U.S.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,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, 19961997
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(State or other jurisdiction (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
90071Employer
of incorporation or organization) Identification Number)
550 SOUTH HOPE STREET, SUITE 1825 (ZIP CODE)90071
LOS ANGELES, CA (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(Zip Code)
(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 NamesName 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$19,700,000 as of March 20, 1997.25, 1998.
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, 1997,25, 1998, there
were 6,003,9246,669,924 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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ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 1997
INDEX
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PAGE
PART I.
Item 1. Business 1
Item 2. Properties 38
Item 3. Legal Proceedings 59
Item 4. Submission of Matters to a Vote of Security Holders 610
PART II.
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters 711
Item 6. Selected Financial Data 912
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations ("MD&A") 1114
Item 8. Financial Statements and Supplementary Data 19
Item 9. Change in and Disagreements with Accountants on Accounting and
Financial Disclosure 4138
PART III.
Item 10. Directors and Executive Officers of the Registrant 4239
Item 11. Executive Compensation 4340
Item 12. Security Ownership of Certain Beneficial Owners and Management 4643
Item 13. Certain Relationships and Related Transactions 4845
PART IV.
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K 4947
Signatures 5655
-i-
PART I
ITEM 1: BUSINESS
GENERALGeneral
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 residentialreal estate interests properties and in the offering of
various real estate consulting services to its affiliates. During 1997, the
Company purchased a 40% partnership interest (the "Agricultural Partnership
Interests") in each of three general partnerships (the "Agricultural
Partnerships") formed to acquire certain agricultural properties located in the
Central Valley of California and commonly known as the Big 4 Ranch (the "Big 4
Properties"), and an 80% equity interest in Big 4 Farming, LLC (a newly formed
farm operating company, created to provide farming services to the Agricultural
Partnerships with respect to the Big 4 Properties and referred to herein as
"Farming"). 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"). At December 31,
1997, the Company's assets had a book value of $28.9 million, consisting
principally of two office buildings (located in Glendale, California and
Phoenix, Arizona), the Agricultural Partnership Interests, the 80% equity
interest in Farming, the $7 million investment in Reading and cash and cash
equivalents, subject to long term liabilities of $9.4 million. Until April
1994, Citadel was engaged principally in the business of serving as the holding
company for Fidelity Federal Bank, FSB ("Fidelity").
Citadel currently intends, at least for the near term, to continue to
manage its commercial real estate and agricultural properties, to provide real
estate consulting services to its affiliates, and to monitor the progress of
Reading in its real estate based 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 its shareholder affiliates,
Reading and/or Craig Corporation ("CC" and collectively with its wholly owned
subsidiaries, "Craig") which would permit the Company's stockholders to further
participate, directly or indirectly, in Reading's real estate based
entertainment business. However, no such transaction is currently under
consideration by the Company. The Company may, from time to time, also consider
other real estate transactions.
COMMERCIAL REAL PROPERTY OWNERSHIP AND MANAGEMENT ACTIVITIES
Since April 1994, the Company has been principally involved in the
ownership and management of its real estate interests, and in the provision of
real estate consulting services to Reading. The Company has, over the past four
years, disposed of three multi-family residential properties, one office
building and certain open land. During the same period, it has acquired two
properties, the office buildings located in Phoenix, Arizona and Glendale,
California. Due in large part to the competition presented by substantially
larger and tax benefited real estate investment trusts ("REITs"), the Company
believes it doubtful that it will be able to effectively compete in the market
for the ownership of commercial properties. Nor does the Company believe it
likely that it would be able to effectively compete in the market to provide
property management services with respect to properties owned by others, given
the significant and well established competition in this area. Accordingly, the
Company has been open to other opportunities to invest in varieties of real
estate that may offer the Company greater returns than competing with REITs for
commercial properties or competing with
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well established management companies for property management business. The
investments in the Reading Series A Preferred Stock and the Agricultural
Partnerships, discussed in greater detail below, were in the view of the Company
two such opportunities.
Since 1995, a substantial portion of the executive time of the Company has
been spent providing real estate consulting services to Reading in connection
with the development by Reading of multiplex cinemas in Puerto Rico, Australia
and the United States, and the development of entertainment centers in
Australia. 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. During Fiscal 1997, 1996 and
1995, Reading paid to Citadel $240,000, $169,000 and $120,000 respectively, with
respect to such consulting services.
AGRICULTURAL ACTIVITIES
Background of Acquisition
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During 1997, the Company formed three subsidiaries, Citadel Agricultural,
Inc., a wholly owned subsidiary, "CAI"), Farming, (80% owned by the Company and
20% by Visalia LLC ("Visalia"), a limited liability company controlled by Mr.
James J. Cotter, the Chairman of the Board of the Company, and owned by Mr.
Cotter and certain members of his family) and Big 4 Ranch, Inc. ("BRI"). Such
subsidiaries were formed in anticipation of effecting a purchase of the Big 4
Properties and in order to address certain restrictions on access of federal
water. The Company capitalized BRI with a cash contribution of $1.2 million
which was used primarily to acquire a 40% interest in each of the Agricultural
Partnerships. The remaining interests in the Agricultural Partnerships are held
40% by CAI and 20% by Visalia. On December 29, 1997, the Company distributed
100% of the shares of BRI to the shareholders of record of the Company's common
stock as of the close of business on December 23, 1997, as a spin-off dividend
(the "Spin-off").
On December 31, 1997, the Agricultural Partnerships acquired the Big 4
Properties consisting of approximately 1,580 acres of agricultural land and
related improvements, located in Kern County, California. The assets acquired
included (i) approximately 560 acres of Navel oranges, 205 acres of Valencia
oranges, 145 acres of lemons, 32 acres of minneolas and 600 acres of open land
currently leased on a short term basis to a third party for the cultivation of
annual crops (the "Open Land"), (ii) irrigation systems, (iii) water rights,
(iv) frost prevention systems and (v) the fruit currently on the trees and
slated for harvest in 1998. The Big 4 Properties were acquired by the
Partnerships (the "Ranch Acquisition") from Prudential Insurance Company of
America ("Prudential") on an arms length basis for a purchase price of $6.75
million, plus reimbursement of certain cultural costs approximating $831,000.
Prior to the Spin-off, Farming entered into a two-year farming services
agreement (the "Farming Contract") with each of the Agricultural Partnerships,
pursuant to which Farming is obligated to provide all of the day to day farming
services necessary to cultivate the citrus orchards located on the Big 4
Properties and, over time, to develop the empty land as may be determined by the
Agricultural Partnerships. Under the Farming Contract, Farming will be
reimbursed for its out of pocket costs and will be paid a management fee equal
to 5% of gross receipts, such gross receipts to be calculated, less costs of
picking, packing and hauling. In turn, Farming has entered into a management
services contract agreement (the "Cecelia Contract") with Cecelia Packing
Corporation ("Cecelia") pursuant to which Cecelia has agreed to provide
management consulting, purchasing and bookkeeping services to Farming for an
initial term of two years at a monthly fee of $6,000, along with reimbursement
of certain out of pocket expenses, the cost and benefit which will be passed
through to the Agricultural Partnerships. It is anticipated that this
arrangement will enable Farming and the Agricultural Partnerships to enjoy
certain economics of scale that would not otherwise be available to them.
Cecelia will also pack a portion of the fruit produced by the Agricultural
Partnerships. While the Company has no
Page 2
experience in citrus farming, Cecelia has been engaged in farm management and
citrus packing and marketing for more than the past 20 years. Cecelia is wholly-
owned by James J. Cotter.
BRI is owned by the shareholders of record of Citadel on December 23,
1997, including Craig Corporation ("CC", and collectively with its wholly owned
subsidiaries, "Craig") and Reading, which together own approximately 33.4% of
such outstanding shares. Concurrent with the Spin-off, Citadel provided BRI
with a working capital line of credit in the amount of $200,000. Pursuant to
the Line of Credit Agreement dated December 29, 1997, entered into between the
Company and BRI, the Company has agreed to lend up to $200,000 to BRI over a
three-year period. Any drawdowns under the line accrue interest at prime plus
200 basis points, payable quarterly. All principal amounts borrowed are due and
payable on December 29, 2002. As of March 20, 1998, no borrowings have
occurred. The future of BRI and the collectibility of any Citadel loans due
from BRI will be dependent on the future operations of the Agricultural
Partnerships.
The Ranch Acquisition was financed by prorata capital contributions of the
partners (Citadel's 40% portion amounting to approximately $1.08 million), by a
$4.05 million purchase money loan from Prudential, and by a crop finance loan by
Citadel to the Agricultural Partnerships of approximately $.831 million. The
loan by Citadel was advanced pursuant to a $1.2 million Line of Credit Agreement
(the "Crop Financing") extended by the Company to the Agricultural Partnerships.
Drawdowns under the Crop Financing will accrue interest at prime plus 100 basis
points, payable quarterly, and are due and payable in August 1998. Thereafter,
Citadel may, but will be under no obligation to, provide future crop financing
on terms to be negotiated at arms length. At December 31, 1996,1997 Citadel had
advanced approximately $.831 million under the Crop Financing Line of Credit.
For financial statement purposes, the note receivable is included in the Balance
Sheet as Note Receivable from Agriculture Partnerships, inclusive of the 40% or
$.332 million advanced upon Citadel's behalf. While under no obligation, it
appears likely that Citadel will, as a practical matter, need to renew the Crop
Financing in August 1998.
The Prudential Purchase Money Loan in the amount of $4.05 million is
secured by, among other things, a first priority mortgage lien on the property,
has a ten-year maturity and accrues interest, payable quarterly, at a fixed rate
of 7.7%. Principal is payable in annual installments of $200,000 each, beginning
January 1, 2002; provided, however, that the Partnerships are obligated to make
certain mandatory prepayments unless the Partnerships make capital improvements
to the real property totaling $500,000 by December 31, 2000 and an additional
$200,000 by December 31, 2001; the amount of such prepayments in each case being
the difference between the amount specified and the amount actually spent on
such improvements as of the relevant date. The purchase money mortgage also
imposes a prepayment penalty equal to the greater of (a) one-half of one percent
of each prepayment of principal and (b) a present value calculation of the
anticipated loss that the note holder will suffer as a result of such
prepayment.
In addition, it is not currently anticipated that the Agricultural
Partnerships will realize free cash flow in 1998. This is due to several
factors, including the need to address in 1998 certain deferred maintenance
(including greater than typical expenditures for pruning and hedging, road
maintenance and the repair and upgrade of certain pumping and irrigation
facilities) and lower than anticipated fruit prices resulting, in part, from
decreased demand for citrus in Asia.
The acquisition occurred on December 31, 1997, and accordingly, the results
of operations for Fiscal 1997 do not include operating results of the Company's
40% equity investment in the Partnerships and the cash flow impact of any future
borrowings which may be requested by BRI or the Agricultural Partnerships. It
is currently anticipated that the Agricultural Partnerships will incur a net
loss in Fiscal 1998.
Page 3
Industry Overview
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Citrus is produced in the United States and other countries where night
time temperatures typically do not fall below 24 degrees Fahrenheit for more
than a few hours at a time. Currently citrus is produced in 80 countries. The
major producing countries, in addition to the United States, are Brazil, Mexico,
Argentina and Spain. The majority of international trade is in juice form, less
than 15% of world production is shipped fresh to non-domestic markets.
In the United States, citrus is produced in Florida, California, Arizona
and Texas. The Florida industry is oriented to juice production with less than
10% of the orange crop being sold as fresh fruit. In addition to oranges,
Florida is the number one producer of grapefruit. Of Florida's grapefruit
production, approximately 50% is shipped as fresh fruit. Production in Arizona
and Texas is limited and these areas are not considered major producing regions.
Production in California is oriented to oranges and lemons for the fresh
market. Approximately 85% of all orange production is sold as fresh fruit. Lemon
production is concentrated in California, where approximately 75% of the U.S.
crop is produced.
California citrus is sold year round. Major markets are the United States,
Canada, Japan and Hong Kong. As with most commodities, citrus pricing is
sensitive to supply and demand changes. Production is dependent on the number of
acres planted to citrus, the environmental conditions and cultural inputs.
Environmental conditions is the single largest contributor to supply changes
within a season. Acres in production change in response to growers income and
the historical cycle time from expansion to contraction has historically been in
the range of 10 to 12 years. Currently, the industry is undergoing contraction
and is projected to continue in that direction for the next 3 to 5 years.
Currently, marketing and sales of California citrus is dominated by Sunkist
Growers, Inc., a cooperative of growers from California and Arizona. Sunkist
market share ranges from 60% for oranges to 75% for lemons. Membership in
Sunkist is not restricted and some of the Property's fruit has been historically
and will likely be marketed in the future through Sunkist.
Business Strategy and Description of Business
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General
The business plan currently being implemented by the Agricultural
Partnerships is to focus on the cultivation of citrus crops utilizing the Big 4
Properties' existing orchards and, over time, to improve the Open Land with
additional citrus orchards. It is anticipated that these new orchards will
consist principally of Navel and Valencia oranges.
At the present time, approximately 942 acres of the Big 4 Properties is
improved with orchards, consisting of approximately 560 acres of Navel oranges,
205 acres of Valencia oranges, 145 acres of lemons and 32 acres of minneolas.
Approximately 600 acres is open land, currently leased to third parties on a
short term basis for the cultivation of annual crops. The remaining acreage is
used for agricultural support facilities. During the 1997 season, the Big 4
Properties produced approximately 429,000 cartons of Navel oranges,
approximately 140,000 cartons of Valencia oranges, approximately 163,000 cartons
of lemons and approximately 14,000 cartons of minneolas, for a total of
approximately 746,000 cartons of citrus.
The assets hadacquired also included wind machines used for frost protection,
irrigation systems, and access to a bookforty acre reservoir owned by the local
irrigation district for the short-term storage of water from
Page 4
wells located on the Big 4 Properties as well as from other sources. While the
business plan is to make use of federal water rights to provide water to the Big
4 Properties, these wells and access rights provide a safeguard in the event
that such federal water should from time to time prove prohibitively expensive
or insufficient to meet the needs of the Big 4 Properties.
It is anticipated that the improvement of the Open Land will likely be
completed over a period of 5 to 7 years, and be funded, over time, principally
out of the free cash flow generated from the Big 4 Properties. Such improvement
will include the installation of additional irrigation systems, the planting of
trees and the installation of frost control systems (principally wind machines).
The period to maturity varies from variety to variety, but generally speaking it
is anticipated that the first commercial crops will be harvested 5 years after
the trees are planted.
The business of the Agricultural Partnerships is subject to risks
associated with its agricultural operations. Numerous factors can affect the
price, yield and marketability of the crops grown on the Big 4 Properties. Crop
prices may vary greatly from year to year as a result of the relationship
between production and market demand. For example, the production of a
particular crop in excess of demand in any particular year will depress market
prices, and inflationary factors and other unforeseeable economic changes may
also, at the same time, increase operating costs with respect to such crops. In
addition, the agricultural industry in the United States is highly competitive,
and domestic growers and produce marketers are facing increased competition from
foreign sources. There are also a number of factors outside of the control of
the Company and the Agricultural Partnerships that could, alone or in
combination, materially adversely affect the agricultural operations of the
Agricultural Partnerships, such as adverse weather conditions, the availability
of water, insects, blight or other diseases, labor problems such as boycotts or
strikes, and shortages of competent laborers. At the present time, the Company
believes that citrus prices are being adversely effected by poor economic
conditions in Asia. Generally, the Agricultural Partnerships will not carry
causality insurance with respect to their trees or crops. The business
operations of the Agricultural Partnerships may also be adversely affected by
changes in governmental policies, social and economic conditions, and industry
production.
Seasonality
The agricultural operations of the Agricultural Partnerships will be
impacted by the general seasonal trends that are characteristic of the citrus
industry. The Agricultural Partnerships anticipate receiving a majority of their
net income during the second and third calendar quarters following the harvest
and sale of there citrus crops. Due to this concentrated activity, the
Agricultural Partnerships anticipate that they will typically show losses in the
first and fourth calendar quarters.
Competition
The agricultural business is highly competitive. The Agricultural
Partnerships' competitors include a large number of both large and small
independent growers and grower cooperatives, many of which have considerably
greater financial resources and experience than the Company. No single grower
has a dominant market share in this industry due, among other things, to the
regionalized nature of these businesses and limited on access to federal water.
Employees
The Company anticipates that a total of five full-time employees will be
needed to work the Big 4 Properties. These employees will be provided and
supervised by Farming. Certain management consulting, purchasing and bookkeeping
will be contracted out to Cecelia. Packing and harvesting will also be
contracted
Page 5
out to independent contractor third parties in accordance with industry
practices. Accordingly, it is not anticipated that the Agricultural Partnerships
will have any employees, full time or otherwise.
The success of the Agricultural Partnerships is highly dependent upon Mr.
James J. Cotter, who has more than 25 years experience in citrus farming and
upon the senior management of Cecelia, which is wholly owned by Mr. Cotter, and
which, through its employees, will provide senior management, purchasing and
bookkeeping services to Farming and through Farming to the Partnerships.
Regulation
Certain areas of the operations of the Agricultural Partnerships are
subject to varying degrees of federal, state and local laws and regulations.
Such operations are, for example, subject to a broad range of evolving
environmental laws and regulations. These laws and regulations include the
Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act,
the Federal Insecticide, Fungicide and Rodenticide Act, and the Comprehensive
Environmental Response, Compensation and Liability Act. Compliance with these
foreign and domestic laws and related regulations is an ongoing process which is
not currently expected to have a material effect on the capital expenditures,
earnings or competitive position of the Agricultural Partnerships.
Environmental concerns are, however, inherent in most major agricultural
operations, including those expected to be conducted by the Agricultural
Partnerships, and there can be no assurance that the cost of compliance with
environmental laws and regulations in the future will not be material. In the
normal course of its agricultural operations, Farming, on behalf of the
Agricultural Partnerships, will handle, store, transport and cleanup of
such hazardous substances or wastes or may adversely affect the value of $30.3
million, consistingthe Big
4 Properties. Such matters could, in the future, have a material adverse effect
on the Company and the Agricultural Partnerships. The operations of the
Agricultural Partnerships are also subject to regulations enforced by, among
others, the U.S. Food and Drug Administration and state, local and foreign
equivalents and to inspection by the U.S. Department of Agriculture and other
federal, state, local and foreign environmental and health authorities. Certain
areas of the operations of the Agricultural Partnerships are subject to varying
degrees of federal, state and local laws and regulations. Farm operations such
as those conducted on the Big 4 Properties are subject to federal, state and
local laws and regulations controlling, among other things, the discharge of
materials into the environment or otherwise relating to the protection of the
environment. Environmental regulations may have a materially adverse effect
upon operations.
The purpose of the Spin-Off was principally to comply with applicable
federal laws and regulations ("Water Laws") as administered by the Bureau of
two office buildings (locatedReclamation (the "Bureau") in Glendale,
Californiaorder to have access to and Phoenix, Arizona),use of federal water
(the "Water Rights") for the Company's investmentoperation of the Agriculture Partnerships. Under
the Water Laws, no entity with more than 25 stockholders can acquire federal
water for more than 640 acres of owned land. Although Citadel has received
assurances that the partnership structure being used to own and farm the Big 4
Properties will comply with the Water Laws and not infringe on the Agricultural
Partnership's access to the federal water, there can be no assurance that the
Bureau and the federal government will not at some future date object to this
structure or that the Water Laws will not change, either of which event could
have material adverse consequence to the value of the Big 4 Properties and
viability of the business of the Agricultural Partnerships.
Weather, availability of labor, changes in state or local law or
regulation, and similar localized events could also have an adverse impact on
the performance or value of the Big 4 Properties.
INVESTMENT IN READING ENTERTAINMENT, INC. ("READING")
Reading is a publicly traded company whose shares are quoted on the
NASD/NMS and listed for trading on the NASDAQ Philadelphia Stock Exchange. Set
forth as Exhibit 10.58 to this report is the Report
Page 6
on Form 10K filed by Reading with respect to the fiscal year ended December 31,
1997. Reading is currently controlled by Craig, which owns common and preferred
stock in Reading representing approximately 78% of the voting power of that
company. Craig directly owns 666,000 shares of Citadel Common stock, and
cashthrough its ownership of Reading indirectly owns an additional 1,564,473 shares
of Citadel Common Stock.
The acquisition of the Series A Preferred Stock and cash equivalents, and long term liabilities of $10.3 million.
The Reading Investment Transactionthe Asset Put Option
provided the Company an opportunity to make an initial investment in the movie
exhibition industry, and the ability, thereafter, to review the implementation
by Reading of its business plan and, if it 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$12.25 per share. The closing
price of Reading Common Stock was $12.75 per share if the notice is
received by Octoberat December 31, 1997 and thereafter $12.25 per share.1997. 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 involvedHISTORIC THRIFT ACTIVITIES
Prior to August 4, 1994, Citadel was engaged primarily in conventional multiplex cinema exhibition
in Puerto Rico throughproviding holding
company services for 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.wholly owned thrift subsidiary, Fidelity. On August 4,
1994, Citadel and Fidelity completed a recapitalization and restructuring
transaction (the "Restructuring"), which resulted in, among other things, the
reduction of Citadel's interest in Fidelity from 100% to approximately 16%, the
acquisition 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 fiscalFiscal 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 and Principal Accounting
Officer of Citadel in September, 1994. Mr. Tompkins is also the Vice Chairman
and a director of Citadel,Citadel; President and director of CAI; a member of the
management committee of Farming and of each of the Agricultural Partnerships;
the President and a director of Craig andCraig; the Vice Chairman and a director of
Reading.Reading and serves, as an administrative convenience, as an assistant secretary
to BRI and Visalia. Prior to joining Craig and Reading in March, 1993, Mr.
Tompkins was a partner in the law firm of Gibson, Dunn & Crutcher.
Page 7
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
CompanyProperty 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, 1996.1997.
UNITS/- ------------------------------------------------------------------------------------------------------------------
SQUARE % LEASED AT 12/31/96 MAJOR TENANTS REMAINING
ADDRESS TYPE FEET 12/31/97 * 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, GLENDALEThe Company is currently negotiating with
American Express regarding the possible extension of their current lease for an
additional five years with escalating rents, which lease currently expires in
February 1999. The Company can make no assurance that such negotiations will
result in an extension of this Lease.
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, 19961997 is
$26,600$27,350 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.
Page 8
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.million of which the
Company has expected approximately $400,000 as of December 31, 1997. In
addition, the Company anticipates incurringincurred 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
- ---------FINANCING OF REAL ESTATE INTERESTS
The Parthenia propertyCompany's 1994 acquisition of the Arboleda was sold100% 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 financed through drawdowns on an $8.2 million line of credit from Craig,
which has subsequently been paid in Januaryfull. The mortgage 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.
The interest rate on this loan is currently 10.22%. At December 31, 1997, for $1,210,000, which
amount, netthe
loan had a balance of closing costs, approximated book value.approximately $4.3 million.
With regard to the purchase of the Glendale Building, Fidelity extended a
five year loan, amortizing over twenty years, at an adjustable interest rate of
tied to the 30-day LIBOR rate plus 4.5% per annum, adjustable monthly. The
interest rate on this loan is currently 10.22%. At December 31, 1997, the loan
had a balance of approximately $5.1 million.
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 1997 and 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 SatesStates 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,
Page 9
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.judgment, which was upheld on appeal in August 1, 1997.
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,judgment, which appeal 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 judgmentupheld in favor of Citadel. The caseCitadel in January 1998. Roven
petitioned the California Supreme Court for review of that appellate court
decision and such petition was subsequently settled
by Fidelity and the plaintiff.
5
denied in March 1998.
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 Partnerssettled 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 responseNovember 1997,
without liability 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 voteAt the Company's 1997 Annual Meeting of security holders during the fourth
quarterShareholders held on December
15, 1997, shareholders elected for directors. The results of the year ended December 31, 1996.
6votes were as
follows:
ELECTION OF DIRECTORS FOR WITHHELD
- --------------------- ----- ----------
James J. Cotter 6,140,521 75,733
S. Craig Tompkins 6,126,561 89,693
Ronald Simon 6,140.521 75,733
Alfred Villasenor 6,140,521 75,733
Page 10
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)(In Dollars)
1997:
Fourth Quarter 4 11/16 3 11/16
Third Quarter 4 7/16 2 3/4
Second Quarter 3 7/16 2 15/16
First Quarter 3 1/8 2 5/8
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,
199725,
1998 was 250.
DIVIDENDS ON COMMON STOCK
On December 29, 1997, the Company distributed 6,669,924 shares of its
wholly owned subsidiary. Big 4 Ranch, Inc. to all common stockholders
(representing 6,669,924 shares) of record on December 23, 1997. Prior to such
distribution, the Company capitalized Big 4 Ranch, Inc. with a cash contribution
of $1.2 million or approximately $0.18 per share.
While Citadelthe Company has never declared a cash dividend on its Common Stock
and has no current plan to declare a dividend, it is Citadel's policy to review
this matter on an ongoing basis.
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.
8Page 11
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 DecemberAT OR FOR THE YEAR ENDED DECEMBER 31,
1997 1996 1995 1994 1993
1992
---------- ---------- ---------- ---------- --------------------------- ---------------- --------------- ---------------- -----------------
(In thousands, except per share ____________________________________________________________________________________________
data)
Income from real estate operations $ 5,8715,110 $ 6,1124,932 $ 2,1155,402 $ 2,070 $ --
Dividend and interest income 906 939 710 45 --
Gain (loss) on property sales (16) 1,493 1,541 -- --
Net interest income after
provision for estimated loan
losses $-- -- -- -- 36,101
$ 79,601
Gains (losses)Gain on sale of loans, net -- -- -- -- 194
1,117
Gains (losses)Gain on sale of mortgage-back
securities -- -- -- -- 1,342
Gains (losses)(Losses) on sales of
investment securities -- -- -- -- (54)
Consulting income from shareholder 240 169 120 -- --
Other income (expense) -- -- -- -- (35,870) (6,602)
Administrative charge from Fidelity 916-- -- -- (916) --
Gain (Loss) of and Write-down of
investment in Fidelity (6) -- 4,000 (41) (171,964) --
Operating expense (4,938) (6,214)expenses (4,665) (5,107) (6,334) (4,060) (105,341) (77,911)
---------- ---------- ---------- ---------- ----------
Earnings (loss) before income taxes 1,575 6,426 1,398 (174,825) (103,628)
(3,795)
Income tax expense (benefit) 45 -- -- -- (36,467) (5,841)
---------- ----------
---------- ---------- ---------- ---------- ----------
Net earnings (loss) $ 1,530 $ 6,426 $ 1,398 $ (174,825) $ (67,161)
$ 2,046
========== ========== =========== ========== ========== Earnings==========
Net earnings (loss) available to
common stockholders $ 1,530 $ 6,268 $ 1,240 $ (174,842) $ (67,161)
========== ========== ========== ========== ==========
Basic earnings (loss) per common and common
equivalent share $0.80 $0.17 $(26.45) $(11.56) $0.62$ 0.24 $ 1.04 $ 0.20 $ (26.45) $ (11.56)
Diluted earnings (loss) per share $ 0.24 $ 0.80 $ 0.16 $ (26.45) $ (11.56)
Basic Average common and common
equivalent shares (1)shares(1)(2)(5) 7,983,416 8,233,174 6,487,458 6,003,924 6,191,864 6,610,280 5,809,570
3,297,812Diluted Average common shares(5) 6,496,142 8,050,708 8,616,613 6,610,280 5,809,570
Balance sheetSheet Data:
Total assets $ 28,860 $ 30,292 $ 39,815 $ 39,912 $4,389,519
$4,698,326
Cash and investments4,364 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 9,395 10,303 16,186 14,846 734,230
908,400
Subordinated notes 60,000-- -- -- -- 60,000
Stockholders' equity 18,054 17,724 17,720 17,838 187,403
223,186
Cash dividends declared on --
Preferred Stock -- 232 101 -- --
Stock Dividend 1,200 -- -- -- --
9Page 12
ITEM 6. SELECTED FINANCIAL DATA (CONT'D)(CONTINUED)
At or for the Year Ended DecemberYEAR ENDED
DECEMBER 31, 1996 1995 1994 1993
1992
---------- ---------- ---------- ---------- -------------------------------
Other Data
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$241,093
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 and 2,430,323 common shares.shares,
respectively.
(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.
10Page 13
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 commercialits real estate interests and residential property
since August 1994. During this time period,in the Company has considered
acquisitions outsideoffering
of the ownership and management of commercial and
residential properties, and asvarious real estate consulting services to its affiliates. 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"), the Company 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"in October 1996 invested $7 million to acquire 70,000 shares of
Series A Cumulative Convertible Preferred Stock 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,Asset Put Option
described below.
On December 31, 1997, the Company authorizedacquired, through its management to cooperate with such effortsinterest in three
general partnerships (the "Agricultural Partnerships"), a 40% interest in
approximately 1,580 acres of agricultural land and formed a special committee ofrelated improvements, located
in Kern County, California, commonly known as the Board composed of outside directors unaffiliated with Craig and/or Reading to
participate in the negotiation and review of any such potential transactionBig 4 Ranch (the "Independent Committee""Property").
The Independent Committee retained legal counsel and
investment banking advisors to assist itother two partners in this process.
On October 15, 1996, the Company, withPartnerships are Visalia LLC (a limited liability
company controlled by Mr. James J. Cotter, the approvalChairman of the Board of Directors, consummated the
transaction (the "Reading Investment Transaction")
contemplatedCompany, and owned by an exchange Agreement (the "Exchange Agreement") datedMr. Cotter and certain members of his family) which has a
20% interest and Big 4 Ranch, Inc., a publicly held corporation, which has the
remaining 40% interest. Prior to the acquisition, Big 4 Ranch, Inc., was a
wholly owned subsidiary of the Company. Immediately prior to the acquisition,
the Company capitalized Big 4 Ranch, Inc., with a cash capital contribution of
$1.2 million and then distributed 100% of the share of Big 4 Ranch, Inc., to the
shareholders of record of the Company's common stock as of September 4,the close of business
on December 23, 1997, as a spin-off dividend. The Company accounts for its 40%
investment in the Agricultural Partnerships utilizing the equity method of
accounting. As the acquisition did not occur until December 31, 1997; there was
no impact in the results of operations for the year ended December 31, 1997. See
Note 5.
On October 15, 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.stock (such securities together with
all successor Securities being referred to as the "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
11Page 14
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. Suchat a redemption price
amountedamounting to approximately $6.19 million. As a consequence of the Series B
Preferred
Stock redemption, Reading's ownership of Citadel decreased to reflect
itsan approximately
26% common stock holdings.holding.
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$12.25 per share, if
the notice is received by Octobershare. The closing
price of Reading Stock at December 31, 1997, and thereafter, $12.25was $12.75 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 providesprovided 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.
ReadingThrough its majority owned subsidiaries, REI is currently involved in conventional multiplex cinema exhibitionthe business of developing
and operating multi-plex cinemas in the United States, Puerto Rico through its Cine Vista Cinemas chain, in the exhibitionand Australia
and of artdeveloping, 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 andeventually operating, entertainment centers in Australia.
Reading openedThe Company operates its first multiplex cinema in
Australia in December 1996. In addition, Reading expects to expandcinemas through various subsidiaries under the Angelika
Film Center conceptCenters and Reading Cinemas names in the United States (the "US Circuit");
through Reading Cinemas of Puerto Rico, Inc., a wholly owned subsidiary, under
the CineVista name of Puerto Rico ("CineVista" or the "Puerto Rico Circuit");
and through Reading Australia Pty, Limited (collectively with its subsidiaries
referred to other U.S. cities, has executed a lease to develop an 8-
plex art cinema and cafe complexherein as a part of"Reading Australia") under the Bayou PlaceReading Cinemas name in
Australia (the "Australia Circuit"). The Company's entertainment center
development activities in Houston, Texas, and is currently reviewing a number of potential locations
suitable for such complexes.
12
Australia are also conducted through Reading
Australia, under the Reading Station name.
RESULTS OF OPERATIONS
- ---------------------
Due to the nature of the Company's business activities the Company's
historical revenues have and future revenues have variedwill vary significantly reflecting
the results of real estate sales and the dispositionacquisition of the Preferred Stock and
Agriculture Partnership, of its previously owned subsidiary, Fidelity. In
addition, rental income and earnings may vary significantly depending upon the
Page 15
PAGE>
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, 1997 ("FISCAL 1997") AND 1996 ("FISCAL 1996) VERSUS YEAR
- --------------------------------------------------------------------------------
ENDED DECEMBER 31, 1995 - -------------------------------------------------------------------------------
("FISCAL 1995")
- ------------------------------------------------------
The Company's net earnings for Fiscal 1996 amounted to approximately $1,530,000, $6,426,000
or $0.80 per share, as compared toand a $1,398,000 or $0.17 per share for Fiscal 1995.1997, 1996 and 1995, respectively. Net earnings
available to common stockholders reflects net earnings, less any preferred stock
dividends earned prior to the preferred stock redemption in December 1996, and
amounted to $1,530,000, $6,268,000 and $1,240,000 for Fiscal 1997, 1996 and
1995, respectively. Included in the net earnings for Fiscal 1997 is
approximately $820,000 of income from shareholder affiliates including the
receipt of interest income, dividends earned on its Investment in Reading and
consulting fees as compared to $264,000 and $120,000 in Fiscal 1996 is (1)and 1995.
Fiscal 1996 earnings includes 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 $5,110,000 in Fiscal 1997,
$4,932,000 in Fiscal 1996 as
compared toand $5,402,000 in Fiscal 1995. The decrease in Fiscal 1996 isfluctuations
between the years are principally due to a reduction ofin the number of rental
properties owned by the Company between the periods.periods offset by increased revenues
from the properties remaining. The apartmentCompany has disposed of three multi-family
residential properties, (one in each of 1995, 1996 and January 1997), one office
building held for sale at December
31, 1996 was sold in January 1997 for an amount, net of expenses, approximating
book value.(1995) and certain open land (1996) during the last 3 years.
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%56% of the Arboleda property at
increased rates and an increase in rental income amounting to approximate lyapproximately
$300,000 resulting from an entire years ownership of a six floor
commercial building locatedthe Glendale property
(purchased in Glendale, California (the "Glendale Building")May 1995). As of December 31, 19961997, rental properties consisted of
one apartment building
(held for sale)two office buildings located in Glendale, California and two commercial buildings as compared to two apartment
buildings and two commercial buildings (one of which was purchasedPhoenix, Arizona
(purchased in May 1995)
as of December 31, 1995.
13
August 1994). The Glendale Building was purchased in May 1995 from Fidelity. Two floorsproperty is leased to Disney
Enterprises, Inc. and Fidelity Federal Bank, and American Express leases
approximately 56% of the Glendale Building were leasedPhoenix Building. Rental income from these lessees
amounted to Public Storage until April 1996 and four
floors, including the ground floor, were leased to Fidelity under a long-term
lease.approximately $3,845,000 in Fiscal 1997 or approximately 76% of
rental revenue.
In OctoberFiscal 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 six floors of the floors,Glendale Building, excluding the ground floor, which continuesis
leased to be leased by Fidelity. The rental rate for the first five years of the Disney lease
term beginningbegan February 1, 1997 and is approximately $148,000 per month for the
first five years and approximately $164,000 per month 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.million of which the Company has expended approximately
$400,000. In addition, the Company anticipates incurringincurred costs for other
Page 16
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 mentreimbursement to Fidelity, totaling approximately
$1,326,000 are included in the Balance Sheet at December 31, 19961997 as
"Capitalized leasing costs" and are being amortized over the 10 year term of the
lease.
Real estate operating costs decreased to $2,090,000 in Fiscal 1997 as
compared to $2,481,000 in Fiscal 1996 to $2,481,000 as
compared toand $2,660,000 in Fiscal 1995,1995. The Fiscal
1997 decrease is principally as a result of the sale of two apartment buildings
which the Veselich Building. ThisCompany owned during the most of which Fiscal 1996, offset by an
increase of the two remaining commercial properties of approximately $190,000.
The Fiscal 1996 decrease was principally a result of the sale of an apartment
building, partially offset by costs associated with operating the Glendale
Building purchased in May 1995.
Interest expense was comparableincome amounted to $326,000 in Fiscal 1997, $939,000 in Fiscal 1996
and $710,000 in Fiscal 1995. The decrease in Fiscal 1997 as compared to 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.
Dividends from investment in Reading in Fiscal 1997 amounted to $455,000 as
compared to $95,000 in Fiscal 1996, reflecting a full years dividend earned
pursuant to the terms of the REI Preferred Stock. The REI Preferred Stock was
issued in October 1996 and bears a cumulative dividend of 6.5%, payable
quarterly. The REI Preferred Stock is convertible any time after April 15, 1998
into common shares of REI as a conversion price of $11.50 per share.
On April 11, 1997, Craig exercised its warrant to purchase 666,000 shares
of the Company's common stock at an exercise price of $3.00 per share or $1.998
million. Such exercise was consummated pursuant to delivery by Craig of its
secured promissory note (the "Craig Secured Note") in the amount of $1.998
million, secured by 500,000 shares of REI Common Stock owned by Craig. The Craig
Secured Note, in the amount of $1.998 million, is included in the Balance Sheet
as a contra equity account under the caption "Note receivable from shareholder".
Interest is payable quarterly in arrears at the prime rate (amounting to 8.5%)
computed on a 360 day-year. Principal and accrued but unpaid interest is due
upon the earlier of April 11, 2002 or 120 days following the Company's written
demand for payment. The Craig Secured Note may be prepaid, in whole or in part,
at any time by Craig without penalty or premium. Included in the Statement of
Operations for the year ended December 31, 1997 as "Interest income from
shareholder" is approximately $125,000 earned pursuant to the Craig Secured
Note.
Interest expense amounted to $1,009,000 in Fiscal 1997, $1,317,000 in Fiscal
1996 as compared to $1,327,000 in Fiscal 1995. The $308,000 decrease in Fiscal
1997 as compared to Fiscal 1996 was principally a result of the payoff of a
mortgage amounting to approximately $755,000 upon the sale of a property in
January 1997. The comparability of such amounts reported asFiscal 1996 and 1995 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.1995. The interest rate on the remaining
outstanding loans approximated 9.875%10.22% at December 31, 1996.1997.
General and administrative expenses decreasedamounted to approximately $745,000$1,175,000 in Fiscal 1997,
$914,000 in Fiscal 1996 and $1,927,000 in Fiscal 1995. The increase in Fiscal
1997 as compared to Fiscal 1996 is a result of accounting, printing, and
consulting expenses relating to the stock distribution of Big 4 Ranch, Inc. and
the acquisition of the Agricultural Partnerships and increased salaries and
bonuses. The $880,000 decrease reflected in Fiscal 1996 as compared to $1,807,000 in Fiscal
1995. The $880,000 decrease
reflected in Fiscal 19961995 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.
14Page 17
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 19961997
- -----------
Fiscal 19961997 cash and cash equivalentsequivalent decreased by approximately $9,932,000$1,992,000
from $16,291,000$6,356,000 at December 31, 19951996 to $6,359,000$4,364,000 at December 31, 1996.1997. Net
cash provided by operating activities amount to $1,688,000, net cash used in
investing activities for the year ended December 31, 1996
amountedamount to $1,460,000$741,000 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.$2,939,000. The principal uses of liquid funds in 1996 included (i) a $7 millionthe
Company's 40% equity investment in the Big 4 Agricultural Properties (ii) the
Company loan of $831,000 to the Agricultural Partnerships (iii) the $1,200,000
capitalization of Big 4 Ranch, Inc., prior to the Company's dividend of Big 4
Ranch, Inc. to its shareholder,
Reading, (ii) a $5,883,000 repaymentcommon shareholders, (iv) leasehold improvements amounting to
$708,000 and (v) repayments of mortgage loans including $5,690,000
repaid as a resultamounting to $908,000. Principal
sources of funds included approximately $1,128,000 received upon the sale 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.property.
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 two 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. The Company does not expect to receive cash flow from its
investments in the Agricultural Partnerships in the near term.
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$1.9 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)(iii) debt service pursuant to the property mortgages.
As part of the Big 4 Ranch Inc. spin off, the Company agreed to provide a
$200,000 line of credit to that Company. In addition, the Company has provided
an agricultural line of credit to the Agricultural Partnerships of $1,200,000.
As of March 20, 1998 no additional monies other than the initial $831,000
drawdown have been borrowed, however, the Company expects to receive additional
requests for borrowings of the total committed credit lines.
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 1996
- -----------
Fiscal 1996 cash and cash equivalents decreased by approximately $9,935,000
from $16,291,000 at December 31, 1995 to $6,356,000 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 of its 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.
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
- -----------
CashThe Company has determined that it will not need to modify or replace
significant portions of its software so that its computer systems will function
properly with respect to dates in the year 2000 and cash equivalents decreased by approximately $141,156,000beyond. The Company also
does not believe that the failure of any third party suppliers or other parties
to remediate year 2000 issues could have a material impact upon the Company's
operations.
FORWARD-LOOKING STATEMENTS
From time to time, the Company or its representatives have made or may make
forward-looking statements, orally or in Fiscal
1994, inclusivewriting, including those contained
herein. Such forward-looking statements may be included in, without limitation,
reports to stockholders, press releases, oral statements made with the approval
of a decrease of approximately $143,677,000, resulting from the
deconsolidationan authorized executive officer 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 reducedCompany and filings with the
Securities and Exchange Commission. The words or phrases "anticipates,"
"expects, "will continue," "estimates," "projects," or similar expressions are
intended to 16% andidentify "forward-looking statements" within the Company
formed a new subsidiary which purchased four real properties using fundsmeaning 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 fromthe
Private Securities Litigation Reform Act of 1995.
The results contemplated by the Company's shareholder affiliate,
Craig.forward-looking statements are
subject to certain risks, trends, and uncertainties that could cause actual
results to vary materially from anticipated results, including without
limitation, delays in obtaining leases and permits for new multiplex locations,
construction risks and delays, the lack of strong film product, the impact of
competition, market and other risks associated with the Company's investment
activities and other factors described herein.
Page 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX PAGE
- ----- ----
Report of Independent Auditors....................Auditors Report..................................................... 20
Consolidated Balance Sheets
Three Years Ended December 31, 19961997 and 1995..........1996.................................. 21
Consolidated Statements of Operations
Three Years Ended December 31, 1996, 1995 and 1994....1997........................................... 22
Consolidated Statements of Stockholders' Equity
Three Years Ended December 31, 1996.............1997........................................... 23
Consolidated Statements of Cash Flows
Three Years Ended December 31, 1997, 1996 1995 and 1994....1995............................ 24
Notes to Consolidated Financial Statements........Statements...................................... 25
Financial Statement Schedule - III - Real Estate and Accumulated Depreciation.................... 40Depreciation... 37
Page 19
REPORT OF INDEPENDENT AUDITORS REPORT
The Board of Directors
Citadel Holding Corporation
We have audited the accompanying consolidated balance sheets of Citadel Holding
Corporation and subsidiaries (the "Corporation") as of December 31, 19961997 and
19951996 and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1996.1997. 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, 19961997 and 1995,1996, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996,1997, 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, 19971998
Page 20
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DecemberDECEMBER 31,
1997 1996
1995
------------ ------------
(In thousands of dollars)--------- ---------
ASSETS
- ------
Cash and cash equivalents $ 6,3564,364 $ 16,2916,356
Properties held for sale -- 1,145 7,942
Rental properties, less accumulated depreciation 13,652 13,288 14,251
Investment in shareholder affiliate 7,000 7,000
Equity investment in Agriculture Partnerships 1,129 --
Note Receivable from Agriculture Partnerships 831 --
Capitalized leasing costs 1,384 1,576 70
Other receivables 94 311 447
Other assets 406 616 814
-------- --------
Total assets $ 30,29228,860 $ 39,81530,292
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
LIABILITIES
Security deposits payable $ 7690 $ 25376
Accounts payable and accrued liabilities 2,189 1,6561,009 2,025
Deferred proceeds from bulk sales agreement -- 4,000rental revenue 312 164
Mortgage notes payable 9,395 10,303 16,186
-------- --------
Total liabilities 10,806 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 andnone 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 59,603 59,020
65,197
Deficit(Accumulated deficit) (39,618) (39,948)
(46,142)Note receivable from shareholder upon common stock
issuance (1,998) --
Cost of treasury shares, 666,000 shares (1,415)as of 1996 -- (1,415)
-------- --------
Total stockholders' equity 18,054 17,724 17,720
-------- --------
Total liabilities and stockholders' equity $ 30,29228,860 $ 39,81530,292
======== ========
See accompanying notes to consolidated financial statements.
Page 21
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Year Ended DecemberYEAR ENDED DECEMBER 31,
1997 1996 1995
1994
------- -------- ----------
(In thousands of dollars,
except per share amounts)---------------- ---------------- ---------------
Real Estate Operations:Revenues:
Rental income $5,110 $4,932 $5,402
$ 2,070
Interest income 939326 844 710 45
------ ------ ---------
5,871------
5,436 5,776 6,112 2,115
Real estate operating expenses 2,090 2,481 2,660 1,350
Depreciation and amortization 391 395 420
276
Interest expense 1,009 1,317 1,327 649
General and administrative expenses 745 1,807 1,7851,175 914 1,927
------ ------ ---------------
Total expenses 4,938 6,214 4,0604,665 5,107 6,334
Gain (loss) on sale of properties (16) 1,493 1,541
Dividends from investment in Reading 455 95 --
------ ------ ---------
Earnings (loss)Consulting fees from Real Estate Operations 2,426 1,439 (1,945)
------ ------ ---------
Administrative Chargeshareholder 240 169 120
Interest income from Fidelityshareholder 125 -- --
(916)
Gain (Loss)(loss) of and Write-down of Investment in Fidelity -- 4,000 (41)
(171,964)
------ ------ ---------------
Earnings (loss) before taxes 1,575 6,426 1,398 (174,825)
Income tax expense (benefit) --45 -- --
------ ------ ---------------
Net earnings (loss)$1,530 $6,426 $1,398
$(174,825)Less: Preferred stock dividends -- (158) (158)
------ ------ ------
Net earnings available to common stockholder $1,530 $6,268 $1,240
====== ====== =========
Net======
Basic earnings (loss) per common and
common equivalent share $0.80 $0.17 $(26.45)
====== ====== =========$ 0.24 $ 1.04 $ 0.20
------ ------ ------
Diluted earnings per share $ 0.24 $ 0.80 $ 0.16
------ ------ ------
See accompanying notes to consolidated financial statements.
Page 22
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 19961997
(IN THOUSANDS OF DOLLARS)DOLLARS, EXCEPT SHARE DATA)
Preferred Stock Common StockNOTE
RECEIVABLE TOTAL
PREFERRED STOCK COMMON STOCK ADDITIONAL FROM TREASURY STOCK-
------------------- -------------- Treasury Stock-
Shares Par Shares Par Paid-In Retained Stock, holders'
Value Value Capital Earnings At Cost Equity------------------ PAID-IN ACCUMULATED STOCK- STOCK, AT HOLDERS'
SHARES PAR VALUE SHARES PAR VALUE CAPITAL DEFICIT HOLDER COST EQUITY
------------------- --------- ---------- ---------- --------- --------
________________________________________________________________________________________________________
Balances
Balance 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
$2751995 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)$67 $65,298 $(47,540) -- 17,838$ -- $17,838
Asset exchange for
666,000 shares of
common stock $(1,415) (1,415) Net earnings 1,398 1,398(1,415)
Preferred stock
dividends (101) (101)
------ ---- ----- --- -------- -------- ------ --------
BalancesNet earnings 1,398 1,398
_______ _______ _______ _______ _______ _______ _______ _______ _______
Balance at
Dec.December 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_______ _______ _______ _______ _______ _______ _______ _______ _______
Balance at
Dec.December 31, 1996 -- -- 6,670 67 59,020 (39,948) -- (1,415) 17,724
Net earnings 1,530 1,530
Dividend of Big 4 (1,200) (1,200)
Ranch, Inc.
Issuance of
treasury stock for 583 (1,998) 1,415 --
note
_______ _______ _______ _______ _______ ________ _______ _______ _______
Balance at
December 31, 1997 -- $ -- 6,670 $67 $59,020$59,603 $(39,618) $(1,998) $ (39,948) $(1,415) $ 17,724
====== ==== ===== ===-- $18,054
======= ========= ======= ================ ======= ======= ======== ======= ======= =======
See accompanying notes to consolidated financial statements.
Page 23
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
Year Ended DecemberYEAR ENDED DECEMBER 31,
1997 1996 1995
1994
--------- --------- -------------------------- ----------------- ---------------
OPERATING ACTIVITIES
Net earnings (loss)$ 1,530 $ 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) Lossloss from investment in Fidelity -- (4,000) 41 59,892
Deferred proceeds from Bulk Sales Agreement -- -- 4,000
Depreciation and amortization 345 395 420
276
GainLoss (Gain) on sale of rental property 16 (1,493) (1,541)
--
Amortization of lease costs 224 24 15
Amortization of capitalized deferred loan costs 46 88 58
--
(Increase) decreaseDecrease (increase) in other receivables 217 137 382
(1,219)
(Increase) decreaseDecrease (increase) in other assets (129) (216) (625)164 (153) (231)
Increase (decrease) in security deposits payable 14 (177) 26
227
Increase (decrease)in deferred rent 148 164 --
Decrease in accrued liabilities (337)(1,016) (501) (1,345)
3,001------- -------- ------- ---------
Net cash provided by (used in) operating activities 1,688 910 (777) 2,715
INVESTING ACTIVITIES
Proceeds from sale of Fidelity stock -- -- 11,938 --
Purchase of Reading Entertainment, Inc. securities -- (7,000) --
Purchase of Big 4 Partnerships (1,129) -- --
Proceeds from sale of properties 1,128 9,361 8,837 --
Payment of capitalized leasing costs (32) (397) -- --
Purchase of and additions to real estate (708) (504) (9,610)
(20,055)------- -------- -------
---------
Net cash (used in) provided by (used in) investing activities (741) 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 borrowingsmortgage notes payable (908) (5,883) (3,814)
(34)
Short-term borrowings from affiliatesborrowing of Big 4 (831) -- --
6,200Dividend of Big 4 Ranch, Inc. (1,200) -- --
Repayment of borrowings from affiliates -- (950)
Preferred stock dividends paid --
Dividends paid (232) (101) --
Capitalized financing costs -- -- (141)
(246)
Costs of preferred stock issuance -- -- (275)
Proceeds from issuance of common stock -- -- 286------- -------- -------
---------
Net cash (used in) provided by (used in) financing activities (2,939) (12,305) 1,098
19,861
Less cash and cash equivalents of Fidelity at
beginning of period -- -- (143,677)
-------- ------- ---------
Net (decrease) increase (decrease) in cash and cash equivalents (1,992) (9,935) 11,486 (141,156)
Cash and cash equivalents at beginning of year 6,356 16,291 4,805
145,961------- -------- ------- ---------
Cash and cash equivalents at end of year $ 4,364 $ 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 preferredCommon stock net of loan costsissued in exchange for secured note payable 1,998 -- -- 4,974
Common stock received in exchange for Fidelity stock -- -- 1,415 --
Additions to real estate owned (other assets) through
foreclosure -- -- 400 --
See accompanying notes to accompanying consolidated financial statements.
Page 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 ownedconsolidated subsidiaries (collectively the
"Company"). All significant intercompany balances and transactions have been
eliminated in consolidation.
On December 31, 1997, the Company acquired, through its interest in three
general partnerships (the Agricultural "Partnerships"), a 40% interest in
approximately 1,580 acres of agricultural land and related improvements, located
in Kern County, California, commonly known as the Big 4 Ranch (the "Property").
The other two partners in the Partnerships are Visalia LLC (a limited liability
company controlled by Mr. James J. Cotter, the Chairman of the Board of the
Company, and owned by Mr. Cotter and certain members of his family) which has a
20% interest and Big 4 Ranch, Inc., a publicly held corporation, which has the
remaining 40% interest. Prior to the acquisition, Big 4 Ranch, Inc., was a
wholly owned subsidiary of the Company. Immediately prior to the acquisition,
the Company capitalized Big 4 Ranch, Inc., with a cash capital contribution of
$1.2 million and then distributed 100% of the share of Big 4 Ranch, Inc., to the
shareholders of record of the Company's common stock as of the close of business
on December 23, 1997, as a spin-off dividend. The Company accounts for its 40%
investment in the Partnership utilizing the equity method of accounting. As the
acquisition did not occur until December 31, 1997, there was no impact on the
results of operations for the year ended December 31, 1997. See Note 5.
On October 15, 1996, the Company consummated the transaction (the "Exchange
Transaction") contemplated by an exchange agreement (the "Exchange Agreement")transaction with its
shareholder affiliates, Craig Corporation ("Craig") and Reading Entertainment,
Inc. ("Reading"REI" and collectively with its consolidated subsidiaries "Reading").
Pursuant to the terms of the Exchange
Agreement,exchange, 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, 1997 and 1996 is approximately $3.75 million and
$5.75 million, respectively, 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 2710 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.
Page 25
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Basic Earnings (Loss) per Share Data
- -----------------------------------------------------------
The Company retroactively adopted Statement of Financial Accounting Standards
Earnings ("SFAS") No. 128, "Earnings Per Share" is 1997. SFAS No. 128 requires
companies to present basic earnings per share ("EPS") and Diluted earnings per
share rather than primary and fully diluted EPS which was previously required.
Basic earnings per share is based on 7,983,416, 8,233,1746,487,458, 6,003,924 and 6,610,280,6,191,864, the
weighted average number of shares outstanding during 1997, 1996 and 1995,
respectively. Diluted earnings per share is based on 6,496,142, 8,050,708, and
8,616,613, the weighted average number of shares of common stock and potential
common stock equivalentsshares outstanding during the years ended December 31, 1997, 1996, 1995 and
1994,1995, 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 for diluted earnings per share 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. Stock
options to purchase 53,000 shares of Common Stock were outstanding andduring 1997
at a weighted average exercise price of $2.81 per share. The 1997 Diluted
weighted average number of shares outstanding includes the outstandingeffect of such stock
options amounting to 8,684 shares. The Warrants and stock
options.Stock options were anti-
dilutive in 1996 and 1995. The number of shares assumed converted as of the
beginning of the period1995 and 1996 periods being reported amounted to 2,046,784 and
2,430,223, respectively 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.9.
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
- --------------------------------------------------
DuringThe Company accounts for its long-lived assets consistent with 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". AmongOf" which requires other provisions, the
statement changed current accounting practices for
the evaluation of the impairment of long lived assets. The adoption did notassets, certain intangible assets
and costs in excess of net assets related to those assets to be held and used
and for long-lived assets and certain identifiable intangibles to be disposed
of.
Reclassifications
- -----------------
Certain amounts have a material affect
onbeen reclassified in the Company's Consolidated Financial Statements.
26
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)1996 and 1995 financial statements
to conform to the 1997 financial statement presentation.
NOTE 3 - RENTAL PROPERTIES AND PROPERTIES HELD FOR SALE
- -------------------------------------------------------
The Company's rental properties and properties held for sale at December 31,
19961997 and 19951996 consisted of the following:
1997 1996
1995
-------- --------
(In thousands)------------------- --------------
(IN THOUSANDS)
--------------------------------------
RENTAL PROPERTIES:
RENTAL PROPERTIES:
Land $ 4,4384,439 $ 4,6994,439
Building and improvements 9,389 9,85510,096 9,388
------- -------
Total 14,535 13,827 14,554
Less accumulated depreciation (883) (539) (303)
------- -------
Rental properties, net $13,652 $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
======= =======
Page 26
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1997 and 1996 rental properties consisted of two commercialoffice
buildings as
compared to one apartment buildinglocated in Glendale, California and two commercial buildingPhoenix, Arizona. The Phoenix
Building was purchased from Fidelity in August 1994 for $6.4 million. The
Company purchased the Glendale Building for $7.12 million in May 1995 from
Fidelity. In connection with the Glendale Building the Company obtained a $5.34
million five year mortgage from Fidelity Federal Bank ("Fidelity"), which
amortizes on a twenty year basis with interest payable monthly at December 31,
1995.the 30 day
LIBOR rate plus 4.5%. The Company paid Fidelity a loan fee of 1% plus normal
closing costs. In January 1997, the property held for sale at December 31, 1996
was sold at an amount approximating book value.resulting in a loss of approximately $16,000.
In May 1996, the Company sold thean apartment rental property, held for sale at
December 31, 1995, for approximately
$8.94 million, net of expenses. The sale
resultedexpenses resulting 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 thean 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 resultedexpenses resulting 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$981,000 and immediately sold
the Sherman Oaks Buildinga commercial 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)9).
Upon consummationAs of the transaction,December 31, 1997, Craig and the Company heldhold in the aggregate
approximately 82.4%83% of the voting power of Reading, with Craig's holdings
representing approximately 77.4%78% 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,
1996,1997, Reading holds 1,564,973 shares or approximately 26%23% of the Company's
outstanding common stock.stock and Craig also holds a warrant, which expires in April 1997, to purchase 666,000 shares (10%) of the
Company's Common Stock at a purchase price of $3.00.Stock.
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)April 15, 1998 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 interestthe Statements of Operations for
the years ended December 31, 1997 and dividend income1996 as
Page 27
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
"Dividends from Investment in Reading" is approximately $455,000 and $95,000,
respectively, 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 aprior to that 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 toat 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.exchange date.
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 beof approximately $265,000, up to a maximum
of $280,000.$265,000.
Reading is a publicly traded company whose shares are listed on the NASDAQ.
ReadingThrough its majority owned subsidiaries, REI is currently involved in conventional multiplex cinema exhibitionthe business of developing
and operating multi-plex cinemas in the United States, Puerto Rico through its Cine Vista Cinemas chain, in the exhibitionand Australia
and of artdeveloping, 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 andeventually operating, entertainment centers in Australia.
Reading openedThe Company operates its first multiplex cinema in
Australia in December 1996. In addition, Reading expects to expandcinemas through various subsidiaries under the Angelika
Film Center conceptCenters and Reading Cinemas names in the United States (the "US Circuit");
through Reading Cinemas of Puerto Rico, Inc., a wholly owned subsidiary under
the Cinevista name of Puerto Rico ("CineVista" or the "Puerto Rico Circuit");
and through Reading Australia Pty, Limited (collectively with its subsidiaries
referred to other U.S. cities, has executed a lease to develop an 8-
plex art cinema and cafe complexherein as a part of"Reading Australia") under the Bayou PlaceReading Cinemas name in
Australia (the "Australia Circuit"). The Company's entertainment center
development activities in Houston, Texas, and is currently reviewing a number of potential locations
suitable for such complexes.Australia are also conducted through Reading
Australia, under the Reading Station name.
Summarized financial information of Reading as of December 31, 1997 and 1996 and
the results of operations for each of the three monthsyears ended December 31, 1997 and
twelve months ended
December 31, 1996 follows:
CONDENSED BALANCE SHEET:
DecemberYEARS ENDED DECEMBER 31,
1997 1996
------------------------------- --------------
(In thousands)
Cash and cash equivalents $ 92,870 $ 48,680
Other current assets 7,433 7,765
Equity investment in Citadel 4,903 4,850
Preferred stock of Stater -- 67,978
Property and equipment, net 40,312 21,130
Intangible assets 24,957 26,229
Other assets 7,537 5,122
-------- --------
Total Assets $178,012 $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
========
30Page 28
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 4 - INVESTMENT IN SHAREHOLDER AFFILIATE, CONT'D
- ----------------------------------------------------(CONTINUED)
Current liabilities $ 13,177 $ 13,109
Other liabilities 5,344 3,595
Minority interests 2,006 2,096
Preferred Stock held by Citadel 7,000 7,000
Shareholders' equity 150,485 155,954
-------- --------
Total Liabilities and Equity $178,012 $181,754
======== ========
CONDENSED STATEMENTS OF OPERATIONS:
Three Months Ended Year
For the Years Ended
December 31,
1997 1996
December 31, 1996
------------------- ------------------
(In thousands)-------- --------
(In thousands)
Revenue:
Theater $ 5,23326,984 $ 18,236
Real Estate 332estate 180 543
Interest and dividends 2,695 4,165
--------------- --------
Total revenue 8,260 22,94427,164 18,779
Theater costs (4,204)(21,377) (14,452)
Depreciation and amortization (578)(2,785) (1,793)
General and administrative (3,869)(9,737) (7,106)
------- -------- (Loss)--------
Loss from operations (391) (407)(6,735) (4,572)
Equity in earnings of Citadel 51298 1,526
Gain from Stater Stock Redemption 2,002 --
Interest and dividend income, net 7,737 4,165
Other income, net 3,263916 4,327
--------------- --------
Earnings before income taxes 2,9234,218 5,446
Income tax benefit 1,315(expense) (1,067) 1,236
Minority interest 353(196) 321
--------------- --------
Net income 4,5912,955 7,003
Less preferred stock dividends (4,309) (911)
(911)-------- --------
Net Income(loss) income applicable to common
stock shareholders $3,680 $6,092
====== ======$ (1,354) $ 6,092
======== ========
Basic earnings (loss) per share $ (0.18) $ 1.11
======== ========
Fully diluted earnings (loss) per share $ (0.18) $ 1.02
======== ========
Included in preferred stock dividends is approximately $455,000 and $95,000 paid
to the Company for the years December 31, 1997 and 1996, respectively. In
addition, net income for the year ended December 31, 1997 includes a non-
recurring gain from the Stater Preferred Stock redemption and dividend income
received prior to such redemption of approximately $6.5 million.
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 - EQUITY INVESTMENT AND NOTE RECEIVABLE FROM AGRICULTURAL PARTNERSHIPS
- ------------------------------------------------------------------------------
As described in Note 1, the Company acquired a 40% equity interest in the
Agricultural Partnerships. Also, on December 31, 1997, the Agricultural
Partnerships acquired the Big 4 Properties consisting of approximately 1,580
acres of agricultural land and related improvements, located in Kern County,
California. The assets acquired included (i) approximately 560 acres of Navel
oranges, 205 acres of Valencia oranges, 145 acres of lemons, 32 acres of
minneolas and 600 acres of open land currently leased on a short term basis to a
third party for the cultivation of annual crops (the "Open Land"), (ii)
irrigation systems, (iii) water rights, (iv) frost prevention systems and (v)
the fruit currently on the trees and slated for harvest in 1998. The Big 4
Properties were acquired by the Agricultural Partnerships (the "Ranch
Acquisition") from Prudential Insurance Company of America ("Prudential") on an
arms length basis for a purchase price of $6.75 million, plus reimbursement of
certain cultural costs approximating $831,000.
The Ranch Acquisition was financed by prorata capital contributions of the
partners (Citadel's 40% portion amounting to approximately $1.08 million), by a
$4.05 million purchase money loan from Prudential, and by a crop finance loan by
Citadel to the Agricultural Partnerships of approximately $.831 million. The
loan by Citadel was advanced pursuant of a $1.2 million Line of Credit Agreement
(the "Crop Financing") extended by the Company to the Agricultural Partnerships.
Drawdowns under the Crop Financing will accrue interest at prime plus 100 basis
points, payable quarterly, and are due and payable in August 1998. Thereafter,
Citadel may, but will be under no obligation to, provide future crop financing
on terms to be negotiated at arms length. At December 31, 1997 Citadel had
advanced approximately $.831 million under the Crop Financing Line of Credit.
For financial statement purposes, the note receivable is included in the Balance
Sheet as Note Receivable from Agriculture Partnerships, inclusive of the 40% or
$.332 million advanced upon Citadel's behalf. While under no obligation, it
appears likely that Citadel will, as a practical matter, need to renew the Crop
Financing in August 1998.
Prior to the Spin-off, Farming entered into a two-year farming services
agreement (the "Farming Contract") with each of the Partnerships, pursuant to
which it provides farm operation services for an initial term of two
Page 29
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
years. In consideration of the services provided under the Farming Contract,
Farming is to be paid an amount equal to 100% of its costs plus a profit factor
equal to 5% of the gross agricultural receipts from the Big 4 Properties,
calculated after the costs of picking, packing and hauling. Farming has entered
into a contract with Cecelia Packing Corporation ("Ceceila") for certain
management consulting, purchasing and bookkeeping services for an initial terms
of two years at a fee of $6,000 per month plus reimbursement of certain out-of-
pocket expenses. Cecelia will also pack a portion of the fruit produced by the
Agricultural Partnerships. While the Company has no experience in citrus
farming, Cecelia has been engaged in farm management and citrus packing and
marketing for more than the past 20 years.
The Prudential Purchase Money Loan in the amount of $4.05 million is
secured by, among other things, a first priority mortgage lien on the property,
has a ten-year maturity and accrues interest, payable quarterly, at a fixed rate
of 7.7%. In order to defer principal payments until January 1, 2002, the
Partnerships must make capital improvements to the real property totaling
$500,000 by December 31, 2000 and an additional 200,000 by December 31, 2001.
If the required capital expenditures are not made, then the Partnerships will be
required to make a mandatory prepayment of principal on January 31, 2001 equal
to difference between $500,000 and the amount of capital improvements made
through December 31, 2000. The purchase money mortgage also imposes a
prepayment penalty equal to the greater of (a) one-half of one percent of each
prepayment of principal and (b) a present value calculation of the anticipated
loss that the note holder will suffer as a result of such prepayment.
The following table reflects unaudited pro forma combined results of operations
of the Company on the basis that the acquisition had taken place on January 1,
1995.
(THOUSANDS EXCEPT PER SHARE AMOUNT) 1997 1996 1995
- --------------------------------------------- ---- ---- ----
Earnings (losses) from equity investment $ (200) $ (140) $ (160)
Net Earnings $1,320 $6,276 $1,228
Net Earnings Available to common shareholders $1,320 $6,118 $1,070
Basic earnings per share $ 0.20 $ 1.02 $ 0.17
Dilutive earnings per share $ 0.20 $ 0.78 $ 0.14
These unaudited pro forma results have been prepared for comparative purposes
only and include certain adjustments, such as additional depreciation and
amortization expense based upon an estimated allocation of the purchase price,
interest income from partnership loans, offset by expenses of Citadel to manage
the properties. They do not purport to be indicative of the results of
operations which actually would have resulted had the combination been in effect
on January 1, 1995, or of future results of operations of the consolidated
entities.
Page 30
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 - 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 fiscalFiscal 1995, the Company's investmentCompany sold
principally all of its holdings 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.Fidelity.
In addition to the reduction of Citadel's interest in Fidelity, several other
significant events occurred in the August 1994 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, andincluding 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 andwhich
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 67 - OTHER ASSETS
- ---------------------
Other assets are summarized as follows:
December
DECEMBER 31,
1997 1996
1995
----- -----
(in thousands)------ -------
(IN THOUSANDS)
Deferred financing costs $ 204191 $ 271204
Accumulated amortization (98) (64) (43)
----- -----
Deferred financing costs, net 93 140
228
Impounds 110 354 291
Prepaid expenses 109 110
195Unbilled rent receivable 88
Other 6 12 100
----- -----
$ 406 $ 616
$ 814===== =====
=====
NOTE 7NOTE 8 - MORTGAGE NOTES PAYABLE
- -------------------------------
Mortgage notes payable at December 31, 1997 and 1996 and 1995 is as follows:
DecemberDECEMBER 31,
1997 1996
1995
-------- --------
(in thousands)
------ -------
(IN THOUSANDS)
Notes payable to Fidelity - principalFidelity--principal and interest paid
monthly at rates equal to LIBOR plus 4.5%, maturing
through 20042001 $9,395 $ 9,548 $15,424
Note payable to American Savings Bank --- principal
and interest paid monthly at a rate equal to the 11theleventh
District cost of funds plus 2.95%, maturing
June 1, 2025 -- 755
762------ -------
--------$9,395 $10,303
$16,186====== ======= ========
As of DecemberPage 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)(CONTINUED)
As of December 31, 1997, the 30-day LIBOR interest rate was 5.71825%.
Aggregate future principal payments as of December 31, 19961997 are as follows:
Year Ending
December 31, (in thousands)
------------ --------------
1997 $ 170
1998 188
1999 207
2000 228
2001 252
Thereafter 9,258
-------
$10,303
=======
YEAR ENDING DECEMBER 31, (IN THOUSANDS)
-------------------
1998 $ 168
1999 186
2000 4,937
2001 4,104
------
$9,395
======
NOTE 89 - 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. The Preferred Stock was subsequently transferred from
Craig Corporation ("Craig").to Reading. The
sales price of the 1,329,114 shares soldissued 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,rights and 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 tofor 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 isare $232,000 and $101,500,$101,000, 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 910 - FUTURE MINIMUM RENT
- ---------------------------------------------------------
Rental income amounted to $5,110,000, $4,932,000 and $5,402,000 for each of the
three years ended December 31, 1997, 1996 and 1995. Rental income for the year
ended December 1997 was derived from leases on the two commercial properties
held by the Company. Three leases, Disney Enterprises, Inc., Fidelity Federal
Bank and American Express amounted to $3,845,000 or 76% of total rental income.
Page 32
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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") for a rental rate for
the first five years of the lease term of approximately $101,000 per month
(including parking). 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 contribute
towards tenant improvements and common area upgrades approximately $2.3 million
which the Company has expanded approximately .400 million at December 31, 1997.
Commissions, legal fees and the $450,000 payment due Fidelity, totaling
approximately $1.326 million are included in the Balance Sheet at December 31,
1997 and 1996 as "Capitalized leasing costs" and are being amortized over the
term of the lease.
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 rentGenerally accepted
accounting principles requires that rents due under operating leases excluding tenant reimbursementswith fixed
increases be averaged over the life of certainthe lease. This practice, known as
"straight-line rents" creates an unbilled rent receivable in any period during
which the amount of straight-line rent exceeds the actual rent billed (this
occurs primarily at the inception of the lease period). As the lease approaches
its expiration date, billed rent will eventually calculated assumes no new or
re-negotiated rents or extension periods during the life of the lease and
excludes operating costs isreimbursements. Future minimum rents under operating
leases are summarized as follows:
Year Ending December 31, (in thousands)
------------ -------------------------------------- ---------------
19971998 $ 4,503
1998 4,5964,772
1999 2,8143,013
2000 2,2232,416
2001 2,1292,228
2002 2,326
Thereafter 14,1118,805
-------
$30,376$23,560
=======
Commencing in August 1995, the Company began renting corporate office space from
its affiliate, Craig, on a month to month basis. In addition, the Company
engaged Craig to provide certain administrative services. Included in general
and administrative expenses in each of the years ended December 31, 1997 and
1996 is $96,000 and $45,000 for the year ended December 31, 1995 paid to Craig
for such rent and services for the years ended December 31, 1996 and 1995, respectively.services. In addition, the Company provided real estate
consulting services to Reading during the years ended December 31, 1997, 1996
and 1995 for which the Company was paid approximately $240,000, $169,000 and
$120,000, respectively. Such amounts are included in the statementStatement of operationsOperations
as a reduction of general and administrative
expenses.
35
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)"Consulting income from shareholders."
NOTE 1011 - COMMITMENTS AND CONTINGENCIES
- ---------------------------------------
There are severalSeveral legal actions and claims against the Company. Based on advice
of legal counsel management believes thatCompany in the ultimateprior year were
settled in 1997 with no liability if any, which
may result from any of these lawsuits will not materially effect the financial
position or results of operations ofto 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
Page 33
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
stock of Fidelity owned by the Company in exchange for which the Company
received from the Dillon Parties $2.22$2.2 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 12 - COMMON STOCK
- ----------------------
On April 11, - STOCK OPTIONS
- -----------------------1997, Craig exercised its warrant to purchase 666,000 shares of the
Company's common stock at an exercise price of $3.00 per share or $1.998
million. Such exercise was consummated pursuant to delivery by Craig of its
secured promissory note (the "Craig Secured Note") in the amount of $1.998
million, secured by 500,000 shares of REI Common Stock owned by Craig. The
Craig Secured Note, in the amount of $1.998 million, is included in the Balance
Sheet as a contra equity account under the caption "Note receivable from
shareholder". Interest is payable quarterly in arrears at the prime rate
(amounting to 8.5%) computed on a 360 day-year. Principal and accrued but
unpaid interest is due upon the earlier of April 11, 2002 or 120 days following
the Company's written demand for payment. The Craig Secured Note may be
prepaid, in whole or in part, at any time by Craig without penalty or premium.
Included in the Statement of Operations for the year ended December 31, 1997 as
"Interest income from shareholder" is approximately $125,000 earned purusant to
the Craig Secured Note.
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.share
in 1995. As of December 31, 1996,1997, 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, 1997 and 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 1213 - INCOME TAXES
- ----------------------
As of December 31, 1996,1997, the Company has for income tax purposes net operating
loss carryforwards and capital loss carryforwards of approximately $2.1$2.5 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,is dependent on the Company's future earnings and, in part,
the finalization of the Internal Revenue Service audits for the year 1992
through 1994, 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
Page 34
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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
- ---------------------------------
DecemberDECEMBER 31,
1997 1996
1995
----------------- --------
(in thousands)
FEDERAL:
Deferred tax assets:
Acquired and option properties $ 2,070 $ 2,110 3,100
Capital losses from sale of Fidelity 2,600 3,430
Bulksale indemnification -- 1,4002,600
Net operating loss carryforward 860 600
938
Other 385-- 385
------- -------
Gross deferred tax assets 5,530 5,695 9,253
------- -------
Valuation allowance $(5,695) (9,253)(5,530) (5,695)
------- -------
Net Deferred tax liability $ -- $ --
=======------- =======
STATE:
Deferred tax assets:
Acquired and option properties 560 570 850
Capital losses from sale of Fidelity 690 930
Bulk sale indemnification -- 372690
Net operating loss carryforward 120-- 120
------- -------
Gross deferred tax assets 1,250 1,380 2,272
Valuation reserve (1,250) (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 DecemberYEAR ENDED DECEMBER 31,
1997 1996 1995
1994
-------- ------ ---------------- ------- -------
(In thousands)
----------------------------
Expected tax provision (benefit)$ 536 $ 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)
Dividend exclusion of preferred stock
investment (109) (23) --
Bulk sale indemnification not taxable -- (1,400) -- --
Utilization of net operating losses (430) (310) -- --
Losses for which no tax benefit was
recorded -- -- 55
50,915
Other 4548 68 --
------- ------- ----- --------
Actual tax provision $ 45 $ -- $
-- $(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.
38Page 35
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)(CONTINUED)
NOTE 14 - QUARTERLY OPERATING DATAFINANCIAL INFORMATION (UNAUDITED)
- ---------------------------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- -------- --------------- ------- ------- -------
(In thousands except per share amounts)
1997
Real estate income $1,124 $1,271 $1,318 $1,397
Interest income $ 94 $ 116 $ 108 $ 133
Loss on sale of properties $ (16) -- -- --
Dividends from Reading $ 114 $ 114 $ 114 $ 114
Net earnings $ 246 $ 413 $ 407 $ 464
Basic net earnings per share $ 0.04 $ 0.06 $ 0.06 $ 0.07
Diluted earnings per share $ 0.04 $ 0.06 $ 0.06 $ 0.07
1996
Real estate income $1,530 $1,353 $1,029 $1,020
Interest income $ 1,740210 $ 1,572219 $ 1,278249 $ 1,281
Real estate general and
administrative expenses (1,497) (1,504) (1,101) (836)166
Gain on sale of properties -- 1,473$1,473 $ 20 $ --
Gain on Fidelity -- 4,000$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 1,541Dividends from Reading -- -- -- Gain (Loss) of Fidelity -- (41) -- --$ 95
Net income (loss) 1,346 31 (95) 116earnings $ 243 $5,541 $ 197 $ 445
Net income (loss)earnings available to common stockholders $ 204 $5,502 $ 158 $ 404
Basic earnings per share 0.15 0.00 (0.02) 0.01$ 0.03 $ 0.92 $ 0.03 $ 0.07
Diluted earnings per share $ 0.03 $ 0.67 $ 0.02 $ 0.06
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 preceedingpreceding 60 day average market price of the
stock at the date of conversion. EarningsDiluted 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 conversionsconversion of the Preferred Stock to
Common Stock based upon the values calculated as of December 19, 1996 and
December 31, 1995, respectively. Such shares were redeemed on December 19, 1996.
39Page 36
Financial Statement ScheduleFINANCIAL STATEMENT SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 19961997
(IN THOUSANDS)
- --------------------------------------------------------------------------------
INITIAL COST COSTS
----------------------___________________________ CAPITALIZED
BUILDING AND SUBSEQUENT TO
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION
------------ ------------ ------------ -------------
Commercial $ 4,344Office Building $4,292 $1,488 $4,507 $199
Apartment 755 261 970$ 377
Commercial 5,204Office Building 5,103 2,951 4,212 469
-------1,000
------ ------ ----
$10,303 $4,700 $9,689 $668
=======------ ------
$9,395 $4,439 $8,719 $1,377
====== ====== ====
====== ======
DECEMBER 31, 19961997 LIFE
---------------------------------------------_______________________________________________ ON WHICH
ACCUMULATED DATE DEPRECIATION
DESCRIPTION
LAND BUILDING TOTAL DEPRECIATION ACQUIRED IS COMPUTED
------ -------- ------------ ------------ ------------ -------------
Commercial $1,488 $ 4,7064,884 $ 6,194 $2776,372 $ 513 8/4/94 40
Apartment 261 970 1,231 85 8/4/94 27.5
Commercial 2,951 4,681 7,632 2625,212 8,163 370 5/8/95 40
------ ------- ------- ----
$4,700 $10,357 $15,057 $624------
$4,439 $10,096 $14,535 $ 883
====== ======= ======= ==========
- -------------
(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, 19961997 for federal
income tax purposes approximated $20,972,000.$19,700,000.
(2) The following reconciliation reflects the aggregate rollforward activity of
property held and accumulated depreciation for the three years ended
December 31, 1996:1997.
Gross AccumulatedGROSS ACCUMULATED
Amount Depreciation
---------- ------------DEPRECIATION
-------- -------------
Balance at December 31, 1993 $ -- $ --
Depreciation expense (197)
Acquisitions 20,055
------- -----
Balance at December 31, 1994 20,055 (197)January 1, 1995 $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)22,746 (553)
Depreciation expense -- (395)
Acquisitions 504 --
Cost of real estate sold (8,193) 324
------- -----
Balance at December 31, 1996 $15,057 $(624)15,057 (624)
Depreciation expense -- (345)
Acquisitions 708 --
Cost of real estate sold (1,230) 86
------- -----
Balance at December 31, 1997 $14,535 $(883)
======= =====
40Page 37
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
41Page 38
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 1986
Board of Craig Corporation ("Craig"), and Chairman
of the Board of Reading Entertainment, Inc. (`("REI")
S. Craig Tompkins(3) 4647 Secretary/Treasurer and 1993
Principal Accounting Officer 1993
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)Simon (2)(3) 58 Private Investor/Financial 1995
Consultant; Chairman and
(4) 59 Vice President/Chief Financial Officer of Sonant Corporation, Director
of eachWestern Water 1995
Company; Chairman of Softnet Systems, Inc., and Director of
Westcorp Investments.
Alfred Villasenor, Jr. 6768 President of Unisure Insurance Services, Incorporated 1987
(1)(2). Services, Incorporated(4)
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of the Executive Committee.
(4) Member of the Conflicts Committee.
Set forth below is certain information concerning the principal occupation and
business experience of each of the individuals named above during the past five
years.
Mr. Cotter was first elected to the Board in 1986, 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''("Fidelity") previously owned by Citadel in October 1991, and named Chairman
of the Board of Citadel on June 5, 1992. Mr. Cotter is the Chairman and a
director of Citadel Agricultural Inc., a wholly owned subsidiary of Citadel
("CAI"); the Chairman and a member of the Management Committee of each of the
agricultural partnerships which constitute the principal assets of CAI (the
"Agricultural Partnerships"); and the Chairman and a member of the Management
Committee of Big 4 Farming, LLC, a 80% owned subsidiary of Citadel. From 1988
through January 1993, Mr. Cotter also served as the President and a director of
Cecelia packing Corporation (a citrus grower and packer), a company wholly owned
by Mr. Cotter, and is the Managing Director of Visalia LLC, which holds a 20%
interest in each of the Agricultural Partnerships. 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 common and convertible
preferred stock representing approximately 78% of the voting power of the
outstanding securities of REI and the Company owns approximately 5% of the
voting power of REI. Craig owns approximately 10% of the Company's outstanding
common stock and Reading owns approximately 23% of such Company securities. 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
Page 39
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 beenwas a Director of Stater Bros.,
Holdings, Inc. (retail grocery) since 1987.
42
between 1987 and September 1997.
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 andthe Vice President, Chief Financial Officer of Sonant Corporation,Western Water Company. In
addition he is Chairman of the Board of Directors of Softnet Systems, Inc., and
a manufacturerdirector 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., through
March 1990, a Director of Craig Corporation from 1987-
19901987-1990 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. In February
1997, Mr. Tompkins resigned as President of REI and was made Vice Chairman of
REI. 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. Tompkins1995 and
also serves as the Secretary/Treasurer and Principal Accounting Officer for
Citadel. In February 1997, Mr. Tompkins resignedis also President and a Director of CAI, a member of the
Management Committee of each of the Agricultural Partnerships and of Big 4
Farming LLC, and serves for administrative convenience as Presidentan Assistant Secretary
of REIVisalia, LLC, and was made Vice
ChairmanBig 4 Ranch, Inc. (a partner with CAI and Visalia, LLC in
each of REI.the Agricultural Partnerships).
Mr. Villasenor is the President and the owner of Unisure Insurance Services,
Incorporated, a corporation which has specialized in life, business life and
group health insurance for over 35 years. He is also a general partner in 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, 1997, 1996 1995 and 19941995 by each of the most highly compensated
executive officers of the company whose compensation exceeded $100,000 in all
capacities in which they served.
43Page 40
LONG TERM
------------
ANNUAL COMPENSATION LONG TERMCOMPENSATION
------------------------------------- COMPENSATION------------
SECURITIES
------------
UNDERLYING
------------
OTHER STOCK
--------------- ------------
ANNUAL OPTIONS ALL OTHER
--------------- ------------ ------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) GRANTED COMPENSATION
- ---------------------------------------------------------- ---- ------ ------------- -------- --------------- ------------------- ------------
Steve Wesson 1997 $185,000 $ 80,000 (1) -- --
President and Chief 1996 $175,000 $ 50,000 (1) -- --
President and ChiefExecutive Officer 1995 $175,000 $100,000 (1) -- --
Executive Officer 1994(2)Brett Marsh 1997 $150,000 $ 70,56430,000 (1) -- --
Director of Real Estate 1996 $130,000 -- (1) -- --
1995 $130,000 $ 25,00010,000 (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 summarizesNo 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 $47,800
1997.
AGGREGATED OPTION/SAR IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
-------------------------- -------------------------------
UNDERLYING UNEXERCISED IN-THE-MONEY
-------------------------- -------------------------------
OPTIONS/SARS OPTION/SARS
-------------------------- -------------------------------
SHARES ACQUIRED VALUE AT FY-END (#) AT FY-END (#)12/31/97
---------------- ------------- -------------------------- -------------------------------
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- -------------- ----------- ------------------------- -------------------------- ------------------------ ---------------- ------------- -------------------------- -------------------------------
Steve Wesson N/A N/A 33,000/0 $ 2,062$59,730
Alfred Villasenor N/A N/A 10,000/0 0(1)$15,000 (1)
Ronald I. Simon N/A N/A 10,000/0 0(1)$15,000 (1)
(1) The options are not in-the-money.
44Based upon $4.50 per share.
Page 41
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''"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 theThe 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$40,000 with respect to 1996.1997.
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
45Page 42
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. During 1997 the Company filed a Registration Statement on Form
8-K in order to register 300,000 shares of Common Stock that have been reserved
for issuance under the 1996 Stock Option Plan.
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 requirerequires
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, 1996,1997, 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.with.
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, 19971998 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)10,000(3) *
Craig Corporation(1)(4) 2,230,473 33.2%
Page 43
COMMON STOCK
-------------------------------------------------------------------
AMOUNT AND NATURE
-------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP PERCENT OF CLASS
- --------------------------------------------- ------------------------------- ---------------------------------
Reading Holdings, Inc., an indirect wholly 1,564,473 23.2%
wholly23.3%
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%941,700 14%
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 the Company's
Common Stock at $3.00 per share.and 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) IncludesAccording to filings made with the Securities and Exchange Commissions,
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,
Page 44
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.partnerships. 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)Stock. Citadel
redeemed 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
Inin December 1996 REI notified to the Companyfor a price 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 $6.19approximately $16.19 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,Fiscal 1997, $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,Fiscal 1997, for which Citadel was
paid $169,000.
48$240,000.
Issuance of Common Stock to Craig Corporation for a Note Receivable
On April 11, 1997, Craig exercised its warrant to purchase 666,000 shares of the
Company's common stock at an exercised price of $3.00 per share or $1.998
million. Such exercise was consummated pursuant to delivery by Craig of its
secured promissory note (the "Craig Secured Note") in the amount of $1.998
million, secured by 500,000 shares of REI Common Stock owned by Craig. The
Craig Secured Note, in the amount of $1.998 million, is included in the Balance
Sheet as a contra equity account under the caption "Note receivable from
shareholder". Interest is payable quarterly in arrears at the prime rate
(amounting to 8.5%) computed on a 360 day-year. Principal and accrued but
unpaid interest is due upon the earlier of April 11, 2002 or 120 days following
the
Page 45
Company's written demand for payment. The Craig Secured Note may be
prepaid, in whole or in part, at any time by Craig without penalty or premium.
Agricultural Activities
In 1997, the Company entered into a series of transactions which resulted in the
acquisition by the Company of 1) a 40% equity interest in each of three general
partnerships (the "Agricultural Partnerships") formed to acquire from the
Prudential Insurance Company of America ("Prudential") approximately 1,580 acres
of agricultural land located in the Central Valley of California (the "Big 4
Properties"), and 2) an 80% equity interest in a newly formed farm operating
company, Big 4 Farming, LLC ("Farming"), created to farm the Big 4 Properties
for the Agricultural Partnerships. The Big 4 Properties were acquired for a
total purchase price of $6.75 million plus reimbursement of certain cultural
costs through the closing (which cultural costs amounted to approximately
$831,000). The acquisition was financed by a ten year purchase money mortgage
loan from Prudential in the amount of $4.05 million (the "Prudential Loan") and
by drawdowns in the amount of $831,000 under a $1.2 million crop finance line
of credit from the Company to the partnerships (the "Crop Financing"). The
Prudential Loan bears interest at 7.70%, provides for quarterly payment of
interest, and provided certain levels of capital investment are achieved, calls
for principal amortization payments of $200,000 per year commencing January
2002. The Crop Financing accrues interest, payable quarterly, at the rate of
prime plus 100 basis points, and is all due any payable in August 1998. The
balance of the funds required were provided by the partners of the Agricultural
Partnerships.
Each of the Agricultural Partnerships has three partners: Citadel Agriculture,
Inc., a wholly owned subsidiary of Citadel ("CAI"), which has a 40% interest in
each of the partnerships; Big 4 Ranch, Inc. ("BRI"), which although formed as a
wholly owned subsidiary of Citadel, was spun-off to the shareholders of Citadel
following the formation of the partnerships and prior to the acquisition of the
Big 4 Properties; and Visalia LLC ("Visalia"), a limited liability company
controlled by James J. Cotter and owned by Mr. Cotter and certain members of his
family. Farming is owned 80% by the Company and 20% by Visalia. BRI was
initially capitalized with $1.2 million from Citadel and, in addition, has a
three year $200,000 line of credit from Citadel, providing for interest at prime
plus 200 basis points. No drawdowns have been made to date under this line of
credit.
Craig and Reading, as shareholders of Citadel, received BRI shares in the spin-
off in proportion to their interests in Citadel. Certain officers and directors
of Craig and Reading are officers, directors or management committee members of
CAI, BRI, Farming and/or the Agricultural Partnerships. Mr. James J. Cotter is
the Chairman and a Director of each of Citadel, CAI, CC and REI, and is also
Chairman of the management committees of Farming and of each of the Agricultural
Partnerships. Mr. S. Craig Tompkins is the Vice Chairman and a Director of each
of Citadel and REI, the President and a Director of CC, the Principal Accounting
Officer of Citadel, the President of CAI and a member of the management
committees of Farming and of each of the Agricultural Partnerships. Mr. Edward
L. Kane, a Director of REI, is the Chairman and President of BRI, and a member
of the management committee of each of the Agricultural Partnerships. Mr.
William Gould, a Director of CC, is also a Director of BRI. Ms. Margaret
Cotter, a Director of CC and the daughter of James J. Cotter, is also the
Secretary, Treasurer and Principal Accounting Officer and a Director of BRI, an
owner of Visalia and the Vice President of Ceceila. As an administrative
convenience, Mr. Tompkins also serves as an assistant secretary of BRI and
Visalia, for which he receives no compensation.
Page 46
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....................................Auditors Report....................................... 20
Consolidated Balance Sheets as of December 31, 19961997 and 1995......1996...... 21
Consolidated Statements of operations for Each of the Three
Years in the Period Ended December 31, 1996......................1997...................... 22
Consolidated Statements of Stockholders' Equity for Each of the
Three Years in the Period Ended December 31, 1996................1997................ 23
Consolidated Statements of Cash Flows for Each of the Three
Years in the Period Ended December 31, 1996......................1997...................... 24
Notes to Consolidated Financial Statements........................ 25
(a)(2) FINANCIAL STATEMENT SCHEDULE
Financial Statement Schedule III -- Real Estate and
Accumulated Depreciation......................................... 4037
(b) REPORTS ON FORM 8-K
(i) The Company filed a Report on Form 8-K on October 30, 1996,December 31, 1997,
reporting on Item 5,2, "Other Information."
(c) EXHIBITS (Items denoted by * represent management or compensatory
contract)
49Page 47
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-K10-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,
1995.1995).
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, 1996.1996).
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)as Exhibit 4.2 to the
Company's Report on Form 10-K for the year ended December 31, 1996, and
incorporated herein by reference)
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)
50Page 48
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-
Q10-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-
Q10-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)
51Page 49
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-
Q10-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-
Q10-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)
52Page 50
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-
Q10-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.--
IRAJr.--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)
53Page 51
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)as Exhibit 10.51 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996 and incorporated herein by reference)
10.52 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)as Exhibit 10.52 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1996
and incorporated herein by reference)
10.53 Certificate of Designation of the Series A Voting Cumulative Convertible
Preferred Stock of Reading Entertainment, Inc., (filed herewith)as Exhibit 10.53
to the Company's Annual Report on Form 10-K for the year ended December
31, 1996 and incorporated herein by reference)
54Page 52
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)as Exhibit
10.57 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference)
10.58 Reading Entertainment, Inc., Annual Report on Form 10-K for the year
ended December 31, 1996 (TO BE FILED BY AMENDMENT)1997 (filed herewith)
10.59 Stock Purchase Agreement dated as of April 11, 1997 by and between
Citadel Holding Corporation and Craig Corporation (filed as Exhibit 10.56
to the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997)
10.60 Secured Promissory Note dated as of April 11, 1997 issued by Craig
Corporation to Citadel Holding Corporation in the principal amount of
$1,998,000 (filed as Exhibit 10.60 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997)
10.61 Agreement for Purchase and Sale of Real Property between Prudential
Insurance Company of America and Big 4 Farming LLC dated August 29, 1997
(filed as Exhibit 10.61 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997)
10.62 Second Amendment to Agreement of Purchase and Sale between Prudential
Insurance Company of America and Big 4 Farming LLC dated November 5, 1997
(filed as Exhibit 10.62 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997)
10.63 Partnership Agreement of Citadel Agricultural Partners No. 1 dated
December 19, 1997 (filed herewith)
10.64 Partnership Agreement of Citadel Agricultural Partners No. 2 dated
December 19, 1997 (filed herewith)
10.65 Partnership Agreement of Citadel Agricultural Partners No. 3 dated
December 19, 1997 (filed herewith)
10.67 Farm Management Agreement dated December 26, 1997 between Citadel
Agricultural Partner No. 1 and Big 4 Farming LLC (filed herewith)
10.68 Farm Management Agreement dated December 26, 1997 between Citadel
Agricultural Partner No. 2 and Big 4 Farming LLC (filed herewith)
10.69 Farm Management Agreement dated December 26, 1997 between Citadel
Agricultural Partner No. 3 and Big 4 Farming LLC (filed herewith)
10.70 Line of Credit Agreement dated December 29, 1997 between Citadel Holding
Corporation and Big 4 Ranch, Inc. (filed herewith)
10.71 Management Services Agreement dated December 26, 1997 between Big 4
Farming LLC and Cecelia Packing (filed herewith)
Page 53
10.72 Agricultural Loan Agreement dated December 29, 1997 between Citadel
Holding Corporation and Citadel Agricultural Partner No. 1 (filed
herewith)
10.73 Agricultural Loan Agreement dated December 29, 1997 between Citadel
Holding Corporation and Citadel Agricultural Partner No. 2 (filed
herewith)
10.74 Agricultural Loan Agreement dated December 29, 1997 between Citadel
Holding Corporation and Citadel Agricultural Partner No. 3 (filed
herewith)
10.75 Promissory Note dated December 29, 1997 between Citadel Holding
Corporation and Citadel Agricultural Partners No. 1 (filed herewith)
10.76 Promissory Note dated December 29, 1997 between Citadel Holding
Corporation and Citadel Agricultural Partners No. 2 (filed herewith)
10.77 Promissory Note dated December 29, 1997 between Citadel Holding
Corporation and Citadel Agricultural Partners No. 3 (filed herewith)
10.78 Security Agreement dated December 29, 1997 between Citadel Holding
Corporation and Citadel Agricultural Partnership No. 1 (filed herewith)
10.79 Security Agreement dated December 29, 1997 between Citadel Holding
Corporation and Citadel Agricultural Partnership No. 2 (filed herewith)
10.80 Security Agreement dated December 29, 1997 between Citadel Holding
Corporation and Citadel Agricultural Partnership No. 2 (filed herewith)
10.81 Administrative Services Agreement between Citadel Holding Corporation and
Big 4 Ranch Inc. dated December 29th, 1997 (filed herewith)
21 Subsidiaries of the Company (filed herewith)
23 Consent of Independent Auditors (filed herewith)
27 Financial Data Schedule (filed herewith)
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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, 19971998 /s/ Steve Wesson
------------------------------------------------------------------------------
Steve Wesson
President and Chief Executive Officer
Date: March 31, 19971998 /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, 19971998
- ------------------------------------------------------------
James J. Cotter
/s/ S. Craig Tompkins Director, Secretary March 31, 19971998
- ------------------------------------------------------------
S. Craig Tompkins
/s/ Ronald I. Simon Director March 31, 1997
- -------------------------1998
-----------------------------------
Ronald I. Simon
/s/ Alfred Villasenor Jr. Director March 31, 19971998
- ------------------------------------------------------------
Alfred Villasenor, Jr.
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