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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1999
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
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CITADEL HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-3885184
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
550 South Hope Street, Suite 1825
Los Angeles, CA 90071
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including Area Code: (213) 239-0540
Securities Registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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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 ___.
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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 $11,063,000 as of March 10, 2000.
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 10, 2000, there
were 5,335,939 shares of Class A Nonvoting Common Stock, par value $.01 per
share and 1,333,985 shares of Class B Voting Common Stock, par value $.01 per
share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
CITADEL HOLDING CORPORATION
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 1999
INDEX
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Page
PART I.
Item 1. Business 1
Item 2. Properties 13
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
PART II.
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters 15
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations ("MD&A") 17
Item 8. Financial Statements and Supplementary Data 23
Item 9. Change in and Disagreements with Accountants on Accounting and
Financial Disclosure 45
PART III.
Item 10. Directors and Executive Officers of the Registrant 46
Item 11. Executive Compensation 48
Item 12. Security Ownership of Certain Beneficial Owners and Management 51
Item 13. Certain Relationships and Related Transactions 53
PART IV.
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K 56
Signatures 61
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PART I
ITEM 1: BUSINESS
General
Citadel Holding Corporation, a Nevada corporation ("CHC" and collectively
with its consolidated subsidiaries and corporate predecessors, "Citadel" or the
"Company"), was formed in 1999 and on January 4, 2000 merged with Citadel
Holding Corporation, a Delaware corporation ("CHC Delaware"), in a transaction
which resulted in a reincorporation of the Company under the laws of Nevada and
a reclassification of the common stock of the Company into 5,335,939 shares of
Class A Non-Voting Common Stock, par value $.01 per share, and 1,333,985 shares
of Class B Voting Common Stock, par value $.01 per share.
The Company has been engaged in recent periods primarily in the business of
owning and managing its real estate intensive assets and in the offering of
various real estate consulting services to its affiliates. The Company currently
owns (i) an office building located in Glendale, California, (ii) a 40%
partnership interest in each of three general partnerships (the "Agricultural
Partnerships") which collectively own approximately 1,600 acres of agricultural
real estate located in the Central Valley of California and commonly known as
the Big 4 Ranch (the "Big 4 Properties"), and (iii) an 80% equity interest in
Big 4 Farming, LLC (a farm operating company created to provide farming services
to the Agricultural Partnerships with respect to the Big 4 Properties and
referred to herein as "Farming"). The Company also has minority interest in
certain other publicly traded companies including (i) 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 and corporate predecessors, "Reading"), a company
primarily engaged in real estate based segment of the entertainment industry,
specifically the ownership of cinemas and cinema based entertainment centers.,
(ii) 542,500 shares, representing approximately 15.62% of the outstanding common
stock, of Gish Biomedical, Inc., a company engaged primarily in the business of
developing, manufacturing and distributing cardio-vascular devices, and (iii)
342,500 shares, representing approximately 1.25% of the outstanding common stock
of National Auto Credit, Inc., a company consisting primarily of cash, and real
estate, located in Cleveland, Ohio. Until April 1994, Citadel was engaged
principally in the business of serving as the holding company for Fidelity
Federal Bank, FSB ("Fidelity").
Citadel currently intends, at least for the near term, to continue to
manage and augment its commercial real estate and agricultural properties, to
provide real estate consulting services to its affiliates, and to explore
opportunities in the real estate-based segment of the entertainment industry.
The Company is currently in negotiations with Reading and Messrs. James J.
Cotter and Michael Forman to acquire the rights held by Reading under its
Agreement in Principal with Messrs. Cotter and Forman a) to lease with option to
acquire four cinemas, consisting of 16 screens located in Manhattan, b) to
manage four additional cinemas, consisting of twelve screens, also located in
Manhattan, c) to acquire the 1/6th interest in the Angelika Film Center cinema
located in Manhattan not owned by Reading, and d) to merge with Off Broadway
Investors, Inc., a company whose assets consist of three live theatres also
located in Manhattan. The assests described in items a), b) and c) are referred
to herein as the "City Cinema Assets," and the transferor of the City Cinema
Assets is referred to herein as "Old City Cinemas." The assets described in item
d) are referred to herein as the "OBI Assets" and the owner of those assets is
referred to herein as "OBI." Included within the City Cinema Assets are options
to acquire the fee interests underlying the Murray Hill and Sutton Cinemas.
Included within the OBI Assets are the fee estates
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underlying the Minetta Lane and Orpheum Theatres, and a right of first refusal
to acquire the fee interest in the Union Square Theatre. The owner of the Union
Square Theater is currently soliciting offers for that property.
The Board of Directors of the Company has delegated authorities to the
Conflicts Committee, comprised of Directors William Soady and Alfred Villasenor,
to consider the transaction, to negotiate with Reading and with Messrs Cotter
and Forman, and to ultimately approve or reject the proposed transactions. The
Conflicts Committee has retained independent counsel and advisors to assist it
in this process.
The Company has advised Reading and Old City Cinemas that it would be
interested in acquiring the Old City Cinema Assets and the OBI Assets, provided
that the Company have no obligation to advance any funds to Old City Cinemas for
a period of seven years following the closing of the transactions, other than
the payment of approximately $5 million at the closing and, thereafter, the
payment of rent on the leasehold interests and the payment of interest on the
promissory note issued in consideration of the sale of the Angelika interest.
Under the Agreement in Principal between Reading and Old City Cinemas, Reading
is obligated to fund certain credit facilities (amounting to approximately $32.5
million) to Old City Cinemas commencing 18 months after the closing. Old City
Cinemas have advised the Company that it is willing in principal to accept these
modifications to the transaction. As a consequence of these amendments, and
assuming that the parties reach ultimate agreement as to definitive
documentation, at the closing Citadel would pay approximately $5 million in
cash, $10 million in Citadel Common Stock (comprised 80 % of Class A Nonvoting
Common Stock and 20% Class B Voting Stock) and $4.5 million in an 8% ten-year
interest-only promissory note for the City Cinema Assets and the OBI Assets.
Thereafter, for a period of seven years, Citadel will have no further
commitments with respect to Old City Cinemas or the former stockholders of OBI,
other than to pay rent on the leasehold interests and interest on the promissory
note issued with respect to the Angelika interest. On a pro-forma basis, the
City Cinema Assets and the OBI Assets produced net cash flow of approximately
$23 million for 1999. The City Cinemas Assets and the OBI Assets are heavily
real estate oriented, as they include two fee properties, options to acquire two
additional fee properties, a right of first refusal over the sale of an
additional fee property and two long term leasehold estates, again all located
in Manhattan. These assets are particularly attractive to the Company due to
this real estate component.
The negotiations between the Company and Reading with respect to the City
Cinemas Assets are subject to the prior rights of National Auto Credit, Inc.
("NAC"), under an option granted by Reading to NAC permitting NAC to elect to
acquire all of Reading's U.S. cinema assets. That option continues through and
including June 5, 2000, and may be extended by NAC for up to two 30-day
extension period. If NAC exercises this option, it is obligated under its
agreement with Reading to give the Company at least a thirty day period in which
to elect whether or not to participate on a 50/50 joint venture basis with NAC
in such transaction. In the event that NAC does not exercise its option, and
in the event that the Company does not reach agreement with Reading as to the
acquisition of the City Cinema Assets, Reading has advised the Company that it
would grant to the Company a right of first negotiation to acquire the remainder
of Reading's U.S. Cinema assets.
The Gish transaction was a departure from the traditional business
activities of the Company. Since the initial purchase, the Company has
increased its ownership in Gish to 548,800 shares, representing 15.72% of the
outstanding common stock of that company as of March 2, 2000. The Company
acquired its initial interest in Gish in November 1998, when it acquired 398,850
shares representing approximately 11.6% of the outstanding common stock of that
company. The determination to purchase the Gish interest was based upon a
variety of factors including the belief by management of the Company that the
stock was undervalued, the fact that the transaction provided the Company with
the opportunity to acquire a meaningful stake in Gish in essentially a single
transaction, and the fact that a third party, Value Asset Fund Limited
Partnership ("VAF"), was at the same time acquiring a similarly sized interest
in Gish. Collectively, VAF and the Company currently own 1,097,700 shares or
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approximately 31.32% of the outstanding shares of Gish. The management of VAF
is well known to and respected by the Chairman of the Board of the Company, and
presented the Gish Transaction to the Company. The Company has a cost basis of
approximately $2.55 per share in its Gish shares. On March 2, 2000, Gish shares
closed at $4.19 per share.
During the second half of 1999, the Company considered a potential joint
venture with NAKD to acquire the City Cinema Assets in a 50/50 joint venture
with NAKD. That transaction has not yet materialized. However, in becoming
familiar with NAKD, the Company came to the view that the common stock of that
company was materially undervalued. The Company has elected to invest a portion
of its liquidity in NAKD common stock. At December 31, 1999, the Company held
342,500 shares representing approximately 1.25% of the stock of that company and
at an investment of approximately $235,000 of the Company's funds. As of March
31, 2000, this holding has been increased to 925,100 shares representing
approximately 3.25% of the stock of that company.
Commercial Real Property Ownership and Management Activities
Since April 1994, the Company has been principally involved in the
ownership and management of its real estate interests, and in providing real
estate consulting services to Reading. The Company has, over the past five
years, disposed of three multi-family residential properties, two office
buildings, and certain open land. In 1999, the Company sold its office building
located in Phoenix, Arizona, for approximately $20 million. Due in large part
to the competition presented by substantially larger and tax benefited real
estate investment trusts ("REITs"), the Company believes it doubtful that it
will be able to effectively compete in the market for direct ownership of
conventional commercial properties. Nor does the Company believe it likely that
it would be able to effectively compete in the market to provide property
management services with respect to properties owned by others, given the
significant and well-established competition in this area. Accordingly, the
Company has been open to other opportunities to invest in real estate intensive
businesses that may offer the Company greater returns than competing with REITs
for commercial properties or competing with well-established management
companies for property management business. In the view of the company, the
investments in the Reading Series A Preferred Stocks and the Agricultural
Partnerships, discussed in greater detail below, constituted two such
opportunities. The opportunity to become directly involved in the real estate
intensive areas of the entertainment industry -- the ownership of cinemas and
theaters -- is also an attractive way, in the view of the Company, to pursue
hard asset real estate opportunities.
Since 1995, a substantial portion of the executive time of the Company has
been spent providing real estate consulting services to Reading in connection
with the development by Reading of multiplex cinemas in Australia, New Zealand,
the United States, and Puerto Rico and the development of entertainment centers
in Australia and New Zealand. Real estate consulting services are currently
provided by the Company to Reading under an arrangement, pursuant to which
Reading reimburses Citadel for its costs in providing such services. During
Fiscal 1999, 1998 and 1997, Reading paid to Citadel $215,000, $398,000, and
$240,000, respectively, with respect to such consulting services.
Agricultural Activities
The Company currently has a 40% general partnership interest in three
agricultural partnerships ("Agricultural Partnerships"), and an 80% membership
interest in the farming company, Big 4 Farming, LLC ("Farming") manages and
farms the properties owned by the Agricultural Partnerships. The
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Agricultural Partnerships currently own approximately 1,600 acres of property in
Kern County, California, of which approximately 980 acres is improved with
mature citrus trees. In 1998, the Agricultural Partnerships planted 60 acres of
new citrus, and plans to plant an additional 300 acres in 2000.
In December 1998, the Kern County area suffered a devastating freeze.
Substantially all of the Agricultural Partnerships' crop was destroyed. As the
crop was not insured against freeze damage, the Agricultural Partnerships booked
a loss of $2,651,000 for 1998 (inclusive of $1,577,000 related to the crop
loss resulting from the freeze). The Company's share of this loss was
$1,061,000. As a result of the destruction of its 1998-1999 crop, the
Agricultural Partnerships received only limited revenues in 1999, and reported
an additional loss of $1,073,000 for 1999. The Company's share of this loss
amounted to $429,000. It is unlikely that the Agricultural Partnerships will
receive any crop revenues until the second quarter of 2000. As Farming's profit
is tied to the agricultural results of the Agricultural Partnerships, Farming
did not report any material income for 1999.
Citadel and Visalia LLC (which owns a 20% interest in Farming and in each
of the Agricultural Partnerships) are the principal sources of funding for the
operations of the Agricultural Partnerships. The costs of the destroyed crop
were funded through a line of credit from Citadel to the Agricultural
Partnerships. Funding for its 2000 crop and for capital improvement since
January 1, 1999 to the open land held by the Agricultural Partnerships has been
provided 80% by Citadel and 20% by Visalia. At March 10, 2000, $2,382,079 had
been drawn down under the current $3,250,000 Citadel line of credit.
The Agricultural Partnerships currently do not have any source of funds
with which to repay that line of credit when it comes due in August 2000, or any
funds with which to cover its cultural, administrative and interest costs and
capital improvement budget for fiscal 2000 currently projected at $3,501,000,
other than proceeds from the sale of its 1999-2000 crop, an anticipated grant
from the Unites States Department of Agriculture in the amount of approximately
$192,000 and continued loans by Citadel and Visalia. The Company is currently
reviewing the situation, but will likely continue providing the financing
required to produce the 2000 crop and to complete the plantings planned for 2000
so long as Visalia continues to fund its 20% share of such amounts.
Background of Acquisition
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During 1997, the Company formed three subsidiaries, Citadel Agricultural,
Inc., a wholly owned subsidiary, "CAI"), Farming, (80% owned by the Company and
20% by Visalia, a limited liability company controlled by Mr. James J. Cotter,
the Chairman of the Board of the Company, and owned by Mr. Cotter and certain
members of his family) and Big 4 Ranch, Inc. ("BRI"). Such subsidiaries were
formed in anticipation of affecting a purchase of the Big 4 Properties and in
order to address certain restrictions on access to federal water. The Company
capitalized BRI with a cash contribution of $1,200,000 which was used primarily
to acquire a 40% interest in each of the Agricultural Partnerships. The
remaining interests in the Agricultural Partnerships are held 40% by CAI and 20%
by Visalia. On December 29, 1997, the Company distributed 100% of the shares of
BRI to the shareholders of record of the Company's common stock as of the close
of business on December 23, 1997, as a spin-off dividend (the "Spin-off").
On December 31, 1997, the Agricultural Partnerships acquired the Big 4
Properties consisting of approximately 1,600 acres of agricultural land and
related improvements. The assets acquired included (i) approximately 560 acres
of Navel oranges, 205 acres of Valencia oranges, 145 acres of lemons, 32 acres
of Minneola and 600 acres of open land currently leased on a short term basis to
a third party for the cultivation of annual crops (the "Open Land"), (ii)
irrigation systems, (iii) water rights, (iv) frost
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prevention systems, and (v) the fruit crop on the trees which was slated for
harvest in 1998. The Big 4 Properties were acquired by the Partnerships (the
"Ranch Acquisition") from Prudential Insurance Company of America ("Prudential")
on an arms length basis for a purchase price of $6,750,000, plus reimbursement
of certain cultural costs approximating $831,000.
Prior to the Spin-off, Farming entered into a farming services agreement
(the "Farming Contract") with each of the Agricultural Partnerships, pursuant to
which Farming is obligated to provide all of the day-to-day farming services
necessary to cultivate the citrus orchards located on the Big 4 Properties and,
over time, to develop the empty land as may be determined by the Agricultural
Partnerships. Under the Farming Contract, Farming is reimbursed for its out-of-
pocket costs and is paid a management fee equal to 5% of gross receipts, such
gross receipts to be calculated net of picking, packing, and hauling costs. In
turn, Farming has entered into a management services contract agreement (the
"Cecelia Contract") with Cecelia Packing Corporation ("Cecelia" a company owned
by James Cotter) pursuant to which Cecelia has agreed to provide management
consulting, purchasing, and bookkeeping services to Farming for an initial term
of two years at a monthly fee of $6,000, along with reimbursement of certain
out-of-pocket expenses, the cost and benefit of which will be passed through to
the Agricultural Partnerships. Cecelia also packs a portion of the fruit
produced by the Agricultural Partnerships. While the Company had no prior
experience in citrus farming, Cecelia has been engaged in farm management,
citrus packing, and marketing for more than 20 years.
BRI was initially owned by the shareholders of record of Citadel on
December 23, 1997, including Craig and Reading. During 1998, Craig and Reading
purchased additional shares of BRI which increased their collective ownership in
BRI to approximately 49%. In addition, Cecelia and a trust for Mr. Tompkins'
daughter purchased 210,700 shares or approximately 3.2% of BRI's outstanding
securities during 1998.
Concurrent with the Spin-off, Citadel provided BRI with a working capital
line of credit in the amount of $200,000. Pursuant to the Line of Credit
Agreement dated December 29, 1997, entered into between the Company and BRI, the
Company had agreed to lend up to $200,000 to BRI over a three-year period. Any
drawdowns under the line would accrue interest at prime plus 200 basis points,
payable quarterly. All principal amounts borrowed are due and payable on
December 29, 2002. As of March 10, 2000, no borrowings have occurred. The
future of BRI and the collectibility of any Citadel loans due from BRI will be
dependent on the future operations of the Agricultural Partnerships.
The Ranch Acquisition was financed by pro-rata capital contributions of the
partners (Citadel's 40% portion amounting to approximately $1,080,000), by a
$4,050,000 purchase money loan from Prudential, and by a crop finance loan by
Citadel to the Agricultural Partnerships of approximately $831,000. The loan by
Citadel was advanced pursuant to a $1,200,000 Line of Credit Agreement (the
"Crop Financing") extended by the Company to the Agricultural Partnerships.
Drawdowns under the Crop Financing will accrue interest at prime plus 100 basis
points, payable quarterly. The line of credit which was increased to $1,850,000
in 1998 was thereafter increased to $3,250,000 in light of the need to fund cash
shortfalls resulting from the 1998 freeze. The credit facility currently
matures in August 2000. At December 31, 1999, Citadel had advanced or incurred
liabilities of approximately $2,669,000 under the Crop Financing Line of Credit.
The Prudential Purchase Money Loan in the amount of $4,050,000 is secured
by, among other things, a first priority mortgage lien on the property, has a
ten-year maturity and accrues interest, payable quarterly, at a fixed rate of
7.7%. Principal is payable in annual installments of $200,000, beginning
January 1, 2002. The Partnerships, however, are obligated to make certain
mandatory prepayments unless the Partnerships make capital improvements to the
real property totaling $500,000 by December 31, 2000 and
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make an additional $200,000 of capital improvements by December 31, 2001. The
amount of such prepayments, if any, will be the difference between the capital
improvement amount specified and the amount actually spent on such improvements
as of the relevant date. The purchase money mortgage also imposes a prepayment
penalty equal to the greater of (a) one-half of one percent of each prepayment
of principal or (b) a present value calculation of the anticipated loss that the
note holder will suffer as a result of such prepayment.
Industry Overview
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Citrus is produced in the United States and other countries where night
time temperatures typically do not fall below 24 degrees Fahrenheit for more
than a few hours at a time. Currently, citrus is produced in 80 countries. The
major producing countries, in addition to the United States, are Brazil, Mexico,
Argentina and Spain. The majority of international trade is in juice form, less
than 15% of world production is shipped fresh to non-domestic markets.
In the United States, citrus is produced in Florida, California, Arizona,
and Texas. The Florida industry is oriented to juice production with less than
10% of the orange crop being sold as fresh fruit. In addition to oranges,
Florida is the top producer of grapefruit. Of Florida's grapefruit production,
approximately 50% is shipped as fresh fruit. Production in Arizona and Texas is
limited and as such, these areas are not considered major producing regions.
Production in California is oriented to oranges and lemons for the fresh
market. Approximately 85% of all orange production is sold as fresh fruit.
Lemon production is concentrated in California, where approximately 75% of the
U.S. crop is produced.
California citrus is sold year round. Major markets are the United States,
Canada, Japan and Hong Kong. As with most commodities, citrus pricing is
sensitive to supply and demand changes. Production is dependent on the number
of acres planted to citrus, the environmental conditions, and cultural inputs.
An environmental condition is the single largest contributor to supply changes
within a season. Acres in production change in response to growers' income and
the historical cycle time from expansion to contraction has historically been in
the range of 10 to 12 years. Currently, the industry is undergoing contraction
and is projected to continue in that direction for the next 3 to 5 years.
Currently, marketing and sales of California citrus is dominated by Sunkist
Growers, Inc., a cooperative of growers from California and Arizona. Sunkist
market share ranges from 60% for oranges to 75% for lemons. Membership in
Sunkist is not restricted and some of the Property's fruit has been historically
and will likely be marketed in the future through Sunkist.
Business Strategy and Description of Business
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General
The business plan currently being implemented by the Agricultural
Partnerships is to focus on the cultivation of citrus crops utilizing the Big 4
Properties' existing orchards and, over time, to improve the open land with
additional citrus orchards.
At the present time, approximately 980 acres of the Big 4 Properties is
improved with mature orchards, consisting of approximately 585 acres of Navel
oranges, 205 acres of Valencia oranges, 155 acres of lemons and 35 acres of
Minneola. The Agricultural Partnerships planted approximately 60 acres of
additional citrus trees in 1998 and plans to plant another 300 acres in 2000.
The remaining acreage is
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used for agricultural support facilities or held for development as additional
orchards. During the 1997-1998 season, the Big 4 Properties produced
approximately 479,232 cartons of Navel oranges, approximately 164,886 cartons of
Valencia oranges, approximately 159,084 cartons of lemons and approximately
33,552 cartons of Minneola, for a total of approximately 836,754 cartons of
citrus. As a result of a devastating freeze in 1998, the Big 4 Properties
produced almost no marketable crops for the 1998-1999 season.
The assets acquired also included wind machines used for frost protection,
irrigation systems, and access to a forty acre reservoir owned by the local
irrigation district for the short-term storage of water from wells located on
the Big 4 Properties as well as from other sources. While the business plan is
to make use of federal water rights to provide water to the Big 4 Properties,
these wells and access rights provide a safeguard in the event that such federal
water should, from time to time, prove prohibitively expensive or insufficient
to meet the needs of the Big 4 Properties.
It is anticipated that the preparation and planting of the remaining open
land will likely be completed over a period of two to four years. It was
originally anticipated that such preparation and planting would be funded, over
time, principally out of the cash flow generated from the Big 4 Properties.
However, as a result of the 1998 freeze, it will be necessary for the
Agricultural Partnerships to seek funding from the Company and Visalia or third
parties in order to complete the planting currently planned for 2000. It is
currently contemplated that the Company and Visalia will provide such funding on
an 80/20 basis. Such improvement will include the installation of additional
irrigation systems, the planting of trees and the installation of frost control
systems, principally wind machines. The period to maturity varies from variety
to variety, but generally speaking it is anticipated that the first commercial
crops will be harvested 5 years after the trees are planted.
The business of the Agricultural Partnerships is subject to risks
associated with its agricultural operations. Numerous factors can affect the
price, yield, and marketability of the crops grown on the Big 4 Properties.
Crop prices may vary greatly from year to year as a result of the relationship
between production and market demand. For example, the production of a
particular crop in excess of demand in any particular year will depress market
prices, and inflationary factors and other unforeseeable economic changes may
also, at the same time, increase operating costs with respect to such crops. In
addition, the agricultural industry in the United States is highly competitive,
and domestic growers and produce marketers are facing increased competition from
foreign sources. There are also a number of factors outside of the control of
the Company and the Agricultural Partnerships that could, alone or in
combination, materially adversely affect the agricultural operations of the
Agricultural Partnerships, such as adverse weather conditions, the availability
of water, insects, blight or other diseases, labor problems such as boycotts or
strikes, and shortages of competent laborers. The business operations of the
Agricultural Partnerships may also be adversely affected by changes in
governmental policies, and social and economic conditions.
Seasonality
The agricultural operations of the Agricultural Partnerships will be
impacted by the general seasonal trends that are characteristic of the citrus
industry. The Agricultural Partnerships anticipate receiving a majority of their
net income during the second and third calendar quarters following the harvest
and sale of their citrus crops. Due to this concentrated activity, the
Agricultural Partnerships anticipate that they will typically show losses in the
first and fourth calendar quarters.
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Competition
The agricultural business is highly competitive. The Agricultural
Partnerships' competitors include a large number of both large and small
independent growers and grower cooperatives, many of which have considerably
greater financial resources and experience than the Company. No single grower
has a dominant market share in this industry due to, among other things, the
regionalized nature of these businesses and limited access to federal water.
Employees
The Company has a total of seven full-time employees to operate the Big 4
Properties. These employees are provided and supervised by Farming. Certain
management consulting, purchasing and bookkeeping is contracted out to Cecelia.
Packing and harvesting is also contracted out to independent contractor third
parties in accordance with industry practices. Accordingly, it is not
anticipated that the Agricultural Partnerships will have any employees, full
time or otherwise.
The success of the Agricultural Partnerships is highly dependent upon Mr.
James J. Cotter, who has more than 25 years experience in citrus farming, and
upon the senior management of Cecelia, which is wholly owned by Mr. Cotter, and
which, through its employees, provides senior management, purchasing and
bookkeeping services to Farming and through Farming to the Agricultural
Partnerships.
Regulation
Certain areas of the operations of the Agricultural Partnerships are
subject to varying degrees of federal, state, and local laws and regulations.
Such operations are, for example, subject to a broad range of evolving
environmental laws and regulations. These laws and regulations include, but are
not limited to, the Clean Air Act, the Clean Water Act, the Resource
Conservation and Recovery Act, the Federal Insecticide, Fungicide and
Rodenticide Act, and the Comprehensive Environmental Response Act, and the
Compensation and Liability Act. Compliance with these foreign and domestic laws
and related regulations is an ongoing process that is not currently expected to
have a material effect on the capital expenditures, earnings or competitive
position of the Agricultural Partnerships. Environmental concerns are, however,
inherent in most major agricultural operations, including those expected to be
conducted by the Agricultural Partnerships, and there can be no assurance that
the cost of compliance with environmental laws and regulations in the future
will not be material. In the normal course of its agricultural operations,
Farming, on behalf of the Agricultural Partnerships, will handle, store,
transport and cleanup of such hazardous substances or wastes, which may
adversely affect the value of the Big 4 Properties. Such matters could, in the
future, have a material adverse effect on the Company and the Agricultural
Partnerships.
The operations of the Agricultural Partnerships are also subject to
regulations enforced by, among others, the U.S. Food and Drug Administration and
state, local and foreign equivalents, and to inspection by the U.S. Department
of Agriculture and other federal, state, local and foreign environmental and
health authorities. Certain areas of the operations of the Agricultural
Partnerships are subject to varying degrees of federal, state and local laws and
regulations. Farm operations such as those conducted on the Big 4 Properties
are subject to federal, state and local laws and regulations controlling, among
other things, the discharge of materials into the environment or otherwise
relating to the protection of the environment. Environmental regulations may
have a materially adverse effect upon operations.
-8-
The purpose of the Spin-Off was principally to comply with applicable
federal laws and regulations ("Water Laws") as administered by the Bureau of
Reclamation (the "Bureau") in order to have access to and use of federal water
(the "Water Rights") for the operation of the Agricultural Partnerships. Under
the Water Laws, no entity with more than 25 stockholders can acquire federal
water for more than 640 acres of owned land. Although Citadel has received
assurances that the partnership structure being used to own and farm the Big 4
Properties will comply with the Water Laws and not infringe on the Agricultural
Partnership's access to the federal water, there can be no assurance that the
Bureau and the federal government will not at some future date object to this
structure or that the Water Laws will not change, either of which event could
have material adverse consequence to the value of the Big 4 Properties and
viability of the business of the Agricultural Partnerships.
Weather, availability of labor, changes in state or local law or
regulation, and similar localized events could also have an adverse impact on
the performance or value of the Big 4 Properties.
Investment in Reading Entertainment, Inc. ("Reading")
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 10.35 to this report is the Report on Form 10K filed by Reading
with respect to the fiscal year ended December 31, 1999. Reading is currently
controlled by Craig Corporation ("CC" collectively with its wholly owned
subsidiaries and predecessors "Craig".), which owns common and preferred stock
in Reading representing approximately 78% of the voting power of that company.
Craig directly owns 1,096,106 (16.4%) shares of Citadel common stock, and
through its ownership of Reading indirectly owns an additional 2,113,673 (31.7%)
shares of Citadel common stock.
The acquisition of the Series A Preferred Stock and the Asset Put Option
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 approved of the progress made by
Reading, to make a further investment in this industry through the exercise of
its Asset Put Option on or before the end of April 2000. In light of the
current market price for Reading's Common stock, the Company has determined not
to exercise the 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.
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 (the "Asset Put"). In exchange for up to
$20,000,000 in aggregate appraised value of such assets, Reading is obligated to
deliver to the Company the number of shares of Reading Common Stock determined
by dividing the value of Citadel's assets by $12.25 per share. The closing
price of Reading Common Stock was $3.94 per share at March 10, 2000. If the
appraised value of the Company's assets is in excess of $20,000,000, Reading is
obligated to pay for the excess by issuing Common Stock at the then fair market
value, up to a maximum of $30,000,000 of assets.
Gish Biomedical, Inc.
The Company currently owns 548,800 shares of the common stock of Gish
Biomedical, Inc. ("Gish"), representing approximately 15.72% of the outstanding
common stock of that company. The transaction was brought to the Company by
Value Asset Fund Limited Partnership ("VAF"), which currently owns approximately
548,900 shares representing approximately 15.6% of the outstanding common stock.
Currently, the aggregate holdings of the Company and VAF represent approximately
31.32% of the outstanding common stock of Gish. At December 31, 1999, the book
value of the
-9-
Company's investment in Gish was approximately $1,381,000 or $2.55 per share. At
March 2, 2000, the closing price for such shares was $4.19. While no assurances
can be given that any transaction will be consummated, the Company is currently
in negotiations with a third party to sell its interest in Gish to such third
party at a price significantly in excess of the current trading price for such
shares.
The Gish Transaction was a departure from the traditional business
activities of the Company, and was not intended to constitute a change of
direction for the Company. The determination to purchase the Gish interest was
based upon a variety of factors, including the belief by management of the
Company that the stock was undervalued, the fact that the transaction provided
the Company with the opportunity to acquire a meaningful stake in Gish, in
essentially a single transaction, and the fact that VAF was, at the same time,
acquiring a similarly sized investment in Gish. The chief executive officer of
VAF is well known and respected by the Chairman of the Board of the Company as
an asset-based investor, and presented the transaction to the Company.
Gish was founded in 1976 to design, produce and market innovative specialty
surgical devices. Gish develops and markets its innovative and unique devices
for various applications within the medical community. Gish operates in one
industry segment, the manufacture of medical devices, which are marketed
primarily through direct sales representatives domestically and through
international distributors. All of Gish's products are single use disposable
products or have a disposable component. Gish's primary markets include
products for use in cardiac surgery, myocardial management, infusion therapy,
and postoperative blood salvage.
Possible Investment in Certain Entertainment Properties
The Company is currently in negotiations with Reading and Messrs. James J.
Cotter and Michael Forman to acquire from Reading its rights to a) lease with
option to purchase four cinemas with 16 screens located in Manhattan, b) to
manage an additional three cinemas consisting of twelve screens located in
Manhattan, c) to acquire the 1/6th interest in the Angelika Film Center located
in Manhattan not currently owned by Reading, and d) to merge with Off Broadway
Investors, Inc., which has three live theatres in Manhattan. Set our below are
the general terms being discussed by the parties, and which the Company believes
would be generally acceptable to Reading and Messrs. Cotter and Forman.
However, no assurances can be given that a transaction will ultimately be agreed
to between the parties, or if agreed to, that such agreement would be on the
terms set forth below, or that the transactions contemplated by such agreements
would ultimately be consummated.
It is currently contemplated that the leased assets would be subject to a
ten-year operating lease, with an option to purchase, exercisable at the end of
ten years, for $48 million. At the closing the Company will pay $4 million for
that option, which amount will be applied against the exercise price if the
option is ultimately exercised. The management rights with respect to the
managed cinemas would be conveyed without separate consideration, as the parties
believe that the fees paid under those contracts are commensurate with the
services to be provided. The 1/6th interest in the Angelika cinema would be
acquired in consideration of the issuance by the Company of a $5 million
promissory note, bearing interest at 8%, interest payable quarterly, all due and
payable at the end of ten years. The OBI Assets would be acquired through a
merger of OBI into a wholly owned subsidiary of the Company. It is anticipated
that the stockholders of the Company would be asked at the next annual meeting
of stockholders, to determine whether the consideration for the merger will be
paid in shares of Citadel Class A Nonvoting Common Stock and Class B Voting
Common Stock, or in cash in the amount of $10 million. Based upon discussions
with the Company's principal stockholders, the Company believes it likely that
these stockholders would prefer to use the Company's equity securities rather
than cash. If the stockholders elect to pay the merger consideration in stock,
the Citadel Class A Common Stock and Class
-10-
B Common Stock would be issued in a ratio of 8 to 2 to Messrs. Cotter and
Forman. This would be the same ratio as such securities were issued in the
recapitalization transaction consummated in January 2000.
On a pro-forma basis, these assets would have added approximately $1.7
million in net income and $2.6 million in operating cash flow to Citadel's
results of operations for 1999, based on the terms currently under discussion
between the parties.
Incident to this transaction, the Company would also agree to lend to Old
City Cinemas the amount of $32.5 million. Old City Cinemas would be permitted
to call upon these credit facilities at any time during a window period
following the seventh anniversary of the closing. The Company has the right to
fund the loans at an earlier date, and if the loans are funded on or before the
second anniversary of the closing, to require Messrs. Cotter and Forman and Old
City Cinemas, under certain circumstances, to guarantee a portion of any
indebtedness incurred by the Company specifically to fund such loans.
The City Cinema Assets and the OBI Assets have a substantial real estate
component. Included within these assets are two fee interests, two options to
acquire fee interests, one right of first refusal to acquire a fee interest, and
two long term leases, all located in Manhattan. These real estate assets are
particularly attractive to the Company, given its real estate focus in recent
years. However, the Company is also interested in acquiring additional cinema
and live theatre assets, to the extent that they can be obtained on attractive
terms.
National Auto Credit, Inc.
In the second half of 1999, the Company considered a possible 50/50 joint
venture with National Auto Credit, Inc. ("NAKD") with respect to the acquisition
of the City Cinema Assets. That transaction has not yet materialized. However,
in becoming familiar with NAKD, the Company came to the view that the NAKD
Common Stock was materially undervalued and determined to utilize a portion of
the liquidity resulting from the refinancing of the Brand Office Building to
acquire such NAKD securities. At December 31, 1999, the Company held 342,500
shares of NAKD common stock, representing an aggregate investment of $235,000 or
$0.69 per share. As of March 31, 2000, the Company had increased its holdings to
925,100 shares, representing an aggregate investment of $834,000 or 3.25% of the
outstanding shares. At the close of business on that same date, the bid/ask for
NAKD Common Stock was $1.01 and $1.03, respectively.
Historic Thrift Activities
Prior to August 4, 1994, Citadel was engaged primarily in providing holding
company services for its wholly owned thrift subsidiary, Fidelity. 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 of certain real estate assets from Fidelity, and the receipt of
options from Fidelity, by the way of dividends, to acquire certain other real
estate assets at book value. During Fiscal 1995, substantially all of the
Company's remaining interest in Fidelity was sold.
Management
James J. Cotter is the Chairman of the Board and Chief Executive Officer of
the Company. Mr. Cotter has more than 25 years experience in the real estate,
cinema and citrus businesses. He is also a director and the Chairman of the
Company's principal shareholders, REI and Craig Corporation.
-11-
S. Craig Tompkins is the Vice Chairman of the Board and Secretary of the
Company. Mr. Tompkins is also President and director of CAI; a member of the
management committee of Farming and of each of the Agricultural Partnerships;
the President and a director of Craig; the Vice Chairman and a director of
Reading and serves, as an administrative convenience, as an assistant secretary
to BRI and Visalia. Prior to joining Craig and Reading in March 1993, Mr.
Tompkins was a partner in the law firm of Gibson, Dunn & Crutcher.
Andrzej Matyczynski is the Chief Financial Officer of the Company. Mr.
Matyczynski is also the Chief Financial Officer of CC and the Chief
Administrative Officer of REI. Prior to joining the Company in November 1999,
Mr. Matyczynski held various positions with Beckman Coulter, Inc., a multi-
national biomedical company.
Brett Marsh is the Vice President of Real Estate of the Company and is
responsible for the real estate activities of the Company. Prior to joining the
Company, Mr. Marsh was the Senior Vice President of Burton Property Trust, Inc.,
the U.S. real estate subsidiary of the Burton Group PLC. In this position, Mr.
Marsh was responsible for the U. S. real estate portfolio of that company.
The Company has one additional corporate employee, shares space, and has
contracted for certain administrative and accounting services with Craig. In
addition, the Company has seven employees including a farm manager, at Big 4
Farming LLC.
Historically, the Company's executives have provided certain real estate
consulting services to Reading. Also, the Company and Craig have shared offices
and support facilities in Los Angeles, and Reading is currently in the process
of consolidating its domestic general and administrative functions in Los
Angeles in offices located adjacent to those occupied by the Company and Craig.
It is anticipated that certain economies of scale can be achieved if the general
and administrative functions of these three companies are consolidated.
Accordingly, on a going forward basis, the domestic general and administrative
functions of the Company, Craig and Reading will be performed principally by
employees of Craig. The cost of such functions will be shared on an appropriate
basis between the Company, Craig and Reading. As the relative demands of the
Company, Criag and Reading will likely vary from year to year, it is curretnly
expected that this allocation will be reviewed by the participants on a periodic
bases, as appropriate from time to time.
-12-
ITEM 2: PROPERTIES
Real Estate Interests
The table below provides an overview of the real estate assets owned by the
Company at December 31, 1999.
Square % Leased At Major Tenants Remaining
Address Type Feet 12/31/99 * Lease Terms
- ------------------------------------------------------------------------------------------------
Glendale Building Office 89,000 100 Fidelity (13%) May 2005
600 No. Brand Blvd.
Glendale, CA Disney (87%) February 2007
- ------------------------------------------------------------------------------------------------
*% of rentable space leased
Arboleda, Phoenix
- -----------------
This property, acquired by the Company for $6,400,000 in August 1994, was
sold for approximately $20,000,000 in second quarter of 1999.
Brand, Glendale
- ---------------
This property, acquired by the Company for $7,120,000 in May 1995, is
leased 87% to Disney Enterprises, Inc. ("Disney") and 13% to Fidelity, with
Fidelity occupying the ground floor.
The base rental rate for the first five years of the Fidelity lease term is
$26,000 per month, including parking. With 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, 1999 is
$28,506 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, of 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 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. As
of December 31, 1999, while fulfilling their lease obligations to the Company,
Disney has not occupied the leased space. Accordingly, tenant improvements
required by the lease approximating $1,985,000 had not yet been incurred.
Subsequent to yearend, however, Disney has notified the Company of their intent
to move into the building in fiscal 2000. As a result, the Company expects to
incur tenant improvement expenses amounting to approximately $1,501,000, or
$24.50 per square foot in fiscal 2000.
Financing of Real Estate Interests
The Company's 1994 acquisition of the Arboleda property 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
property purchase price financed through drawdowns on an $8,200,000 line of
credit from
-13-
Craig, which has been paid in full. Concurrently with the sale of the Arboleda
property in 1999, the outstanding mortgage loan balance was paid in full.
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. In 1999,
the loan was paid off with a portion of the proceeds of the Arboleda sale. In
December 1999, the property was refinanced in the amount of $11,000,000 pursuant
to a ten-year fixed rate mortgage loan, with an 8.17% interest rate.
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 1999, 1998 and 1997, the
Company's share of such office space and support facilities approximated $24,000
per year. 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 than if the Company were to maintain comparable
facilities separate and apart from Craig.
ITEM 3: LEGAL PROCEEDINGS
None.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's 1999 Annual Meeting of Shareholders held on December 17,
1999, shareholders elected four directors. The results of the votes were as
follows:
Election of Directors For Withheld
- ---------------------- ----- --------
James J. Cotter 5,712,569 789,826
S. Craig Tompkins 5,711,549 790,843
William C. Soady 5,712,609 789,783
Alfred Villasenor, Jr. 5,712,426 789,966
Proposed Merger For Against Abstain/No-Vote
- ------------------ ----- -------- ---------------
Common Stock 3,980,010 837,894 1,684,988
-14-
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:
High Low
(In Dollars)
1999:
Fourth Quarter 4 1/16 2 11/16
Third Quarter 5 3 13/16
Second Quarter 5 7/16 3 3/8
First Quarter 3 5/8 3 1/4
1998:
Fourth Quarter 3 15/16 3 1/8
Third Quarter 4 15/16 3 7/8
Second Quarter 5 1/8 4 7/16
First Quarter 4 13/16 3 5/8
Holders of Record
The number of holders of record of the Company's Class A and Class B common
stock at March 10, 2000 was approximately 192. On March 10, 2000, the high, low
and closing price per share of the Company's Class A Nonvoting Common Stock was
$3.000, $2.875, and $3.000, respectively, and $3.250, $3.250, and $3.250,
respectively, for the Class B Voting Common Stock.
Dividends on Common Stock
While the Company has never declared a cash 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.
-15-
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 included
elsewhere herein, and the related notes thereto.
At or for the Year Ended December 31,
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(In thousands, except per share data)
Revenues $ 3,952 $ 5,985 $ 5,350 $ 5,101 $ 5,402
Net earnings (1) (3) $ 9,487 $ 5,687 $ 1,530 $ 6,426 $ 1,398
Net earnings available to common
stockholders $ 9,487 $ 5,687 $ 1,530 $ 6,268 $ 1,240
Basic earnings per share $ 1.42 $ 0.85 $ 0.24 $ 1.04 $ 0.20
Diluted earnings per share (2) $ 1.42 $ 0.85 $ 0.24 $ 0.80 $ 0.16
Balance Sheet Data:
Total assets $47,206 $35,045 $28,860 $30,292 $39,815
Borrowings $11,000 $ 9,224 $ 9,395 $10,303 $16,186
Stockholders' equity $33,483 $23,741 $18,054 $17,724 $17,720
Cash dividends declared on
Preferred Stock -- -- -- $ 232 $ 101
Stock Dividend -- -- $ 1,200 -- --
(1) The 1998 net earnings included a deferred income tax benefit amounting to
approximately $4,828,000 resulting principally from the reversal of federal
and state income tax valuation allowances.
(2) 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 and 2,430,323 common shares,
respectively.
(3) The 1996 net earnings included approximately $4,000,000 as a result of a
non-recurring recognition of previously deferred proceeds from the bulk sale
of loans and properties by the Company's previously owned subsidiary,
Fidelity.
-16-
ITEM 7. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Citadel Holding Corporation, a Delaware corporation ("CHC" and collectively
with its wholly- owned subsidiaries and corporate predecessors "Citadel" or the
"Company") has been engaged in recent periods in the ownership and management of
its real estate interests and in the offering of various real estate consulting
services to its affiliates. At December 31, 1999, Reading Entertainment, Inc.
("REI" and collectively with its consolidated subsidiaries and corporate
predecessors, "Reading"), holds 2,113,673 shares or approximately 31.7% of the
Company's common stock. Craig Corporation "CC" and collectively with its wholly
owned subsidiaries and corporate predecessors holds directly 3,209,779 shares or
approximately 48.0% of the Company's common stock and on a consolidated basis
with Reading and Puerto Rico.
As a consequence of the real estate advisory and consulting services
provided on a fee basis to Reading, the Company has gained familiarity with the
cinema exhibition industry, its operations, and prospects of Reading, and
invested $7,000,000 to acquire 70,000 shares of REI Series A Preferred Stock and
the Asset Put Option in October 1996. Reading is a publicly traded company
whose shares are listed on the NASDAQ. Through its majority owned subsidiaries,
REI is in the business of developing and operating multi-plex cinemas in
Australia, New Zealand, Puerto Rico and the United States, and is currently
developing entertainment centers in Australia and New Zealand. Craig and the
Company hold in the aggregate approximately 83% of the voting power of Reading,
with Craig's holdings representing approximately 78% of the voting power of
Reading and the Company's holdings representing approximately 5% of such voting
power.
In December 1997, the Company acquired a 40% interest in the Agricultural
Partnerships, and an 80% interest in a limited liability company formed to
manage and farm the property owned by the Agricultural Partnerships. The
Agricultural Partnerships currently own approximately 980 acres of mature citrus
orchards, and approximately 600 acres of open land, which includes approximately
60 acres of newly planted citrus, all located in Kern County, California. In
December 1998, this area suffered a devastating freeze and the entire
Agricultural Partnership's 1998-99 crop was lost.
During 1998 and 1999, the Company acquired a 15.62% interest in Gish
Biomedical, Inc. ("Gish") at a purchase price of approximately $1,381,000. Gish
is primarily engaged in the business of developing, manufacturing and
distributing cardio-vascular devices. During this same time period, another
investor, Value Asset Fund Limited Partnership ("VAF"), acquired a similarly
sized interest in Gish. Accordingly, the Company and VAF currently own
1,097,700 shares aggregating to approximately a 31.32% interest in outstanding
common stock of Gish at December 31, 1999.
Results of Operations
- ---------------------
Due to the nature of the Company's business activities, the Company's
historical revenues and future revenues will vary significantly, reflecting the
results of real estate sales, the acquisition of the REI Preferred Stock and the
acquisition of the interest in the Agricultural Partnerships and Big 4 Farming,
LLC. 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.
-17-
Year Ended December 31, 1999 ("Fiscal 1999") and 1998 ("Fiscal 1998") versus
- ----------------------------------------------------------------------------
Year Ended December 31, 1997 ("Fiscal 1997")
- --------------------------------------------
The Company's net earnings amounted to approximately $9,487,000, $5,687,000
and $1,530,000 for Fiscal 1999, 1998, and 1997, respectively. The increase in
net earnings for Fiscal 1999 as compared to Fiscal 1998 is principally
attributable to the sale of a rental property located in Phoenix, Arizona
("Arboleda"), in June 1999. The Arboleda property was sold for $20,000,000,
which resulted in a gain of approximately $13,337,000 being included in the
Consolidated Statement of Operations for 1999. The increase in current year's
net earnings also reflects the $678,000 decrease in the Company's portion of the
net operating loss of the Agricultural Partnerships from prior year. Included in
net earnings for Fiscal 1998 was an income tax benefit amounting to
approximately $4,828,000 resulting principally from a reversal of previously
reserved deferred tax assets and approximately $1,022,000 of income from
shareholder affiliates (including the receipt of interest and dividend income
and consulting fees), which were partially offset by a $990,000 loss with
respect to the Company's interest in the Agricultural Partnerships. The increase
in revenue between Fiscal 1998 and 1997 is generally attributable to the two-
year lease renewal of approximately 56% of the Arboleda property at higher
rates.
Rental income amounted to approximately $3,706,000 in Fiscal 1999,
$5,478,000 in Fiscal 1998 and $5,110,000 in Fiscal 1997. The fluctuations
between the years are principally due to the reduction in the number of rental
properties owned by the Company partially offset by increased revenues from
changes in the tenant leases of the rental properties. As discussed above, the
Company disposed of the Arboleda property in Fiscal 1999 and sold a multi-family
residential property in Fiscal 1997. At December 31, 1999, the office building
located in Glendale, California (purchased in May 1995) remains as the Company's
sole commercial rental property. In 1999, that property was refinanced with a
loan of $11 million, bearing interest at 8.17%.
The Company has a ten-year lease with Disney for five of the six floors of
the Glendale Building. The ground floor is leased to 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 per month for the
remaining five-year term, excluding parking in each case. 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. To date, while fulfilling their lease obligations to the Company,
Disney has not moved into the building and as a result, the tenant improvements
required by the lease of approximately $1,985,000 have not yet been incurred.
Subsequent to yearend, however, Disney has notified the Company of their intent
to move into the building in fiscal 2000. As a result, the Company expects to
incur tenant improvement expenses amounting to approximately $1,501,000 or
$24.50 per square foot in fiscal 2000.
Real estate operating costs decreased to $1,242,000 in Fiscal 1999 as
compared to $2,279,000 in Fiscal 1998 and $2,090,000 in Fiscal 1997. The
decrease in Fiscal 1999 as compared to Fiscal 1998 is due to the sale of the
Arboleda property in June 1999. The increase in Fiscal 1998 as compared to
Fiscal 1997 is primarily attributable to increased maintenance costs incurred at
the Arboleda building.
On December 31, 1997, the Company acquired, through its interest in the
Agricultural Partnerships, a 40% interest in approximately 1,600 acres of
agricultural land and related improvements, located in Kern County, California,
commonly known as the Big 4 Ranch (the "Property"). The other two partners in
the Partnerships are Visalia LLC (a limited liability company controlled by Mr.
James J. Cotter, the Chairman of the Board of the Company, and owned by Mr.
Cotter and certain members of his family) which has a 20% interest and Big 4
Ranch, Inc., a publicly held corporation, which has the remaining 40% interest.
Prior to the acquisition, Big 4 Ranch, Inc., was a wholly owned subsidiary of
the Company. Immediately prior to the
-18-
acquisition, the Company capitalized Big Ranch, Inc., with a cash capital
contribution of $1,200,000 and then distributed 100% of the share of Big 4
Ranch, Inc., to the shareholders of record of the Company's common stock as of
the close of business on December 23, 1997 as a spin-off dividend. The Company
accounts for its 40% investment in the Agricultural Partnerships utilizing the
equity method of accounting.
The Ranch Acquisition was financed by pro-rata capital contributions of the
partners (Citadel's 40% portion amounting to approximately $1,080,000), a
$4,050,000 purchase money loan from Prudential, and by an initial crop finance
loan by Citadel to the Agricultural Partnerships. Drawdowns under the line of
credit accrue interest at prime plus 100 basis points, payable quarterly. The
maximum allowable borrowing on the line of credit has been increased to
$3,250,000. The renewed line of credit matures on August 2, 2000. The increase
in the line of credit was to principally fund operating expenses and certain
capital expenditures including the planting of additional citrus. The
Agricultural Partnerships have invested approximately $624,000 in capital
improvements to the Big 4 properties during fiscal 1999. At December 31, 1999
and 1998, Citadel and its subsidiaries had advanced approximately $2,669,000 and
$1,502,000, respectively, under that line of credit.
In December 1998, the Agricultural Partnerships suffered a devastating
freeze which resulted in a loss of substantially all of its 1998-1999 crop. As
a consequence of the freeze, the Agricultural Partnerships had no funds with
which to repay the drawdowns on the line of credit. Furthermore, the
Agricultural Partnerships generally have had no source of funding, other than
the Company and Visalia, for the cultural expenses needed for production of the
1999-2000 crop, or for the planned crop-planting program on the undeveloped
acreage. During 1999, the Company and Visalia funded the cash needs of the
Agricultural Partnerships on an 80/20 basis, providing $1,227,000 and $334,000,
respectively. At December 31, 1999, Citadel had advanced a total of $2,730,000
to the Agricultural Partnerships. It is estimated that the Agricultural
Partnerships will need additional cash in the amount of $3,501,000 in order to
cover cultural, administrative expenses, interest and planting costs through
fiscal 2000. Subsequent to yearend, the Company and Visalia have continued to
fund the Agricultural Partnerships operating, agricultural and capital costs.
No material revenue is expected to be realized by the Agricultural Partnerships
until the 1999 - 2000 crop is harvested and sold late this year. The gross
revenues of the Agricultural Partnerships will depend upon the market prices for
their fruits, which prices may fluctuate significantly
Included in the Statement of Operations as "Loss from investment in and
advances to Agriculture Partnerships" is a loss of $201,000 and $990,000
representing the Company's 40% equity share of the Agriculture Partnerships
operating results for the year ended December 31, 1999 and 1998, respectively,
net of $73,000 and $71,000 of interest income received pursuant to loans made to
the Agriculture Partnerships.
Interest income amounted to $536,000 in Fiscal 1999, $222,000 in Fiscal 1998
and $326,000 in Fiscal 1997. The increase in Fiscal 1999 interest income
revenue as compared to Fiscal 1998 was attributable to the increase in the cash
and cash equivalents balance subsequent to June 1999, following the sale of the
Arboleda property. Conversely, the decrease in interest income for Fiscal 1998
as compared to Fiscal 1997 was due to the gradual decrease in invested fund
balances during most of 1998.
Dividends from the Company's investment in Reading in Fiscal 1999, 1998, and
1997 amounted to $455,000 per year, pursuant to the terms of the REI Preferred
Stock. The REI Preferred Stock was issued in October 1996 and bears a
cumulative dividend of 6.5%, payable quarterly. The REI Preferred Stock is
convertible any time after April 15, 1998 into common shares of REI at a
conversion price of $11.50 per share. The closing price of REI common stock at
December 31, 1999 was $5.75 per share. REI reported a net loss applicable to
common shareholders of approximately $45,517,000 for the 1999 Fiscal year as
-19-
compared to net loss applicable to common shareholders of approximately
$6,728,000 in the Fiscal 1998 and $1,354,000 in Fiscal 1997. The REI Preferred
Stock may be put back to REI by the Company at par.
On April 11, 1997, Craig exercised its warrant to purchase 666,000 shares
of the Company's common stock at an exercise price of $3.00 per share or
$1,998,000. Such exercise was consummated pursuant to Craig's delivery of a
secured promissory note (the "Craig Secured Note") in the amount of $1,998,000,
secured by 500,000 shares of REI common stock owned by Craig. The Craig Secured
Note, in the amount of $1,998,000, is included in the Consolidated Balance Sheet
as a contra equity account under the caption "Note receivable from shareholder".
Interest is payable quarterly in arrears at the prime rate (amounting to 8.50%
at December 31, 1999) computed on a 360-day year. Principal and accrued but
unpaid interest is due upon the earlier of April 11, 2002 or 120 days following
the Company's written demand for payment. The Craig Secured Note may be prepaid,
in whole or in part, at any time by Craig without penalty or premium. Included
in the Consolidated Statement of Operations for the year ended December 31, 1999
and 1998 as "Interest income from Shareholder" was approximately $162,000 and
$169,000, respectively, earned pursuant to the Craig secured note.
Interest expense amounted to $587,000 in Fiscal 1999, $977,000 in Fiscal
1998 and $1,009,000 in Fiscal 1997. The decrease in Fiscal 1999 interest expense
as compared to Fiscal 1998 reflects the payoff of the mortgage loans amounting
to approximately $9,138,000 upon sale of the Arboleda property in June 1999. The
$11,000,000 loan secured by the Glendale building was not entered into until
December 1999 and as such, had virtually no impact on fiscal 1999 interest
expense. The $32,000 decrease in Fiscal 1998 as compared to Fiscal 1997 was
principally a result of the decrease in interest rates between 1999 and 1998. As
of December 31, 1999 and 1998, there was $11,000,000 and $9,224,000 of loans
outstanding, respectively. Interest rate on the outstanding mortgage loans
approximated 8.18% and 9.738% at December 31, 1999 and 1998, respectively.
General and administrative expenses amounted to $1,269,000 in Fiscal 1999,
$1,297,000 in Fiscal 1998 and $1,175,000 in Fiscal 1997. The general and
administrative expenses remained at comparable levels during Fiscal 1999 and
Fiscal 1998. The increase in Fiscal 1998 as compared to Fiscal 1997 is
primarily a result of second quarter bonuses paid to the Chairman amounting to
$250,000 and an increase in overhead costs associated with providing farm
management services to the Agricultural Partnerships, partially offset by a
reduction in legal and professional costs.
In the fourth quarter of 1998, the Company recorded an income tax benefit of
$4,828,000 as a result of (i) recognition of an IRS receivable of $440,000 and
(ii) reversal of a deferred tax asset valuation allowance amounting to
$4,398,000. Generally, two factors contributed to the reversal in the valuation
allowance. First, as described above, the Company had executed a settlement
agreement with the IRS with respect to tax years through December 31, 1994.
Such settlement provided the Company with a more likely than not expectation of
the realization of the tax basis of certain real property transferred to the
Company at the time of the Fidelity recapitalization in August 1994, as well as
quantification of net operating loss carryforwards. Second, the Company
believed that the sale of the Arboleda property located in Phoenix, Arizona,
would generate sufficient 1999 taxable income to utilize the federal capital
loss carryforward and a portion of the federal net operating loss carryforward.
The sale of the Arboleda property was closed in June 1999 at a gain of
approximately $13,337,000 and enabled the Company to utilize $4,100,000 of the
deferred tax asset recognized in the prior year.
-20-
Business Plan, Capital Resources and Liquidity of the Company
- -------------------------------------------------------------
Fiscal 1999
- -----------
Cash and cash equivalents totaled approximately $24,732,000 at December 31,
1999 as compared to $4,367,000 at December 31, 1998. Net cash provided by
investing activities amounted to $19,003,000 which was primarily due to the sale
of the Arboleda property in June 1999. Net cash provided by financing
activities amounted to $195,000, primarily as a result of the $9,224,000
mortgage loan payments, $1,167,000 additional funds loaned to the Agricultural
Partnerships, offset by an $11,000,000 cash inflow from the refinancing
agreement that the Company entered into in December 1999. The Company obtained
the $11,000,000 loan from Nationwide Insurance Company by securing it with the
deed to the Glendale building. The Company expects to use the loan proceeds for
investing and potential acquisition purposes.
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 remaining real estate properties, (iii) consulting fee income from REI,
and (iv) a preferred stock dividend, payable quarterly, from REI amounting to
approximately $455,000 per year. The short term uses of funds are expected to
include (i) funding of the Agricultural Partnerships, (ii) funding of the
Glendale office building leasehold and tenant improvements of approximately
$1,501,000, and (iii) operating expenses. Also, the Company is currently
considering the acquisition of certain cinema, theater and commercial real
estate assets.
Management believes that the Company's source of funds will be sufficient
to meet its operational cash flow requirements for the foreseeable future.
Fiscal 1998
- -----------
Cash and cash equivalents balance of $4,367,000 at December 31, 1998 was
comparable to the cash and cash equivalents balance of $4,364,000 at December
31, 1997. Net cash provided by operating activities amounted to $3,097,000,
which was reduced by $2,258,000 and $836,000 of net cash used in investing and
financing activities, respectively. The rental income from its real estate
holdings was the primary source of funds in Fiscal 1998. The principal uses of
funds included (i) leasehold improvements made to rental properties amounting to
$588,000, (ii) the purchase of farm equipment of $201,000 by Big 4 Farming, LLC,
and (iii) a $1,002,000 purchase of Gish securities.
Fiscal 1997
- -----------
Fiscal 1997 cash and cash equivalents balance decreased by approximately
$1,992,000 to $4,364,000 at December 31, 1997 from $6,356,000 at December 31,
1996. Net cash provided by operating activities amounted to $1,688,000, net
cash used in investing activities amount to $741,000 and net cash used in
financing activities amounted to $2,939,000. The principal uses of funds
included (i) the Company's 40% equity investment in the Big 4 Agricultural
Properties (ii) the Company loan of $831,000 to the Agricultural Partnerships
(iii) the $1,200,000 capitalization of Big 4 Ranch, Inc., prior to the Company's
dividend of Big 4 Ranch, Inc. to its common shareholders, (iv) leasehold
improvements amounting to $708,000 and (v) repayments of mortgage loans
amounting to $908,000. Principal sources of funds included approximately
$1,128,000 received upon the sale of a rental property.
-21-
Forward-Looking Statements
From time to time, the Company or its representatives have made or may make
forward-looking statements, orally or in writing, including those contained
herein. Such forward-looking statements may be included in, without limitation,
reports to stockholders, press releases, oral statements made with the approval
of an authorized executive officer of the Company and filings with the
Securities and Exchange Commission. The words or phrases "anticipates,"
"expects," "will continue," "estimates," "projects," or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995.
The results contemplated by the Company's forward-looking statements are
subject to certain risks, trends, and uncertainties that could cause actual
results to vary materially from anticipated results, including without
limitation, delays in obtaining leases and permits for new multiplex locations,
construction risks and delays, the lack of strong film product, the impact of
competition, market and other risks associated with the Company's investment
activities and other factors described herein.
-22-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX PAGE
- ----- ----
Independent Auditors Report..................................................... 24
Consolidated Balance Sheets
Years Ended December 31, 1999 and 1998........................................ 25
Consolidated Statements of Operations
Three Years Ended December 31, 1999........................................... 26
Consolidated Statements of Stockholders' Equity
Three Years Ended December 31, 1999........................................... 27
Consolidated Statements of Cash Flows
Three Years Ended December 31, 1999........................................... 28
Notes to Consolidated Financial Statements...................................... 29
Financial Statement Schedule - III - Real Estate and Accumulated Depreciation... 44
-23-
INDEPENDENT AUDITORS REPORT
The Board of Directors
Citadel Holding Corporation
We have audited the accompanying consolidated balance sheets of Citadel Holding
Corporation and subsidiaries (the "Corporation") as of December 31, 1999 and
1998 and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1999. 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 auditing standards generally accepted
in the United States of America. 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 consolidated financial position of Citadel Holding
Corporation and subsidiaries as of December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States of America. 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 27, 2000
-24-
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 31,
1999 1998
---- -----------
ASSETS
- --------
Cash and cash equivalents $ 24,732 $ 4,367
Investment in Gish Biomedical, Inc. 1,831 1,002
Investment in National Auto Credit, Inc. 214 --
Other receivables 95 577
Deferred tax asset, net 1,125 4,398
-------- --------
Total current assets 27,997 10,344
-------- --------
Property held for sale -- 5,908
Rental properties, less accumulated depreciation 7,731 7,969
Investment in shareholder affiliate 7,000 7,000
Equity investment in and advances to Agriculture Partnerships 2,669 1,561
Capitalized leasing costs 944 1,592
Other assets 865 671
-------- --------
Total assets $ 47,206 $ 35,045
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------
Liabilities
Security deposits payable $ 28 $ 98
Accounts payable and accrued liabilities 2,254 1,362
Current portion of mortgage note payable 128 216
-------- --------
Total current liabilities 2,410 1,676
-------- --------
Minority interest in consolidated affiliate 50 44
Lease contract payable 196 --
Deferred rental revenue 195 576
Long-term portion of mortgage note payable 10,872 9,008
-------- --------
Total liabilities 13,723 11,304
-------- --------
Commitments and Contingencies
Stockholders' Equity
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 67 67
Additional paid-in capital 59,603 59,603
Accumulated deficit (24,444) (33,931)
Accumulated other comprehensive income 255 --
Note receivable from shareholder (1,998) (1,998)
------ -------
Total stockholders' equity 33,483 23,741
------ -------
Total liabilities and stockholders' equity $ 47,206 $ 35,045
======== ========
See accompanying notes to the consolidated financial statements.
-25-
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Year Ended December 31,
1999 1998 1997
----- ---- ----
Revenues:
Rental income $ 3,706 $ 5,478 $ 5,110
Farming management fee 31 109 --
Consulting fees from shareholder 215 398 240
------- ------ -------
3,952 5,985 5,350
------- ------ -------
Operating expenses:
Real estate 1,242 2,279 2,090
General and administrative 1,269 1,297 1,175
Depreciation and amortization 340 414 391
-------- ------ -------
2,851 3,990 3,656
-------- ------ -------
Operating income 1,101 1,995 1,694
------- ------ -------
Non-operating income (expense):
Interest income 536 222 326
Interest expense (587) (977) (1,009)
Dividends from investment in Reading 455 455 455
Loss from investment in and advances to Agricultural
Partnerships (201) (990) --
Interest income from shareholder 162 169 125
Gain (loss) on sale of properties 13,337 -- (16)
------- ------ -------
Earnings before minority interest and income taxes 14,803 874 1,575
Minority interest (7) (15) --
------- ------ -------
Earnings before taxes 14,796 859 1,575
Income tax (expense) benefit (5,309) 4,828 (45)
------- ------ -------
Net earnings $ 9,487 $5,687 $ 1,530
======= ====== ========
Basic earnings per share $ 1.42 $ 0.85 $ 0.24
======= ====== ========
Diluted earnings per share $ 1.42 $ 0.85 $ 0.24
======= ====== ========
See accompanying notes to the consolidated financial statements.
-26-
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1999
(In thousands of dollars, except share data)
Preferred Stock Common Stock Additional
--------------- ------------ Paid-In
Shares Par Value Shares Par Value Capital
------ --------- ------ --------- -------
Balance at
January 1, 1997 -- -- 6,670 $ 67 $ 59,020
Net earnings
Dividend of Big 4
Ranch, Inc.
Issuance of
treasury stock for note 583
------- -------- ------- -------- ---------
Balance at
December 31, 1997 -- -- 6,670 67 59,603
Net earnings
------- -------- ------- -------- ---------
Balance at
December 31, 1998 -- -- 6,670 67 59,603
Net earnings
Balance at December
31, 1999 -- -- 6,670 $ 67 $ 59,603
======== ======== ======= ======== =========
Accumulated Note Total
Other Receivable Treasury Stock-
Accumulated Comprehensive from Stock, at holders'
Deficit Income Stockholder Cost Equity
------- ---------- ------------ ---- ------
Balance at
January 1, 1997 $(39,948) $ -- $ -- $ (1,415) $ 17,724
Net earnings 1,530 1,530
Dividend of Big 4 (1,200) (1,200)
Ranch, Inc.
Issuance of
treasury stock
for note (1,998) 1,415 --
-------- -------- -------- -------- --------
Balance at
December 31, 1997 (39,618) -- (1,998) -- 18,054
Net earnings 5,687 5,687
-------- -------- -------- -------- --------
Balance at
December 31, 1998 (33,931) -- (1,998) -- 23,741
Net earnings 9,487 255 9,742
-------- -------- -------- -------- --------
Balance at December
31, 1999 $(24,444) $ 255 $ (1,998) $ -- $ 33,483
======== ======== ======== ======== ========
See accompanying notes to the consolidated financial statements.
-27-
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
Year Ended December 31,
OPERATING ACTIVITIES 1999 1998 1997
-------- ------- -------
Net earnings $ 9,487 $ 5,687 $ 1,530
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation 289 363 345
(Gain) loss on sale of rental property (13,337) -- 16
Amortization of lease costs 186 259 224
Amortization of capitalized deferred loan costs 61 34 46
Equity in loss from Agricultural Partnerships 383 1,061 --
Minority interest 7 15 --
Decrease (increase) in other receivables 482 (483) 217
Decrease (increase) in other assets 71 (66) 164
Decrease (increase) in deferred tax asset 3,273 (4,398) --
(Decrease) increase in security deposits payable (70) 8 14
(Decrease) increase in deferred rent (381) 264 148
Increase (decrease) in payables and accrued liabilities 717 353 (1,016)
------- ------ -----
Net cash provided by operating activities 1,168 3,097 1,688
INVESTING ACTIVITIES
Purchase of Gish Biomedical securities (379) (1,002) --
Purchase of National Auto Credit securities (235) -- --
Purchase of Big 4 Partnerships -- -- (1,129)
Proceeds from sale of properties 19,684 -- 1,128
Payment of capitalized leasing costs -- (467) (32)
Purchase of farming equipment (39) (201) --
Purchase of and additions to real estate (29) (588) (708)
------- ------ -------
Net cash provided by (used in) investing activities 19,002 (2,258) (741)
FINANCING ACTIVITIES
Repayments of mortgage notes payable (9,224) (171) (908)
Proceeds from lease contract 196 -- --
Borrowing of Citadel Corporation 11,000 -- --
Borrowing of Agricultural Partnerships (1,524) (1,277) (831)
Repayments of Agricultural Partnership borrowings 34 615 --
Dividend of Big 4 Ranch, Inc. -- -- (1,200)
Contribution from minority interest -- 29 --
Capitalized financing costs (287) (32) --
-------- ------- ------
Net cash provided by (used in) financing activities 195 (836) (2,939)
Net increase (decrease) in cash and cash equivalents 20,365 3 (1,992)
Cash and cash equivalents at beginning of year 4,367 4,364 6,356
-------- ------ -------
Cash and cash equivalents at end of year $ 24,732 $4,367 $ 4,364
======== ====== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest on mortgages and line of credit $ 603 $ 947 $ 957
Income taxes $ 235 $ 125 $ 45
Noncash transactions:
Common stock issued for secured note payable $ -- $ -- $ 1,998
See accompanying notes to the consolidated financial statements.
-28-
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 consolidated subsidiaries (collectively the
"Company"). All significant intercompany balances and transactions have been
eliminated in consolidation.
The Company owns, through its interest in three general partnerships
("Agricultural Partnerships"), a 40% interest in approximately 1,600 acres of
agricultural land and related improvements, located in Kern County, California,
commonly known as the Big 4 Ranch ("Property"). The other two partners in the
Partnerships are Visalia LLC (a limited liability company controlled by Mr.
James J. Cotter, the Chairman of the Board of the Company, and owned by Mr.
Cotter and certain members of his family) which has a 20% interest and Big 4
Ranch, Inc., a publicly held corporation, which has the remaining 40% interest.
The Company accounts for its 40% investment in the Partnerships utilizing the
equity method of accounting.
In 1996, the Company consummated an exchange transaction with its shareholder
affiliates, Craig Corporation ("Craig") and Reading Entertainment, Inc. ("REI"
and collectively with its consolidated subsidiaries "Reading"). Pursuant to the
terms of the exchange, the Company contributed cash in the amount of $7,000,000
to Reading in exchange for 70,000 shares of Reading Series A Voting Cumulative
Convertible Preferred Stock ("Series A Preferred Stock") and an option to
transfer all or substantially all of its assets to Reading for Reading Common
Stock ("Asset Put Option"), subject to certain limitations. The Company
accounts for its investment in Reading at cost.
Note 2 - Summary of Significant Accounting Policies
- ---------------------------------------------------
Cash and cash equivalents
- -------------------------
The Company considers all highly liquid investments with original maturity of
three months or less to be cash equivalents. Included in cash and cash
equivalents at December 31, 1999 and 1998 is approximately $23,300,000 and
$3,700,000, respectively, of funds being held in institutional money market
mutual funds.
Available-for-Sale securities
- -----------------------------
In accordance with Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"),
the Company's equity securities in Gish Biomedical, Inc. ("Gish") and National
Auto Credit, Inc. ("NAKD") are recorded at fair value as available-for-sale
securities. The unrealized gains/losses, net of tax, are reported as a separate
component of shareholders' equity.
At December 31, 1999, the Company owned 542,500 shares representing
approximately 15.6% of the outstanding common stock of Gish at an aggregate cost
basis of approximately $1,381,000. The closing price of Gish common stock at
December 31, 1999, was $3.38 per share, resulting in an unrealized gain of
approximately $450,000 at December 31, 1999. As of March 2, 2000, the Company
had increased its investment in Gish to 548,800 shares or 15.72%. The Gish
common stock closed at $4.19 per share on March 2, 2000. Additionally, the
Company purchased 342,500 shares representing approximately 1.25% of the
outstanding common stock of NAKD at a cost of approximately $235,000 in 1999.
As of March 31, 2000,
-29-
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the Company had increased its ownership in NAKD to 3.25% of the total shares
outstanding through additional purchase of 582,600 shares. The bid/asking prices
of NAKD at March 31, 2000 was $1.01 and $1.03 per share, respectively.
Depreciation and Amortization
- -----------------------------
Depreciation and amortization is generally provided using the straight-line
method over the estimated useful lives of the assets. The estimated useful
lives are generally as follows:
Building and building improvements 39 years
Farming equipment 3 - 10 years
Furniture and fixtures 5 years
Leasehold improvements made at the rental properties are amortized over the
shorter of the lives of respective leases or the useful lives of the
improvements.
Deferred Financing Costs
- ------------------------
Costs incurred in connection with obtaining financing are amortized over the
terms of the respective loans on a straight-line basis. Accumulated
amortization of deferred financing costs amounted to $800 and $132,000 at
December 31, 1999 and 1998, respectively.
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.
Stock-Based Compensation
- ------------------------
The Company has adopted Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation" ("SFAS 123"). As permitted under SFAS
123, the Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") in accounting for its
stock options. Under APB 25, compensation cost is recognized over the vesting
period based on the difference, if any, between the fair value of the Company's
stock and the exercise price on the date of the grant. Pro forma disclosure
regarding net income and earnings per share, as calculated under the provisions
of SFAS 123, are presented in Note 11.
Earnings Per Share
- ------------------
Basic earnings per share is based on 6,669,924 weighted average number of shares
outstanding during the years ended December 31, 1999 and 1998. Basic earnings
per share for the year ended December 31, 1997 was based on 6,487,458 weighted
average number of shares outstanding. Diluted earnings per share is based on
6,672,702, 6,687,754, and 6,496,142 weighted average number of shares of common
stock and potential common shares outstanding during the years ended December
31, 1999, 1998, and 1997, respectively. Stock options to purchase 115,000 and
53,000 shares of common stock were outstanding during 1999 and 1998 at a
weighted average exercise price of $3.43 and $2.81 per share, respectively. The
1999 and 1998 diluted weighted average number of shares outstanding includes the
effect of such stock options amounting to 2,778 and 17,830 shares, respectively.
-30-
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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
- --------------------------------------------------
The Company accounts for its long lived assets consistent with Statement of
Accounting Standard No. 121 "Accounting for the Impairment of Long Lived Assets
and for Long Lived Assets to be Disposed Of" ("SFAS 121") which requires the
evaluation of the impairment of long lived assets, certain intangible assets and
costs in excess of such long lived assets. As of December 31, 1999, no losses
have been recorded with respect to the Company's long-lived assets.
Reclassifications
- -----------------
Certain amounts in previously issued financial statements have been reclassified
to conform to the 1999 financial statement presentation.
Note 3 - Rental Properties and Property Held for Sale
- -----------------------------------------------------
The Company's rental properties and property held for sale at December 31, 1999
and 1998 consisted of the following (in thousands):
December 31,
1999 1998
---- ----
Rental Properties:
- ------------------
Land $2,951 $2,951
Building and improvements 5,532 5,564
------ ------
Total 8,483 8,515
Less accumulated depreciation (752) (546)
------ ------
Rental properties, net $7,731 $7,969
====== ======
Property held for sale:
- -----------------------
Commercial building $ -- $6,608
Accumulated depreciation -- (700)
------ ------
Net $ -- $5,908
====== ======
In June 1999, the Company sold the office building located in Phoenix, Arizona
(the "Arboleda") which was classified as "Property held for sale" at December
31, 1998. The sale was made for $20,000,000 which resulted in a book gain of
approximately $13,337,000, net of disposal costs of approximately $316,000. The
related capitalized lease costs of approximately $462,000 were written off
against the gain on the sale. The proceeds from the sale were used, in part, to
pay-off the outstanding mortgage loans totaling $9,138,000 (Note 7). As a
result of the sale, the office building located in Glendale, California (the
"Brand ") remains as the Company's sole rental property at December 31, 1999.
-31-
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
With the exception of the ground floor space, the Brand building is entirely
leased to Disney Enterprises, Inc. ("Disney"). The rental rate for the first
five years of the Disney's lease term which began on February 1, 1997 is
approximately $148,000 per month and increases to approximately $164,000 per
month for the remaining five-year term, excluding parking in each case. In
addition, Disney has the option to renew the lease for two consecutive five-year
periods.
The lease with Disney provided that the Company contributes towards tenant
improvements and common area upgrades. To date, while fulfilling their lease
obligations to the Company, Disney has not moved into the building.
Accordingly, tenant improvements required by the lease approximating $1,985,000
have not yet been incurred. Subsequent to yearend, however, Disney has notified
the Company of its intent to move into the building in fiscal 2000. As a
result, the Company expects to incur tenant improvement expenses amounting to
approximately $1,501,000 or $24.50 per square foot in fiscal 2000. Costs to
obtain the lease, inclusive of commissions, legal and other fees, amount to
approximately $944,000, net of accumulated amortization of $389,000, are
included in the Consolidated Balance Sheet as "Capitalized leasing costs" at
December 31, 1999.
Note 4 - Investment in Shareholder Affiliate
- --------------------------------------------
Reading is a publicly traded company whose shares are listed on the NASDAQ.
Through its majority owned subsidiaries, REI is in the business of developing
and operating multi-plex cinemas in Australia, New Zealand, Puerto Rico and the
United States and is currently developing entertainment centers in Australia and
New Zealand for future operations. Reading operates its cinemas through various
subsidiaries under the Angelika Film Centers and Reading Cinemas names in the
mainland United States; through Reading Cinemas of Puerto Rico, Inc., a wholly
owned subsidiary, under the CineVista name in Puerto Rico; and through Reading
Entertainment Australia Pty, Limited. At December 31, 1999 and 1998, the
Company owned 70,000 shares of Reading Series A Preferred Stock and the Asset
Put Option discussed in greater detail below, representing approximately 5% of
the voting power of Reading. In aggregate, the Company and Craig Corporation
together hold approximately 83% of the voting power of Reading. Conversely,
Reading and Craig Corporation hold 2,113,673 shares (32%) and 1,096,106 shares
(16%), respectively, of the Company's common stock at December 31, 1999.
The 70,000 shares of Series A Preferred Stock acquired by the Company has (i) a
liquidation preference of $100 per share or $7,000,000 (the "Stated Value"),
(ii) bears a cumulative dividend of 6.5%, payable quarterly and (iii) is
convertible into shares of Reading common stock at a conversion price of $11.50
per share. The closing price of REI common stock at December 31, 1999 was $5.75
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 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 to require Reading to repurchase the shares of the
Series A Preferred Stock at their aggregate Stated Value plus accumulated
dividends for a 90-day period beginning October 15, 2001, or in the event of a
change of control of Reading. The Company also has the option to require
Reading to repurchase the shares of Series A Preferred Stock at their
liquidation value plus accumulated dividends, if Reading fails to pay dividends
for four quarters. Included in the Consolidated Statements of Operations for
each of the years ended December 31, 1999, 1998, and 1997 as "Dividends from
Investment in Reading" is approximately $455,000 of dividend income earned with
respect to the Company's ownership of the Reading Series A Preferred Stock.
-32-
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Asset Put Option is exercisable any time prior to 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 $20,000,000 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
$12.25 per share. If the appraised value of the Company's assets is in excess
of $20,000,000, Reading is obligated to pay for the excess by issuing common
stock at the then fair market value up to a maximum of $30,000,000 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 value 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 Company has determined not to exercise the Asset Put Option.
Summarized financial information of Reading as of December 31, 1999 and 1998 and
the results of operations for each of the years ended December 31, 1999, 1998,
and 1997 are as follows (in thousands):
Condensed Balance Sheet:
December 31,
1999 1998
---- ----
Cash and cash equivalents $ 13,277 $ 58,593
Other current assets 3,604 2,247
Investment in affiliates 13,098 8,158
Property held for sale 5,740 --
Property held for development 31,624 32,949
Property and equipment, net 60,013 32,534
Other assets 3,324 14,398
Intangible assets 9,975 23,408
-------- --------
Total Assets $140,655 $172,287
======== ========
Current liabilities $ 19,796 $ 15,462
Other liabilities 6,953 5,526
Minority interests 2,064 1,927
Preferred Stock held by Citadel 7,000 7,000
Shareholders' equity 104,842 142,372
-------- --------
Total Liabilities and Equity $140,655 $172,287
======== ========
Condensed Statements of Operations:
For the Years Ended
December 31,
1999 1998 1997
---- ---- ----
Theater revenue $ 37,811 $ 33,556 $ 26,984
Real estate revenue 677 373 180
-------- -------- --------
Total revenue 38,488 33,929 27,164
-------- -------- --------
Theater costs (31,574) (26,023) (21,377)
Depreciation and amortization (3,923) (3,673) (2,785)
General and administrative (12,448) (10,257) (9,737)
-------- -------- --------
Loss from operations (9,457) (6,024) (6,735)
-------- -------- --------
-33-
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Equity in earnings of Citadel/Big 4 2,539 1,070 298
Interest and dividend income, net 1,831 4,519 7,737
Other income (expense), net 341 (642) 2,918
-------- -------- --------
Loss before income taxes and extraordinary items (4,746) (1,077) 4,218
Asset impairment and restructuring charges (33,023) -- --
Minority interest (322) (343) (196)
Income tax expense (932) (986) (1,067)
-------- -------- --------
Net (loss) income (39,023) (2,406) 2,955
Less preferred stock dividends (4,335) (4,322) (4,309)
-------- -------- --------
Net (loss) applicable to common
$(43,358) $(6,728) $ (1,354)
Stock shareholders ========= ======== ========
Basic earnings (loss) per share $ (5.827) $( 0.90) $ (0.18)
========= ======== ========
Fully diluted earnings (loss) per share $ (5.827) $( 0.90) $ (0.18)
========= ======== ========
Included in preferred stock dividends is approximately $455,000 per annum paid
to the Company for each of the years ended December 31, 1999, 1998, and 1997.
Net income for the year ended December 31, 1997 includes a non-recurring gain
from the Stater stock redemption and dividend income received prior to such
redemption of approximately $6,500,000.
Note 5 - Equity investment and Advances to Agricultural Partnerships
- ---------------------------------------------------------------------
As described in Note 1, the Company owns a 40% equity interest in the
Agricultural Partnerships. On December 31, 1997, the Agricultural Partnerships
acquired the Big 4 Properties which consisted of approximately 1,600 acres of
agricultural land and related improvements, located in Kern County, California.
The assets acquired included (i) approximately 560 acres of Navel oranges, 205
acres of Valencia oranges, 145 acres of lemons, 32 acres of Minneola and 600
acres of open land currently leased on a short term basis to a third party for
the cultivation of annual crops (the "Open Land"), (ii) irrigation systems,
(iii) water rights, (iv) frost prevention systems and (v) the fruit on the trees
slated for harvest in 1998. The Big 4 Properties were acquired by the
Agricultural Partnerships (the "Ranch Acquisition") from Prudential Insurance
Company of America ("Prudential") on an arms length basis for a purchase price
of $6,750,000, plus reimbursement of certain cultural costs approximating
$831,000.
At December 31, 1999 and 1998, "Investments in and advances to Agricultural
Partnerships" consist of the following (in thousands):
December 31,
1999 1998
----- -----
Equity investment in Agricultural Partnerships $ -- $ 59
Note receivable and advances to Agricultural Partnerships 2,669 1,502
------ ------
$2,669 $1,561
====== ======
The Ranch Acquisition was financed by prorata capital contributions of the
partners (Citadel's 40% portion amounting to approximately $1,080,000), by a
$4,050,000 purchase money loan from Prudential, and by a crop finance loan by
Citadel to the Agricultural Partnerships of approximately $831,000. The loan by
Citadel was advanced pursuant to a $1,200,000 line of credit agreement (the
"Crop Financing
-34-
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Line") extended by the Company to the Agricultural Partnerships. Drawdowns under
the Crop Financing Line accrued interest at prime plus 100 basis points, payable
quarterly. The line of credit was successively increased at each renewal and is
currently subject to a maximum draw down of $3,250,000 under the same terms and
conditions. The line of credit matures on August 1, 2000.
In December 1998, the Agricultural Partnerships suffered a devastating freeze
that resulted in a loss of substantially all of its 1998-1999 crop. As a
consequence of the freeze, the Agricultural Partnerships had neither the funds
with which to repay the drawdowns on the Line of Credit nor the funds necessary
to cover expenses needed for production of the 1999-2000 crop. Big 4 Ranch,
Inc., a 40% owner spun off by the Company in 1997 to its stockholders, likewise
has no funds with which to make further capital contributions. Accordingly, the
Agricultural Partnerships generally have no source of funding, other than the
Company and Visalia, for the cultural expenses needed for production of the
1999-2000 crop or to fund the crop-planting program for the undeveloped acreage
amounting to approximately $3,501,000. The Company and Visalia have continued
to fund the Agricultural Partnerships operating and agricultural costs on an
80/20 basis. At December 31, 1999, total loans incurred on behalf of the
Agricultural Partnerships totaled $2,669,000. No revenue is expected to be
realized by the Agricultural Partnerships until the 1999-2000 crop is harvested
and sold.
In December 1997, Big 4 Farming LLC ("Farming", owned 80% by the Company and 20%
by Visalia) entered into a farming services agreement (the "Farming Contract")
with each of the Agricultural Partnerships, pursuant to which it provides farm
operation services for an initial term of two years and providing for automatic
extensions of one year unless terminated. The farm operations services provided
by Farming include contracting for the picking, packing, and hauling of the
crops. The Visalia minority interest ownership of Farming is included in the
Consolidated Balance Sheet at December 31, 1999 and 1998 as "Minority interest"
in the amount of $50,000 and $44,000, respectively. Visalia's portion of
Farming's net earnings for the year ended December 31, 1999 and 1998 amounting
to $6,500 and $15,000, respectively, is included in the Consolidated Statement
of Operations as "Minority interest".
In consideration of the services provided under the Farming Contract, Farming is
paid an amount equal to 100% of its costs plus a profit factor equal to 5% of
the gross agricultural receipts from the Big 4 Properties, calculated after the
costs of picking, packing and hauling. In addition, Farming entered into a
contract with Cecelia Packing Corporation ("Cecelia" owned by James J. Cotter)
for certain management consulting, purchasing and bookkeeping services for an
initial term of two years at a fee of $6,000 per month plus reimbursement of
certain out-of-pocket expenses. Cecelia also packs a portion of the fruit
produced by the Agricultural Partnerships. During 1999 and 1998, Cecilia
received a fee of $72,000 per year and provided packinghouse services for the
Agricultural Partnerships for approximately $195,200 and $1,193,000 of the crop
revenue reported by the Agricultural Partnerships. The $263,000 and $297,000
reflected as 'Due to Big 4 Farming LLC" at December 31, 1999 and 1998 represents
expenses paid by Farming on behalf of the Agricultural Partnerships not yet
drawn down on the line of credit.
Summarized financial information of the Agricultural Partnerships as of December
31, 1999 and 1998 and the results of operations for the years then ended follows
(in thousands):
-35-
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Condensed Balance Sheet:
December 31,
1999 1998
---- ----
Inventory (cultural costs) $1,188 $ --
Property and equipment, net 5,716 5,645
Deferred loan costs 68 84
------ ------
Total assets $6,972 $5,729
====== ======
Accounts payable $ -- $ 25
Due to Big 4 Farming LLC 263 297
Line of credit with Citadel 2,730 1,206
Loans payable to Visalia LLC 339 5
Loans payable to Suburban 63 --
Mortgage note payable 4,050 4,050
Partners' (deficit) capital (473) 146
------ ------
Total liabilities and equity $6,972 $5,729
====== ======
The Prudential Purchase Money Loan in the amount of $4,050,000 is secured by,
among other things, a first priority mortgage lien on the property. The loan
has a ten-year maturity and accrues interest, payable quarterly, at a fixed rate
of 7.7%. In order to defer principal payments until January 1, 2002, the
Agricultural Partnerships must make capital improvements to the real property
totaling $500,000 by December 31, 2000 and an additional $200,000 by December
31, 2001. If the required capital expenditures are not made, then the
Agricultural Partnerships will be required to make a mandatory prepayment of
principal on January 31, 2001 equal to difference between $500,000 and the
amount of capital improvements made through December 31, 2000. As of December
31, 1999, the Agricultural Partnerships had made the required capital
expenditures of approximately $500,000 consisting primarily of new tree
plantings and improvements to irrigation systems. The purchase money mortgage
also imposes a prepayment penalty equal to the greater of (a) one-half of one
percent of each prepayment of principal or (b) a present value calculation of
the anticipated loss that the note holder will suffer as a result of such
prepayment.
Statement of Operations:
For the Year Ended December 31,
1999 1998
---- ----
Sales of crops $ 784 $ 5,251
USDA grant revenue 204 --
Insurance proceeds 389 --
Costs of sales (731) (5,047)
Inventory loss from freeze -- (1,577)
====== ========
Gross margin (loss) 646 (1,373)
General and administrative expense (320) (414)
Depreciation (509) (481)
Interest expense (501) (383)
------ -------
Net loss $(684) (2,651)
====== =======
Equity loss - 40% Citadel (274) (1,061)
Interest income from partnership loan 73 71
------ -------
Net loss from investment in and advances to
Agriculture Partnerships (201) (990)
Farm management fee, net of costs
and minority interest 26 62
------ -------
Net loss to Citadel $ (175) $ (928)
======= =======
-36-
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
General and administrative expense includes reimbursement of Agricultural
Partnership fees and expenses amounting to $275,000 and $108,000 to Big 4
Farming LLC, an 80% owned subsidiary of the Company, for the years ended
December 31, 1999 and 1998, respectively.
Interest expense of $501,000 for the year ending December 31, 1999 includes
$183,000 owed to Citadel and $6,500 owed to Visalia LLC. Interest expense for
the year ending December 31, 1998 includes $71,000 owed to Citadel. Until such
time the Agricultural Partnerships have capital and/or become profitable, the
Company is not recording interest income that has accrued on the loan principle
for financial statement purposes.
Note 6 - Other Assets
- ---------------------
Other assets are summarized as follows:
December 31,
1999 1998
---- ----
Deferred financing costs, net $ 286 $ 91
Impounds -- 107
Prepaid expenses 94 111
Unbilled rent receivable 280 184
Other 46 4
Farm equipment 225 201
Accumulated depreciation (66) (27)
----- -----
$ 865 $ 671
===== =====
Note 7 - Mortgage Notes Payable
- -------------------------------
Concurrently with the sale of the Arboleda property, the Company paid off the
remaining mortgage note in the amount of $4,199,000. The Company also repaid
the mortgage note encumbering the Brand property totaling $4,939,000. The
prepayment penalty paid of $126,000 and write-off of deferred loan costs of
$44,000 were recorded as interest expense.
On December 14, 1999, the Company entered into an $11,000,000 ten-year loan
agreement with Nationwide Life Insurance Company. The loan is secured with the
deed of trust to the Brand property and accrues interest at 8.18% per annum.
Under the terms of the loan agreement, the Company will make monthly payments of
approximately $86,200 per month starting February 2000 and any unpaid principal
and accrued interest will become due in January 2010. The loan agreement
contains various non-financial covenants regarding the use and maintenance of
the property. Aggregate future principal payments are as follows:
Year Ending December 31, (in thousands)
------------------------ -------------
2000 $ 128
2001 151
2002 164
2003 178
2004 193
Thereafter 10,186
--------
$11,000
========
-37-
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 8 - Future Minimum Rent
- ---------------------------
Rental income amounted to $3,706,000, $5,478,000 and $5,110,000 for the years
ended December 31, 1999, 1998 and 1997, respectively. Rental income for the
years ended December 31, 1999 and 1998 was derived from leases on two commercial
properties held by the Company. Rental income earned with respect to the
Arboleda property that was classified as "Property held for Sale" at December
31, 1998 and subsequently sold in June 1999, amounted to $1,483,000, $3,272,000
and $2,967,000 for the years ended December 31, 1999, 1998 and 1997,
respectively. Rental income from the Brand property is derived from two
lessors, Disney Enterprises, Inc. and Fidelity Federal Bank.
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. Generally accepted
accounting principles requires that rents due under operating leases with fixed
increases be averaged over the life of the lease. This practice, known as
"straight-line rents" creates an unbilled rent receivable in any period during
which the amount of straight-line rent exceeds the actual rent billed (this
occurs primarily at the inception of the lease period). Included in the balance
sheet as "Other Assets" (Note 6) is approximately $280,000 of unbilled rent
receivables which have been recognized under the straight-line method pursuant
to the terms of the Disney lease.
Future minimum rents under operating leases are summarized as follows:
Year Ending December 31, (in thousands)
----------------------- --------------
2000 $ 2,118
2001 2,118
2002 2,294
2003 2,310
2004 2,310
Thereafter 4,225
--------
$ 15,375
========
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 in each of the years ended December 31, 1999, 1998,
and 1997 is $96,000 per year paid to Craig for such rent and services. In
addition, the Company provided real estate consulting services to Reading during
the years ended December 31, 1999, 1998 and 1997 for which the Company was paid
approximately $215,000, $398,000 and $240,000, respectively. Such amounts are
included in the Consolidated Statement of Operations as "Consulting fees from
shareholder".
Note 9 - Commitments and Contingencies
- -------------------------------------
Several legal actions and claims against the Company in the prior year were
adjudicated in favor of the Company with no liability to the Company.
-38-
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 10- Common Stock
- ---------------------
On April 11, 1997, Craig exercised its warrant to purchase 666,000 shares of the
Company's common stock at an exercise price of $3.00 per share or $1,998,000.
Such exercise was consummated pursuant to delivery by Craig of its secured
promissory note ("Craig Secured Note") in the amount of $1,998,000, secured by
500,000 shares of REI Common Stock owned by Craig. The Craig Secured Note, in
the amount of $1,998,000, is included in the Consolidated Balance Sheet as a
contra equity account under the caption "Note receivable from shareholder".
Interest is payable quarterly in arrears at the prime rate (amounting to 8.5% at
December 31, 1999) computed on a 360-day year. Principal and accrued but unpaid
interest is due upon the earlier of April 11, 2002 or 120 days following the
Company's written demand for payment. The Craig Secured Note may be prepaid,
in whole or in part, at any time by Craig without penalty or premium. Included
in the Consolidated Statement of Operations for the years ended December 31,
1999, 1998, and 1997 as "Interest income from shareholder" is approximately
$162,000, $169,000, and $125,000, respectively, earned pursuant to the Craig
secured note.
On January 4, 2000, the Company reorganized under a new Nevada holding company.
In that transaction, the outstanding shares of the Company's Common Stock were
reclassified into 5,335,939 shares of Class A Voting Common Stock and 1,333,984
shares of Class B Voting Common Stock.
Note 11-Employee Stock Option Plans
- -----------------------------------
The 1999 Stock Option Plan of Citadel Holding Corporation (the "1999 Stock
Option Plan) provides for the granting of options to certain employees and
directors of the Company or any affiliate at exercise prices not less than the
market price at the date of grant. Options granted under this plan expire after
five years unless extended and are exercisable in installments, generally
beginning one year after the date of grant. There were 85,000 stock option
shares granted and outstanding under the 1999 Stock Option Plan as of December
31, 1999. These shares generally vest in increments of 25% over a period of four
years and as of December 31, 1999, there were 26,000 vested shares.
The Citadel 1996 Nonemployee Director Stock Option Plan ("1996 Stock Option
Plan") 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. There were 10,000 shares granted during 1999 for
a total of 30,000 vested option shares outstanding under this plan at December
31, 1999. At December 31, 1998 and 1997, there were 20,000 vested option shares
outstanding.
In August 1995, the Company granted stock options to the Company's president to
purchase 33,000 shares of common stock at a price of $2.69 per share (the "1995
Stock Option Plan"). Following the resignation of the Company's President in
August 1999, the 33,000 stock option shares granted in 1995 were cancelled for a
cash payment of $66,000.
-39-
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Common Weighted Number of
Stock Average Exercisable
Options Price Options
------------- -------------- -------------
Outstanding at December 31, 1997 53,000 $2.81 53,000
Granted -- -- --
Expired -- -- --
------- ----- -------
Outstanding at December 31, 1998 53,000 2.81 53,000
Granted 95,000 3.52 36,000
Expired -- -- --
Cancelled (33,000) -- (33,000)
------- ----- ------
Outstanding at December 31, 1999 115,000 $3.43 56,000
======= ===== =======
The weighted average remaining contractual life of all options outstanding at
December 31, 1999 was approximately 3.5 years.
Pro forma net earnings and earnings per share information reflecting the fair
value approach to valuing stock options and the corresponding increase in
compensation expense is required by SFAS 123 in each of the years that a company
grants stock options. The Company granted 95,000 options in 1999 and no options
were granted during 1998 or 1997. The fair value of the 1999 options granted
was estimated at the date of grant using a Black-Scholes option pricing model
with the following weighted average assumptions: stock option exercise price of
$3.38 and $4.78 for the options granted under the 1999 Stock Option Plan and the
1996 Stock Option Plan, respectively, risk-free interest rate of 5.875%
(continuously compounded rate of 6.062%), expected dividend yield at 0%,
expected option life of five years and expected volatility of 41.4%. The
weighted average fair value of 85,000 options granted under the 1999 Stock
Option Plan was $1.57 per share and the weighted average fair value of the
10,000 options granted under the 1996 Stock Option Plan was $1.82 per share.
The pro forma effect of the issuance of these options would have been to
decrease the "Net income applicable to common shareholders" for the year ended
December 31, 1999 by $59,000.
The pro forma adjustments may not be representative of future disclosures
because the estimated fair value of stock options is amortized to expense over
the vesting period, and additional options may be granted in future years.
Note 12 - Income Taxes
- ----------------------
As of December 31, 1999, the Company had, for income tax purposes, net operating
loss carryforwards and capital loss carryforwards of approximately $2,186,000
and $7,450,000, respectively. The capital loss carryforward will expire in the
year 2001 and the net operating loss carryforwards will expire in the years 2009
through 2014 and are subject to certain annual limitations. The Company expects
to utilize its net operating loss and capital loss carryforward upon the filing
of its 1999 federal and state tax returns.
At the time of the Restructuring, Citadel and Fidelity, previously a wholly
owned subsidiary of the Company, entered into a tax disaffiliation agreement
(the "Tax Disaffiliation Agreement"). In December 1998, the Company and
Fidelity executed a settlement agreement with the Internal Revenue Service with
respect to the tax returns filed for open years through December 31, 1994.
During fiscal 1999, the settlement agreement was finalized whereupon Citadel
received approximately $571,000 in income tax benefit pursuant to the agreement.
-40-
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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. The
components of the deferred tax liabilities and assets are as follows (in
thousands):
December 31,
1999 1998
-------- ---------
Federal:
Deferred assets:
Acquired and option properties $ 940 $ 1,979
Capital losses from sale of Fidelity - 2,533
Net operating loss carryforward -- 700
Unrealized gain on marketable securities (146) (76)
Other 36 --
------ -------
Gross deferred tax assets 830 5,136
Valuation allowance -- (1,036)
------ -------
Net deferred federal tax asset $ 830 $ 4,100
====== =======
State:
Deferred tax assets:
Acquired and option properties 244 510
Capital losses from sale of Fidelity -- 658
Net operating loss carryforward 80 --
Unrealized gain on marketable securities (29) --
------ -------
Gross deferred federal tax assets 295 1,168
------
Valuation reserve -- (870)
-------
Net deferred tax asset $ 295 $ 298
------ -------
Total deferred tax assets $1,125 $ 4,398
====== =======
In the fourth quarter of 1998, the Company reduced its valuation allowance
resulting in a net deferred tax asset of approximately $4,398,000 at December
31, 1998. Generally, two factors contributed to the reduction in the valuation
allowance. First, as described above, the Company executed a settlement
agreement with the IRS with respect to tax years through December 31, 1994.
Such settlement provided the Company with a more likely than not expectation of
the realization of the tax basis of certain real property transferred to the
Company at the time of the Fidelity recapitalization in August 1994, as well as
quantification of net operating loss carryforwards. Second, the Company entered
into a Purchase and Sales agreement to sell the Phoenix, Arizona property which
resulted in a taxable gain that should provide the Company the ability to
utilize previously reserved net capital loss and net operating loss
carryforwards.
In the fourth quarter of 1999, after the sale of the Arboleda property and the
corresponding utilization of the net operating loss and capital loss forwards,
the Company further reduced its valuation allowance, resulting in a net deferred
tax asset of $1,250,000 at December 31, 1999. The Company believes there is a
more likely than not expectation that the tax basis of Citadel properties held
as of December 31, 1999 may be realized. 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 (in thousands):
-41-
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Year Ended December 31,
1999 1998 1997
---- ---- ----
Expected tax provision $5,178 $ 278 $ 536
(Increase) reduction in taxes resulting from:
Decrease in Federal valuation allowance (791) (4,109) --
Realization of deferred tax asset from book and
tax basis of acquired properties sold -- --
Dividend exclusion of preferred stock investment
(109) (109) (109)
Utilization of net operating losses (245) (430) (430)
Prior year tax adjustment (131) (440) --
State taxes 731 (198) --
Other 676 180 48
------ ------- -----
Actual tax provision (benefit) $5,309 $(4,828) $ 45
====== ======= =====
Note 13- Business Segments
- --------------------------
The following sets forth certain information concerning the Company's rental
real estate operations, agricultural operations and corporate activities in 1999
and 1998. Prior to 1998, the Company's operating results were principally
derived from its investment in real estate properties. Effective December 31,
1997, the Company acquired a 40% interest in certain agricultural properties and
an 80% interest in a farming company, and accordingly, has separately reported
this investment as a segment beginning in 1998.
Rental Agricultural
Real Estate Operations Corporate Consolidated
----------- ---------- --------- ------------
1999
- ----
Revenues $ 3,706 $ 31 $ 215 $ 3,952
Earnings (losses) before taxes 15,304 (241) (267) 14,796
Identifiable assets 34,825 442 11,939 47,206
Capital expenditures -- -- -- --
1998
- ----
Revenues $ 5,478 $ 108 $ 399 $ 5,985
Earnings (losses) before taxes 1,953 (1,000) (94) 859
Identifiable assets 18,779 1,735 14,531 35,045
Capital expenditures 588 201 -- 789
Corporate results shown above includes consulting fee income from Reading and
interest and dividend income earned with respect to the Company's cash
balances and investment in Reading Preferred Stock.
-42-
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 14 - Quarterly Financial Information (Unaudited - in thousands, except
- ---------------------------------------------------------------------------
share amounts)
- --------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------ ------ -------
1999
- ----
Revenue $1,494 $1,272 $ 600 $ 586
Net earnings available to
common stockholders $ 470 $8,004 $ 755 $ 258
Basic earnings per share $ 0.07 $ 1.20 $ 0.11 $ 0.04
Diluted earnings per share $ 0.07 $ 1.20 $ 0.11 $ 0.04
1998
- ----
Revenue $1,470 $1,545 $1,473 $1,497
Net earnings available to
common shareholders $ 371 $ 192 $ 245 $4,879
Basic net earnings per share $ 0.06 $ 0.03 $ 0.04 $ 0.73
Diluted earnings per share $ 0.06 $ 0.03 $ 0.04 $ 0.73
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.
The increase in net earnings available to common stockholders for the second
quarter of 1999 is attributable to the sale of the Arboleda property in June
1999, which resulted in a gain of approximately $13,337,000. The sale of this
property resulted in a decrease to the 1999 third and fourth quarter rental
income, real estate operating expenses, and depreciation in the 1999 periods as
compared to the 1998 periods.
The 1998 fourth quarter net earnings available to common stockholders includes
an income tax benefit amounting to approximately $4,829,000 relating principally
to the decrease in a deferral tax asset valuation (Note 12). In addition, the
fourth quarter net earnings available to common stockholders includes a loss of
approximately $719,000 with respect to equity losses recorded from the Company's
40% equity interest in the Agricultural Partnerships (Note 5).
Note 15 - Comprehensive Income
- ------------------------------
The Company adopted Statement of Financial Accounting Standards No. 130
"Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes rules for
the reporting and presentation of comprehensive income and its components. SFAS
130 requires the Company to classify unrealized gains and/or losses on
available-for-sale securities as comrehensive income. The following sets forth
the Company's comprehensive income for the three years ended:
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
Net earnings $9,487 $5,687 $1,530
Other comprehensive income, net of tax 255 - -
------ ------ ------
Comprehensive income $9,742 $5,687 $1,530
====== ====== ======
-43-
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Financial Statement Schedule III
Real Estate and Accumulated Depreciation
December 31, 1999
(In Thousands)
Initial Cost
--------------------------- Costs
Capitalized
Building and Subsequent to
Encumbrances Land Improvements Acquisition
------------- ----- ------------ -----------
Commercial Office Building $ 11,000,000 $ 2,951 $ 4,180 $ 1,352
December 31, 1999 Life
----------------- on Which
Accumulated Date Depreciation
Land Building Total Depreciation Acquired is Computed
------ -------- ------- ------------- -------- ------------
Commercial $2,951 $5,532 $8,483 $ (752) 5/8/95 40
(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, 1999 for federal
income tax purposes approximated $8,267,000.
(2) The following reconciliation reflects the aggregate rollforward activity of
property held and accumulated depreciation for the three years ended
December 31, 1999.
Gross Accumulated
Amount Depreciation
-------- -------------
Balance at January 1, 1997 $15,057 $ (624)
Depreciation expense -- (345)
Acquisitions 708 --
Cost of real estate sold (1,230) 86
------- -------
Balance at December 31, 1997 14,535 (883)
Depreciation expense -- (363)
Improvements 588 --
------- -------
Balance at December 31, 1998 $15,123 $(1,246)
Depreciation expense -- (206)
Cost of real estate sold (6,608) 700
Other (32) --
------- -------
Balance at December 31, 1999 $ 8,483 $ (752)
======= =======
-44-
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
-45-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors & Executive Officers
First
------
Name Age Current Occupation Became
---- ---- ------------------ ------
Director
---------
James J. Cotter (1)(3) 62 Chairman of the Board and Chief Executive Officer of 1986
Citadel, Chairman of the Board of Craig Corporation
("Craig"), and Chairman of the Board of Reading
Entertainment, Inc. ('REI")
William C. Soady (2) (4) 56 President of Distribution, Polygram Films 1999
S. Craig Tompkins(3) 49 Vice Chairman of the Board and Secretary/Treasurer of 1993
Citadel, President and Director of Craig, Vice Chairman
of the Board of REI, and Director of G&L Realty Corp.
Alfred Villasenor, Jr. (1)(2)(4) 69 President of Unisure Insurance Services, Incorporated 1987
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of the Executive Committee.
(4) Member of the Conflicts 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, resigned in 1988, and was
re-elected to the Board in June 1991. He was elected Chairman of the Board of
Citadel in 1992, and Chief Executive Officer effective August 1, 1999. Mr.
Cotter is the Chairman and a director of Citadel Agricultural Inc., a wholly
owned subsidiary of Citadel ("CAI"); the Chairman and a member of the Management
Committee of each of the agricultural partnerships which constitute the
principal assets of CAI (the "Agricultural Partnerships"); and the Chairman and
a member of the Management Committee of Big 4 Farming, LLC, an 80%-owned
subsidiary of Citadel. From 1988 through January 1993, Mr. Cotter also served as
the President and a director of Cecelia Packing Corporation (a citrus grower and
packer), a company wholly owned by Mr. Cotter, and is the Managing Director of
Visalia, LLC, which holds a 20% interest in each of the Agricultural
Partnerships and in Big 4 Farming, LLC. Mr. Cotter has been Chairman of the
Board of Craig Corporation ("CC" and collectively with its corporate
predecessors and wholly owned subsidiaries), and its predecessors, since 1988
and a director of that company since 1985. Mr. Cotter has served as a director
of Reading Entertainment, Inc. ("REI" and collectively with its corporate
predecessors consolidated subsidiaries, "Reading") (motion picture exhibition
and real estate), and its predecessor since 1990, and as the Chairman of the
Board of REI and its predecessor since 1991. Craig owns approximately 78% of the
voting power of the outstanding securities of REI and the Company owns
approximately 5% of the voting power of REI. Mr. Cotter is also the Executive
Vice President and a director of The Decurion Corporation (motion picture
exhibition and real estate). Mr. Cotter began his association with The Decurion
Corporation in 1969. 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 limited
partnership is, in turn, a general partner in Hecco Ventures, a California
General Partnership
-46-
("Hecco") involved in investment activities and a stockholder in Craig. Mr.
Cotter was also a director of Stater Bros., Inc. (retail grocery) between 1987
and September 1997.
Mr. Soady was elected to the Board of Directors of the Company on August 24,
1999. Mr. Soady has been President of Distribution, PolyGram Films since 1997.
Mr. Soady has also served as Director of Showscan Entertainment, Inc. from 1994
to present, the Foundation of Motion Picture Pioneers, Inc. from 1981 to
present, the Will Rogers Memorial Fund from 1981 to present and has been a
member of the Motion Picture Academy of Arts & Sciences since 1982.
Mr. Tompkins has been a director of the Company since 1993, was elected
Vice Chairman of the Board in July of 1994, and has served as the Secretary of
the Company since August 1994. From August 1994 until November 18, 1999, Mr.
Tompkins also served as the Principal Accounting Officer of the Company. Mr.
Tompkins was a partner of Gibson Dunn & Crutcher until March 1993, when he
resigned to become President of each of Craig and REI's predecessor, the Reading
Company. Mr. Tompkins has served as a director of each of Craig and of REI, and
its predecessors since February 1993. In January 1997, Mr. Tompkins resigned as
President of REI and was made Vice Chairman of REI and its predecessors. 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
currently serves as the Chairman of the Audit and the Strategic Planning
Committees of that REIT. Mr. Tompkins is also President and a director of CAI, a
member of the Management Committee of each of the Agricultural Partnerships and
of Big 4 Farming, LLC, and serves for administrative convenience as an Assistant
Secretary of Visalia, LLC, and Big 4 Ranch, Inc. (a partner with CAI and
Visalia, LLC in each of the Agricultural Partnerships).
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 Playa
del Villa, a California real estate commercial center. Mr. Villasenor is a
director of the John Gogian Family Foundation and a director of Richstone
Centers, a non-profit organization. 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.
Mr. Loeffler has been a director of the Company since March 27, 2000. Mr.
Loeffler is also a director of REI and its predecessors since July 1999 and is
Chairman of the Audit Committee. Mr. Loeffler has been a director of Paine
Webber Group, Inc. since 1978. Mr. Loeffler is a retired attorney and was Of
Counsel to the California law firm of Wyman Bautzer Kuchel & Silbert from 1987
to March 1991. He was Chairman of the Board, President and Chief Executive
Officer of Northview Corporation from January to December 1987 and a partner in
the law firm of Jones, Day, Reavis & Pogue until December 1986. Mr. Loeffler is
also a director of Advanced Machine Vision Corp.
All officers are elected annually by the Board of Directors.
-47-
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The names of the executive officers of Citadel are as listed below in the
summary compensation table that sets forth the compensation earned for the years
ended December 31, 1999, 1998, and 1997 by each of the most highly compensated
executive officers of the company.
Long Term
Annual Compensation -----------
----------------------------------------- Compensation
------------
Securities
-----------
Other Underlying
--------------- ----------- All Other
Name and Principal Position Year Salary Bonus Annual Stock ------------
- ------------------------------- ---- -------- ------- --------------- ----------- Compensation
Compensation(1) Options ------------
--------------- -----------
Granted
-----------
James J. Cotter 1999 -- -- $45,000 -- --
President and 1998 -- -- $45,000 -- --
Chief Executive Officer 1997 -- -- $45,000 -- --
Steve Wesson 1999 $190,700 $29,200 (1) (3) --
President and 1998 $200,000 $50,000 (1) -- --
Chief Executive Officer 1997 $185,000 $80,000 (1) (2) --
S. Craig Tompkins 1999 -- -- (1) -- --
Secretary/Treasurer and 1998 -- -- (1) -- --
Vice Chairman of the 1997 -- -- (1) -- --
Board
Andrzej Matyczynski (4) 1999 -- -- (1) -- --
Chief Financial Officer
Brett Marsh 1999 $162,500 -- (1) -- --
Director of Real Estate 1998 $152,500 -- (1) -- --
1997 $150,000 $30,000 (1) (2) --
(1) Excludes perquisites if the aggregate amount thereof is less than $50,000,
or 10% of salary plus bonus, whichever is less.
(2) During 1997, Mr. Wesson and Mr. Marsh, who provide services to REI pursuant
to a consulting agreement between Citadel and REI, were named officers of a
wholly owned subsidiary of REI. Mr. Wesson and Mr. Marsh received an option
to acquire 20,000 and 10,000 shares, respectively, of REI Common Stock at
an exercise price of $12.875 per share. The REI options held by Mr. Wesson
expired in August 1999. On December 31, 1999, such shares closed at $5.75
per share.
(3) Mr. Wesson resigned as President and Chief Executive Officer effective
August 1, 1999 and currently serves as a consultant to the Company. In
September 1999, the Company purchased Mr. Wesson's Citadel options for a
cash payment of approximately $66,000.
(4) Mr. Matyczynski was named the Chief Financial Officer of Citadel
effectively November 15, 1999. Mr. Matyczynski's compensation for the year
ending December 31, 1999 did not exceed $100,000 in aggregate.
-48-
Option/SAR Grants In Last Fiscal Year
Mr. Matyczynski was granted 30,000 shares, Mr. Tompkins was granted 40,000
shares, and Mr. Marsh was granted 15,000 shares of Citadel common stock in
November 1999. Mr. Soady was granted 10,000 shares of Citadel common stock in
August 1999.
Aggregated Option/SAR In Last Fiscal Year and Fiscal Year-End Option/SAR Values
Number of Securities Value of Unexercised
-------------------- --------------------
Underlying Unexercised in-the-Money
Name Shares Acquired Value ---------------------- --------------------
- ------------------------ ---------------- ------------- Options/SARs Option/SARs
on Exercise (#) Realized ($) ------------ -----------
---------------- at FY-End (#) at 12/31/99
------------- ------------- -----------
Exercisable/Unexercisable Exercisable/Unexercisable (1)
-------------------------- ------------------------------
Alfred Villasenor N/A N/A 10,000/0 $ 4,375/$0
Ronald I. Simon N/A N/A 10,000/0 $ 4,375/$0
William C. Soady N/A N/A 10,000/0 $ 0/$47,800
Andrzej Matyczynski N/A N/A 15,000/15,000 $ 938/$50,625
S. Craig Tompkins N/A N/A 8,000/32,000 $500/$108,000
Brett Marsh N/A N/A 3,000/12,000 $ 188/$40,500
(1) Based on closing price of $3.4375 at December 31, 1999.
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". That agreement
has been terminated.
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 has entered into indemnity agreements with
Citadel. Similar agreements also exist between Citadel's subsidiaries and the
officers and directors of such subsidiaries.
Compensation of Directors
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. Prior to 1999, Mr. Tompkins
received no compensation for his services as an executive officer. With respect
to 1999, Mr. Tompkins received no compensation from the Company for his service
except for director's fees in the amount of $40,000. Effective August 1, 1999,
Mr. Cotter was elected to serve as the Company's Chief Executive Officer. Mr.
Cotter receives no compensation in addition to his directors fees for his
services as Chief Executive Officer.
-49-
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 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 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. Mr.
Soady received immediately vested options to purchase 10,000 shares of common
stock at an exercise price of $4.78 per share, upon effective date of his
election to the Board of Directors.
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. The Compensation
Committee of the Board of Directors of CHC currently consist of Messrs. Cotter
and Villasenor.
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, 1999, all filing
requirements applicable to its reporting persons were complied with.
-50-
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 10, 2000 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.
Amount and Nature of Beneficial Ownership
-----------------------------------------
Name and Address of Class A Class B
Beneficial Owner Nonvoting Common Voting Common
---------------- ---------------- -------------
Numbers of Percentage Number of Percentage
Shares of Stock Shares of Stock
------ --------- ------- --------
James J. Cotter(1)(3) 2,567,823 48.12% 641,956 48.12%
S. Craig Tompkins (3) 6,400 * 1,600 *
Ronald I. Simon (2)(3) 8,000 * 2,000 *
William C. Soady (2)(3) 8,000 * 2,000 *
Alfred Villasenor, Jr. (2)(3) 8,000 * 2,000 *
Brett Marsh (3) 2,400 * 600 *
Andrzej Matyczynski (3) 12,000 * 3,000 *
Craig Corporation(1)(3) 2,567,823 48.12% 653,256 48.97%
Reading Holdings, Inc., an indirect 1,690,938 31.69% 422,735 31.69%
wholly owned subsidiary of REI (1)
30 South Fifteenth Street, Suite 1300
Philadelphia, PA 19102-4813
Private Management Group(4) 675,320 12.66% 168,830 12.66%
20 Corporate Park, Suite 400
Irvine, CA 92606
All directors and executive 2,612,623 48.96% 653,156 48.96%
Officers as a Group (7 persons)(1)
(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 owned 1,096,106 shares of Citadel
Common Stock and Reading owned directly 2,113,673 shares of Citadel Common
Stock as December 31, 1999. These shares held by Craig and Reading were
converted into 2,657,823 shares of Class A Nonvoting Common Stock and
641,956 shares of Class B Voting Common Stock shares as of January 4, 2000.
These securities have been listed as beneficially owned by Mr. Cotter and
Craig due to the relationships between Mr. Cotter, Craig and REI. Mr.
Cotter disclaims beneficial ownership of all Citadel securities owned by
Craig and/or Reading.
(2) 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.
(3) 550 South Hope Street, Suite 1825, Los Angeles, California 90071.
-51-
(4) Based upon Schedule 13-G filed February 2, 2000.
* Represents less than one percent of the outstanding shares of
Citadel Class A Nonvoting and Class B Voting Common Stock,
respectively.
-52-
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 $7,000,000 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. During 1999, 1998 and 1997, Citadel received dividend income of
$455,000 per annum from REI with respect to REI Series A Preferred Stock.
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 1999 and 1998, $96,000 per annum
was paid to Craig for such rent and services. In additional, Citadel provided
real estate consulting services to Reading Company during fiscal 1999, 1998 and
1997, for which Citadel was paid $215,000, $398,000, and $240,000, respectively.
Issuance of Common Stock to Craig Corporation for a Note Receivable
On April 11, 1997, Craig exercised its warrant to purchase 666,000 shares
of the Company's common stock at an exercised price of $3.00 per share or
$1,998,000. Such exercise was consummated pursuant to delivery by Craig of its
secured promissory note (the "Craig Secured Note") in the amount of $1,998,000,
secured by 500,000 shares of REI Common Stock owned by Craig. Interest is
payable quarterly in arrears at the prime rate (amounting to 8.5% at December
31, 1999) computed on a 360 day-year. Principal and accrued but unpaid interest
is due upon the earlier of April 11, 2002 or 120 days following the Company's
written demand for payment. The Craig Secured Note may be prepaid, in whole or
in part, at any time by Craig without penalty or premium. During 1999 and 1998,
Craig paid interest to Citadel of approximately$183,000 and $165,000,
respectively, pursuant to the terms of the Craig Secured Note.
Agricultural Activities
In 1997, the Company entered into a series of transactions which resulted
in the acquisition by the Company of 1) a 40% equity interest in each of three
general partnerships (the "Agricultural Partnerships") formed to acquire from
the Prudential Insurance Company of America ("Prudential") approximately 1,600
acres of agricultural land located in the Central Valley of California (the "Big
4 Properties"), and 2) an 80% equity interest in a newly formed farm operating
company, Big 4 Farming, LLC ("Farming"), created to farm the Big 4 Properties
for the Agricultural Partnerships. The Big 4 Properties were acquired for a
total purchase price of $6,750,000 plus reimbursement of certain cultural costs
through the closing (which cultural costs amounted to approximately $831,000).
The acquisition was financed by a ten-year purchase money mortgage loan from
Prudential in the amount of $4,050,000 ("Prudential Loan") and by drawdowns in
the amount of $831,000 under a $1,200,000 crop finance line of credit from the
Company to the partnerships (the "Crop Financing"). The Prudential Loan bears
-53-
interest at 7.70%, provides for quarterly payment of interest, and provided
certain levels of capital investment are achieved, calls for principal
amortization payments of $200,000 per year commencing January 2002. The Crop
Financing accrues interest, payable quarterly, at the rate of prime plus 100
basis points, and was due and payable in August 1998. Upon expiration, Citadel
increased the line of credit to $1,850,000 in 1998 and then to $3,250,000 in
1999, in light of the need to fund cash shortfalls resulting from the 1998
freeze discussed below. The credit facility currently matures in August 2000.
In December 1998, the Agricultural Partnerships suffered a devastating
freeze which resulted in a loss of substantially all of its 1998-1999 crop. As a
consequence of the freeze, the Agricultural Partnerships have no funds with
which to repay the drawdowns on the Line of Credit. Big 4 Ranch, Inc. likewise
has no funds with which to make further capital contributions. Furthermore, the
Agricultural Partnerships generally have no source of funding, other than the
Company, for the cultural expenses needed for production of the 1999-2000 crop,
as well as, funding of a crop-planting program on the undeveloped acreage. In
addition to the $1,850,000 line of credit, it is estimated that the Agricultural
Partnerships will need additional cash in the amount of $3,501,000 in order to
cover cultural costs and planting costs for its 1999-2000 crop year. During
1999, the Company agreed to guarantee the obligations of the Agricultural
Partnerships under certain equipment leases, up to $220,000. Big 4 Ranch, Inc.,
which was spun off to the Company's stockholders in December 1997, has no funds
with which to make contributions to the Agricultural Partnerships. Subsequent to
December 1998, the Company and Visalia have continued to fund, on an 80/20
basis, (i) the Agricultural Partnerships' operating and crop costs, and (ii) the
cost of the new trees to be used in the planting program. No revenue is expected
to be realized by the Agricultural Partnerships until the 1999-2000 crop is
harvested and sold, beginning in the second quarter of 2000.
Each of the Agricultural Partnerships has three partners: Citadel
Agriculture, Inc., a wholly-owned subsidiary of Citadel ("CAI"), which has a
40% interest in each of the partnerships; Big 4 Ranch, Inc. ("BRI"), which
although formed as a wholly-owned subsidiary of Citadel, was spun-off to the
shareholders of Citadel following the formation of the partnerships and prior to
the acquisition of the Big 4 Properties; and Visalia LLC ("Visalia"), a limited
liability company controlled by and owned by Mr. James J. Cotter and certain
members of his family. Farming is owned 80% by the Company and 20% by Visalia.
BRI was initially capitalized with $1,200,000 from Citadel and, in addition, has
a three-year $200,000 line of credit from Citadel, providing for interest at
prime plus 200 basis points. No drawdowns have been made to date under this
line of credit as of December 31, 1999.
Craig and Reading, as shareholders of Citadel, received BRI shares in the
spin-off in proportion to their interests in Citadel. During 1998, Craig and
Reading purchased additional shares in BRI, increasing their ownership to
approximately 49%. In addition, during 1998, Cecelia Packing, owned by Mr.
Cotter and a trust for the benefit of one of Mr. Tompkins' children, each
acquired from a single seller shares representing an additional 1.6% of the
outstanding shares of BRI, or 3.2% in the aggregate of such shares. Certain
officers and directors of Craig and Reading are officers, directors or
management committee members of CAI, BRI, Farming and/or the Agricultural
Partnerships. Mr. James J. Cotter is the Chairman and a Director of each of
Citadel, CAI, Craig and REI, and is also Chairman of the management committees
of Farming and of each of the Agricultural Partnerships. Mr. S. Craig Tompkins
is the Vice Chairman and a Director of each of Citadel and REI, the President
and a Director of Craig, the Principal Accounting Officer of Citadel, the
President of CAI and a member of the management committees of Farming and of
each of the Agricultural Partnerships. Mr. Edward Kane, a director of REI,
served as Chairman and President of BRI and a member of the Management Committee
of each of the Agricultural Partnerships until October 1998, at which time he
was succeeded by Mr. Gerard Laheney, a Director of Craig, who served until
February 14, 2000. Mr. William Gould, a Director of Craig, is also a
Director of BRI. Ms. Margaret Cotter, a Director of Craig and the daughter of
James J. Cotter, is also the Secretary, Treasurer and Principal Accounting
Officer and a Director of BRI, a limited partner in James J. Colter, Ltd., a
member of Visalia
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the Vice President of Cecelia and the Vice President of Union Square Management,
(a theater management company which provided services to Reading in 1999).
During 1999, Mr. Gould, Ms. Cotter and Mr. Kane received no compensation for
such services to BRI. As an administrative convenience, Mr. Tompkins also
serves as an assistant secretary of BRI and Visalia, for which he receives no
compensation. Ms. Ellen Cotter is the daughter of James J. Cotter, the Vice
President - Business Affairs of REI and the acting president of Readings
Australia, a limited partner in James J. Cotter Ltd, and member of Visalia.
Citadel owns stock representing a 15.62% interest in Gish Biomedial, Inc., a
publicly traded company whose securities are quoted on the NASDAQ National
Market ("Gish"). The stock was acquired principally between March and July,
1999. On September 15, 1999, James J. Cotter Jr., the son of James J. Cotter,
was elected to the Board of Directors of Gish. The Directors of Gish currently
serve without compensation.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a)(1) Financial Statements
Description Pg. No
----------- ------
Independent Auditors Report.................................................................. 24
Consolidated Balance Sheets as of December 31, 1999 and 1998................................. 25
Consolidated Statements of operations for Each of the Three
Years in the Period Ended December 31, 1999.............................................. 26
Consolidated Statements of Stockholders' Equity for Each of the
Three Years in the Period Ended December 31, 1999........................................ 27
Consolidated Statements of Cash Flows for Each of the Three
Years in the Period Ended December 31, 1999.............................................. 28
Notes to Consolidated Financial Statements................................................... 29
All schedules other than those listed above are omitted because they are not
applicable, not required, or the information required to be set forth therin
is included in the financial statements or the notes thereto.
(a)(2) Financial Statement Schedule
Financial Statement Schedule III -- Real Estate and Accumulated
Depreciation................................................................................. 44
(b) Reports on Form 8-K
None
(c) Exhibits (Items denoted by * represent management or compensatory
contract)
-56-
Exhibit
No. Description
- --- -----------
3.1 Certificate of Amendment of Restatement Articles of Incorporation of
Citadel Holding Corporation (filed herein).
3.2 Restated By-laws of Citadel Holding Corporation, a Nevada corporation
(filed herein).
10.1 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)
10.2 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)
10.3 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)
10.4 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)
10.5 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 as
Exhibit 10.51 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 and incorporated herein by reference)
10.6 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 as Exhibit 10.52 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1996
and incorporated herein by reference)
10.7 Articles of Incorporation of Reading Entertainment, Inc., A Nevada
Corporation (filed herein).
10.7a Certificate of Designation of the Series A Voting Cumulative Convertible
preferred stock of Reading Entertainment, Inc. (filed herein).
10.8 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)
10.9 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)
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Exhibit
No. Description
- --- -----------
10.10 Citadel 1996 Nonemployee Director Stock Option Plan (filed as Exhibit
10.57 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, and incorporated herein by reference)
10.11 Reading Entertainment, Inc., Annual Report on Form 10-K for the year
ended December 31, 1997 (filed as Exhibit 10.58 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997 and incorporated
herein by reference)
10.12 Stock Purchase Agreement dated as of April 11, 1997 by and between
Citadel Holding Corporation and Craig Corporation (filed as Exhibit 10.56
to the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997)
10.13 Secured Promissory Note dated as of April 11, 1997 issued by Craig
Corporation to Citadel Holding Corporation in the principal amount of
$1,998,000 (filed as Exhibit 10.60 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997)
10.14 Agreement for Purchase and Sale of Real Property between Prudential
Insurance Company of America and Big 4 Farming LLC dated August 29, 1997
(filed as Exhibit 10.61 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997)
10.15 Second Amendment to Agreement of Purchase and Sale between Prudential
Insurance Company of America and Big 4 Farming LLC dated November 5, 1997
(filed as Exhibit 10.62 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997)
10.16 Partnership Agreement of Citadel Agricultural Partners No. 1 dated
December 19, 1997 (filed as Exhibit 10.63 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1997 and incorporated herein
by reference)
10.17 Partnership Agreement of Citadel Agricultural Partners No. 2 dated
December 19, 1997 (filed as Exhibit 10.64 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1997 and incorporated herein
by reference)
10.18 Partnership Agreement of Citadel Agricultural Partners No. 3 dated
December 19, 1997 (filed as Exhibit 10.65 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1997 and incorporated herein
by reference)
10.19 Farm Management Agreement dated December 26, 1997 between Citadel
Agricultural Partner No. 1 and Big 4 Farming LLC (filed as Exhibit 10.67
to the Company's Annual Report on Form 10-K for the year ended December
31, 1997 and incorporated herein by reference)
10.20 Farm Management Agreement dated December 26, 1997 between Citadel
Agricultural Partner No. 2 and Big 4 Farming LLC (filed as Exhibit 10.68
to the Company's Annual Report on Form 10-K for the year ended December
31, 1997 and incorporated herein by reference)
10.21 Farm Management Agreement dated December 26, 1997 between Citadel
Agricultural Partner No. 3 and Big 4 Farming LLC (filed as Exhibit 10.69
to the Company's Annual Report on Form 10-K for the year ended December
31, 1997 and incorporated herein by reference)
10.22 Line of Credit Agreement dated December 29, 1997 between Citadel Holding
Corporation and Big 4 Ranch, Inc. (filed as Exhibit 10.70 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1997
and incorporated herein by reference)
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Exhibit
No. Description
- --- -----------
10.23 Management Services Agreement dated December 26, 1997 between Big 4
Farming LLC and Cecelia Packing (filed as Exhibit 10.71 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997 and
incorporated herein by reference)
10.24 Agricultural Loan Agreement dated December 29, 1997 between Citadel
Holding Corporation and Citadel Agriculture Partner No. 1 (filed as
Exhibit 10.72 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997 and incorporated herein by reference)
10.25 Agricultural Loan Agreement dated December 29, 1997 between Citadel
Holding Corporation and Citadel Agriculture Partner No. 2 (filed as
Exhibit 10.73 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997 and incorporated herein by reference)
10.26 Agricultural Loan Agreement dated December 29, 1997 between Citadel
Holding Corporation and Citadel Agriculture Partner No. 3 (filed as
Exhibit 10.74 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997 and incorporated herein by reference)
10.27 Promissory Note dated December 29, 1997 between Citadel Holding
Corporation and Citadel Agricultural Partners No. 1 (filed as Exhibit
10.75 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 and incorporated herein by reference)
10.28 Promissory Note dated December 29, 1997 between Citadel Holding
Corporation and Citadel Agricultural Partners No. 2 (filed as Exhibit
10.76 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 and incorporated herein by reference)
10.29 Promissory Note dated December 29, 1997 between Citadel Holding
Corporation and Citadel Agricultural Partners No. 3 (filed as Exhibit
10.77 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 and incorporated herein by reference)
10.30 Security Agreement dated December 29, 1997 between Citadel Holding
Corporation and Citadel Agricultural Partnership No. 1 (filed as Exhibit
10.78 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 and incorporated herein by reference)
10.31 Security Agreement dated December 29, 1997 between Citadel Holding
Corporation and Citadel Agricultural Partnership No. 2 (filed as Exhibit
10.79 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 and incorporated herein by reference)
10.32 Security Agreement dated December 29, 1997 between Citadel Holding
Corporation and Citadel Agricultural Partnership No. 3 (filed as Exhibit
10.80 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 and incorporated herein by reference herewith)
10.33 Administrative Services Agreement between Citadel Holding Corporation and
Big 4 Ranch, Inc. dated December 29, 1997 (filed as Exhibit 10.81 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1997
and incorporated herein by reference)
10.34 Reading Entertainment, Inc. Annual Report on Form 10-K for the year ended
December 31, 1998 (filed as Exhibit as 10.41 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1998 and incorporated
herein by reference).
10.35 Reading Entertainment, Inc. Annual Report on Form 10-K for the year ended
December 31, 1999 (filed by Reading Entertainment Inc. as Form 10-K for
the year ended December 31, 1999 on April 14, 2000 and incorporated
herein by reference).
10.36 Promissory note dated December 20, 1999 between Citadel Holding
Corporation and Nationwide Life Insurance (filed herein).
10.37* Employment Agreement between Citadel Holding Corporation and Andrzej
Matyczynski (filed herein).
10.38 Citadel 1999 Employee Stock Option Plan (filed herein).
-59-
Exhibit
No. Description
- --- -----------
21 Subsidiaries of the Company (filed herewith)
23 Consent of Independent Auditors (filed herewith)
27 Financial Data Schedule (filed herewith)
-60-
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 27, 2000 /s/ Andrzej Matyczynski
-------------------------------------
Andrzej Matyczynski
Chief Financial 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.
Signature Titles(s) Date
- --------- --------- ----
/s/ James J. Cotter Chairman of the Board and Director March 27, 2000
- ----------------------------
James J. Cotter
/s/ S. Craig Tompkins Director, Secretary March 27, 2000
- ----------------------------
S. Craig Tompkins
/s/ William C. Soady Director March 27, 2000
- ----------------------------
William C. Soady
/s/ Alfred Villasenor Jr. Director March 27, 2000
- ----------------------------
Alfred Villasenor, Jr.
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