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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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______ to ______
Commission File No. 1-8625
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CITADEL HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-3885184
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
90071
550 SOUTH HOPE STREET, SUITE 1825 (ZIP CODE)
LOS ANGELES, CA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (213) 239-0540
Securities Registered pursuant to Section 12(b) of the Act:
Title of each class Names of each exchange on which registered
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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 .
---- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K of any amendments to
this Form 10-K. [___]
The aggregate market value of voting stock held by non-affiliates of the
Registrant was $12,208,000 as of March 20, 1997.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of March 20, 1997, there
were 6,003,924 shares of Common Stock, par value $.01 per share outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
NONE.
CITADEL HOLDING CORPORATION
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 1996
INDEX
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PAGE
PART I.
Item 1. Business 1
Item 2. Properties 3
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 6
PART II.
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters 7
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations ("MD&A") 11
Item 8. Financial Statements and Supplementary Data 19
Item 9. Change in and Disagreements with Accountants on Accounting and
Financial Disclosure 41
PART III.
Item 10. Directors and Executive Officers of the Registrant 42
Item 11. Executive Compensation 43
Item 12. Security Ownership of Certain Beneficial Owners and Management 46
Item 13. Certain Relationships and Related Transactions 48
PART IV.
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K 49
Signatures 56
-i-
PART I
ITEM 1: BUSINESS
GENERAL
Citadel Holding Corporation, a Delaware corporation ("Citadel" and
collectively with its wholly owned subsidiaries, the "Company") was organized in
1983 and has been engaged in recent periods primarily in the business of owning
and managing its commercial and residential properties and in the offering of
various real estate consulting services to its affiliates. During 1996, the
Company also considered certain opportunities to move into other businesses,
including the land based entertainment industry and in October 1996 invested $7
million to acquire 70,000 shares of the Series A Voting Cumulative Convertible
Preferred Stock (the "Series A Preferred Stock") of Reading Entertainment, Inc.
("REI" and collectively with its consolidated subsidiaries, "Reading") and the
Asset Put Option described below (the "Reading Investment Transaction"). Until
April 1994, Citadel was engaged principally in the business of serving as the
holding company for Fidelity Federal Bank, FSB ("Fidelity").
At December 31, 1996, the Company's assets had a book value of $30.3
million, consisting principally of two office buildings (located in Glendale,
California and Phoenix, Arizona), the Company's investment in Reading and cash
and cash equivalents, and long term liabilities of $10.3 million.
The Reading Investment Transaction provided the Company an opportunity to
make an initial investment in the movie exhibition industry, and the ability,
thereafter, to review the implementation by Reading of its business plan and, if
it approves of the progress made by Reading, to make a further investment in
this industry through the exercise of its Asset Put Option. The Company has the
right to require Reading to redeem the securities issued to it in the Reading
Investment Transaction after five years, or sooner if Reading fails to pay
dividends on such securities for four quarters.
As set forth in the Asset Put and Registration Rights Agreement, (the
"Asset Put Agreement"), the Asset Put Option is exercisable any time after
October 15, 1996 and until approximately April 2000. The Asset Put Option gives
the Company the right to require Reading to acquire, for shares of Reading
Common Stock, substantially all of the Company's assets and assume related
liabilities (such as mortgages) (the "Asset Put"). In exchange for up to $20
million in aggregate appraised value of such assets, Reading is obligated to
deliver to the Company that number of shares of Reading Common Stock determined
by dividing the value of Citadel's assets by $11.75 per share if the notice is
received by October 31, 1997 and thereafter $12.25 per share. If the appraised
value of the Company's assets is in excess of $20 million, Reading is obligated
pay for the excess by issuing Common Stock at the then fair market value, up to
a maximum of $30 million of assets. If the average trading price of Reading
Common Stock exceeds 130% of the then applicable exercise price for more than 60
days (the "Repricing Trigger"), then the exercise price will adjust to the fair
market of the Reading Common Stock from time to time, unless the Company
exercises the Asset Put within 120 days of receipt of notice from Reading of the
occurrence of the Repricing Trigger. The Asset Put Agreement has been filed as
Exhibit 10.52 to this Report. Any description of the rights granted by that
agreement is necessarily summary in nature and qualified by reference to the
definitive terms of the Asset Put Agreement.
Reading is currently involved in conventional multiplex cinema exhibition
in Puerto Rico through its Cine Vista Cinemas chain, in the exhibition of art
and specialty film through its interest in the Angelika Film Center (a specialty
art multiplex cinema and cafe complex located in the Soho area of New York
City), and the development of a new chain of conventional multiplex cinema and
entertainment center complexes in Australia. Reading opened its first multiplex
cinema in Australia in December 1996. In addition, Reading
1
intends to expand the Angelika Film Center concept to other U.S. cities. Reading
has executed a lease to develop an 8-plex art cinema and cafe complex as a part
of the Bayou Place development in Houston, Texas, and is currently reviewing a
number of potential locations suitable for such complexes. At December 31, 1996,
Reading owns approximately 26% of the Company's outstanding common stock.
Reading is a publicly traded company whose shares are quoted on the
NASD/NMS and listed for trading on the NASDAQ Philadelphia Stock Exchange. Set
forth as Exhibit 10.58 to this report is the Report on Form 10K filed by Reading
with respect to the fiscal year ended December 31, 1996. Reading is currently
controlled by Craig Corporation, a Delaware corporation ("Craig") which owns
common and preferred stock in Reading representing approximately 78% of the
voting power of that company. Craig also holds options to acquire 666,000 shares
of Citadel stock at $3.00 per share, which options are due to expire on April
11, 1997. Craig has advised the Company that it intends to exercise such
options.
On August 4, 1994, Citadel and Fidelity completed a recapitalization and
restructuring transaction (the "Restructuring"), which resulted in, among other
things, the reduction of Citadel's interest in Fidelity from 100% to
approximately 16%, the acquisition by the Company from Fidelity of certain real
estate assets, and the receipt by way of dividend from Fidelity of options to
acquire at book value certain other real estate assets. During fiscal 1995,
substantially all of the Company's remaining interest in Fidelity was sold.
Citadel currently intends, at least for the near term, to continue to
manage its real estate assets, to provide real estate consulting services to its
affiliates, to work to resolve the outstanding litigation claims against it, and
to monitor the progress of Reading in its Beyond-the-Home entertainment
business. Depending upon the success of Reading in the implementation of its
business plan, the Company may exercise its Asset Put Option or elect to hold or
dispose of its current preferred stock interest in Reading, or to convert such
preferred stock interest into Reading common stock pursuant to the exercise of
the conversion feature of such preferred stock and/or to hold or dispose of such
Reading common stock. Alternatively or additionally, the Company may seek or
consider, if offered, some further transaction or transactions with Reading
and/or Craig which would permit the Company's stockholders to further
participate, directly or indirectly, in Reading's Beyond-the-Home entertainment
business. However, no such transaction is currently under consideration by the
Company. Furthermore, in the view of the Company, the continued presence of
various litigation claims constitute an impediment to a merger or liquidation of
the Company at the present time. No assurance can be given that the currently
outstanding litigation claims against the Company will necessarily be resolved
in the near term or on terms favorable to the Company or that any one or more
transactions with respect to Craig and/or Reading will be forthcoming. The
Company may, from time to time, also consider other real estate transactions.
Real estate consulting services are currently being provided by the Company
to Reading under an arrangement pursuant to which Reading reimburses Citadel for
its costs in providing such services. The Company believes that this arrangement
is beneficial to the Company, since the Company would not otherwise have
sufficient cash flow to maintain the level of executive talent currently
available to it and since this arrangement allows its executives to monitor and
to provide input with respect to the development of Reading's land based
entertainment businesses. During fiscal 1996, Reading paid to Citadel $169,000
with respect to such consulting services. Citadel's management is currently
studying ways in which to further reduce the Company's net overhead and general
administrative expenses, however, no assurances can be given to this regard.
MANAGEMENT
Steve Wesson is the President and Chief Executive Officer of the Company.
From 1989 until he joined the Company in 1993, Mr. Wesson served as CEO of
Burton Property Trust Inc., the U.S. real estate subsidiary of The Burton Group
PLC. In this position he was responsible for the restructuring and eventual
disposal of the Company's assets in the U.S.
2
S. Craig Tompkins became the Secretary/Treasurer of Citadel in September,
1994. Mr. Tompkins is also the Vice Chairman and a director of Citadel, the
President and a director of Craig and the Vice Chairman and a director of
Reading. Prior to joining Craig and Reading in March, 1993, Mr. Tompkins was a
partner in the law firm of Gibson, Dunn & Crutcher.
Brett Marsh is responsible for the real estate activities of the Company.
Prior to joining the Company, Mr. Marsh was the Senior Vice President of Burton
Company Trust, Inc., the U.S. real estate subsidiary of the Burton Group PLC.
In this position, Mr. Marsh was responsible for the real estate portfolio of
that company.
The Company has one additional employee, and shares space and has
contracted for certain administrative and accounting services with Craig.
ITEM 2: PROPERTIES
REAL ESTATE INTERESTS
The table below provides an overview of the real estate assets owned by the
Company at December 31, 1996.
UNITS/SQUARE % LEASED AT 12/31/96 MAJOR TENANTS REMAINING
ADDRESS TYPE FEET * LEASE TERMS
- -------------------------------------------------------------------------------------------------------------------------
ARBOLEDA Office/ 178,000 99 American Express (56%) February 1999
1661 Camelback Rd. Restaurant Others 1-5 Years
Phoenix, Arizona
Glendale Building Office 89,000 100 Fidelity (13%) May 2005
600 No. Brand Blvd.
Glendale, CA Disney (87%) February 2007
PARTHENIA Apartment 27 80 None 6-12 months
21028 Parthenia 26,000
Canoga Park, Calif.
- ------------------------------------------------------------------------------------------------------------------------
*% of rentable space leased
ARBOLEDA, PHOENIX
- -----------------
This property was acquired by the Company for $6.4 million in August 1994
and is substantially leased to American Express Company, which occupies 56%
(100,252 sq. ft.) of the property.
BRAND, GLENDALE
- ---------------
This property was acquired by the Company for $7.12 million in May 1995 and
is leased 87% to Disney Enterprises, Inc. ("Disney") and 13% to Fidelity, with
Fidelity occupying the ground floor.
3
The base rental rate for the first five years of the Fidelity lease term is
$26,000 per month (including parking). With the lease providing for annual
rental increases at a rate equal to the lower of the increase in the Consumer
Price Index or 3%, the rental rate of the Fidelity lease at December 31, 1996 is
$26,600 per month. After the first five years of the lease term, the rental
rate will be adjusted to the higher of the then current market rate or $1.50 per
square foot increased by the annual rental rate increase applied during the
first five years of the lease as described in the preceding sentence. Fidelity
has the option to extend the lease of the ground floor for two consecutive five
year terms at a market rental rate.
On October 1, 1996, the Company entered into a ten year full service lease
for all of the floors, excluding the ground floor (approximately 80,000 square
feet), with Disney. The rental rate for the first five years of the lease term
beginning February 1, 1997 is approximately $148,000 per month (excluding
parking) and approximately $164,000 (excluding parking) for the remaining five-
year term. Disney has the option to renew the lease for two consecutive five
year terms. The lease provides that the Company will contribute towards tenant
improvements and common area upgrades approximately $2.3 million. In addition,
the Company anticipates incurring costs for other building upgrades,
governmental compliance, commissions and legal fees amounting to approximately
$1.2 million. Concurrently with the execution of the Disney lease, the Company
amended its then existing lease with Fidelity resulting in 1) termination of the
Fidelity lease with respect to floors four through six, resulting in a reduction
of rent payments amounting to approximately $75,000 per month after January 31,
1997, 2) termination of Fidelity's option to purchase the Glendale Building, 3)
a modification of the mortgage with Fidelity on the building to eliminate the
prepayment penalty and 4) reimbursement on February 1, 1997 by the Company to
Fidelity of rental payments in the amount of approximately $450,000 (See Note 3
to the Consolidated Financial Statements).
PARTHENIA
- ---------
The Parthenia property was sold in January 1997 for $1,210,000, which
amount, net of closing costs, approximated book value.
EXECUTIVE OFFICES
- -----------------
The Company currently shares executive office space with Craig, under an
arrangement whereby the Company and Craig allocate the costs of such office
space and certain support facilities. During fiscal 1996, the Company's share of
such office space and support facilities approximated $24,000. The Company
believes that this arrangement is beneficial to the Company in that it permits
the Company to maintain quality executive office facilities at a lesser cost
that would be the case if the Company were to maintain comparable facilities
separate and apart from Craig.
FINANCING OF REAL ESTATE INTERESTS
The Company's 1994 acquisition of the Arboleda and Parthenia properties was
100% leveraged: Financing was obtained through the combination of a conventional
mortgage loan from Fidelity on the Arboleda Property with the balance of the
Arboleda purchase price and the entire purchase price of the Parthenia Property
financed through drawdowns on an $8.2 million line of credit from Craig (the
"Craig Line of Credit").
The loan secured by the Arboleda Property has a seven-year term, amortizing
over 25 years, with an adjustable rate of interest tied to a 30 day LIBOR rate
plus 4.5% per annum, with an initial rate of 9.25% per annum. The interest rate
on this loan is currently 9.875%.
4
The Craig Line of Credit was initially committed in the amount of $8.2
million, of which $6.2 million was immediately drawn down. On November 10, 1994,
the Company retired $5.25 million of the Craig Line of Credit by issuance to
Craig of 1,329,114 shares of 3% Cumulative Voting Convertible Preferred Stock
(the "Preferred Stock"). In May of 1995, the remaining balance of $950,000 on
the Craig line of credit was paid in full and the line of credit was canceled.
With regard to the purchase of the Glendale Building, Fidelity extended a
five year loan, amortizing over twenty years, at an adjustable rate of interest
tied to the 30-day LIBOR rate plus 4.5% per annum, adjustable monthly. The
interest rate on this loan is currently 9.875%.
In May, 1995, Citadel obtained a loan of $765,000 from American Savings on
the Parthenia property. The loan provided for a term of 30 years, amortizing
over 30 years, at a fixed rate of interest of 2.950 over the 11th District Cost
of Funds. This loan was repaid in full in January 1997, concurrent with the
sale of the Parthenia Property.
ITEM 3: LEGAL PROCEEDINGS
ROVEN LITIGATION
Citadel, Hecco Ventures I and James J. Cotter are defendants in a civil
action filed in 1990 by Alfred Roven in the United Sates District Court for the
Central District of California. The complaint alleged fraud by Citadel in a
proxy solicitation relating to Citadel's 1987 Annual Meeting of Stockholders and
breach of fiduciary duty. The complaint sought compensatory and punitive damages
in an amount alleged to exceed $40 million. The complaint grew out of and was
originally asserted as a counter claim in an action brought by Citadel against
Roven to recover alleged short swing profits (the "Section 16 Action"). Citadel
believes it has meritorious defenses to these claims and has not reserved any
amounts with respect thereto. In October 1995, Citadel, Hecco Ventures I and
James J. Cotter were granted summary judgment on all causes of action asserted
in the 1990 complaint in federal court. Roven has appealed that judgment.
In 1995, Roven filed a complaint in the California Superior Court against
Citadel, Hecco Ventures I and James J. Cotter and, in addition, S. Craig
Tompkins and certain other persons, including Citadel's outside counsel and
certain former directors of Citadel (which directors are currently directors of
Craig and/or Reading), alleging malicious prosecution in connection with the
Section 16 Action. Citadel believes that it has meritorious defenses to these
claims, and has not reserved any amounts with respect thereto. Defense of the
action has been accepted by Citadel's insurers. In August 1996, the Los Angeles
County Superior Court ordered summary judgment in favor of Citadel and all other
defendants. Roven has appealed that judgment.
FIDELITY EMPLOYEE LITIGATION
A former Fidelity employee, William Strocco, brought a wrongful termination
and defamation action against Fidelity and Citadel, which was filed in Los
Angeles County Superior Court on March 9, 1995. Citadel was named as a defendant
on the basis that Citadel allegedly conspired with and induced Fidelity to
breach its employment agreement with Strocco. In July 1996, the Superior Court
ordered summary judgment in favor of Citadel. The case was subsequently settled
by Fidelity and the plaintiff.
5
SECURITIES LITIGATION
In July 1995, Citadel was named as a defendant in a lawsuit alleging
violations of federal and state securities laws in connection with the offering
of common stock of Citadel's then wholly owned subsidiary, Fidelity, in 1994
(the "Harbor Finance Litigation"). The suit was filed by Harbor finance Partners
in an alleged class action complaint in the United States District Court -
Central District of California, and named as defendants Citadel, Fidelity,
Richard M. Greenwood (Fidelity's chief executive officer and Citadel's former
chief executive officer), J.P. Morgan Securities, Inc. and Deloitte & Touche
LLP. The complaint which has been amended on three occasions in response to
motions to dismiss brought by Fidelity and Citadel, and which as amended, has
deleted defendants, J.P. Morgan Securities, Inc. and Deloitte & Touche LLP,
alleged that false and misleading information was provided by the defendants in
connection with Fidelity's stock offering and the defendants knew and failed to
disclose negative information concerning Fidelity. Defendant has also alleged
that defendants should have advised it of its legal rights with respect to
withdrawal from the offering after it had executed subscription documentation.
Defense of the action has been accepted by Fidelity under the terms of the
Stockholders Agreement entered into between Citadel and Fidelity as part of the
restructuring of Citadel's interest in Fidelity, and Citadel, to date, has not
retained separate counsel with respect to this litigation and is not incurring
outside costs of defense. In August 1996, the Federal District Court for the
Central District of California dismissed with prejudice all federal claims in
the case against Citadel, Fidelity and Greenwood and dismissed all state claims
without prejudice to the ability of the plaintiff to file such claims in a new
state court action. The plaintiff has appealed this judgment. In October 1996,
the plaintiff filed a class action suit in the Los Angeles Superior Court
alleging claims substantially similar to those previously filed in federal
court, to which Citadel and the remaining defendants demurred. In March 1997,
the Superior Court sustained this demurrers without leave to amend. In light of
the Plaintiff's appeal of the Federal District Court's dismissal of its Federal
claims, the Company assumes that the Plaintiff will likewise appeal the Superior
Court's dismissal of its State claims. Citadel believes that it has meritorious
defenses to these claims, and has not reserved any amounts with respect thereto.
However, the damages claimed by the plaintiff are in an unspecified amount, and
the proceeds of the offering which is the subject of the complaint were in
excess of the net worth of the Company.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 1996.
6
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)
1996:
Fourth Quarter 2 13/16 2 7/16
Third Quarter 2 13/16 2 1/4
Second Quarter 2 1/2 2 1/4
First Quarter 2 9/16 2 1/4
1995:
Fourth Quarter 2 1/2 2
Third Quarter 2 3/8 2
Second Quarter 2 7/16 2
First Quarter 3 1/8 2 1/16
HOLDERS OF RECORD
The number of holders of record of the Company's common stock at March 20,
1997 was 250.
DIVIDENDS ON COMMON STOCK
While Citadel has never declared a dividend on its Common Stock and has no
current plan to declare a dividend, it is Citadel's policy to review this matter
on an ongoing basis.
DIVIDENDS ON 3% VOTING CUMULATIVE CONVERTIBLE PREFERRED STOCK
On November 10, 1994, the Company issued 1,329,114 shares of 3% Cumulative
Voting Convertible Preferred Stock ("Preferred Stock") at a stated value of
$3.95 per share, or $5,250,000, to Craig in satisfaction of certain indebtedness
owed by the Company under the Craig Line of Credit. The Preferred Stock carried
a liquidation preference equal to its stated value and bears a cumulative
(noncompounded) annual dividend equal to 3% of the stated value. Incident to the
Reading Investment Transaction, Craig transferred the Preferred Stock to
Reading, and Reading and the Company exchanged the Preferred Stock for an equal
number of shares of the Company's Series B 3% Cumulative Voting Convertible
Preferred Stock (the "Series B Preferred Stock" and collectively with the
Preferred Stock, the "CHC Preferred Stock"), such Series B Preferred Stock
included certain revised terms as negotiated by the Company in the context of
the Reading Investment Transaction. In December 1996, the Company redeemed such
Series B Preferred Stock pursuant to the exercise of certain
7
redemption rights in favor of the Company, as set forth in the Certificate of
Designation, for approximately $6.19 million.
During 1996, the Board of Directors declared and paid dividends on the CHC
Preferred Stock in the amount of approximately $232,000.
8
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.
At or for the Year Ended December 31,
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- -----------
(In thousands, except per share data)
Income from real estate
operations $ 5,871 $ 6,112 $ 2,115
Gain on property sales 1,493 1,541
Net interest income after
provision for estimated
loan losses $ 36,101 $ 79,601
Gains (losses) on sale of
loans, net 194 1,117
Gains (losses) on sale of
mortgage-back securities 1,342
Gains (losses) on sales of
investment securities (54)
Other income (expense) (35,870) (6,602)
Administrative charge from
Fidelity 916
Gain (Loss) of and Write-down
of investment in Fidelity (6) 4,000 (41) (171,964)
Operating expense (4,938) (6,214) (4,060) (105,341) (77,911)
---------- ---------- ---------- ---------- ----------
Earnings (loss) before
income taxes 6,426 1,398 (174,825) (103,628) (3,795)
Income tax expense (benefit) (36,467) (5,841)
---------- ----------
---------- ---------- ---------- ---------- ----------
Net earnings (loss) $ 6,426 $ 1,398 $ (174,825) $ (67,161) $ 2,046
========== ========== =========== ========== ==========
Earnings (loss) per
common and common
equivalent share $0.80 $0.17 $(26.45) $(11.56) $0.62
Average common and common
equivalent shares (1)(2)(5) 7,983,416 8,233,174 6,610,280 5,809,570 3,297,812
Balance sheet Data:
Total assets $ 30,292 $ 39,815 $ 39,912 $4,389,519 $4,698,326
Cash and investments 6,356 16,291 4,805 238,220 177,599
Total loans, net 3,713,383 3,991,781
Deposits 3,368,643 3,457,918
Borrowings 10,303 16,186 14,846 734,230 908,400
Subordinated notes 60,000 60,000
Stockholders' equity 17,724 17,720 17,838 187,403 223,186
Cash dividends declared
on Preferred Stock 232 101 -- --
9
ITEM 6. SELECTED FINANCIAL DATA (CONT'D)
At or for the Year Ended December 31,
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- -----------
Other Data:
Real estate loans funded $422,355 $435,690
Average interest rate on
new loans 6.75% 7.77%
Loans sold $137,870 $204,435
Nonperforming assets to
total assets 5.37% 4.99%
Number of deposit accounts 241,093 233,037
Interest rate margin at
end of period (3) 2.19% 2.68%
Interest rate margin for
the period (3) 2.28% 2.67%
Retail branch offices (4) 42 43
(1) Net of treasury shares, where applicable.
(2) 1993 data includes 3,297,812 shares issued in March 1993 in connection with
a stock rights offering, which produced net proceeds to the Company of $31.4
million.
(3) Excluding the writedowns of core deposit intangibles of $5.2 million,
interest rate margins at and for the year ended December 31, 1993, would
have been 2.32% and 2.39%.
(4) All retail branches were located in Southern California.
(5) The 1996 and 1995 data includes the effect of shares assumed to be issued on
the conversion of the then outstanding 3% Cumulative Voting Convertible
Preferred Stock amounting to 2,046,784 common shares.
(6) The 1996 gain resulted from a non-recurring recognition of previously
deferred proceeds from the bulk sale of loans and properties by the
Company's previously owned subsidiary, Fidelity.
10
ITEM 7. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Citadel Holding Corporation, a Delaware corporation ("Citadel" and
collectively with its wholly owned subsidiaries, the "Company") has been engaged
primarily in the ownership and management of commercial and residential property
since August 1994. During this time period, the Company has considered
acquisitions outside of the ownership and management of commercial and
residential properties, and as a consequence of the real estate advisory and
consulting services provided on a fee basis to its shareholder affiliate,
Reading Entertainment, Inc. ("REI" and collectively with its consolidated
subsidiaries, "Reading"), has gained familiarity with the cinema exhibition
industry and the operations and prospects of Reading.
In May 1996, the Company's shareholder affiliates, Reading and Craig
Corporation ("CC" and collectively with its consolidated subsidiaries, "Craig")
authorized their respective managements to work together to develop one or more
proposals to provide Reading with the capital funding necessary to pursue its
entertainment industry business plan. In June 1996, the Company authorized its
management to cooperate with such efforts and formed a special committee of the
Board composed of outside directors unaffiliated with Craig and/or Reading to
participate in the negotiation and review of any such potential transaction (the
"Independent Committee"). The Independent Committee retained legal counsel and
investment banking advisors to assist it in this process.
On October 15, 1996, the Company, with the approval of the Board of
Directors, consummated the transaction (the "Reading Investment Transaction")
contemplated by an exchange Agreement (the "Exchange Agreement") dated as of
September 4, 1996 by and among Citadel, Reading and Craig and certain of their
respective affiliates. Pursuant to the terms of the Exchange Agreement, the
Company contributed cash in the amount of $7 million to Reading in exchange for
70,000 shares of Reading Series A Voting Cumulative Convertible Preferred Stock
(the "Series A Preferred Stock") and the Asset Put Option. Craig contributed
assets in exchange for 2,476,190 shares of Reading Common Stock and 550,000
shares of Reading Series B Voting Cumulative Convertible Preferred Stock. The
assets transferred by Craig consisted of 693,650 shares of Series B Preferred
Stock of Stater Bros. Holdings Inc., Craig's 50% membership interest in Reading
International Cinemas LLC, and 1,329,114 shares of the Company's Preferred
Stock. Upon consummation of the transaction, Craig and the Company held in the
aggregate approximately 82.4% of the voting power of Reading, with Craig's
holdings representing approximately 77.4% of the voting power of Reading and the
Company's holdings representing approximately 5% of such voting power. See
footnote 4 of the Notes to Consolidated Financial Statements for more detailed
information concerning the provisions of the Exchange Agreement.
In accordance with the Exchange Agreement, Reading exchanged the Preferred
Stock of the Company received from Craig for an equal number of shares of the
Company's Series B 3% Cumulative Voting Convertible Preferred Stock (the "Series
B Preferred Stock"). The terms of the Company's Series B Preferred Stock were
substantially identical to the terms of the Company's previously issued
Preferred Stock except (i) the Redemption Accrual Percentage was reduced from 9%
to 3% after October 15, 1996 and (ii) except upon a change of control of the
Company, the holders of the Series
11
B Preferred Stock would no longer have the right to convert the Series B
Preferred Stock into Company Common Stock during the one year period commencing
on the fifteenth day following the filing of the Company's Annual Report on Form
10-K for the year ended December 31, 1996. In December 1996, Reading notified
the Company of its exercise of its conversion rights. On December 20, 1996,
Citadel redeemed the Series B Preferred Stock from Reading pursuant to the
exercise of certain redemption rights set forth in the Certificate of
Designation with respect to the Series B Preferred Stock. Such redemption price
amounted to approximately $6.19 million. As a consequence of the Series B
Preferred Stock redemption, Reading's ownership of Citadel decreased to reflect
its approximately 26% common stock holdings.
The Asset Put Option is exercisable any time after October 15, 1996 through
a date thirty days after Reading's Form 10-K is filed with respect to its year
ended December 31, 1999, and gives the Company the right to exchange, for shares
of Reading Common Stock, all or substantially all of the Company's
assets, as defined, together with any debt encumbering such assets (the "Asset
Put"). In exchange for up to $20 million in aggregate appraised value of the
Company's assets on the exercise of the Asset Put Option, Reading is obligated
to deliver to the Company that number of shares of Reading Common Stock
determined by dividing the value of the Company's assets by $11.75 per share, if
the notice is received by October 31, 1997, and thereafter, $12.25 per share. If
the appraised value of the Company's assets is in excess of $20 million, Reading
is obligated to pay for the excess by issuing Common Stock at the then fair
market value up to a maximum of $30 million of assets. If the average trading
price of Reading Common Stock exceeds 130% of the then applicable exchange price
for more than 60 days, then the exchange price will thereafter be the fair
market of the Reading Common Stock from time to time, unless the Company
exercises the Asset Put within 120 days of receipt of notice from Reading of the
occurrence of such average trading price over such 60 day period.
The Reading Investment Transaction provides the Company an opportunity to
make an initial investment in the Beyond-the-Home segment of the entertainment
industry, and the ability, thereafter, to review the implementation by Reading
of its business plan and, if it approves of the progress made by Reading, to
make a further investment in this industry through the exercise of its Asset Put
Option to exchange all or substantially all of its assets for Reading Common
Stock. The Company has the right to require Reading to redeem the securities
issued to it in the Reading Investment Transaction after five years or sooner if
Reading fails to pay dividends on such securities for four quarters.
Reading is a publicly traded company whose shares are listed on the NASDAQ.
Reading is currently involved in conventional multiplex cinema exhibition in
Puerto Rico through its Cine Vista Cinemas chain, in the exhibition of art and
specialty film through its interest in the Angelika Film Center (a specialty art
multiplex cinema and cafe complex located in the Soho area of New York City),
and the development of a new chain of conventional multiplex cinemas and
entertainment centers in Australia. Reading opened its first multiplex cinema in
Australia in December 1996. In addition, Reading expects to expand the Angelika
Film Center concept to other U.S. cities, has executed a lease to develop an 8-
plex art cinema and cafe complex as a part of the Bayou Place development in
Houston, Texas, and is currently reviewing a number of potential locations
suitable for such complexes.
12
RESULTS OF OPERATIONS
- ---------------------
Due to the nature of the Company's business activities the Company's
historical and future revenues have varied significantly reflecting the results
of real estate sales and the disposition of its previously owned subsidiary,
Fidelity. In addition, rental income and earnings may vary significantly
depending upon the properties owned by the Company during the periods being
reported. Accordingly, year to year comparisons of operating results will not
be indicative of future financial results.
YEAR ENDED DECEMBER 31, 1996 ("FISCAL 1996) VERSUS YEAR ENDED DECEMBER 31, 1995
- -------------------------------------------------------------------------------
("FISCAL 1995")
- ---------------
The Company's net earnings for Fiscal 1996 amounted to approximately
$6,426,000 or $0.80 per share, as compared to $1,398,000 or $0.17 per share for
Fiscal 1995. Included in net earnings for Fiscal 1996 is (1) approximately
$1,493,000 from the sale of an apartment property and an undeveloped parcel of
land and (2) non-recurring income amounting to $4,000,000 resulting from the
recognition for financial statement purposes of previously deferred proceeds
from the bulk sale of loans and properties by Citadel's previously owned
subsidiary, Fidelity Federal Bank ("Fidelity"). At the time of the bulk sale in
1994 by Fidelity, Citadel agreed to indemnify Fidelity, up to $4,000,000, with
respect to certain losses that might be incurred by Fidelity in the event of a
breach by Fidelity of certain representations made to the purchaser of such
loans and properties. During 1996, Fidelity reached a settlement with the
purchaser regarding such bulk sale claims and released Citadel from the
indemnity. Included in the 1995 Fiscal Year net earnings is approximately
$1,541,000 from the sale of two rental properties.
Interest and dividend income amounted to $939,000 in Fiscal 1996 as
compared to $710,000 in Fiscal 1995. The increase between Fiscal 1996 and 1995
was due to higher investable fund balances during most of 1996. Cash balances
decreased in October 1996 as a result of the Company's $7 million investment in
Reading and again in December 1996 as a result of the Company's $6.19 million
redemption of its Series B Preferred Stock. Included in interest and dividend
income in Fiscal 1996 is dividend income of approximately $95,000 earned with
respect to the Company's Reading Series A Preferred Stock.
Rental income amounted to approximately $4,932,000 in Fiscal 1996 as
compared to $5,402,000 in Fiscal 1995. The decrease in Fiscal 1996 is
principally due to a reduction of the number of rental properties owned by the
Company between the periods. The apartment building held for sale at December
31, 1996 was sold in January 1997 for an amount, net of expenses, approximating
book value. An apartment building (the "Veselich Building") was sold in May
1996, resulting in a reduction of rental income amounting to approximately $1
million as compared to Fiscal 1995. Such decrease was partially offset by an
increase in rental income amounting to approximately $270,000 resulting, in
part, from the two-year lease renewal of approximately 58% of the Arboleda
property at increased rates and an increase in rental income amounting to
approximate ly $300,000 resulting from an entire years ownership of a six floor
commercial building located in Glendale, California (the "Glendale Building").
As of December 31, 1996 rental properties consisted of one apartment building
(held for sale) and two commercial buildings as compared to two apartment
buildings and two commercial buildings (one of which was purchased in May 1995)
as of December 31, 1995.
13
The Glendale Building was purchased in May 1995 from Fidelity. Two floors
of the Glendale Building were leased to Public Storage until April 1996 and four
floors, including the ground floor, were leased to Fidelity under a long-term
lease. In October 1996, the Company amended the office lease with Fidelity for
the Glendale Building resulting in, among other things, the termination of
Fidelity's lease of floors four through six, and concurrently with such
amendment, entered into a ten year lease with Disney Enterprises Inc. ("Disney")
for all the floors, excluding the ground floor, which continues to be leased by
Fidelity. The rental rate for the first five years of the Disney lease term
beginning February 1, 1997 is approximately $148,000 per month and approximately
$164,000 for the remaining five year term (in each case excluding parking).
Disney has the option to renew the lease for two consecutive five year periods.
The lease provides that the Company will contribute towards tenant improvements
and common area upgrades approximately $2.3 million. In addition, the Company
anticipates incurring costs for other building upgrades, governmental
compliance, commissions and legal fees prior to the commencement of lease
payments by Disney of approximately $1.2 million. The commissions, legal fees
and reimburse ment to Fidelity, totaling approximately $1,326,000 are included
in the Balance Sheet at December 31, 1996 as "Capitalized leasing costs" and are
being amortized over the term of the lease.
Real estate operating costs decreased in Fiscal 1996 to $2,481,000 as
compared to $2,660,000 in Fiscal 1995, principally as a result of the sale of
the Veselich Building. This decrease was partially offset by costs associated
with operating the Glendale Building purchased in May 1995.
Interest expense was comparable in Fiscal 1996 and 1995 and amounted to
approximately $1,317,000 in Fiscal 1996 as compared to $1,327,000 in Fiscal
1995. The comparability of such amounts reported as interest expense is a
result of the time periods mortgage loans were outstanding during each of the
two fiscal years. The Company obtained two mortgages aggregating approximately
$6.1 million in the second quarter of 1995. In May 1996, the Company upon the
sale of a rental property for approximately $8.941 million, net of expenses,
repaid a mortgage loan on said property amounting to approximately $5.7 million.
Accordingly, outstanding mortgages decreased approximately $5,882,000 between
December 31, 1996 and December 31, 1995 and in January 1997 decreased
approximately $755,000 due to an additional early repayment of a mortgage loan
upon the sale of the Parthenia property. The interest rate on the remaining
outstanding loans approximated 9.875% at December 31, 1996.
General and administrative expenses decreased to approximately $745,000 in
Fiscal 1996 as compared to $1,807,000 in Fiscal 1995. The $880,000 decrease
reflected in Fiscal 1996 is primarily attributable to (i) a $290,000 reduction
in outside legal and professional expenses, (ii) a decrease in directors fees of
approximately $250,000 in the Fiscal 1996, (iii) an $89,000 insurance
reimbursement of legal costs and (iv) the non-recurrence of approximately
$250,000 of costs incurred in Fiscal 1995 associated with a parcel of land which
was sold in Fiscal 1996. In addition, Fiscal 1996 general and administrative
expenses includes approximately $169,000 in fee income for consulting services
provided by employees of the Company to Reading as compared to $120,000 in
Fiscal 1995.
14
YEAR ENDED DECEMBER 31, 1995 ("FISCAL 1995) VERSUS YEAR ENDED DECEMBER 31, 1994
- -------------------------------------------------------------------------------
("FISCAL 1994")
- ---------------
Prior to a restructuring in August 1994, Citadel was a financial services
holding company engaged in the savings bank business through Fidelity. It
conducted virtually no operations at the holding company level. In the
Restructuring, Citadel's interest in Fidelity was reduced from 100% to 16.2% and
Citadel transferred the stock of its other subsidiary, Gateway, to Fidelity
leaving Citadel with no historical operating business. As a result, effective
January 1, 1994, Citadel ceased including the results of Fidelity and Gateway on
a consolidated basis in its financial statements and began accounting for its
investment in Fidelity on the cost basis. Since the Restructuring, Citadel has
been engaged primarily in the ownership and management of commercial and
residential real property. Therefore, no meaningful comparisons can be made
between Citadel's results of operations for the years ended December 31, 1995
(twelve months of real estate operations) and December 31, 1994 (5 months of
real estate operations).
In addition to the reduction of Citadel's interest in Fidelity, in the
Restructuring, (1) the Company acquired from Fidelity four real properties for a
purchase price of approximately $19.8 million (Fidelity's book value) of which
$13.9 million was financed by Fidelity on a secured basis and the balance was
financed by Craig, under a short-term line of credit; (2) the Company received,
by way of dividend from Fidelity, options to acquire at book value ($9.3
million) two office buildings used by Fidelity in its operations (the "Building
Options"); (3) the Company acquired, again by way of a dividend, Fidelity's
interest in certain outstanding litigation, and (4) Citadel agreed to indemnify
Fidelity, up to a limit of $4 million, with respect to certain representations
and warranties made by Fidelity to certain third party buyers in connection with
bulk sales made as part of the Restructuring (the "Bulk Sale Indemnity").
The Company reported net income for the year ended December 31, 1995 of
$1,398,000 or $0.16 per share, including a gain of approximately $1,541,000 from
the sale of an office building in Sherman Oaks, California and a residential
property in Harbor City, California. The Company reported a net loss of $174.8
million or $26.45 per share in Fiscal 1994 comprised of (i) a $112.1 million
loss from the operations of its former subsidiary, Fidelity, through the date of
the Restructuring, (ii) writedowns of $59.9 million on the Company's investment
in Fidelity at and following the Restructuring, (iii) a $900,000 administrative
charge paid to Fidelity prior to the Restructuring, and (iv) a $1.9 million loss
from its ongoing operations.
During the first quarter of Fiscal 1995, the Company exercised the Building
Options and on March 23, 1995 purchased and immediately sold the Sherman Oaks
Building for a gain of approximately $560,000. On May 18, 1995, the Company
purchased the Glendale Building for an exercise price of approximately $7.12
million. Concurrent with the purchase, the Company entered into a ten year,
full service gross lease with Fidelity for four of the six floors of the
Glendale Building providing for a base rent, subject to annual escalations, of
approximately $1,220,000 annually. At December 31, 1995 rental properties
consisted of one apartment building and two commercial buildings as compared to
three apartment buildings and one commercial building at December 31, 1994.
Properties held for sale at December 31, 1995 was comprised of one apartment
building with a book value of $7,542,000 and an undeveloped parcel of land with
a book value of $400,000.
15
During the second quarter of fiscal 1995, the Company sold substantially
all of its remaining interest in Fidelity and settled certain litigation, which
resulted in the Company receiving net cash proceeds of approximately $11,938,000
and the return of 666,000 shares of the Company's common stock. The Fiscal 1995
net earnings includes a loss of approximately $41,000 from the sale of such
Fidelity shares calculated by comparing (i) the net cash proceeds combined with
the amount ascribed to the common stock received ($2.125 per share), to (ii)the
carrying value of such Fidelity stock included in the balance sheet as
Investment in Fidelity held for sale at December 31, 1994. The Company has
reflected the return of the Company's common stock as treasury stock in the
amount of $1,415,000.
The sale of the real properties and the sale of the Fidelity stock
attributed to the significant increase in cash and cash equivalents during
December 31, 1995. The increase in cash and cash equivalents was offset, in
part, by the purchase of the Glendale Building for approximately $7.12 million
which was funded with $1.78 million of cash and a mortgage of approximately
$5.34 million. Cash and cash equivalents amounted to $4,805,000 at December 31,
1994 as compared to $16,291,000 at December 31, 1995. Accordingly, interest
income increased significantly during the third and fourth quarter of Fiscal
1995. The Company's net operating results for Fiscal 1995 include interest
income amounting to $710,000, as compared to $45,000 in Fiscal 1994.
Rental income amounted to $5,402,000 in fiscal 1995 as compared to
$2,070,000 for fiscal 1994. Rental income may vary significantly depending upon
the properties owned by the Company during the periods being reported. As
described above, the Company did not engage in the ownership and management of
commercial and residential properties until the Restructuring in August 1994.
Accordingly, Fiscal 1994 reflects rental income for only five months as compared
to twelve months in Fiscal 1995. In addition, Fiscal 1995 includes rental
income from the Company's May acquisition of the Glendale Building, somewhat
offset, by a reduction in rental income resulting from the sale of the Harbor
City residential property in the first quarter of 1995.
During Fiscal 1995, the Company made a decision to sell the Veselich
residential property and, accordingly, included this property with a carrying
value of $7,542,000 at December 31, 1995 in Properties held for sale. On March
26, 1996, the Company entered into a Purchase and Sale Agreement to sell the
Veselich property, whereby the Buyer agreed to purchase said property for
approximately $9.3 million which closed in May 1996.
Interest expense amounted to $1,327,000 in Fiscal 1995 and $649,000 in
Fiscal 1994. As described above, at the date of the Restructuring, the Company
purchased the properties from Fidelity with an acquisition price of $19.8
million with mortgage financing from Fidelity and a short-term line of credit
amounting to $6.2 million from Craig. Fiscal 1994 interest expense reflects
interest for the five month period on the indebtedness incurred at the
Restructuring and includes $266,000 paid to Craig under the terms of the Craig
line of credit.
On November 10, 1994, the Company issued 1,329,114 shares of 3% Cumulative
Voting Convertible Preferred Stock ("Preferred Stock") at a stated value of
$3.95 per share. The sales price of the 1,329,114 shares sold was $5,250,000
which was paid through the conversion of a portion of the $6.2 million
indebtedness to Craig, resulting in a reduction in interest costs. Subsequent
to the sale of the Fidelity shares in April 1995, the Company paid in full the
remaining $950,000 loan from Craig. Included in interest expense for Fiscal
1995 is approximately $59,000 related to the loan from Craig. The reduction in
interest costs associated with the pay-off and
16
conversion of the Craig loan to Preferred shares and the assignment of the
mortgage indebtedness as part of the sale of the Harbor City property was
offset, in part, by $5.34 million of mortgage financing obtained to purchase the
Glendale Building in Fiscal 1995.
General and administrative expenses from real estate operations amounted to
$1,807,000 in Fiscal 1995 as compared to $1,785,000 in Fiscal 1994. During
Fiscal 1995, the Company incurred additional legal fees pertaining to
outstanding litigation and paid bonuses and directors fees for past services
aggregating approximately $302,500, which were authorized by the Board to the
Chairman, Vice-Chairman and President. Such employee related costs were offset
by a payment of approximately $120,000 by affiliates of Craig to the Company for
real estate consulting services provided by employees to such affiliates.
Fiscal 1994 general and administrative expenses represented only five
months of operations and included approximately $1.1 million related to a
contested proxy, solicitation, litigation defense and settlement costs. Such
legal costs included the costs of defending a lawsuit filed in the Court of
Chancery of the State of Delaware by a stockholder, Dillon Investors L.P., in
November 1994, naming as defendants the Company, its directors and Craig. On
April 13, 1995, the Company, Craig and Dillon Investors and its affiliates (the
"Dillon Parties") entered into settlement agreements to resolve this litigation.
Under the settlement agreements, the Dillon Parties purchased from Citadel
1,295,000 shares of Class B common stock of Fidelity owned by the Company in
exchange for which the Company received from Dillon Parties $2.22 million and
666,000 shares of the Company's common stock, and all existing litigation among
the Company, Craig and the Dillon Parties was terminated, with mutual releases
executed and delivered. The Dillon Parties also agreed for a period of one year
following the closing, not to purchase or acquire any other beneficial interests
in any of the Company's securities, and not to engage in any solicitations of
consents or proxies.
The settlement terms also included an agreement by Craig with the Dillon
Parties not to exercise, prior to February 4, 1996, its right to tender any
shares of the Preferred Stock for conversion into the Company's common stock
without the prior written consent of the holders of a majority of the
outstanding shares of the Company's common stock. In exchange for such
concession from Craig, the Company agreed to grant Craig a two year warrant to
acquire the 666,000 shares of the Company's common stock acquired from the
Dillon Parties at a price of $3.00 per share, and reimbursed Craig for certain
legal costs associated with the litigation amounting to approximately $62,000.
BUSINESS PLAN, CAPITAL RESOURCES AND LIQUIDITY OF THE COMPANY
- -------------------------------------------------------------
Fiscal 1996
- -----------
Fiscal 1996 cash and cash equivalents decreased by approximately $9,932,000
from $16,291,000 at December 31, 1995 to $6,359,000 at December 31, 1996. Net
cash provided by investing activities for the year ended December 31, 1996
amounted to $1,460,000 and net cash used in financing activities amounted to
approximately $12,305,000. The principal sources of liquid funds in Fiscal 1996
was from the sale of properties amounting to $9,361,000. The principal uses of
liquid funds in 1996 included (i) a $7 million investment in its shareholder,
Reading, (ii) a $5,883,000 repayment of mortgage loans including $5,690,000
repaid as a result of a rental property sale in May 1996, (iii) the Company's
redemption from Reading of its Series
17
B Preferred Stock in the amount of $6,190,000, (iv) improvements to rental
properties amounting to $504,000 and (v) the payment of preferred stock
dividends amounting to $232,000.
The Company expects that its sources of funds in the near term will include
(i) cash on hand and related interest income, (ii) cash flow from the operations
of its real estate properties, (iii) approximately $350,000 of proceeds from the
sale of a rental property net of a mortgage loan repayment with respect to an
apartment building sold in January 1997, (iv) consulting fee income from Reading
and (v) a quarterly preferred stock dividend from Reading amounting to
approximately $455,000 annually.
In the short-term, uses of funds are expected to include (i) funding of the
Glendale Building leasehold improvements and building upgrades required under
the terms of the Disney lease amounting to approximately $3 million, (ii)
operating expenses, (iii) payment of December 31, 1996 accrued liabilities
including approximately $870,000 of unpaid commissions and releasing costs
incurred in releasing the Glendale Building, and (iv) debt service pursuant to
the property mortgages.
Management believes that the Company's sources of funds will be sufficient
to meet its cash flow requirements for the foreseeable future. The October 1996
Reading Investment Transaction, described above, provided the Company with the
opportunity to make an initial investment in the Beyond-the-Home segment of the
entertainment industry, and the ability thereafter, to review the implementation
by Reading of its business plan and, if it approves of the progress made by
Reading, to make a further investment in this industry through the exercise of
its Asset Put Option to exchange all or substantially all of its assets for
Reading Common Stock. The Company has the right to require Reading to redeem
the securities issued to it in the Exchange Transaction after five years or
sooner if Reading fails to pay dividends on such securities for four quarters.
Fiscal 1995
- ------------
Cash and cash equivalents increased by approximately $11,486,000 in Fiscal 1995
to $16,291,000 at December 31, 1995. Net cash provided by investing activities
amounted to $11,165,000 including cash proceeds from the sale of its remaining
Fidelity stock and proceeds from the sale of properties amounting to $11,938,000
and $8,837,000, respectively. Fiscal 1995 proceeds from long-term mortgage
financing amounted to approximately $6,104,000. During Fiscal 1995, principal
uses of funds included the purchase and improvement of rental properties
amounting to $9,610,000 and the repayment of long-term and short-term principal
borrowings of approximately $4,764,000.
Fiscal 1994
- -----------
Cash and cash equivalents decreased by approximately $141,156,000 in Fiscal
1994, inclusive of a decrease of approximately $143,677,000, resulting from the
deconsolidation of the Company's previously owned subsidiary, Fidelity. In
August 1994, Citadel completed a restructuring in which among other things,
Citadel's ownership interest in Fidelity was reduced to 16% and the Company
formed a new subsidiary which purchased four real properties using funds of
approximately $20,055,000. Proceeds to purchase such properties was obtained
through long-term mortgage debt amounting to approximately $13,930,000 and a
$6,200,000 short-term credit line from the Company's shareholder affiliate,
Craig.
18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX PAGE
- ----- ----
Report of Independent Auditors.................... 20
Consolidated Balance Sheets
Years Ended December 31, 1996 and 1995.......... 21
Consolidated Statements of Operations
Years Ended December 31, 1996, 1995 and 1994.... 22
Consolidated Statements of Stockholders' Equity
Three Years Ended December 31, 1996............. 23
Consolidated Statements of Cash Flows
Years Ended December 31, 1996, 1995 and 1994.... 24
Notes to Consolidated Financial Statements........ 25
Financial Statement Schedule - III - Real Estate
and Accumulated Depreciation.................... 40
19
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Citadel Holding Corporation
We have audited the consolidated balance sheets of Citadel Holding Corporation
and subsidiaries as of December 31, 1996 and 1995 and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1996. Our audits also included the
financial statement schedule listed in the Index at Item 8. These financial
statements and the financial statement schedule are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Citadel Holding Corporation and
subsidiaries as of December 31, 1996 and 1995, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Los Angeles, California
March 20, 1997
20
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1996 1995
------------ ------------
(In thousands of dollars)
ASSETS
- ------
Cash and cash equivalents $ 6,356 $ 16,291
Properties held for sale 1,145 7,942
Rental properties, less accumulated depreciation 13,288 14,251
Investment in shareholder affiliate 7,000 --
Capitalized leasing costs 1,576 70
Other receivables 311 447
Other assets 616 814
-------- --------
Total assets $ 30,292 $ 39,815
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
LIABILITIES
Security deposits payable $ 76 $ 253
Accounts payable and accrued liabilities 2,189 1,656
Deferred proceeds from bulk sales agreement -- 4,000
Mortgage notes payable 10,303 16,186
-------- --------
Total liabilities 12,568 22,095
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Serial preferred stock, par value $.01,
5,000,000 shares authorized, 3% Cumulative
Voting Convertible, ($3.95 per share or
$5,250,000 stated value) 1,329,114 shares
issued and outstanding at December 31, 1995 -- 13
Serial preferred stock, par value $.01,
5,000,000 shares authorized, 3% Cumulative
Voting Convertible, none outstanding -- --
Common stock, par value $.01, 20,000,000
shares authorized, 6,669,924 shares issued
and outstanding at December 31, 1996
and 1995 67 67
Additional paid-in capital 59,020 65,197
Deficit (39,948) (46,142)
Cost of treasury shares, 666,000 shares (1,415) (1,415)
-------- --------
Total stockholders' equity 17,724 17,720
-------- --------
Total liabilities and stockholders' equity $ 30,292 $ 39,815
======== ========
See accompanying notes to consolidated financial statements.
21
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
1996 1995 1994
------- -------- ----------
(In thousands of dollars,
except per share amounts)
Real Estate Operations:
Rental income $4,932 $5,402 $ 2,070
Interest income 939 710 45
------ ------ ---------
5,871 6,112 2,115
Real estate operating expenses 2,481 2,660 1,350
Depreciation and amortization 395 420 276
Interest expense 1,317 1,327 649
General and administrative expenses 745 1,807 1,785
------ ------ ---------
Total expenses 4,938 6,214 4,060
Gain on sale of properties 1,493 1,541 --
------ ------ ---------
Earnings (loss) from Real Estate Operations 2,426 1,439 (1,945)
------ ------ ---------
Administrative Charge from Fidelity -- -- (916)
Gain (Loss) of and Write-down of Investment
in Fidelity 4,000 (41) (171,964)
------ ------ ---------
Earnings (loss) before taxes 6,426 1,398 (174,825)
Income tax expense (benefit) -- -- --
------ ------ ---------
Net earnings (loss) $6,426 $1,398 $(174,825)
====== ====== =========
Net earnings (loss) per common and
common equivalent share $0.80 $0.17 $(26.45)
====== ====== =========
See accompanying notes to consolidated financial statements.
22
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1996
(IN THOUSANDS OF DOLLARS)
Preferred Stock Common Stock
------------------- -------------- Treasury Stock-
Shares Par Shares Par Paid-In Retained Stock, holders'
Value Value Capital Earnings At Cost Equity
Balances at
January 1, 1994 6,596 $66 $60,052 $ 127,285 $ 187,403
Issuance of common
stock 74 1 285 286
Issuance of preferred
stock, net of
issuance costs of
$275 1,329 $ 13 4,961 4,974
Net (loss) (174,825) (174,825)
------ ---- ----- --- -------- -------- ------ --------
Balances at
Dec. 31, 1994 1,329 13 6,670 67 65,298 (47,540) -- 17,838
Asset exchange for
666,000 shares of
common stock $(1,415) (1,415)
Net earnings 1,398 1,398
Preferred stock
dividends (101) (101)
------ ---- ----- --- -------- -------- ------ --------
Balances at
Dec. 31, 1995 1,329 13 6,670 67 65,197 (46,142) (1,415) 17,720
Redemption of
Preferred stock (1,329) (13) (6,177) (6,190)
Net earnings 6,426 6,426
Preferred stock
dividends (232) (232)
------ ---- ----- --- -------- -------- ------ --------
Balances at
Dec. 31, 1996 $ -- 6,670 $67 $59,020 $ (39,948) $(1,415) $ 17,724
====== ==== ===== === ======= ========= ======= =========
See accompanying notes to consolidated financial statements.
23
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
Year Ended December 31,
1996 1995 1994
--------- --------- ----------
OPERATING ACTIVITIES
Net earnings (loss) $ 6,426 $ 1,398 $(174,825)
Adjustments to reconcile net earnings (loss) to
net cash provided (used) by operating activities:
Deconsolidation of Fidelity -- -- 111,988
(Gain) Loss from investment in Fidelity (4,000) 41 59,892
Deferred proceeds from Bulk Sales Agreement -- -- 4,000
Depreciation and amortization 395 420 276
Gain on sale of rental property (1,493) (1,541) --
Amortization of deferred loan costs 88 58 --
(Increase) decrease in other receivables 137 382 (1,219)
(Increase) decrease in other assets (129) (216) (625)
Increase in security deposits payable (177) 26 227
Increase (decrease) in accrued liabilities (337) (1,345) 3,001
-------- ------- ---------
Net cash provided by (used in) operating activities 910 (777) 2,715
INVESTING ACTIVITIES
Proceeds from sale of Fidelity stock -- 11,938 --
Purchase of Reading Entertainment, Inc. securities (7,000) -- --
Proceeds from sale of properties 9,361 8,837 --
Payment of capitalized leasing costs (397) -- --
Purchase of and additions to real estate (504) (9,610) (20,055)
-------- ------- ---------
Net cash provided by (used in) investing activities 1,460 11,165 (20,055)
FINANCING ACTIVITIES
Redemption of Preferred Stock from shareholder
affiliate (6,190) -- --
Proceeds from long-term mortgage borrowings -- 6,104 13,930
Repayments of long-term borrowings (5,883) (3,814) (34)
Short-term borrowings from affiliates -- -- 6,200
Repayment of borrowings from affiliates -- (950) --
Dividends paid (232) (101) --
Capitalized financing costs -- (141) (246)
Costs of preferred stock issuance -- -- (275)
Proceeds from issuance of common stock -- -- 286
-------- ------- ---------
Net cash provided by (used in) financing activities (12,305) 1,098 19,861
Less cash and cash equivalents of Fidelity at
beginning of period -- -- (143,677)
-------- ------- ---------
Net increase (decrease) in cash and cash equivalents (9,935) 11,486 (141,156)
Cash and cash equivalents at beginning of year 16,291 4,805 145,961
-------- ------- ---------
Cash and cash equivalents at end of year $ 6,356 $16,291 $ 4,805
======== ======= =========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest on mortgages and line of credit $ 1,269 $ 1,292 $ 548
Noncash transactions:
Conversion of line of credit to preferred stock,
net of loan costs -- -- 4,974
Common stock received in exchange for Fidelity stock -- 1,415 --
Additions to real estate owned (other assets)
through foreclosure -- 400 --
See notes to accompanying consolidated financial statements.
24
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
- --------------------------------------------------------------
The consolidated financial statements include the accounts of Citadel Holding
Corporation ("Citadel") and its wholly owned subsidiaries (collectively the
"Company"). All significant intercompany balances and transactions have been
eliminated in consolidation.
On October 15, 1996, the Company consummated the transaction (the "Exchange
Transaction") contemplated by an exchange agreement (the "Exchange Agreement")
with its shareholder affiliates, Craig Corporation ("Craig") and Reading
Entertainment, Inc. ("Reading"). Pursuant to the terms of the Exchange
Agreement, the Company contributed cash in the amount of $7 million to Reading
in exchange for 70,000 shares of Reading Series A Voting Cumulative Convertible
Preferred Stock (the "Series A Preferred Stock") and an option to transfer all
or substantially all (subject to certain limitations) of its assets to Reading
for Reading Common Stock (the "Asset Put Option"). See Note 4. The Company
accounts for its investment in Reading at cost.
As a result of a restructuring in August 1994, described in Note 5, effective
January 1, 1994, Citadel no longer consolidates its previously wholly owned
subsidiary, Fidelity Federal Bank ("Fidelity") in its financial statements;
rather it accounts for its investment in Fidelity on the cost basis. According
ly, information for the year ended December 31, 1994 presents the Company's
results of operations for the five months subsequent to the Restructuring
separate from the results of operations of Fidelity, which have been included in
the statement of operations as "Gain (Loss) of and Writedown of Investment in
Fidelity".
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Cash and cash equivalents
- -------------------------
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. Included in cash and cash
equivalents at December 31, 1996 is approximately $5.75 million which is being
held in institutional money market mutual funds.
Depreciation and Amortization
- -----------------------------
Depreciation and amortization is generally provided using the straight-line
method over the estimated useful lives of the assets which range from 27 to 39
years. Leasehold improvements are amortized over the lives of respective leases
or the useful lives of the improvements, whichever is shorter.
25
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONT'D)
- -------------------------------------------------------------
Deferred Financing Costs
- ------------------------
Costs incurred in connection with obtaining financing are amortized over the
terms of the respective loans on a straight line basis.
Capitalized Leasing Costs
- -------------------------
Commissions and other costs incurred in connection with obtaining leases are
amortized over the terms of the respective leases on a straight line basis.
Earnings (Loss) per Share Data
- ------------------------------
Earnings per share is based on 7,983,416, 8,233,174 and 6,610,280, the weighted
average number of shares of common stock and common stock equivalents
outstanding during the years ended December 31, 1996, 1995 and 1994,
respectively. The 3% Cumulative Voting Convertible Preferred Stock and the
outstanding Warrants and stock options are common stock equivalents. For 1996
and 1995, the calculation of the weighted average shares of common stock
outstanding included the effect of shares assumed to be issued on conversion of
the outstanding 3% Cumulative Voting Convertible Preferred Stock during the
period of time such stock was outstanding and the outstanding Warrants and stock
options. The number of shares assumed converted as of the beginning of the
period being reported amounted to 2,046,784 and was calculated in accordance
with the Preferred Stock conversion terms described in Note 8. The Preferred
Stock is not included in the 1994 calculation as its effect was anti-dilutive.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates.
Accounting for the Impairment of Long Lived Assets
- --------------------------------------------------
During the fiscal year ended December 31, 1996, the Company adopted Statement of
Accounting Standard No. 121 "Accounting for the Impairment of Long Lived Assets
and for Long Lived Assets to be Disposed of". Among other provisions, the
statement changed current accounting practices for the evaluation of the
impairment of long lived assets. The adoption did not have a material affect
on the Company's Consolidated Financial Statements.
26
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 3 - RENTAL PROPERTIES AND PROPERTIES HELD FOR SALE
- -------------------------------------------------------
The Company's rental properties and properties held for sale at December 31,
1996 and 1995 consisted of the following:
1996 1995
-------- --------
(In thousands)
RENTAL PROPERTIES:
Land $ 4,438 $ 4,699
Building and improvements 9,389 9,855
------- -------
Total 13,827 14,554
Less accumulated depreciation (539) (303)
------- -------
Rental properties, net $13,288 $14,251
======= =======
PROPERTIES HELD FOR SALE:
Apartment building $ 1,230 $ 7,791
Accumulated depreciation (85) (249)
------- -------
Net 1,145 7,542
Undeveloped land -- 400
------- -------
Properties held for sale $ 1,145 $ 7,942
======= =======
At December 31, 1996 rental properties consisted of two commercial buildings as
compared to one apartment building and two commercial building at December 31,
1995. In January 1997, the property held for sale at December 31, 1996 was sold
at an amount approximating book value.
In May 1996, the Company sold the apartment rental property held for sale at
December 31, 1995, for approximately $8.94 million, net of expenses. The sale
resulted in a gain of approximately $1.473 million. Concurrent with the sale,
the Company paid off the related mortgage note payable amounting to
approximately $5.7 million. In addition, in August 1996, the Company sold the
undeveloped parcel of land in Claremont for a price, net of expenses, which
resulted in a gain of approximately $20,000.
During 1995, the Company sold an apartment building for approximately $5.9
million, net of expenses. The sale resulted in a gain of approximately $981,000.
On February 2, 1995, the Company exercised the Building Options described in
Note 5 to purchase the two office buildings from Fidelity. On March 23, 1995,
the Company purchased and immediately sold the Sherman Oaks Building for a gain
of approximately $560,000. On May 18, 1995, the Company purchased the Glendale
Building at an exercise price of $7.12 million. In connection with the Glendale
Building the Company obtained a $5.34 million five year mortgage from Fidelity,
which amortizes on a twenty year basis with interest payable monthly at the 30
day LIBOR rate plus 4.5%. The Company paid Fidelity a loan fee of 1% plus normal
closing costs.
27
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 3 - RENTAL PROPERTIES AND PROPERTIES HELD FOR SALE, CONT'D
- ---------------------------------------------------------------
In August 1994, the Company and Fidelity entered into a ten year, full service
gross lease for four of the six floors of an office building owned by the
Company in Glendale, California (the "Glendale Building"). The rental rate for
the first five years of the lease term was approximately $26,000 per month
(including parking) for the ground floor and approximately $75,000 per month
(including parking), for the fourth through sixth floors. On October 1, 1996,
the Company and Fidelity amended the office lease for the Glendale Building
resulting in (1) termination of the lease obligation for floors four through six
resulting in a reduction of rent payments amounting to approximately $75,000 per
month after January 31, 1997, (2) termination of Fidelity's option to purchase
the Glendale Building, (3) a modification of the mortgage with Fidelity on the
Glendale Building eliminating the prepayment penalty and (4) an obligation by
the Company to refund to Fidelity previous rents approximating $450,000 on
February 1, 1997. Concurrent with the amendment of the Fidelity lease and
mortgage, the Company entered into a ten year, full service lease for all of the
floors, excluding the ground floor (approximately 80,000 square feet), of the
Glendale Building with Disney Enterprises, Inc. ("Disney"). The rental rate for
the first five years of the Disney lease term beginning February 1, 1997 is
approximately $148,000 per month (excluding parking) and approximately $164,000
(excluding parking) for the remaining five year term. Disney has the option to
renew the lease for two consecutive five year periods. The lease provides that
the Company will contribute towards tenant improvements and common area upgrades
approximately $2.3 million. In addition, the Company anticipates incurring costs
for other building upgrades, governmental compliance, commissions and legal fees
prior to the commencement of lease payments by Disney of approximately $1.2
million. The commissions, legal fees and the $450,000 payment due Fidelity,
totaling approximately $1,326,000 are included in the Balance Sheet at December
31, 1996 as "Capitalized leasing costs" and are being amortized over the term of
the lease .
NOTE 4 - INVESTMENT IN SHAREHOLDER AFFILIATE
- --------------------------------------------
On October 15, 1996, the Company, with the approval of the Board of Directors,
consummated the transaction (the "Reading Investment Transaction") contemplated
by an exchange Agreement (the "Exchange Agreement") dated as of September 4,
1996 by and among the Company, Reading and Craig and certain of their respective
affiliates. Pursuant to the terms of the Exchange Agreement, the Company
contributed cash in the amount of $7 million to Reading in exchange for 70,000
shares of Reading Series A Voting Cumulative Convertible Preferred Stock (the
"Series A Preferred Stock") and the Asset Put Option. Craig contributed assets
in exchange for 2,476,190 shares of Reading Common Stock and 550,000 shares of
Reading Series B Voting Cumulative Convertible Preferred Stock. The assets
transferred by Craig consisted of 693,650 shares of Series B Preferred Stock of
Stater Bros. Holdings Inc., Craig's 50% membership interest in Reading
International Cinemas LLC, and 1,329,114 shares of the Company's Preferred
Stock. In accordance with the Exchange Agreement, Reading exchanged the
Preferred Stock
28
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 4 - INVESTMENT IN SHAREHOLDER AFFILIATE, CONT'D
- ----------------------------------------------------
of the Company received from Craig in the Exchange for an equal number of shares
of the Company's Series B 3% Cumulative Voting Convertible Preferred Stock (the
"Series B Preferred Stock"). Such Series B Preferred Stock received by Reading
in the Exchange Transaction was redeemed by the Company in December 1996 (Note
8).
Upon consummation of the transaction, Craig and the Company held in the
aggregate approximately 82.4% of the voting power of Reading, with Craig's
holdings representing approximately 77.4% of the voting power of Reading and the
Company's holdings representing approximately 5% of such voting power. In
February 1997, Craig increased its ownership in Reading resulting in an increase
in its voting power of Reading to 78%. At December 31, 1996, Reading holds
1,564,973 shares or approximately 26% of the Company's outstanding common stock.
Craig also holds a warrant, which expires in April 1997, to purchase 666,000
shares of the Company's Common Stock at a purchase price of $3.00.
The 70,000 shares of Series A Preferred Stock acquired by the Company has (i) a
liquidation preference of $100 per share or $7 million ("Stated Value"), (ii)
bears a cumulative dividend of 6.5%, payable quarterly and (iii) is convertible
any time after 18 months from issuance (or earlier upon a change of control of
Reading) into shares of Reading Common Stock at a conversion price of $11.50 per
share. Reading may, at its option, redeem the Series A Preferred Stock at any
time after October 15, 2001, in whole or in part, at a redemption price equal to
a percentage of the Stated Value (initially 108% and decreasing 2% per annum
until the percentage equals 100%). The Company has the right for a 90-day period
beginning October 15, 2001 (provided the Company has not exercised the Asset Put
Option described below), or in the event of a change of control of Reading to
require Reading to repurchase the shares of the Series A Preferred Stock for
their aggregate Stated Value plus accumulated dividends. In addition, if Reading
fails to pay dividends for four quarters, the Company has the option to require
Reading to repurchase such shares at their aggregate liquidation value plus
accumulated dividends. Included in interest and dividend income is approximately
$95,000 representing dividends earned and paid to the Company with respect to
the Company's ownership of the Reading Series A Preferred Stock.
The Asset Put Option is exercisable any time after October 15, 1996 through a
date thirty days after Reading's Form 10-K is filed with respect to its year
ended December 31, 1999, and gives the Company the right to exchange all or
substantially all of its assets, as defined, together with any debt encumbering
such assets, for shares of Reading Common Stock (the "Asset Put"). In exchange
for up to $20 million in aggregate appraised value of the Company's assets on
the exercise of the Asset Put Option, Reading is obligated to deliver to the
Company a number of shares of Reading Common Stock determined by dividing the
value of the Company's assets by $11.75 per share if the notice is received by
October 31, 1997 and thereafter, $12.25 per share. If the appraised value of the
Company's assets is in excess of $20 million, Reading is obligated to pay for
the excess by issuing Common Stock at the then fair market value up to a maximum
of $30 million of assets. If the average trading price of Reading Common Stock
exceeds 130% of the then applicable exchange price for more than 60 days, then
the exchange price
29
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 4 - INVESTMENT IN SHAREHOLDER AFFILIATE, CONT'D
- ----------------------------------------------------
will thereafter be the fair market of the Reading Common Stock from time to
time, unless the Company exercises the Asset Put within 120 days of receipt of
notice from Reading of the occurrence of such average trading price over such 60
day period. For financial reporting purposes the Company did not allocate any
value to the Asset Put Option, due to the Company's belief that the value is not
material and that the methods of valuing options include numerous subjective
assumptions and are not intended to value non-transferable options.
The Company has certain demand and piggy-back registration rights with respect
to Reading Common Stock issuable on conversion of the Series A Voting Cumulative
Convertible Preferred Stock or on exercise of the Asset Put. With respect to
the Reading Investment Transaction, Reading agreed to reimburse the Company for
its out of pocket costs, estimated to be approximately $265,000, up to a maximum
of $280,000.
Reading is a publicly traded company whose shares are listed on the NASDAQ.
Reading is currently involved in conventional multiplex cinema exhibition in
Puerto Rico through its Cine Vista Cinemas chain, in the exhibition of art and
specialty film through its interest in the Angelika Film Center (a specialty art
multiplex cinema and cafe complex located in the Soho area of New York City),
and the development of a new chain of conventional multiplex cinemas and
entertainment centers in Australia. Reading opened its first multiplex cinema in
Australia in December 1996. In addition, Reading expects to expand the Angelika
Film Center concept to other U.S. cities, has executed a lease to develop an 8-
plex art cinema and cafe complex as a part of the Bayou Place development in
Houston, Texas, and is currently reviewing a number of potential locations
suitable for such complexes.
Summarized financial information of Reading as of and for the three months and
twelve months ended December 31, 1996 follows:
CONDENSED BALANCE SHEET:
December 31, 1996
-----------------
(In thousands)
Cash and cash equivalents $ 48,680
Other current assets 7,765
Equity investment in Citadel 4,850
Preferred stock of Stater 67,978
Property and equipment 21,130
Intangible assets 26,229
Other assets 5,122
--------
Total Assets $181,754
========
Current liabilities $ 13,716
Other liabilities 5,084
Preferred Stock held by Citadel 7,000
Shareholders' equity 155,954
--------
Total Liabilities and Equity $181,754
========
30
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 4 - INVESTMENT IN SHAREHOLDER AFFILIATE, CONT'D
- ----------------------------------------------------
CONDENSED STATEMENTS OF OPERATIONS:
Three Months Ended Year Ended
December 31, 1996 December 31, 1996
------------------- ------------------
(In thousands) (In thousands)
Revenue:
Theater $ 5,233 $ 18,236
Real Estate 332 543
Interest and dividends 2,695 4,165
------- --------
Total revenue 8,260 22,944
Theater costs (4,204) (14,452)
Depreciation and amortization (578) (1,793)
General and administrative (3,869) (7,106)
------- --------
(Loss) from operations (391) (407)
Equity in earnings of Citadel 51 1,526
Other income, net 3,263 4,327
------- --------
Earnings before income taxes 2,923 5,446
Income tax benefit 1,315 1,236
Minority interest 353 321
------- --------
Net income 4,591 7,003
Less preferred stock dividends (911) (911)
Net Income applicable to common
stock shareholders $3,680 $6,092
====== ======
Included in income tax benefit for the three months and year ended December 31,
1996 is approximately $1.8 million resulting from the recognition of previously
reserved income tax assets, net of AMT tax. In addition, other income for the
three months and year ended December 31, 1996, includes legal settlements and
other non-recurring income of approximately $3.4 million and $4.6 million,
respectively.
NOTE 5 - INVESTMENT IN FIDELITY
- -------------------------------
On August 4, 1994, Citadel completed a restructuring in which, among other
things, Citadel's ownership interest in its previously wholly owned subsidiary,
Fidelity Federal Bank ("Fidelity"), was reduced to approximately 16% through the
issuance of 4,202,243 shares of Class A and Class C common stock of Fidelity to
new investors in a public offering.
During fiscal 1995, the Company's investment in Fidelity was reduced by (1) the
sale of 1,295,000 shares of the Class B Common Stock of Fidelity in
consideration for a cash payment of $2,220,000 and the return of 666,000 shares
of the Company's common stock as part of the settlement of litigation with
Dillon Investors (Note 11), and (2) the sale of 2,900,000 shares for
approximately $9,718,000, net of commissions. At December 31, 1996 the Company
holds for sale 1,810 shares of Fidelity stock.
31
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 5 - INVESTMENT IN FIDELITY, CONT'D
------------------------------
The loss of and writedown of investment in Fidelity for the year ended December
31, 1994 consisted of the following:
(in thousands)
------------
Loss from operations of Fidelity through August 4, 1994 $112,072
Writedown of investment in Fidelity as of the date of
the Restructuring 52,811
Writedown representing other than temporary decline in
value from August 5, 1994 to December 31, 1994 7,081
--------
$171,964
========
Included in the writedown of investment in Fidelity as of the date of
Restructuring is the effect of the proceeds received from the D&O Litigation,
the writedown of uncollectible loans, and the deferral of the $4 million of
proceeds received from the Bulk Sale Asset Agreement relating to a sale of
Fidelity loans described below. The loss from operations of Fidelity through
August 4, 1994 was partially offset by an income tax benefit of $16,524,000.
In addition to the reduction of Citadel's interest in Fidelity, several other
significant events occurred in the Restructuring, including:
a. The purchase by a newly formed subsidiary of Citadel, Citadel Realty, Inc.
("CRI") of four real properties from Fidelity for a purchase price of $19.8
million (Fidelity's book value) of which $13.9 million was financed by Fidelity
on a secured basis, and the balance was financed by Craig, under a short-term
line of credit.
b. The receipt by Citadel from Fidelity by way of a dividend of (i) a one-year
transferable option (subsequently contributed to CRI) to acquire two office
building in Sherman Oaks and Glendale, California (the "Office Buildings") used
in the operations of Fidelity for an aggregate exercise price of $9.3 million,
portions of which buildings to be leased back to Fidelity upon purchase by the
Company (Note 3), and (ii) Fidelity's interest in a lawsuit filed against the
former carrier of Fidelity's directors' and officers insurance policies,
involving certain coverage and indemnity issues (the "D & O Litigation), which
resulted in Citadel collecting approximately $2.5 million.
c. The execution and delivery by Citadel and Fidelity of a Stockholders'
Agreement, under which Citadel agreed to reimburse Fidelity for certain losses
incurred by Fidelity in either curing breached representations or repurchasing
assets sold under a bulk sales agreement, subject to a $4 million aggregate
limit, in the event Fidelity were to be determined to have breached certain
representations made in connection with certain bulk sales of loans and
properties in 1994. As a significant number of material issues were unresolved
with regard to the Company's ultimate exposure with respect to the Company's
ultimate exposure with respect to the indemnity clause negotiated with Fidelity,
the Company included $4 million on its Balance Sheet at December 31, 1995 as
32
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 5 - INVESTMENT IN FIDELITY, CONT'D
- ---------------------------------------
"Deferred proceeds from bulk sales agreement". During 1996, Fidelity reached a
settlement with the purchaser regarding the bulk sales claims and released the
Company from the indemnity given to Fidelity. Accordingly, the Company has
reflected in the Statements of Operations for the year ended December 31, 1996,
a non-recurring gain related to its previous investment in Fidelity, which
resulted from the reversal of the $4 million deferral.
NOTE 6 - OTHER ASSETS
- ---------------------
Other assets are summarized as follows:
December 31,
1996 1995
----- -----
(in thousands)
Deferred financing costs $ 204 $ 271
Accumulated amortization (64) (43)
----- -----
Deferred financing costs, net 140 228
Impounds 354 291
Prepaid expenses 110 195
Other 12 100
----- -----
$ 616 $ 814
===== =====
NOTE 7 - MORTGAGE NOTES PAYABLE
- -------------------------------
Mortgage notes payable at December 31, 1996 and 1995 is as follows:
December 31,
1996 1995
-------- --------
(in thousands)
Notes payable to Fidelity - principal and
interest paid monthly at rates equal to
LIBOR plus 4.5%, maturing through 2004 $ 9,548 $15,424
Note payable to American Savings Bank -
principal and interest paid monthly at a
rate equal to the 11th District cost of
funds plus 2.95%, maturing June 1, 2025 755 762
------- --------
$10,303 $16,186
======= ========
As of December 31, 1996, the 30 day LIBOR interest rate was 5.375% and the 11th
District Cost of Funds was 4.839%.
33
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
Aggregate future principal payments as of December 31, 1996 are as follows:
Year Ending
December 31, (in thousands)
------------ --------------
1997 $ 170
1998 188
1999 207
2000 228
2001 252
Thereafter 9,258
-------
$10,303
=======
NOTE 8 - 3% CUMULATIVE VOTING CONVERTIBLE PREFERRED STOCK
- ---------------------------------------------------------
On November 10, 1994, the Company issued 1,329,114 shares of 3% Cumulative
Voting Convertible Preferred Stock ("Preferred Stock") at a stated value of
$3.95 per share to its shareholder affiliate, Craig Corporation ("Craig"). The
sales price of the 1,329,114 shares sold was $5,250,000 which was paid through
the conversion of existing indebtedness to Craig. The Preferred Stock carried a
liquidation preference equal to its stated value and had a cumulative
(noncompounded) annual dividend equal to 3% of the stated value. Each share of
the Preferred Stock entitled the holder to one vote on all matters submitted to
a vote of the Company's stockholders.
The Preferred Stock was convertible at the option of the holder into common
stock. The conversion ratio was one share of Preferred Stock for a fraction of
a share of common, the numerator which is $3.95 per share plus any unpaid
dividends, and the denominator which is the average of the closing prices per
share of the Company's common stock, as defined ("Market Price"). If the Market
Price was below $3.00, the Company could redeem the Preferred Stock tendered for
conversion calculated as the sum of (1) $3.95 per share, (2) any unpaid
dividends, and (3) a premium at the redemption date equal to an accrual on the
Stated Value ranging from 9% per annum during the period from November 1994 to
November 1998 and thereafter reducing over time.
As described in Note 4, on October 15, 1996, the Company issued 1,329,114 shares
of Series B 3% Cumulative Convertible Preferred Stock ("Series B Preferred
Stock") to Reading in exchange for the Series A Preferred Stock. The terms of
the Series B Preferred Stock were substantially identical to the terms of the
Series A Preferred Stock except that (i) the Redemption Accrual Percentage was
reduced from 9% to 3% after October 15, 1996 and (ii) except upon a change
of control of the Company, the holders of the Series B Preferred Stock would no
longer have the right to convert the Series B Preferred Stock into Company
Common Stock during the one year period commencing on the fifteenth day
following the filing of the Company's Annual Report on Form 10-K for the year
ended December 31, 1996. In December 1996, Reading notified the Company of its
exercise of its
34
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 8 - 3% CUMULATIVE VOTING CONVERTIBLE PREFERRED STOCK, CONT'D
- -----------------------------------------------------------------
conversion rights. On December 20, 1996, Citadel redeemed the Series B
Preferred from Reading pursuant to the exercise of certain redemption rights set
forth in the Certificate of Designation with respect to the Series B Preferred
Stock. Such redemption price amounted to approximately $6.19 million. As a
consequence of the Series B Preferred Stock redemption, Reading's voting
ownership of Citadel decreased to reflect their approximately 26% common stock
holdings.
Included as a reduction of stockholders' equity for the year ended December 31,
1996 and 1995 is $232,000 and $101,500, respectively, representing dividends
declared and paid for the period from the date of the Preferred Stock issuance
in November 1994 until the redemption of the Series B Preferred Stock in
December 1996.
NOTE 9 - FUTURE MINIMUM RENT
- ----------------------------
The Company has operating leases with tenants at its commercial properties that
expire at various dates through 2005 and are subject to scheduled fixed
increases or adjustments based on the Consumer Price Index. Future minimum rent
under operating leases, excluding tenant reimbursements of certain costs, is
summarized as follows:
Year Ending
December 31, (in thousands)
------------ --------------
1997 $ 4,503
1998 4,596
1999 2,814
2000 2,223
2001 2,129
Thereafter 14,111
-------
$30,376
=======
Commencing in August 1995, the Company began renting corporate office space from
its affiliate, Craig, on a month to month basis. In addition, the Company
engaged Craig to provide certain administrative services. Included in general
and administrative expenses is $96,000 and $45,000 paid to Craig for such rent
and services for the years ended December 31, 1996 and 1995, respectively. In
addition, the Company provided real estate consulting services to Reading during
the years ended December 31, 1996 and 1995 for which the Company was paid
approximately $169,000 and $120,000, respectively. Such amounts are included in
the statement of operations as a reduction of general and administrative
expenses.
35
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 10 - COMMITMENTS AND CONTINGENCIES
- ---------------------------------------
There are several legal actions and claims against the Company. Based on advice
of legal counsel management believes that the ultimate liability, if any, which
may result from any of these lawsuits will not materially effect the financial
position or results of operations of the Company.
In November 1994, a stockholder, Dillon Investors L.P. filed a lawsuit in the
Court of Chancery of the State of Delaware naming as defendants the Company, its
directors and Craig. On April 13, 1995, the Company, Craig and Dillon Investors
and its affiliates (the "Dillon Parties") entered into settlement agreements to
resolve this litigation. Under the settlement agreements, the Dillon Parties
purchased from Citadel 1,295,000 shares of Class B common stock of Fidelity
owned by the Company in exchange for which the Company received from the Dillon
Parties $2.22 million and 666,000 shares of the Company's common stock and all
existing litigation among the Company, Craig and the Dillon Parties was
terminated. For financial statement purposes the Company reflected the return of
the Company's common stock as treasury stock in the amount of $1,415,000, or
$2.125 per share.
The settlement terms also included an agreement by Craig with the Dillon Parties
not to exercise, prior to February 4, 1996, its right to tender any shares of
the Preferred Stock for conversion into the Company's common stock without the
prior consent of the holders of a majority of the outstanding shares of the
Company's common stock. In exchange for such concession from Craig Corporation,
the Company agreed to grant Craig Corporation a two year warrant to acquire the
666,000 shares of the Company's common stock acquired from the Dillon Parties at
a price of $3.00 per share, and the Company agreed to reimburse Craig
Corporation for certain expenses associated with the litigation which amounted
to $62,000.
NOTE 11 - STOCK OPTIONS
- -----------------------
Pursuant to an employment agreement, the Company granted to the President stock
options to purchase 33,000 shares of common stock at a price of $2.69 per share.
As of December 31, 1996, the 33,000 shares were exercisable. Effective October
1996, the Company adopted the Citadel 1996 Nonemployee Director Stock Option
Plan (the "1996 Stock Option Plan") which provides that each director who is not
an employee or officer of the Company will automatically be granted immediately
vested options to purchase 10,000 shares of Common Stock at an exercise price
that is greater or less than the fair market value, as defined, per share of
Common Stock on the date of grant by an amount equal to the amount by which
$3.00 per share is greater or less than the fair market value per share of
Common Stock on the effective date of the 1996 Stock Option Plan. At December
31, 1996, vested options to purchase 20,000 shares of Common Stock at an
exercise price of $3.00 per share are outstanding.
36
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 12 - INCOME TAXES
- ----------------------
As of December 31, 1996, the Company has for income tax purposes net operating
loss carryforwards and capital loss carryforwards of approximately $2.1 million
and $7.4 million, respectively. These carryforwards will expire in the years
1999 through 2004 and are subject to certain limitations. Since, in view of the
Company's recent history of operating losses, realization of such tax benefits
may be unlikely, a full valuation reserve has been provided.
The tax sharing agreement between Citadel and Fidelity was terminated prior to
the Restructuring. In connection with such termination, Citadel and Fidelity
agreed that certain amounts, estimated to be approximately $3.2 million, that
would have otherwise become payable by Citadel to Fidelity under the terms of
such agreement as a result of losses recognized by Fidelity during the second
quarter of 1994, would not be payable.
At the time of the Restructuring, Citadel and Fidelity entered into a tax
disaffiliation agreement (the "Tax Disaffiliation Agreement"). In general under
the tax disaffiliation Agreement, Fidelity is responsible for (a) all
adjustments to the tax liability of Fidelity and its subsidiaries for the
periods before the Restructuring relating to operations of Fidelity, (b) any tax
liability of Fidelity and its subsidiaries for the taxable year that begins
before and ends after the Restructuring in respect to that part of the taxable
year through the date of the Restructuring, and (c) any tax liability of
Fidelity and its subsidiaries for periods after the Restructuring. For this
purpose any liability for taxes for periods on or before the Restructuring is
measured by Fidelity's actual liability for taxes after applying tax benefits
attributable to periods prior to the closing otherwise available to Fidelity.
With certain exceptions Fidelity is entitled to any refunds relating to those
liabilities. During 1996, the Company and Fidelity reached settlement with
respect to all open tax periods prior to 1991. Subsequent tax years are
currently under audit by the Internal Revenue Service.
In general Citadel is responsible for all tax liabilities of Citadel and its
subsidiaries (other than Fidelity and its subsidiaries) for all periods.
Deferred income taxes reflect the net tax effect of "temporary differences"
between the financial statement carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
During 1996, the Company finalized and filed its tax return for the year ended
December 31, 1995. Based upon these filings the Company has made certain
adjustments to deferred tax assets previously estimated for the year ended
December 31, 1995. The components of the deferred tax liabilities and assets
are as follows:
37
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 12 - TAXES ON INCOME, CONT'D
- ---------------------------------
December 31,
1996 1995
--------- --------
(in thousands)
FEDERAL:
Deferred tax assets:
Acquired and option properties 2,110 3,100
Capital losses from sale of Fidelity 2,600 3,430
Bulksale indemnification -- 1,400
Net operating loss carryforward 600 938
Other 385 385
------- -------
Gross deferred tax assets 5,695 9,253
------- -------
Valuation allowance $(5,695) (9,253)
------- -------
Net Deferred tax liability $ -- $ --
======= =======
STATE:
Deferred tax assets:
Acquired and option properties 570 850
Capital losses from sale of Fidelity 690 930
Bulk sale indemnification -- 372
Net operating loss carryforward 120 120
------- -------
Gross deferred tax assets 1,380 2,272
Valuation reserve (1,380) (2,272)
------- -------
Net deferred tax liability $ -- $ 0
======= =======
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:
Year Ended December 31,
1996 1995 1994
-------- ------ ---------
(In thousands)
Expected tax provision (benefit) $ 2,185 $ 475 $(67,439)
(Increase) reduction in taxes
resulting from:
Realization of deferred tax asset
from book and tax basis of
acquired properties sold (520) (530) --
Bulk sale indemnification not
taxable (1,400) -- --
Utilization of net operating losses (310) -- --
Losses for which no tax benefit
was recorded -- 55 50,915
Other 45 -- --
------- ----- --------
Actual tax provision $ -- $ -- $(16,524)
======= ===== ========
As stated in Note 5, an income tax benefit of $16.524 million was recorded for
the year ended December 31, 1994 relating to and included in the loss from
operations of Fidelity.
38
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 14 - QUARTERLY OPERATING DATA (UNAUDITED)
- ----------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- -------- --------
(In thousands except per share amounts)
1996
Real estate income $ 1,740 $ 1,572 $ 1,278 $ 1,281
Real estate general and
administrative expenses (1,497) (1,504) (1,101) (836)
Gain on sale of properties -- 1,473 20 --
Gain on Fidelity -- 4,000 -- --
Net income 243 5,541 197 445
Net income (loss) per share 0.02 0.69 0.03 0.06
1995
Real estate income $ 1,113 $ 1,432 $ 1,812 $ 1,755
Real estate general and
administrative expenses (1,308) (1,360) (1,907) (1,639)
Gain on sale of properties 1,541 -- -- --
Gain (Loss) of Fidelity -- (41) -- --
Net income (loss) 1,346 31 (95) 116
Net income (loss) per share 0.15 0.00 (0.02) 0.01
The above unaudited quarterly financial information reflects all adjustments
that are, in the opinion of management, necessary for a fair presentation of the
results of the quarterly periods presented.
Pursuant to the conversion terms of the 3% Cumulative Voting Convertible
Preferred Stock, the number of shares contingently issuable while they were
outstanding was dependent on the preceeding 60 day average market price of the
stock at the date of conversion. Earnings per share for the first, second and
third quarters of 1996 has been retroactively restated to reflect the number of
shares contingently issuable upon the conversions of the Preferred Stock to
Common Stock based upon the values calculated as of December 19, 1996.
39
Financial Statement Schedule III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996 (IN THOUSANDS)
- --------------------------------------------------------------------------------
INITIAL COST COSTS
---------------------- CAPITALIZED
BUILDING AND SUBSEQUENT TO
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION
Commercial $ 4,344 $1,488 $4,507 $199
Apartment 755 261 970
Commercial 5,204 2,951 4,212 469
------- ------ ------ ----
$10,303 $4,700 $9,689 $668
======= ====== ====== ====
DECEMBER 31, 1996 LIFE
--------------------------------------------- ON WHICH
ACCUMULATED DATE DEPRECIATION
DESCRIPTION LAND BUILDING TOTAL DEPRECIATION ACQUIRED IS COMPUTED
Commercial $1,488 $ 4,706 $ 6,194 $277 8/4/94 40
Apartment 261 970 1,231 85 8/4/94 27.5
Commercial 2,951 4,681 7,632 262 5/8/95 40
------ ------- ------- ----
$4,700 $10,357 $15,057 $624
====== ======= ======= ====
- -------------
(1) The properties listed above were acquired pursuant to agreements entered
into between the Company and Fidelity at the time of the Restructuring. The
aggregate gross cost of property held at December 31, 1996 for federal
income tax purposes approximated $20,972,000.
(2) The following reconciliation reflects the aggregate rollforward activity of
property held and accumulated depreciation for the three years ended
December 31, 1996:
Gross Accumulated
Amount Depreciation
---------- ------------
Balance at December 31, 1993 $ -- $ --
Depreciation expense (197)
Acquisitions 20,055
------- -----
Balance at December 31, 1994 20,055 (197)
Depreciation expense (420)
Acquisitions 7,163
Improvements 166
Property received through
foreclosure on note receivable 400
Cost of real estate sold (5,038) 64
------- -----
Balance at December 31, 1995 $22,746 $(553)
Depreciation expense (395)
Acquisitions 504
Cost of real estate sold (8,193) 324
------- -----
Balance at December 31, 1996 $15,057 $(624)
======= =====
40
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
41
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS & EXECUTIVE OFFICERS
FIRST
BECAME
NAME AGE CURRENT OCCUPATION DIRECTOR
---- --- ------------------ --------
James J. Cotter (1)(3) 59 Chairman of the Board of 1986
Citadel, Chairman of the
Board of Craig Corporation
("Craig"), and Chairman of the
Board of Reading Entertainment,
Inc. (`REI")
S. Craig Tompkins(3) 46 Secretary/Treasurer and 1993
Principal Accounting Officer
of Citadel, Vice Chairman of
the Board of Citadel,
President and Director of
Craig, Vice Chairman of the Board
of REI, and Director of G&L
Realty Corp.
Ronald I. Simon(2)(3) 58 Private Investor/Financial 1995
Consultant; Chairman and
Chief Financial Officer of
Sonant Corporation, Director
of each of Softnet Systems,
Inc., and Westcorp Investments.
Alfred Villasenor, Jr. 67 President of Unisure Insurance 1987
(1)(2). Services, Incorporated
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of the Executive Committee.
Set forth below is certain information concerning the principal occupation
and business experience of each of the individuals named above during the past
five years.
Mr. Cotter was first elected to the Board in 1986, and resigned in 1988. He
was re-elected to the Board in June 1991, named Acting Chairman of the Board of
Directors of Citadel and Fidelity Federal Bank, a federal savings bank
(''Fidelity'') previously owned by Citadel in October 1991, and named Chairman
of the Board of Citadel on June 5, 1992. Mr. Cotter has been Chairman of the
Board of Craig since 1988 and a Director of that company since 1985. Since 1996,
Mr. Cotter has served as a Director of REI (motion picture exhibition and real
estate), which the company was formed pursuant to a reorganization of Reading
Company under a Delaware holding company, effective October 1996. Since 1990 Mr.
Cotter has also served as a Director of Reading Company, currently a wholly
owned subsidiary of REI, and since 1991, as the Chairman of the Board of that
company. Craig owns approximately 78% of the voting power of the outstanding
securities of REI. Mr. Cotter is also the Executive Vice President and a
Director of The Decurion Corporation (motion picture exhibition). Mr. Cotter
began his association with The Decurion Corporation in 1969. Mr. Cotter is also
a Director and Executive Vice President of Pacific Theatres, Inc., a wholly
owned subsidiary of the Decurion Corporation. Mr. Cotter has been the Chief
Executive Officer and a Director of Townhouse Cinemas Corporation (motion
picture exhibition) since 1987. Mr. Cotter is the General Partner of James J.
Cotter, Ltd., a general partner in Hecco Ventures I, a California General
Partnership and a general partner in Hecco Ventures II, a California General
Partnership (Hecco I and Hecco II are involved in investment activities and are
shareholders in Craig), and has been a Director of Stater Bros., Inc. (retail
grocery) since 1987.
42
Mr. Simon has been a director of the Company since June 1995. Mr. Simon is
a financial consultant and private investor. He is currently Chairman and Chief
Financial Officer of Sonant Corporation, a manufacturer of interactive voice
response equipment, Westcorp Investments, a wholly owned subsidiary of
Westcorp, and Softnet Systems, Inc. Formerly, Mr. Simon was the Managing
Director of the Henley Group, Inc., a Director of Craig Corporation from 1987-
1990 and a Director of Reading Company from 1989 to 1995.
Mr. Tompkins was a partner of Gibson Dunn & Crutcher until March 1993 when
he resigned to become President of each of Craig and Reading. Mr. Tompkins has
served as a Director of each of Craig and Reading Company since February 1993
and has served as a Director of REI since its formation in 1996. Mr. Tompkins
was elected to the Board of Directors of G&L Realty Corp., a New York Stock
Exchange listed real estate investment trust, in December of 1993, and was
elected Vice Chairman of the Board of Citadel in July of 1994. Mr. Tompkins also
serves as the Secretary/Treasurer and Principal Accounting Officer for Citadel.
In February 1997, Mr. Tompkins resigned as President of REI and was made Vice
Chairman of REI.
Mr. Villasenor is the President and the owner of Unisure Insurance
Services, Incorporated, a corporation which has specialized in life, business
life and group health insurance for over 35 years. He is also a general partner
in the 2368 Torrance Partnership, a California real estate holding company. Mr.
Villasenor served on the Board of Directors of ELAR, a reinsurance company from
1986 to 1991. In 1987, Mr. Villasenor was elected to the Board of Directors of
Citadel and Fidelity and served on the Board of Fidelity until 1994. Mr.
Villasenor also served as a Director of Gateway Investments, Inc. (a wholly
owned subsidiary of Fidelity) from June 22, 1993 until February 24, 1995.
All officers are elected annually by the Board of Directors.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The officers of Citadel currently include Steve Wesson and S. Craig
Tompkins. The Summary Compensation Table sets forth the compensation earned for
the years ended December 31, 1996, 1995 and 1994 by each of the most highly
compensated executive officers of the company whose compensation exceeded
$100,000 in all capacities in which they served.
43
ANNUAL COMPENSATION LONG TERM
------------------------------------- COMPENSATION
SECURITIES
UNDERLYING
OTHER STOCK
ANNUAL OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) GRANTED COMPENSATION
- --------------------------- ---- ------ ----- --------------- ------- ------------
Steve Wesson 1996 $175,000 $ 50,000 (1) -- --
President and Chief 1995 $175,000 $100,000 (1) -- --
Executive Officer 1994(2) $ 70,564 $ 25,000 (1) 33,000 $5,564
(1) Excludes perquisites if the aggregate amount thereof is less than $50,000,
or 10% of salary plus bonus, if less.
(2) Includes compensation received as President and Chief Executive Officer of
Citadel from August 5, 1994 to December 31, 1995.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following summarizes options were granted in 1996.
POTENTIALLY REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
------------------------------------------------------- ----------------------------
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES IN EXERCISE OR EXPIRATION
NAME GRANTED FISCAL YEAR BASE PRICE DATE 5% 10%
---- ------- ----------- ---------- ---- -- ---
Alfred Villasenor 10,000 50% $3.00 2006 $18,900 $47,800
Ronald I. Simon 10,000 50% $3.00 2006 $18,900 $47,800
AGGREGATED OPTION/SAR IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTION/SARS
SHARES ACQUIRED VALUE AT FY-END (#) AT FY-END (#)
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- -------------- ----------- ------------------------- -------------------------
Steve Wesson N/A N/A 33,000/0 $ 2,062
Alfred Villasenor N/A N/A 10,000/0 0(1)
Ronald I. Simon N/A N/A 10,000/0 0(1)
(1) The options are not in-the-money.
44
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL AGREEMENTS
Citadel and Steve Wesson entered into an Executive Employment Agreement,
effective as of August 4, 1994 (the ''Employment Agreement''). The term of the
Employment Agreement is two years and is automatically renewed for subsequent
one-year terms unless either party gives notice of non-renewal. Mr. Wesson is
paid an annual salary of $175,000 and a minimum annual bonus of $50,000.
Pursuant to the Employment Agreement, Mr. Wesson was granted options to purchase
33,000 shares of Common Stock of Citadel.
On June 27, 1990 the Board authorized Citadel to enter into indemnity
agreements with its then current as well as future directors and officers. Since
that time, Citadel's officers and directors have entered such agreements. Under
these agreements, Citadel agrees to indemnify its officers and directors against
all expenses, liabilities and losses incurred in connection with any threatened,
pending or completed action, suit or proceeding, whether civil or criminal,
administrative or investigative, to which any such officer or director is a
party or is threatened to be made a party, in any manner, based upon, arising
from, relating to or by reason of the fact that he is, was, shall be or shall
have been an officer or director, employee, agent or fiduciary of Citadel. Each
of the current Citadel directors have entered into indemnity agreements with
Citadel. Similar agreements also exist between Citadel's subsidiaries and the
officers and directors of such subsidiaries.
COMPENSATION COMMITTEE
From August 4, 1994 to August 31, 1995, Citadel dissolved the Compensation
Committee and the entire Board of Directors took responsibility for the
compensation decisions. On August 31, 1995, the Compensation Committee was
reinstituted and currently includes include Directors Cotter and Villasenor. It
is currently Citadel's policy that directors who are executive officers and
whose compensation is at issue are not involved in the discussion of, or voting
on, such compensation.
Mr. Wesson and Mr. Tompkins are the executive officers of Citadel. In
accordance with Citadel's policy on executive officer compensation, Mr. Wesson
and Mr. Tompkins are not involved in the discussion of, or voting on, their
respective compensation. Mr. Tompkins receives no compensation for his services
as an executive officer, but received director's fees for his service as Vice
Chairman in the amount of $35,000 with respect to 1996.
Other than the Chairman of the Board, directors who are not officers or
employees of the Company receive, for their services as a director, an annual
retainer of $15,000 plus $1,500, if serving as Committee Chairman and $800 for
each meeting attended in person (or $300 in the case of a telephonic meeting).
The Chairman of the Board receives $45,000 annually. During 1996, Messrs.
Villasenor and Simon received $10,000 as additional fees for their participation
as members of the Independent Committee formed by the Company to review the
Reading Investment Transaction.
Additionally, pursuant to the Citadel Holding Corporation 1996 Nonemployee
Director Stock Option Plan effective October 1996 (the "1996 Stock Option
Plan"), each director of the Company who is not an employee or officer (for
purposes of the 1996 Stock Option Plan, the Chairman of the Board and the
Principal Accounting Officer of Citadel are deemed officers of the Company) of
the Company shall, upon becoming a member of the Board of Directors,
automatically be granted immediately vested option to purchase 10,000 shares of
Common Stock at an exercise price that is greater or less than the fair market
value (as such term is defined in the 1996 Stock Option Plan) per share of
Common Stock on the date of grant by an amount equal to the amount by which
$3.00 per share is greater or less than the fair market value per share of
Common Stock on the effective date of the 1996 Stock Option Plan (the "Plan
Effective Date"). The non-officer directors who were incumbent
45
on the Plan Effective Date (Messrs. Simon and Villasenor) received immediately
vested options to purchase 10,000 shares of Common Stock at an exercise price of
$3.00 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Tompkins is President of Craig and a Director of Craig and REI. Mr.
Cotter is the Chairman of the Board of Craig and REI. Mr. Cotter is a member of
the executive committees of REI, which, among other things, is responsible for
the compensation of the executive officers of such companies.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers,
directors and persons who own more than 10% of the Company's Common Stock to
file reports to ownership and changes in ownership with the SEC. The SEC rules
also require such reporting persons to furnish the Company with a copy of all
Section 16(a) forms they file.
Based solely on a review of the copies of the forms which the Company
received and written representations from certain reporting persons, the Company
believes that, during the fiscal year ended December 31, 1996, all filing
requirements applicable to its reporting persons were complied with except Mr.
Alfred Villasenor filed one late Form 4 in December 1996 to report the sale of
900 shares of the Company's Common Stock, which transaction occurred in April
1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the shares of Common Stock, beneficially
owned as of March 20, 1997 by (i) each director and nominee, (ii) all directors
and executive officers as a group, and (iii) each person known to Citadel to be
the beneficial owner of more than 5% of the Common Stock. Except as noted, the
indicated beneficial owner of the shares has sole voting power and sole
investment power.
COMMON STOCK
----------------------------------------------
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP PERCENT OF CLASS(7)
- ------------------------------------ ----------------------- ----------------
James J. Cotter(1)(4) 2,230,473 33.2%
Steve Wesson(4) 33,000(2) *
Alfred Villasenor, Jr.(4) 10,000(3) *
S. Craig Tompkins(4) -- --
Ronald I. Simon(4) 10,000 shares(3) *
Craig Corporation(1)(4) 2,230,473 33.2%
Reading Holdings, Inc., an indirect 1,564,473 23.2%
wholly owned subsidiary of REI (1)
30 South Fifteenth Street, Suite 1300
Philadelphia, PA 19102-4813
Lawndale Capital Management, Inc., 579,000(6) 8.6%
One Sansome Street, Suite 3900
San Francisco, California 94104
Andrew E. Shapiro 579,000(6) 8.6%
One Sansome Street, Suite 3900
San Francisco, California 94104
46
COMMON STOCK
----------------------------------------------
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ------------------------------------ ----------------------- ----------------
Diamond A Partners, L.P 501,000(6) 7.5%
One Sansome Street, Suite 3900
San Francisco, California 94104
Diamond A Investors, L.P. 77,900(6) 1.2%
One Sansome Street, Suite 3900
San Francisco, California 94104
Private Management Group(5) 675,000 10.0%
20 Corporate Park, Suite 400
Irvine, CA 92606
All directors and executive 2,283,473 34%
officers as a Group (5 persons)(1)
(1) Mr. Cotter is the Chairman of Craig and REI, and a principal stockholder of
Craig. Craig currently owns approximately 78% of the voting power of the
outstanding capital stock of REI. Craig owns directly a warrant (the
"Warrant") to purchase 666,000 shares of Common Stock at $3.00 per share.
Reading owns directly 1,564,473 shares of Common Stock. These securities
have been listed as beneficially owned by Mr. Cotter and Craig due to the
relationships between Mr. Cotter, Craig and REI. The Common Shares
underlying the Warrant (representing 666,000 shares) have been listed as
beneficially owned by Mr. Cotter and Craig even though the exercise price is
currently in excess of the current market value of such Common Stock. Mr.
Cotter disclaims beneficial ownership of all Citadel securities owned by
Craig and/or Reading.
(2) Pursuant to the terms of his Employment Agreement, Citadel granted Mr.
Wesson options to purchase 33,000 shares of Common Stock.
(3) Includes 10,000 shares of Common Stock which may be acquired through the
exercise of stock options granted pursuant to the 1996 Stock Option Plan.
(4) 550 South Hope Street, Suite 1825, Los Angeles, California 90071
(5) Based upon Schedule 13-G filed February 28, 1997.
(6) Includes 501,100 shares which are owned by Diamond A Partners, L.P., ("DAP")
and 77,900 shares which are owned by Diamond A Investors, L.P. ("DAI") but
have shared voting and dispositive power with Lawndale Capital Management,
LLC ("LCM") and Andrew E. Shapiro. According to Amendment No. 5 to the
Report on Schedule 13D filed on October 29, 1996, LCM is the investment
advisor to and general partner of DAP and DAI, which are investment limited
partnership. Andrew E. Shapiro is the sole manager of LCM.
(7) Based on ownership assuming conversion of the stock options (53,000 shares)
and the conversion of the Warrant to purchase 666,000 shares.
* Represents less than one percent of the outstanding shares of Citadel
Common Stock.
47
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN TRANSACTIONS
Reading Investment Transaction
In October 1996, Citadel and its wholly-owned subsidiary, Citadel
Acquisition Corp., Inc. ("CAC"), closed a transaction with Craig, REI and
Reading Company and certain affiliates thereof. Pursuant to the terms of an
Exchange Agreement, CAC contributed cash in the amount of $7 million to REI in
exchange for (i) 70,000 shares of Series A Preferred Stock of REI, (ii) the
granting to Citadel of an option, exercisable at any time until 30 days after
REI files its Annual Report on Form 10-K for the year ended December 31, 1999,
to exchange all or substantially all of its assets for shares of REI Common
Stock, subject to certain contractual limitations and (iii) the granting of
certain demand and piggy-back registration rights with respect to REI Common
Stock received on the conversion of the Series A Preferred Stock or on such
asset exchange. Additionally, pursuant to the terms of such Exchange Agreement,
REI issued (i) 125,098 shares of its Series B Preferred Stock and 563,210 shares
of its common stock to Craig in exchange for Craig's 50% interest in a cinemas
joint venture with a Reading Company affiliate and the 1,329,114 shares of
Citadel Series A 3% Cumulative Voting Convertible Preferred Stock, par value
$.01 per share (the "Citadel Series A Preferred Stock") owned by Craig and (ii)
424,902 shares of its Series B Preferred Stock and 1,912,980 shares of its
common stock to a Craig affiliate in exchange for 693,650 shares of stock of
State Bros. Holdings, Inc. Pursuant to the Exchange Agreement, REI exchanged the
Citadel Series A Preferred Stock for an equal number of shares of Citadel Series
B Preferred Stock. The terms of the Citadel Series A Preferred Stock were
substantially identical to the Citadel Series B Preferred Stock except that (i)
the Redemption Accrual Percentage was reduced to 3% from and after the closing
and (ii) except on a change of control of Citadel, the holders of the Citadel
Series B Preferred Stock did not have the right to convert the Citadel Series B
Preferred Stock into Common Stock during the one-year period commencing on the
15th day following the filing of Citadel's Annual Report on Form 10-K for the
year ending December 31, 1996.
Redemption of Series B Preferred Stock
In December 1996, REI notified to the Company of its exercise of its
conversion rights with respect to the Citadel Series B Preferred Stock. On
December 20, 1996, Citadel redeemed the Preferred Stock from Reading pursuant to
the exercise of its redemption rights. The redemption price amounted to $6.19
million.
Transactions with Craig Corporation and Reading Entertainment, Inc.
Commencing August 1995, Citadel began renting corporate office space from
Craig on a month-to-month basis and engaged Craig to provide Citadel with
certain administrative services. During fiscal 1996, $96,000 was paid to Craig
for such rent and services. In additional, Citadel provided real estate
consulting services to Reading Company during fiscal 1996, for which Citadel was
paid $169,000.
48
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
DESCRIPTION PG. NO
----------- ------
Report of Independent Auditors.................................... 20
Consolidated Balance Sheets as of December 31, 1996 and 1995...... 21
Consolidated Statements of operations for Each of the Three
Years in the Period Ended December 31, 1996...................... 22
Consolidated Statements of Stockholders' Equity for Each of the
Three Years in the Period Ended December 31, 1996................ 23
Consolidated Statements of Cash Flows for Each of the Three
Years in the Period Ended December 31, 1996...................... 24
Notes to Consolidated Financial Statements........................ 25
(a)(2) FINANCIAL STATEMENT SCHEDULE
Financial Statement Schedule III -- Real Estate and
Accumulated Depreciation......................................... 40
(b) REPORTS ON FORM 8-K
(i) The Company filed a Report on Form 8-K on October 30, 1996,
reporting on Item 5, "Other Information."
(c) EXHIBITS (Items denoted by * represent management or compensatory
contract)
49
EXHIBIT
NO. DESCRIPTION
- ------- -----------
3.1 Certificate of Amendment of Restated Certificate of Incorporation of
Citadel Holding Corporation, (filed as Exhibit 3.1 to the Company's
Report on Form 10-K for the year-end December 31, 1994, and
incorporated herein by reference).
3.2 Restated By-laws of Citadel Holding Corporation (filed as Exhibit 3.2
to the company's Form 0-K for the year ended December 31, 1988, and
incorporated herein by reference)
3.3 Amendment to By-laws of Citadel Holding Corporation (filed as Exhibit
3.3 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
3.4 Amendment to By-laws of Citadel Holding Corporation (filed as Exhibit
3.4 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.)
3.5 Amendment to By-laws of Citadel Holding Corporation (filed as Exhibit
3.5 to the Company's Report on Form 8-K dated October 30, 1996.
4.1 Certificate of Designation of the 3% Cumulative Voting Convertible
Preferred Stock of Citadel Holding Corporation (filed as Exhibit 3 to
the Company's Report on Form 8-K, filed on November 14, 1994, and
incorporated herein by reference)
4.2 Certificate of Designation of the Series B 3% Cumulative Voting
Convertible Preferred Stock of Citadel Holding Corporation (filed
herewith)
10.1 Form of Investor Purchase Agreement between Fidelity Federal Bank and
the investors (filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1004, and
incorporated herein by reference)
10.2 Settlement Agreement between Fidelity Federal Bank, Citadel Holding
Corporation and certain lenders, dated as of June 3, 1994 (the
"Letter Agreement")(filed as Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1994, and
incorporated herein by reference)
10.3 Amendment No. 1 to the Letter Agreement, dated as of June 30, 1994
(filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994, and incorporated herein by
reference)
10.4 Amendment No. 2 to Letter Agreement, dated as of July 28, 1994 (filed
as Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1994, and incorporated herein by
reference)
10.5 Amendment No. 3 to Letter Agreement, dated as of August 3, 1994
(filed as Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994, and incorporated herein by
reference)
10.6 Mutual Release, dated as of August 4, 1994, between Fidelity Federal
Bank, Citadel Holding Corporation and certain lenders (filed as
Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994, and incorporated herein by reference)
10.7 Mutual Release between Fidelity Federal Bank, Citadel Holding
Corporation, and the Chase Manhattan Bank, N.A., dated June 17, 1994
(filed as Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994, and incorporated herein by
reference)
50
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10.8 Loan and REO Purchase Agreement (Primary), dated as of July 13, 1994,
between Fidelity Federal Bank and Colony Capital, Inc. (filed as
Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994, and incorporated herein by reference)
10.9 Deposit Escrow Agreement, dated as of July 13, 1994, among Colony
Capital, Inc., Fidelity Federal Bank, and Morgan Guaranty Trust
Company of New York (filed as Exhibit 10.9 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1994, and
incorporated herein by reference)
10.10 Real Estate Purchase Agreement, dated as of August 3, 1994, between
Fidelity Federal Bank and Citadel Realty, Inc. (filed as Exhibit
10.10 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994, and incorporated herein by reference)
10.11 Loan and REO Purchase Agreement (Secondary), dated as of July 12,
1994, between fidelity Federal Bank and EMC Mortgage Corporation
(filed as Exhibit 10.11 to the Company's Quarterly Report on Form 10-
Q for the quarter ended June 30, 1994, and incorporated herein by
reference)
10.12 Deposit Escrow Agreement, dated as of July 13, 1994, between EMC
Mortgage Corporation, Fidelity Federal Bank, and Morgan Guaranty
Trust Company of New York (filed as Exhibit 10.12 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1994,
and incorporated herein by reference)
10.13 Loan and REO Purchase Agreement (Secondary), dated as of July 21,
1994, between Fidelity Federal Bank and Internationale Nederlanden
(US) Capital Corporation, Farallon Capital Partners, L.P., Tinicum
Partners, L.P., and Essex Management Corporation (filed as Exhibit
10.13 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994, and incorporated herein by reference)
10.14 Deposit Escrow Agreement, dated as of July 21, 1994, between Fidelity
Federal Bank and Internationale Nederlanden (US) Capital Corporation,
Farallon Capital Partners, L.P., Tinicum Partners, L.P., Essex
Management Corporation, and Morgan Guaranty Trust Company of New York
(filed as Exhibit 10.14 to the Company's Quarterly Report on Form 10-
Q for the quarter ended June 30, 1994, and incorporated herein by
reference)
10.15 Purchase of Assets and Liability Assumption Agreement by and between
Home Savings of America, FSB and Fidelity Federal Bank, FSB, dated as
of July 19, 1994 (filed as Exhibit 10.15 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1994, and
incorporated herein by reference)
10.16 Credit Agreement among Citadel Realty, Inc., Citadel Holding
Corporation and Craig Corporation, dated as of August 2, 1994 (filed
as Exhibit 10.16 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1994, and incorporated herein by
reference)
10.17 Promissory Note, dated as of August 2, 1994, by Citadel Realty Inc.
in favor of Craig Corporation (filed as Exhibit 10.17 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1994, and incorporated herein by reference)
10.18 Guaranty, dated as of August 2, 1994, by Citadel Holding Corporation
in favor of Craig Corporation (filed as Exhibit 10.18 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1994, and incorporated herein by reference)
51
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10.19 Pledge Agreement, dated as of august 2, 1994, between Citadel Holding
Corporation and Craig Corporation (filed as Exhibit 10.19 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1994, and incorporated herein by reference)
10.20 Promissory Note, dated August 3, 1994, by Citadel Realty, Inc., in
favor of Fidelity Federal Bank (filed as Exhibit 10.20 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1994, and incorporated herein by reference)
10.21 Promissory Note, dated July 28, 1994, by Citadel Realty, Inc., in
favor of Fidelity Federal Bank (filed as Exhibit 10.21 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1994, and incorporated herein by reference)
10.22 Guaranty Agreement, dated August 3, 1994, by Citadel Holding
Corporation, in favor of Fidelity Federal Bank (filed as Exhibit
10.22 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994, and incorporated herein by reference)
10.23. Unsecured Environmental Indemnity Agreement dated as of August 3,
1994, by Citadel Realty, Inc., in favor of Fidelity Federal Bank
(filed as Exhibit 10.23 to the Company's Quarterly Report on Form 10-
Q for the quarter ended June 30, 1994, and incorporated herein by
reference)
10.24 Unsecured Environmental Indemnity Agreement dated as of July 28,
1994, by Citadel Realty, Inc. in favor of Fidelity Federal Bank
(filed as Exhibit 10.24 to the Company's Quarterly Report on Form 10-
Q for the quarter ended June 30, 1994, and incorporated herein by
reference)
10.25 Registration Rights Agreement dated as of June 30, 1994, between
Fidelity Federal Bank, Citadel Holding Corporation and certain
holders of Class C Common Stock of Fidelity Federal Bank (filed as
Exhibit 10.25 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994, and incorporated herein by reference)
10.26 Stockholders Agreement, dated as of June 30, 1994, between Citadel
Holding Corporation and Fidelity Federal Bank (filed as Exhibit 10.26
to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1994, and incorporated herein by reference)
10.27 Tax Disaffiliation Agreement, dated as of August 4, 1994, by and
between Citadel Holding Corporation and Fidelity Federal Bank (filed
as Exhibit 10.27 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1994, and incorporated herein by
reference)
10.28 Option Agreement, dated as of August 4, 1994, by and between Fidelity
Federal Bank and Citadel Holding Corporation (filed as Exhibit 10.28
to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1994, and incorporated herein by reference)
10.29 Assignment of Option Agreement, dated as of August 4, 1994, by and
between Citadel Holding Corporation and Citadel Realty, Inc. (filed
as Exhibit 10.29 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1994, and incorporated herein by
reference)
52
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10.30 Amendment No. 2 to Executive Employment Agreement, dated as of August
4, 1994, between Richard M. Greenwood and Fidelity Federal Bank
(filed as Exhibit 10.30 to the Company's Quarterly Report on Form 10-
Q for the quarter ended June 30, 1994, and incorporated herein by
reference)
10.31 Amended and Restated Term Note, dated October 29, 1992, by Richard M.
Greenwood in favor of Citadel Holding Corporation (filed as Exhibit
10.31 to the Company's Quarterly Report on form 10-Q for the quarter
ended June 30, 1994, and incorporated herein by reference)
10.32 Letter Agreement dated August 4, 1994, between Richard M. Greenwood
and Citadel Holding Corporation (filed as Exhibit 10.32 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1994, and incorporated herein by reference)
10.33 Amended and Restated Charter S of Fidelity Federal Bank (filed as
Exhibit 10.33 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994, and incorporated herein by reference)
10.34 Amended Service Agreement between Fidelity Federal Bank and Citadel
Holding Corporation dated as of August 1, 1994 (filed as Exhibit
10.34 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994, and incorporated herein by reference)
10.35 Placement Agency Agreement, dated July 12, 1994 between JP Morgan
Securities, Inc., Fidelity Federal Bank and Citadel Holding
Corporation (filed as Exhibit 10.35 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1994, and incorporated
herein by reference)
10.36 Side letter, dated August 3, 1994, between Fidelity Federal Bank and
Citadel Realty, Inc. (filed as Exhibit 10.36 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1994,
and incorporated herein by reference)
10.37 Stock Exchange and Settlement Agreement, dated April 3, 1995, by and
among Citadel Holding Corporation, Dillon Investors, L.P., a Delaware
partnership, Roderick H. Dillon, Jr., an individual, Roderick H.
Dillon, Jr. Foundation, an Ohio trust, and Roderick H. Dillon, Jr.--
IRA (filed as Exhibit 10.1 to the Company's Report on Form 8-K, filed
on April 4, 1995, and incorporated herein by reference)
10.38 Stock Purchase Agreement, dated October 21, 1994, by and between
Citadel Holding Corporation and Craig Corporation, a Delaware
corporation (filed as Exhibit 2 to the Company's Report on Form 8-K,
filed on October 25, 1994, and incorporated herein by reference)
10.39 Preferred Stock Purchase Agreement, dated November 10, 1994, by and
between Citadel Holding Corporation and Craig Corporation, a Delaware
corporation (filed as Exhibit 2 to the Company's Report on Form 8-K,
filed on November 14, 1994, and incorporated herein by reference)
10.40 Conversion Deferral, Warrant and Reimbursement Agreement, dated as of
April 11, 1995, by and between Citadel Holding Corporation and Craig
Corporation, a Delaware corporation (filed as Exhibit 10.40 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1994 and incorporated herein by reference).
10.41* Employment Agreement between Citadel Holding Corporation and Steve
Wesson (filed as Exhibit 10.41 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994, and incorporated
herein by reference)
53
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10.42 Standard Office lease, dated as of July 15, 1994, by and between
Citadel Realty, Inc. and Fidelity Federal Bank (filed as Exhibit
10.42 to the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995, and incorporated herein by reference)
10.43 First Amendment to Standard Office Lease, dated May 15, 1995, by and
between Citadel Realty, Inc. and Fidelity Federal Bank (filed as
Exhibit 10.43 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995, and incorporated herein by reference)
10.44 Form of Stock Purchase Agreement, dated April 17, 1995, entered into
by Citadel Holding Corporation and certain purchases of shares of
Class B Common Stock of Fidelity Federal Bank (filed as Exhibit 10.44
to the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995, and incorporated herein by reference)
10.45 Environmental Indemnity Agreement, dated May 15, 1995, by and among
Citadel Realty, Inc., in favor of Fidelity Federal Bank (filed as
Exhibit 10.45 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995, and incorporated herein by reference)
10.46 Promissory Note secured by Deed of Trust, dated May 15, 1995, made by
Citadel Realty, Inc., in favor of Fidelity Federal Bank (filed as
Exhibit 10.46 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995, and incorporated herein by reference)
10.47 Guaranty of Payment dated May 15, 1995 by Citadel Holding Corporation
in favor of Fidelity Federal Bank (filed as Exhibit 10.47 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1995, and incorporated herein by reference)
10.48 Deed of Trust, Assignment of Rents and Leases, Security Agreement and
Fixture Filing, dated as of may 15, 1995, made by Citadel Realty,
Inc. in favor of Fidelity Federal Bank (filed as Exhibit 10.48 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1995, and incorporated herein by reference)
10.49 Office Lease Modification between Citadel Realty, Inc. and American
Express Travel Related Services Company dated March 1. 1996 (filed as
Exhibit 10.49 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995 and incorporated herein by reference)
10.50 Letter of Intent dated August 12, 1996 by and between Reading
Company, Citadel Holding Corporation, Craig Corporation, Reading
Entertainment, Inc., Craig Management, Inc., and Citadel Acquisition
Corp., Inc. (filed as Exhibit 10.50 to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1996 and incorporated
herein by reference)
10.51 Exchange Agreement dated September 4, 1996 among Citadel Holding
Corporation, Citadel Acquisition Corp., Inc. Craig Corporation, Craig
Management, Inc., Reading Entertainment, Inc., Reading Company (filed
herewith)
10.52 Asset Put and Registration Rights Agreement dated October 15, 1996
among Citadel Holding Corporation, Citadel Acquisition Corp., Inc.,
Reading Entertainment, Inc., and Craig Corporation (filed herewith)
10.53 Certificate of Designation of the Series A Voting Cumulative
Convertible Preferred Stock of Reading Entertainment, Inc., (filed
herewith)
54
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10.54 Lease between Citadel Realty, Inc., Lessor and Disney Enterprises,
Inc., Lessee dated October 1, 1996 (filed as Exhibit 10.54 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996 and incorporated herein by reference)
10.55 Second Amendment to Standard Office Lease between Citadel Realty,
Inc. and Fidelity Federal Bank dated October 1, 1996 (filed as
Exhibit 10.55 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996 and incorporated herein by
reference)
10.56 Modification Agreement to Loan No. 3038879 between Fidelity Federal
Bank and Citadel Realty, Inc. dated October 1, 1996 (filed as Exhibit
10.56 to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996 and incorporated herein by reference)
10.57 Citadel 1996 Nonemployee Director Stock Option Plan (filed herewith)
10.58 Reading Entertainment, Inc., Annual Report on Form 10-K for the year
ended December 31, 1996 (TO BE FILED BY AMENDMENT)
21 Subsidiaries of the Company (filed herewith)
27 Financial Data Schedule (filed herewith)
55
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CITADEL HOLDING CORPORATION
---------------------------
(Registrant)
Date: March 31, 1997 /s/ Steve Wesson
----------------------------------------
Steve Wesson
President and Chief Executive Officer
Date: March 31, 1997 /s/ S. Craig Tompkins
----------------------------------------
S. Craig Tompkins
Principal Accounting Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES AND EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF REGISTRANT
AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLES(S) DATE
--------- -------- ----
/s/ James J. Cotter Chairman of the Board and Director March 31, 1997
- -------------------------
James J. Cotter
/s/ S. Craig Tompkins Director, Secretary March 31, 1997
- -------------------------
S. Craig Tompkins
/s/ Ronald I. Simon Director March 31, 1997
- -------------------------
Ronald I. Simon
/s/ Alfred Villasenor, Jr. Director March 31, 1997
- -------------------------
Alfred Villasenor, Jr.
56