the
independent directors of the Board of Directors of Citadel may reasonably
determine are necessary in order to maintain an appropriate level of liquidity
for Citadel and its subsidiaries, (iii) any assets that, in the reasonable
opinion of the Board of Directors of Reading Entertainment, are subject to
liabilities (including, without limitation, contingent or environmental
liabilities) reasonably likely to be in excess of the fair market value of such
assets, (iv) After Acquired Assets (as defined below) to the extent the After
Acquired Assets Value (as defined in Section 1.2) exceeds $5,000,000 and (v)
assets to the extent the Citadel Asset Valuation (as defined in Section 1.2)
exceeds $30,000,000. "After Acquired Assets" shall mean any assets other than
---------------------
cash and assets owned by Citadel or its subsidiaries on the date hereof and cash
proceeds of the sale thereof. If any assets are excluded by reason of clause
(iv) or (v), Reading Entertainment shall determine
<PAGE>
in good faith which assets shall be Excluded Assets on such basis. Subject to
Section 1.1(e), the Asset Put shall be consummated (the "Closing") on the tenth
business day following the Determination Date (as defined below), or such later
date as the parties may agree, at the executive offices of Citadel at 10:00 a.m.
local time (the "Closing Date"). At the Closing, Citadel shall deliver such
------------
stock powers, assignments, bills of sale, deeds, consents, cash by wire transfer
and other instruments of transfer and conveyance as shall be necessary, within
the reasonable requirements of Reading Entertainment, to transfer the Citadel
Assets to Reading Entertainment and, subject to Section 1.1(c), Reading
Entertainment shall deliver to Citadel the Exchange Shares, together with such
assumption agreements, acknowledgments and other documents as shall be
necessary, within the reasonable requirements of Citadel, to transfer and assign
the Citadel Assets to Reading Entertainment and for Reading Entertainment to
assume any and all debt encumbering the Citadel Assets.
(b) Subject to Sections 1.1(c) and 1.3, the aggregate number of Exchange
Shares to be delivered to Citadel at the Closing shall be determined by dividing
the Citadel Asset Valuation by the Common Stock Value, rounded to the nearest
whole number of shares.
(c) In the event the issuance to Citadel, upon Citadel's exercise of the
Asset Put, of the number of shares of Common Stock determined pursuant to
Section 1.1(b) would result in an "owner shift" (as defined in Section 382 of
the Internal Revenue Code, as amended (the "Code")) of Reading Entertainment
----
which, when added to all other "owner shifts" that have occurred during the
"testing period," would result in aggregate "owner shifts" that count against
the 50 percentage point limit (under Section 382(g) of the Code) in excess of 45
percentage points (the "Owner Shift Threshold"), Reading Entertainment shall
---------------------
issue to Citadel the maximum number of shares of Common Stock which would not
result in the crossing of such Owner Shift Threshold. Reading Entertainment may
elect not to issue the shares of Common Stock (the "Excess Shares") which would
-------------
exceed the number of shares determined by the preceding sentence. In such case,
Reading Entertainment shall either: (i) issue to Citadel debt securities (the
"Debt Securities") in an aggregate principal amount equal to the number of
---------------
Excess Shares multiplied by the average of the closing sales prices of Common
Stock on the Nasdaq National Market (or, if that shall not be the principal
market on which the Common Stock shall be trading or quoted, then on such
principal market)(the "Closing Price") for the thirty (30) consecutive trading
-------------
days in which trading of the Common Stock occurs immediately preceding the
Closing Date (the "Excess Share Value") or (ii) pay to Citadel cash, in
------------------
immediately available funds, in an amount equal to the Excess Shares Value (the
"Cash Portion"). The economic terms of the Debt Securities, if any, shall be
determined by an investment banking firm which shall be independent of Citadel
and Reading (the "Independent Investment Banker"), and which shall be chosen by
-----------------------------
Reading Entertainment, subject to Citadel's consent (not to be unreasonably
withheld). All fees and expenses of, and any other charges incurred by the
Independent Investment Banker shall be borne by Reading Entertainment. The form
and terms of the Debt Securities shall be as otherwise agreed by Reading
Entertainment and Citadel in good faith.
(d) As promptly as practicable after receipt of the Exchange Notice,
Reading Entertainment shall notify Citadel whether Reading Entertainment
anticipates issuing to Citadel any Debt Securities and, if so, the aggregate
principal amount of Debt Securities Reading Entertainment estimates it will
issue (provided, that an inaccuracy in such estimate shall not limit Reading
Entertainment's right to issue the full amount of Debt Securities permitted to
be issued pursuant to Section 1.1(c)). If, within ninety (90) days from the
date of such notice, Citadel notifies Reading Entertainment of Citadel's bona
fide intention to sell all, but not less than all, the Debt Securities, if
requested by Citadel in such notice, Reading Entertainment shall take all
reasonable actions to assist Citadel in the sale of all or any portion of the
Debt Securities to a third party or parties and shall, upon consummation of such
sale: (i) reimburse Citadel for all out-of-pocket expenses incurred by Citadel
in connection with the issuance of the Debt Securities and the negotiation and
consummation of such sale, including, without limitation, reasonable fees and
expenses of legal counsel, accountants, financial advisors, brokers and
investment bankers and
2
<PAGE>
(ii) pay to Citadel in cash by wire transfer in immediately available funds, the
amount by which the net proceeds received by Citadel (without duplication of
amounts reimbursed under clause (i) above) from the sale of the Debt Securities
is less than the Excess Shares Value.
(e) In the event Citadel's legal counsel advises Citadel that the
exercise of the Asset Put and consummation of the transactions contemplated
thereby will require the approval of Citadel's stockholders:
(i) Within thirty (30) calendar days of the date of the Exchange
Notice, Citadel shall prepare and file with the Securities and Exchange
Commission (the "SEC") a proxy statement and related proxy material meeting
---
the requirements of Regulation 14A of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), to be mailed to stockholders in connection
------------
with a meeting of the Citadel stockholders (the "Proxy Statement") or as
---------------
soon as practicable thereafter, and use its commercially reasonable efforts
to clear such materials with the SEC and mail such materials to the Citadel
stockholders within sixty (60) calendar days of originally filing such
materials with the SEC, or as soon as practicable thereafter. In such event,
Citadel covenants that the Proxy Statement at the time of mailing to the
Citadel stockholders and at the time of the meeting of stockholders held to
approve the consummation of the Asset Put (the "Meeting") will not contain
-------
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading (other than
statements or omissions therein supplied by Reading Entertainment in writing
for use therein) and the Proxy Statement will comply as to form in all
material respects with the provisions of the Exchange Act.
(ii) Reading Entertainment shall furnish in writing for inclusion in
the Proxy Statement such information as may be reasonably necessary to
comply with the provisions of the Exchange Act and the rules and regulations
thereunder and shall have been requested in writing by Citadel.
(iii) As an additional condition to Citadel's obligation to
consummate the Asset Put, Citadel may elect to receive at Citadel's expense,
on or prior to the mailing date of the Proxy Statement, an opinion,
reasonably satisfactory to Citadel, from a financial advisor selected by
Citadel that the consummation of the Asset Put is fair from a financial
point of view to Citadel and such opinion shall not have been withdrawn or
modified in a manner which is not reasonably satisfactory to Citadel.
(iv) Reading Entertainment and Craig Corporation, a Delaware
corporation ("Craig"), agree that any Citadel voting securities which it, or
-----
any of their respective subsidiaries or affiliates, may hold on the record
date of any such meeting will be voted to approve the exercise and Closing
of the Asset Put.
(v) The Closing shall take place on or before the fifth business day
next following the Meeting. If, at any time prior to the Closing Date, it
shall be necessary to amend or supplement the Proxy Statement to correct any
statement or omission with respect to Citadel, CAC or Reading Entertainment
in order to comply with any applicable legal requirements, the appropriate
party shall supply in writing the necessary information to Citadel and
Citadel shall amend or supplement the Proxy Statement to the extent
necessary to comply with applicable legal requirements.
(f) The risk of loss or damage by fire or other casualty or cause to
the Citadel Assets until the Closing shall be upon Citadel. In the event of
loss or damage to a material amount of any
3
<PAGE>
Citadel Assets following Citadel's delivery of the Exchange Notice and prior to
the Closing, Citadel shall promptly notify Reading Entertainment in writing of
such event describing with such particularity as is possible the extent of such
loss or damage and the extent to which such loss or damage may be covered by any
insurance policy of Citadel. Within ten (10) days after receipt of written
notice from Citadel of such loss or damage, Reading Entertainment shall, at its
option, either (i) have Citadel assign to Reading Entertainment at the Closing
all insurance proceeds to which Citadel would be entitled as a result of such
loss or damage or (ii) exclude such assets from the Citadel Assets; provided
that Reading Entertainment shall have no right to exclude such assets under this
Section 1.1(f) if Citadel promptly repairs the damaged asset substantially to
its previous condition. If any assets are substituted or excluded pursuant to
this Section 1.1(f), the Citadel Asset Valuation shall be adjusted accordingly.
1.2 Citadel Asset Valuation.
-----------------------
(a) (i) The Exchange Notice shall set forth the name and address
of a qualified Member of Appraisal Institute ("MAI") real estate appraiser
to appraise the value of real estate assets which are part of the Citadel
Assets (the "Real Estate Assets") and a qualified appraiser to appraise the
------------------
value of the non-real estate assets, if any, which are part of the Citadel
Assets (the "Non-Real Estate Assets"), each appraiser chosen by Citadel
----------------------
(the "Citadel Appraisers") (such aggregate value being referred to as the
------------------
"Citadel Asset Valuation"). Within fifteen (15) business days of the date
-----------------------
of the Exchange Notice, Reading Entertainment shall give Citadel notice of
the names and addresses of a qualified MAI real estate appraiser to
appraise the value of the Real Estate Assets and a qualified appraiser to
appraise the value of the Non-Real Estate Assets, each chosen by Reading
Entertainment (the "Reading Entertainment Appraisers"). Each of the Citadel
--------------------------------
Appraisers and Reading Entertainment Appraisers (collectively, the
"Appraisers") shall value the Citadel Assets to be appraised by them as of
----------
the date the last of the Appraisers is retained (the "Valuation Date"). The
--------------
Appraisers shall be requested to separately appraise any After Acquired
Assets. The Appraisers, in appraising any Citadel Assets, shall take into
account any liabilities (including, without limitation, contingent or
environmental liabilities) relating to or encumbering such Citadel Assets
and the "value" thereof shall be determined net of any such liabilities
which will encumber the Citadel Assets following the Closing. Any mortgage
debt relating to any asset shall be deemed to be a liability equal to its
outstanding principal amount as of the Valuation Date, which amount shall
be deducted (without duplication) from the value otherwise attributable to
such asset, unless such debt is repaid by Citadel at or prior to the
Closing.
(ii) Within thirty (30) days of the date of the Exchange Notice,
Citadel and Reading Entertainment shall cause the Citadel and the Reading
Entertainment Appraisers, respectively, to deliver to both Reading
Entertainment and Citadel their respective appraisal reports setting forth
the value of the Citadel Assets appraised by them. Thereafter, Reading
Entertainment and Citadel agree to use their best efforts to agree on the
Citadel Asset Valuation and the value of the After Acquired Assets (such
value of the After Acquired Assets being the "After Acquired Asset
Valuation;" the excess of the Citadel Asset Valuation over the After
-----
Acquired Asset Valuation is hereinafter referred to as the "Existing Asset
------------------------ --------------
Valuation"). If an agreement on both valuations can be reached within five
---------
(5) business days of the latest to be delivered of the Appraisers' reports,
those valuations shall be the Citadel Asset Valuation and After Acquired
Asset Valuation. If no agreement on either or both such matters can be
reached within such five (5) business day period, the parties shall select
and jointly engage, a third set of appraisers (the "Third Appraisers") who
----------------
shall be directed, as promptly as practicable, to value the Citadel Assets
as of the Valuation Date and shall affirm the valuation of either the
Reading Entertainment Appraisers or the Citadel Appraisers. Such
determination by the Third Appraisers shall be binding upon Citadel and
Reading Entertainment and the valuations affirmed by the Third Appraisers
shall be the Citadel Asset Valuation and After Acquired Asset Valuation.
The date when the Citadel Asset
4
<PAGE>
Valuation and After Acquired Asset Valuation are determined as provided
above shall be the "Determination Date."
------------------
(iii) If required by either Citadel or Reading Entertainment, the
parties shall request the Appraisers to update their procedures, as set
forth above, to a date not later than forty-five (45) days prior to the
anticipated Closing Date, which date shall thereupon become the Valuation
Date. Upon delivery of such reports, Citadel and Reading Entertainment
shall, to the extent necessary as a result of any difference in such
reports from the original reports of the Appraisers, repeat the procedures
set forth in Section 1.2(a)(ii), and the dates and valuations, determined
by such repeated procedures, shall be substituted for the dates and
valuations as originally determined.
(iv) With respect to the liabilities encumbering or relating to the
Citadel Assets which require the consent of the other party for the
assignment of such liabilities to Reading Entertainment, at or prior to the
Closing, Citadel and Reading Entertainment shall cooperate with each other
to obtain any such consent. In the event any such consent cannot be
obtained, Reading Entertainment shall, at its own expense, refinance any or
all of such debt to permit the transfer of such assets to Reading
Entertainment.
(v) Citadel shall be entitled to all income earned or accrued and
shall be responsible for all liabilities and obligations incurred or
payable in connection with the Citadel Assets through the close of business
on the Closing Date and Reading Entertainment shall be entitled to all
income earned or accrued and shall be responsible for all assumed
liabilities incurred or payable in connection with the Citadel Assets after
the close of business on the Closing Date. At the Closing, all assumed
liabilities, accrued but unpaid expenses (including accrued interest) and
prepaid expenses relating to the Citadel Assets shall be apportioned
between Reading Entertainment and Citadel in accordance with generally
accepted accounting principles ("GAAP") as of the close of business on the
----
Closing Date and the Citadel Asset Valuation shall be adjusted accordingly.
The Citadel Asset Valuation shall also be adjusted for changes in the
principal amount of any indebtedness to be assumed by Reading Entertainment
between the Valuation Date and the Closing Date; provided however, that in
the event Reading Entertainment refinances any such debt at the Closing,
the Citadel Asset Valuation shall be determined immediately prior to the
repayment or refinance of such debt. At or prior to the Closing, the
parties will prepare a preliminary closing statement which shall set forth
the final Citadel Asset Valuation and specify on a preliminary basis all
adjustments to the Citadel Asset Valuation between the Valuation Date and
the Closing Date. Promptly following the Closing, the parties will finalize
such closing statement, making such adjustments as may be appropriate.
(b) If the parties are unable to agree upon the Third Appraisers
within the time periods set forth above, either Reading Entertainment or
Citadel, by giving seven (7) days written notice to the other, may apply to the
American Arbitration Association for the purpose of selecting the Third
Appraisers and the parties agree that the decision of the American Arbitration
Association selecting the Third Appraisers shall be final and binding.
(c) Citadel and Reading Entertainment shall each be responsible for
the fees and expenses of its own Appraisers. The fees and expenses of the Third
Appraisers, if required, shall be paid by the party whose valuation is rejected
and not affirmed by the Third Appraisers.
(d) The Citadel Assets shall be valued at their fair market value as
the assets are then constituted, assuming a willing buyer and a willing seller
dealing at arms-length and unaffiliated with the other.
5
<PAGE>
(e) All Real Estate Assets may be transferred to Reading Entertainment
subject to all debt encumbering or related to such assets, which shall, in such
event, be taken into consideration in connection with the valuation of the Real
Estate Assets.
(f) Citadel shall pay and be responsible for any transfer taxes or
fees or prepayment penalties payable as a result of the transfer of the Citadel
Assets. Reading Entertainment shall reimburse Citadel at the Closing or credit
Citadel in computing the Citadel Asset Valuation for the amount of any liability
incurred by Citadel for assumption fees relating to the assumption of any debt
encumbering the Citadel Assets.
1.3 Common Stock Valuation.
----------------------
(a) Subject to Section 1.3(b), the "Common Stock Value" shall be
------------------
calculated as follows:
(i) The Common Stock Value with respect to the first $20,000,000
of Existing Assets Valuation shall be (A) $11.75 per share if the Exchange
Notice is given on or before October 31, 1997 or (B) $12.25 per share if
the Exchange Notice is after October 31, 1997.
(ii) The Common Stock Value with respect to the excess of the
Existing Assets Valuation over $20,000,000, and with respect to the After
Acquired Asset Valuation up to $5,000,000, shall be the average of the
Closing Prices for the thirty (30) consecutive trading days in which
trading of Common Stock occurs immediately preceding the Closing Date (the
"FMV Value")
---------
(iii) Unless Reading Entertainment shall consent, Citadel shall
not be entitled to exchange After Acquired Assets to the extent the After
Acquired Asset Valuation is in excess of $5,000,000.
(iv) Unless Reading Entertainment shall consent, Citadel shall
not be entitled to exchange Citadel Assets to the extent the Citadel Asset
Valuation exceeds $30,000,000.
(b) In the event the average of the Closing Price over any sixty (60)
consecutive calendar days exceeds 130% of the Common Stock Value then in effect
under Section 1.3(a)(i), Reading Entertainment may, at its option, give Citadel
notice of such event. If Citadel does not deliver the Exchange Notice within
120 days of such notice, the Common Stock Value for all purposes shall then be
the FMV Value.
1.4 Conditions to Asset Put Closing.
-------------------------------
(a) The obligation of Citadel to convey the Citadel Assets to Reading
Entertainment as provided in Section 1.1 of this Agreement is subject to the
fulfillment, on or before the Closing Date, of each of the following conditions
(unless waived by the written consent of Citadel):
(i) Reading Entertainment shall deliver to Citadel a stock
certificate representing the Exchange Shares and such shares shall be
validly issued, fully paid and non-assessable, not subject to any
preemptive or similar right (other than as set forth in Reading
Entertainment's Certificate of Incorporation), and free and clear of any
adverse claims whatsoever;
(ii) Reading Entertainment shall deliver to Citadel certificates
representing the Debt Securities, if any, and the Debt Securities, when
delivered and paid for in accordance with
6
<PAGE>
the Agreement, will be legal, valid and binding obligations of Reading
Entertainment, enforceable in accordance with their terms, and free and
clear of any liens, charges or other encumbrances;
(iii) Reading Entertainment shall deliver to Citadel the Cash
Portion, if any;
(iv) Reading Entertainment shall deliver to Citadel such
assumption agreements, acknowledgments and other documents as Citadel may
reasonably request, in such form as shall be reasonably satisfactory to
Citadel, to transfer the Citadel Assets to Reading Entertainment and for
Reading Entertainment to assume the debt encumbering the Citadel Assets,
including without limitation, any currently existing mortgages and then
existing leases;
(v) The representations and warranties of Reading Entertainment
contained in Article Three shall be true in all material respects at and as
of the date hereof and as of the Closing Date as if made at and as of the
Closing Date and as if made with respect to the issuance of the Exchange
Shares and Debt Securities, if any, except for any changes therein which
(x) have been disclosed by Reading Entertainment in reports or statements
filed by it under the Exchange Act, prior to the date of the Exchange
Notice or (y) have otherwise been disclosed by Reading Entertainment to
Citadel and, in the case of this clause (y), are reasonably acceptable to
Citadel; Reading Entertainment shall have duly performed and complied in
all material respects with all agreements, covenants and conditions
required by this Article One to be performed or complied with prior to or
at the Closing Date; and Reading Entertainment shall have delivered to
Citadel a certificate dated the Closing Date and signed by its President or
Chief Financial Officer to the effect set forth in this subparagraph;
(vi) There shall not be in effect (x) any order or decision of a
court of competent jurisdiction or governmental agency or authority or (y)
any action or proceeding commenced by or before any court, governmental
agency or authority or threatened by any governmental agency or authority
that enjoins, restrains or prohibits or seeks to enjoin, restrain or
prohibit the consummation of the transactions provided in Section 1.1 of
this Agreement;
(vii) All consents to the assignment of any contracts to be
assigned to Reading Entertainment requiring the consent of the other party
thereto shall have been obtained pursuant to written instruments
satisfactory to Citadel or waived by Reading Entertainment; and
(viii) If required, the consummation of the Asset Put shall have
been validly adopted at the Meeting by the affirmative vote of the holders
of at least a majority of the votes cast by the Citadel stockholders
entitled to vote on the matter, and the Meeting shall have been duly called
with a quorum present.
(b) The obligation of Reading Entertainment to issue the Exchange
Shares and Debt Securities, if any, to Citadel as provided in Section 1.1 of
this Agreement is subject to the fulfillment, on or before the Closing Date, of
each of the following conditions (unless waived by the written consent of
Reading Entertainment):
(i) Citadel shall deliver to Reading Entertainment such stock
powers, assignments, bills of sale, deeds, title insurance policies,
consents, cash by wire transfer and other instruments of transfer and
conveyance as Reading Entertainment may reasonably request, in such form as
shall be reasonably satisfactory to Reading Entertainment;
(ii) The representations and warranties of Citadel contained in
Article Three shall be true in all material respects at and as of the date
hereof and as of the Closing Date as if
7
<PAGE>
made at and as of the Closing Date; Citadel shall have duly performed and
complied in all material respects with all agreements, covenants and
conditions required by this Article One to be performed or complied with by
Citadel prior to or on the Closing Date; and Citadel shall have delivered
to Reading Entertainment a certificate dated the Closing Date and signed by
its President or its Chief Financial Officer to the effect set forth in
this subparagraph;
(iii) There shall not be in effect (x) any order or decision of a
court of competent jurisdiction or governmental agency or authority or (y)
any action or proceeding commenced by or before any court, governmental
agency or authority or threatened by any governmental agency or authority
that enjoins, restrains or prohibits or seeks to enjoin, restrain or
prohibit the consummation of the transactions provided in Section 1.1 of
this Agreement;
(iv) All consents to the assignment of any contracts to be
assigned to Reading Entertainment requiring the consent of the other party
thereto shall have been obtained pursuant to written instruments
satisfactory to Reading Entertainment or waived by Citadel;
(v) Citadel shall have made such filing with, and obtained such
consents of, such governmental agencies as shall be required to be made or
obtained by Citadel to effect the transfer of the Citadel Assets to Reading
Entertainment; and
(vi) All title insurance policies on the Real Estate Assets, as
Reading Entertainment shall reasonably determine as necessary (and which
shall be obtained at Reading Entertainment's expense), shall not be subject
to any encumbrances other than encumbrances disclosed to and taken into
account by the Appraisers in determining the Citadel Asset Valuation.
(c) (i) In the event Citadel's acquisition of the Exchange Shares and
Debt Securities, if any, shall be in connection with a plan of distribution
of such Exchange Shares and Debt Securities to Citadel's stockholders or
the reorganization, restructuring, recapitalization, liquidation,
dissolution or winding up of Citadel, Reading Entertainment shall, at its
own expense, prepare a registration statement, information statement or
other documents and take such actions covering or otherwise relating to the
Exchange Shares and Debt Securities, if any, as may be required under the
Act and any other applicable state or federal securities law for Citadel to
consummate such plan of distribution, reorganization, restructuring,
recapitalization, liquidation, dissolution or winding up.
(ii) In the event Citadel's acquisition of the Exchange Shares and
Debt Securities, if any, are not in connection with such a plan,
reorganization, restructuring, recapitalization, liquidation, dissolution
or winding up, Citadel shall deliver an investment representation by
Citadel with respect to the Exchange Shares and Debt Securities, if any, in
form and substance equivalent to the investment representation made by CAC
with respect to the Series A Preferred Stock set forth in Section 5.7 of
the Exchange Agreement.
ARTICLE TWO
REGISTRATION RIGHTS
2.1 Definitions. For purposes of this Article Two only, the following
-----------
definitions shall apply.
(a) The terms "register," "registered," and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Act and the declaration or ordering of effectiveness of such
registration statement by the SEC.
8
<PAGE>
(b) The term "Registrable Securities" refers to the Conversion Shares
and the Exchange Shares owned by (or issuable upon conversion of shares of
Series A Preferred Stock owned by) the Holders, except that the Conversion
Shares and the Exchange Shares shall cease to be Registrable Securities at the
earliest date when (i) a registration statement with respect to the sale of such
shares has become effective under the Act and the shares have been disposed of
in accordance with such registration statement; (ii) such shares may be sold to
the public pursuant to paragraph (k) of Rule 144 under the Act ("Rule 144") or
--------
any successor provision; (iii) such shares shall have been transferred (under
Rule 144 or otherwise), new certificates for the shares not bearing a legend
restricting further transfer (other than as provided in Reading Entertainment's
Certificate of Incorporation) shall have been delivered by Reading Entertainment
and subsequent disposition of the shares does not require registration or
qualification under the Act or state law then in force in the opinion of legal
counsel for Reading Entertainment; or (iv) such shares cease to be outstanding.
(c) The term "Holder" means a holder of record of Registrable
------
Securities on the books and records of Reading Entertainment which is either
CAC, Citadel (if it exercises the Asset Put), or an assignee of a Holder who
succeeds to the rights as a Holder in accordance with Section 2.9 hereof.
(d) The number of shares of "Registrable Securities then outstanding"
---------------------------------------
shall be determined by the number of shares of Common Stock which are
Registrable Securities and the number of shares of Common Stock issuable
pursuant to then convertible securities which are convertible into Registrable
Securities.
2.2 Request for Registration.
------------------------
(a) Subject to Sections 2.2(b) and 2.2(c), if Reading Entertainment
shall receive a written request (specifying that it is being made pursuant to
this Article Three), from Holders of a majority of the Registrable Securities
then outstanding, that Reading Entertainment file a registration statement under
the Act, or a similar document pursuant to any other statute then in effect
corresponding to the Act, covering the registration of at least a majority of
the Registrable Securities then outstanding, then Reading Entertainment shall,
within ten (10) business days of the receipt thereof, give written notice of
such request to all Holders at their respective addresses and shall file as soon
as practicable, and in any event within sixty (60) days of the receipt of such
request, a registration statement under the Act covering all Registrable
Securities which the Holders request to be registered within 30 days of the
mailing of such notice to all Holders.
(b) Notwithstanding the foregoing, (i) Reading Entertainment shall not
be obligated to effect a registration pursuant to this Section 2.2 during the
period starting with the date 60 days prior to Reading Entertainment's estimated
date of filing of, and ending on a date six months following the effective date
of, a registration statement pertaining to an underwritten public offering of
securities for the account of Reading Entertainment, provided that Reading
Entertainment is actively employing in good faith all reasonable efforts to
cause such registration statement to become effective and that Reading
Entertainment's estimate of the date of filing such registration statement is
made in good faith; (ii) if Reading Entertainment shall furnish to the Holders
initiating the registration request hereunder (the "Initiating Holders") a
------------------
certificate signed by the President of Reading Entertainment stating that in the
good faith judgment of the Board of Directors it would be seriously detrimental
to Reading Entertainment or its shareholders for a registration statement to be
filed in the near future, then Reading Entertainment's obligation to file a
registration statement shall be deferred for a period not to exceed six months;
provided, however, that Reading Entertainment may furnish such a certificate to
the Initiating Holders only once in any one-year time period, and (iii) if the
managing underwriter advises the Initiating Holders in writing that marketing
factors require a limitation of the number of shares to be underwritten, then
the Initiating Holders shall so advise all Holders which would otherwise be
underwritten pursuant hereto, and the
9
<PAGE>
number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof in proportion to the
amount of Registrable Securities owned by each Holder; provided, however, that
the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting.
(c) Reading Entertainment shall be obligated to effect only two
registrations pursuant to this Section 2.2, provided however, that if the
Holders who demand registration under this Section 2.2 are unable to register at
least ninety percent (90%) of the Registrable Securities requested to be
included in such registration, then the number of registrations which Reading
Entertainment shall be obligated to effect under this Section 2.2 shall be
increased by one.
2.3 "Piggyback" Registration.
-----------------------
(a) Subject to Section 2.3(b), if at any time Reading Entertainment
determines to register (including for this purpose a registration effected by
Reading Entertainment for stockholders other than the Holders) any shares of
Common Stock under the Act in connection with the public offering of such
securities solely for cash on an SEC Form that would also permit the
registration of the Registrable Securities (other than Forms S-4 and S-8),
Reading Entertainment shall, each such time while Registrable Securities are
outstanding, promptly give each Holder written notice of such determination.
Upon the written request of each Holder given within 20 days after mailing of
any such notice by Reading Entertainment, Reading Entertainment shall, subject
to the provisions of Section 2.7, cause to be registered under the Act all of
the Registrable Securities that each such Holder has requested be registered;
provided however, that Reading Entertainment shall not be required to proceed
with such registration if the offering is abandoned in its entirety and no other
securities are offered for sale.
(b) Reading Entertainment shall not be required under this Section 2.3
to include any Registrable Securities in such underwriting unless the Holders
accept reasonable and customary terms of the underwriting as agreed upon between
Reading Entertainment and the underwriters selected by it.
2.4 Obligations of Reading Entertainment. Notwithstanding any other
------------------------------------
provision hereof, whenever required under this Article Two to effect the
registration of any Registrable Securities, Reading Entertainment shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its commercially reasonable
efforts to cause such registration statement to become effective, and, upon the
request of the Holders of a majority of the Registrable Securities registered
thereunder, to keep such registration statement effective for up to 90 days.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
(d) Use its commercially reasonable efforts to register and qualify
the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be necessary for the
Holders to dispose of the Registrable Securities, provided that Reading
Entertainment shall not be required in connection therewith or as a condition
thereto to qualify to do
10
<PAGE>
business or to file a general consent to service of process or subject itself to
taxation in any such states or jurisdictions.
(e) Enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter, if any,
of such offering. Each Holder participating in such underwriting shall also
enter into and perform its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Article Two, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Article Two, (i) an opinion, dated such
date, of the counsel representing Reading Entertainment for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters and to the
Holders requesting registration of Registrable Securities and (ii) a letter
dated such date, from the independent certified public accountants of Reading
Entertainment, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters and to the Holders requesting registration of
Registrable Securities.
(h) Make generally available to its stockholders an earnings statement
satisfying the provisions of Section 11(a) of the Act (including by means of
satisfying the provisions of Rule 158 under the Act) as soon as reasonably
practical covering the 12-month period beginning with the first month of Reading
Entertainment's first fiscal quarter commencing after the effective date of the
registration statement.
(i) Whenever any notice is required to be given under this Article
Two, such notice may be given personally or by mail. Any notice given to a
Holder shall be sufficient if given to the Holder at the last address set forth
for such Holder on the stock transfer records of Reading Entertainment. Any
notice given by mail shall be deemed to have been given when deposited in the
United States mail with postage thereon prepaid.
2.5 Furnish Information. The selling Holders shall furnish to
-------------------
Reading Entertainment such information regarding themselves, the Registrable
Securities held by them, and the intended method of disposition of such
securities as shall be required to effect the registration of the Registrable
Securities.
2.6 Expenses of Registration. All expenses other than underwriting
------------------------
discounts and commission incurred in connection with any registration, filing or
qualification pursuant to Sections 2.2 and 2.3, including, without limitation,
all registration, filing and qualification fees, printers' and accounting fees,
fees and disbursements of counsel for Reading Entertainment, and the reasonable
fees and disbursements of a single counsel for the selling Holders selected by
the Holders of a majority of the Registrable Securities then outstanding shall
be borne by Reading Entertainment; provided, however, that Reading Entertainment
shall not be required to pay for any expenses of any registration proceeding
begun pursuant to Section 2.2 if the registration request is subsequently
withdrawn at the request of the Holders of a majority of the Registrable
Securities to be registered (in which case all participating Holders shall bear
such expenses), unless, at the time of such withdrawal, the Holders have learned
of a material adverse change in the condition, business or prospects of Reading
Entertainment from that known to the Holders
11
<PAGE>
at the time of their request, in which case the Holders shall not be required to
pay any such expenses and shall retain all rights pursuant to Section 2.2.
2.7 Underwriting Requirements. In connection with any offering
-------------------------
involving an underwriting of shares being issued by Reading Entertainment,
Reading Entertainment shall not be required under Section 2.3 to include any of
the Holders' securities in such underwriting unless they accept the terms of the
underwriting as agreed upon between Reading Entertainment and the underwriters
selected by it, and then only in such quantity as will not, in the reasonable
opinion of the underwriters, jeopardize the success of the offering by Reading
Entertainment. If the total amount of securities, including Registrable
Securities, requested by stockholders to be included in such offering exceeds
the amount of securities to be sold other than by Reading Entertainment that
the underwriters reasonably believe compatible with the success of the offering,
then Reading Entertainment shall be required to include in the offering only
that number of such securities, including Registrable Securities, which the
underwriters believe will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling stockholders
according to the total amount of securities entitled to be included therein
owned by each selling stockholder or in such other proportions as shall mutually
be agreed to by such selling stockholders); provided, however, that in no event
shall any securities of selling Holders be excluded until all securities of
selling employees of, or consultants and advisors to, Reading Entertainment are
excluded.
2.8 Indemnification and Contribution. In the event any Registrable
--------------------------------
Securities are included in a registration statement under this Article Two:
(a) To the extent permitted by law, Reading Entertainment will
indemnify and hold harmless each Holder, the officers and directors of each
Holder, any underwriter (as defined in the Act) for such Holder and each
person, if any, who controls such Holder or underwriter within the meaning of
the Act or the Exchange Act, against any losses, claims, damages or liabilities
(joint or several) to which they may become subject under the Act, the Exchange
Act or other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively, a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
---------
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by Reading
Entertainment of the Act, the Exchange Act, any state securities law or any rule
or regulation promulgated under the Act, the Exchange Act or any state
securities law; and Reading Entertainment will reimburse each such Holder,
officer or director, underwriter or controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that Reading Entertainment shall not be liable in any such case for any such
loss, claim, damage, liability or action to the extent that it arises out of or
is based upon (x) a Violation which occurs in reliance upon and in conformity
with written information furnished expressly for use in connection with such
registration by any such Holder, officer, director or controlling person of such
Holder or underwriter or (y) any untrue statement or alleged untrue statement
made in, or omission or alleged omission from, any preliminary prospectus or
final prospectus, if the final prospectus or the final prospectus as amended or
supplemented, respectively, which shall have been furnished, to the underwriter
or Holder claiming indemnification, prior to the time such underwriter sent
written confirmation of or the Holder made such sale to the person alleging such
statement, alleged statement, omission or alleged omission, does not contain
such statement, alleged statement, omission or alleged omission and a copy of
such final prospectus or such prospectus as amended or supplemented,
respectively, shall not have been sent or given to such person; and provided,
further, that in no case shall Reading Entertainment be liable for amounts paid
in settlement of any such loss, claim, damage, liability,
12
<PAGE>
or action if such settlement is effected without the written consent of Reading
Entertainment, which consent shall not be unreasonably withheld.
(b) To the extent permitted by law, each selling Holder will indemnify
and hold harmless Reading Entertainment, each of its directors, each of its
officers who have signed the registration statement and any underwriters,
against any losses, claims, damages or liabilities (joint or several) to which
Reading Entertainment or any such director, officer, controlling person or
underwriter may become subject, under the Act, the Exchange Act or other federal
or state law, insofar as such losses, claims, damages or liabilities (or actions
in respect thereto) arise out of or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished by or on behalf of
such Holder expressly for use in connection with such registration; and each
such Holder will reimburse any legal or other expenses reasonably incurred by
Reading Entertainment or any such director, officer, controlling person or
underwriter in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement
contained in this Section 2.8(b) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Holder, which consent shall not be
unreasonably withheld; provided further that, in no event shall any indemnity
under this Section 2.8(b) exceed the net proceeds from the offering received by
such Holder.
(c) Promptly after receipt by an indemnified party under this Section
2.8 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 2.8, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
reasonably satisfactory to the parties; provided, however, that an indemnified
party shall have the right to retain its own counsel, with the fees and expenses
to be paid by the indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would be inappropriate
due to actual or potential differing interests between such indemnified party
and any other party represented by such counsel in such proceeding.
(d) In order to provide for just and equitable contribution under the
Act in any case in which (i) any indemnified party makes claim for
indemnification pursuant to this Section 2.8, but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case notwithstanding the
fact the express provisions of this Section 2.8 provide for indemnification, or
(ii) contribution under the Act may be required on the part of any indemnified
party; then the indemnifying party in lieu of indemnifying such indemnified
party hereunder shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities, in
such proportion as is appropriate to reflect the relative fault of the
indemnifying parties on the one hand and of the indemnified parties on the other
in connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of the indemnifying parties and of the
indemnified parties shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party, or by the indemnified party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The parties further agree that it would not be just and equitable if
contribution pursuant to this Section 2.8(d) were determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
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The amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities or actions in respect thereof referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 2.8(d), in no
event shall any contribution under this Section 2.8(d) exceed the net proceeds
from the offering received by such Holder. No person guilty of fraudulent
misrepresentations (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
(e) The obligations of Reading Entertainment and Holders under this
Section 2.8 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Article Two.
2.9 Assignment of Registration Rights. The rights to cause Reading
---------------------------------
Entertainment to register Registrable Securities pursuant to this Article Two
may be assigned by a Holder to any transferee or assignee of any amount of such
securities; provided, in each case that (i) Reading Entertainment is, within a
reasonable time after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned; (ii) such assignment shall be
effective only if, immediately following such transfer, the further disposition
of such securities by the transferee or assignee is restricted under the Act and
(iii) the transferee or assignee agrees in writing to assume all the obligations
of the transferor under this Article Two.
2.10 Limitations on Subsequent Registration Rights. From and after
---------------------------------------------
the date of this Agreement, Reading Entertainment shall not, without the prior
written consent of the Holders of a majority of the outstanding Registrable
Securities, enter into any agreement with any holder or prospective holder of
any securities of Reading Entertainment which would allow such holder or
prospective holder (a) to include such securities in any registration filed
under Section 2.2 hereof, unless, under the terms of such agreement, such holder
or prospective holder may include such securities in any such registration only
to the extent that the inclusion of its securities will not reduce the amount of
the Registrable Securities of the Holders which is included or (b) to make a
demand registration which could result in such registration statement being
declared effective within 120 days of the effective date of any registration
effected pursuant to Section 2.2.
2.11 Amendment of Registration Rights. Any provision of this Article
--------------------------------
Two may be amended and the observance thereof may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of Reading Entertainment and the holders of a majority of
the Registrable Securities then outstanding. Any amendment or waiver effected
in accordance with this Section 2.11 shall be binding upon each Holder of
Registrable Securities, each future holder of all such securities and Reading
Entertainment.
ARTICLE THREE
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Reading Entertainment. Reading
-------------------------------------------------------
Entertainment hereby represents and warrants to each of Citadel and CAC as
follows:
(a) The representations and warranties of Reading Entertainment set
forth in Section 3 of the Exchange Agreement are hereby incorporated by
reference and are true and correct in all respects; and
14
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(b) The representations and warranties of Reading Entertainment set
forth in Section 3 of the Exchange Agreement relating to the Exchange Agreement
and the consummation of the transactions contemplated thereby are true and
correct in all respects as if made with respect to this Agreement and the
consummation of the transactions contemplated hereby, other than, with respect
to Section 3.6 of the Exchange Agreement, as required by Article Two hereof and
other than any consent, approval, order, authorization, registration,
declaration, or filing with a governmental authority which may be required to
consummate the transactions contemplated by Article One hereof.
3.2 Representations and Warranties of Citadel and CAC. Citadel and
-------------------------------------------------
CAC hereby jointly and severally represent and warrant to Reading Entertainment
as follows:
(a) The representations and warranties of each of Citadel and CAC set
forth in Section 5 of the Exchange Agreement (except Section 5.5) are hereby
incorporated by reference and are true and correct in all respects; and
(b) The representations and warranties of Citadel and CAC set forth in
Section 5 of the Exchange Agreement relating to the Exchange Agreement and the
consummation of the transactions contemplated thereby are true and correct in
all respects as if made with respect to this Agreement and the consummation of
the transactions contemplated hereby, other than, with respect to Sections 5.1
and 5.3 of the Exchange Agreement, representations and warranties relating to
or necessary in connection with approval of the stockholders of Citadel, which
if required, will be obtained on or prior to the Closing Date.
ARTICLE FOUR
READING ENTERTAINMENT CHANGE OF CONTROL
4.1 Redemption By Reading Entertainment. In the event of any "Change
-----------------------------------
in Control" (as defined in Reading Entertainment's Certificate of Designation,
Preferences and Rights of the Series A Preferred Stock and Reading
Entertainment's Series B Voting Cumulative Convertible Preferred Stock (the
"Certificate")), Reading Entertainment shall not be entitled to redeem any
-----------
Series A Preferred Stock held by Citadel, CAC or any of their respective
affiliates pursuant to the first sentence of Section 5.1(a) of the Certificate
unless, prior to or simultaneously with such redemption, Craig assumes, pursuant
to an assumption agreement in form and substance satisfactory to Citadel in its
reasonable discretion, all obligations of Reading Entertainment under Articles
One, Two (as it relates to the Exchange Shares) and Five hereunder.
Notwithstanding the foregoing, such assumption agreement by Craig shall provide:
(a) In lieu of Common Stock, Citadel will be entitled to exchange the
Citadel Assets (to the extent it would otherwise have been entitled to exchange
the Citadel Assets for Common Stock) for Craig's Class A Common Preference
Stock, par value $0.01 per share ("Craig Stock"),
-----------
(b) For purposes of Section 1.3(a)(i), the Common Stock Value shall be
determined by multiplying: (i) the average of the Closing Prices of the Craig
Stock for the twenty (20) consecutive trading days on which trading of the Craig
Stock occurs immediately prior to the date of the event which results in such
Change of Control (the "Change of Control Date") by (ii) a fraction, the
----------------------
denominator of which shall be the Closing Price of the Common Stock on the
Change of Control Date and the numerator of which shall be the applicable Common
Stock Value of the Common Stock under Section 1.3(a)(i). For all other
purposes, in determining the "Common Stock Value" with respect to the Craig
Stock, Craig and the Craig Stock shall be deemed substituted for Reading
Entertainment and the Common Stock.
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(c) Craig shall represent and warrant to Citadel and CAC as to the
matters covered by the representations and warranties of Reading Entertainment
set forth in Article Three as if made by Craig with respect to such assumption
agreements, this Agreement and the consummation of the transactions covered
thereby and hereby.
(d) References to the representations and warranties of Reading
Entertainment in Section 1.4(a)(v) shall refer to representations and warranties
of Craig as if made by Craig with respect to Craig.
ARTICLE FIVE
GENERAL PROVISIONS
5.1 General Provisions.
------------------
(a) Subject to Section 2.4(i), all notices, requests, demands or other
communications required or authorized or contemplated to be given by this
Agreement shall be in writing and shall be deemed to have been duly given, made
and received when delivered against receipt, upon receipt of a facsimile
transmission, when deposited in the United States mails (first class postage
prepaid) or when deposited with Federal Express, and addressed as provided in
Section 10.2 of the Exchange Agreement or to such other address and fax number
as any of the parties hereto may from time to time designate in writing, prior
to the giving of such notice.
(b) Except as set forth in Article Two, no amendment or waiver of any
provision of this Agreement shall in any event be effective, unless the same
shall be in writing signed by the parties hereto, and then such amendment,
waiver or consent shall be effective only in a specific instance and for the
specific purpose for which given.
(c) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same Agreement.
(d) Except as set forth in Article Two, this Agreement shall not be
assigned by any party without the prior written consent of the other party
hereto.
(e) This Agreement and the documents and agreements referred to herein
contain the entire understanding among the parties with respect to the
transactions contemplated hereby and supersede all prior and contemporaneous
agreements and understandings whether oral or written, relating to the subject
matter hereof.
(f) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, notwithstanding any Delaware or other
conflict-of-law provisions to the contrary.
(g) Each party hereto shall execute and deliver such further
agreements and instruments, and take such further actions, as the other party
may reasonably request in order to carry out the purpose and intent of this
Agreement.
(h) Except as provided in Section 1.2, should any party institute any
arbitration, action, suit or other proceeding arising out of or relating to this
Agreement, the prevailing party shall be entitled to receive from the losing
party reasonable attorneys' fees and costs incurred in connection therewith.
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(i) Other than as specifically provided herein, each party shall bear
its own costs and expenses (including fees and disbursements of legal counsel)
incurred in connection with the consummation of the transactions provided for
herein.
(j) No party, nor its respective counsel, shall be deemed the drafter
of this Agreement for purposes of construing the provisions of this Agreement,
and all language in all parts of this Agreement shall be construed in accordance
with its fair meaning, and not strictly for or against any party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed by their respective duly authorized officers as of the date first
above written.
READING ENTERTAINMENT, INC.
By:/s/ S. Craig Tompkins
____________________________________
Name: S. Craig Tompkins
__________________________________
Its: President
___________________________________
CITADEL ACQUISITION CORP., INC.
By: /s/ Steve Wesson
____________________________________
Name: Steve Wesson
__________________________________
Its: President
___________________________________
CITADEL HOLDING CORPORATION
By:/s/ Steve Wesson
____________________________________
Name:Steve Wesson
__________________________________
Its: President
___________________________________
Acknowledged and agreed, as to the matters set forth in Section 1.1(e)(iv) and
Article Four:
CRAIG CORPORATION
By:/s/ Craig Tompkins
_________________________
Name: Craig S. Tompkins
_______________________
Its: President
________________________
17
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EXHIBIT 10.53
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES A VOTING CUMULATIVE CONVERTIBLE PREFERRED STOCK
AND
SERIES B VOTING CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
READING ENTERTAINMENT, INC.
Reading Entertainment, Inc., a Delaware corporation (the
"Corporation"), hereby certifies that, pursuant to the authority contained in
Article FOURTH of its Certificate of Incorporation, and in accordance with the
provisions of Section 151 of the General Corporation Law of the State of
Delaware, the Corporation's Board of Directors has duly adopted the following
resolution creating two series of its Preferred Stock, $.001 par value per
share, designated as Series A Voting Cumulative Convertible Preferred Stock and
Series B Voting Cumulative Convertible Preferred Stock:
RESOLVED, that two series of the class of the authorized Preferred
Stock of the Corporation be created hereby, and that the designations and
amounts thereof and the voting powers, preferences and relative, participating,
optional and other special rights of the shares of each such series, and the
qualifications, limitations or restrictions thereof, are as follows:
1. Designations and Numbers of Shares. Seventy thousand (70,000)
----------------------------------
shares of the Preferred Stock of the Corporation are hereby constituted as a
series of Preferred Stock, $.001 par value per share, and designated as "Series
A Voting Cumulative Convertible Preferred Stock" (hereinafter called the "Series
A Stock") and five hundred fifty thousand (550,000) shares of the Preferred
Stock of the Corporation are hereby constituted as a series of Preferred Stock,
$.001 par value per share, and designated as "Series B Voting Cumulative
Convertible Preferred Stock" (hereinafter called the "Series B Stock"; the
Series A Stock and the Series B Stock are hereinafter collectively called the
"Convertible Preferred Stock").
2. Liquidation. Upon any voluntary or involuntary dissolution,
-----------
liquidation or winding up of the Corporation (a "Liquidation"), the holder of
each share of each series of Convertible Preferred Stock then outstanding shall
be entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders, before any distribution of assets shall be
made to the holders of Common Stock of the Corporation or to the holders of
other stock of the Corporation that ranks junior to such series of the
Convertible Preferred Stock in respect to distributions upon a Liquidation of
the Corporation ("Junior Stock"), an amount equal to $100 per share (the "Stated
Value"), plus an amount equal to all dividends (whether or not declared or due)
accrued and unpaid on such share on the date fixed for distribution of assets of
the Corporation to the holders of the Convertible Preferred Stock. The Series B
Stock shall rank junior to the Series A Stock in right to distributions on
Liquidation and shall be "Junior Stock" with respect to the Series A Stock.
Neither a consolidation or merger of the Corporation with or into any other
entity, nor a merger of any other entity with or into the Corporation, nor a
sale or transfer of all or any part of the Corporation's assets for cash or
securities or any other property, shall be
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considered a Liquidation. Written notice of any Liquidation shall be given to
the holders of the Convertible Preferred Stock not less than thirty days prior
to any payment date stated therein.
3. Dividends.
---------
3.1 The holders of Convertible Preferred Stock shall be
entitled to receive, when and as declared by the Board of Directors, but only
out of surplus and capital legally available for the payment of dividends,
cumulative dividends at the annual rate of $6.50 per each share of Series A
Stock, and at the annual rate of $6.50 per each share of Series B Stock
("Regular Dividends"), in each case before any dividends or other distributions
(other than dividends in Common Stock or any other stock which ranks junior in
respect to such series of the Convertible Preferred Stock in respect to
dividends) are paid to the holders of the Common Stock or any other stock which
is Junior Stock with respect to such series. The Series B Stock shall rank
junior to the Series A Stock in right to dividends and shall be "Junior Stock"
with respect to the Series A Stock. Such dividends shall accumulate on each
share of Convertible Preferred Stock from the date of its original issuance and
from day to day and shall be payable (subject to declaration by the Board of
Directors and the existence of surplus and capital legally available for the
payment of such dividends) in equal quarterly installments on the last day of
March, June, September and December of each year (except that, if such date is
not a business day, the dividend shall be payable on the first immediately
succeeding business day); provided, however, that the initial quarterly dividend
-------- -------
payment payable on any share of Convertible Preferred Stock shall be an amount
equal to the product determined by multiplying the Regular Dividend for a
quarter by a fraction, the numerator of which is the number of days from (but
not including) the date of issuance of such share to the end of the dividend
quarter during which such share of Convertible Preferred Stock is issued and the
denominator of which is the total number of days in such dividend quarter.
3.2 Dividends at the rate specified in Section 3.1 hereof shall
accumulate whether or not they have been declared and whether or not there is
surplus and capital legally available for the payment of dividends.
3.3 To the extent any dividends on the Convertible Preferred
Stock accumulate and are in arrears, such dividend shall not bear interest.
4. Conversion Rights.
-----------------
4.1(a) Shares of Series A Stock may be converted, at the option
of the holder thereof, in whole or in part, upon delivery of a certificate
representing such shares to the Corporation, together with a notice specifying
the number of shares to be converted (the date of such delivery, or of delivery
of shares of Series B Stock on conversion thereof as hereinafter provided, is
hereinafter referred to as the "Conversion Date"), (i) at any time after the
date which is 18 months after the first issuance of the Convertible Preferred
Stock (the date of such first issuance being the "Original Issue Date") or (ii)
at any time prior to the later of (A) the 90th day after the earliest event
constituting a Change in Control (as hereinafter defined) and (B) the 30th day
after the consummation of the transaction the announcement of which constituted
such Change in Control (the period from the date of such Change in Control to
the later of such 90th or 30th day being the "Change in Control Period"). A
"Change in Control" shall mean the occurrence of either of the following events:
(x) any person, entity or "group" (as defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended, and the rules thereunder) other
than Craig Corporation and its successors and affiliates (collectively,
"Craig"), shall publicly announce or disclose having entered into a transaction
as a result of which such person, entity or group would acquire beneficial
ownership of 50% or more of the outstanding Common Stock or securities entitling
such person, entity or group to cast 50% or more of the votes entitled to be
cast at any regular election of directors of the Corporation (where "affiliate"
of a person means a person directly or indirectly controlling, controlled by or
under common control with such person and "control" means the power to direct
the affairs of such person by reason of ownership of voting securities, contract
or otherwise) or (y) the directors of the Corporation as of the Original Issue
Date (the "Current Directors") and any future directors (the
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<PAGE>
"Continuing Directors") elected or nominated by a majority of the Current
Directors or Continuing Directors cease to constitute a majority of the Board of
Directors of the Corporation.
(b) Shares of Series B Stock may be converted, at the option of the
holder thereof, in whole or in part, upon delivery of a certificate representing
such shares to the Corporation, together with a notice specifying the number of
shares to be converted, at any time after the date which is 18 months after the
Original Issuance Date.
(c) Notwithstanding the foregoing, a holder of shares of
Convertible Preferred Stock may not convert any shares of Convertible Preferred
Stock that have been called for redemption after 5:00 p.m. Eastern Time on the
date for such redemption.
4.2 Each share of Series A Stock shall be convertible into
shares of the Corporation's Common Stock at a conversion price of $11.50 per
share (as adjusted, the "Series A Conversion Price"), subject to certain
adjustments as described below; and each share of Series B Stock shall be
convertible into shares of the Corporation's Common Stock at a conversion price
of $12.25 per share (as adjusted, the "Series B Conversion Price"; the Series A
Conversion Price and the Series B Conversion Price are each hereinafter referred
to as a "Conversion Price"), subject to certain adjustments as described below.
The number of shares of Common Stock to be delivered on conversion of any shares
of Convertible Preferred Stock shall equal the aggregate Stated Value thereof
divided by the applicable Conversion Price then in effect, calculated to the
nearest 1/100th of a share, subject to Section 4.5. Except as provided in
Section 4.7, the Corporation shall make no payment or adjustment on the account
of any unpaid cumulative dividends on the shares of Convertible Preferred Stock
surrendered for conversion or on account of any dividends on the Common Stock.
4.3 If the Corporation shall (a) pay a dividend or make a
distribution on its outstanding shares of Common Stock in shares of its Common
Stock, (b) subdivide its outstanding shares of Common Stock, or (c) combine its
outstanding shares of Common Stock into a smaller number of shares, then each
Conversion Price in effect immediately prior to such action shall be adjusted so
that the holder of any shares of Convertible Preferred Stock thereafter
surrendered for conversion shall be entitled to receive the number of shares of
capital stock of the Corporation which he would have owned immediately following
such action had such shares of Convertible Preferred Stock been converted
immediately prior thereto. An adjustment made pursuant to this Section 4.3
shall become effective immediately after the record date in the case of a
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or reclassification.
The Corporation shall give notice to the holders of the Convertible Preferred
Stock of any adjustment pursuant to this Section 4.3 (stating the adjusted
Conversion Prices and the reasons therefor) not less than 10 days prior to the
record date for such dividend, distribution, subdivision, combination or
reclassification.
4.4 If the Corporation shall consolidate or merge into or with
another corporation, or if the Corporation shall sell or convey to any other
person or persons all or substantially all of the assets of the Corporation, or
shall issue by reclassification of its shares of Common Stock any shares of
capital stock of the Corporation, each holder of Convertible Preferred Stock
then outstanding shall have the right thereafter to convert each share of
Convertible Preferred Stock held by him into the kind and amount of shares of
stock, other securities, cash and property receivable upon such consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
into which such share might have been converted immediately prior to such
consolidation, merger, sale or conveyance, and shall have no other conversion
rights. In any such event, effective provision shall be made, in the
certificate of incorporation of the resulting or surviving corporation or
otherwise or in any contracts of sale and conveyance so that, so far as
appropriate and as nearly as reasonably may be, the provisions set forth herein
for the protection of the conversion rights of the shares of the Convertible
Preferred Stock shall thereafter be made applicable.
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<PAGE>
4.5 In connection with the conversion of any shares of the
Convertible Preferred Stock hereunder, no fractions of shares of Common Stock
shall be issued, but the Corporation shall pay a cash adjustment in respect of
such fractional interest in an amount equal to a like fraction of an amount
equal to the closing sales price (the "Closing Price") of a share of the
Corporation's Common Stock on the National Association of Securities Dealers
Automated Quotation National Market System (or, if that shall not be the
principal market on which the Common Stock shall be trading or quoted, then on
such principal market) on the business day next preceding the Conversion Date.
4.6 The Corporation shall at all times reserve and keep available
out of its authorized Common Stock the full number of shares of Common Stock of
the Corporation issuable upon the conversion of that number of shares of the
Convertible Preferred Stock permitted to be converted into Common Stock
hereunder.
4.7 (a) In the event that the average of the Closing Prices of the
Common Stock, over any 180 consecutive trading day period ending within 15 days
of the date of the notice provided for in Section 4.7(b) (each such Closing
Price having been adjusted in proportion to any adjustment in the Conversion
Prices made after the date of such Closing Price), exceeds 135% of the Series A
Conversion Price then in effect, the Corporation may, at its option, require the
holders of all, but not less than all, of the issued and outstanding shares of
Series A Stock to convert such shares into Common Stock of the Corporation at
the Series A Conversion Price.
(b) Not less than ten nor more than sixty days prior to the
date fixed for mandatory conversion of the Series A Stock pursuant to Section
4.7(a) ("Mandatory Conversion"), notice by mail, postage prepaid, shall be given
to each holder of shares of Convertible Preferred Stock required to be
converted. On or after the date fixed for Mandatory Conversion, as stated in
such notice, each holder of the shares required to be converted shall surrender
his certificate(s) evidencing such shares to the Corporation at the place
designated in such notice and shall thereupon be entitled to receive the shares
of Common Stock deliverable upon conversion plus any accrued and any unpaid
dividends on such shares of Convertible Preferred Stock. If such notice of
Mandatory Conversion shall have been duly given, and if, on the date fixed for
Mandatory Conversion, funds necessary for the payment of dividends, if any,
shall be available therefor, then, notwithstanding that the certificates
evidencing any shares required to be converted shall not have been surrendered,
from and after the date fixed for Mandatory Conversion, dividends with respect
to the shares so converted shall cease to accrue, the shares shall no longer be
deemed outstanding, the holders thereof shall cease to be holders of the shares
of Convertible Preferred Stock, all rights whatsoever with respect to the shares
so converted shall forthwith terminate except only the right of the holders to
receive the previously accrued dividends without interest thereon and the shares
of Common Stock deliverable on conversion, upon surrender of their certificates
therefor, and such holders shall for all purposes be deemed holders of such
shares of Common Stock.
4.8 The issuance of certificates for shares of Common Stock upon
the conversion of shares of Convertible Preferred Stock shall be made without
charge to the holders of shares of Convertible Preferred Stock for any issue or
stamp tax in respect of the issuance of such certificates, and such certificates
shall be issued in the respective names of, or in such names as may be directed
by, the holders of shares of Convertible Preferred Stock converted; provided,
however, that the Corporation shall not be required to pay any tax which may be
payable in respect of transfer involved in the issuance and delivery of any such
certificate in a name other than that of the holder of shares of Convertible
Preferred Stock converted, and the Corporation shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Corporation the amount of such tax or
shall have established to the satisfaction of the Corporation that such tax has
been paid. If less than all of the shares of Convertible Preferred Stock
represented by a certificate surrendered for conversion are converted, the
Corporation shall deliver to the holder of such shares a new certificate for the
shares not so converted.
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<PAGE>
4.9 The Corporation from time to time may reduce either Conversion
Price by any amount for any period of time in the discretion of the Board of
Directors.
4.10 No adjustment in either Conversion Price shall be required
unless such adjustment would result in an increase or decrease of at least 1% in
such Conversion Price as then in effect; provided, however, that any adjustments
that by reason of this Section 4.10 are not required to be made shall be carried
forward and taken into account in any subsequent adjustment.
5. Redemption.
-----------
5.1(a) The shares of Series A Stock may be redeemed at the
option of the Corporation, in whole or in part, upon prior written notice of
such redemption given by the Corporation in accordance with Section 5.2 hereof
at any time prior to the later of (i) the 120th day after the earliest event
constituting a Change in Control and (ii) the 60th day after the consummation of
the transaction the announcement of which constituted such Change in Control, at
the Change in Control Redemption Price (as hereinafter defined); provided, that
the Corporation may not, pursuant to this sentence, redeem shares of Series A
Preferred Stock held by Citadel Holding Corporation ("Citadel") or any of its
affiliates unless, prior to or simultaneously with such redemption, Craig
assumes certain obligations of the Corporation as provided in Section 4.1 of the
Asset Put and Registration Rights Agreement, dated the Original Issue Date,
among the Corporation, Craig, Citadel, and Citadel Acquisition Corp., Inc. (the
"Put Agreement"), and provided further that the Corporation may not redeem any
shares of Series A Stock pursuant to this sentence after the fifth anniversary
of the Original Issue Date. In addition, any or all of the shares of Series A
Stock may be redeemed at the option of the Corporation, upon prior written
notice of such redemption given by the Corporation in accordance with Section
5.2 hereof, at any time after the fifth anniversary of the Original Issue Date,
at the Standard Redemption Price (as hereinafter defined). The "Change in
Control Redemption Price" of each share of Series A Stock at any date shall mean
an amount equal to the sum of (x) the Stated Value thereof, (y) an accrual on
the Stated Value, from the date of issuance of such share to the date of
redemption, at a percentage per annum (not compounded) equal to 8% if such
redemption is on or before the fourth anniversary of the Original Issue Date or
7% if thereafter, and (z) all accrued and unpaid dividends thereon to the date
fixed for redemption; and the "Standard Redemption Price" of each share of
Convertible Preferred Stock at any date shall mean an amount equal to the
percentage for such date, as set forth below, of the Stated Value thereof, plus
an amount equal to all accrued and unpaid dividends thereon to the date fixed
for redemption:
<TABLE>
<CAPTION>
Anniversary of Original Issue Date Percentage
---------------------------------- ----------
<S> <C>
On or after the fifth anniversary and until the
sixth anniversary 108%
On or after the sixth anniversary and until the
seventh anniversary 106%
On or after the seventh anniversary and until
the eighth anniversary 104%
On or after the eighth anniversary and until the
ninth anniversary 102%
On or after the ninth anniversary 100%
</TABLE>
(b)(i) Subject to the provisions hereof, the holders of
a majority of the outstanding shares of Series A Stock (the "Requesting
Holders") may require that the Corporation purchase all, but (except as
otherwise provided in this Section 5.1(b)) not less than all, of the outstanding
shares of Series A Stock held by the Requesting Holders and those other holders
(the "Nonrequesting Holders") who so request as provided below, by notice (the
"Holders' Notice") given by the Requesting Holders to the Corporation at any
time (A) after 18 months after the Original Issue Date, if at the time of giving
such notice the quarterly dividends payable on the Series A Stock as provided in
Section 3 hereof are in arrears in an aggregate amount equal to at least four
full quarterly dividends (which need
-5-
<PAGE>
not be consecutive), or (B) within the 90-day period beginning on the fifth
anniversary of the Original Issue Date (but not, in the case of this clause (B),
after the exercise by Citadel of the Asset Put (as defined in the Put
Agreement)), in either case at a redemption price equal to the Stated Value
thereof plus all accrued and unpaid dividends thereon to the date fixed for
redemption. As promptly as practicable, and in any case within ten days, after
receipt of a Holders' Notice, the Corporation shall give a notice to each
Nonrequesting Holder, offering to redeem the shares of Series A Stock held by
such Nonrequesting Holder on the same terms, and subject to the same
limitations, as the shares held by the Requesting Holders, provided such
Nonrequesting Holder, within 10 days of the Corporation's notice (the "Response
Period"), gives notice to the Corporation stating that such Nonrequesting Holder
desires to have his shares redeemed. The Nonrequesting Holders who do not elect
to have their shares redeemed shall have no subsequent right to require
redemption pursuant to this Section 5.1(b)(i).
(ii) Citadel may require that the Corporation purchase
all, but (except as otherwise provided in this Section 5.1(b)) not less than
all, of the outstanding shares of Series A Stock owned by it and its affiliates,
by notice given by it to the Corporation at any time during the Change in
Control Period (but not after the fifth anniversary of the Original Issue Date)
at the Change in Control Redemption Price.
(iii) As promptly as practicable, and in any case
within ten days, after the expiration of the Response Period, in the case of a
redemption pursuant to Section 5.1(b)(i), or the notice given by Citadel, in the
case of a redemption pursuant to Section 5.1(b)(ii), the Corporation shall give
a notice of redemption pursuant to Section 5.2 and thereafter proceed to
effectuate such redemption as promptly as practicable.
(iv) Notwithstanding the foregoing, if, at the time
the Corporation is required to redeem shares of the Series A Stock, the funds of
the Corporation legally available for such redemption are insufficient to redeem
in full the shares of the Series A Stock required to be redeemed, (A) the
Corporation shall utilize the funds legally available to redeem the maximum
number of such shares which can be legally redeemed and (B) the remaining such
shares shall remain outstanding and not be redeemed.
(c) The shares of Series B Stock may be redeemed at
the option of the Corporation, in whole or in part, at any time after the fifth
anniversary of the Original Issue Date, upon prior written notice of such
redemption by the Corporation in accordance with Section 5.2, at a per share
redemption price equal to the Standard Redemption Price thereof.
(d) Notwithstanding the foregoing, the Corporation
may not, pursuant to Section 5.1(a) or (c), redeem less than all of the
outstanding shares of a series of Convertible Preferred Stock while any
additional dividends are accumulated and unpaid on such series pursuant to
Section 3 hereof without first declaring and paying all such additional
dividends on such series.
(e) If fewer than all of the outstanding shares of a
series of Convertible Preferred Stock are to be redeemed pursuant to this
Section 5.1 (other than pursuant to Section 5.1(b)(ii)), such shares shall be
redeemed pro rata from each holder of such series of Convertible Preferred Stock
--- ----
(with adjustments to avoid redemptions of fractional shares).
5.2 (a) Not less than thirty nor more than sixty days
prior to the date fixed for redemption, notice by mail, postage prepaid, shall
be given to each holder of shares of the Convertible Preferred Stock to be
redeemed. The redemption notice shall specify the date of redemption, the
certificates to be redeemed, and the applicable redemption price (the
"Redemption Price"); but failure to mail such notice or any defect therein or in
the mailing thereof shall not affect the validity of the proceeding for the
redemption of any shares so to be redeemed. On or after the date fixed for
redemption,
-6-
<PAGE>
as stated in the notice, each holder of the shares called for redemption shall
surrender his certificate(s) evidencing such shares to the Corporation at the
place designated in such notice and shall thereupon be entitled to receive
payment of the Redemption Price thereof. In case less than all of the shares of
Convertible Preferred Stock represented by any such surrendered certificate are
redeemed, a new certificate shall be issued representing the unredeemed shares.
(b) Anything herein to the contrary notwithstanding,
if notice of redemption shall be given as provided in Section 5.2(a) above and
if, on or at any time prior to the date fixed for redemption therein, an amount
equal to the Redemption Price times the number of shares of Convertible
Preferred Stock called for redemption shall be deposited in trust for the
benefit of the holders of the shares of Convertible Preferred Stock called for
redemption with a bank or trust company having a combined capital and surplus of
at least $50 million according to its last published statement of condition,
then, notwithstanding that any certificates for shares of Convertible Preferred
Stock so called for redemption shall not have been surrendered for redemption,
such shares shall be deemed to be redeemed upon the date fixed for redemption
and shall cease to be outstanding for any purpose, the right to receive
dividends thereon shall cease to accrue from and after the date fixed for
redemption and all rights of the holders of the shares of Convertible Preferred
Stock called for redemption shall forthwith on the date fixed for redemption
cease and terminate except for the right of the holders thereof, upon
presentation and surrender of their respective certificates representing such
shares, to receive from such bank or trust company on or after the date fixed
for redemption the amount payable upon the redemption thereof, but without
interest. The Corporation shall be entitled to any interest payable on the funds
so deposited. Any funds so deposited and otherwise unclaimed at the end of three
years shall be repaid to the Corporation, after which holders of the redeemed
stock shall look only to the Corporation for payment of the amount payable upon
redemption thereof, but without interest thereon.
6. Voting Rights.
-------------
6.1 The holders of the shares of Convertible Preferred Stock
shall initially be entitled to cast 9.64 votes per share held on all matters
submitted to a vote of the Corporation's stockholders. The number of votes
entitled to be cast per share of Convertible Preferred Stock shall be adjusted
in inverse proportion to any adjustment in the Conversion Prices.
6.2 Except as otherwise provided herein or by law, the
holders of Convertible Preferred Stock and the holders of Common Stock shall
vote together as one class on all matters submitted to a vote of the
Corporation's stockholders.
6.3 (a) In the event that the quarterly dividends payable
on a series of the Convertible Preferred Stock as provided in Section 3 hereof
are in arrears in an aggregate amount equal to at least six full quarterly
dividends (which need not be consecutive), the number of directors constituting
the Board of Directors of the Corporation shall be increased by one for each
such series so in default and the holders of each series of the Convertible
Preferred Stock as to which dividends are so in default shall have, in addition
to the rights set forth in Sections 6.1, 6.2 and 6.4 hereof, the special right,
voting separately as a single class, to elect one director of the Corporation to
fill such newly created directorship at the next succeeding annual meeting of
stockholders thereafter or at a special meeting of the holders of such series of
the Convertible Preferred Stock called as hereinafter provided, until such right
shall terminate as hereinafter provided.
(b) At any time when the special voting rights provided in
Section 6.3(a) shall have so vested in the holders of a series of the
Convertible Preferred Stock, the Secretary of the Corporation may, and upon the
written request of the holders of 25% or more of the number of shares of such
series of Convertible Preferred Stock then outstanding shall, call a special
meeting of the holders of such series of the Convertible Preferred Stock for the
election of the directors, to be held at the place and upon the notice provided
by law and in the Bylaws for the holding of meetings of stockholders; except
that the Secretary shall not be required to call such a special meeting in the
case of any such request received less than 90 days before the date fixed for
the next annual or other special meeting of stockholders. No such
-7-
<PAGE>
special meeting and no adjournment thereof shall be held on a date less than 30
days before the annual meeting of the stockholders (or a special meeting held in
place thereof) next succeeding the time when the holders of such series of the
Convertible Preferred Stock become entitled to elect directors as provided in
Section 6.3(a). The Corporation shall include, in any notice of such meeting,
any nominee for director who has been proposed by the holders of twenty-five
percent or more of the shares of such series of Convertible Preferred Stock then
outstanding. The directors so elected shall serve until the next annual meeting
or until their respective successors shall be elected and qualify.
(c) At each meeting of stockholders at which the holders of
a series of the Convertible Preferred Stock shall have the right to vote as a
class, as provided in this Section 6.3, the presence in person or by proxy of
the holders of a majority of the total number of shares of such series of the
Convertible Preferred Stock then outstanding shall be necessary and sufficient
to constitute a quorum of such class for such election by such stockholders as a
class. At any such meeting or adjournment thereof:
(i) the absence of a quorum of the holders of a
series of the Convertible Preferred Stock shall not prevent the election of
directors other than those to be elected by the holders of such series of the
Convertible Preferred Stock and the absence of a quorum of the holders of any
other class of stock for the election of such other directors shall not prevent
the election of the directors to be elected by the holders of a series of the
Convertible Preferred Stock; and
(ii) in the absence of either or both such quorums,
the holders of a majority of the shares present in person or by proxy of the
respective class or classes which lack a quorum shall have the power to adjourn
the meeting for the election of directors which they are entitled to elect from
time to time for a period of up to 30 days without notice, other than
announcement at the meeting, until a quorum shall be present.
(d) Each director elected by the holders of a series of the
Convertible Preferred Stock as provided in this Section 6.3 shall hold office
until the annual meeting of stockholders next succeeding his election or until
his successor, if any, is elected by such holders and qualified.
(e) If any vacancy shall occur among the directors elected
by the holders of a series of the Convertible Preferred Stock as provided in
this Section 6.3, such vacancy shall be filled for the unexpired portion of the
term by the vote of the stockholders of such series given at a special meeting
of such stockholders called for that purpose.
(f) Whenever all dividends accrued and unpaid on a series of
the Convertible Preferred Stock shall have been paid, the special right of the
holders of such series of the Convertible Preferred Stock to elect directors as
provided in this Section 6.3 shall terminate, but subject always to the same
provisions for the vesting of such special right of the holders of such series
of the Convertible Preferred Stock to elect directors in the case of future
unpaid dividends as hereinabove provided.
(g) Any director elected by the holders of a series of
Convertible Preferred Stock may be removed by, and shall not be removed
otherwise than by, the vote of the holders of a majority of the outstanding
shares of such series.
(h) Upon any termination of the right of the holders of a
series of the Convertible Preferred Stock to vote for directors as herein
provided, the term of office of all directors then in office elected by holders
of such series shall terminate immediately.
6.4 The consent of the holders of at least a majority of the
outstanding shares of a series of the Convertible Preferred Stock, voting
separately as a single class, in person or by proxy, either
-8-
<PAGE>
in writing without a meeting or at a special or annual meeting of stockholders
called for the purpose, shall be necessary to (i) create or issue any shares of
a class of capital stock ranking, either as to payment of dividends or
distribution of assets, on a parity with or senior to such series of the
Convertible Preferred Stock, (ii) alter or change the preferences, rights,
designations or powers of the shares of such series of Convertible Preferred
Stock as a class, or the provisions of Article FOURTH of the Corporation's
Certificate of Incorporation, in either case so as to affect such holders
adversely, or (iii) increase the total number of authorized shares of
Convertible Preferred Stock.
7. Holders; Notices. The term "holder" or "holders" wherever used
----------------
herein with respect to a holder or holders of shares of Convertible Preferred
Stock shall mean the holder or holders of record of such shares as set forth on
the stock transfer records of the Corporation. Whenever any notice is required
to be given under this Certificate of Designation, such notice may be given
personally or by mail. Any notice given to a holder of any share of Convertible
Preferred Stock shall be sufficient if given to the holder of record of such
share at the last address set forth for such holder on the stock transfer
records of the Corporation. Any notice given by mail shall be deemed to have
been given when deposited in the United States mail with postage thereon
prepaid.
-9-
<PAGE>
IN WITNESS WHEREOF, said Reading Entertainment, Inc. has caused this
Certificate of Designation, Preferences and Rights of Series A Voting Cumulative
Convertible Preferred Stock and Series B Voting Cumulative Convertible Preferred
Stock to be executed by its duly authorized officers this twelfth day of
September, 1996.
READING ENTERTAINMENT, INC.
Attest:
By: /s/ James A. Wunderle By: /s/ S. Craig Tompkins
---------------------------------- ----------------------------
Name: James A. Wunderle Name: S. Craig Tompkins
Title: Chief Operating Officer Title: President
-10-
<PAGE>
EXHIBIT 10.57
CITADEL HOLDING CORPORATION
1996 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
SECTION 1. PURPOSE OF PLAN
The purpose of this 1996 Nonemployee Director Stock Option Plan
("Plan") of Citadel Holding Corporation, a Delaware corporation (the "Company"),
is to enable the Company and its subsidiaries to attract, retain and motivate
its nonemployee directors and further align their interests with those of the
stockholders of the Company by providing for or increasing the proprietary
interests of such directors in the Company.
SECTION 2. NONEMPLOYEE DIRECTOR OPTIONS
(a) Subject to terms and provisions hereof, on October 3, 1996 (the
"Incumbent Date of Grant") each director of the Company who is not an employee
or officer of the Company or any of its affiliates (for this purpose the
Chairman of the Board and the Principal Accounting Officer shall be deemed
officers of the Company) (a "Nonemployee Director") who is then incumbent at the
effective date of the Plan (the "Incumbent Nonemployee Directors"), consisting
of Ronald I. Simon and Alfred Villasenor, shall receive immediately vested
options (the "Incumbent Nonemployee Director Option") to purchase 10,000 )
shares of common stock, par value $.01 per share, of the Company (the "Common
Shares") at an exercise price of $3.00 per share
(b) Subject to the other terms and provisions hereof, upon the date
(each, a "New Date of Grant") as of which a Nonemployee Director not currently
serving on the Board of Directors (a "New Nonemployee Director") becomes a new
member of the Board of Directors, such New Nonemployee Director shall
automatically be granted immediately vested options (a "New Nonemployee Director
Option") to purchase 10,000 Common Shares at an exercise price that is greater
or less than the Fair Market Value per Common Share on the New Date of Grant by
an amount equal to the amount by which $3.00 per share is greater or less than
the Fair Market Value per Common Share on the Incumbent Date of Grant.
(c) If, on any date upon which New Nonemployee Director Options are to
be automatically granted pursuant to Section 2(b), the number of Common Shares
remaining available for option under this Plan is insufficient for the grant to
each New Nonemployee Director of a New Nonemployee Director Option to purchase
the entire number of Common Shares specified in this Section 2, then a New
Nonemployee Director Option to purchase a proportionate amount of such available
number of Common Shares (rounded to the nearest whole share) shall be granted to
each New Nonemployee Director on such date.
<PAGE>
(d) Each Nonemployee Director Option granted under this Plan shall
expire upon the first to occur of the following:
(i) The first anniversary of the date upon which the optionee
shall cease to be a Nonemployee Director as a result of death or total
disability;
(ii) The 30th day after the date upon which the optionee shall
cease to be a Nonemployee Director for any reason other than death or total
disability;
(iii) The tenth anniversary of the New Date of Grant, or the
Incumbent Date of Grant, as the case may be, of such Nonemployee Director
Option.
(e) Payment of the exercise price of any Nonemployee Director Option
granted under this Plan shall be made in full in cash concurrently with the
exercise of such Nonemployee Director Option; provided, however, that, the
payment of such exercise price may instead be made:
(i) in whole or in part, with Common Shares delivered
concurrently with such exercise (such shares to be valued on the basis of
the Fair Market Value of such shares on the date of such exercise),
provided that the Company is not then prohibited from purchasing or
acquiring Common Shares; and/or
(ii) in whole or in part, by the delivery, concurrently with
such exercise and in accordance with Section 220.3(e)(4) of Regulation T
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), of a properly executed exercise notice for such
Nonemployee Director Option and irrevocable instructions to a broker
promptly to deliver to the Company a specified dollar amount of the
proceeds of a sale of or a loan secured by the Common Shares issuable upon
exercise of such Nonemployee Director Option.
(f) For purposes of this Section 2, the "Fair Market Value" of a
Common Share or other security on any date (the "Determination Date") shall be
equal to the average of the closing prices per Common Share or unit of such
other security on the ten trading days immediately preceding the Determination
Date on which trades in the Common Shares occurred, as reported in The Wall
Street Journal, Western Edition, or, if no closing price was so reported for any
of such days, the average of the high bid and low asked prices per Common Share
or unit of such other security on the ten trading days immediately preceding the
Determination Date in the over-the-counter market, as reported by a national
quotation system then in use, or, if the Common Shares or such other security
were not quoted by any such organization on such days, the average of the
closing bid and asked prices on such days as furnished by a professional market
maker making a market in the Common Shares or such other security selected by
the Board.
(g) All outstanding Nonemployee Director Options theretofore granted
under this Plan shall terminate upon the first to occur of the following:
2
<PAGE>
(i) the dissolution or liquidation of the Company;
(ii) a reorganization, merger or consolidation of the Company as
a result of which the outstanding securities of the class then subject to
such outstanding Nonemployee Director Options are exchanged for or
converted into cash, property and/or securities not issued by the Company,
unless the terms of such reorganization, merger or consolidation shall
provide otherwise; or
(iii) the sale of substantially all of the property and assets
of the Company.
(h) Each Nonemployee Director Option shall be nontransferable by the
optionee other than by will or the laws of descent and distribution, and shall
be exercisable during the optionee's lifetime only by the optionee or the
optionee's guardian or legal representative.
(i) Nonemployee Director Options are not intended to qualify as
Incentive Stock Options.
(j) Notwithstanding any other provision of this Plan, no person shall
be granted a Nonemployee Director Option and no person shall be entitled to
exercise any rights with respect to a Nonemployee Director Option previously
granted if such grant or exercise would violate any provision of the certificate
of incorporation of the Company, or would violate any additional restriction set
forth in the agreement evidencing such Nonemployee Director Option. Any grant
or exercise of a Nonemployee Director Option in violation of this paragraph (j)
shall be void ab initio and shall not be effective to convey any rights to the
---------
person purporting to receive such Nonemployee Director Option or exercise such
rights. The Company may require recipients of Nonemployee Director Options to
make such representations and enter into such covenants as are reasonably deemed
necessary in order to ensure that the grant or exercise of rights with respect
to Nonemployee Director Options will not result in a violation of this paragraph
(j).
SECTION 3. STOCK SUBJECT TO PLAN
(a) The aggregate number of Common Shares that may be issued pursuant
to all Nonemployee Director Options granted under this Plan shall not exceed
300,000, subject to adjustment as provided in Section 6 hereof.
(b) For purposes of Section 3(a) hereof, the aggregate number of
Common Shares issued and issuable pursuant to all Nonemployee Director Options
granted under this Plan shall at any time be deemed to be equal to the sum of
the following:
(i) the number of Common Shares which were issued prior to such
time pursuant to Nonemployee Director Options granted under this Plan,
other than Common Shares which were subsequently reacquired by the Company
pursuant to the
3
<PAGE>
terms and conditions of such Nonemployee Director Options and with respect
to which the holder thereof received no benefits of ownership such as
dividends; plus
(ii) the number of Common Shares which were otherwise issuable
prior to such time pursuant to Nonemployee Director Options granted under
this Plan, but which were withheld by the Company as payment of the
purchase price of the Common Shares issued pursuant to such Nonemployee
Director Options or as payment of the recipient's tax withholding
obligation with respect to such issuance; plus
(iii) the maximum number of Common Shares which are or may be
issuable at or after such time pursuant to Nonemployee Director Options
granted under this Plan prior to such time.
SECTION 4. DURATION OF PLAN
No Nonemployee Director Options shall be granted under this Plan after
October 3, 2006. Although Common Shares may be issued after October 3, 2006
pursuant to Nonemployee Director Options granted prior to such date, no Common
Shares shall be issued under this Plan after October 3, 2016.
SECTION 5. ADMINISTRATION OF PLAN
(a) This Plan shall be administered by the Board.
(b) Subject to the provisions of this Plan, the Board shall be
authorized and empowered to do all things necessary or desirable in connection
with the administration of this Plan, including, without limitation, the
following:
(i) adopt, amend and rescind rules and regulations relating to
this Plan;
(ii) determine which persons are Nonemployee Directors;
(iii) determine the exercise price of Nonemployee Director
Options in accordance with the terms of this Plan;
(iv) determine whether, and the extent to which, adjustments are
required pursuant to Section 6 hereof; and
(v) interpret and construe this Plan and the terms and
conditions of all Nonemployee Director Options granted hereunder.
SECTION 6. ADJUSTMENTS
If the outstanding securities of the class then subject to this Plan
are increased, decreased or exchanged for or converted into cash, property or a
different number or kind of securities, or if cash, property or securities are
distributed in respect of such outstanding
4
<PAGE>
securities, in either case as a result of a reorganization, merger,
consolidation, recapitalization, restructuring, reclassification, partial or
complete liquidation, stock split, reverse stock split or the like, or if
substantially all of the property and assets of the Company are sold, then,
unless the terms of such transaction shall provide otherwise, the Board shall
make appropriate and proportionate adjustments in (a) the number and type of
shares or other securities or cash or other property that may be acquired
pursuant to Nonemployee Director Options theretofore granted under this Plan and
(b) the maximum number and type of shares or other securities that may be issued
pursuant to Nonemployee Director Options thereafter granted under this Plan.
SECTION 7. AMENDMENT AND TERMINATION OF PLAN
The Board may amend or terminate this Plan at any time and in any
manner, subject to the following limitations:
(a) no such amendment or termination shall deprive the recipient of
any Nonemployee Director Option theretofore granted under this Plan, without the
consent of such recipient, of any of his or her rights thereunder or with
respect thereto; and
(b) Section 2 hereof shall not be amended more than once every six
months, other than to comport with changes in the Internal Revenue Code, the
Employee Retirement Income Security Act, or the rules thereunder.
SECTION 8. EFFECTIVE DATE OF PLAN
This Plan shall be effective as of October 3, 1996, the date upon
which it was approved by the Board.
SECTION 9. INTERPRETATION OF PLAN
With respect to persons subject to Section 16 of the Exchange Act,
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent
any provision of the Plan or action by the Plan administrators fails to so
comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Plan administrators. It is contemplated that should the
Board decide to qualify a specific Nonemployee Director Option as exempt under
Rule 16b-3 of the Exchange Act, the Board will approve the terms of such
Nonemployee Director Option prior to the grant thereof.
5
<PAGE>
Exhibit 21
LIST OF SUBSIDIARIES
Citadel Realty Inc. 100% owned
14455 Ventura Blvd, Inc. 100% owned
Citadel Acquisition Corp., Inc. 100% owned
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 6,356 16,291
<SECURITIES> 0 0
<RECEIVABLES> 311 447
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 6,667 16,738
<PP&E> 15,057 22,746
<DEPRECIATION> (624) (553)
<TOTAL-ASSETS> 30,292 39,815
<CURRENT-LIABILITIES> 2,265 1,909
<BONDS> 0 0
0 0
0 13
<COMMON> 67 67
<OTHER-SE> 17,657 17,640
<TOTAL-LIABILITY-AND-EQUITY> 30,292 39,815
<SALES> 4,932 5,402
<TOTAL-REVENUES> 5,871 6,112
<CGS> 0 0
<TOTAL-COSTS> 3,621 4,887
<OTHER-EXPENSES> (5,493) (1,500)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,317 1,327
<INCOME-PRETAX> 6,426 1,398
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 6,426 1,398
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,426 1,398
<EPS-PRIMARY> 0.80 0.17
<EPS-DILUTED> 0.80 0.17
</TABLE>
