As filed with the Securities and Exchange Commission on November 16, 2001.
Registration No. 333-68364
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
AMENDMENT NO. 1
to
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
-----------------
CITADEL HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 6513 95-3885184
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
550 South Hope Street, Suite 1825 S. CRAIG TOMPKINS
Los Angeles, California 90071 VICE CHAIRMAN
(213) 239-0555 CITADEL HOLDING CORPORATION
(Address, including zip code, and telephone number, including 550 South Hope Street, Suite 1825
area code, of registrant's principal executive offices) Los Angeles, California 90071
(213) 239-0555
(Name, address, including zip code, and telephone number
including area code, of agent for service)
Copies to:
Michael J. Bonner, Esq. Craig H. Norville, Esq. Dale E. Short, Esq.
Kummer Kaempfer Bonner & Renshaw Jones Vargas Troy & Gould Professional
3800 Howard Hughes Parkway, 3773 Howard Hughes Parkway Corporation
7th Floor Third Floor South 1801 Century Park East, 16th Floor
Las Vegas, Nevada 89109 Las Vegas, Nevada 89109 Los Angeles, California 90067
(702) 792-7000 (702) 734-2220 (310) 553-4441
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective and all other conditions to the proposed consolidations described
herein have been satisfied or waived.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, please check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
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Proposed
Amount maximum Amount of
to be aggregate registration
Title of securities to be registered registered offering price fee
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Class A Non-Voting Common Stock, par value $0.01 per share 15,094,433(1) $33,925,270(2) $8,482(3)
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Class A Non-Voting Common Stock, par value $0.01 per share 1,841,820(4) $15,533,117(5) $3,884(6)
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Class B Voting Common Stock, par value $0.01 per share.... 1,841,820(7) $15,533,117(5) -- (6)
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(1)Represents the estimated maximum number of shares, net of treasury shares,
to be issued to stockholders of Craig Corporation and Reading Entertainment,
Inc. in connection with the transactions described herein.
(2)Pursuant to Rule 457(f)(1) and (c) under the Securities Act of 1933, as
amended, the maximum aggregate offering price has been calculated for
purposes of calculating the registration fee based on the average of the
high and low sale prices of Craig common stock and Craig common preference
stock as reported on the New York Stock Exchange on August 13, 2001 the most
recent date on which Craig common stock traded, and on August 16, 2001, the
most recent date Craig common preference stock traded, and the average of
the high and low sale prices of Reading common stock as reported on the
NASDAQ Stock Market on August 20 2001 as follows:
(a)Craig common stock, 3,402,808 shares, multiplied by average price, $2.00;
plus
(b)Craig common preference stock, 7,058,408 shares, multiplied by average
price, $1.80; plus
(c)Reading common stock, 7,449,364 shares, multiplied by average price,
$1.935.
(3)Previously paid.
(4)Represents the estimated maximum number of shares of Class A Non-Voting
Common Stock that may be issuable by virtue of Citadel's assumption of
outstanding employee stock options of Craig and Reading in connection with
the transactions described herein.
(5)Pursuant to Rule 457(h)(1), the maximum aggregate offering price has been
calculated based on the product of (a) $10.218, the weighted-average
exercise price of the Craig and Reading employee stock options outstanding
on November 15, 2001 and referred to in note (4) and (b) a total of
1,520,172 Craig shares and Reading shares subject to such outstanding Craig
and Reading stock options.
(6)This registration fee is being paid once only with respect to a total of
1,841,820 of the shares referred to in notes (4) and (7), since no more than
1,841,820 such shares will be issuable in connection with the transactions
described herein.
(7)Represents the estimated maximum number of shares of Class B Voting Common
Stock of Citadel that may be issuable by virtue of Citadel's assumption of
outstanding employee stock option of Craig and Reading in connection with
the transactions described herein.
-----------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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SUBJECT TO COMPLETION, DATED NOVEMBER , 2001
PROPOSED CONSOLIDATION--YOUR VOTE IS IMPORTANT
Citadel Holding Corporation, or Citadel, Craig Corporation, or Craig, and
Reading Entertainment, Inc., or Reading, have entered into a consolidation
agreement under which we have agreed to combine our three companies by merging
Craig and Reading with subsidiaries of Citadel. Before we can complete the
consolidation, we must obtain the approval of the companies' stockholders. We
are sending you this joint proxy statement/prospectus to ask you to vote in
favor of the consolidation transaction and related matters.
In the consolidation, Craig common stockholders and common preference
stockholders will receive 1.17 shares of Citadel nonvoting common stock for
each Craig share they own, and Reading common stockholders will receive 1.25
shares of Citadel nonvoting common stock for each Reading share they own. Each
outstanding option to purchase Craig common stock and common preference stock
and each outstanding option to purchase Reading common stock will be assumed by
Citadel and become an option to purchase an equivalent number (based on the
foregoing conversion ratios) of either Citadel voting common shares or
nonvoting common shares, at each option holder's election. The shares of
Citadel voting common stock and nonvoting common stock outstanding at the time
of effectiveness of the consolidation will remain outstanding. Citadel voting
common shares and nonvoting common shares are identical in all respects, with
the exception that the nonvoting shares carry no voting rights except in
limited circumstances as required by Nevada law.
After the consolidation, former stockholders of Craig will hold
approximately 56%, and former stockholders of Reading will hold approximately
13%, of the outstanding common stock of Citadel without giving effect to any
stock options. Citadel stockholders will own the balance of approximately 31%
of the common stock of Citadel outstanding upon completion of the
consolidation. The directors and executive officers of Citadel and their
affiliates, some of whom also are directors or executive officers or affiliated
with Craig or Reading, will own approximately 21% of the outstanding shares of
Citadel common stock immediately after the consolidation. This compares to 16%
at present.
On November , 2001, the closing price of Citadel nonvoting common stock as
reported on the American Stock Exchange was $ per share, the closing
prices of Craig common stock and common preference stock as reported on the New
York Stock Exchange were $ per share and $ per share and the closing
price of Reading common stock as reported on The Nasdaq Stock Market was $
per share. We encourage you to obtain more recent quotations. Following the
consolidation, Citadel will change its name to "Reading International, Inc.,"
and Citadel nonvoting common stock and voting common stock will be listed for
trading on the American Stock Exchange under the symbols "RDI.A" and "RDI.B."
Craig common stock and common preference stock and Reading common stock will be
delisted if the consolidation is completed.
We will hold the annual meeting of stockholders of Citadel jointly with
special meetings of stockholders of Craig and Reading to consider and vote on
the consolidation. Our joint stockholders' meetings will be held on December
26, 2001, at 10:00 a.m., Pacific time, at , , California. Only stockholders
of record as of November 19, 2001, the record date for the joint meetings, will
be entitled to notice of and to vote at the joint meetings. At Citadel's annual
meeting, Citadel will ask its stockholders to consider and vote on, among other
matters described in this joint proxy statement/prospectus, the issuance of up
to 16,936,252 Citadel common shares in the consolidation, including 1,841,820
Citadel voting common shares or nonvoting common shares issuable upon the
exercise of Craig and Reading stock options to be assumed by Citadel in the
consolidation, and an amendment to Citadel's 1999 stock option plan to increase
the number of shares available for issuance under the plan in order to permit
Citadel to assume the outstanding Craig and Reading stock options. At Craig's
and Reading's special meetings, Craig and Reading will ask their stockholders
to consider and vote on the consolidation agreement.
The holders of a majority of the voting power of both Craig and Reading and
approximately 49% of the voting power of Citadel are obligated to vote in favor
of the consolidation. We anticipate, therefore, that the consolidation will be
approved.
Based upon the closing price per share of Citadel nonvoting common stock on
November , 2001, the shares to be received by the former Craig
stockholders and shares to be received by the former Reading stockholders
in the consolidation would have market values of $ and $ , respectively,
or a total market value of $ .
None of the stockholders of Citadel, Craig or Reading are entitled to
dissenters' or appraisal rights in connection with the consolidation. To cast
your vote at your annual or special meeting, please complete, sign and date
your proxy card and return it in the enclosed envelope.
This document is a prospectus of Citadel relating to the issuance of Citadel
common stock in the consolidation and a proxy statement for each of Citadel,
Craig and Reading for soliciting proxies for use at the joint annual meeting of
stockholders of Citadel and special meetings of stockholders of Craig and
Reading. This document contains answers to frequently asked questions and a
summary description of the consolidation (beginning on page ), followed by a
more detailed discussion of the consolidation and related matters.
You should also consider the matters discussed under "Risk Factors"
commencing on page 27 of this document. We urge you to carefully review this
entire document.
S. Craig Tompkins
Corporate Secretary
Citadel Holding Corporation
Craig Corporation
Reading Entertainment, Inc.
The consolidation transaction has not been approved or disapproved by the
Securities and Exchange Commission, nor has the Commission passed as the
fairness or merits of the consolidation transaction. Neither the Securities and
Exchange Commission nor any state securities commission has approved or
disapproved of the securities to be issued in the consolidation or determined
if this joint proxy statement/prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
This joint proxy statement/prospectus is dated , 2001 and is first being
mailed to stockholders on or about November , 2001.
The information in this preliminary prospectus is not complete and may be
changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This
preliminary prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any jurisdiction where the offer
or sale is not permitted.
NOTICE OF JOINT ANNUAL MEETING OF CITADEL STOCKHOLDERS AND SPECIAL MEETINGS OF
CRAIG STOCKHOLDERS AND READING STOCKHOLDERS
TO BE HELD DECEMBER 26, 2001 AT 10:00 A.M.
To Our Stockholders:
You are invited to attend the annual meeting of stockholders of the Citadel
Holding Corporation, or Citadel, and special meetings of stockholders of Craig
Corporation, or Craig, and Reading Entertainment, Inc., or Reading. The
meetings will be held jointly at located at , , California, on
December 26, 2001 at 10:00 a.m., Pacific time. At the joint meetings, Citadel
stockholders will be asked to consider and vote upon:
. A proposal to approve the issuance of up to 16,936,252 shares of Citadel
common stock pursuant to the consolidation agreement among Citadel, Craig
and Reading, dated as of August 17, 2001, under which Craig and Reading
will each merge with a subsidiary of Citadel and will each become a wholly
owned subsidiary of Citadel, including 1,841,820 shares of Citadel
nonvoting common stock or voting common stock issuable upon the exercise
of Craig and Reading stock options to be assumed by Citadel.
. A proposal to amend Citadel's 1999 stock option plan to increase the
number of shares of Citadel common stock reserved for issuance under the
plan from 660,000 to 1,350,000 upon completion of the consolidation.
. A proposal to adopt an amendment to Citadel's articles of incorporation to
change the name of the company from Citadel Holding Corporation to
"Reading International, Inc." upon completion of the consolidation.
. A proposal to ratify and approve the form of indemnification agreement
between Citadel and its directors and officers.
. The election of five individuals to serve on the Citadel board of
directors until the next annual meeting of stockholders.
. Any other business that properly comes before the annual meeting.
Craig stockholders will be asked to separately consider and vote upon a
proposal to approve the consolidation agreement, under which Craig will merge
with a subsidiary of Citadel and each share of Craig common stock and Craig
common preference stock will be automatically converted into the right to
receive 1.17 shares of Citadel nonvoting common stock.
Reading stockholders will be asked to separately consider and vote upon a
proposal to approve the consolidation agreement, under which Reading also will
merge with a subsidiary of Citadel and each share of Reading common stock will
automatically be converted into the right to receive 1.25 shares of Citadel
nonvoting common stock.
After careful consideration, the boards of directors of Citadel, Craig and
Reading have approved the consolidation agreement and determined that the
consolidation is fair to and in the best interests of their public
stockholders. THE BOARDS OF DIRECTORS OF CITADEL, CRAIG AND READING UNANIMOUSLY
RECOMMEND THAT THEIR RESPECTIVE STOCKHOLDERS VOTE FOR THE PROPOSALS TO APPROVE
THE CONSOLIDATION AGREEMENT AND RELATED MATTERS DESCRIBED ABOVE.
Only holders of record of Citadel voting common stock, Craig common stock,
Craig common preference stock, Reading common stock and Reading preferred stock
at the close of business on November 19, 2001, the record date, are entitled to
notice of, and to vote at, the joint meetings and any adjournments or
postponements of any of the meetings. None of the stockholders of Citadel,
Craig or Reading are entitled to dissenters' or appraisal rights in connection
with the consolidation.
By Orders of the Boards of Directors
of
CITADEL HOLDING CORPORATION
CRAIG CORPORATION
READING ENTERTAINMENT, INC.
S. Craig Tompkins
Corporate Secretary
Los Angeles, California
November , 2001
TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE JOINT MEETINGS, PLEASE
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE
POSTAGE-PAID ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETINGS.
YOU CAN REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED. RETURNING THE PROXY
DOES NOT PREVENT YOU FROM ATTENDING THE MEETINGS AND VOTING YOUR SHARES IN
PERSON. IF YOUR SHARES ARE HELD IN AN ACCOUNT AT A BROKERAGE FIRM OR A BANK,
YOU MUST INSTRUCT THEM HOW TO VOTE YOUR SHARES.
IF YOU DO NOT VOTE OR DO NOT INSTRUCT YOUR BROKER OR BANK HOW TO VOTE, IT
MAY HAVE THE SAME EFFECT AS VOTING AGAINST APPROVAL OF THE MATTERS TO BE VOTED
ON AT THE JOINT MEETINGS.
TABLE OF CONTENTS
Page
----
Summary of the Joint Proxy Statement/Prospectus.......................................... 1
Documents Included with the Joint Proxy Statement/Prospectus............................. 17
Forward-Looking Statements............................................................... 17
Selected Historical and Selected Unaudited Pro Forma Combined Condensed Financial Data... 18
Comparative Historical and Unaudited Pro Forma Per Share Data............................ 25
Risk Factors............................................................................. 27
The Citadel Annual Meeting............................................................... 32
The Craig Special Meeting................................................................ 35
The Reading Special Meeting.............................................................. 37
Special Factors.......................................................................... 40
Proposal to Approve the Consolidation.................................................... 75
The Consolidation Agreement.............................................................. 79
Agreements Related to the Consolidation.................................................. 87
Stock Options Election................................................................... 88
Proposal to Amend Citadel's 1999 Stock Option Plan....................................... 90
Proposal to Amend Citadel's Articles of Incorporation.................................... 92
Proposal to Ratify and Approve the Form of Citadel Indemnification Agreement............. 92
Proposal to Elect Citadel Directors...................................................... 94
Market Price and Dividend Information.................................................... 98
Unaudited Pro Forma Consolidation Condensed Combined Financial Statements................ 101
Comparison of Rights of Holders of Citadel Nonvoting Common Stock, Craig Common Stock and
Common Preference Stock and Reading Common Stock....................................... 107
Information Regarding Citadel, Craig and Reading......................................... 111
Management of Citadel.................................................................... 121
Management of Craig...................................................................... 133
Management of Reading.................................................................... 134
Independent Public Accountants........................................................... 135
Annual Report to Citadel Stockholders.................................................... 135
Citadel Stockholder Proposals............................................................ 135
Description of Citadel Capital Stock..................................................... 135
Legal Opinion............................................................................ 136
Experts.................................................................................. 136
Documents Incorporated by Reference...................................................... 137
ANNEX A--Agreement and Plan of Merger....................................................
ANNEX B--Opinion of Marshall & Stevens Incorporated......................................
ANNEX C--First Amendment to Citadel 1999 Stock Option Plan...............................
ANNEX D--Certificate of Amendment of Articles of Incorporation of Citadel................
ANNEX E--Form of Citadel Indemnification Agreement.......................................
ANNEX F--Citadel Audit Committee Charter.................................................
i
SUMMARY OF THE JOINT PROXY STATEMENT/PROSPECTUS
This summary highlights, in a question and answer format, selected
information that is more fully discussed elsewhere in this joint proxy
statement/prospectus. This summary may not contain all of the information that
is important to you. You should carefully read this entire joint proxy
statement/prospectus and the other documents furnished with or referenced in
this joint proxy statement/prospectus for a more complete understanding of the
consolidation. In particular, you should read the documents attached to this
joint proxy statement/prospectus, including the consolidation agreement, which
is attached as ANNEX A, and the opinion of Marshall & Stevens Incorporated,
which is attached as ANNEX B.
References in this joint proxy statement/prospectus to "we," "us," "our,"
and "ours" refer to Citadel, Craig, Reading and their consolidated subsidiaries
following the consolidation.
The Parties
Citadel Holding Corporation
Citadel Holding Corporation is a corporation organized under the laws of
Nevada. The principal businesses of Citadel are the ownership and operation in
the United States of cinemas, live theaters and commercial real estate.
Citadel's principal executive offices are located at 550 S. Hope Street, Suite
1825, Los Angeles, California 90071. Its telephone number is (213) 239-0555.
Citadel's nonvoting common stock and voting common stock currently are listed
for trading on the American Stock Exchange under the symbols "CDL.A" and
"CDL.B."
Craig Corporation
Craig Corporation is a corporation organized under the laws of Nevada. The
principal business of Craig is the ownership and management of its investments
in Citadel and Reading. Craig's principal executive offices are located at 550
S. Hope Street, Suite 1825, Los Angeles, California 90071. Its telephone number
is (213) 239-0555. Craig's common stock and common preference stock are listed
for trading on the New York Stock Exchange under the symbols "CRG" and "CRGpf."
Reading Entertainment, Inc.
Reading Entertainment, Inc. is a corporation organized under the laws of
Nevada. The principal businesses of Reading are the ownership and operation of
cinemas in Australia, New Zealand and Puerto Rico, and the ownership and
development of commercial real estate in Australia and New Zealand. Reading's
principal executive offices are located at 550 S. Hope Street, Suite 1825, Los
Angeles, California 90071. Its telephone number is (213) 239-0555. Reading's
common stock is quoted on The Nasdaq Stock Market under the symbol "RDGE."
Craig Merger Sub, Inc.
Craig Merger Sub, Inc., or Craig Merger Sub, is a corporation organized
under the laws of Nevada. Craig Merger Sub is a wholly owned subsidiary of
Citadel formed solely for purposes of facilitating the merger of Craig in the
consolidation. It has no significant assets, and is not engaged in any business
or operations apart from its participation in the consolidation. Its business
address and telephone number are the same as Citadel's.
Reading Merger Sub, Inc.
Reading Merger Sub, Inc., or Reading Merger Sub, is a corporation organized
under the laws of Nevada. Reading Merger Sub is a wholly owned subsidiary of
Citadel formed solely for purposes of facilitating the merger of Reading in the
consolidation. It has no significant assets, and is not engaged in any business
or operations apart from its participation in the consolidation. Its business
address and telephone number are the same as Citadel's.
1
Recent Developments
We are furnishing with the joint proxy statement/prospectus copies of the
most recent annual reports on Form 10-K and quarterly reports on Form 10-Q for
Citadel, Craig and Reading. For a discussion of other recent developments at
the companies, see "INFORMATION REGARDING CITADEL, CRAIG AND READING - Certain
Litigation Relating to the Consolidation," beginning on page .]
We Are Proposing A Consolidation Of Citadel, Craig And Reading
Q: WHAT IS THE CONSOLIDATION? (See page )
A: The proposed consolidation will combine Citadel, Craig and Reading. Upon
completion of the consolidation, Craig and Reading will become wholly owned
subsidiaries of Citadel, and Citadel, under the new name "Reading
International, Inc.," will continue to conduct its business and will carry on
the businesses currently being conducted by Craig and Reading.
Q: WHAT WILL I RECEIVE IN THE CONSOLIDATION FOR MY CRAIG SHARES OR READING
SHARES? (See pages and )
A: In the consolidation:
. Each outstanding share of Craig common stock and common preference stock
will automatically be converted into the right to receive 1.17 shares of
Citadel nonvoting common stock.
. Each outstanding share of Reading common stock will automatically be
converted into the right to receive 1.25 shares of Citadel nonvoting
common stock.
No fractional shares of Citadel nonvoting common stock will be issued in the
consolidation. Instead of fractional shares, the former Craig stockholders and
Reading stockholders will receive cash in an amount to be determined by
multiplying the fraction of a share of Citadel nonvoting common stock to which
they otherwise would be entitled by the average closing price for Citadel
nonvoting common stock as reported on the American Stock Exchange for the five
trading days immediately preceding the effective date of the consolidation.
Q: WILL THE CONVERSION RATIOS CHANGE? (See page )
A: There is no provision in the consolidation agreement for changing the
conversion ratios of 1.17 shares of Citadel nonvoting common stock for each
share of Craig common stock and common preference stock and 1.25 shares of
Citadel nonvoting common stock for each share of Reading common stock. If
Citadel, Craig and Reading agree to change the conversion ratios in light of
developments at the companies prior to the joint meetings at which the
consolidation will be considered, this joint proxy statement/prospectus will be
supplemented accordingly and your vote will be resolicited, if necessary.
Q: WHAT PERCENTAGE OF CITADEL WILL BE RECEIVED BY CRAIG STOCKHOLDERS AND
READING STOCKHOLDERS IN THE CONSOLIDATION? (See page )
A: The answer to this question is complicated by the fact that some of the
stockholders of Craig and Reading are also stockholders of Citadel. For
example, James J. Cotter is the beneficial owner of approximately 52.2% of the
outstanding Craig common stock and approximately 28.6% of the outstanding Craig
common preference stock and owns approximately 16.5% of the Citadel common
stock. Generally speaking, stockholders of Craig and Reading indirectly own,
through the Citadel common stock held by Craig and Reading, approximately 32.4%
of the outstanding common stock of Citadel. Based on the number of shares of
stock of Citadel, Craig and Reading outstanding on October 31, 2001, and
treating Mr. Cotter and all other stockholders who own both Craig stock and
Citadel stock, or who own both Reading stock and Citadel stock, as former Craig
2
stockholders and former Reading stockholders only to the extent of their
current beneficial holdings in Craig and Reading, the former Craig stockholders
and former Reading stockholders will have the following aggregate stock
ownership interests in Citadel immediately following the consolidation:
Number of Percent of Citadel
Outstanding Shares of Common Stock
Citadel Common Stock Outstanding
--------------------- ------------------
Nonvoting Voting Nonvoting Voting
---------- ------ --------- ------
Craig stockholders.. 12,239,622 -- 60% 0%
Reading stockholders 2,854,810 -- 14% 0%
Q: WHAT PERCENTAGE OF CITADEL WILL BE OWNED BY THE EXISTING CITADEL
STOCKHOLDERS FOLLOWING THE CONSOLIDATION? (See page )
A: The answer to this question is complicated by the overlapping ownership
of the three companies. Based on the number of shares of stock of Citadel,
Craig and Reading outstanding on October 31, 2001, and treating those
stockholders who own both Craig stock and Citadel stock, or who own both
Reading stock and Citadel stock, as former Citadel stockholders only to the
extent of their current holdings of Citadel common stock, the existing Citadel
stockholders will have the following aggregate ownership interests in Citadel
immediately following the consolidation:
Number of Outstanding Percent of Citadel
Shares of Citadel Common Stock
Common Stock Outstanding
--------------------- ------------------
Nonvoting Voting Nonvoting Voting
--------- --------- --------- ------
Citadel stockholders......... 5,390,556 1,336,331 26% 100%
Q: DO THESE PERCENTAGES GIVE EFFECT TO STOCK OPTIONS? (See page )
A: No. The percentages shown above do not give effect to outstanding stock
options of Citadel, Craig and Reading. Citadel currently has outstanding
options to purchase 155,000 shares of nonvoting common stock at the
weighted-average exercise price of $2.76 per share. Craig currently has
outstanding options to purchase 664,940 shares of Craig common stock at the
weighted-average exercise price of $6.04 per share and 65,000 shares of Craig
common preference stock at the weighted-average exercise price of $6.65 per
share. Reading currently has outstanding options to purchase 790,232 shares of
Reading common stock at the weighted-average exercise price of $12.79 per
share. Accordingly, all of the currently outstanding stock options of the three
companies have exercise prices materially above the current market prices of
the underlying shares.
The percentages shown above also do not give effect to outstanding
convertible preferred stock of Reading, since Citadel will own all of the
Reading preferred shares after the consolidation.
3
Q: WHAT PERCENTAGE OF CITADEL WILL BE OWNED BY FORMER CRAIG AND READING
STOCKHOLDERS AND OPTION HOLDERS AND EXISTING CITADEL STOCKHOLDERS AND OPTION
HOLDERS ASSUMING THE EXERCISE OF STOCK OPTIONS? (See page )
A: Based on the number of stock options of Craig and Reading outstanding on
October 31, 2001, and assuming that each holder of Craig stock options and
Reading stock options elects to convert Craig and Reading options into options
to purchase Citadel voting common stock in the consolidation, Citadel will have
outstanding immediately following the consolidation options to purchase
1,841,820 Citadel voting shares at exercise prices ranging from approximately
$4.49 to $11.20 per share, representing a weighted-average exercise price of
$7.90 per share. These options will be in addition to currently outstanding
options to purchase 155,000 shares of Citadel nonvoting common stock at the
weighted-average exercise price of $2.76 per share. Assuming these options were
exercised in full, immediately following the consolidation the former Craig
stockholders and option holders, former Reading stockholders and option holders
and existing Citadel stockholders and option holders will have the following
fully-diluted aggregate ownership interests in Citadel:
Percentage of Citadel
Number of Common Stock
Shares of Citadel Assuming Exercise of
Common Stock All Outstanding Options
-------------------- -----------------------
Nonvoting Voting Nonvoting Voting
---------- --------- --------- ------
Craig stockholders and option holders....... 12,239,622 854,030 59.3% 26.9%
Reading stockholders and option holders..... 2,854,810 987,790 13.8% 31.1%
Citadel stockholders and option holders..... 5,545,556 1,336,330 26.9% 42.0%
For purposes of this table, we have treated option holders as former Craig,
Reading or Citadel option holders according to whether their options were
initially granted by Craig, Reading or Citadel.
James J. Cotter currently holds options to purchase 635,232 shares of
Reading common stock and 594,940 shares of Craig common stock. If Mr. Cotter
elects to receive options to purchase shares of Citadel voting common stock in
the consolidation, he would, immediately following the consolidation, hold
options to purchase 1,490,120 Citadel voting shares. Mr. Cotter is currently
the controlling stockholder of Citadel. Directly, through his ownership of
approximately 16.5% of the currently outstanding Citadel voting common stock,
and indirectly through his control of Craig and Reading, Mr. Cotter has voting
control over approximately 49% of the currently outstanding Citadel voting
common stock. Furthermore, given the weighted-average exercise price of Mr.
Cotter's options to purchase Citadel common stock immediately following the
consolidation ($8.03 per share), the exercise of his options and the issuance
of his option shares would be antidilutive both from a market price and a book
value point of view. Accordingly, we believe that the assumption by Citadel of
the Craig and Reading stock options held by Mr. Cotter will have no practical
effect upon the control of Citadel.
Q: ARE THERE DIFFERENCES BETWEEN THE RIGHTS OF CRAIG STOCKHOLDERS, OR OF
READING STOCKHOLDERS, AND THE RIGHTS OF HOLDERS OF CITADEL NONVOTING COMMON
STOCK? (See page )
A: Yes. Unlike Craig stockholders and Reading stockholders, the holders of
Citadel nonvoting common stock have no voting rights, except under limited
circumstances as required by Nevada law. Another difference is that the holders
of Craig common preference stock currently are entitled to a preferential
payment of $5 per share in the event of a liquidation and dissolution of Craig
prior to any payment or distribution to the Craig common stockholders. Citadel
nonvoting common stock carries no liquidation preference. In evaluating the
consolidation, you should carefully compare all the rights of holders of Craig
common stock and common preference stock and holders of Reading common stock
with the rights of holders of Citadel nonvoting common stock as set forth in
the section entitled "COMPARISON OF RIGHTS OF HOLDERS OF CITADEL NONVOTING
COMMON STOCK, CRAIG COMMON STOCK AND COMMON PREFERENCE STOCK AND READING COMMON
STOCK" beginning on page .
4
Q: WHO WILL BE THE DIRECTORS OF CITADEL? (See page )
A: Following the consolidation, the board of directors of Citadel will
consist of five members to be elected at the Citadel annual meeting of
stockholders as described in this joint proxy statement/prospectus. Each
nominee for director is an incumbent director of Citadel.
Q. WHO WILL BE THE EXECUTIVE OFFICERS OF CITADEL? (See page )
A: Following the consolidation, the executive officers of Citadel are
expected to include:
. James J. Cotter, as Chairman of the Board and Chief Executive Officer. Mr.
Cotter currently holds the same positions at Citadel, Craig and Reading.
. S. Craig Tompkins, as Vice Chairman and Corporate Secretary. Mr. Tompkins
currently holds the same positions at Citadel and Reading and currently is
the President and a director at Craig.
. Andrzej Matyczynski, as Chief Financial Officer. Mr. Matyczynski currently
holds the same position at Citadel, Craig and Reading.
. Brett Marsh, as Vice President--Real Estate. Mr. Marsh currently holds the
same position at Citadel, Craig and Reading.
. Ellen M. Cotter, as Vice President--Business Affairs. Ms. Cotter, the
daughter of James J. Cotter, currently holds the same position at Craig
and Reading.
Q: WHAT STOCKHOLDER APPROVALS ARE NEEDED TO COMPLETE THE CONSOLIDATION? (See
pages and )
A: For Citadel, the affirmative vote of a majority of the outstanding shares
of Citadel voting common stock present and voted at the Citadel annual meeting
is required to approve the issuance of Citadel shares in connection with the
consolidation and the amendment to Citadel's 1999 stock option plan.
For Craig, the affirmative vote of the holders of a majority of the
outstanding voting power of Craig common stock and common preference stock,
voting as a single class, is required to approve the consolidation agreement.
For Reading, the affirmative vote of a majority of the voting power of the
outstanding shares of Reading common stock and preferred stock, voting as a
single class, is required to approve the consolidation agreement.
Q: ARE STOCKHOLDERS BEING ASKED TO APPROVE ANY OTHER MATTERS? (See pages
and )
A: Yes. In addition to the issuance of Citadel shares in connection with the
consolidation and the amendment to Citadel's stock option plan, which will be
considered separately, Citadel stockholders are being asked to approve:
. A proposal to amend Citadel's articles of incorporation to change the name
of the company to "Reading International, Inc." upon completion of the
consolidation.
. A proposal to ratify and approve the form of indemnification agreement
between Citadel and its directors and officers.
. The election of five individuals to serve on the Citadel board of
directors for the ensuing year.
5
Q: DOES THE CONSOLIDATION REQUIRE THE APPROVAL OF A MAJORITY OF UNAFFILIATED
STOCKHOLDERS? (See page )
A: No. The consolidation does not require the approval of a majority of the
Craig stockholders or Reading stockholders who are unaffiliated with the
companies or Mr. Cotter. The boards of directors of the three companies believe
that sufficient safeguards are present to ensure that the consolidation is fair
procedurally without requiring the approval of a majority of unaffiliated
stockholders of Craig or Reading because:
. The conflicts committees of both Craig and Reading, which are comprised
entirely of independent directors, unanimously recommended that the boards
approve the consolidation.
. Marshall & Stevens Incorporated, or Marshall & Stevens, advised the
conflicts committees and the boards regarding the conversion ratios and
other terms of the consolidation with a view to rendering its opinion with
regard to the fairness, from a financial point of view, of the
consolidation to our public stockholders.
. The Craig and Reading conflicts committees were advised by their own
independent legal counsel in evaluating and making recommendations
regarding the consolidation.
Q: HAVE ANY STOCKHOLDERS ALREADY COMMITTED TO VOTING IN FAVOR OF THE
CONSOLIDATION? (See page )
A: Yes. James J. Cotter, Craig and Reading, who together hold approximately
49% of the outstanding shares of Citadel voting common stock, are obligated
under the consolidation agreement to vote in favor of the issuance of Citadel
shares in connection with the consolidation and each of the other matters
(other than the election of directors) to be voted on at the Citadel annual
meeting. Mr. Cotter, who owns or has the right to vote a majority of the
outstanding voting power of Craig common stock and common preference stock,
also is obligated under the consolidation agreement to vote in favor of the
consolidation agreement. Craig, which holds a majority of the voting power of
the outstanding shares of Reading common stock and preferred stock, likewise is
obligated to vote in favor of the consolidation agreement. As a result, we
expect that all matters will be approved at the joint meetings of stockholders
of the three companies.
Q: WHEN DO YOU EXPECT THE CONSOLIDATION TO BE COMPLETED? (See page )
A: We expect to complete the consolidation promptly following the joint
meetings of stockholders of Citadel, Craig and Reading.
Q. WHOM SHOULD I CALL WITH QUESTIONS ABOUT THE CONSOLIDATION? (See page )
A: Stockholders should call Andrzej Matyczynski, our Chief Financial
Officer, at (213) 239-0555.
Q: WHERE WILL THE STOCK OF THE COMPANIES BE LISTED FOLLOWING THE CONSOLIDATION?
(See page )
A: Craig common stock and common preference stock and Reading common stock
will be delisted following the consolidation. Citadel nonvoting common stock
and voting common stock will be listed for trading on the American Stock
Exchange under the new trading symbols "RDI.A" and "RDI.B."
Q: WHERE CAN I GET ADDITIONAL INFORMATION ABOUT CITADEL, CRAIG AND READING?
(See pages and )
A: Copies of the latest annual reports on Form 10-K and quarterly reports on
Form 10-Q of Citadel, Craig and Reading are being furnished with this joint
proxy statement/prospectus. These reports contain important business and
financial information about the companies.
6
Our Reasons For Proposing The Consolidation Of Craig And Reading With Citadel
Q: WHY ARE CITADEL, CRAIG AND READING EACH PROPOSING THE CONSOLIDATION? (See
page )
A: Citadel, Craig and Reading have substantially overlapping ownership and
management, and each of the companies is engaged, directly or indirectly, in
the cinema exhibition, live theater and real estate businesses. The purpose of
the consolidation is to eliminate the overlapping ownership and management and
combine the businesses of the companies, which we believe will achieve the
following benefits to stockholders of the companies:
. Eliminate Duplicative Costs--Once the businesses and operations of the
three companies are fully consolidated, we will save at least $1 million
annually of duplication of SEC reporting costs, audit expenses, directors'
fees and other administrative expenses. It will also free up for more
productive uses management and staff time which is currently consumed
dealing with the related-party transactions and potential
conflict-of-interest issues that are inherent in our overlapping ownership
and management.
. Simplify Our Capital Structure and Increase Market Understanding--The
consolidation will substantially simplify our capital structure. This
should lead to a better understanding and appreciation of the consolidated
company's value by investors and others.
. Facilitate Better Use of Assets and Liquidity--The consolidation will
allow us to take advantage of Citadel's U.S. asset base and liquidity to
provide needed capital to advance opportunities in Australia and New
Zealand at what we believe to be very favorable currency exchange rates.
At the present time, the U.S. Dollar is near a ten-year high compared to
the Australian Dollar and the New Zealand Dollar, and we believe that
there are favorable opportunities in these countries to invest the
consolidated company's capital resources in real estate-related assets.
. Enhance Stockholder Liquidity--The current stockholders of Craig and
Reading, as the holders of Citadel nonvoting common stock, should enjoy
greater liquidity in their investment than they currently enjoy as the
holders of Craig common stock or common preference stock or Reading common
stock. The current holders of Citadel nonvoting common stock also should
enjoy the greater liquidity. This is based on the fact that there will be
substantially more shares of Citadel nonvoting common stock in the hands
of the public and available for trading than is the case with respect to
the currently outstanding shares of the companies.
. Increase in Book Value of Net Assets--Citadel will account for the
consolidation of Craig and Reading using the purchase method of
accounting. Under purchase accounting, Citadel will record the fair value
of the consideration given for Craig common stock and common preference
stock and Reading common stock, plus the amount of direct transaction
costs, as the cost of acquiring Craig and Reading. Citadel will allocate
these costs to the Craig and Reading assets and liabilities acquired based
on their respective fair values, which we believe exceed these costs. As a
result, we expect the net assets of the consolidated company for financial
reporting purposes to exceed the sum of the current net assets of Citadel,
Craig and Reading.
Q: ARE THERE RISKS INVOLVED IN THE CONSOLIDATION? (See page )
A: Yes. These risks include the following:
. For the Current Stockholders of Citadel--The stockholders of Citadel will
be exposed by the consolidation to the risks of Citadel's ownership of
Reading and Craig. At the present time, Citadel's only material investment
in Reading is its direct investment in the Series A preferred stock of
Reading, which Citadel has the right to require Reading to repurchase in
the event that the consolidation is not consummated. Citadel has no direct
or indirect investment in Craig. If the consolidation is consummated,
6
Reading and Craig will become wholly owned subsidiaries of Citadel.
Consequently, Citadel and its stockholders will become subject to the
risks of ownership of Reading and Craig. These risks include exposure to
the tax risks, litigation risks, currency risks, environmental risks and
general business risks discussed in the annual and quarterly reports of
Craig and Reading being furnished with this joint proxy
statement/prospectus, and in the sections below entitled "RISK FACTORS"
beginning on page and "INFORMATION REGARDING CITADEL, CRAIG AND READING"
beginning on page .
. For the Current Stockholders of Reading--Reading stockholders will be
exposed by the consolidation to the risks and liabilities of Citadel and
to the risks of Citadel's ownership of Craig. The stockholders of Reading
currently are subject only to the risks of Reading's ownership of 21% of
the common equity of Citadel, and have no exposure to the risks of
ownership of Craig, since Reading has no investment in Craig. Following
the consolidation, the current Reading stockholders will become subject to
the risks of ownership of both Citadel and Craig. These include the risks
associated with ownership and operation of agricultural properties in
California and the ownership and operation of domestic cinemas and live
theaters (including domestic cinemas and live theaters located in
Manhattan), and, since Craig is not consolidated with Reading for tax
purposes, the risk that Craig may have tax liabilities separate and apart
from Reading, all as discussed in the annual and quarterly reports of
Craig and Citadel being furnished with this joint proxy
statement/prospectus, and in the Sections below entitled "RISK FACTORS"
beginning on page and "INFORMATION REGARDING CITADEL, CRAIG AND
READING" beginning on page .
. For the Current Stockholders of Craig--Following the consolidation, the
current Craig stockholders will be subject to additional risks of
ownership of Citadel and Reading. The stockholders of Craig currently are
already significantly exposed to the risk of investments in Reading and
Citadel, since these investments represent Craig's principal assets. These
investments consists of the ownership of 100% of the outstanding Series B
preferred stock of Reading (which has a liquidation preference of $55
million and accumulated dividends of approximately $11 million), 69% of
the common stock of Reading, and 12% of the common stock of Citadel (and,
on a consolidated basis with Reading, 33% of the common stock of Citadel).
However, as a result of the consolidation, the current stockholders of
Craig will become subject to 100% of the risks of ownership of Citadel and
to the risks of Citadel's ownership of 100% of Reading.
. For all Stockholders of Citadel, Craig and Reading--The stockholders of
all the companies are subject to the risks that the benefits of
consolidation contemplated by management will not be realized and that the
companies will incur costs and expenses of defending litigation brought by
one or more stockholders challenging the fairness or appropriateness of
the consolidation or the terms of the consolidation agreement. A
stockholder of Reading recently commenced a purported class-action lawsuit
in the Nevada State District Court for Clark County, Nevada, alleging,
among other things, that the Reading conversion ratio is unfair to
Reading's public stockholders. Neither Citadel nor Craig carry directors
and officers insurance, and the insurance maintained by Reading is subject
to a $125,000 deductible amount.
Q: DO THE BOARDS OF DIRECTORS OF CITADEL, CRAIG AND READING EACH RECOMMEND
VOTING IN FAVOR OF THE CONSOLIDATION? (See pages and )
A: Yes. The conflicts committee of the Citadel board of directors, which
consists entirely of independent directors, unanimously recommended that the
board approve the consolidation. After careful consideration, the Citadel board
of directors unanimously approved the consolidation agreement and recommended
that Citadel stockholders approve the issuance of Citadel shares and other
matters in connection with the consolidation.
The conflicts committee of the Craig board of directors, which consists
entirely of independent directors, unanimously recommended that the board
approve the consolidation. After careful consideration, the Craig board of
directors unanimously determined that the consolidation is fair to and in the
best interests of Craig's public stockholders, approved the consolidation
agreement and recommended that Craig stockholders approve the consolidation
agreement.
8
The conflicts committee of the Reading board of directors, which consists of
an independent director, recommended that the board approve the conversion
ratio of 1.25 shares of Citadel nonvoting common stock for each share of
Reading common stock provided for in the consolidation agreement. After careful
consideration, the Reading board of directors unanimously determined that the
consolidation is fair to and in the best interests of Reading's public
stockholders, approved the consolidation agreement and recommended that Reading
stockholders approve the consolidation agreement.
Q: HAVE THE COMPANIES RECEIVED A FAVORABLE OPINION FROM THEIR FINANCIAL ADVISOR
CONCERNING THE CONSOLIDATION? (See page )
A: Yes. In deciding to approve the consolidation, the boards of directors of
Citadel, Craig and Reading considered the opinion of their joint financial
advisor, Marshall & Stevens Incorporated, or Marshall & Stevens, to the effect
that the consolidation, and the consideration to be received in the
consolidation are fair, from a financial point of view, to the public
stockholders of each of the companies. The conversion ratios in the
consolidation were determined by Marshall & Stevens based upon their
independent evaluation of the companies and were recommended by Marshall &
Stevens to the conflicts committees and the boards of directors of the
companies.
The full text of Marshall & Stevens' written opinion is attached to this
joint proxy statement/prospectus as ANNEX B. You should read this opinion
carefully and completely for a description of the assumptions made, matters
considered and the limitations of the review by Marshall & Stevens. The opinion
of Marshall & Stevens is directed to the boards of directors and the conflicts
committees of the boards of the three companies. The opinion does not address
the prices at which Citadel's nonvoting common stock will trade after the
consolidation and is not a recommendation as to how to vote on any matter
relating to the consolidation.
Q: DO PERSONS INVOLVED IN THE CONSOLIDATION HAVE INTERESTS THAT DIFFER FROM
MINE? (See pages and )
A: Yes. These interests include the following:
. Interests of Controlling Stockholder--James J. Cotter owns or controls,
directly or indirectly, a majority of the voting power of both Craig and
Reading and approximately 49% of the voting power of Citadel. As such, he
is the principal controlling stockholder of Craig, Reading and Citadel.
Mr. Cotter has advised the directors of the three companies that he favors
a consolidation of the companies, but would not support a transaction
which, in his view, would materially and adversely affect his control
position with respect to the three companies. This advice was influential
in the determination to issue Citadel nonvoting common stock, as opposed
to Citadel voting common stock, in the consolidation.
Mr. Cotter receives significant benefits from the three companies not shared
by other stockholders. Mr. Cotter is paid approximately $545,000 annually by
the three companies in director's fees and consulting fees and serves as the
Chairman and Chief Executive Officer of each of the three companies. Two of
Mr. Cotter's children--Ellen Cotter and Margaret Cotter--serve as officers
or directors of one or more of the three companies, and Margaret Cotter
provides certain theater management services to an affiliate of Citadel on
an independent contractor basis. Over the twelve months ended September 30,
2001, the aggregate payments to Ellen Cotter and Margaret Cotter (and her
affiliates) totaled approximately $185,611 and $279,294, respectively.
Mr. Cotter also is a significant creditor of Citadel. He:
--Holdsa $2.25 million Citadel promissory note, which bears interest at the
current rate of 8.25% per annum and matures in July 2002.
--Is a 50% member in Sutton Hill Capital, LLC, which is the landlord to
Citadel with respect to its Manhattan-based cinemas (other than the
Angelika) and to which Citadel has granted a $28 million line of
credit, available for draw by Sutton Hill Capital beginning in July
2007.
8
One of the effects of the consolidation will be to increase Citadel's
equity, which may enhance its ability to satisfy these obligations.
Mr. Cotter has advised the directors of the three companies that he
considers his investment in the companies to be long-term in nature, and
that he intends to pass his investment on to his estate for the benefit of
his children, including Ellen Cotter and Margaret Cotter. Mr. Cotter has
further advised the directors of the three companies that he believes that
the three companies should be operated on a combined basis, and that, in his
view, the best opportunity for the three companies is to use the companies'
assets to advance the opportunities in Australia and New Zealand which he
believes are reasonably available to Reading. Given the overlapping nature
of Mr. Cotter's existing ownership interests in Citadel, Craig and Reading,
he has, in effect, already assumed the risks of an investment in the
combined companies. Accordingly, he may view the attractiveness of the
consolidation differently than stockholders who own shares only in one or
two of the companies. Also, given his level of personal involvement in the
direction of Reading's activities in Australia and New Zealand, he may view
the opportunities there as more attractive than would Citadel or Craig
stockholders, who might prefer a domestic focus to their investments.
. Stock Options--As of October 31, 2001, executive officers and directors of
Craig, including Mr. Cotter, held options to purchase a total of 664,940
shares of Craig common stock at the weighted-average exercise price of
$6.04 per share and total of 65,000 shares of Craig common preference
stock at the weighted-average exercise price of $6.65 per share. A total
of 22,500 shares under these options were unvested. As of October 31,
2001, current and former executive officers and directors of Reading,
including Mr. Cotter, held options to purchase a total of 790,232 shares
of Reading common stock at the weighted-average exercise price of $12.79
per share. A total of 30,500 shares under these options were unvested.
Pursuant to the consolidation agreement, these options will be assumed by
Citadel and become options to purchase an equivalent number (based on the
same conversion ratios used in the consolidation for Craig common stock
and common preference stock and for Reading common stock) of shares of
either Citadel voting common stock or nonvoting common stock, at each
option holder's election.
Mr. Cotter currently holds options to acquire 635,232 shares of Reading
common stock at the weighted-average exercise price of $13.30 per share and
594,940 shares of Craig common stock at the weighted-average exercise price
of $5.92 per share. If Mr. Cotter elects to receive options to purchase
Citadel voting common stock in the consolidation, he would, immediately
following the consolidation, hold options to purchase 1,490,120 shares of
Citadel voting common stock, or 52.7% of the Citadel voting common stock
that would be outstanding assuming his options were exercised in full, at
the weighted-average exercise price of $8.03 per share. Taking into account
his current Citadel stock holdings, as well, this would give Mr. Cotter
total beneficial ownership of 64.3% of the voting power of Citadel after
taking into effect the exercise of his Citadel stock options.
. Indemnity Arrangements--Under the consolidation agreement, Citadel has
agreed to assume Craig's and Reading's obligations under the
indemnification agreements between Craig and Reading and their respective
directors and officers, which are identical to indemnification agreements
currently in place between Citadel and its directors and officers. For
more information on the Citadel indemnification agreement, see the
discussion under "PROPOSAL TO RATIFY AND APPROVE THE FORM OF CITADEL
INDEMNIFICATION AGREEMENT" on page .
. Compensation Arrangements--Mr. Cotter and some of the other executive
officers of Craig and Reading will benefit from the consolidation in that
their employment agreements with Craig and Reading and the benefits
packages Craig and Reading provide to them will be assumed by the
consolidated company in the consolidation.
9
Q. WHY ARE CRAIG AND READING STOCK OPTION HOLDERS BEING GIVEN AN ELECTION TO
HAVE THEIR ASSUMED OPTIONS BE EXERCISABLE FOR EITHER CITADEL VOTING SHARES
OR NONVOTING SHARES? (See page )
A. The decision to permit Craig and Reading stock option holders to elect to
receive options to purchase either Citadel voting common stock or Citadel
nonvoting common stock was made:
. At the request of Mr. Cotter, to mitigate, to some extent, the loss of
voting power that he will experience as a consequence of the consolidation;
. Giving weight to the fact that some of the Craig and Reading executives
had received options to purchase voting Craig and Reading stock as a part
of the original compensation arrangements with Craig or Reading; and
. With the expectation that most of the officers and directors (other than,
perhaps, Mr.Cotter) would elect to convert their options into options to
acquire Citadel nonvoting common stock given the limited practical value
of the voting rights attached to the Citadel voting common stock as
compared to the value represented by the anticipated greater liquidity
that should be enjoyed by the Citadel nonvoting common stock.
Immediately following the consolidation, Mr. Cotter and his long-time
partner, Mr. Michael Forman, will own Citadel voting stock representing
approximately 49% of the voting power of Citadel. Accordingly, unless these two
individuals disagree on a matter to be presented to the stockholders of Citadel
for their vote, the voting rights held by the remaining holders of Citadel
voting common stock may be of little practical value. Furthermore, following
the consolidation there will only be approximately 680,714 shares of Citadel
voting common stock outstanding in the hands of persons other than Messrs.
Cotter and Forman and their affiliates, as compared to approximately 17,862,522
shares of Citadel nonvoting common stock held by persons other than Messrs.
Cotter and Forman and their affiliates. Accordingly, we expect that the Citadel
nonvoting common stock will enjoy greater liquidity than the Citadel voting
common stock.
The same conversion ratio of 1.17 shares of Citadel stock for each share of
Craig stock and 1.25 shares of Citadel stock for each share of Reading stock
will apply whether an option holder elects to receive options to acquire
Citadel voting shares or nonvoting shares.
Steps For You To Take
Q: WHEN AND WHERE WILL THE VOTES TAKE PLACE? (See pages and )
A: We will hold a joint annual meeting of Citadel stockholders and special
meetings of Craig stockholders and Reading stockholders at , ,
California, on December 26, 2001, starting at 10:00 a.m., Pacific time.
Q: WHATDO I NEED TO DO NOW? (See pages and )
A: After carefully reading and considering the information contained in this
joint proxy statement/prospectus and the accompanying annual reports and
quarterly reports of Citadel, Craig and Reading, please mail your signed
Citadel, Craig or Reading proxy card in the enclosed return envelope as soon as
possible so that your shares may be represented at the joint meetings.
Alternatively, you may attend the joint meetings and vote in person. Even if
you plan to attend the joint meetings, we ask that you return your signed proxy
in order to ensure that your shares are voted.
11
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW? (See pages and )
A: No. After the consolidation is completed, Citadel will send you written
instructions for exchanging your Craig and Reading stock certificates for
Citadel stock certificates.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME? (See pages and )
A: Your broker will not be able to vote your shares without instructions
from you. You should instruct your broker as to how to vote you shares by
following the procedures provided by your broker.
Q: WHAT IF I WANT TO CHANGE MY VOTE? (See pages and )
A: You can change your vote at any time before your proxy is voted at the
joint meetings. There are three ways for you to do this:
. Send notice to the secretary of Citadel, Craig or Reading (as appropriate)
that you wish to revoke your proxy.
. Send notice to the secretary of Citadel, Craig or Reading (as appropriate)
that you wish to change your proxy.
. Attend the joint meetings and vote in person.
If your shares are held in an account at a brokerage firm or bank, however,
you must contact the brokerage firm or bank if you wish to change your vote.
Q: WHAT IF I DON'T VOTE? (See pages and )
A: Your failure to vote your Citadel shares will not affect the outcome of
the voting by the Citadel stockholders on the issuance of Citadel shares in
connection with the consolidation and related matters, except for the amendment
to Citadel's articles of incorporation. If you are a Craig stockholder or a
Reading stockholder and fail to vote, it will have the same effect as a vote
against the consolidation; however, stockholders who have the right to vote a
majority of the outstanding voting power of Craig common stock and common
preference stock and of Reading common stock and preferred stock have agreed in
the consolidation agreement to vote in favor of the consolidation agreement, so
these matters are expected to be approved by Craig stockholders and Reading
stockholders at the joint meetings regardless of the vote of other stockholders.
If you return your proxy and do not indicate how you want to vote, your
proxy will be counted as a vote FOR approval of the matters at the joint
meetings.
Q: AM I ENTITLED TO DISSENTERS' OR APPRAISAL RIGHTS? (See page )
A: No. Under Nevada law, there are no dissenters' or appraisal rights
relating to the consolidation.
11
Other Matters To Consider
Q: HOW DO THE MARKET PRICES OF CITADEL, CRAIG AND READING COMMON STOCK COMPARE?
(See page )
A: Citadel nonvoting common stock and voting common stock are listed on the
American Stock Exchange under the symbols "CDL.A." and "CDL.B." Craig's common
stock and common preference stock are traded on the New York Stock Exchange
under the symbols "CRG" and "CRGpf." Reading common stock is traded on The
Nasdaq Stock Market under the symbol "RDGE." On March 19, 2001, the last full
trading day prior to the initial public announcement of the proposed
consolidation, the last reported sale prices of Citadel voting common stock and
nonvoting common stock, Craig common stock and common preference stock and
Reading stock were:
. $2.48 per share of Citadel voting common stock.
. $2.22 per share of Citadel nonvoting common stock.
. $2.40 per share of Craig common stock.
. $1.75 per share of Craig common preference stock.
. $2.31 per share of Reading common stock.
On November , 2001, the last reported sale prices of shares of Citadel
voting common stock and nonvoting common stock, Craig common stock and common
preference stock and Reading common stock were:
. $ per share of Citadel voting common stock.
. $ per share of Citadel nonvoting common stock.
. $ per share of Craig common stock.
. $ per share of Craig common preference stock.
. $ per share of Reading common stock.
We urge you to obtain current market quotations.
Q: WERE TRADING PRICES CONSIDERED IN ESTABLISHING THE CONVERSION RATIOS? (See
page )
A: Yes. Marshall & Stevens advised the boards of directors of the companies
that, in arriving at their recommended conversion ratios, they placed equal
weighting on each of the following three ratios:
. the ratio between the then current trading prices of the companies'
securities;
. the ratio between the average historic trading prices of such securities
over a six-month period preceding the date of the Marshall & Stevens
recommendation to the boards of directors of the companies; and
. the ratio of the respective "most likely values" of the underlying assets
and businesses of each of the three companies (as such "most likely
values" were determined by Marshall & Stevens).
This three-part weighting was used in order to address the fact that the
publicly-held securities of the three companies are thinly traded, that trades
involving even a small number of shares can have a significant impact on
trading prices, and, accordingly, that the market may not be as efficient in
pricing the publicly traded securities of the three companies as it would be in
the case of larger companies with a greater public float. It also takes into
account the fact that the possibility of a consolidation was first publicly
announced by the companies on March 20, 2001, approximately four months before
the date Marshall & Stevens made its recommendation to the boards of directors
of the companies as to the appropriate conversion ratios to be used in the
consolidation.
12
The average trading prices for the six-month period considered by Marshall &
Stevens were as follows:
. $1.92 per share for Citadel nonvoting common stock.
. $2.14 per share for Craig common stock.
. $1.80 per share for Craig common preference stock.
. $2.22 per share for Reading common stock.
For a more detailed description of the analysis resulting in the
establishment of the conversion ratios used for purposes of the consolidation,
see the discussion below under the Caption "SPECIAL FACTOR--Opinion of the
Companies' Financial Advisor" beginning at page below.
Q: WILL I RECOGNIZE INCOME TAX GAIN OR LOSS ON THE CONSOLIDATION? (See page )
A: For both Craig stockholders and Reading stockholders, gain or loss will
be recognized for United States federal income tax purposes in connection with
the consolidation to the extent that the value of the Citadel nonvoting common
stock (plus any cash received for fractional shares) exceeds your tax basis in
your Craig and Reading shares. Stockholders are urged to consult their own tax
advisors to determine their particular tax consequences.
Q: WHAT IS THE INTENDED ACCOUNTING TREATMENT OF THE CONSOLIDATION? (See page )
A: Citadel will account for the consolidation as a purchase of Craig and
Reading by Citadel, using the purchase method of accounting.
Q: WHAT IS THE LEGAL STRUCTURE OF THE CONSOLIDATION? (See page )
A: The consolidation will be accomplished by two separate mergers that will
happen simultaneously. Craig Merger Sub, a new, wholly owned subsidiary of
Citadel, will merge into Craig, resulting in Craig becoming a wholly owned
subsidiary of Citadel. At the same time, Reading Merger Sub, another new,
wholly owned subsidiary of Citadel, will merge into Reading, resulting in
Reading becoming a wholly owned subsidiary of Citadel. When we refer to the
consolidation throughout this joint proxy statement/prospectus, we are speaking
of the simultaneous Craig and Reading mergers.
The consolidation agreement is attached to this joint proxy
statement/prospectus as ANNEX A. You are encouraged to read the consolidation
agreement carefully because it, and not this joint proxy statement/prospectus,
is the legal contract that governs the consolidation.
Q: ARE THERE CONTRACTUAL CONDITIONS TO COMPLETION OF THE CONSOLIDATION? (See
page )
A: Yes. The respective obligations of Citadel, Craig and Reading to complete
the consolidation are subject to the satisfaction or waiver of closing
conditions. The conditions that must be satisfied or waived before the
completion of the consolidation include the following, subject to exceptions
and qualifications:
. The Citadel stockholders must approve the issuance of Citadel shares in
connection with the consolidation and the amendment to Citadel's 1999
stock option plan.
. The consolidation agreement must be approved by both the Craig
stockholders and the Reading stockholders.
. No injunction or order preventing the completion of the consolidation may
be in effect.
13
. The shares of Citadel nonvoting common stock to be issued in the
consolidation must have been approved for listing on the American Stock
Exchange.
. The parties' respective representations and warranties in the
consolidation agreement must be true and correct, unless the failure to be
true and correct would not have a material adverse effect.
. The parties must have complied in all material respects with the
agreements and covenants that each has made in the consolidation agreement.
. There must have been no material adverse change in the business, assets or
financial condition of any of the companies.
. Marshall & Stevens must not have withdrawn its fairness opinion, or
modified it in any materially adverse way.
If any of the companies waives any condition to completion of the
consolidation, each company will each consider the facts and circumstances at
that time and make a determination whether a resolicitation of proxies from its
stockholders is appropriate.
Q: DOES THE CONSOLIDATION AGREEMENT PERMIT TERMINATION OF THE CONSOLIDATION?
(See page ).
A: Yes. The consolidation agreement may be terminated prior to the
effectiveness of the consolidation under the following conditions:
. By our mutual written consent.
. By any of us in certain circumstances if the effective time has not
occurred on or before January 30, 2002.
. By any of us if there has been a breach of any representation, warranty,
covenant or agreement on the part of the other parties set forth in the
consolidation agreement, which has not have been cured within 20 business
days after notice of such breach.
. By any of us if any applicable law, rule or regulation makes the
consummation of the consolidation illegal or if any judgment, injunction,
order or decree of any court or other governmental authority restrains or
otherwise prohibits the consummation of the consolidation and such
governmental order becomes final and nonappealable, provided that the
party seeking to terminate the consolidation agreement has used its
reasonable best efforts to remove or lift such restrain or prohibition.
. By any of us if the requisite stockholder approval is not obtained upon a
vote at a duly held meeting of stockholders or at any adjournment or
postponement thereof.
Q: COULD PAYMENT OF TERMINATION FEES BE REQUIRED? (See page )
A: No. There are no termination or breakup fees payable in connection with a
termination of the consolidation; however, Citadel, Craig and Reading have
agreed in the consolidation agreement to share the fees and expenses of
preparing this joint proxy statement/prospectus and filing the registration
statement of which this joint proxy statement/prospectus is a part in the event
the consolidation is not completed for any reason. Also, none of the companies
has waived any rights it may have against a company that breaches the
consolidation agreement.
Q: MAY CITADEL, CRAIG OR READING NEGOTIATE WITH OTHER PARTIES? (See page )
A: The consolidation agreement does not prohibit negotiations with other
parties; however, we are not proposing to sell Citadel, Craig or Reading, or
effect a change of control of any of the companies. Further, any such
transaction would likely require the approval of the stockholders of one or
more of the companies. Since
14
stockholders representing 49% of the voting power of Citadel and a majority of
the voting power of both Craig and Reading are contractually bound to vote in
favor of the consolidation and related matters, it is unlikely that any third
party will come forward with any alternative transaction.
Matters For Craig and Reading Stock Option Holders to Consider
Q: WHAT DO I NEED TO DO NOW WITH MY OPTIONS? (See page )
A: Your Craig and Reading options will be assumed by Citadel automatically
by virtue of the consolidation, so you do not need to do anything for your
options to be assumed. We are asking you, however, to elect whether your
assumed options will be exercisable for Citadel nonvoting common stock or for
Citadel voting common stock by following the instructions on page . If you
make no election, your assumed options will be exercisable for Citadel
nonvoting shares.
14.1
DOCUMENTS INCLUDED WITH THE JOINT PROXY STATEMENT/PROSPECTUS
As permitted by Securities and Exchange Commission rules, copies of the
following documents are being furnished with this joint proxy
statement/prospectus:
. Citadel annual report on Form 10-K for the year ended December 31, 2000.
. Citadel quarterly report on Form 10-Q for the quarter ended September 30,
2001.
. Craig annual report on Form 10-K for the year ended December 31, 2000.
. Craig quarterly report on Form 10-Q for the quarter ended September 30,
2001.
. Reading annual report on Form 10-K for the year ended December 31, 2000.
. Reading quarterly report on Form 10-Q for the quarter ended September 30,
2001.
Important business and financial information about Citadel, Craig and
Reading is contained in these documents. You should read this joint proxy
statement/prospectus in conjunction with these documents. See "INFORMATION
REGARDING CITADEL, CRAIG AND READING," which begins on page .
FORWARD-LOOKING STATEMENTS
This joint proxy statement/prospectus and the documents being furnished with
it contain forward-looking statements within the safe harbor provisions of the
Private Securities Litigation Reform Act. These statements include statements
with respect to the financial condition, results of operations and businesses
and liabilities of Citadel, Craig and Reading, as well as the expected impact
of the consolidation on the liquidity and trading market for Citadel nonvoting
common stock and other matters. Words such as "anticipates," "expects,"
"intends," "plans," "believes," "seeks," "estimates" and similar expressions
identify forward-looking statements.
These forward-looking statements are not guarantees of future performance
and are subject to risks and uncertainties that could cause actual results to
differ materially from the results contemplated by the forward-looking
statements. In evaluating the consolidation, you should carefully consider the
discussion of these and other factors in the section entitled "RISK FACTORS"
beginning on page .
15
SELECTED HISTORICAL AND SELECTED UNAUDITED
PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The following tables present selected historical financial data of Citadel,
selected historical consolidated financial data of Craig, selected historical
financial data of Reading and selected unaudited pro forma condensed combined
financial data of Citadel, which reflect the consolidation.
Citadel Selected Historical Financial Data
(In Thousands, Except Per Share Amounts)
The selected historical financial data of Citadel have been derived from the
audited historical financial statements and related notes of Citadel for each
of the years in the five-year period ended December 31, 2000 and from unaudited
historical financial statements as of September 30, 2001 and for the nine
months ended September 30, 2000 and 2001. The selected historical financial
data for the nine months ended September 30, 2001 and 2000 are unaudited and
are derived from the consolidated financial information included in Citadel's
quarterly report on Form 10-Q for the quarter ended September 30, 2001;
however, in the opinion of Citadel's management, all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation have
been made. The historical data are only a summary, and you should read them in
conjunction with the historical consolidated financial statements and related
notes contained in the annual and quarterly reports of Citadel that have been
furnished with this joint proxy statement/prospectus.
December 31
----------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
Operating data:
Revenue................................ $ 7,384(1) $ 3,952(6) $ 5,985 $ 5,436 $ 5,776
Operating (loss) income................ (1,055)(2) 1,101 1,995 1,530 6,268
Net (loss) income applicable to common
stockholders......................... (3,542)(3) 9,487(7) 5,687 1,530 6,268
Common stock data:
Basic (loss) income per share.......... $ (0.47) $ 1.42 $ 0.85 $ 0.24 $ 1.04
Diluted (loss) income per share........ $ (0.47) $ 1.42 $ 0.85 $ 0.24 $ 0.80
Balance sheet data:
Total assets........................... $63,922(4) $47,206(6) $35,045 $28,860 $30,292
Long-term obligations.................. 16,025(5) 11,313 9,224 9,797 10,543
Stockholders' equity................... 39,128 33,483 23,741 18,054 17,724
Other data:
Preferred stock dividend............... $ 0 $ 0 $ 0 $ 0 $ 158
--------
(1)Reflects six months of revenue from the City Cinemas and Liberty Theaters.
(2)Reflects the revenue in (1) above and the rental payments associated with
the City Cinemas cinema chain.
(3)Reflects (1) and (2) above as well as a full reserve for all outstanding
advances to the agricultural partnerships.
(4)Includes fixed assets and goodwill from the purchase of Liberty Theaters.
(5)Includes the notes payable to James J. Cotter and Michael Forman for the
purchase of a 1/6 interest in Angelika Film Center LLC, or AFC.
(6)Reflects the sale of the Arizona rental property, one of two rental
properties owned by Citadel.
(7)Reflects the gain on the sale of the Arizona rental property.
16
Nine Months Ended
September 30,
------------------------
2001 2000
------- -------
Operating data:
Revenue............................................. $17,003 (8) $ 3,162(11)
Operating (loss) income............................. (2,547)(9) (147)
Net (loss) income applicable to common stockholders. (3,149) (3,049)(12)
Common stock data:
Basic and diluted (loss) per share.................. $ (0.32) $ (0.45)
Balance sheet data (as of September 30):
Total assets........................................ $61,818 $61,553
Long-term obligations............................... 13,728(10) 14,867
Stockholders' equity................................ 36,462 39,977
--------
(8)Reflects nine months of operations of City Cinemas and Liberty Theaters and
six months of operations from the four domestic cinemas purchased from
Reading.
(9)Reflects (8) above and the effects of the general and administrative
expense sharing agreement with Reading and Craig.
(10)Reflects the notes payable to James J. Cotter and Michael Forman for the
purchase of an 1/6th interest in AFC and the note payable to Reading for
the purchase of the four cinemas.
(11)Reflects the revenue from one rental property in California.
(12)Reflects the reserve for advances to the agricultural partnerships.
19
Craig Selected Historical Consolidated Financial Data
(In Thousands, Except Per Share Amounts)
The selected historical consolidated financial data of Craig have been
derived from the audited historical consolidated financial statements and
related notes of Craig for each of the years in the five-year period ended
December 31, 2000 and the unaudited consolidated financial statements for the
nine months ended September 30, 2000 and 2001. The selected historical
financial data for the nine months ended September 30, 2001 and 2000 are
unaudited and are derived from the consolidated financial information included
in the Craig's quarterly report on Form 10-Q for the quarter ended September
30, 2001, and, in the opinion of Craig's management, contain all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation. The historical consolidated data are only a summary, and you
should read them in conjunction with the historical consolidated financial
statements and related notes contained in the annual and quarterly reports of
Craig that have been furnished with this joint proxy statement/prospectus.
Since October 1996, Craig has reported its financial information on a
consolidated basis with Reading.
December 31
- --------------------------------------------------------
2000 1999 1998 1997 1996
- -------- -------- -------- -------- --------
Operating data:
Revenue................................ $ 42,237(1) $ 38,488 $ 33,929 $ 28,136 $ 21,887
Operating (loss) income................ (26,285)(1) (27,799)(3) (6,725) (6,634) (3,956)
Net (loss) income applicable to common
stockholders......................... (12,124)(1) (15,808)(3) (854) 2,851(4) 42,552(5)
Common stock data:
Basic (loss) income per share.......... $ (1.16) $ (1.49) $ (0.08) $ 0.26 $ 3.78
Diluted (loss) income per share........ $ (1.16) $ (1.49) $ (0.08) $ 0.26 $ 3.76
Balance sheet data:
Total assets........................... $123,531 $148,006 $164,591 $167,125 $165,968
Long-term obligations.................. 28,335(2) 15,320 13,894 13,712 11,196
Stockholders' equity................... 53,811 80,603 95,342 98,239 99,825
Other data:
Dividends paid on redeemable preferred
stock................................ $ 455 $ 455 $ 455 $ 455 $ 95
--------
(1)2000 revenue and operating loss reflect the sale by Reading of 50% of AFC to
National Auto Credit Inc., while 2000 operating loss and net loss
application to common stockholders include pre-tax charges for impairment of
development assets in Australia, and a pre-tax write down to market value of
four domestic cinemas made available for sale and ultimately sold to Citadel.
(2)2000 long term obligations include borrowing by Reading under bank lines of
credit in Australia and New Zealand to be used for completing certain real
estate and cinema development projects
(3)1999 operating loss and net loss applicable to common stockholders include a
pre-tax charge for impairment of the assets used by Reading to carry on
Puerto Rico operations, net of write downs taken previously against Reading
Entertainment assets, and net of minority interest in Reading.
(4)1997 net earnings applicable to common stockholders include dividend income
loss from State Bros. preferred shares.
(5)1996 net earnings applicable to common stockholders include dividend income
loss from State Bros. preferred shares.
18
Nine Months Ended
September 30,
------------------
2001 2000
-------- --------
Operating data:
Revenue...................................... $ 30,656 $ 33,030
Operating (loss)............................. (4,081) (10,244)
Net (loss) applicable to common stockholders. (4,587) (6,110)
Common stock data:
Basic and diluted (loss) per share........... $ (0.44) $ (0.58)
Balance sheet data (as of September 30):
Total assets................................. $110,255 $125,003
Long-term obligations........................ 27,804 15,291
Stockholders' equity......................... 42,297 58,077
Other data:
Dividends paid on redeemable preferred stock. $ 341 $ 228
--------
(6)2001 revenue, operating loss and net earnings applicable to common
stockholders reflect the sale in March of four domestic cinemas sold by
Reading to Citadel.
21
Reading Selected Historical Financial Data
(In Thousands, Except Per Share Data)
The selected historical financial data of Reading have been derived from the
audited historical financial statements and related notes of Reading for each
of the years in the five-year period ended December 31, 2000 and the unaudited
historical financial statements for the nine months ended September 30, 2000
and 2001. The selected historical financial information for the nine months
ended September 30, 2001 and 2000 is unaudited and derived from the
consolidated financial information included in Reading's quarterly report on
Form 10-Q for the quarter ended September 30, 2001, and, in the opinion of
Reading's management, contain all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation. The historical
financial data are only a summary, and you should read them in conjunction with
the historical financial statements and related notes contained in the annual
and quarterly reports of Reading that have been furnished with this joint proxy
statement/prospectus.
December 31
------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
Operating data:
Revenue............................ $ 42,237 (1) $ 38,488 $ 33,929 $ 27,164 $ 18,779
Operating (loss) income............ (25,709)(1) (44,648)(3) (6,024) (6,735) (4,572)
Net (loss) income applicable to
common stockholders.............. (19,854)(1) (45,517)(3) (6,728) (1,354) 6,092
Common stock data:
Basic (loss) income per share...... $ (2.67) $ (6.11) $ (0.90) $ (0.18) $ 1.11
Diluted (loss) income per share.... $ (2.67) $ (6.11) $ (0.90) $ (0.18) $ 1.02
Balance sheet data:
Total assets....................... $116,672 $138,496 $172,287 $178,012 $181,754
Long-term obligations.............. 19,967 (2) 6,953 5,526 5,344 3,595
Stockholders' equity............... 73,289 102,683 142,372 150,485 155,954
Other Data:
Preferred stock dividends and
amortization of asset put option. $ 4,030 $ 4,335 $ 4,322 $ 4,309 $ 911
--------
(1)2000 revenue and operating loss reflect the sale by Reading of 50% of AFC to
National Auto Credit Inc., while 2000 operating loss and net loss applicable
to common stockholders include pre-tax charges for impairment of development
assets in Australia, and a pre-tax write down to market value of four
domestic cinemas made available for sale and ultimately sold to Citadel.
(2)Includes borrowings under bank lines of credit in Australia and New Zealand
to be used for completing certain real estate and cinema development
projects.
(3)1999 operating loss and net loss applicable to common stockholders include a
pre-tax charge for impairment of the assets used to carry on Puerto Rico
operations.
20
Nine Months Ended
September 30,
---------------------
2001 2000
-------- --------
Operating data:
Revenue........................................................ $ 30,656 (4) $ 33,030
Operating (loss)............................................... (3,749)(4) (9,005)
Net (loss) applicable to common stockholders................... (8,260)(4) (9,261)
Common stock data:
Basic and diluted (loss) per share............................. $ (1.11) $ (1.24)
Balance sheet data (as of September 30):
Total assets................................................... $103,809 $119,177
Long-term obligations.......................................... 19,436 6,924
Stockholders' equity........................................... 60,784 81,262
Other data:
Preferred stock dividends and amortization of asset put option. $ 3,023 $ 3,127
--------
(4)2001 revenue, operating loss and net loss applicable to common stockholders
reflect the sale in March of four domestic cinemas sold to Citadel.
23
Selected Unaudited Pro Forma Condensed Combined Financial Data
(In Thousands, Except Per Share Amounts)
The selected unaudited pro forma condensed combined financial data of
Citadel are derived from the unaudited pro forma condensed combined financial
statements, which give effect to the consolidation using the purchase method of
accounting, and should be read in conjunction with the unaudited pro forma
condensed combined financial statements and related notes included elsewhere in
this joint proxy statement/prospectus.
The unaudited pro forma condensed combined financial information for Citadel
gives effect to the consolidation, based on a preliminary allocation of the
total purchase cost. The historical financial information has been derived from
the respective historical financial statements of Citadel, Craig and Reading,
and should be read in conjunction with these financial statements and the
related notes contained in the annual and quarterly reports of Citadel, Craig
and Reading that have been furnished with this joint proxy statement/prospectus.
Citadel will account for the consolidation as a purchase of Craig and
Reading using the purchase method of accounting. Citadel will record the fair
value of the consideration given for Craig and Reading stock and for options to
purchase Craig and Reading stock assumed by Citadel, plus the amount of direct
transaction costs, as the cost of acquiring Craig and Reading.
The total estimated purchase cost of the consolidation has been allocated on
a preliminary basis to Craig's and Reading's assets and liabilities based on
management's best estimates of their fair value. We do not expect that any
significant amount of goodwill will result from our accounting for the
consolidation. This allocation is subject to change pending a final analysis of
the total purchase cost and the fair value of the assets acquired and
liabilities assumed. The impact of such changes could be material.
The unaudited pro forma condensed combined financial data is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the consolidation had
been consummated at the times indicated, nor is it necessarily indicative of
future operating results or financial condition of Citadel.
Nine Months Year
Ended Ended
September 30, 2001 December 31, 2000
------------------ -----------------
Pro Forma Operating Data:
Revenue............................................ $ 52,703 $ 54,439
Operating (loss) applicable to common stockholders. (8,556) (19,488)
Pro Forma Common Stock Data:
Basic and diluted (loss) per share................. $ (0.39) $ (0.89)
Pro Forma Balance Sheet Data (as of September 30):
Total assets....................................... $166,045
Long-term obligations.............................. 48,006
Stockholders' equity............................... 86,855
24
COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE DATA
The following table sets forth:
. Historical book value per share and historical net loss per share data of
Citadel, Craig and Reading.
. Unaudited pro forma condensed combined book value per share and unaudited
pro forma condensed combined net loss per share data of Citadel after
giving effect to the consolidation.
. Unaudited pro forma equivalent condensed combined book value per share and
unaudited pro forma equivalent condensed combined net loss per share data
of Craig and Reading based on the conversion ratios of 1.17 shares of
Citadel nonvoting common stock for each share of Craig common stock and
common preference stock and 1.25 shares of Citadel nonvoting common stock
for each share of Reading common stock.
The information in the table should be read in conjunction with the
historical financial statements of Citadel, Craig and Reading and the related
notes contained in the annual and quarterly reports of Citadel, Craig and
Reading that have been furnished with this joint proxy statement/prospectus and
the unaudited pro forma condensed combined financial statements and related
notes included elsewhere in this joint proxy statement/prospectus. The
unaudited pro forma condensed combined financial data is not necessarily
indicative of the net loss per share or book value per share that would have
been achieved had the consolidation been consummated as of the beginning of the
periods presented and should not be construed as representative of these
amounts for any future dates or periods.
The information in the table is only a summary and you should read it in
conjunction with the "UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS" beginning on page and the audited and unaudited historical
financial statements of Citadel, Craig and Reading, including the notes
thereto, contained in the annual and quarterly reports that have been furnished
with this joint proxy statement/prospectus.
The Craig pro forma equivalent per share amounts are calculated by
multiplying the Citadel pro forma amounts per nonvoting common share by the
fixed conversion ratio of 1.17 Citadel nonvoting shares for each share of Craig
common stock and common preference stock.
The Reading pro forma equivalent per share amounts are calculated by
multiplying the Citadel pro forma amounts per nonvoting common share by the
fixed conversion ratio of 1.25 Citadel nonvoting shares for each share of
Reading common stock.
At or for the Year At or for the Nine
Ended December 31, Months Ended September 30,
2000 2001
------------------ --------------------------
Per share of Craig common stock and
common preference stock:
Book value:
Historical (1)............... $ 5.14 $ 4.00
Pro forma equivalent (2)..... $ 3.75 $ 3.49
Net income (loss):
Historical................... $ (1.16) $(0.44)
Pro forma equivalent (2)..... $ (0.98) $(0.46)
Per share of Reading common stock:
Book value:
Historical (1)(3)............ $ 1.46 $(0.57)
Pro forma equivalent (4)..... $ 4.01 $ 3.73
Net (loss):
Historical................... $ (2.67) $(1.11)
Pro forma equivalent (4)..... $ (1.05) $(0.49)
Per pro forma share of Citadel
common stock:
Book value (5):
Historical (1)............... $ 2.76 $ 2.55
Pro forma.................... $ 3.21 $ 2.99
Net (loss):
Historical (1)............... $ (0.47) $(0.32)
Pro forma.................... $ (0.84) $(0.39)
25
--------
(1)Historical book value per share is computed by dividing stockholders'
equity, less goodwill and other intangible assets, by the number of shares
of Craig common stock and common preference stock or Reading common stock,
as the case may be, outstanding at December 31, 2000 and September 30, 2001.
(2)The Craig pro forma equivalent per share amounts are calculated by
multiplying the Citadel pro forma book value and net loss per share amounts
by the conversion ratio of 1.17 shares of Citadel nonvoting common stock for
each share of Craig common stock for each share of common stock and common
preference stock.
(3)Net of the stated value of outstanding preferred stock of Reading, plus
accrued dividends.
(4)The Reading pro forma equivalent per share amounts are calculated by
multiplying Citadel pro forma book value and net loss per share amounts by
the conversion ratio of 1.25 shares of Citadel nonvoting common stock for
each share of Reading common stock.
(5)The pro forma book value per share is computed by dividing pro forma
stockholders' equity, less goodwill and other intangible assets, including
the effect of pro forma adjustments, by the pro forma number of shares of
Citadel nonvoting common stock and voting common stock which would have been
outstanding had the consolidation been completed as of December 31, 2000 or
September 30, 2001.
24
RISK FACTORS
The consolidation involves a high degree of risk. By voting in favor of the
issuance of Citadel shares to facilitate the consolidation, Citadel
stockholders will be agreeing to a change in the overall mix of Citadel's
assets and liabilities, which involves risks. By voting in favor of the
consolidation agreement, Craig and Reading stockholders will be choosing to
invest in Citadel nonvoting common stock, which also involves risks. In
addition to the other information contained in this joint proxy
statement/prospectus and the accompanying documents, you should carefully
consider the following risk factors in deciding whether to vote in favor of the
consolidation.
Risks Relating to the Consolidation
The consolidation will render the current stockholders of Citadel, Craig and
Reading subject to the risks and liabilities of all these companies.
The consolidation will, in effect, combine all of the assets and all of the
liabilities, including the potential contingent liabilities, of Citadel, Craig
and Reading. Accordingly, after the consolidation, your investment will be
subject to all of the various business risks of such current and contingent
liabilities. These include tax, litigation, currency and environmental risks,
as discussed in the annual and quarterly reports of Citadel, Craig and Reading
being furnished with this joint proxy statement/prospectus and in the sections
entitled "INFORMATION REGARDING CITADEL, CRAIG AND READING--Certain Litigation
Relating to this Consolidation" beginning at page .
The market value of Citadel nonvoting common stock after the consolidation
could be less than the market values of Citadel, Craig or Reading before the
consolidation.
Based on recent trading prices, shares of Craig common stock and common
preference stock and shares of Reading common stock have a greater market value
than the shares of Citadel nonvoting common stock to be received by Craig
stockholders and Reading stockholders in the consolidation.
You will receive a fixed number of shares of Citadel nonvoting common stock
despite any changes in the market values of Craig common stock and common
preference stock, Reading common stock or Citadel nonvoting common stock.
Upon completion of the consolidation, each share of Craig common stock and
common preference stock will be automatically converted into the right to
receive 1.17 shares of Citadel nonvoting common stock, and each share of
Reading common stock will be automatically converted into the right to receive
1.25 shares of Citadel nonvoting common stock. The boards of directors of the
companies have no discretion to unilaterally adjust these conversion ratios due
to changes in the market prices of Craig common stock or common preference
stock, Reading common stock or Citadel nonvoting common stock, or for other
reasons. In addition, neither Craig, Reading nor Citadel may terminate the
consolidation agreement, or "walk away" from the consolidation, solely because
of changes in the market price of the stock of one or more of the companies.
The market prices of Craig common stock and common preference stock, Reading
common stock and Citadel nonvoting common stock are by nature subject to the
general price fluctuations in the market for publicly traded equity securities,
and you should obtain recent market quotations. We cannot predict or give any
assurances as to the market price of Citadel nonvoting common stock before or
after the completion of the consolidation.
Craig and Reading Stockholders will receive Citadel nonvoting shares in the
Consolidation, so they will have no say in any Citadel matters submitted to its
stockholders.
The holders of Citadel nonvoting shares are not entitled to any voting
rights except in limited circumstances as required by Nevada law, so the former
Craig stockholders and Reading stockholders will have no right to vote
27
on matters submitted to the stockholders of Citadel following the
consolidation. At present, Craig common stockholders and common preference
stockholders and Reading common stockholders are entitled to vote with respect
to the election of directors and other Craig matters and Reading matters
submitted to the stockholders.
The Citadel stockholders' percentage ownership of the combined company will be
reduced substantially by reason of the issuance of Citadel nonvoting shares in
the consolidation.
Immediately after the consolidation, the current stockholders of Citadel
will hold approximately 31% of the outstanding common stock of the consolidated
company.
We may not achieve the expected benefits of the consolidation.
We anticipate saving at least $1 million in annual general and
administrative expenses as a result of the consolidation. We also expect to
incur direct transaction costs of more than $885,000 in connection with the
consolidation. There is no assurance, however, that the actual cost savings
will exceed the transaction costs, or that we will be able to achieve any of
the other expected benefits of the consolidation.
A Reading stockholder has sued the companies in connection with the
consolidation, and the consolidated company will incur costs of defending the
suit and possible other legal challenges.
A stockholder of Reading recently commenced a purported class-action lawsuit
in the Nevada State District Court for Clark County, Nevada, styled Harbor
Finance Partners vs. James J. Cotter, et al., alleging, among other things,
that the Reading conversion ratio is unfair to Reading's public stockholders.
The companies will incur costs of defending the lawsuit, which could be
substantial, and it is possible that other legal challenges to the
consolidation will be made. Neither Citadel nor Craig carry officers and
directors insurance, and the insurance maintained by Reading is subject to a
$125,000 deductible amount. To the extent the companies incur or become
obligated to indemnify their officers and directors for uninsured losses, the
results of operation of the consolidated companies will be adversely affected.
For further information about this lawsuit see the section below entitled,
"INFORMATION REGARDING CITADEL, CRAIG AND READING--Certain Litigation Relating
to the Consolidation" beginning at page .
Mr. James J. Cotter and other directors and executive officers of Citadel,
Craig and Reading have interests in the consolidation that are different from
yours. You should consider these interests in evaluating the consolidation and
the recommendations of the boards of directors of Citadel, Craig and Reading
that you approve the consolidation.
Mr. Cotter is a significant creditor of Citadel, and one of the effects of
the consolidation may be to enhance Citadel's ability to repay its obligations
to Mr. Cotter. Given the overlapping nature of Mr. Cotter's existing ownership
interests in Citadel, Craig and Reading, he has, in effect, already assumed the
risks of an investment in the combined companies. Accordingly, he may view the
attractiveness of the consolidation differently than stockholders who own
shares in only one or two of the companies.
As of October 31, 2001, executive officers and directors of Craig, including
Mr. Cotter, held options to purchase a total of 664,940 shares of Craig common
stock and 65,000 shares of Craig common preference stock and executive officers
and directors of Reading, including Mr. Cotter, held options to purchase a
total of 790,232 shares of Reading common stock. Under the terms of the
consolidation agreement, these options will be assumed by Citadel and become
options to purchase the equivalent number (based on the same conversion ratios
used in the consolidation for Craig common stock and common preference stock
and for Reading common stock) of shares of either Citadel voting common stock
or nonvoting common stock at each option holder's election.
Mr. Cotter currently holds options to purchase 635,232 shares of Reading
common stock and 594,940 shares of Craig common stock. If Mr. Cotter elects to
receive options to purchase Citadel voting common stock in the consolidation,
he would, immediately following the consolidation, hold options to purchase
1,490,120 shares of
28
Citadel voting common stock, or 52.7% of the Citadel voting common stock that
would be outstanding assuming his options were exercised in full, at the
weighted-average exercise price of $8.03 per share.
Under the consolidation agreement, Citadel has agreed to assume Craig's and
Reading's obligations under the indemnification agreements between Craig and
Reading and their respective directors and officers and to assume Craig's and
Reading's obligations under employment agreements and retirement, deferred
compensation and benefit plans in effect with Mr. Cotter and some of the other
executive officers of Craig and Reading.
Risks Relating to the Consolidated Company's Business
The consolidated company has only limited experience in the cinema, live
theatre and real estate development business. Furthermore, its real estate
activities will be largely developmental in nature.
Although the consolidated company's executives will include a number of
individuals with extensive experience in the cinema exhibition, live theater
and real estate businesses, the consolidated company, itself, will be a
relatively new entrant into these businesses. Reading has been in the cinema
exhibition business only since 1994, and has only been involved in Australia
and New Zealand since 1995 and 1997, respectively. Citadel has only been
involved in the cinema exhibition and live theater businesses since 2000. Craig
and Citadel have no experience in real estate development, and while Reading
has in its past developed commercial properties, it did not begin construction
of its first entertainment center until 1999. The consolidated company will
face competition in these markets from competitors with significantly greater
experience and financial and management resources.
Investments in the cinema exhibition, live theater and real estate businesses
each involve special risks.
In the cinema exhibition business, the principal risks include the
availability and popularity of film product, the ability to obtain such film
product on reasonable terms and potentially ruinous competition from the
overbuilding of cinema markets. In recent years, the cinema exhibition industry
has suffered greatly from increased costs of film and the overbuilding of
markets. In the live theater business, the principal risks include the
availability and popularity of plays, the rising costs of production and
competition from other entertainment sources. Both the cinema and live theater
industries are exposed to uncertainty as to the ultimate impact of government
regulation, such as the Americans with Disabilities Act, on their businesses.
In the real estate business, the risks include leasing risk and market risks
related to the general demand for space in the markets in which the
consolidated company will own assets.
Furthermore, a significant portion of initial assets of the consolidated
company will be invested in undeveloped land in Australia. This land was
originally purchased by Reading as possible entertainment center locations and
does not currently provided any meaningful cash flow. Accordingly, the
consolidated company will be exposed to the risks inherent in the ownership and
development of raw land. These risks include the risks of obtaining necessary
permits and entitlements, the risks of construction and, thereafter, the risks
of sale or lease-up and operation. Given the anticipated liquidity of the
consolidated company, it may be necessary for the consolidated company to incur
additional indebtedness, bring on partners or sell assets in order to develop
these properties. Alternatively, the consolidated company may find it necessary
to either defer development of one or more of these properties or to sell these
non-cash flowing assets.
Citadel, Craig and Reading have historically experienced substantial
fluctuations in operating results, on a quarterly and an annual basis. These
fluctuations will likely continue for the consolidated company in the future,
and may be amplified by the consolidation. Operating results for the
consolidated company will be affected by a number of factors, including, but
not limited to:
. Delays in entering into leases or obtaining permits for new multiplex
cinemas.
. Delays and other risks in the construction of the new cinemas.
27
. The time and availability of new film releases and level of acceptance by
movie goers.
. The timing of sales of properties.
. The timing of investments.
. Delays in connection with the development and leasing of its commercial
real estate.
. The opening of competing cinemas.
. The availability of plays for our theaters and level of acceptance by
theater goers.
The consolidated company's operating results also will be affected by
seasonal trends and by general conditions in the film exhibition and real
estate markets. The third and fourth quarters generally have higher net sales
levels due to new film releases during the holiday season. Because both
Citadel's and Reading's businesses and operating results have depended to a
significant extent on the general conditions in the film exhibition market, any
adverse change in that market could have a material adverse effect on the
consolidated company's business, financial condition and results of operations.
Citadel also has experienced, and the consolidated company may experience, some
degree of seasonality due to fluctuations in the market for fruit produced by
the agriculture partnerships in which Citadel has an interest.
We believe that quarter-to-quarter comparisons of the historical financial
results of Citadel, Craig and Reading are not necessarily meaningful indicators
of the consolidated company's future operating results, and you should not rely
on them as an indication of the consolidated company's future performance. If
the consolidated company's quarterly operating results fail to meet the
expectations of equity research analysts, the market prices of the Citadel
nonvoting common stock and voting common stock could be adversely affected.
Fluctuations in the value of foreign currencies could result in currency
conversion losses.
The bulk of our consolidated operations and assets will, immediately after
the consolidation, be located in Australia and New Zealand. Our business plan
for the consolidated company will be, at least initially, to use the resources
of the consolidated company principally to advance opportunities in Australia
and New Zealand. Accordingly, while the consolidated company's operating
results will be denominated in U.S. Dollars and while a significant portion of
the consolidated company's general and administrative expense and cost of
borrowing will be U.S.-based and paid in U.S. Dollars, the consolidated
company's operating revenues are likely to be denominated principally in
Australian Dollars and New Zealand Dollars. This means that the consolidated
company will be exposed to currency risk in the event that the Australian
Dollar and the New Zealand Dollar should continue their slide against the U.S.
Dollar. No assurances can be given as to the future relative strength of the
Australian Dollar, the New Zealand Dollar and the U.S. Dollar. We do not
currently contemplate using any hedging programs to protect against risks
associated with foreign currency fluctuations.
The anticipated focus of the consolidated company on foreign operations poses
special risks.
Most of the consolidated operations of Craig and Reading are located abroad.
There are special risks attendant to doing business in foreign countries. For
example, the acquisition of real property in Australia by Reading is subject to
the review and approval of that country's Foreign Investment Review Board,
which may impose restrictions or conditions on the acquisition of real property
by foreign corporations. Also, the distance and time differences between Los
Angeles, the location of the executive offices of each of the three companies,
and Reading's operations in Australia and New Zealand impose special challenges.
Furthermore, Reading is, and the consolidated company will be, a relatively
new competitor in the Australian and New Zealand markets for cinema exhibition
and real estate development. In these markets, Reading is, and the consolidated
company will be, faced with substantial competition from more established
companies owned and operated in those local markets, which have significantly
greater financial assets than Reading and the consolidated company.
28
The consolidated company will have concentrated ownership and control.
At the present time, James J. Cotter beneficially owns a majority of the
outstanding voting power of Craig. Craig, in turn, holds a majority of the
voting power of Reading. Mr. Cotter, together with Craig and Reading, owns
approximately 49% of the voting power of Citadel. Although immediately
following the consolidation Mr. Cotter will control only slightly less than 25%
of the voting power of Citadel, his long-time partner, Mr. Michael Forman, also
will own slightly less than 25% of Citadel's voting power. Accordingly, these
two individuals, assuming they were to act in concert regarding the
consolidated company's matters, will effectively be in control of the
consolidated company. Also, since there will only be approximately 1,330,000
shares of Citadel voting common stock outstanding immediately after the
consolidation, Mr. Cotter and Mr. Forman may be able, at a relatively modest
cost, to increase their holdings to a position of majority voting control.
Furthermore, Mr. Cotter currently holds options to purchase up to 635,232
shares of Reading common stock at the weighted-average exercise price of $13.30
per share and up to 594,940 shares of Craig common stock at the
weighted-average exercise price of $5.92 per share. If Mr. Cotter elects to
receive options to purchase Citadel voting common stock in the consolidation,
he would hold options to purchase up to 1,490,120 shares of Citadel voting
common stock, or 52.7% of the outstanding shares of Citadel voting common stock
assuming his stock options were exercised in full, at the weighted-average
exercise price of $8.03 per share. Taking into account his current stock
holdings, after exercise of his Citadel stock options Mr. Cotter would own
64.3% of the voting power of Citadel.
Mr. Cotter is also the Chairman and Chief Executive Officer of each of
Citadel, Craig and Reading, and it is currently anticipated that he will be the
Chairman and Chief Executive Officer of the consolidated company. Mr. Cotter
has advised us that he views his equity interest in each of the three companies
as a long-term family investment, and his daughters, Margaret Cotter and Ellen
Cotter, currently are actively involved as directors and officers or
consultants of the three companies and their affiliates. It is anticipated that
these relationships will continue after the consolidation. The interests of Mr.
Cotter and his family may differ from the interests of public stockholders.
The nonvoting common stock will likely be subject to price and volume
fluctuations which may prevent stockholders from reselling their shares at or
above the price at which they purchased their shares.
Fluctuations in the price and trading volume of Citadel's nonvoting common
stock may prevent stockholders from reselling their shares above the price at
which they purchased their shares. Stock prices and trading volumes for many
companies fluctuate widely for a number of reasons, including some reasons
which may be unrelated to their businesses or results of operations. This
market volatility, as well as general domestic or international economic,
market and political conditions, could materially adversely affect the market
price of Citadel's nonvoting common stock without regard to operating
performance. In addition, operating results may be below the expectations of
public market analysts and investors. If this were to occur, the market price
of Citadel's nonvoting common stock would likely significantly decrease.
The price of Citadel nonvoting common stock may also be adversely affected
by the sale of such stock by Messrs. Cotter and Forman, who own a significant
portion of such stock. Although neither Messrs. Cotter nor Forman has indicated
any present intention to reduce his investment in the consolidated company, due
to their holdings of Citadel voting common stock, they have the ability to
reduce their economic interest in the consolidated company without at the same
time reducing their voting interests in the consolidated company. Messrs.
Cotter and Forman, following the consolidation, will own 4,205,378 and
1,311,233 shares, respectively, of Citadel nonvoting common stock. In addition,
their affiliate, Hecco Ventures, will own an additional 1,565,783 shares.
Collectively, these holdings will represent approximately 35% of the
outstanding Citadel nonvoting common stock immediately following the
consolidation.
31
THE CITADEL ANNUAL MEETING
This joint proxy statement/prospectus is being furnished to you in
connection with the solicitation of Citadel proxies by Citadel's board of
directors for use at the annual meeting of stockholders of Citadel and at any
adjournment or postponement thereof.
Date, Time and Place of Citadel's Annual Meeting
The Citadel annual meeting will be held jointly with special meetings of the
Craig stockholders and the Reading stockholders. The date, time and place of
the joint meetings are as follows:
December 26, 2001
10:00 a.m., Pacific time
, California
Purpose of the Annual Meeting
The annual meeting of stockholders of Citadel is being held for the
following purposes:
. To consider and vote upon the proposal to approve the issuance of up to
16,936,252 shares of Citadel common stock pursuant to the consolidation
agreement among Citadel, Craig and Reading, dated as of August 17, 2001,
under which Craig and Reading will each merge with a separate subsidiary
of Citadel and will each become a wholly owned subsidiary of Citadel,
including up to 1,841,820 shares of Citadel nonvoting common stock or
voting common stock issuable upon the exercise of Craig and Reading stock
options to be assumed by Citadel.
. To consider and vote upon a proposal to amend Citadel's 1999 stock option
plan to increase the number of shares of Citadel common stock reserved for
issuance under the plan from 660,000 to 1,350,000 upon completion of the
consolidation.
. To consider and vote upon a proposal to adopt an amendment to the articles
of incorporation of Citadel to change the name of the company from Citadel
Holding Corporation to "Reading International, Inc." upon completion of
the consolidation.
. To consider and vote upon a proposal to ratify and approve the form of
indemnification agreement between Citadel and its directors and officers.
. To elect five individuals to serve on Citadel's board of directors until
the next annual meeting of stockholders.
. To conduct such other business as may properly come before the annual
meeting.
The Citadel board does not expect any other business to come before the
annual meeting.
The consolidation agreement is included as ANNEX A to this joint proxy
statement/prospectus. The amendment to Citadel's stock option plan is attached
as ANNEX C to this joint proxy statement/prospectus and the amendment to
Citadel's articles of incorporation is attached as ANNEX D to this joint proxy
statement/prospectus. The form of Citadel indemnification agreement is attached
as ANNEX E to this joint proxy statement/prospectus.
Record Date and Outstanding Shares
Citadel's board of directors has fixed the close of business on November 19,
2001, as the record date for the annual meeting. Only holders of record of
Citadel voting common stock at the close of business on the record
30
date are entitled to notice of and to vote at the meeting. As of the close of
business on November 19, 2001, there were 1,989,585 shares of Citadel voting
common stock outstanding and entitled to vote, held of record by approximately
183 stockholders, although Citadel has been informed that there are in excess
of 1,800 beneficial owners.
Vote and Quorum Required
Holders of Citadel voting common stock are entitled to one vote for each
share held as of the record date. Approval of the proposals to approve the
issuance of Citadel shares in connection with the consolidation, to amend
Citadel's stock option plan and to ratify and approve the form of Citadel
indemnification agreement, each requires the affirmative vote of a majority of
the outstanding Citadel voting common stock represented and voted at the
Citadel annual meeting. The adoption of the amendment to Citadel's articles of
incorporation to change the name of Citadel requires the affirmative vote of
the holders of a majority of the outstanding shares of Citadel voting common
stock. In the election of directors, the directors receiving a plurality of the
votes cast at the annual meeting will be elected. Attendance at the meeting in
person or by proxy of a majority of the outstanding shares of Citadel voting
common stock is required for a quorum.
James J. Cotter, the Chairman and Chief Executive Officer of Citadel,
together with Craig and Reading, owns approximately 49% of the outstanding
shares of Citadel voting common stock. Under the consolidation agreement, Mr.
Cotter, Craig and Reading are obligated under the consolidation agreement to
vote their shares in favor of the issuance of Citadel shares in connection with
the consolidation and related matters. As a result, they are expected to
determine the outcome of the vote on these matters at the annual meeting.
Abstentions; Broker Non-Votes
Abstentions will be included in determining the number of shares present at
the annual meeting for the purpose of determining the presence of a quorum for
the transaction of business, but will have no effect on the outcome of voting
on the proposals other than the proposal to adopt the amendment to Citadel's
articles of incorporation.
If a broker, bank, custodian, nominee or other record holder of Citadel
voting common stock indicates on a proxy that it does not have discretionary
authority to vote certain shares on a particular matter, which is called a
broker non-vote, those shares will not be considered for purposes of
determining the number of shares entitled to vote with respect to a particular
proposal on which the broker has expressly not voted. These shares will be
counted for purposes of determining the presence of a quorum, but will have no
effect on the outcome of voting on the proposals other than the proposal to
adopt the amendment to Citadel's articles of incorporation. As to the proposal
to adopt the amendment to Citadel's articles of incorporation, these broker
non-votes will have the same effect as a vote against adoption of the proposal.
Expenses of Proxy Solicitation
Citadel, Craig and Reading will share the expenses of soliciting proxies
from the stockholders of all three companies to be voted at the joint meetings
of Citadel, Craig and Reading. Following the original mailing of the proxies
and other soliciting materials, Citadel and its agents also may solicit proxies
by mail, telephone, facsimile or in person. Following the original mailing of
the proxies and other soliciting materials, Citadel will request brokers,
custodians, nominees and other record holders of Citadel voting common stock to
forward copies of the proxy and other soliciting materials to persons for whom
they hold shares of Citadel voting common stock and to request authority for
the exercise of proxies. In such cases, upon the request of the record holders,
Citadel will reimburse such holders for their reasonable expenses.
Proxies
The Citadel proxy accompanying this joint proxy statement/prospectus is
solicited on behalf of the Citadel board of directors for use at the annual
meeting and any adjournment or postponement thereof. Please complete,
31
date and sign the accompanying Citadel proxy and promptly return it in the
enclosed envelope or otherwise mail it to Citadel. All properly signed Citadel
proxies that Citadel receives prior to the vote at the annual meeting and that
are not revoked will be voted at the meeting according to the instructions
indicated on the proxies or, if no direction is indicated, will be voted FOR
approval of each of the matters to be voted on as described in this joint proxy
statement/prospectus, including the election as directors of the
director-nominees named in this joint proxy statement/prospectus. You may
revoke your Citadel proxy at any time before it is exercised at the annual
meeting by taking any of the following actions:
. Delivering a written notice to the secretary of Citadel by any means,
including facsimile, bearing a date later than the date of the proxy,
stating that the proxy is revoked.
. Signing and delivering a proxy relating to the same shares and bearing a
later date prior to the vote at the meeting.
. Attending the meeting and voting in person, although attendance at the
meeting will not, by itself, revoke a proxy. Please note, however, that if
your shares are held of record by a broker, bank or other nominee and you
wish to vote at the annual meeting, you must bring to the meeting a letter
from the broker, bank or other nominee confirming your beneficial
ownership of the shares.
Citadel's board of directors does not know of any matter that is not
referred to in this joint proxy statement/prospectus to be presented for action
at the annual meeting. If any other matters are properly brought before the
meeting, the persons named in the proxies will have discretion to vote on such
matters in accordance with their best judgment.
No Dissenters' or Appraisal Rights
Under Nevada law, Citadel stockholders have no dissenters' or appraisal
rights in connection with the issuance of Citadel nonvoting common stock
pursuant to the consolidation agreement.
Recommendation of the Citadel Board of Directors
The conflicts committee of the Citadel board of directors, consisting
entirely of independent directors, unanimously recommended that the board
authorize and approve the issuance of Citadel nonvoting common stock in the
consolidation. After careful consideration, the board of directors of Citadel
unanimously approved the issuance of Citadel shares and determined that the
terms of the consolidation agreement and the consolidation are fair to and in
the best interests of Citadel and the public stockholders of Citadel.
Accordingly, the Citadel board of directors recommends that Citadel
stockholders vote in favor of the proposal to approve the issuance of Citadel
nonvoting common stock in the consolidation.
TO ASSURE THAT YOUR CITADEL VOTING SHARES ARE REPRESENTED AT THE JOINT
MEETINGS, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED CITADEL PROXY AND MAIL IT
PROMPTLY IN THE POSTAGE-PAID ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO
ATTEND THE JOINT MEETINGS. YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS
VOTED. RETURNING YOUR PROXY DOES NOT PREVENT YOU FROM ATTENDING THE JOINT
MEETINGS AND VOTING YOUR CITADEL VOTING SHARES IN PERSON. IF YOUR SHARES ARE
HELD IN AN ACCOUNT AT A BROKERAGE FIRM OR BANK, YOU MUST INSTRUCT THEM HOW TO
VOTE YOUR SHARES.
34
THE CRAIG SPECIAL MEETING
This joint proxy statement/prospectus is being furnished to you in
connection with the solicitation of Craig proxies by Craig's board of directors
for use at the special meeting of Craig stockholders called in connection with
the proposed consolidation of Craig and Reading with Citadel, and at any
adjournment or postponement thereof.
Date, Time and Place of Craig's Special Meeting
The Craig special meeting will be held jointly with the annual meeting of
stockholders of Citadel and special meeting of stockholders of Reading. The
date, time and place of the joint meetings are as follows:
December 26, 2001
10:00 a.m., Pacific time
, California
Purpose of the Special Meeting
The special meeting of Craig stockholders is being held for the sole purpose
of considering and voting upon the proposal to approve the consolidation
agreement, dated as of August 17, 2001, among Craig, Citadel and Reading, under
which Craig will merge with a wholly owned subsidiary of Citadel. Under Craig's
bylaws, no matter that is not referred to in this joint proxy
statement/prospectus can be presented for action at the special meeting.
The consolidation agreement is included as ANNEX A to this joint proxy
statement/prospectus. If the consolidation agreement is approved, among other
things, upon completion of the consolidation each outstanding share of Craig
common stock and common preference stock will be automatically converted into
the right to receive 1.17 shares of Citadel nonvoting common stock. By voting
to approve the consolidation agreement, Craig stockholders also will be deemed
to have approved of the disposition of Craig shares in the consolidation by
directors, executive officers and beneficial owners of 10% or more of Craig's
outstanding shares for purposes of affording these persons an exemption from
the operation of Section 16 under the Securities Exchange Act of 1934.
Record Date and Outstanding Shares
Craig's board of directors has fixed the close of business on November 19,
2001, as the record date for the special meeting. Only holders of record of
Craig common stock and common preference stock at the close of business on the
record date are entitled to notice of and to vote at the meeting. As of the
close of business on November 19, 2001, there were 3,402,808 shares of Craig
common stock and 7,058,408 shares of common preference stock outstanding and
entitled to vote, held of record by approximately 665 stockholders and 465
stockholders, respectively.
Vote and Quorum Required
Holders of Craig's common stock are entitled to 30 votes and holders of
Craig common preference stock are entitled to one vote for each share held as
of the record date. Approval of the proposal to approve the consolidation
agreement requires the affirmative vote of the holders of a majority of the
total voting power of the outstanding common stock and common preference stock
of Craig, voting as a single class. Attendance at the meeting in person or by
proxy of a majority of the outstanding voting power of Craig is required for a
quorum.
James J. Cotter, the Chairman of the Board and Chief Executive Officer of
Craig, owns or is entitled to vote shares of Craig common stock and common
preference stock representing a majority of the total voting power of the
outstanding common stock and common preference stock of Craig. Under the
consolidation agreement,
33
Mr. Cotter is obligated to vote these shares in favor of the consolidation
agreement and the Craig merger, so the proposal is expected to be approved at
the special meeting without regard to the vote of the other stockholders. As
discussed elsewhere in this joint proxy statement/prospectus, the stockholders
of Citadel and of Reading also are expected to approve the consolidation
agreement and related proposals at the joint meetings.
Abstentions; Broker Non-Votes
Abstentions will be included in determining the number of shares present and
voting at the meeting for the purpose of determining the presence of a quorum
for the transaction of business and will have the same effect as votes against
the proposal to approve the consolidation agreement. If a broker, bank,
custodian, nominee or other record holder of Craig common stock or common
preference stock indicates on a proxy that it does not have discretionary
authority to vote certain shares on the proposal, which is called a broker
non-vote, those shares also will be counted for purposes of determining the
presence of a quorum and will have the same effect as a vote against the
proposal to approve the consolidation agreement.
Expenses of Proxy Solicitation
Craig, Citadel and Reading will share the expenses of soliciting proxies
from the stockholders of all three companies to be voted at the joint meetings
of Citadel, Craig and Reading. Following the original mailing of the proxies
and other soliciting materials, Craig and its agents also may solicit proxies
by mail, telephone, facsimile or in person. Following the original mailing of
the proxies and other soliciting materials, Craig will request brokers,
custodians, nominees and other record holders of Craig common stock and common
preference stock to forward copies of the proxy and other soliciting materials
to persons for whom they hold shares of Craig common stock or common preference
stock and to request authority for the exercise of proxies. In such cases, upon
the request of the record holders, Craig will reimburse such holders for their
reasonable expenses.
Proxies
The Craig proxy accompanying this joint proxy statement/prospectus is
solicited on behalf of the Craig board of directors for use at the special
meeting and any postponement or adjournment thereof. Please complete, date and
sign the accompanying Craig proxy and promptly return it in the enclosed
envelope or otherwise mail it to Craig. All properly signed Craig proxies that
Craig receives prior to the vote at the meeting and that are not revoked will
be voted at the meeting according to the instructions indicated on the proxies
or, if no direction is indicated, will be voted FOR approval of the
consolidation agreement. You may revoke your proxy at any time before it is
exercised at the meeting by taking any of the following actions:
. Delivering a written notice to the secretary of Craig by any means,
including facsimile, bearing a date later than the date of the proxy,
stating that the proxy is revoked.
. Signing and delivering a proxy relating to the same shares and bearing a
later date prior to the vote at the meeting.
. Attending the meeting and voting in person, although attendance at the
meeting will not, by itself, revoke a proxy. Please note, however, that if
your shares are held of record by a broker, bank or other nominee and you
wish to vote at the meeting, you must bring to the meeting a letter from
the broker, bank or other nominee confirming your beneficial ownership of
the shares.
You should not send in any stock certificates with your Craig proxy. A
transmittal form with instructions for the surrender of stock certificates for
shares of Citadel will be mailed to you as soon as practicable after completion
of the consolidation.
No Dissenters' Rights
Under Nevada law, there are no dissenters' or appraisal rights in connection
with the consolidation or the Craig merger.
34
Recommendation of Craig's Board of Directors
The conflicts committee of the Craig board of directors, consisting entirely
of independent directors, unanimously recommended that the board authorize and
approve the consolidation agreement. The board of directors of Craig
unanimously determined that the terms of the consolidation agreement and the
consolidation are fair to and in the best interests of Craig and the public
stockholders of Craig. Accordingly, the Craig board of directors recommends
that Craig stockholders vote FOR the proposal to approve the consolidation
agreement.
TO ASSURE THAT YOUR CRAIG SHARES ARE REPRESENTED AT THE JOINT MEETINGS,
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED CRAIG PROXY AND MAIL IT PROMPTLY IN
THE POSTAGE-PAID ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE JOINT
MEETINGS. YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED. RETURNING
YOUR PROXY DOES NOT PREVENT YOU FROM ATTENDING THE JOINT MEETINGS AND VOTING
YOUR CRAIG SHARES IN PERSON. IF YOUR SHARES ARE HELD IN AN ACCOUNT AT A
BROKERAGE FIRM OR BANK, YOU MUST INSTRUCT THEM HOW TO VOTE YOUR SHARES.
IF YOU DO NOT VOTE OR DO NOT INSTRUCT YOUR BROKER OR BANK HOW TO VOTE, IT
WILL HAVE THE SAME EFFECT AS VOTING AGAINST APPROVAL OF THE CONSOLIDATION.
THE READING SPECIAL MEETING
This joint proxy statement/prospectus is being furnished to you in
connection with the solicitation of proxies by Reading's board of directors for
use at the special meeting of Reading stockholders called in connection with
the proposed consolidation of Reading and Craig with Citadel, and at any
postponement or adjournment thereof.
Date, Time and Place of Reading's Special Meeting
The Reading special meeting will be held jointly with the annual meeting of
stockholders of Citadel and special meeting of stockholders of Craig. The date,
time and place of the joint meetings are as follows:
December 26, 2001
10:00 a.m., Pacific time
, California
Purpose of the Special Meeting
The special meeting of Reading stockholders is being held for the sole
purpose of considering and voting upon the proposal to approve the
consolidation agreement, dated as of August 17, 2001, among Reading, Citadel
and Craig, under which Reading will merge with a wholly owned subsidiary of
Citadel. Under Reading's bylaws, no matter that is not referred to in this
joint proxy statement/prospectus can be presented for action at the special
meeting.
The consolidation agreement is included as ANNEX A to this joint proxy
statement/prospectus. If the consolidation agreement is approved, among other
things, upon completion of the consolidation each outstanding share of Reading
common stock will be automatically converted into the right to receive 1.25
shares of Citadel nonvoting common stock. By approving the consolidation
agreement, Reading common stockholders also will be deemed to have approved a
change in Reading's name to "Reading Holdings, Inc." By voting to approve the
consolidation agreement, Reading stockholders also will be deemed to have
approved of the disposition of
35
Reading shares in the consolidation by directors, executive officers and
beneficial owners of 10% or more of Reading's outstanding shares for purposes
of affording these persons an exemption from the operation of Section 16 under
the Securities Exchange Act of 1934.
Record Date and Outstanding Shares
Reading's board of directors has fixed the close of business on November 19,
2001, as the record date for the special meeting. Only holders of record of
Reading common stock and preferred stock at the close of business on the record
date are entitled to notice of and to vote at the meeting. As of the close of
business on November 19, 2001, there were 7,449,364 shares of Reading common
stock outstanding and entitled to vote, held of record by approximately 556
stockholders, although Reading has been informed that there are in excess of
900 beneficial owners. As of the close of business on September 21, 2001, there
were 70,000 shares of Series A Preferred Stock and 550,000 shares of Series B
Preferred Stock outstanding, which shares were held by Citadel and Craig,
respectively.
Vote and Quorum Required
Holders of Reading common stock are entitled to one vote for each share held
as of the record date. Holders of Reading preferred stock are entitled to 9.64
votes per share. Approval of the proposal to approve the consolidation
agreement requires the affirmative vote of the holders of a majority of the
total voting power of the outstanding common stock and preferred stock of
Reading, voting as a single class. Attendance at the meeting in person or by
proxy of a majority of the outstanding voting power of Reading common stock and
preferred stock is required for a quorum.
Craig owns a majority of the total voting power of the outstanding Reading
common stock and preferred stock. Under the consolidation agreement, Craig is
obligated to vote these shares in favor of the consolidation agreement, so the
proposal is expected to be approved at the special meeting without regard to
the vote of the other stockholders. As discussed elsewhere in this joint proxy
statement/prospectus, the stockholders of Citadel and of Craig also are
expected to approve the consolidation agreement and related matters at the
joint meetings.
Abstentions; Broker Non-Votes
Abstentions will be included in determining the number of shares present and
voting at the meeting for the purpose of determining the presence of a quorum
for the transaction of business and will have the same effect as votes against
the proposal to approve the consolidation agreement. If a broker, bank,
custodian, nominee or other record holder of Reading common stock indicates on
a proxy that it does not have discretionary authority to vote certain shares on
the proposal, which is called a broker non-vote, those shares also will be
counted for purposes of determining the presence of a quorum and will have the
same effect as a vote against the proposal to approve the consolidation
agreement.
Expenses of Proxy Solicitation
Reading, Citadel and Craig will share the expenses of soliciting proxies
from the stockholders of all three companies to be voted at the joint meetings
of Citadel, Craig and Reading. Following the original mailing of the proxies
and other soliciting materials, Reading and its agents also may solicit proxies
by mail, telephone, facsimile or in person. Following the original mailing of
the proxies and other soliciting materials, Reading will request brokers,
custodians, nominees and other record holders of Reading common stock to
forward copies of the proxy and other soliciting materials to persons for whom
they hold shares of Reading common stock and to request authority for the
exercise of proxies. In such cases, upon the request of the record holders,
Reading will reimburse such holders for their reasonable expenses.
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Proxies
The Reading proxy accompanying this joint proxy statement/prospectus is
solicited on behalf of the Reading board of directors for use at the special
meeting and at any adjournment or postponement thereof. Please complete, date
and sign the accompanying Reading proxy and promptly return it in the enclosed
envelope or otherwise mail it to Reading. All properly signed Reading proxies
that Reading receives prior to the vote at the meeting and that are not revoked
will be voted at the meeting according to the instructions indicated on the
proxies or, if no direction is indicated, will be voted FOR approval of the
consolidation agreement. You may revoke your proxy at any time before it is
exercised at the meeting by taking any of the following actions:
. Delivering a written notice to the secretary of Reading by any means,
including facsimile, bearing a date later than the date of the proxy,
stating that the proxy is revoked.
. Signing and delivering a proxy relating to the same shares and bearing a
later date prior to the vote at the meeting.
. Attending the meeting and voting in person, although attendance at the
meeting will not, by itself, revoke a proxy. Please note, however, that if
your shares are held of record by a broker, bank or other nominee and you
wish to vote at the meeting, you must bring to the meeting a letter from
the broker, bank or other nominee confirming your beneficial ownership of
the shares.
You should not send in any stock certificates with your Reading proxy. A
transmittal form with instructions for the surrender of stock certificates for
shares of Citadel will be mailed to you as soon as practicable after completion
of the consolidation.
No Dissenters' Rights
Under Nevada law, there are no dissenters' or appraisal rights in connection
with the consolidation or the Reading merger.
Recommendation of Reading's Board of Directors
The conflicts committee of the Reading board of directors, consisting of an
independent director, recommended that the board approve the conversion ratio
of 1.25 shares of Citadel nonvoting common stock for each share of Reading
common stock provided for in the consolidation agreement. The board of
directors of Reading unanimously determined that the conversion ratio and other
terms of the consolidation agreement and the consolidation are fair to and in
the best interests of Reading and the public stockholders of Reading.
Accordingly, the Reading board of directors recommends that Reading
stockholders vote FOR the proposal to approve the consolidation agreement.
TO ASSURE THAT YOUR READING SHARES ARE REPRESENTED AT THE JOINT MEETINGS,
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED READING PROXY AND MAIL IT PROMPTLY
IN THE POSTAGE-PAID ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE
JOINT MEETINGS. YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED.
RETURNING YOUR PROXY DOES NOT PREVENT YOU FROM ATTENDING THE JOINT MEETINGS AND
VOTING YOUR READING SHARES IN PERSON. IF YOUR SHARES ARE HELD IN AN ACCOUNT AT
A BROKERAGE FIRM OR BANK, YOU MUST INSTRUCT THEM HOW TO VOTE YOUR READING
SHARES.
IF YOU DO NOT VOTE OR DO NOT INSTRUCT YOUR BROKER OR BANK HOW TO VOTE, IT
WILL HAVE THE SAME EFFECT AS VOTING AGAINST APPROVAL OF THE CONSOLIDATION.
37
SPECIAL FACTORS
Corporate Organization
The following illustrations, which reflect the corporate organization of
Citadel, Craig and Reading before and after the consolidation, may be helpful
to your understanding of the consolidation:
[FLOW CHART]
BEFORE CONSOLIDATION
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[FLOW CHART]
AFTER CONSOLIDATION
Background of the Consolidation
Citadel, Craig and Reading have substantially overlapping management and
ownership. While the three companies operate essentially as a group of related
companies, they are separate and distinct companies and, as such, have separate
SEC reporting obligations, file separate tax returns with the IRS, and have
their own boards of directors, including one or more independent directors. We
have attempted to operate efficiently given this three-company structure, by
among other things, consolidating the general and administrative functions of
the three companies at the Craig level and in common offices located in Los
Angeles. However, the three-company structure necessarily results in certain
inefficiencies and increased costs. In our view, among the detriments of the
current structure are the following:
. The need for and cost of three separate outside audits.
. The need for and cost of filing separate SEC reports and separate tax
returns for each of the three companies.
. The need for and cost of maintaining three separate boards of directors,
each with at least one or more separate independent directors, and of
holding separate board meetings and annual stockholder meetings for each
of the three companies.
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. Inefficiencies resulting from the need to maintain separate books and
records for three public companies, and to institute and maintain
procedural safeguards to protect the interests of the separate minority
interests in each of the three companies.
. The limited number of shares in the hands of the public and available for
trading and resulting illiquidity of the common equity of the three
companies, when compared to the enhanced liquidity that should exist if
substantially all of the common equity of the three companies were traded
as a single common security.
. Difficulties in explaining to the capital markets the companies' business
plan and story on a company-by-company basis, as opposed to a consolidated
basis, and the interrelations between the ownership, businesses and
management of the three companies.
. The difficulties of matching the available assets with the available
opportunities of the three companies on a company-by-company basis, as
opposed to a consolidated basis.
No doubt recognizing these difficulties in operating in a three-company
structure, our stockholders increasingly have expressed the view that it would
be in the best interests of the three companies and their respective
stockholders to combine the companies into a single public company. Also, as
the stock prices of the Craig common stock, Craig common preference stock and
Reading common stock began to decline, there was a substantial risk that one or
more of the companies' securities would be delisted from trading on the stock
exchanges on which they trade.
Beginning last year, we began a comprehensive consideration of various means
to combine the assets and operations of two or more of the three companies into
one publicly traded company. We considered a variety of transaction structures,
but focused primarily on the following:
. A merger of equals consolidation, in which all of the current holders of
the common equity of the three companies would end up owning common stock
of a single publicly traded parent company.
. A merger of equals transaction limited to only two of the three companies
and which would result in two, rather than the current three, public
companies.
. The purchase of the minority interests in one or more of the companies for
cash, for notes, for preferred stock, and/or for some combination of cash,
notes and/or preferred stock.
. The merger or combination of one or more of the companies with another
public company--National Auto Credit, Inc.
In developing the proposed consolidation, we considered the benefits and
detriments to public stockholders of the various possible transactions. We
considered, principally, the following factors:
. The benefits of the cost savings that were likely to result from a
consolidation;
. The benefits of the freeing up of management time that would likely result
from the consolidation, due to the elimination of the need to consider
conflict of interest factors if all of the stockholders were the
stockholders of the same parent company;
. The benefits of having a principal class of common equity, offering
potentially greater liquidity than the five separate classes of publicly
traded equity of Citadel, Craig and Reading;
. The benefits of being able to combine Citadel's asset base with the
opportunities for expansion in Australia and New Zealand which we believe
to be available to Reading, but which would not be available to Citadel if
it were to attempt to enter these markets independently of Reading;
. The benefits of having a corporate structure that is easier for the
capital markets to understand than the complex current structure of the
three companies with their overlapping management and ownership;
. The benefits of potentially being able to marry taxable income from
Citadel with deferred tax benefits from Reading;
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. The detriments of exposing Citadel to the contingent and potential
liabilities of Reading and Craig, such as exposure to potential business,
tax and environmental risks of Craig and Reading of increasing the
exposure of Reading and Craig stockholders to the risk of an investment in
Citadel and of exposing Citadel stockholders and Reading stockholders to
an investment in Craig;
. The detriments to the Craig and Reading stockholders of exchanging a
voting common stock for a nonvoting common stock;
. The benefits to those stockholders continuing their investment in the
consolidated company of the use of leverage, either through the use of
debt or preferred stock, to purchase the minority interests in one or more
of the companies and the detriments and risks inherent in the taking on of
such leverage;
. The benefits to those stockholders who might be bought out, and who might
want to be bought out, and the detriments to those stockholders who might
be bought out, and who might not want to be bought out, and the fact that,
since the publicly held securities of the three companies are all
currently listed for trading on national securities exchanges, those
wishing to terminate their involvement with any one or more of the
companies could do so without the need for any "buy-out" transaction;
. The benefits, in terms of transaction costs, of structuring a transaction
which would not be treated as a "going private transaction" under Rule
13e-3 under the Securities Exchange Act of 1934 and, accordingly, would
not be subject to the special disclosure obligations relating to such
transactions;
. The benefits of having a taxable transaction, for those who were in a loss
position in their holdings of Craig and Reading stock, and the benefits of
having a tax-deferred transaction, for those who were in a profit position
in their holdings of Craig and Reading;
. The benefits of bringing new capital to Reading so that it can exploit
opportunities in Australia and New Zealand, and the detriments of the
dilution that would likely result from such capital-raising efforts;
. The benefits and detriment of structuring a transaction which could be
completed all at one time, through a combined meeting of stockholders, and
without triggering appraisal rights that could take needed cash resources
out of the consolidated company, as opposed to a two-step tender offer and
clean-up merger transaction;
. The benefits to current controlling stockholders of maintaining a
two-class stock structure, and the detriments to non-controlling
stockholders of the loss of voting rights, theoretical or otherwise;
. The benefit to the combined company and its stockholders of having a class
of nonvoting common stock that could be used potentially to acquire
income-producing assets or to raise capital without diluting the voting
control of the current controlling stockholders.
. The benefit to the holders of Craig common preference stock of receiving
pari passu treatment with the holders of Craig common stock (which has
historically sold at premium to the Craig common preference stock), and of
receiving a potentially more liquid security, as compared to the
detriments of giving up a $5.00 per share liquidation preference and the
benefits of the holders of Craig common stock of receiving a potentially
more liquid security and eliminating the potential overhang of the
liquidation preference of the Craig common preference stock, and the
detriment of pari passu treatment with the holders of Craig common
preference stock (which has historically sold at a discount to the Craig
common stock);
. The benefits of having a transaction structure that was satisfactory to
Mr. Cotter, as the controlling stockholder of each of the three companies;
. The benefits and detriments to the public common stockholders of Reading
of receiving a security which would no longer be junior to the Reading
preferred stock and the detriments to the stockholders of Citadel of
losing the benefits of the liquidation preferences of Reading Series A
preferred stock and the detriments to the stockholders of Craig of losing
the liquidation preferences of Reading Series B preferred stock; and
. The fact that the board of directors of National Auto Credit determined to
invest a substantial portion of that company's liquidity in an unproven
start-up "dot.com" company and to support the chairman and chief executive
officer of that company, an individual who lacked our support and
confidence.
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In refining this analysis, we determined that we should focus on developing
a transaction which satisfied each of the following guidelines:
. No stockholder should be involuntarily cashed out.
. Given the capital and liquidity needs of the three companies, no leverage,
either in the form of debt or preferred stock, should be taken on to bring
about the transaction.
. All three companies should be combined under a single public company.
. The current control position of Mr. Cotter should not be adversely
affected, without his approval.
. All stockholders should, to the extent possible, receive the same form of
consideration in the transaction.
. The existing tax attributes and tax benefits of the three companies
should, to the extent possible, be preserved.
When reviewing these criteria against the various factors listed above,
management reached the conclusion that the transaction which best took into
account the interests of the three companies and their respective stockholders,
and which would have the support of the companies' controlling stockholder--Mr.
Cotter--was a merger of equals consolidation, in which all stockholders
received nonvoting common stock. Management determined that it could not
recommend:
. A transaction in which minority stockholders were bought out for cash,
since, in the view of management (a) the combined company would need to
preserve its cash assets, and (b) any such buy-out would be a going
private transaction and involuntarily deprive minority stockholders of the
opportunity to continue their investment in the consolidated company;
. A transaction in which minority stockholders were bought out for notes,
since, in the view of management (a) such notes would require debt service
and would be of questionable liquidity (depending upon whether or not such
notes could be listed, and whether the size of the issuance would be
sufficient to support an efficient market), and (b) any such buy-out would
be a going private transaction and involuntarily deprive minority
stockholders of the opportunity to continue their investment in the
consolidated company;
. A transaction in which minority stockholders were bought out for preferred
stock, since, in the view of management (a) such preferred stock would
likely require some minimum yield (taking cash away from the consolidated
company), would be a tax-inefficient form of financing (given that
dividends would ultimately be paid with after-tax dollars), and would be
of questionable liquidity (depending upon whether or not such preferred
stock could be listed, and whether the size of the issuance would be
sufficient to support an efficient market), and (b) any such buy-out would
be a going private transaction and would involuntarily deprive minority
stockholders of the opportunity to continue their investment in the
consolidated company;
. A transaction in which voting common stock was issued, since Mr.
Cotter--the controlling stockholder of the three companies--had advised
management that he would not support a transaction which increased the
amount of voting common stock outstanding in the hands of third parties;
. A transaction which would only combine two of the three companies and
which, accordingly, would not, in the view of management, accomplish the
goals of simplifying the management and capital structure of the three
companies or produce the magnitude of cost savings projected for a
consolidation of all three companies; or
. A transaction with National Auto Credit, in light of the determinations
made by the board of directors of that company with respect to the
executive leadership of that company and with respect to the adoption of a
dot.com business strategy, rather than a real estate or entertainment
oriented business strategy.
41
Thereafter, management studied the possible structures for such a
consolidation transaction and determined that the best structure would be for
Citadel to be the surviving company, primarily because:
. Citadel already had a publicly traded class of nonvoting common stock,
with a trading and price history;
. It was questionable whether Craig would be able to maintain its New York
Stock Exchange listing, even if it were the surviving company in the
consolidation, and that, in the view of management, it was better, given
the size and closely held nature of the company, to have a listed security
on the American Stock Exchange than a quoted security on The Nasdaq Stock
Market;
. The controlling stockholder of the three companies--Mr.Cotter--stated that
he was willing to have his voting interest in the surviving company
reduced from the majority voting interest he held at Craig and Reading,
and the 49% voting interest he held at Citadel, to an ongoing 24.5% voting
interest in Citadel, if nonvoting common stock was issued to all
stockholders of Craig and Reading in the consolidation and if he had the
option to elect to have his outstanding stock options converted into
options to acquire voting common stock; and
. The use of Citadel, with its relative small ratio of voting to nonvoting
shares, and the issuance exclusively of Citadel nonvoting shares in the
consolidation, would result in the creation of a significantly larger and,
presumably, more liquid class of nonvoting common stock, than if new
classes of nonvoting common stock were created at Craig or Reading and
used as the consideration for the consolidation.
At the meetings of the boards of directors of Citadel, Craig and Reading
held on March 15, 2001, we presented to the boards a proposal for a merger of
equals consolidation transaction, in which Craig and Reading would be merged
with subsidiaries of Citadel and in which all of the holders of the common
equity of Craig and Reading would receive the same form of
consideration--Citadel nonvoting common stock--in exchange for their Craig
common stock, Craig common preference stock and Reading common stock. We noted,
among other things, that such a consolidation would:
. Simplify the day-to-day administration of the three companies, thereby
reducing general and administrative expense.
. Remove, from the point of view of the public stockholders of the combined
company, the potential for conflicts-of-interest as between the three
companies and the need for board involvement in transactions which would,
but for the conflict-of-interest element, be immaterial or otherwise in
the ordinary course of business of the three companies.
. Result in a single combined company that should be easier to understand
from the point of view of outside investors.
. Bring together the capital and liquidity of Citadel and the opportunities
of Reading;
. Result in a publicly held security with a greater public float and,
presumably, greater liquidity than the various public securities of the
individual companies.
We estimated that the fully phased-in annual cost savings will be at least
$1 million. We also discussed with the directors the benefits that could
potentially be achieved by bringing together the combined capital resources and
the combined opportunities of the three companies together under a single
public entity, and the reasons for our recommendation of the merger of equals
approach and the Citadel nonvoting common stock structure.
Following discussion of the proposed transaction, the board of directors of
each of Citadel, Craig and Reading determined that such a merger of equals
transaction would be in the best interests of their respective companies and
stockholders, so long as the allocation of ownership of the combined company
among the stockholders of the three companies was fair. In light of the
overlapping management and membership of the boards of directors of the three
companies, each of the boards of directors delegated the proposal to their
respective conflicts committees for further review and action. The boards of
directors of Citadel and Craig each unanimously resolved that our proposal for
the consolidation of Citadel, Craig and Reading be delegated to their
45
respective conflicts committees to review and take such action as their
respective conflicts committees determined to be appropriate with respect to
the consolidation proposal and to make a recommendation to the full board of
directors as to an appropriate structure for and conversion ratios for the
transaction, and that their respective conflicts committees be authorized to
retain such professional advisors as they may, in their respective discretion,
require to carry out such delegated authority, including, without limitation,
the retention of attorneys, appraisers and financial advisors. The board of
directors of Reading unanimously resolved that our proposal for the
consolidation of Citadel, Craig and Reading be delegated to its conflicts
committee to review and take such action as it determined to be appropriate
with respect to the consolidation proposal and to make a recommendation to the
full board of directors as to an appropriate conversion ratio for the
transaction, and that the conflicts committee be authorized to retain such
professional advisors as it may, in its discretion, require to carry out such
delegated authority, including attorneys, appraisers and financial advisors.
We did not propose, and accordingly no consideration was given by the
directors of the three companies to, the possible sale of any one or more of
the companies, or a sale of all or substantially all of the assets of any one
or more of the companies, or of any other type transaction which would involve
a change of control of any of the companies. The consolidation transaction
proposed by us, and delegated to the conflicts committees for further review
and consideration, was a merger of equals in which all common stockholders of
Citadel, Craig and Reading would continue as stockholders of the consolidated
company and share in the benefits and synergies and the risks of such a
consolidation.
On March 20, 2001, the three companies filed a joint press release
disclosing the action of their respective boards of directors with respect to
our consolidation proposal. At the time of the delegation, the conflicts
committees were comprised of the following independent directors: for Craig,
Messrs. William D. Gould (Chairman) and Gerard P. Laheney; for Citadel, Messrs.
William Soady (Chairman) and Alfred Villasenor; and for Reading, Messrs.
Kenneth McCormick (Chairman) and John Hunter. Mr. Hunter subsequently resigned
from the Board of Directors of Reading and, consequently, from the Reading
conflicts committee due to his decision to accept a consulting position with a
competitor of Reading. Accordingly, the Reading conflicts committee proceeded
as a committee of one.
During the week following the delegation, the conflicts committees each
retained separate legal counsel. The Citadel conflicts committee retained
Kummer Kaempfer Bonner & Renshaw, a law firm that has represented the Citadel
conflicts committee in prior matters. The Craig conflicts committee retained
Troy & Gould Professional Corporation, which has represented Craig from time to
time in a variety of matters. Mr. William D. Gould is a member of Troy & Gould.
The Reading conflicts committee retained Jones Vargas, a law firm not
previously retained by Reading, the Reading conflicts committee, Craig, Citadel
or any of their respective affiliates, but a firm experienced in representing
the boards of directors of companies organized, like Reading, under the laws of
Nevada.
During this time period, Mr. S. Craig Tompkins worked with the Chairmen of
the conflicts committees and with counsel for the various committees to
identify possible financial advisors to assist the conflicts committees and to
develop the parameters of the work to be done and the advice to be given by any
such financial advisor or advisors. Among the matters discussed with the
conflicts committees and their respective counsel were the benefits and
detriments of selecting a single financial advisor to provide expert advice as
to the value of the three companies and to determine and recommend conversion
ratios which would be fair to the public stockholders of all three companies.
We did not consider the consolidation to be a sale of Craig or Reading due
to the facts that:
. No stockholder would be cashed out or otherwise forced out of its
investment in the common equity of the company;
. The consolidation would involve no change of control of Craig or Reading;
. The consolidated company would be under the same management as Craig and
Reading;
46
. The consolidated company would continue to carry on the businesses of
Craig and Reading; and
. On an overall basis, the common stockholders of Craig and Reading would
own more than a majority of the equity interest in the consolidated
company.
During these discussions, it also was noted that:
. The members of the conflicts committees were already familiar with the
assets and businesses of the three companies, due to the overlapping
ownership of the three companies.
. Since the transaction being considered would be a merger of equals and not
a sale, the focus should be on achieving a fair allocation of the
ownership of the consolidated company, rather than on the negotiation of a
possible sale or cash-out price. Accordingly, what the members of the
conflicts committee needed particularly was advice as to the fair
allocation of ownership of the consolidated company among the stockholders
of the three companies.
. To retain three financial advisors would likely be prohibitively
expensive, given the limited resources of the three companies.
. Each conflicts committee would have the right to obtain additional expert
advice from other advisors if a single financial advisor were retained on
a joint basis and if any conflict committee needed or wanted separate
advice.
Ultimately, it was determined by the members of the conflict committees that
they would engage a single financial advisor to represent the three conflict
committees. Thereafter, requests for proposal were sent to ten firms, resulting
in nine written engagement proposals. Mr. Tompkins interviewed, in person or by
telephone, each of the firms submitting proposals. Mr. Matyczynski participated
in a number of these interviews, but was unable to participate in all of the
interviews due to schedule conflicts. None of the potential advisors
interviewed expressed any material concern about the joint nature of the
engagement, and each advisor indicated during the interviews that it was
comfortable with proceeding on the basis of such a joint representation and was
prepared to proceed on that basis.
On April 23, 2001, the Chairmen of the conflicts committees met with Messrs.
Tompkins and Matyczynski to review the proposals received, and to discuss again
the benefits and detriments of engaging a single financial advisor to jointly
represent the three conflict committees. Messrs. Tompkins and Matyczynski gave
their views as to the strengths and weaknesses of the various proposals and
recommended, from management's point of view, that a single advisor be retained
to represent the committees on a joint basis. Following discussion, and a
review of the various proposals, the Chairmen of the conflicts committees
unanimously agreed that Marshall & Stevens, Incorporated should be invited to
make a personal presentation to the full membership of the three conflicts
committees and their respective counsel, for the position of joint financial
advisor to the three conflicts committees.
On May 3, 2001, the full membership of the three conflicts committees met,
together with their counsel and Messrs. Tompkins and Matyczynski, to receive
the Marshall & Stevens presentation. During this presentation, representatives
of Marshall & Stevens discussed their background and experience, the work they
would do in order to be in a position to advise the conflicts committees with
respect to the matters set out in the request for proposals, and the procedures
and methodologies that they would apply, and responded to questions. Marshall &
Stevens specifically advised the members of the conflicts committees that it
was appropriate for Marshall & Stevens to be engaged jointly by the three
conflicts committees, and that this would not affect the work that they would
be doing or the advice that they would be giving. Prior to and following the
presentation, the conflicts committees met both jointly and separately, and
following discussion and consultation with counsel, determined to jointly
engage Marshall & Stevens. Marshall & Stevens was retained by the conflicts
committees of the three companies:
. To advise the conflicts committees and the boards of directors of the
three companies as to whether the proposed consolidation was in the best
interests of the three companies;
44
. To advise the conflicts committees and the boards of directors of the
three companies as to whether it was appropriate to provide the same form
of consideration for the Craig common stock, Craig common preference stock
and Reading common stock;
. To provide an analysis of the operations of Citadel, Craig and Reading and
the various real estate assets held by the three companies;
. To recommend to the conflicts committees and to the boards of directors of
the three companies the appropriate percentage interests in the combined
company to be allocated among the stockholders of Citadel, Craig and
Reading; and
. To opine to the conflicts committees and to the boards of directors of the
three companies as to the fairness of the transaction and the
consideration paid to the public stockholders in the consolidation from a
financial point of view.
In addition, Marshall & Stevens was supplementally asked to advise, and did
advise, the conflicts committees and the boards of directors as to the
appropriateness of using the same exchange ratio for both the Craig common and
the Craig common preference stock, and as to the exchange ratios to use with
respect to the exchange of outstanding options to purchase Craig common stock,
Craig common preference stock, and Reading common stock for options to acquire
Citadel voting common stock in the consolidation. For a further discussion of
the terms and scope of the engagement, see "Fee Arrangements with Financial
Advisor" below.
On June 21, 2001, the full membership of the three conflicts committees met,
together with their counsel and Messrs. Tompkins and Matyczynski, to receive
the report and advice of Marshall & Stevens. At this meeting, Marshall &
Stevens reviewed the work they had done and the procedures and methodologies
that they had applied in preparing their advice, responded to questions, and
advised the members of the conflicts committees that, in their preliminary
opinion:
. The consolidation transaction was in the best interests of the three
companies and their stockholders.
. The holders of Craig and Reading common equity securities should all
receive the same form of consideration in the consolidation transaction.
. The holders of Craig common stock and Craig common preference stock should
receive the same per share value in the consolidation transaction.
. Conversion ratios of 1.16 shares of Citadel nonvoting common stock for
each share of Craig common stock and Craig common preference stock and
1.27 shares of Citadel nonvoting common stock for each share of Reading
common stock would be fair to the public stockholders of each of the three
companies from a financial point of view.
Following the presentation, the conflicts committees met with counsel and
directed certain additional requests for information and advice to Marshall &
Stevens and to management, to which Marshall & Stevens and management
responded, and met separately with Marshall & Stevens and members of
management. Also, the Chairmen of the conflicts committees had various
discussions among themselves.
During these discussions, the conflicts committee members discussed with
their legal advisors, with management, and between and amongst themselves, the
following:
. The depth, quality and methodology of the analysis done by Marshall &
Stevens and the propriety of relying upon the recommendations of Marshall
& Stevens as opposed to retaining additional financial advice with respect
to the proposed consolidation;
. The appropriateness of relying upon current or historic trading prices as
an element in establishing the conversion ratios to be used in the
consolidation, given the lack of liquidity in the securities of the three
companies and the vulnerability of the three companies to material price
swings as a consequence of that lack of liquidity;
48
. The proper value to be placed on the Reading Series B preferred stock held
by Craig, given its $55 million liquidation preference, approximately $11
million in accumulated dividends and voting characteristics;
. The fact that, in the view of Marshall & Stevens, each of the three
companies was currently undervalued by the market;
. The likelihood of achieving the consolidation benefits anticipated by
management;
. The extent to which Mr. Cotter, as the controlling stockholder of the
three companies, would support some other structure for the combination of
the three companies, such as a cash buy-out of some or all of the minority
stockholders;
. Whether it was appropriate to allow persons holding options to acquire
Craig common stock, Craig common preference stock, or Reading common stock
to have an election to receive an option to purchase either Citadel voting
common stock or Citadel nonvoting common stock, if the stockholders of
Craig and Reading were not given a similar election;
. The scope and extent of Craig, Reading and Citadel's contingent
liabilities, including their exposure to environmental, tax and business
claims and liabilities; and
. The differences in value generated for the holders of Reading common stock
if a liquidation as opposed to a going concern analysis were to be used.
The committee members also sought and received further advice and
information from Marshall & Stevens concerning:
. Whether the transaction should be viewed as a "sale" of Reading, rather
than as a merger of equals;
. Whether the market prices of the publicly traded securities of the three
companies was relevant, given the limited trading in those securities and,
to the extent that market prices were used, the appropriateness of using a
six month average as a part of the calculation of the appropriate exchange
ratio; and
. The values that should be assigned to the Reading Series B preferred stock.
Marshall & Stevens responded to these further requests, reaffirming its prior
advice that the transaction was, in its view, a consolidation rather than a
sale, and as to the fairness and appropriateness of the methodologies it
employed and as to the fairness to public stockholders from a financial point
of view of the conversion ratios it was recommending.
During these discussions, Mr. McCormick, the sole member of the Reading
conflicts committee, raised the possibility of a transaction in which the
stockholders of Reading would receive cash for their position at a premium to
market. However, no third party had indicated any interest in acquiring Reading
on this basis in the months following the announcement of the proposed
consolidation, and it was recognized during these discussions that the
consolidated company would need all of its cash assets to take advantage of the
business opportunities available to it. Also, there was a lack of consensus
among the members of the three committees as to how the Reading Series B
preferred stock held by Craig should be valued in such a "cash-out" transaction.
Many of these discussions took place in a context other than a formal
committee meeting. Given the facts that:
. the Citadel and Craig committees were each comprised of only two directors
and the Reading committee was comprised of only a single director;
. the management of the three companies overlapped; and
. due to the overlapping ownership of the three companies, the independent
directors of the three companies were generally familiar with one another,
and with the businesses and affairs of each of the other companies in the
group;
49
the members of the committees typically discussed these issues directly between
themselves, as a part of a general give and take and exchange of ideas, rather
than in formal meetings, discussions or negotiations.
During the week of July 12, 2001, Marshall & Stevens updated their
preliminary analysis to July 11, 2001, and issued a revised report. In this
report, Marshall & Stevens concluded that, updating their information, they now
recommended conversion ratios of 1.17 shares of Citadel nonvoting common stock
for each share of Craig common stock and Craig common preference stock and 1.25
shares of Citadel nonvoting common stock for each share of Reading common stock.
On July 17, 2001, the boards of directors of Craig and Reading each met, and
on July 18, 2001, the board of directors of Citadel met, to consider the
reports of management, their respective conflicts committees and Marshall &
Stevens with respect to the proposed consolidation transaction and to consider
a proposed form of agreement in principle, prepared by Mr. Tompkins in
consultation with counsel for the respective conflicts committees. At its
meeting on July 17, beginning at approximately 10:00 a.m., the Craig board of
directors was advised by management that it recommended a merger of equals
transaction structured as mergers of newly-formed subsidiaries of Citadel with
Craig and Reading. Messrs. Tompkins and Matyczynski reviewed the benefits and
detriments of the transaction with the board of directors, and Mr. Tompkins
reviewed with the directors on a section-by-section basis the terms of the
proposed agreement in principle. Mr. Tompkins further advised the directors
that there had not been, insofar as management was aware, any material change
in circumstances with respect to any of the three companies, or their
subsidiaries, which had not been previously communicated to Marshall & Stevens,
that management was not proposing any sale or change of control transaction,
and that no offers or expressions of interest had been solicited or received by
management from any third party concerning any extraordinary transaction (such
as a merger, or acquisition of all or any substantial portion of the assets of
any one or more of the companies). Mr. Tompkins also reviewed with the
directors the letter that had been received from the New York Stock Exchange
regarding the failure of Craig to satisfy the New York Stock Exchange criteria
for the continued listing on that exchange of the Craig common stock and Craig
common preference stock, and updated the directors on his conversations with
the New York Stock Exchange on this issue. Mr. Tompkins told the directors that
he had reviewed with the New York Stock Exchange the proposed consolidation
transaction and that he had been orally advised by representatives of the New
York Stock Exchange that the Exchange would not take action to delist Craig's
common stock and common preference stock while that transaction was pending,
assuming that the transaction moved forward expeditiously.
Following the presentation by management, the Craig conflicts committee made
its recommendation to the Craig board of directors. Relying on the advice of
Marshall & Stevens, the Craig conflicts committee recommended that the
consolidation transaction be structured as a merger of equals, with Citadel
being the surviving entity, as set forth in the proposed agreement in
principle, that the holders of Craig common stock and common preference stock
receive the same value per share in the consolidation transaction, and that the
conversion ratios be 1.17 shares of Citadel nonvoting common stock for each
share of Craig common stock and Craig common preference stock and 1.25 shares
of Citadel nonvoting common stock for each share of Reading common stock.
Following the recommendation of the Craig conflicts committee, Marshall &
Stevens presented its report to the board of directors. Marshall & Stevens
orally advised the board of directors that, in its opinion, the consolidation
transaction, as set forth in the agreement in principle, and the conversion
ratios described by the conflicts committee were fair to the Craig public
stockholders from a financial point of view.
Mr. Cotter also advised the directors that he was in favor of the
consolidation transaction as described in the agreement in principle, that he
believed that the consolidation transaction was in the best interests of the
three companies and their respective stockholders and that he was prepared to
execute the agreement in principle and to commit to vote the Craig common stock
and the Craig common preference stock under his control in favor of the
consolidation and to vote the Citadel voting common stock under his control in
favor of the issuance of Citadel nonvoting common stock in connection with the
consolidation.
47
There followed a discussion between the directors during which various
questions were asked of management and of Marshall & Stevens. Following this
discussion, the Craig board of directors voted unanimously to enter into the
agreement in principle and authorized management to take all steps reasonably
necessary to consummate the consolidation as contemplated by the agreement in
principle, provided that Marshall & Stevens confirm in writing their oral
advice to the board regarding the fairness of the consolidation from a
financial point of view and that the execution and delivery of the definitive
merger agreement be subject to the review and approval of the Craig board of
directors.
The Reading board meeting began at approximately 3:00 p.m. on July 17, 2001.
Immediately preceding the board meeting, Mr. McCormick and counsel for the
Reading conflicts committee met with Messrs. Cotter and Tompkins to review the
transaction as outlined in the agreement in principle and to gather further
information as to the direction of and the strategic opportunities available to
Reading. Messrs. Cotter and Tompkins advised the Reading conflicts committee
that management was not considering any transaction that would involve a change
of control of Reading and that the only transaction that currently had the
support of management and Mr. Cotter was a consolidation transaction along the
lines set forth in the agreement in principle. Mr. Cotter advised Mr. McCormick
that, as the controlling stockholder of Craig, he would not support a
transaction which would use the limited resources of the group to cash-out
public stockholders or which would be characterized as a "purchase" transaction
as opposed to a "merger of equals transaction." Messrs. Cotter and Tompkins
also reviewed with Mr. McCormick the business reasons which, in their view,
supported such a consolidation of the three companies under a single public
entity. These reasons were essentially the same reasons that we explained to
the boards of directors of the three companies at their March meetings as
supporting our decision to recommend the consolidation of the three companies.
All directors were present at the Reading board meeting. Also present at the
invitation of the directors were Mr. Matyczynski, a representative of Marshall
& Stevens and a representative of Jones Vargas, counsel for the Reading
conflicts committee. During the Reading board meeting, management, Marshall &
Stevens and Mr. Cotter made essentially the same presentations as they had made
to the Craig directors at the Craig board of directors meeting. Mr. McCormick
delivered the report of the Reading conflicts committee and, based upon the
advice of Marshall & Stevens and the advice of Mr. Cotter that he would not
support a sale transaction or a transaction which liquidated Reading or cashed
out any Reading stockholders, recommended to the board of directors a
conversion ratio of 1.25 shares of Citadel nonvoting common stock for each
share of Reading common stock. Following discussion, during which the directors
asked various questions of management, Mr. Cotter and Marshall & Stevens, the
Reading board of directors voted unanimously to enter into the agreement in
principle and authorized management to take all steps reasonably necessary or
convenient to consummate the consolidation as contemplated by the agreement in
principle, provided, that Marshall & Stevens confirm in writing their oral
advice to the board regarding the fairness of the consolidation from a
financial point of view and that the execution and delivery of the definitive
consolidation agreement be subject to the review and approval of the Reading
board of directors.
The following day, on July 18, 2001, at approximately 2:00 P.M., the Citadel
board of directors met and considered the consolidation transaction. At this
meeting, management, Mr. Cotter and Marshall & Stevens made essentially the
same presentations as they had the previous day to the boards of directors of
Craig and Reading. Mr. William Soady presented the report of the Citadel
conflicts committee and recommended to the full Board of Directors the
structure set forth in the agreement in principle and conversion ratios of 1.17
shares of Citadel nonvoting common stock for each share of Craig common stock
and Craig common preference stock and 1.25 shares of Citadel nonvoting common
stock for each share of Reading common stock. Following discussion, members of
management, including directors Cotter and Tompkins, were excused from the
meeting so that the remaining directors could ask various questions of Marshall
& Stevens and counsel. Following these additional questions, members of
management were asked to rejoin the meeting. Thereafter during which the
directors asked various questions of management, Mr. Cotter and Marshall &
Stevens, the Citadel board of directors voted unanimously to enter into the
agreement in principle and authorized management to take all steps reasonably
necessary or convenient to consummate the consolidation as contemplated by the
agreement in principle,
48
provided, that Marshall & Stevens confirm in writing their oral advice to the
board regarding the fairness of the consolidation from a financial point of
view and that the execution and delivery of the definitive consolidation
agreement be subject to the review and approval of the Citadel board of
directors.
On July 18, the agreement in principle was executed and delivered by
Citadel, Craig, Reading and Mr. Cotter. A press release announcing the
execution and delivery of the agreement in principle was released after the
close of the market, for release before the opening of the market on the
following day. A current report on Form 8-K was also filed that day by each of
the three companies.
Following the execution and delivery of the agreement in principle,
management worked with counsel for the conflicts committees of the three
companies to negotiate and prepare a definitive consolidation agreement.
Management also worked with the tax advisors for the three companies to develop
a definitive tax structure for the consolidation and with counsel for the
conflicts committees and Marshall & Stevens to develop a recommendation as to
the conversion ratios to be used in connection with the assumption by Citadel
of the outstanding stock options of Craig and Reading. Ultimately, management
recommended to the boards of directors of the three companies that:
. The transactions be structured as transactions in which gain or loss would
be currently recognized by stockholders for federal income tax purposes.
. The same conversion ratios adopted for purposes of the conversion of Craig
stock and Reading stock into Citadel nonvoting stock be used for purposes
of the conversion of Craig stock options and Reading stock options into
Citadel stock options.
. The same conversion ratios be used regardless of whether the holders of
Craig and Reading stock options elect to have their options converted into
options to purchase Citadel voting common stock or nonvoting common stock
in the consolidation.
The boards of directors of the three companies met on August 16, 2001 to
consider the definitive consolidation agreement and to consider management's
recommendations with respect to tax structure and the treatment of outstanding
Craig and Reading stock options.
The Citadel board meeting began at approximately 1:00 P.M. Attending the
meeting were all directors other than Mr. Loeffler. Attending the meeting at
the invitation of the Citadel board were Mr. Matyczynski, a representative of
Marshall & Stevens and representatives of Kummer Kaempfer Bonner & Renshaw,
counsel for the Citadel conflicts committee. During the meeting, Mr. Tompkins
reviewed with the directors the terms and structure of the proposed
consolidation agreement and management's recommendations with respect to the
tax structure and the treatment of outstanding stock options. Marshall &
Stevens advised that its recommendation as to the treatment of outstanding
stock options was the same as that made by management and rendered its opinion
that the consolidation was in the best interests of the companies and their
respective stockholders and that the conversion ratios provided for in the
consolidation agreement were fair to the public stockholders of each of the
three companies from a financial point of view. A representative of Kummer
Kaempfer Bonner & Renshaw responded to questions of the directors concerning
the proposed consolidation agreement, the filings that would need to be made
and the steps that would have to be taken in order to consummate the
transactions contemplated by the consolidation agreement and the treatment of
the outstanding stock options. Mr. Cotter advised the directors that he
continued to favor the consolidation and that he was prepared to execute and
deliver the consolidation agreement.
Unlike other beneficial owners of Craig common stock, Craig common
preference stock and Reading common stock, the holders of options to acquire
Craig common stock, Craig common preference stock and Reading common stock, all
of whom are current or former directors or officers of one or more of the
companies, will have the right to elect to have their Craig and Reading stock
options converted into options to purchase either Citadel voting or Citadel
nonvoting common stock. The conversion ratios (1.17 shares of Citadel stock for
49
each share of Craig stock and 1.25 shares of Citadel stock for each share of
Reading stock) will be the same whether the holder elects to receive options to
purchase Citadel voting or Citadel nonvoting common stock.
The decision to permit Craig and Reading stock option holders to elect in
the consolidation to receive options to purchase either Citadel voting common
stock or nonvoting common stock was made:
. At the request of Mr. Cotter to mitigate, to some extent, the loss of
voting power by Mr. Cotter as a consequence of the consolidation.
. To reflect the fact that the options to purchase voting stock in Craig or
Reading were granted as a part of the original employment relationships
between Craig or Reading and the option holders.
. With the expectation that most of the officers and directors (other than,
perhaps, Mr. Cotter) would elect to convert their options into options to
purchase Citadel nonvoting common stock given the limited practical value
of the voting rights attached to the Citadel voting common stock as
compared to the value represented by the anticipated greater liquidity
that should be enjoyed by the Citadel nonvoting common stock.
In light of the fact that Mr. Cotter currently owns or has the right to vote
Craig common stock and Craig common preference stock representing a majority of
the outstanding voting power of Craig, and that Craig, in turn, owns Reading
common stock and Reading preferred stock representing a majority of the
outstanding voting power of Reading, management believes that the voting rights
attendant to the Craig and Reading voting stock may be of limited value as a
practical matter, and that the potentially greater liquidity of the Citadel
nonvoting common stock may be more valuable than the voting rights currently
held by the minority stockholders in Craig and Reading. It may be that the
voting rights held by Citadel voting common stock may be of greater theoretical
value, since the controlling interest of Mr. Cotter will be reduced from over
50% of Craig and, through Craig, of Reading, to slightly less than 25% of
Citadel. However, Mr. Cotter's long-time business partner, Mr. Michael Forman,
will also own slightly less than 25% of the outstanding Citadel voting common
stock after the Consolidation. Accordingly, while Mr. Cotter will not control a
majority of the voting power of Citadel after the consolidation, Messrs. Cotter
and Forman will together control approximately 49% of the voting power of the
combined company. So long as Messrs. Cotter and Forman are in agreement as to
the management of the business and affairs of Citadel, the voting rights held
by other holders of the Citadel voting common stock will, in the view of
management, continue to be of limited practical value.
The decision to have the same conversion ratio apply to both the Citadel
voting common stock and the Citadel nonvoting stock was based principally upon
the recommendation of Marshall & Stevens, who advised the boards of directors
that:
. After the consolidation, the market prices of the Citadel voting and
nonvoting stock may converge as the practical value of the increased
liquidity of the Citadel nonvoting common stock gains in relative value to
the theoretical value of the voting rights attached to the Citadel voting
common stock.
. To some extent, this convergence was reflected in the trading activity in
the Citadel common stock since the announcement of the agreement in
principle relating to the consolidation.
. That the current value to the public stockholders of Citadel of a
differential tied to the historic trading prices of the Citadel voting and
nonvoting common stock was not significant, given that the exercise prices
of the Craig and Reading stock options to be assumed will exceed the
current market prices of Citadel voting shares and nonvoting shares.
The Craig and Reading directors also considered that the use of the same
conversion ratio for both options to acquire Citadel voting and nonvoting
common stock had been approved by the directors of Citadel, including the
members of the Citadel conflicts committee, who hold only options to purchase
Citadel nonvoting common stock and who held no options to purchase acquire
either Craig stock or Reading stock.
50
Following discussion, the directors present unanimously approved the
execution and delivery of the consolidation agreement, which included
provisions for the tax structure and the treatment of the outstanding stock
options recommended by management.
The Reading board meeting began at approximately 2:00 P.M. Attending the
meeting were all directors other than Mr. Loeffler. Attending the meeting at
the invitation of the Reading board were Mr. Matyczynski, a representative of
Marshall & Stevens and a representative of Jones Vargas, counsel for the
Reading conflicts committee. During the meeting, essentially the same events
transpired and essentially the same action was taken as in the case of the
meeting of the Citadel board of directors.
The Craig board meeting began at approximately 3:00 P.M. Attending the
meeting were all directors other than Mr. Loeffler. Attending the meeting at
the invitation of the Craig board were Mr. Matyczynski, a representative of
Marshall & Stevens and a representative of Troy & Gould Professional
Corporation, counsel for the Craig conflicts committee. During the meeting,
essentially the same events transpired and essentially the same action was
taken as in the case of the prior meetings of the Citadel and Reading boards of
directors.
On Friday, August 17, 2001, the consolidation agreement was executed and
delivered by Craig, Reading, Citadel and the Citadel merger subsidiaries, and
by Mr. Cotter. With respect to Mr. Cotter, the consolidation agreement relates
only to the requirement that he vote all shares of Craig common stock and
common preference stock, Reading common stock and Citadel voting common stock
under his control in favor of the transactions contemplated by the
consolidation agreement. A press release announcing the execution and delivery
of the consolidation agreement was issued that same day, for release before the
opening of the markets on Monday, August 20, 2001. Current reports on Form 8-K,
which included a copy of the consolidation agreement, were filed by the
companies with the Securities and Exchange Commission on August 20, 2001.
On August 24, 2001, the companies filed a preliminary proxy statement and
registration statement on Form S-4 with the Securities and Exchange Commission.
On September 26, 2001, the companies were advised by the Commission Staff that,
as to Craig and Reading, in the Staff's view the consolidation was a "Rule
13e-3 transaction," as that term was defined in Rule 13e-3 under the Securities
Exchange Act of 1934, due to the fact that the Craig and Reading stockholders
would receive nonvoting common stock in the consolidation. The companies
appealed the Staff's initial determination by pointing out, among other things,
that:
. The nonvoting common stock is "common stock" under Nevada law;
. The nonvoting common stock is listed as common stock on the American Stock
Exchange, and is treated as common stock on Citadel's audited financial
statements;
. All stockholders, including the controlling stockholder of Craig and
Reading, would receive the same consideration in the consolidation;
. No stockholder is being cashed out of his or her ongoing investment in the
consolidated company;
. One effect of not completing the consolidation would be the delisting of
the Craig common stock and Craig common preference stock from the New York
Stock Exchange; and
. The Commission Staff, in the past, has issued no-action advice with
respect to transactions where common stock with diminished voting rights
was issued in the transaction, and that there was no published precedent
for the Staff's position that nonvoting common stock was not "common
stock" for purposes of Rule 13e-3.
However, the companies were advised on or about October 12, 2001, that the
term "common stock" as used in Rule 13e-3 was interpreted by the Staff to mean
only "traditional" common stock, which, in the Staff's view, does not include
nonvoting common stock of the type being used in the consolidation. As a
consequence, on November , 2001 the companies filed with the Commission Sub
Schedule 13e-3 for each of Craig and Reading, in order to comply with to the
Staff's views and to proceed with the consolidation transaction.
54
On October 10 and 11, 2001, the boards of directors of Citadel, Craig and
Reading met separately to consider recent developments at the companies,
including the aftermath of the September 11 terrorist attacks in the United
States.
Messrs. Gould and Lahaney, in their capacity as the Craig conflicts
committee, met at 11:00 A.M. on October 10 with a representative of Troy &
Gould Professional Corporation, counsel to the conflicts committee, to consider
and discuss the recent developments at the three companies. The conflicts
committee discussed the recent developments as described in the written
handouts for the Craig board meeting scheduled for later that day and received
an update from the Troy & Gould representative regarding the status of the
consolidation transaction. After discussion, the conflicts committee requested
the Troy & Gould representative to confirm that a representative of Marshall &
Stevens would be available at the Craig board meeting to answer questions
regarding the possible impact of the recent developments on the consolidation.
The Craig board meeting began at approximately 3:00 P.M. Attending the
meeting were all directors other than Mr. Cotter. Attending the meeting at the
invitation of the Craig board were Mr. Matyczynski, a representative of
Marshall & Stevens and a representative of Troy & Gould Professional
Corporation. During the meeting, Messrs. Tompkins and Matyczynski reviewed with
the directors the adverse effects of the September 11 terrorist attacks on
Citadel's revenues from its cinemas and live theatres in Manhattan, and on the
cinema industry generally, and the potential adverse impact on Citadel's
Manhattan real estate holdings. Management advised the directors that the
effects of recent developments were short-term in nature, and did not alter
management's views regarding the conversion ratios or other aspects of the
consolidation. The Marshall & Stevens representative advised the directors that
Marshall & Stevens also viewed the effects as short-term only, and that
Marshall & Stevens did not perceive a need to update its August 17 fairness
opinion in light of these developments and did not propose to do so. Mr. Gould,
on behalf of the Craig conflicts committee, indicated that, based upon the
advice of management and Marshall & Stevens, the conflicts committee
recommended that Craig proceed with the consolidation without any modification
based upon recent developments.
Mr. Tompkins also briefed the directors on the nature of the claims alleged
by Harbor Finance Partners, a Reading stockholder, as described under
"INFORMATION REGARDING CITADEL, CRAIG AND READING--Certain Litigation Relating
to the Consolidation" in this joint proxy statement/prospectus. Following
additional discussion, the directors determined to proceed with the
consolidation notwithstanding the pendency of the lawsuit.
The Citadel conflicts committee held a separate special meeting at
approximately 9:00 a.m. on October 11, 2001. Both members of the conflicts
committee, William Soady and Alfred Villasenor, together with a representative
of Kummer Kaempfer Bonner & Renshaw, met to review the current status of the
transaction and discussed briefly the conflicts committee's desire to hear an
updated report from management and Marshall & Stevens on the impact of the
September 11, 2001 terrorist attacks on Citadel's revenues, business
operations, Manhattan real estate values and generally the impact on the
fairness opinion.
The Citadel board meeting began at approximately 1:00 P.M. on October 11,
2001. Attending the meeting were all directors, other than Mr. Cotter.
Attending the meeting at the invitation of the Citadel board were Mr.
Matyczynski, a representative of Marshall & Stevens, and a representative of
Kummer Kaempfer Bonner & Renshaw. Mr. Tompkins briefed the directors on the
nature of the claims alleged by Harbor Finance Partners, a Reading stockholder,
and the recent litigation initiated against Reading, the Reading directors and
Craig as described under "Information Regarding Citadel, Craig and
Reading--Certain Litigation Relating to the Consolidation" in this joint proxy
statement/prospectus. During the meeting, Messrs. Tompkins and Matyczynski
reviewed with the directors the adverse effects of the September 11 terrorist
attacks on Citadel's revenues from its cinemas and live theatres in Manhattan,
and on the cinema industry generally, and the potential adverse impact on
Citadel's Manhattan real estate holdings. Management expressed the view that
the effects of recent developments were short-term in nature, and did not alter
management's view regarding the conversion ratios or other aspects of the
consolidation. The Marshall & Stevens representative advised the directors that
Marshall &
55
Stevens also viewed the effects as short-term only, that Marshall & Stevens did
not perceive a need to update its August 17 fairness opinion in light of these
developments and did not propose to do so. All directors, including both
members of the Citadel conflicts committee, Messrs. Soady and Villasenor,
recommended, that Citadel proceed with the consolidation without any
modification based on recent developments or based on the pendency of the
Harbor Finance Partners/Reading lawsuit.
The board of directors of Reading also met on October 11 to consider recent
developments at the companies. The meeting began at approximately 10:00 A.M.
Attending the meeting were all directors other than Mr. Cotter. Attending the
meeting at the invitation of the Reading board were Mr. Matyczynski, a
representative of Marshall & Stevens and representatives of Jones Vargas.
During the meeting, Messrs. Tompkins and Matyczynski reviewed with the
directors the matters that they had previously reviewed with the boards of
Craig Citadel as described above. Management advised the Reading directors
that, in management's view, the effects of recent developments were short-term
in nature, and the recent developments did not alter management's views
regarding the conversion ratios or other aspects of the consolidation. The
Marshall & Stevens representative advised the directors that Marshall & Stevens
also viewed the effects as short-term only, and that Marshall & Stevens did not
perceive a need to update its August 17 fairness opinion in light of these
developments and did not propose to do so.
Mr. Tompkins also briefed the directors on the nature of the claims alleged
by Harbor Finance Partners, a Reading stockholder, as described under
"INFORMATION REGARDING CITADEL, CRAIG AND READING--Certain Litigation Relating
to the Consolidation" in this joint proxy statement/prospectus. He indicated
that representatives of Jones Vargas, who were acting as counsel to the Reading
directors in the litigation, were available to respond to questions. Following
discussion, the directors present unanimously determined to proceed with the
consolidation notwithholding the pendency of the lawsuit.
Citadel's Reason for the Consolidation
The Citadel board of directors has unanimously determined that the
consolidation and the transactions contemplated by it are advisable and in the
best interests of Citadel and its public stockholders. In reaching its
decision, the Citadel board of directors consulted with and relied upon the
recommendation of its conflicts committee, who together with its separate legal
counsel, consulted with and relied upon Marshall & Stevens and Citadel
management. The Citadel board of directors considered a number of material
factors, including:
. Creates Synergies and Cost Savings. The consolidation is expected to
result in a single public company that will be able to take advantage of
simplified day-to-day administration and operation. The consolidation is
expected to reduce general and administrative expenses, including fully
phased-in annual cost savings across the three companies, of more than $1
million.
. Reduce Conflicts of Interest. The consolidation is expected to reduce the
potential for conflict of interest issues arising out of certain
intra-company or related transactions by and between the related public
companies which, but for the conflict of interest element, would be
otherwise ordinary course of business of the three companies. Placing all
business operations of the three companies under a single public company
structure should substantially reduce the administrative and procedural
burdens of reviewing such transactions on a potential conflict of interest
basis.
. Clarify Business of Company. The consolidation is expected to create a
single public company that operates in the cinema exhibition, live theater
and real estate businesses. The business of the company following
consolidation should be easier to understand from the point of view of
outside investors and the capital markets.
. Provide Greater Liquidity for Stockholders. The trading volume and market
capitalization of Citadel prior to the consolidation has been small. The
consolidation is expected to create a greater public float for the Citadel
non-voting common stock, and, hopefully, greater liquidity for Citadel's
stockholders.
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The Citadel board of directors also considered the following material
factors:
. Information reviewed by Marshall & Stevens on the three companies'
financial condition, results of operations, prospects and businesses,
including analyses of the classes of equity outstanding, historic stock
trading prices and trading volumes for the publicly traded securities of
the three companies; valuation analyses based on an adjusted market value
analysis, business unit analysis and real estate analysis for each of the
three companies and recommended ratios for the respective publicly traded
securities of the three companies.
. Presentations from, and discussions with, senior management executives of
Citadel, Craig and Reading regarding business plans and due diligence
issues with respect to the three companies, including the opportunities
afforded by bringing the Australia and New Zealand cinema exhibition and
real estate businesses, together with Citadel's domestic operations, under
the single public company structure.
. The analysis of Marshall & Stevens and the Citadel board of directors'
receipt of Marshall & Stevens' opinion, dated August 16, 2001 that the
consolidation is fair from a financial point of view.
. The views expressed by Mr. James J. Cotter, the principal controlling
stockholder of Citadel, that he favors the consolidation, but would not
favor a transaction that would significantly affect his control interest
in Citadel or other alternative transaction.
The consolidation also includes certain risks and disadvantages. The
conflicts committee and the board of directors considered the fact that the
consolidation would expose Citadel and its stockholder to all of the risks of
doing business in Australia, New Zealand and Puerto Rico, and would expose
Citadel and its stockholders to the contingent and potential liabilities of
Craig and Reading, both known and unknown. These liabilities include the
potential exposure of Craig and Reading to:
. Environmental claims arising from Reading's historic railroad operations,
such as the claim asserted by the City of Philadelphia for one of
Reading's subsidiaries to clean up PCB contamination effecting certain
rights of way owned by that subsidiary in the City of Philadelphia;
. Continuing exposure on the part of certain of Reading's subsidiaries to
long-term liabilities under cinema leases which are currently generating,
and which may throughout the remainder of their respect terms generate,
negative cash flow;
. Potential liability of certain of Reading's subsidiaries with respect to
development agreements and undertakings with respect to now abandoned
development or redevelopment projects;
. The potential continued decline of the value of the Australian and New
Zealand dollar to the US dollar and the exposure of the Australian and New
Zealand economies to the weakness and uncertainties of their Asian trading
partners such as Japan and Indonesia; and
. Tax claims arising out of the currently ongoing audit by the Internal
Revenue Service and the State of California of Craig's tax returns for its
tax year ended June 30, 1997, and by the Internal Revenue Service of
Reading's tax returns for its tax year ended December 31, 1996.
The conflicts committee and the board of directors also considered each of
the risk factors described in this joint proxy statement/prospectus under the
caption "RISK FACTORS" beginning on page , and discussed these risk factors
and exposures with management, including with Messrs. Cotter, Tompkins and
Matyczynski. Generally, due to the fact that Citadel has for more than the past
five years, had an investment in Reading, the members of the Citadel conflicts
committee and Citadel board of directors were generally familiar with the
business and affairs of Reading and its parent, Craig.
On the whole, the conflicts committee and the board of directors of Citadel
were of the view that these risks were outweighed by the advantages of a
consolidation of the three companies, and the realization of the benefits
described above and under the caption "Background of the Consolidation"
beginning at page .
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This discussion of the factors considered by the Citadel board of directors
is not intended to be exhaustive. Because of the wide variety of factors
considered in connection with its evaluation of the consolidation, the Citadel
board of directors did not find it practicable to, and accordingly did not,
quantify or otherwise attempt to assign relative significance to the specific
factors considered in reaching its conclusions. In addition, individual
directors may have given different significance to different factors.
Recommendation of Citadel's Board of Directors
For the reasons discussed above, the Citadel board of directors has
determined that the terms of the consolidation agreement and the transactions
contemplated by it are advisable and in the best interests of Citadel and its
public stockholders. Accordingly, the Citadel board of directors has
unanimously approved the consolidation agreement and recommends that Citadel
stockholders vote at the Citadel annual meeting to approve the consolidation
agreement and related proposals.
In considering the recommendation by Citadel's board of directors, you
should be aware that some directors and officers of Citadel have interests in
the consolidation that are different from, or are in addition to, the interests
of Citadel's stockholders generally. Please see the section entitled "Interests
of Directors, Officers and Affiliates in the Consolidation" on page of this
joint proxy statement/prospectus.
Craig's Reasons for the Consolidation
The board of directors of Craig has unanimously approved the consolidation
agreement and determined that the consolidation is fair to and in the best
interests of Craig and its public stockholders. In reaching its determination,
the directors consulted with management of Craig and the Craig conflicts
committee, and relied on the recommendation of the conflicts committee, which
was advised by its own legal counsel, and on the advice of Marshall & Stevens,
regarding the appropriate conversion ratios and the fairness of the
consolidation to Craig's public stockholders. The board considered a number of
factors, but did not assign any specific or relative weight to the factors it
considered, and different factors may have been weighted differently by
individual directors.
Among the most important benefits of the consolidation identified by the
Craig board were:
. The consolidation will substantially reduce the potential for conflicts of
interest in the day-to-day business and operations of Craig and the other
companies and free up management time for more productive activities. The
existing overlapping ownership and management of Citadel, Craig and
Reading pose an inherent potential for conflicts of interest in the normal
business and operations of Craig. Management of Craig, and the directors
themselves, spend an inordinate amount of time and energy addressing these
potential conflicts of interest in managing Craig's day-to-day business.
These inherent potential conflicts also make it more difficult for
stockholders and the investing public to understand and appreciate the
business of Craig, as well as the businesses of Citadel and Reading.
. Craig's management estimates that the consolidation will save the
consolidated company at least $1 million annually in general and
administrative costs and expenses once the businesses and operations of
the three companies are fully consolidated.
. The consolidation will result in substantially more Citadel nonvoting
shares in the hands of public stockholders and should enhance the
liquidity of the Citadel nonvoting shares held by former Craig
shareholders compared to their current investment in Craig shares. The
greater liquidity of Citadel shares also may facilitate future
acquisitions and other business transactions by the combined company. The
number of shares of Craig common stock and common preference stock in the
hands of public stockholders is relatively small, and there is little
trading volume and no active market for the common stock and common
preference stock.
58
. Craig stockholders, as holders of Citadel nonvoting common stock, will be
able to participate ratably in any growth of the consolidated company, and
in any sale of assets of the consolidated company, after the consolidation.
. The consolidation will result in a single publicly traded company that
integrates the cinema exhibition, live theater and real estate operations
currently being conducted separately by Craig, Citadel and Reading. This
should make the combined company's business easier to understand and
evaluated from the standpoint of the investing public.
. The consolidation would resolve the issues raised by the pending delisting
of the Craig common stock and common preference stock from the New York
Stock Exchange.
In evaluating the consolidation, the Craig board of directors considered the
following, among other information:
. The views expressed by James J. Cotter, the principal controlling
stockholder of Craig, that he favors the consolidation, but would not
favor a transaction that would significantly affect his control interest
in Craig or other alternative transaction.
. Management's views of Craig's prospects as a separate company within the
controlled group of Craig, Citadel and Reading, and of the anticipated
financial condition and business and operations of the consolidated
company following the consolidation.
. Notification from the New York Stock Exchange that Craig common stock and
common preference stock will soon be delisted, and management's views of
Craig's prospects for bringing itself in compliance with the exchange's
ongoing listing criteria.
. Recent historical financial information of Craig, Citadel and Reading.
. The taxable nature of the consolidation.
. The accounting treatment of the consolidation.
. Presentations from management and discussions with legal counsel regarding
the business plans, any due diligence issues and any possible adverse
consequences of the consolidation.
. The detailed analyses of Marshall & Stevens regarding the historical
assets and stock prices of the companies and the current fair values of
the companies' assets and the conversion ratios in the consolidation,
including Marshall & Stevens' opinion, dated August 16, 2001, that the
consolidation, and the consideration to be received by Craig stockholders
in the consolidation, are fair, from a financial point of view, to the
public stockholders of Craig.
. The interests of the directors, officers and affiliates of Craig in the
consolidation, including the matters discussed below under "Interests of
Directors, Officers and Affiliates in the Consolidation."
The Craig board of directors also considered risks posed by the
consolidation, including:
. The fact that, as of July 17, 2001, based on recent trading prices of
Citadel nonvoting common stock and of Craig common stock and common
preference stock and given the conversion ratio of 1.17 shares of Citadel
nonvoting common stock for each share of Craig common stock and common
preference stock provided for in the consolidation agreement, the market
value of the Citadel nonvoting shares to be received by Craig stockholders
in the consolidation was less than the market value of the Craig common
stock.
. The other risks and uncertainties described in this joint proxy
statement/prospectus under the caption "RISK FACTORS" beginning on page .
The foregoing discussion of the information and factors considered by the
Craig board of directors is not intended to be exhaustive, but includes the
material factors considered by the directors. In view of the complexity
54
and wide variety of information and factors, the Craig board of directors did
not find it practical to quantify, rank or otherwise assign relative or
specific weights to the factors considered. In addition, the Craig board did
not reach any specific conclusion with respect to each of the factors
considered, or any aspect of any particular factor. Instead, the Craig board of
directors conducted an overall analysis of the factors described above,
including discussions with Craig's management and legal and financial advisors.
Recommendation of Craig's Board of Directors
After careful consideration, the Craig board of directors has determined
that the consolidation is fair to and in the best interests of Craig and its
public stockholders, has approved the consolidation agreement, and recommends
that Craig stockholders vote in favor of approval of the consolidation
agreement.
In considering the recommendation by Craig's board of directors, you should
be aware that some directors and officers of Craig have interests in the
consolidation that are different from, or are in addition to, the interests of
Craig's stockholders generally. Please see the section entitled "Interests of
Directors, Officers and Affiliates in the Consolidation" on page of this
joint proxy statement/prospectus.
Reading's Reasons for the Consolidation
The Reading board of directors approved the proposed consolidation primarily
for the following reasons:
. The potential administrative benefits to be derived from the consolidation
of the businesses and management of Reading, Craig and Citadel into one
entity, including possible annual cost savings projected by management at
more than $1 million.
. The potential benefits to the Reading common stockholders of the shares of
Citadel nonvoting common stock to be received in the consolidation being
traded on the American Stock Exchange, including higher trading volume and
greater liquidity than currently exists for Reading shares.
. The absence of other available alternatives to maximize Reading
shareholder value, given (1) the view of Mr. Cotter and Reading management
that it would not be desirable to pursue a sale of Reading, either as an
entity or by individual assets followed by liquidation, and (2) the advice
of management that Reading had not received any expressions of third-party
interest in acquiring Reading or any of its significant assets following
the public disclosure of the consolidation proposal in a joint press
release on March 21, 2001.
. The benefit to the Reading common stockholders of the fact that the
consolidation would effectively subordinate the rights of the holders of
Reading preferred stock to the rights of the Reading common stock holders.
. The fact that the consolidation would resolve the liquidity issues posed
by the right of Citadel to require Reading to repurchase the $7 million of
Reading preferred stock currently held by Citadel.
. The specific analysis and recommendations contained in the report of
Marshall & Stevens presented on June 21, 2001.
Additional factors considered by the Reading board of directors in approving
the proposed consolidation include:
. The recommendation of the Reading conflicts committee that if the Reading
board elected to effect the proposed consolidation, it would be fair to
the common stockholders of Reading to receive 1.25 shares of Citadel
voting common stock for each share of Reading common stock owned by them.
. Management's support of the proposed consolidation in light of their
knowledge of the business, prospects and financial condition of Reading.
. The opinion of Marshall & Stevens, dated August 16, 2001, that the
proposed consolidation and related conversion ratios are fair to the
Reading public stockholders from a financial point of view.
55
In assessing the consolidation, the Reading conflicts committee and board of
directors also considered certain risks associated with the transaction. In
particular, the conflicts committee explored the possibility of strategic
alternatives to the proposed consolidation in detail with management, including
Mr. Cotter, given that the Marshall & Stevens report suggested that Reading
stockholders could possibly receive substantial cash values from a sale or
liquidation as opposed to the proposed consolidation. The conflicts committee
also considered the relative weight given to Reading's stock price in
calculating the conversion ratio, given the comparatively thin public market
for Reading common stock and the values ascribed to the Reading preferred stock
for purposes of that calculation. It analyzed the conversion ratio for Reading
common stock, both giving primary weight to adjusted market values rather than
stock price variables, and also assuming Craig held common as opposed to
preferred stock of Reading, and concluded that neither of these alternative
approaches significantly affected the conversion ratio. Ultimately, the Reading
board of directors determined that the proposed consolidation, taken as a
whole, is fair to and in the best interests of Reading and its public
stockholders.
In view of the variety of factors considered in its evaluation of the
proposed consolidation, the Reading board of directors did not find it
practicable to assign relative weights to the factors considered in reaching
its decision. This discussion does not recite every factor that may have been
considered by the Reading board in detail, nor does it represent the degree of
significance given by individual directors to specific factors.
Recommendation of Reading's Board of Directors
The Reading board of directors has approved the consolidation agreement and
believes that the consolidation is fair to and in the best interests of Reading
and its public stockholders. The Reading board of directors unanimously
recommends that Reading stockholders vote in favor of approval of the
consolidation agreement.
In considering the recommendation by Reading's board of directors, you
should be aware that some directors and officers of Reading have interests in
the consolidation that are different from, or are in addition to, the interests
of Reading's stockholders generally. Please see the section entitled "Interests
of Directors, Officers and Affiliates in the Consolidation" on page of this
joint proxy statement/prospectus.
Fairness Considerations
The conflicts committees and the boards of directors of Citadel, Craig and
Reading believe that the consolidation, including the conversion ratios and
other terms of the consolidation, is fair to the public stockholders of both
Craig and Reading. In reaching their determination that the consolidation is
fair to the public stockholders of Craig and Reading, the conflicts committee
members and directors consulted with Marshall & Stevens and their legal
advisors, drew on their knowledge of the companies' businesses, operations,
assets, financial condition, historical share prices and prospects, and
considered the following factors, each of which, in their opinion, supported
their fairness determination:
. Their belief that the consolidation is a better alternative for the public
stockholders of the three companies, than continuing to operate Craig and
Reading separately as part of a controlled group with Citadel in light of
the anticipated cost savings to the consolidated company, the simplified
business and capital structure of the consolidated company, the ability to
use the liquidity available to Citadel to develop opportunities available
to Reading, the anticipated greater liquidity in the trading market for
Citadel nonvoting shares as compared to the current liquidity in the
trading markets for Craig common stock, Craig common preference stock and
Reading common stock, and other benefits of the consolidation.
. Their belief that there is no practical available alternative transaction
such as a sale or liquidation of Craig or Reading, in light of the advice
of Mr. Cotter, the principal controlling stockholder of Craig, Reading,
and Citadel, that he would not favor a sale or liquidation of any of the
companies, or any alternative transaction that would materially and
adversely effect his control of Craig, Reading and Citadel.
61
. The fact that neither Craig nor Reading nor Marshall & Stevens has
received any indication of interest from any person regarding any
alternative transaction following the announcement of the possible
consolidation in March 2001.
. In Craig's case, the advice of the New York Stock Exchange that Craig
common stock and common preference stock will be delisted unless the
consolidation can be completed promptly, and in Reading's case,
management's concern as to whether Reading will continue to satisfy the
listing requirements of The Nasdaq Stock Market.
. The fact that all holders of Craig common stock and common preference
stock and Reading common stock, including Mr. Cotter and his affiliates,
will receive the same consideration in the consolidation, consisting of
Citadel nonvoting shares.
. The fact that no Craig and Reading stockholder will be cashed out in the
consolidation, so each stockholder may continue to participate in Craig's
and Reading's businesses and in the equity of the consolidated company by
virtue of ownership of Citadel nonvoting shares to be received in the
consolidation.
. The fact that Citadel nonvoting shares are publicly traded and have a
readily-ascertainable market value, and that no new security was created
for purposes of the consolidation.
. The fact that the exercise prices of the Craig stock options and Reading
stock options held by Mr. Cotter and other directors and officers of Craig
and Reading and that are to be assumed by Citadel in the consolidation
substantially exceed the current market prices of Citadel stock, so the
options are likely to be exercised only if the market prices of Citadel
shares increase substantially following the consolidation.
. The advice of Marshall & Stevens regarding the conversion ratios and other
terms of the consolidation, and the opinion of Marshal & Stevens to the
effect that the consolidation is fair, from a financial point of view, to
Craig's and Reading's public stockholders.
In concluding that the consolidation is fair to the Craig and Reading public
stockholders, the conflicts committees or the boards of the companies also
considered and took into account the following factors, which they viewed as
negative factors in assessing the fairness of the transaction:
. Mr. Cotter's advice that he would not support any sale or liquidation of
any of the three companies, or any transaction that would materially and
adversely affect his control of Craig, Reading and Citadel, which
effectively precluded consideration of possible alternative transactions
such as a sale of Craig or Reading. This effectively limited the options
available for consideration by the conflicts committees and boards of the
three companies.
. In Craig's case, the fact that, based on the market prices of Citadel
nonvoting common stock and Craig common stock and common preference stock
prior to July 17, 2001, the market value of the Citadel nonvoting shares
to be received by Craig stockholders in the consolidation is less then the
market value of the Craig common stock.
. The provisions of the consolidation agreement, requested by Mr. Cotter as
a condition for his support of the transaction, entitling holders of Craig
stock options and Reading stock options, including Mr. Cotter, who holds
options to acquire 594,940 shares of Craig common stock and 635,232 shares
of Reading common stock, to elect to have their assumed options be
exercisable for either Citadel voting common stock or nonvoting stock,
since Craig and Reading stockholders are not being afforded the same
choice between Citadel voting shares and nonvoting shares.
. In the case of Citadel, the fact that the current public stockholders of
Citadel would be assuming fully the various risks of the ownership of
Craig and Reading, and, in the case of Reading, the fact that the current
public stockholders of Reading would be assuming the various risks of the
ownership of Citadel.
62
The conflicts committees and the boards of directors of the companies did
not consider the liquidation value of either Craig or Reading, because Mr.
Cotter advised the conflicts committees and the boards that he believed that
Craig, Reading and Citadel should be combined and operated on an ongoing basis.
The conflicts committees and the boards, however, did consider the valuations
of Craig and Reading based on the business unit and real estate analyses
performed by Marshall & Stevens in evaluating the conversion ratios in the
consolidation.
The boards of directors of the companies believe that sufficient safeguards
are present to ensure that the consolidation is fair procedurally without the
need to retain an unaffiliated representative to act on behalf of the public
stockholders of Craig or Reading, or to require the approval of a majority of
unaffiliated stockholders, in view of:
. The independence and experience of the members of the Craig and Reading
conflicts committees.
. The fact that Craig, Reading and Citadel have overlapping management and
businesses and have been operated as a controlled group of companies and,
therefore, that the Craig and Reading conflicts committees are familiar
with the businesses of all three companies.
. The engagement of Marshall & Stevens to advise the conflicts committees
regarding the conversion ratios and other terms of the consolidation and
to render its opinion regarding the fairness, from a financial point of
view, of the consolidation to the public stockholders of Craig and Reading.
. The engagement of Troy & Gould Professional Corporation and Jones Vargas,
respectively, as independent legal advisors to the Craig conflicts
committee and the Reading conflicts committee.
Mr. Cotter is a director of each of the three companies and, in his capacity
as a director and principal controlling stockholder of the companies, concurred
in the unanimous views of the conflict committees and boards of directors of
the companies regarding the fairness of the consolidation, both substantively
and procedurally, to the public stockholders of Craig and Reading.
Opinion of the Companies' Financial Advisor
The companies asked Marshall & Stevens Incorporated, in its role as
financial advisor to the companies, to render an opinion to the boards of
directors of the companies and to the conflicts committees of the boards as to
whether the consolidation and the consideration to be received in the
consolidation are fair to the public stockholders of Craig, Reading and
Citadel, from a financial point of view, pursuant to the terms and subject to
the conditions set forth in the consolidation agreement. Marshall & Stevens was
also asked to give advice with respect to the relative values of the three
companies, fair conversion ratios of Citadel nonvoting common stock for shares
of Reading common stock, Craig common stock and Craig common preference stock,
whether the consolidation is in the best interest of the three companies,
whether the same consideration (i.e., common equity) should be provided to all
stockholders, whether the Craig common stock and Craig common preference stock
should be treated as having the same value for purposes of the transaction, and
fair conversion ratios for the exchange of currently outstanding options to
acquire Craig common stock, Craig common preference stock, and Reading common
stock for options to acquire Citadel common stock. The companies did not impose
any material limitations on Marshall & Stevens in rendering its opinion.
On June 21, 2001, Marshall & Stevens delivered to the conflicts committees
of the boards of directors of the companies its preliminary findings with
respect to the relative values of the three companies, fair conversion ratios
of Citadel nonvoting common stock for shares of Reading common stock, Craig
common stock and Craig common preference stock, whether the consolidation is in
the best interest of the three companies and whether common equity should be
provided to all stockholders. On July 17 and 18, 2001, Marshall & Stevens
delivered to the boards of directors of the companies its oral opinion to the
effect that, as of those dates, the consolidation and the consolidation
consideration were fair to the public stockholders of Craig, Reading and
Citadel from a financial point of view. This opinion was subsequently confirmed
in the written Marshall & Stevens opinion, dated August 16, 2001, to the effect
that, as of that date, and based on and subject to the assumptions, limitations
63
and qualifications set forth in such opinion, the consolidation and the
consolidation consideration are fair to the public stockholders of Craig,
Reading and Citadel from a financial point of view. Marshall & Stevens also
advised the boards of directors and the conflicts committees of the boards:
. As to the relative values of the three companies.
. As to the fair conversion ratios of Citadel nonvoting common stock for
shares of Reading common stock, Craig common stock and Craig common
preference stock.
. That the consolidation is in the best interests of the three companies.
. That the Craig common stock and Craig common preference stock should be
treated as having the same value for purposes of the consolidation.
. That the same consideration should be provided to all stockholders of
Craig and Reading.
. That it would be fair to use the same exchange ratios applicable to the
exchange of Craig common stock, Craig common preference stock, and Reading
common stock for Citadel nonvoting common stock for the exchange of
outstanding options to acquire Craig common stock, Craig common preference
stock, and Reading common stock for options to acquire Citadel common
stock.
The full text of Marshall & Stevens' opinion is attached as ANNEX B to this
joint proxy statement/prospectus. Marshall & Stevens reserves the right to make
changes to its opinion based on events and occurrences after the date of its
opinion, but it is not obligated to do so. The foregoing summary of Marshall &
Stevens' opinion is qualified in its entirety by reference to the full text of
the opinion. You are urged to read Marshall & Stevens' opinion carefully and in
its entirety for the procedures followed, assumptions made, other matters
considered and limits of the review by Marshall & Stevens in connection with
its opinion.
Marshall & Stevens prepared its opinion for the boards of directors of the
companies and for the conflicts committees of the boards. The opinion addresses
only whether the consolidation and the consolidation consideration are fair to
the public stockholders of Craig, Reading and Citadel from a financial point of
view, pursuant to the terms and subject to the conditions set forth in the
consolidation agreement. Marshall & Stevens expressed no opinion as to the
prices at which the equity securities of Craig, Reading or Citadel would
actually trade at any time. Marshall & Stevens was not requested to address
and, accordingly, Marshall & Stevens' opinion does not address, alternative
business strategies or the decision by the boards of directors to pursue the
consolidation as opposed to some other business strategy. Marshall & Stevens'
opinion does not constitute a recommendation to any stockholder as to how to
vote on the consolidation or any other matter.
The conflicts committees of the boards of directors of the companies
selected Marshall & Stevens as their financial advisor because, among other
things, of the view of the directors serving on the conflicts committees, based
on the various background materials provided by Marshall & Stevens, that
Marshall & Stevens is an internationally recognized valuation and financial
consulting firm that has substantial experience providing valuation and
financial consulting services. Marshall & Stevens was not retained as an
advisor or agent to the stockholders of the companies or any other person. As
part of its valuation and financial consulting business, Marshall & Stevens has
advised the directors of the three companies that it is regularly engaged in
the valuation of businesses and securities in connection with mergers,
acquisitions, underwritings, sales and distributions of listed and unlisted
securities, private placements and valuations for corporate, tax, and other
purposes. Marshall & Stevens was not requested to solicit, nor did Marshall &
Stevens solicit, the interest of any other party in acquiring or engaging in a
business combination with the companies.
In arriving at its opinion, Marshall & Stevens:
1. Reviewed the information attached to its opinion as Exhibit A.
2. Analyzed daily stock prices and trading volumes for Craig common stock,
Craig common preference stock, Reading common stock, Citadel nonvoting
common stock and Citadel voting common stock for the period June 1, 2000
through July 11, 2001.
64
3. Considered the nature of the business and the history of the companies
and their strategic business units or SBUs; the economic outlooks of the
United States, Puerto Rico, Australia, and New Zealand in general; the
outlooks for the cinema and theater industries in particular; the SBUs
earnings before interest and taxes or EBIT, earnings before interest,
taxes, depreciation and amortization or EBITDA, revenues, book capital,
and total assets for the past 5 years (1996-2000) and the three-month
interim period ended March 31, 2001; the outlook for future EBIT, EBITDA
and revenues; the net book value and adjusted market value of the
companies; the companies' financial condition; and the companies'
dividend-paying capacity.
4. Considered the nature of the underlying real estate holdings of the
companies, relevant cost data, the local real estate markets for such
holdings; and the income and cash generating capacity of the holdings.
5. Analyzed financial statements, prices and other materials regarding
guideline publicly traded companies in the cinema industry; multiples of
EBIT, EBITDA revenues, book capital and total assets of such guideline
publicly traded companies; required rates of return on debt and equity
capital; and such other relevant material as deemed appropriate.
6. Analyzed the financial terms; operating results; financial condition;
and multiples of EBIT, EBITDA, revenues, book capital and total assets
of companies, to the extent publicly available, involved in certain
recent business combinations in the cinema industry.
7. Compared certain statistical and financial information of the companies
with similar information for certain guideline publicly traded companies
and industry composites in the cinema industry.
8. Analyzed the terms of certain real estate transactions, to the extent
publicly available, for properties considered comparable to the
underlying real estate holdings of the companies.
9. Conducted discounted cash flow analyses and capitalization of
income/cash flow on various SBUs and underlying real estate holdings of
the companies.
10.Visited the Companies' headquarters in Los Angeles, California and
conducted interviews with and relied upon the representations of
Chairman and Chief Executive Officer James J. Cotter; Reading and
Citadel Vice Chairman and Craig President, S. Craig Tompkins; Chief
Financial Officer, Andrzej Matyczynski; and Vice President--Real Estate,
Brett Marsh concerning the operations, financial condition, future
prospects, and projected operations and performance of the companies and
their SBUs and underlying real estate holdings.
11.Visited certain other offices and real estate holdings of the companies
and conducted interviews with other employees of the companies
concerning the SBUs and underlying real estate holdings.
12.Conducted such other financial studies, analyses and inquiries, and
considered such other matters as they deemed necessary and appropriate
for their opinion.
In rendering its Opinion, Marshall & Stevens did not independently verify
the accuracy and completeness of the financial information or other information
furnished by the companies orally or in writing, or other information obtained
from publicly available sources.
With respect to the financial projections for the companies referred to
above, Marshall & Stevens reviewed the best currently available estimates and
judgments of the management of the companies as to the expected future
financial and operating performance of the companies and their SBUs and
underlying real estate holdings, and did not undertake any obligation
independently to verify the underlying assumptions made in connection with such
forecasts, estimates or judgments.
Marshall & Stevens' opinion was based on business, economic, market and
other conditions as they existed as of the date of its opinion. Marshall &
Stevens states in its opinion that they have assumed that the factual
65
circumstances and terms, as they existed at the date of this opinion, will
remain substantially unchanged through the time the consolidation is completed.
Valuation and Financial Analyses Performed by Marshall & Stevens
The following is a discussion of the financial and valuation analyses
presented by Marshall & Stevens to the conflicts committees of the boards of
directors of the companies on June 21, 2001, and to the full boards of
directors on July 17 and 18, 2001, in connection with the approval of the
agreement in principle, and on August 16, 2001, in connection with the approval
of the consolidation agreement. The information summarized in the tables which
follow should be read in conjunction with the accompanying text.
The implied relative conversion ratios estimated pursuant to the historical
stock price analysis and the adjusted market value analysis summarized below
were each based on:
. 3,402,808 shares of Craig common stock outstanding
. 7,058,408 shares of Craig common preference stock outstanding
. 7,449,364 shares of Reading common stock outstanding
. 7,958,379 shares of Citadel Class A common stock outstanding
. 1,989,585 shares of Citadel Class B common stock outstanding
Common Stock Trading History
Marshall & Stevens examined the historical closing prices of the companies'
securities from January 12, 2001 to July 11, 2001. Marshall & Stevens reviewed
the closing prices on July 11, 2001, as well as the six-month average trading
prices and six-month average trading volumes for each security during the
aforementioned period. A summary of the prices and trading volumes follows:
July 11, 2001 6-Month 6-Month
Closing Stock Average Average
Price Stock Price Trading Volume
- ------------- ----------- --------------
Market Value per Common Share
Citadel nonvoting common stock. $1.26 $1.92 2,441
Citadel voting common stock.... $1.50 $2.14 451
Craig common stock............. $2.02 $2.28 1,652
Craig common preference stock.. $1.60 $1.80 13,118
Reading common stock........... $1.85 $2.22 3,436
66
Current and Historical Implied Conversion Ratio Analysis
Marshall & Stevens reviewed the current and historical exchange ratios
implied by the daily closing prices per share of each security for the period
beginning January 12, 2001 and ending on July 11, 2001. The implied conversion
ratios based upon the July 11, 2001 closing prices and the six-month average
prices were considered most appropriate to the analysis. The July 11, 2001
closing prices reflected current market conditions for each security. Given the
thinly traded nature of each security and the amount of time that had
transpired since the three companies first publicly announced that they were
considering a merger of equals transaction on March 20, 2001, six months was
considered to be an appropriate time period to consider for historical
analysis. The significant intercompany transactions, the large asset write
downs and the NAC transaction all occurred within the two quarters preceding
this time period. A sixth month average trading period was also considered
appropriate in Reading's Certificate of Designation relative to the mandatory
conversion of the Reading Series A preferred stock. This analysis showed that
on July 11, 2001, the implied conversion ratios based upon the July 11, 2001
closing prices and the six-month average prices were as follows:
July 11, 2001 6-Month Average
Closing Price Stock Price
- ------------- ---------------
Exchange Ratios
Citadel nonvoting common stock. 1.00 1.00
Citadel voting common stock.... 1.00 1.00
Craig common stock............. 1.39 1.02
Craig common preference stock.. 1.39 1.02
Reading common stock........... 1.47 1.15
As mentioned, the companies first publicly announced that they were
considering a merger of equals transaction on March 20, 2001. The March 19,
2001 closing (or last available) stock prices for each of the securities and
the implied conversion ratios based upon such prices follow:
March 19, 2001 March 19, 2001
Closing Price Conversion Ratio
- -------------- ----------------
Citadel nonvoting common stock $2.22 1.00
Citadel voting common stock... $2.48 1.00
Craig common stock............ $2.40 .88
Craig common preference stock. $1.75 .88
Reading common stock.......... $2.31 1.04
60
Adjusted Market Value Analysis
Marshall & Stevens analyzed the underlying SBUs, real estate and other
specific assets of the companies. The estimated market values of such SBUs,
real estate and other specific assets of the companies were substituted for
their book values on each of the respective company's March 31, 2001 balance
sheets to provide an indication of the adjusted market value of each company.
The Reading Series A and Series B preferred stock were valued based upon market
value, as opposed to the value of such securities on a liquidation basis. The
March 31, 2001 financial statements and quarterly reports on Form 10-Q were the
latest available financial information provided by the management of the
companies. The market values were estimated on a "mostly likely," a "low" and a
"high" basis to provide a range of market values for consideration. Based upon
the analysis, the market values per common share (considering total common
shares outstanding) of each company under each of the above three scenarios
were as follows:
Adjusted Market
Value Most Adjusted Market Adjusted Market
Likely Value Low Value High
--------------- --------------- ---------------
Market Value Per Common Share
Citadel................... $5.57 $3.89 $6.46
Craig..................... $6.12 $4.43 $7.58
Reading................... $6.33 $4.89 $7.48
Considering the above three scenarios, the implied conversion ratios were as
follows:
Adjusted Market
Value Most Adjusted Market Adjusted Market
Likely Value Low Value High
--------------- --------------- ---------------
Exchange Ratios
Citadel nonvoting common stock. 1.00 1.00 1.00
Citadel voting common stock.... 1.00 1.00 1.00
Craig common stock............. 1.10 1.14 1.32
Craig common preference stock.. 1.10 1.14 1.32
Reading common stock........... 1.13 1.26 1.30
Strategic Business Unit Analysis
Market Approach--Comparable Publicly Traded Company Analysis
Marshall & Stevens identified and selected several publicly traded companies
similar in business type and operations to Citadel's and Reading's cinema
operations. Guideline publicly traded companies were identified using Moody's
Company Data on CD-ROM. Data on the selected companies was obtained using
Moody's Company Data on CD-ROM and Compustat's (North American) Company
Database. The comparable publicly traded companies selected are listed below:
Company Name Ticker Symbol
------------ -------------
AMC Entertainment Inc.... AEN
Carmike Cinemas Inc...... CKECQ
Cinema Ride Inc.......... MOVE
Cinemastar Luxury Thetrs. LUXYQ
ITEC Attractions Inc..... ITAT
68
Marshall & Stevens calculated the invested capital to the trailing twelve
months revenue and EBITDA for each of the comparable companies. The total
invested capital is defined as the price per share times the common equity
outstanding plus debt and preferred stock. The range of trailing twelve month
multiples were as follows:
High Low Average Median
- ---- --- ------- ------
TIC/EBITDA. 12.3 1.1 7.5 8.3
TIC/REVENUE 0.8 0.1 0.5 0.6
Market Approach--Comparable Transaction Analysis
Marshall & Stevens reviewed prior transactions made by Citadel and Reading
and multiples of revenue and EBITDA paid in such transactions as well as
transactions that took place in the market over the past year. The transaction
multiples ranged from approximately 7.6x to 10.6x EBITDA based upon the limited
information available. Marshall & Stevens also reviewed an investment banking
bulletin for Village Roadshow which indicated valuations of 5.0x to 7.6x
prospective EBITDA for the company.
Market Approach--Summary
Given the ranges of multiples indicated and the differences between the
comparable companies and the companies involved in the transactions in
comparison to the SBUs of Citadel and Reading, certain multiples were adjusted
to account for such differences before applying them to the SBUs of Citadel and
Reading. In addition, the market approach was not used in instances where the
comparables were insufficient to provide a meaningful indication of value. The
results of the analysis using the market approach were as follows:
Total Invested Capital
---------------------------------------
EBITDA Most
Multiples Likely Low High
--------- --------- -------- ----------
Citadel:
Citadel Cinemas............ N/A Not Used Not Used Not Used
Liberty Theatres........... 8.5x 9,500,000 Not Used 10,000,000(1)
Angelika--New York (16.7%). 10.0x 3,100,000 Not Used 4,900,000(1)
Reading:
Australia.................. N/A Not Used Not Used Not Used
New Zealand (50.0%)........ N/A Not Used Not Used Not Used
Puerto Rico................ N/A Not Used Not Used 4,500,000(1)
Angelika--New York (33.3%). 10.0x 6,200,000 Not Used 9,800,000(1)
--------
(1)Based upon prior transaction or offer
Discounted Cash Flow Analysis
Marshall & Stevens prepared a discounted cash flow analysis, on a debt-free
basis, for each of the SBUs. In developing the discounted cash flow analysis,
cash flows for each business unit were forecasted five years into the future
using projections provided by management where available. Where projections
were unavailable, cash flows were forecasted based on discussions with
management, a review of the SBU's historical financial statements and a review
of economic and industry outlooks.
62
Marshall & Stevens discounted the projected cash flows and terminal values
to present value. The discount rate reflects the time value of money and the
risk inherent to receipt of the cash flows. The terminal value was based on the
Gordon growth model, using a long-term growth rate of 4%. The results of the
analysis using the discounted cash flow analysis follow:
Total Invested Capital
--------------------------------------------
Most
Discount Rate Likely Low High
------------- --------- --------- ----------
Citadel:
Citadel Cinemas............ 11.5%-15.5% 6,000,000 4,700,000 7,9000,000
Liberty Theatres........... 13.5% Not Used 7,300,000 Not Used
Angelika--New York (16.7%). 11.5% Not Used 2,600,000 Not Used
Reading:
Australia.................. 13.5%-17.5% 9,400,000 8,300,000 10,900,000
New Zealand (50.0%)........ 17.5%-21.5% 600,000 500,000 6,000,000
Puerto Rico................ NMF Not Used 0 Not Used
Angelika--New York
(33.3%).................. 11.5% Not Used 5,200,000 Not Used
Correlation
The values indicated by the market and income approaches were correlated
into a final conclusion of value for each SBU based upon the applicability of
each approach. The chart below outlines Marshall & Stevens' conclusions and
ranges of value for the SBUs:
Total Invested Capital
----------------------------------
Most Likely Low High
----------- --------- ----------
Citadel:
Citadel Cinemas............ 6,000,000 4,700,000 7,900,000
Liberty Theatres........... 9,500,000 7,300,000 10,000,000
Angelika--New York (16.7%). 3,100,000 2,600,000 4,900,000
Reading:
Australia.................. 9,400,000 8,300,000 10,900,000
New Zealand (50.0%)........ 500,000 500,000 600,000
Puerto Rico................ 3,000,000(1) 0 4,500,000
Angelika--New York (33.3%). 6,200,000 5,200,000 9,800,000
--------
(1)Liquidation value
70
Real Estate Analysis
Marshall & Stevens reviewed the appraisals, purchase agreements and other
data furnished by the management of the companies on numerous properties.
Discussions were held with Brett Marsh--Vice President of Real Estate of the
companies regarding the companies' real estate assets. Further discussions were
held with representatives of Reading regarding the Reading properties. A visual
inspection was made on the fee simple theaters in New York City, as well as a
confirmation of the zoning. Market participants were contacted to obtain
insights into the market place for the real estate being reviewed. Telephonic
inquiries to brokers, appraisers and market participants were made into the
Australian and New Zealand markets to obtain data on the various markets where
the Reading developments were located. The accumulated data have been
summarized in the Marshall & Stevens opinion. The chart below outlines Marshall
& Stevens' conclusions and ranges of value for the real estate.
Citadel
Adjusted Market Adjusted Market Adjusted Market
Value Most Likely Value Low Value High Appraised Value
- ----------------- --------------- --------------- ---------------
Rental Property Building--Glendale
Building........................ $16,100,000 $15,100,000 $17,100,000 $15,100,000
Union Square Theatres--NY......... 7,700,000 6,400,000 8,400,000 8,400,000
Royal George Theatre--Chicago..... 3,900,000 2,900,000 4,300,000 3,945,000
Minetta Lane Theatre--NY.......... 3,500,000 2,700,000 4,000,000 3,500,000
Orpheum Theatre--NY............... 1,500,000 1,500,000 2,000,000 1,500,000
Reading
Adjusted Market Adjusted Market Adjusted Market
Value Most Likely Value Low Value High Appraised Value
- ----------------- --------------- --------------- ---------------
Australian Real Estate
Bundaberg.......................... $ 1,100,000 $ 1,000,000 $ 1,200,000 $ 1,100,000
Perth (Belmont).................... 7,000,000 6,300,000 7,700,000 7,000,000
Auburn............................. 16,700,000 14,600,000 18,400,000 16,700,000
Moonee Ponds, Victoria............. 3,600,000 3,200,000 4,000,000 3,600,000
New Market, Queensland............. 3,200,000 2,700,000 3,500,000 2,700,000
Burwood, Victoria (Melbourne Area). 10,800,000 8,300,000 11,900,000 8,300,000
New Zealand Real Estate
Wellington Center (March 2002)..... 2,400,000 2,200,000 2,600,000 2,400,000
Wellington Adjacent Downtown....... 1,100,000 1,000,000 1,200,000 1,100,000
Wellington Parking Facility........ 5,100,000 4,600,000 5,600,000 5,100,000
Wangpora and Takapuna (2 Fee
Properties (50%) 1 Leasehold).... 600,000 600,000 600,000 600,000
Craig
Adjusted Market Adjusted Market Adjusted Market
Value Most Likely Value Low Value High Appraised Value
- ----------------- --------------- --------------- ---------------
Condo on Doheney Drive $600,000 $500,000 $600,000 N/A
Summary of Conclusions
Marshall & Stevens, in reaching their final conclusions, placed equal
(one-third) weight on the conversion ratios indicated by the current (July 11,
2001) stock prices, six-month average (January 12, 2001-July 11, 2001) stock
prices and adjusted market value--most likely scenario, which yielded a
conversion ratio conclusion of 1.17 for both Craig common stock and common
preference stock and 1.25 for Reading common stock.
71
In the opinion of Marshall & Stevens, it would not be appropriate for any
premium to be paid by any party in the consolidation transaction to the
stockholders of any other party to the consolidation since:
. The consolidation is a merger of equals, in which all stockholders will
receive the same consideration-- nonvoting common stock--and have the
opportunity to continue to enjoy the potential upside in the consolidated
company;
. The consolidation does not involve any change of control;
. The stockholders of Craig and Reading will represent a majority of the
equity ownership of the combined company; and
. The combined company will, under the name "Reading International, Inc.,"
continue the businesses of Craig and Reading under the same management
that is currently managing those businesses.
The summary set forth above does not purport to be a complete description of
the analyses performed by Marshall & Stevens but describes, in summary form,
the material elements of the presentations made by Marshall & Stevens to the
conflicts committees of the boards of directors of the companies on June 21,
2001 and to the full boards of directors on July 17 and 18, 2001 in connection
with the preparation of the Marshall & Stevens' opinion. The preparation of an
opinion involves various determinations as to the most appropriate and relevant
methods of financial analysis and the application of these methods to the
particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Each of the analyses conducted by Marshall
& Stevens was carried out in order to provide a different perspective on the
transaction and to add to the total mix of information available. Marshall &
Stevens did not form a conclusion as to whether any individual analysis,
considered in isolation, supported or failed to support an opinion as to
fairness from a financial point of view. Rather, in reaching its conclusion,
Marshall & Stevens considered the results of the analyses in light of each
other and ultimately reached its opinion based on the results of all analyses
taken as a whole. Accordingly, notwithstanding the separate factors summarized
above, Marshall & Stevens has indicated to the companies that it believes that
its analyses must be considered as a whole and that selecting portions of its
analyses and the factors considered by it, without considering all analyses and
factors, could create an incomplete view of the evaluation process underlying
its opinion.
Fee Arrangements with Financial Advisor
Pursuant to an engagement letter dated May 9, 2001, Marshall & Stevens has
been paid a fee of $234,000 in connection with the preparation and delivery of
its fairness opinion, which was shared equally by Citadel, Craig and Reading.
The companies also have agreed to pay Marshall & Stevens its customary fees for
any services that the companies may request that were not contemplated by the
engagement letter and to indemnify Marshall & Stevens against certain
liabilities, which may include liabilities under the federal securities laws,
relating to or arising out of Marshall & Stevens' engagement as financial
advisor.
There was no material relationship between any of the three companies and
Marshall & Stevens in the two years prior to Marshall & Stevens' engagement in
connection with the consolidation. Marshall & Stevens may in the future provide
investment banking or other financial advisory services to the combined company.
Interests of Directors, Officers and Affiliates in the Consolidation
When considering the recommendations of the boards of directors of Citadel,
Craig and Reading, you should be aware that some of the directors and officers
have interests in the consolidation that are different from, or are in addition
to, your interests. The boards of directors were aware of these differing
interests and considered them in making their recommendations.
James J. Cotter is the principal controlling stockholder of Craig, Reading
and Citadel. He owns or controls, directly or indirectly, a majority of the
voting power of both Craig and Reading and approximately 49% of the
72
voting power of Citadel. Mr. Cotter has advised the directors of the three
companies that while he favors a consolidation of the companies, he would not
support a transaction which, in his view, would materially and adversely affect
his control position with respect to the three companies. This advice
significantly influenced the determination to issue Citadel nonvoting common
stock, as opposed to Citadel voting common stock, in the consolidation.
Mr. Cotter will receive the same consideration in the consolidation as every
other stockholder of Craig and Reading. However, due to his ownership interest
in Citadel, the effect of the consolidation on him will be different from the
effect on persons who do not similarly own Citadel voting common stock prior to
the consolidation.
As a consequence of the consolidation, Mr. Cotter's direct and indirect
voting power will be reduced from a majority of the voting power of Craig and
Reading, and 49% of the voting power of Citadel, to approximately 24.5% of the
voting power of Citadel. However, it should be noted that:
. Mr. Cotter's long-time business associate and partner, Mr. Michael Forman,
will also own approximately 24.5% of the voting power of Citadel after the
consolidation. Accordingly, so long as they are in agreement as to
decisions effecting the consolidated company, they will effectively
control the consolidated company.
. After the consolidation, the number of outstanding shares of Citadel
voting common stock will be reduced from 1,989,585 to 1,336,330 shares.
This is due to the fact that the voting common stock currently owned by
Craig and Reading will, as a consequence of the consolidation, become
treasury shares, and will not be considered to be outstanding for voting
purposes. Accordingly, Mr. Cotter could significantly increase his voting
power with respect to the consolidated company by acquiring shares in the
open market. Given the size of the holdings of Messrs. Cotter and Forman,
we view it as unlikely that any competitor for control would attempt to
acquire such shares in competition with Mr. Cotter.
. Mr. Cotter will, immediately after the consolidation, own or have the
right to vote 5,771,161 shares of Citadel nonvoting common stock,
representing approximately 28% of such shares then outstanding. Mr. Cotter
could sell these nonvoting common shares and reduce his equity interest in
and investment exposure to the consolidated company, without adversely
effecting his voting power.
. Mr. Cotter will likely elect in the consolidation to convert his presently
outstanding options to purchase Craig common stock and Reading common
stock into options to purchase Citadel voting common stock. If he does so,
he will hold options to purchase 1,490,120 shares of Citadel voting common
stock, representing approximately 52.7% of that class taking into account
the issuance of the shares subject to those options. If exercised, Mr.
Cotter's voting interest in the combined company would increase from
approximately 24.5% to approximately 64.3%. These options will have
exercise prices ranging from $5.06 to $11.20 per share and a
weighted-average exercise price of $8.03 per share.
Mr. Cotter receives significant benefits from the companies not shared by
other stockholders. Mr. Cotter is paid an aggregate of approximately $545,000
annually by the companies in director fees and consulting fees, and serves as
the Chairman and Chief Executive Officer of each of the companies. Two of Mr.
Cotter's children--Ellen Cotter and Margaret Cotter--serve as officers or
directors of one or more of the companies, and Margaret Cotter provides certain
theater management services to an affiliate of Citadel on an independent
contractor basis. Over the twelve months ended September 30, 2001, the
aggregate payments to Ellen Cotter and Margaret Cotter (and her affiliates)
totaled approximately $185,611 and $279,274, respectively.
Mr. Cotter also is a significant creditor of Citadel. He:
. Holds a $2.25 million Citadel promissory note, which bears interest at the
current rate of 8.25% per annum and matures in July 2002.
73
. Is a 50% member in Sutton Hill Capital, LLC, which is the landlord to
Citadel Cinemas with respect to its Manhattan-based cinemas (other than
the Angelika) and to which Citadel has granted a $28 million line of
credit, available for draw by Sutton Hill Capital beginning in July 2007.
One of the effects of the consolidation will be to increase Citadel's
equity, which may enhance its ability to satisfy these obligations.
Mr. Cotter has advised the directors of Citadel, Craig and Reading that he
considers his investment in the companies to be long-term in nature, and that
he intends to pass on his investment to his estate for the benefit of his
children, including Ellen Cotter and Margaret Cotter. Mr. Cotter has further
advised the directors of the three companies that he believes that the three
companies should be operated on a combined basis, and that, in his view, the
best opportunity for the three companies is to use the assets available to them
to advance the opportunities in Australia and New Zealand which he believes are
reasonably available to Reading. Given the overlapping nature of his existing
ownership interests in Citadel, Craig and Reading. Mr. Cotter has, in effect,
already assumed the risks of an investment in the combined companies, and
accordingly may view the attractiveness of the consolidation differently than
stockholders who own shares in only one or two of the companies. The
consolidation will expose the holders of Citadel and Reading shares to risks to
which they are not currently exposed. See "RISK FACTORS--Risks Relating to the
Consolidation." Also, given his level of personal involvement in the direction
of Reading's activities in Australia and New Zealand, he may view the
opportunities there as more attractive than would Citadel or Craig
stockholders, who might prefer a domestic focus to their investments.
As of October 31, 2001, executive officers and directors of Craig, including
Mr. Cotter, held options to purchase a total of 664,940 shares of Craig common
stock at the weighted-average exercise price of $6.04 per share and 65,000
shares of Craig common preference stock at the weighted-average exercise price
of $6.65 per share. A total of 22,500 shares under those options were unvested.
Under the terms of the consolidation agreement, these options will become
options to purchase the equivalent number (based on the same conversion ratios
used in the consolidation for Craig common stock and common preference stock
and for Reading common stock) of shares of either Citadel voting common stock
or nonvoting common stock, at each option holder's election.
As of October 31, 2001, executive officers and directors of Reading,
including Mr. Cotter, held options to purchase a total of 790,232 shares of
Reading common stock at the weighted-average exercise of price of $12.79 per
share. A total of 30,500 shares under those options were unvested. Under the
terms of the consolidation agreement, these options will become options to
purchase the equivalent number (based on the same conversion ratios used in the
consolidation for Craig common stock and common preference stock and for
Reading common stock) of shares of either Citadel voting common stock or
nonvoting common stock, at each option holder's election.
James J. Cotter currently holds options to purchase 635,232 shares of
Reading common stock at the weighted-average exercise price of $13.30 per share
and 594,940 shares of Craig common stock at the weighted-average exercise price
of $5.92 per share. If Mr. Cotter elects to receive options to purchase Citadel
voting stock in the consolidation, he would, immediately following the
consolidation, hold options to purchase 1,490,120 shares of Citadel voting
common stock, or 52.7% of the outstanding Citadel voting common stock assuming
we were to exercise his options in full, at the weighted-average exercise price
of $8.03 per share. Taking into account his current stock holdings, as well,
this would give Mr. Cotter total beneficial ownership of 64.3% of the voting
power of Citadel after taking into effect the exercise of Citadel stock options.
In addition to Mr. Cotter, some of the executive officers of Citadel, Craig
and Reading and their affiliates are also directors of one or more of the
companies, or were otherwise involved in the development of the consolidation
transaction. In addition to Mr. Cotter, Mr. Tompkins is a director of each of
the three companies. Mr. Smerling, the President of Reading and of Citadel
Cinemas, is also a director of Reading. Mr. Matyczynski,
74
while employed by Craig, is the Chief Financial Officer of each of the three
companies. Messrs. Tompkins, Smerling and Matyczynski received compensation
aggregating $410,400, $219,900 and $180,000 with respect to the year ended
December 31, 2000 for their services to the three companies and their
affiliates. Messrs. Tompkins, Smerling and Matyczynski will benefit from the
consolidation in that their employment benefits, and severance arrangements
with Craig (in the case of Messrs. Tompkins and Matyczynski) and with Reading
(in the case of Messrs. Tompkins and Smerling) will be assumed by Citadel in
the consolidation.
Under the consolidation agreement, Citadel has agreed to honor Craig's and
Reading's obligations under the indemnification agreements between Craig and
Reading and their respective directors and officers. The Craig indemnification
agreements are identical to indemnification agreements currently in effect
between Citadel and its directors and officers. For more information on the
Citadel indemnification agreement, see the discussion under "PROPOSAL TO RATIFY
AND APPROVE THE FORM OF CITADEL INDEMNIFICATION AGREEMENT" beginning on page
.
As a result of the foregoing interests, the directors and officers of
Citadel, Craig and Reading could be more likely to vote to approve the
consolidation agreement and related matters than if they did not hold these
interests. You should consider whether these interests may have influenced
these directors and officers to support or recommend the consolidation.
PROPOSAL TO APPROVE THE CONSOLIDATION
This section of the joint proxy statement/prospectus describes the proposed
consolidation. While we believe that the description covers the material terms
of the consolidation and related transactions, this summary may not contain all
of the information that is important to you. You should carefully read this
entire joint proxy statement/prospectus and the accompanying documents for a
more complete understanding of the consolidation.
Completion and Effectiveness of the Consolidation
The consolidation will be completed when all of the conditions to its
completion are satisfied or waived, including approval and adoption of the
consolidation agreement and the Craig merger by the stockholders of Craig and
the approval and adoption of the consolidation agreement and the Reading merger
by the stockholders of Reading. The consolidation will become effective upon
the filing of articles of merger with the State of Nevada. We expect to
complete the consolidation promptly following the joint meetings of
stockholders of Citadel, Craig and Reading.
Structure of the Consolidation and Conversion of Stock and Options
Citadel has formed two wholly owned subsidiaries, Craig Merger Sub and
Reading Merger Sub. As provided in the consolidation agreement, Craig Merger
Sub will merge with and into Craig, and Reading Merger Sub will merge with and
into Reading. These two mergers are referred to in this joint proxy
statement/prospectus as the Craig merger and the Reading merger. The completion
of the Craig merger and the Reading merger are conditioned on completion of the
other, so neither merger will occur unless both occur.
On the effective date of the Craig merger and the Reading merger, Craig and
Reading will become wholly owned subsidiaries of Citadel, and Craig
stockholders and Reading stockholders will become stockholders of Citadel as
described in the following paragraphs. In connection with and as part of the
Reading merger, Reading's name will be changed to "Reading Holdings, Inc."
75
Craig Common Stock and Common Preference Stock
Upon effectiveness of the consolidation, each outstanding share of Craig
common stock and common preference stock will be automatically converted into
the right to receive 1.17 shares of Citadel nonvoting common stock.
Craig Options
Upon completion of the consolidation, each outstanding stock option of Craig
will be assumed by Citadel and become an option to purchase either Citadel
voting common stock or nonvoting common stock, at each option holder's
election. Each option will be exercisable for a number of whole shares of
either Citadel voting common stock or nonvoting common stock, at each option
holder's election, determined by multiplying 1.17 by the number of shares of
Craig common stock or common preference stock that were purchasable under the
option immediately prior to the consolidation. The number of shares of Citadel
common stock purchasable under the option will be rounded down to the nearest
whole share, without payment of any cash for fractional shares. The exercise
price per share of each option to purchase Citadel voting shares or nonvoting
shares will be the pre- consolidation exercise price divided by 1.17, so the
aggregate exercise prices of the outstanding Craig options will not be affected
by the consolidation. In each case, the exercise price will be rounded up to
the nearest whole cent.
Reading Common Stock
Upon completion of the consolidation, each outstanding share of Reading
common stock will be automatically converted into 1.25 shares of Citadel
nonvoting common stock.
Reading Options
Upon completion of the consolidation, each outstanding stock option of
Reading will be assumed by Citadel and become an option to purchase either
Citadel voting common stock or nonvoting common stock, at each option holder's
election. Each option will be exercisable for a number of whole shares of
either Citadel voting common stock or nonvoting common stock, at each option
holder's election, determined by multiplying 1.25 by the number of shares of
Reading common stock that would have been purchasable under the option
immediately prior to the consolidation. The number of shares of Citadel common
stock purchasable under the option will be rounded down to the nearest whole
share, without payment of any cash for fractional shares. The exercise price
per share of each option to purchase Citadel voting shares or nonvoting shares
will be the pre-consolidation exercise price divided by 1.25, so the aggregate
exercise prices of the outstanding Reading options will not be affected by the
consolidation. In each case, the exercise price will be rounded up to the
nearest whole cent.
The total number of Citadel shares to be issued in the consolidation
includes up to 1,841,820 shares of Citadel voting common stock or nonvoting
common stock issuable upon the exercise of currently outstanding Craig and
Reading stock options to be assumed by Citadel in the consolidation. The
currently outstanding Craig and Reading stock options to be assumed by Citadel
in the consolidation consist of:
. Options to purchase 135,000 shares granted under Craig's stock option
plans.
. Options to purchase 594,940 shares under individual Craig option
agreements with Citadel's controlling stockholder, James J. Cotter.
. Options to purchase 420,232 shares granted under Reading's stock option
plans.
. Options to purchase 370,000 shares under individual Reading option
agreements with Mr. Cotter.
As a result, there will be up to 1,841,820 shares of Citadel common stock
reserved for issuance pursuant to the replacement Citadel stock options that
will be issued in the consolidation. These shares will be either voting shares
or nonvoting shares, or a combination of voting and nonvoting shares, depending
on the election made by each option holder.
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The Citadel stock option plan is described below under "PROPOSAL TO AMEND
CITADEL'S 1999 STOCK OPTION PLAN" beginning on page . The material terms of
the stock options to be assumed and reissued in favor of Mr. Cotter are
summarized below:
Under the stock option agreement between Mr. Cotter and Craig, the options
granted under the agreement vested as of the date of the agreement. The options
granted to Mr. Cotter may be exercised only by Mr. Cotter or by (1) any
partnership, corporation or limited liability company for the benefit of or
owned directly or indirectly by Mr. Cotter and/or his children or heirs, or (2)
any trust, foundation or not-for-profit corporation established by Mr. Cotter.
These options expire on June 11, 2005.
In 1997, Mr. Cotter and Reading entered into a non-qualified option plan
entitling Mr. Cotter to purchase up to 370,000 shares of common stock. These
options are divided into three components, which became exercisable in four
equal installments over a similar vesting schedule. The exercise price of the
options exceeded the market price of the Reading common stock at the time the
options were granted. Mr. Cotter's options under the agreement are transferable
only (1) by will or by the laws of descent and distribution or (2) by Mr.
Cotter during his lifetime to any immediate family member or certain entities
owned or controlled by, or for the benefit of, Mr. Cotter and his immediate
family members. Mr. Cotter's option will terminate within 30 days after the
date of termination for cause or 120 days after the date of termination for any
reason other than for cause, death or retirement or disability of Mr. Cotter's
association with Reading. Upon retirement or disability, Mr. Cotter may for a
period of three years (or longer if determined by the Reading compensation
committee) exercise any option which were exercisable prior to such retirement
or disability. Upon Mr. Cotter's death, all vesting provisions which would be
satisfied solely by the passage of time will be accelerated and deemed
satisfied.
No Fractional Shares of Citadel Nonvoting Common Stock
No fractional shares of Citadel nonvoting common stock will be issued in the
consolidation. Instead of fractional shares, former Craig stockholders and
Reading stockholders will be entitled to receive cash in an amount to be
determined by multiplying their fractional share amount, after aggregating all
fractional shares for a former holder of Craig common stock and common
preference stock and Reading common stock, by the average closing price of
Citadel nonvoting common stock as reported on the American Stock Exchange for
the five trading days immediately prior to the effectiveness of the
consolidation.
Exchange of Craig and Reading Stock Certificates for Citadel Stock Certificates
When the consolidation is completed, Citadel's exchange agent will mail to
former Craig and Reading stockholders a letter of transmittal and instructions
for use in surrendering Craig and Reading stock certificates in exchange for
Citadel stock certificates. When you deliver your Craig or Reading stock
certificates to the exchange agent along with an executed letter of transmittal
and any other required documents, your Craig or Reading stock certificates will
be canceled and you will receive Citadel stock certificates representing the
number of full shares of Citadel common stock to which you are entitled under
the consolidation agreement. You will receive payment in cash, without
interest, instead of any fractional share of Citadel nonvoting common stock
which would have otherwise been issuable to you in the consolidation.
Citadel will only issue to former Craig and Reading stockholders a Citadel
stock certificate or a check in lieu of a fractional share in the name in which
the surrendered Craig or Reading stock certificate is registered. If Craig and
Reading stockholders wish to have their stock certificates issued in another
name, they must present the exchange agent with all documents required to show
and effect the unrecorded transfer of ownership and show that they paid any
applicable stock transfer taxes.
Craig and Reading stockholders should not submit their Craig and Reading
stock certificates for exchange until they receive the transmittal instructions
and a form of letter of transmittal from the exchange agent.
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No Dividends
Craig and Reading stockholders are not entitled to receive any dividends or
other distributions on Citadel nonvoting common stock until the consolidation
is completed and they have surrendered their Craig and Reading stock
certificates in conversion for Citadel stock certificates.
Subject to the effect of applicable laws, promptly following surrender of
Craig and Reading stock certificates and the issuance of the corresponding
Citadel certificates, former Craig and Reading stockholders will be paid the
amount of dividends or other distributions, if any, without interest, with a
record date after the completion of the consolidation which were previously
paid with respect to their whole shares of Citadel nonvoting common stock. At
the appropriate payment date, former Craig and Reading stockholders will also
receive the amount of dividends or other distributions, without interest, with
a record date after the completion of the consolidation (but prior to the
surrender of Craig and Reading share certificates) and a payment date after
they surrender their Craig and Reading stock certificates for Citadel stock
certificates.
Material United States Federal Income Tax Consequences of the Consolidation
The following discussion summarizes the material federal income tax
consequences of the consolidation that are generally applicable to holders of
Craig common stock and common preference stock and Reading common stock. This
discussion is based upon the advice of counsel to the companies, but the
companies have not obtained an opinion of counsel with respect to tax matters.
This discussion is based on existing authorities. These authorities may change,
or the Internal Revenue Service might interpret the existing authorities
differently. In either case, the tax consequences of the consolidation to the
holders of Craig common stock and common preference stock and Reading common
stock could differ from those described below. This discussion is for general
information only and does not provide a complete analysis of all potential tax
considerations that may be relevant to particular stockholders because of their
specific circumstances, or because they are subject to special rules. This
discussion does not describe the federal income tax consequences of
transactions other than the consolidation or the tax consequences of
consolidation under foreign, state or local law. This discussion also does not
address the federal income tax consequences of the consolidation to holders of
Craig stock options or Reading stock options.
Each holder of Craig common stock and common preference stock and each
holder of Reading common stock will recognize gain or loss measured by the
difference between the sum of the fair market value of the shares of Citadel
nonvoting common stock received in the consolidation, plus the amount of cash
received by the holder in lieu of a fractional share, and the holder's tax
basis in the Craig or Reading stock.
Stockholders are urged to consult their own tax advisors as to the specific
tax consequences of the consolidation, including the applicable federal, state,
local and foreign tax consequences to them of the consolidation in their
particular circumstances.
Accounting Treatment of the Consolidation
Citadel intends to account for the consolidation as a purchase of Craig and
Reading by Citadel for financial reporting and accounting purposes, in
accordance with generally accepted accounting principles.
Regulatory Filings and Approvals Required to Complete the Consolidation
None of the companies is aware of any material governmental or regulatory
approval required for completion of the consolidation, other than the
effectiveness of the registration statement of which this joint proxy
statement/prospectus is a part, and compliance with applicable corporation laws
of Nevada.
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Restrictions on Sales of Shares by Affiliates
The shares of Citadel nonvoting common stock to be issued in the
consolidation will be registered under the Securities Act. These shares will be
freely transferable under the Securities Act, except for shares issued to any
person who is an affiliate of any of Craig or Reading (or of Citadel). Persons
who may be deemed to be affiliates include individuals or entities that
control, are controlled by, or are under common control of Craig or Reading (or
of Citadel) and may include some of their respective officers and directors, as
well as their respective principal stockholders. Affiliates may not sell their
shares of Citadel nonvoting common stock acquired in the consolidation except
pursuant to:
. An effective registration statement under the Securities Act covering the
resale of those shares.
. An exemption under paragraph (d) of Rule 145 under the Securities Act.
. Any other applicable exemption under the Securities Act.
No Dissenters' or Appraisal Rights
Under Nevada Law, there are no dissenters' or appraisal rights available to
Citadel, Craig or Reading stockholders in connection with the consolidation.
Listing on the American Stock Exchange of Citadel Nonvoting Common Stock to be
Issued in the Consolidation
Citadel nonvoting common stock currently is listed on the American Stock
Exchange under the symbol "CDL.A." Citadel will apply to list the shares of
Citadel nonvoting common stock to be issued in the consolidation on the
American Stock Exchange under the new symbol "RDI.A" to reflect the proposed
change in the name of the consolidated company to "Reading International, Inc."
American Stock Exchange approval is subject to official notice of issuance
prior to the effectiveness of the consolidation.
Delisting and Deregistration of Craig and Reading Common Stock After the
Consolidation
If the consolidation is completed, Craig common stock and common preference
stock will be delisted from the New York Stock Exchange and Reading common
stock will no longer be quoted on The Nasdaq Stock Market, and the Craig common
stock and common preference stock and Reading common stock will be deregistered
under the Securities Exchange Act of 1934.
Craig stockholders also should bear in mind that, if the consolidation is
not completed, Craig common stock and common preferred stock is likely to be
delisted from the New York Stock Exchange as discussed under "THE
CONSOLIDATION--Background of the Consolidation" on page .
THE CONSOLIDATION AGREEMENT
The following is a brief summary of the material provisions of the
consolidation agreement among Citadel, Craig and Reading, dated as of August
17, 2001, a copy of which is attached as ANNEX A to this joint proxy
statement/prospectus. This summary is qualified in its entirety by reference to
the consolidation agreement. Stockholders of Citadel, Craig and Reading are
urged to read the consolidation agreement in its entirety because it, and not
this joint proxy statement/prospectus, is the legal contract that governs the
consolidation.
Effective Time of the Consolidation
If the consolidation agreement is approved by the stockholders of Citadel,
Craig and Reading, and all the terms and conditions are satisfied, the
consolidation will become effective upon the filing of properly executed
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articles of merger relating to the Craig merger and the Reading merger with the
Nevada Secretary of State, or at a later time as the parties will agree and set
forth in the articles of merger.
The consolidation agreement provides that, subject to the terms and
conditions of the consolidation agreement, Craig Merger Sub will merge with and
into Craig and the separate existence of Craig Merger Sub will cease to exist,
and Craig will be the surviving corporation, and Reading Merger Sub
concurrently will merge with and into Reading and the separate existence of
Reading Merger Sub will cease to exist, and Reading will be the surviving
corporation. Neither the Craig merger nor the Reading merger will occur unless
both occur.
Manner and Basis of Converting Shares
As of the effective time, by virtue of the consolidation and without any
action of the part of the holders of any capital stock:
. Each share of common stock, par value $0.25 per share, of Craig issued and
outstanding immediately prior to the effective time will be converted into
the right to receive 1.17 shares of Class A nonvoting common stock, par
value $0.01 per share, of Citadel. All Craig common stock, when so
converted, will no longer be outstanding and will be automatically
canceled and retired and will cease to exist. The holder of a certificate
of Craig common stock that, immediately prior to the effective time,
represented outstanding shares of Craig common stock will no longer have
any rights with respect to such Craig common stock except the right to
receive Citadel nonvoting common stock, without interest, upon surrender
of such Craig common stock certificate.
. Each share of Class A common preference stock, par value $0.01 per share,
of Craig issued and outstanding immediately before the effective time will
be converted into the right to receive 1.17 shares of the nonvoting common
stock of Citadel. All Craig common preference stock, when so converted,
will no longer be outstanding, will be automatically cancelled and retired
and cease to exist. The holder of such certificate of Craig common
preference stock that, immediately before the effective time, represented
outstanding shares of Craig common preference stock will cease having any
rights with respect to such shares of Craig common preference stock except
the right to receive Citadel nonvoting common stock, without interest,
upon the surrender of such Craig common preference stock certificate.
. Each share of common stock, par value $0.001 per share, of Reading issued
and outstanding immediately prior to the effective time will be converted
into the right to receive 1.25 shares of the Citadel nonvoting common
stock. All such Reading common stock, when so converted, will no longer be
outstanding and will be automatically canceled and retired and will cease
to exist. The holder of a certificate of Reading common stock that,
immediately prior to the effective time, represented outstanding shares of
Reading common stock will cease having any rights with respect to such
Reading common stock except the right to receive Citadel nonvoting common
stock, without interest, upon surrender of such Reading common stock
certificate.
. Each share of the Series A convertible redeemable preferred stock, par
value $0.001 per share, of Reading issued and outstanding immediately
before the effective time will remain outstanding and will not be affected
by the consolidation.
. Each share of Series B convertible preferred stock, par value $0.001 per
share, of Reading issued and outstanding immediately before the effective
time will remain outstanding and will not be affected by the consolidation.
. Each share of Citadel nonvoting common stock and each share of Citadel
Class B voting common stock, par value $0.01 per share, issued and
outstanding immediately before the effective time will remain outstanding
and will not be affected by the consolidation.
. All shares of common stock, par value $0.01 per share, of Craig Merger Sub
issued and outstanding will be automatically converted into one share of
Craig common stock and will be the only Craig common stock issued and
outstanding after the consolidation.
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. All shares of common stock, par value $0.01 per share, of Reading Merger
Sub issued and outstanding will be automatically converted into one share
of Reading common stock and will be the only Reading common stock issued
and outstanding after the consolidation.
No fractional shares of Citadel nonvoting common stock will be issued in the
consolidation, and fractional interests will not entitle the owner of such
fractional interests to vote or to any rights of a stockholder of Citadel. All
former holders of Craig common stock and common preferred stock and of Reading
common stock who would otherwise be entitled to receive fractional shares will
instead receive a payment determined by multiplying the fraction of a share of
Citadel nonvoting common stock to which the holder otherwise would be entitled
by the average closing price of Citadel nonvoting common stock as reported by
American Stock Exchange for the five trading days immediately prior to the
effective time of the consolidation.
All shares of Citadel nonvoting common stock issued upon the surrender of
certificates in accordance with the terms of the consolidation agreement will
be deemed to have been issued in full satisfaction of all rights pertaining to
those certificates and the Craig and Reading stock represented thereby.
Conversion Procedures
Promptly following the effective time of the consolidation, an exchange
agent will send a letter of transmittal to each holder of record of Craig and
Reading stock certificates along with instructions for effecting the surrender
of such Craig and Reading stock certificates in exchange for certificates
representing shares of Citadel stock (plus cash in lieu of fractional shares as
provided above). Upon the surrender of a Craig or Reading stock certificate for
cancellation, together with a duly executed and properly completed letter of
transmittal, the holder of the stock certificate will be entitled to receive
that number of whole shares of Citadel stock, and if applicable, cash pursuant
to the consolidation agreement. CRAIG AND READING STOCKHOLDERS SHOULD NOT SEND
IN THEIR STOCK CERTIFICATES UNTIL THEY RECEIVE THE LETTER OF TRANSMITTAL.
If your Craig or Reading stock certificate has been lost, stolen or
destroyed, you may make an affidavit of that fact, and if required by Citadel,
post a bond in such reasonable amount as Citadel may direct as indemnity
against any claim that may be made against it with respect to such Craig or
Reading stock certificate. Upon the receipt of the affidavit and bond, if any,
the exchange agent will issue in exchange for such lost, stolen or destroyed
Craig or Reading stock certificate, the requisite number of Citadel nonvoting
common stock, as set forth in the consolidation agreement, and if applicable,
cash in lieu of any fractional share.
Treatment of Stock Options
At the effective time of the consolidation, automatically and without any
action on the part of the holder of a Craig or Reading stock option, each
outstanding stock option of Craig and Reading outstanding at the effective time
of the consolidation will be assumed by Citadel and become an option to
purchase shares of either Citadel nonvoting common stock or Citadel voting
common stock, as specified in a written election by the holder of such option.
If no election is made, a Craig option holder or Reading option holder will
receive options to purchase Citadel nonvoting common stock. The number of
shares of Citadel nonvoting common stock or voting common stock purchasable
under the options will be determined by multiplying the number of shares of
Craig or Reading stock, as applicable, issuable upon the exercise of such
option by the applicable conversion ratio for Craig stock or Reading stock in
the consolidation. The number of shares of Citadel common stock purchasable
under the options will be rounded down to the nearest whole share, without
payment of cash for any fractional shares. The options will be exercisable at
an exercise price per share equal to the per share exercise price of such Craig
or Reading option divided by the applicable conversion ratio for such stock in
the consolidation, and otherwise upon the same terms and conditions as such
outstanding options to purchase the Craig and Reading options. In each case,
the exercise price will be rounded up to the nearest whole cent.
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Following the consolidation, Citadel will file a registration statement with
the Securities and Exchange Commission covering the shares of Citadel common
stock issuable with respect to the options assumed in the consolidation.
For further information regarding the treatment of stock options, see the
discussion under "STOCK OPTIONS ELECTION" below.
Representations and Warranties
The consolidation agreement contains certain representations and warranties
made by Craig, Reading and Citadel. The following are reciprocal
representations and warranties made by each party:
. Each party is a corporation duly organized, validly existing and in good
standing under Nevada law.
. Each of the subsidiaries of each of the three corporations are
corporations duly organized, validly existing and in good standing under
the law of its jurisdiction.
. Each party and its subsidiaries are not in default in any observation,
performance or fulfillment of any provision of their articles of
incorporation or bylaws.
. Each party has the authorized capital stock, as set forth in the
consolidation agreement.
. Each party has full corporate power and authority to execute and deliver
the consolidation agreement.
. Each party's performance under the consolidation agreement, subject to the
appropriate statutory and regulatory approvals, will not result in the
violation of any other obligations.
. Each party has filed the appropriate documents with the Securities and
Exchange Commission.
. Each party has disclosed complete and accurate financial statements.
. Except as disclosed in Securities and Exchange Commission reports filed
prior to the date of the consolidation agreement, no party or any of their
subsidiaries have incurred any liability or obligations that may adversely
affect the respective company.
. Except as disclosed in Securities and Exchange Commission reports filed
prior to the date of the consolidation agreement, all parties have
conducted their business in the ordinary course consistent with the past
and no developments or changes have occurred that would have an adverse
effect on the respective company.
. The parties and their subsidiaries have timely filed all tax returns, paid
all taxes as of the closing date and do not have any audits pending or
threatened.
. Except as disclosed in Securities and Exchange Commission reports filed
prior to the date of the consolidation agreement, no parties, their
subsidiaries or any directors and officers thereof have any suits, claims,
actions or proceedings, pending or threatened.
. The parties have disclosed all employee benefit plans or similar
arrangements.
. The parties have complied with the appropriate federal and state
environmental, health and safety laws, statutes and regulations.
. The parties hold all material approvals, licenses, permits, registrations
and other authorizations necessary for the lawful conduct of their
businesses.
. The parties currently have in place all policies of insurance reasonably
required in the operation of their businesses.
. No party has any labor disputes or complaints and the parties are
otherwise in full compliance with the applicable labor laws and
regulations.
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. The parties have disclosed all contracts, leases, agreements, arrangements
or understandings, and all such contracts, leases, agreements,
arrangements or understandings are in full force and no party is in breach
or default of such contracts, leases, agreements, arrangements or
understandings.
. Each party will obtain the vote or consent of the stockholders entitled to
vote on the consolidation agreement.
. No party has disclosed any untrue statement of material fact or omitted
any material fact in its registration statement, prospectus and proxy
statement, as filed with the Securities and Exchange Commission.
. The parties and their subsidiaries own or are licensed to use all
intellectual property currently being used in the conduct of their
businesses.
. No party has or will pay any finder fees or other commissions to any
broker, finder or investment banker (other than Marshall & Stevens
Incorporated) in connection with the consolidation agreement.
. The board of directors of each party has received an opinion to the effect
that the stock conversion ratio is fair from a financial point of view.
. In addition to the representations and warranties set forth above, Citadel
represents and warrants to Craig and Reading the following:
. It has the authority to issue the appropriate shares of nonvoting common
stock required to complete the transactions contemplated by the
consolidation agreement.
. It will list on the American Stock Exchange the additional Citadel voting
and nonvoting shares issuable in connection with the consolidation.
All the representations and warranties that the parties have made in the
consolidation agreement will expire at the effective time of the consolidation.
The representations and warranties in the consolidation agreement are
complicated and not easily understood. You are urged to read carefully Articles
IV, V and VI of the consolidation agreement, which set forth the
representations and warranties of each party.
Conduct of Business Prior to the Consolidation
Citadel, Craig and Reading have agreed that, prior to the completion of the
consolidation, unless contemplated by the consolidation agreement or otherwise
consented to in writing by the other parties, that Citadel, Craig and Reading
will and will cause its subsidiaries to conduct their respective businesses in
the ordinary course consistent with past practice and will use reasonable
efforts to preserve intact their business organizations and relationships with
third parties and to keep available the services of their present officers and
key employees subject to the terms of the consolidation agreement.
Citadel, Craig and Reading have agreed that, until the effective time of the
consolidation, subject to certain exceptions and unless consented to in writing
by the other parties, they will not do and will not permit any of their
subsidiaries to do any of the following:
. Adopt or propose any changes to their articles of incorporation of bylaws.
. Declare, set aside or pay any dividend or other distribution with respect
to any capital stock of the respective company or repurchase, redeem or
otherwise acquire any outstanding shares of capital stock or other
securities of, or other ownership interests in the respective company.
. Merge, consolidate with any other person or acquire assets of any other
person except in the ordinary course of business or transactions among
wholly-owned subsidiaries of the respective company.
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. Sell, lease, license or otherwise surrender, relinquish or dispose of any
material assets or properties or transactions other than among
wholly-owned subsidiaries of the respective company, except in the
ordinary course of business.
. Issue any securities or enter into any amendment of any term of any
outstanding security.
. Change any method of accounting or accounting practice, except for any
changes required by generally accepted accounting principles.
. Take any action that would give rise to a claim under the Worker
Adjustment and Retraining Notification Act or any similar state law or
regulation.
. Become bound to any obligation or obligate to participate in any operation
or consent to participate in any operation that will individually cost in
excess of $5.0 million, unless the operation is a currently existing
obligation of the respective company or its subsidiaries.
. Take, agree or commit to take any action that would make any
representation and warranty of the respective company hereunder inaccurate
in any material respect prior to the effective time of the consolidation.
. Adopt, amend, or assume any obligation to contribute to any employee
benefit plan or severance plan or enter into, amend or modify any
employment, severance or similar contract with any person.
. Make any election under any of their stock option plans to pay cash in
conversion for terminating awards under such plans.
. Agree or commit to do any of the foregoing.
Employee Matters and Benefit Plans
Citadel, Craig and Reading will evaluate their personnel needs and consider
continuing the employment of certain employees of the companies and their
subsidiaries on a case-by-case basis. After the effective time of the
consolidation, Citadel will initially provide to any employees of Citadel,
Craig and Reading and their subsidiaries who are employed by Citadel, Craig or
Reading and their respective subsidiaries as of the effective time
substantially the same base salary or wages provided subject to such changes in
base salary or wages as will be determined by Citadel after the effective time.
Citadel will take all reasonable actions necessary or appropriate to permit
such employees to continue to participate from and after the effective time in
the employee benefit plans or arrangements in which such employees were
participating immediately prior to the effective time. Notwithstanding the
foregoing, Citadel may permit any such employee benefit plan or arrangement to
be terminated or discontinued on or after the effective time, provided that
Citadel will take all reasonable action necessary to permit such employees to
participate in benefit plans comparable to those maintained with respect to
other employees.
At the effective time, Citadel will assume the obligations of the Craig and
Reading under the Craig benefit plans, the Reading benefit plans and any
employment contracts or severance agreements between Craig and any of its
employees and Reading and any of its employees. The terms of each such Craig
benefit plan and Reading benefit plan will continue to apply in accordance with
their terms. Subject to certain restrictions and conditions, at the effective
time, each outstanding award (including restricted stock, phantom stock, stock
equivalents and stock units) under any employee incentive or benefit plans,
programs or arrangements and non-employee director plans presently maintained
by Craig or Reading which provide for grants of equity-based awards shall be
amended or converted into a similar instrument of Citadel, in each case with
such adjustments to the terms of such awards as are appropriate to preserve the
value inherent in such awards with no detrimental effects on the holders
thereof.
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Voting Covenants
James J. Cotter, Craig and Reading have agreed in the consolidation
agreement to vote Citadel shares held by them in favor of the issuance of
Citadel shares in connection with the consolidation and related matters. Mr.
Cotter also has agreed in the consolidation agreement to vote his Craig shares
and Reading shares in favor of the consolidation agreement. Craig also has
agreed in the consolidation agreement to vote its Reading shares in favor of
the consolidation agreement.
Conditions to Consummation of the Consolidations
Conditions to the Obligations of the Each Party
Our respective obligations to effect the consolidation are subject to the
fulfillment, at or prior to the effective time, of the following conditions:
. Citadel stockholders, Craig stockholders and Reading stockholders approve
the proposed transactions.
. No action, suit or proceeding instituted by any governmental authority is
pending, and there is no statute, rule, regulation, executive order,
decree, ruling or injunction of any court or governmental authority
prohibiting the consummation of the consolidation or making the
consolidation illegal.
. The Securities and Exchange Commission declares the registration statement
effective under the Securities Act, and no stop order or similar
restraining order suspending the effectiveness of the registration
statement is in effect and no proceeding for that purpose is pending
before or threatened by the Securities and Exchange Commission.
. We have obtained such permits, authorizations, consents or approvals
required to consummate the transaction contemplated in the consolidation
agreement.
. The shares of Citadel nonvoting common stock to be issued in the
consolidation will have been approved for listing on the American Stock
Exchange, subject to official notice of issuance.
. Marshall & Stevens has not withdrawn its fairness opinion, or modified it
in any materially adverse way.
Conditions to the Obligations of Citadel
The obligations of Citadel to effect the consolidation are subject to the
fulfillment, at or prior to the effective time, of the following additional
conditions:
. Craig and Reading will have performed in all material respects their
obligations under the consolidation agreement required to be performed by
them at or prior to the effective time and the representations and
warranties of Craig and Reading contained in the consolidation agreement,
to the extent qualified with respect to materiality will be true and
correct in all respects, and to the extent not so qualified will be true
and correct in all material respects, in each case as of the date of the
consolidation agreement and at and as of the effective time as if made at
and as of such time unless otherwise expressly contemplated by the
consolidation agreement.
. All proceedings to be taken by Craig and Reading in connection with the
transactions contemplated by the consolidation agreement and all
documents, instruments, certificates to be delivered by Craig and Reading
in connection with the transactions contemplated by the consolidation
agreement will be reasonably satisfactory in form and substance to Citadel
and its counsel.
. From the date of the consolidation agreement through the effective time,
neither Craig nor Reading nor any of their subsidiaries will have any
change in their financial condition, business operations or prospects.
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Conditions to the Obligations of Craig
The obligations of Craig to effect the consolidation are subject to the
fulfillment, at or prior to the effective time, of the following additional
conditions:
. Citadel and Reading will have performed in all material respects their
obligations under the consolidation agreement required to be performed by
them at or prior to the effective time and the representations and
warranties of Citadel and Reading contained in the consolidation
agreement, to the extent qualified with respect to materiality will be
true and correct in all respects, and to the extent not so qualified will
be true and correct in all material respects, in each case as of the date
of the consolidation agreement and at and as of the effective time as if
made at and as of such time unless otherwise expressly contemplated by the
consolidation agreement.
. All proceedings to be taken by Citadel and Reading in connection with the
transactions contemplated by the consolidation agreement and all
documents, instruments, certificates to be delivered by Citadel and
Reading in connection with the transactions contemplated by the
consolidation agreement will be reasonably satisfactory in form and
substance to Craig and its counsel.
. From the date of the consolidation agreement through the effective time,
neither Citadel nor Reading nor any of their subsidiaries will have any
change in their financial condition, business operations or prospects.
Conditions to the Obligations of Reading
The obligations of Reading to effect the consolidation are subject to the
fulfillment, at or prior to the effective time, of the following additional
conditions:
. Citadel and Craig will have performed in all material respects their
obligations under the consolidation agreement required to be performed by
them at or prior to the effective time and the representations and
warranties of Citadel and Craig contained in the consolidation agreement,
to the extent qualified with respect to materiality will be true and
correct in all respects, and to the extent not so qualified will be true
and correct in all material respects, in each case as of the date of the
consolidation agreement and at and as of the effective time as if made at
and as of such time unless otherwise expressly contemplated by the
consolidation agreement.
. All proceedings to be taken by Citadel and Craig in connection with the
transactions contemplated by the consolidation agreement and all
documents, instruments, certificates to be delivered by Citadel and Craig
in connection with the transactions contemplated by the consolidation
agreement will be reasonably satisfactory in form and substance to Reading
and its counsel.
. From the date of the consolidation agreement through the effective time,
neither Citadel nor Craig nor any of their subsidiaries will have any
change in their financial condition, business operations or prospects.
Waiver of Conditions
Citadel, Craig or Reading may, in its discretion, waive any condition to its
obligations under the consolidation agreement. If any of the companies waives
any condition to completion of the consolidation, each company will each
consider the facts and circumstances at that time and make a determination
whether a resolicitation of proxies from its stockholders is necessary or
appropriate.
Expenses
Except as provided in the consolidation agreement, all expenses incurred by
the parties hereto will be borne solely and entirely by the party that has
incurred such expenses. Such expenses include all reasonable out-of-
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pocket expenses (including, without limitation, all reasonable fees and
expenses of counsel, accountants, investment bankers, experts and consultants
to a party hereto and its affiliates) incurred by a party or on its behalf in
connection with or related to the authorization, preparation, negotiation,
execution and performance of the consolidation agreement, the preparation,
printing, filing and mailing of the Registration Statement, the Proxy
Statement/Prospectus, the solicitation of stockholder approvals, other
regulatory filings and all other matters related to the consummation of the
transactions contemplated hereby.
However, the expenses of Citadel, Craig and Reading for certain specified
expenses (including certain fees and expenses of accountants, experts, and
consultants, but excluding the fees and expenses of legal counsel and
investment bankers) related to preparing, printing, filing and mailing the
registration statement, this joint proxy statement/prospectus and all
Securities and Exchange Commission and other regulatory filing fees incurred in
connection with the registration statement, this joint proxy
statement/prospectus and all other applicable regulatory filings will be
allocated among the parties as agreed to by the parties. For more information
regarding the anticipated expenses of the consolidation, see "UNAUDITED PRO
FORMA CONSOLIDATED CONDENSED COMBINED FINANCIAL STATEMENTS."
Termination of the Consolidation Agreement
The consolidation agreement may be terminated at any time and the
consolidation may be abandoned prior to the effective time, whether before or
after approval by the stockholders of Citadel, Craig and Reading:
. By our mutual written consent.
. By any of us in certain circumstances if the effective time has not
occurred on or before January 30, 2002.
. By any of us if there has been a breach of any representation, warranty,
covenant or agreement on the part of the other parties set forth in the
consolidation agreement, which breach would, if uncured, cause certain
closing conditions not to be satisfied and which breach shall not have
been cured within 20 business days after notice of such breach.
. By Citadel if there has been a breach of any representation, warranty,
covenant or agreement on the part of Craig or Reading set forth in the
consolidation agreement, which breach would, if uncured, cause certain
closing conditions not to be satisfied and which will not have been cured
within 20 business days after notice of such breach.
. By any of us if any governmental authority or court of competent
jurisdiction will have enacted, issued, promulgated, enforced or entered
any law or governmental order making the consummation of the consolidation
illegal or otherwise prohibiting the consolidation and such governmental
order will have become final and nonappealable, provided that the party
seeking to terminate the consolidation agreement will have used its
reasonable best efforts to remove or lift such governmental order.
. By any of us if the requisite stockholder approval is not obtained upon a
vote at a duly held meeting of stockholders or at any adjournment or
postponement thereof.
In the event of termination of the consolidation agreement and the
abandonment of one or more of the mergers pursuant to the consolidation
agreement, all obligations of the parties will terminate, except the
obligations of the parties pursuant to the termination provision and except for
the provisions regarding expenses, publicity and attorneys' fees, access and
confidential information, provided that no party will be relieved from
liability for any breach of the consolidation agreement.
AGREEMENTS RELATED TO THE CONSOLIDATION
This section of the joint proxy statement/prospectus describes agreements
related to the consolidation agreement. While we believe that these
descriptions cover the material terms of these agreements, these summaries may
not contain all of the information that is important to you.
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Craig Affiliate Agreements
As a condition to the exchange of their Craig stock certificates for Citadel
nonvoting common stock certificates, the affiliates of Craig have agreed to
execute an affiliate agreement. Under the affiliate agreement, such affiliates
must agree to not make any offer to sell or sell any of the Citadel shares of
nonvoting common stock that such affiliates have received in the consolidation
in violation of the Securities Act, including Rule 145. Further, the affiliates
must agree that they have been advised that their shares of Citadel nonvoting
common stock are registered on Form S-4, but that any sale of such shares by
them must be registered or an exemption found thereto. Further, the affiliate
agreement states that Citadel will be entitled to (1) issue stop transfer
instructions to the transfer agent with respect to the transfer of such
affiliates' shares of Citadel nonvoting common stock and (2) place legends on
the such certificates, which state that such certificates were issued in a Rule
145 transaction and any resale of such stock must be in compliance with Rule
145 or an available exemption from registration under the Securities Act.
Reading Affiliate Agreements
As a condition to the exchange of their Reading stock certificates for
Citadel nonvoting common stock certificates, the affiliates of Reading have
agreed to execute an affiliate agreement. Under the affiliate agreement, such
affiliates must agree to not make any offer to sell or sell any of the Citadel
shares of nonvoting common stock that such affiliates have received in the
consolidation in violation of the Securities Act, including Rule 145. Further,
the affiliates must agree that they have been advised that their shares of
Citadel nonvoting common stock are registered on Form S-4, but that any sale of
such shares by them must be registered or an exemption found thereto. Further,
the affiliate agreement states that Citadel will be entitled to: (1) issue stop
transfer instructions to the transfer agent with respect to the transfer of
such affiliates' shares of Citadel nonvoting common stock and (2) place legends
on the such certificates, which state that such certificates were issued in a
Rule 145 transaction and any resale of such stock must be in compliance with
Rule 145 or an available exemption from registration under the Securities Act.
STOCK OPTIONS ELECTION
As described above under "THE CONSOLIDATION--Craig Options" and "--Reading
Options," Citadel will automatically assume the outstanding stock options of
Craig and Reading as part of the consolidation. This section describes the
steps that Craig and Reading option holders must take in order to specify
whether their assumed Craig options or Reading options will be exercisable for
shares of Citadel nonvoting common stock or for shares of Citadel voting common
stock.
Procedure for Making Your Election
You may elect to have your assumed options be exercisable for Citadel voting
common stock or nonvoting common stock. Citadel voting common stock and
nonvoting common stock are identical in all respects, with the exception that
the nonvoting common stock carries no voting rights except in limited
circumstances as required by Nevada law. For the reasons discussed in the
answer to the question "Why Are Craig and Reading Stock Option Holders Being
Given An Election To Have Their Options Converted Into Options To Purchase
Either Citadel Voting Shares or Nonvoting Shares" on page of this joint proxy
statement/prospectus, we believe that there will be greater liquidity in the
Citadel nonvoting shares after the consolidation than in the voting shares and
that the voting rights attendant to the Citadel voting shares may be of limited
value as a practical matter. We make no recommendation, however, as to whether
an option holder should elect to receive an option to purchase Citadel
nonvoting shares or voting shares, and you must make your own decision in this
regard.
You should complete and sign the notice of election form that accompanies
this joint proxy statement/prospectus and return it to Citadel on or before
December 26, 2001, the date of the joint meetings of stockholders
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of the companies. Citadel, however, reserves the right to extend the date by
which delivery of notices of election must be made. If you do not return your
election, or if you return your election but do not specify a choice as to
Citadel voting common stock or nonvoting common stock, then you will be deemed
to have elected to receive options to purchase Citadel nonvoting common stock.
All questions as to the validity, form, eligibility, including time of
receipt, and acceptance of the notice of election will be determined by Citadel
in its sole discretion. This determination will be final and binding. The
interpretation of the terms and conditions of the assumption offer as to any
particular option either before or after the effective date of the
consolidation, including the notice of election and the related instructions,
by Citadel will be final and binding on all parties. Unless waived, any defects
or irregularities in connection with deliveries of notices of election must be
cured within a reasonable period of time that Citadel will determine. Neither
Citadel nor Craig or Reading will be under any duty to give notification of any
defect or irregularity with respect to any option assumption, and will not be
liable for failure to give any notification.
Resales of Option Shares
The assumed options, as well as the shares of Citadel common stock issuable
upon exercise of the assumed options, will continue to be subject to
restrictions on transfers. In general, the options will not be transferable,
and the shares of Citadel common stock issuable upon their exercise may not be
offered or sold unless they are covered by a current, effective registration
statement under the Securities Act. Citadel has agreed in the consolidation
agreement that it will file a registration statement under the Securities Act
covering the Citadel common stock issuable under the assumed options after the
consolidation is completed.
No Guarantee of Employment
Citadel's assumption of your Craig or Reading option is not a guarantee that
you will be employed, or will continue to be employed, by Citadel or any of its
subsidiaries, including Craig and Reading.
Acceptance of Options for Exchange and Delivery of Assumed Options
Citadel will accept all options properly tendered under the notice of
election and will exchange them for Citadel options promptly after the
consolidation is completed.
Cancellation of Options
Upon the assumption of your options by Citadel, your Craig options or
Reading options will be cancelled and may no longer by exercised.
Delivery of Notices
All executed notices of election should be hand-delivered or sent via mail,
in time that they are received prior to December 26, 2001, to Citadel at the
address set forth below or sent via facsimile to the number set forth below. We
recommend that you use registered mail, return receipt requested. Questions and
requests for assistance, requests for additional copies of this document or of
the notice of election should be directed to Citadel, addressed as follows:
By mail or by hand:
Citadel Holding Corporation
Suite 1825
550 South Hope Street
Los Angeles, California 90071
Attention: Andrzej Matyczynski
Delivery of the notice of election to an address other than as set forth
above does not constitute valid delivery.
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PROPOSAL TO AMEND CITADEL'S 1999 STOCK OPTION PLAN
This section of the joint proxy statement/prospectus describes the proposal
to amend Citadel's 1999 stock option plan in connection with the consolidation.
The amendment, which was adopted by the board of directors of Citadel on August
16, 2001, will increase the number of shares of Citadel common stock reserved
for issuance under the plan from 660,000 to 1,350,000. The purposes of the
amendment are to allow for Citadel's assumption of currently outstanding Craig
stock options and Reading stock options as provided in the consolidation
agreement and to afford the consolidated company more available options for
grant to participants in its options plan. The amendment will become effective,
assuming it is approved at the joint meetings, concurrently with the
effectiveness of the consolidation, assuming it is completed. The text of the
amendment is attached as ANNEX C to this joint proxy statement/prospectus.
1999 Stock Option Plan
Citadel's 1999 stock option plan was adopted by Citadel's board of directors
on November 18, 1999 and approved by the stockholders of Citadel on September
12, 2000.
The key terms of Citadel's stock option plan are outlined below:
. Currently, the plan provides that options covering no more than 660,000
shares of Citadel common stock may be granted under the plan; however, if
the proposed amendment to the plan is approved by Citadel stockholders at
the Citadel annual meeting, this limitation will be increased to 1,350,000
shares, which may consist of either voting shares or nonvoting shares, or
any combination of voting and nonvoting shares.
. No eligible person may be granted options covering more than 100,000
shares in any twelve-month period.
. The stock option plan provides for the grant of options to officers,
directors, employees and consultants of Citadel and its affiliates.
. The plan is administered by the Citadel board of directors or a committee
of the board, which has discretion to select the optionees and to
establish the terms and conditions of each option, subject to the
provisions of the plan. If necessary in order to comply with Rule 16b-3
under the Securities Exchange Act of 1934 and Section 162(m) of the
Internal Revenue Code, or the Code, the committee will, in the board's
discretion, be comprised solely of "non-employee directors" within the
meaning of Rule 16b-3 and "outside directors" within the meaning of
Section 162(m) of the Code.
. Options granted under the plan may be "incentive stock options" as defined
in Section 422 of the Code, or nonqualified options, as designated in the
relevant stock option agreement.
. The exercise price of incentive stock options may not be less than the
fair market value of Citadel's common stock as of the date of grant or
110% of the fair market value if the grant is to an employee who owns more
than 10% of the total combined voting power of all classes of capital
stock of Citadel or of any affiliate.
. Nonqualified options may be granted under the plan at an exercise price
less than the fair market value of Citadel common stock on the date of
grant. The exercise price of any grant to any person who owns more than
10% of the total combined voting power of all classes of capital stock of
Citadel or of any affiliate may not be less than 110% of the fair market
value of the stock at the time of the grant.
. In general, upon termination of employment of an optionee, all options
granted to such person that are not exercisable on the date of such
termination will immediately terminate, and any options that are
exercisable may be exercised within 90 days of the termination of
employment.
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. Options may not be exercised more than ten years after the grant date
(five years after the grant date if the grant is an incentive stock option
to any person who owns more than 10% of the total combined voting power of
all classes of Citadel capital stock).
. Except with the express approval of the administrator with respect to
nonqualified options, options granted under the stock option plan are not
transferable and may be exercised only by the respective grantees during
their lifetime or by their heirs, executors or administrators in the event
of death.
. Shares subject to options granted under the option plan which expire,
terminate or are cancelled without being exercised will be reserved for
subsequently granted options. The number and exercise prices of options
outstanding are subject to adjustment in the case of certain transactions
such as stock splits, reverse stock splits, stock dividends,
recapitalizations, combinations or reclassifications, or if Citadel
effects a spin-off of a subsidiary.
. The plan is effective for ten years, unless sooner terminated or
suspended.
Certain Federal Income Tax Consequences
If an option is treated as an incentive stock option, the optionee will
recognize no income upon grant or exercise of the option unless the alternative
minimum tax rules apply. Upon an optionee's sale of the shares (assuming that
the sale occurs at least two years after grant of the option and at least one
year after exercise of the option), any gain will be taxed to the optionee
under beneficial capital gains tax rates. If the optionee disposes of the
shares prior to the expiration of the above holding periods, then the optionee
will recognize ordinary income in an amount generally measured as the
difference between the exercise price and the lower of the fair market value of
the shares at the exercise date or the sale price of the shares. Any gain or
loss recognized on such a premature sale of the shares in excess of the amount
treated as ordinary income will be capital gain or loss. The maximum federal
tax rate applicable to shares held for more than 12 months, but less than 18
months, is 28% and the maximum federal tax rate applicable to shares held for
at least 18 months is 20%.
All other options granted under Citadel's stock option plan are nonqualified
stock options and will not qualify for any special tax benefits to the
optionee. An optionee generally will not recognize any taxable income at the
time he or she is granted a nonqualified stock option. However, upon exercise
of the nonqualified stock option, the optionee will recognize ordinary income
for federal income tax purposes in an amount equal to the excess of the then
fair market value of each share over its exercise price. Upon an optionee's
resale of such shares, any difference between the sale price and the fair
market value of such shares on the date of exercise will be treated as capital
gain or loss and will generally qualify for beneficial capital gains rates
depending on the length of the holding period.
Subject to the limits on deductibility of employee remuneration under
Section 162(m) of the Code, Citadel will generally be entitled to a tax
deduction in the amount that an optionee recognizes as ordinary income with
respect to an option. Options granted to executive officers under the plan are
intended to qualify as performance-based compensation for purposes of Section
162(m) of the Code, and Citadel will generally be entitled to a tax deduction
in the amount recognized by such officers upon exercise of the options. No tax
authority or court has ruled on the applicability of Section 162(m) to the
plan, and any final determination of the deductibility of amounts realized upon
exercise of an option granted under the plan could ultimately be made by the
Internal Revenue Service or a court having final jurisdiction with respect to
the matter. Citadel retains the right to grant options under the stock option
plan in accordance with the terms of the plan regardless of any final
determination as to the applicability of Section 162(m) of the Code to these
grants.
Vote Required
Approval of the proposal to amend Citadel's 1999 stock option plan will
require the affirmative vote of a majority of the outstanding shares of Citadel
voting common stock present and voted at the Citadel annual meeting. James J.
Cotter, Craig and Reading are obligated under the consolidation agreement to
vote 981,063 shares, representing approximately 49% of the outstanding shares
of Citadel voting common stock, in favor of the proposal.
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Recommendation of Board of Directors as to the Amendment
The Citadel board of directors unanimously approved the amendment to
Citadel's 1999 stock option plan and recommends that Citadel stockholders vote
FOR the proposal to adopt the amendment to the plan.
PROPOSAL TO AMEND CITADEL'S ARTICLES OF INCORPORATION
This section of the joint proxy statement/prospectus describes the proposal
to amend Citadel's articles of incorporation in connection with the
consolidation, assuming it is approved at the joint meetings and completed. The
amendment to Citadel's articles of incorporation is attached as ANNEX D to this
joint proxy statement/prospectus.
On August 16, 2001, in connection with its approval of the consolidation
agreement, the board of directors of Citadel approved an amendment to the
articles of incorporation of Citadel to change the name of the company from
Citadel Holding Corporation to "Reading International, Inc.". The amendment
will become effective, assuming it is approved at Citadel's annual meeting,
concurrently with the effective date of the consolidation, assuming it is
completed.
We believe that the new name will better reflect the consolidated company's
business following completion of the consolidation.
Following the name change, Citadel's outstanding shares of common stock will
continue to be represented by existing stock certificates unless and until they
are submitted to Citadel's transfer agent in connection with a proposed share
transfer. YOU SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH YOUR CITADEL PROXY.
Vote Required
Approval of the proposal to amend Citadel's articles of incorporation will
require the affirmative vote of a majority of the outstanding shares of Citadel
voting common stock. James J. Cotter, Craig and Reading are obligated under the
consolidation agreement to vote 981,063 shares, representing approximately 49%
of the outstanding shares of Citadel voting common stock, in favor of the
proposal.
Recommendation of Board of Directors as to the Amendment
The Citadel board of directors unanimously approved the amendment to
Citadel's articles of incorporation and recommends that Citadel stockholders
vote FOR the proposal to adopt the amendment.
PROPOSAL TO RATIFY AND APPROVE THE
FORM OF CITADEL INDEMNIFICATION AGREEMENT
This section of the joint proxy statement/prospectus provides a brief
summary of the material provisions of the form of indemnification agreement
between Citadel and its directors and officers. The form of the Citadel
indemnification agreement is attached as ANNEX E to this joint proxy
statement/prospectus. This summary is qualified in its entirety by reference to
the form of Citadel indemnification agreement. The proposal to ratify and
approve the form of Citadel indemnification agreement is unrelated to the
consolidation.
Indemnification
The form of indemnification agreement provides that Citadel agrees to hold
harmless and indemnify its directors and officers:
. To the fullest extent authorized or permitted by Nevada Revised Statutes
Sections 78.751 and 78.7502, or any successor statute or amendment
thereof, or any other statutory provisions authorizing or permitting such
indemnification that is adopted after the date of the indemnification
agreement.
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. Against any and all expenses, judgment damages, fines, penalties and
amounts paid in settlement actually and reasonably incurred by or for the
officer or director in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative to which the officer or director is made a
party as a result of the fact that at the time of the act or omission,
which is the subject matter of such action covered by the indemnification
agreement, the officer or director was an officer, director, employee or
agent of Citadel or serving at the request of Citadel as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
. To the fullest extent as may be provided under the non-exclusivity
indemnification provisions of the bylaws of Citadel and Nevada Revised
Statutes Sections 78.751 and 78.7502.
. The provisions of the form of indemnification agreement are in addition
to, and not in limitation of, the indemnification provisions of Citadel's
bylaws and the statutes mentioned.
Limitations on Indemnification
Under the form of indemnification agreement, no indemnity will be paid by
Citadel to the extent that:
. Payment for indemnification is actually made to the officer or director
under a valid and collectible insurance policy or policies, except with
respect to any excess amount due beyond the amount of payment to the
officer or director under such insurance policy or policies.
Notwithstanding the availability of such insurance policy or policies, the
officer or director also may claim indemnification from Citadel pursuant
to the indemnification agreement by assigning to Citadel in writing any
claims under such insurance policy or policies to the extent of the amount
paid by Citadel to the officer or director.
. The officer or director is indemnified by Citadel, otherwise than pursuant
to the indemnification agreement.
. Final judgment is rendered against the officer or director for the payment
of dividends or other distributions to stockholders of Citadel in
violation of the provisions of Subsection 2 of Nevada Revised Statutes
Section 78.300, as amended.
. Final judgment is rendered against the officer or director for an
accounting of profits made from the purchase or sale by the officer or
director of securities of Citadel pursuant to the provisions of Section
16(b) of the Securities Exchange Act of 1934, as amended, or other similar
provisions of any federal, state or local statutory law.
. The conduct of the officer or director giving rise to the claim for
indemnification is finally adjudged by a court of competent jurisdiction
to have been a breach of fiduciary duty which involved intentional
misconduct, fraud or a knowing violation of the law.
. Except as otherwise provided in the indemnification agreement, in
connection with all or any part of a suit or other proceeding which is
initiated or maintained by or on behalf of the officer or director, or any
suit or other proceeding by the officer or director against Citadel or its
directors, officers, employees or other agents, unless (1) such
indemnification is expressly required by Nevada law; (2) the suit or other
proceeding was expressly authorized by an official act of the board of
directors of Citadel or (3) such indemnification is provided by Citadel,
in its sole discretion, pursuant to the powers vested in it under Nevada
law.
Advancement of Expenses
Under the form of indemnification agreement, in the event the officer or
director incurs costs or expenses in connection with the defense of any such
civil, criminal, administrative or investigative action, suit or proceeding,
Citadel agrees to pay such costs or expenses as they are incurred and in
advance of the final disposition of the action, suit or proceeding within 30
calendar days of submission of bills or vouchers for such costs or expenses,
provided that the officer or director delivers to Citadel prior to such payment
a written undertaking to repay the amount paid if it is ultimately determined
by a court of competent jurisdiction that the officer or director is not
entitled to indemnification. However, in the case of an action brought against
the officer or director by Citadel
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pursuant to the provisions of Section 16(b) of the Securities Exchange Act of
1934, as amended, or other similar provisions of any federal, state or local
statutory law for an accounting of profits made from the purchase or sale by
the officer or director of securities of Citadel, the costs and expenses of the
officer or director will not be advanced unless such advancement is approved by
the board of directors of Citadel by a majority vote of a quorum consisting of
directors who are not parties to the action, suit or proceeding, or, if such a
quorum cannot be obtained, by independent legal counsel in a written opinion
that such indemnification is proper in the circumstances.
Vote Required
Approval of the proposal to ratify and approve the form of Citadel
indemnification agreement will require the affirmative vote of a majority of
the outstanding shares of Citadel voting common stock present and voted at the
Citadel annual meeting. James J. Cotter, Craig and Reading are obligated under
the consolidation agreement to vote 981,063 shares, representing approximately
49% of the outstanding shares of Citadel voting common stock, in favor of the
proposal.
Recommendation of the Board of Directors as to the Form of Indemnification
Agreement
The Citadel board of directors unanimously approved the form of
indemnification agreement between Citadel and its officers and directors and
recommends that Citadel stockholders vote FOR the proposal to ratify and
approve the form of Citadel indemnification agreement.
PROPOSAL TO ELECT CITADEL DIRECTORS
This section of the joint proxy statement/prospectus describes the proposal
to elect directors of Citadel. At the joint meetings, Citadel voting common
stockholders will be asked to vote on the election of five directors. The five
nominees receiving the highest number of votes will be elected directors of
Citadel, whether or not the consolidation is completed. All directors elected
at the Citadel annual meeting will be elected to serve until the 2002 annual
meeting of stockholders and until their respective successors have been duly
elected and qualified.
Nominees For Election
Set forth below is information concerning the Citadel director-nominees:
Citadel
Director
Name Age Current Occupation Since
---- --- ------------------ --------
James J. Cotter (1) 63 Chairman of the Board and Chief Executive 1986
Officer of Citadel, Craig and Reading
S. Craig Tompkins(1) 50 Vice Chairman of the Board of Citadel, 1993
President and Director of Craig,
Vice Chairman of the Board of Reading
Robert M. Loeffler(2)(4) 77 Retired, Director of Public Companies 2000
William C. Soady(2)(3)(4) 57 Chief Executive Officer of ReelMall.com 1999
Alfred Villasenor, Jr. 71 President of Unisure Insurance Services, 1987
(1)(2)(3)(4) Incorporated
--------
(1)Member of the executive committee.
(2)Member of the compensation committee.
(3)Member of the conflicts committee.
(4)Member of the audit committee.
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Mr. Cotter was first elected to the Citadel board in 1986, resigned in 1988,
and was re-elected to the board in June 1991. He was elected Chairman of the
Board of Citadel in 1992, and served as Chief Executive Officer since August 1,
1999. Mr. Cotter is the Chairman and a director of Citadel Agricultural Inc.,
or CAI, a wholly-owned subsidiary of Citadel; the Chairman and a member of the
management committee of each of the agricultural partnerships which constitute
the principal assets of CAI; and the Chairman and a member of the management
committee of Big 4 Farming, LLC, an 80%-owned subsidiary of Citadel. From 1988
through January 1993, Mr. Cotter also served as the President and a director of
Cecelia Packing Corporation, a citrus grower and packer, that is wholly owned
by Mr. Cotter, and is the Managing Director of Visalia, LLC, which holds a 20%
interest in each of the CAI agricultural partnerships and Big 4 Farming. Mr.
Cotter has been Chairman of the Board of Craig since 1988 and a Craig director
since 1985. Mr. Cotter has served as a director of Reading since 1990, and as
the Chairman of the board of Reading since 1991. On October 16, 2000, Mr.
Cotter resigned as the Chief Executive Officer of Citadel, Craig and Reading in
favor of Mr. Scott Braly, but resumed those positions following the resignation
of Mr. Braly on December 27, 2000. Mr. Cotter is, and has been, for more than
the past five years, a director of The Decurion Corporation, a motion picture
exhibition and real estate company. Mr. Cotter began his association with The
Decurion Corporation in 1969. Mr. Cotter has been the Chief Executive Officer
and a director of Townhouse Cinemas Corporation motion picture exhibition
company, since 1987. Mr. Cotter is the General Partner of James J. Cotter,
Ltd., a general partner in Hecco Ventures, which is involved in investment
activities and is a shareholder in Craig. Mr. Cotter was also a director of
Stater Bros., Inc., a retail grocery company between 1987 and September 1997.
Mr. Tompkins has been a Citadel director since 1993, was elected Vice
Chairman of the Board in July of 1994, and Secretary/Treasurer and Principal
Accounting Officer in August 1994. Mr. Tompkins resigned as Principal
Accounting Officer and Treasurer in November 1999, upon the appointment of
Andrzej Matyczynski to serve as Citadel's Chief Financial Officer. Mr. Tompkins
was a partner in the law firm of Gibson Dunn & Crutcher until March 1993, when
he resigned to become President of Craig and Reading. Mr. Tompkins has served
as a director of Craig and Reading since February 1993. In January 1997, Mr.
Tompkins resigned as President of Reading upon the appointment of Robert
Smerling to that position and became the Vice Chairman of Reading. Mr. Tompkins
was elected to the board of directors of G&L Realty Corporation, a New York
Stock Conversion-listed real estate investment trust in December 1993, and
currently serves as the Chairman of the audit committee of that REIT. Mr.
Tompkins was elected in April 2000 to the Board of Directors of Fidelity
Federal Bank, FSB, where he serves on the audit and compensation committees.
Mr. Tompkins is also President and a director of CAI, a member of the
management committee of each of the agricultural partnerships and of Big 4
Farming, and serves for administrative convenience as an Assistant Secretary of
Visalia and Big 4 Ranch, Inc., a partner with CAI and Visalia in each of the
agricultural partnerships. Mr. Tompkins also is the President and a director of
Craig Merger Sub and Reading Merger Sub.
Mr. Loeffler has been a Citadel director since March 27, 2000 and a director
of Craig since February 22, 2000. Mr. Loeffler had previously served as a
director of PaineWebber Group and Advance Machine Vision Corporation. Mr.
Loeffler is a retired attorney and was counsel to the California law firm of
Wyman Bautzer Kuchel & Silbert from 1987 to March 1991. He was Chairman of the
Board, President and Chief Executive Officer of Northview Corporation from
January to December 1987 and a partner in the law firm of Jones, Day, Reavis &
Pogue until December 1986.
Mr. Soady was elected to the Citadel board of directors on August 24, 1999.
Mr. Soady has been the Chief Executive Officer of ReelMall.com, an on-line
movie memorabilia company since January 1, 2000. Prior to that, Mr. Soady
served as the President of Distribution, PolyGram Films since 1997. Mr. Soady
has also served as Director of Showscan Entertainment, Inc. from 1994 to
present, the Foundation of Motion Picture Pioneers, Inc. from 1981 to present,
the Will Rogers Memorial Fund from 1981 to present, and has been a member of
the Motion Picture Academy of Arts & Sciences since 1982.
Mr. Villasenor is the President and owner of Unisure Insurance Services,
Incorporated, a corporation which has specialized in life, business and group
health insurance for over 35 years. He is also a general partner in Playa del
Villa, a California real estate commercial center. Mr. Villasenor is a director
of the John Gogian Family
95
Foundation and a director of Richstone Centers, a non-profit organization. In
1987, Mr. Villasenor was elected to the boards of directors of Citadel and
Fidelity and served on the Fidelity board 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.
Compensation of Directors
Other than the Chairman of the Board, directors who are not officers or
employees of Citadel receive an annual retainer of $15,000, plus $1,500, if
serving as a board committee Chairman, and $800 for each meeting attended in
person and $300 for each telephonic meeting. Mr. Cotter, the Chairman of the
Board, receives $45,000 annually. In addition, directors who were not officers
or employees of Citadel at the time of their initial election or appointment to
the board have received vested options to purchase 20,000 shares of Citadel
nonvoting common stock at an exercise price defined in Citadel's stock option
plan. In this regard, Messrs. Loeffler, Soady and Villasenor were granted
20,000 shares each of Citadel's nonvoting common stock on April 13, 2000 at an
exercise price of $2.76 per share upon surrendering their shares granted under
the now-expired 1996 stock option plan.
In November 2000, Messrs, Soady and Villasenor were paid $25,000 each for
their efforts relating to Citadel's acquisition of Off-Broadway Investments,
Inc. and certain rights and interest comprising the City Cinemas chain.
Meetings and Committees of the Board of Directors
During the fiscal year ended December 31, 2000, there were nine meetings of
the Citadel board of directors. Each of the directors attended at least 75% of
the board meetings and of the meetings of the board committees held after the
election of such individual to the board or such committee.
Citadel currently has standing audit, executive, conflicts, compensation and
stock option committees. The Board of Directors does not have a nominating
committee.
The members of the audit committee are Alfred Villasenor, Jr., who serves as
Chairman, Robert M. Loeffler and William C. Soady. During 2000, the audit
committee held two meetings. On May 23, 2000 the board adopted a new audit
committee charter, which requires the committee to meet at least four times
annually and at least once separately with the independent auditors and
management. The board of directors included additional provisions in the new
charter to strengthen the audit committee's function of overseeing the quality
and integrity of the accounting, audit, internal control and financial
reporting policies and practices of Citadel. The charter includes professional
criteria for the members of the audit committee and empowers the audit
committee to investigate any matter for which it has oversight authority. The
audit committee, among other things, makes recommendations to the board
concerning the engagement of Citadel's independent auditors; monitors and
reviews the performance of Citadel's independent auditors; reviews with
management and the independent auditor Citadel's financial statements,
including the matters required for discussion under Statement of Auditing
Standards No. 61; monitors the adequacy of Citadel's operating and internal
controls; discusses with management legal matters that may have a material
impact on Citadel's financial statements; and issues an annual report to be
included in Citadel's proxy statement as required by the rules of the
Securities and Exchange Commission.
The members of the executive committee are James J. Cotter, who serves as
Chairman, S. Craig Tompkins and Alfred Villasenor, Jr. The executive committee
exercises the authority of the board of directors in the management of the
business and affairs of the Citadel between meetings of the board of directors.
The members of the conflicts Committee are William C. Soady, the Chairman,
and Alfred Villasenor, Jr. The conflicts committee was chartered to consider
and make recommendations with respect to all matters as to which one or more
directors may have conflicts of interest.
96
The compensation committee is currently comprised of William C. Soady, the
Chairman, and Alfred Villasenor, Jr. The compensation committee is responsible
for recommending to the board of directors remuneration for executive officers
of Citadel. 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. The compensation committee also currently
administers Citadel's stock option plans.
Vote Required
The five nominees receiving a plurality of the votes cast, in person or by
proxy, at the Citadel annual meeting will be elected to the Citadel board of
directors. James J. Cotter, Craig and Reading have advised Citadel that they
intend to vote 981,063 shares, representing approximately 49% of the
outstanding shares of Citadel voting common stock, in favor of the election of
the board nominees named.
Recommendation of the Board of Directors as to the Election of Directors
The board of directors recommends that Citadel stockholders vote FOR each of
the board nominees named above.
88
MARKET PRICE AND DIVIDEND INFORMATION
Historical Market Prices
Citadel's nonvoting common stock and voting common stock are traded on the
American Stock Exchange under the symbols "CDL.A" and "CDL.B." Craig common
stock and common preference stock are traded on The New York Stock Exchange
under the symbols "CRG" and "CRGpf." Reading common stock is traded on The
Nasdaq Stock Market under the symbol "RDGE." The following table sets forth for
the periods indicated the quarterly high and low sale prices per share of
Citadel nonvoting common stock and voting common stock, Craig common stock and
common preference stock and Reading common stock as reported on these exchanges
or Nasdaq:
Citadel
-----------------------------------------
High Low
-------------------- --------------------
Nonvoting Voting Nonvoting Voting
--------- ---------- --------- ----------
Calendar Year 1999:
First Quarter....................... N/A $3.6250 N/A $3.2500
Second Quarter...................... N/A 5.4375 N/A 3.3750
Third Quarter....................... N/A 5.0000 N/A 3.8125
Fourth Quarter...................... N/A 4.0625 N/A 2.6875
Calendar Year 2000:
First Quarter....................... $3.1250 $3.3125 $2.3125 $2.3750
Second Quarter...................... 3.2500 3.5000 2.6250 2.8750
Third Quarter....................... 3.2500 3.7500 2.5000 2.6250
Fourth Quarter...................... 3.000 3.1250 2.1250 2.2500
Calendar Year 2001:
First Quarter....................... $2.6875 $3.0000 $1.7200 $2.2700
Second Quarter...................... 2.0500 2.2700 1.3500 1.5000
Third Quarter....................... 1.9000 1.9500 1.2600 1.5000
Fourth Quarter (through October 31). 1.8500 1.9500 1.7500 1.8300
Craig
-----------------------------------------
High Low
-------------------- --------------------
Common Common
Common Preference Common Preference
--------- ---------- --------- ----------
Calendar Year 1999:
First Quarter....................... $8.0625 $7.8750 $7.0000 $6.3125
Second Quarter...................... 8.2500 7.6250 6.6250 6.6875
Third Quarter....................... 7.3750 7.2500 6.6250 6.1875
Fourth Quarter...................... 6.7500 6.3125 5.7500 5.1875
Calendar Year 2000:
First Quarter....................... $6.6250 $6.1250 $4.7500 $3.6667
Second Quarter...................... 5.4375 4.6250 3.6875 3.5000
Third Quarter....................... 4.6875 3.8750 3.0000 3.0000
Fourth Quarter...................... 3.2500 3.0000 2.5000 2.1250
Calendar Year 2001:
First Quarter....................... $3.2500 $2.6250 $1.9500 $1.7000
Second Quarter...................... 2.4100 1.9000 1.7000 1.3500
Third Quarter....................... 2.0500 1.9000 1.9000 1.5000
Fourth Quarter (through October 31). 2.1700 1.9000 1.8600 1.7500
89
Reading Common
---------------
High Low
------- -------
Calendar Year 1999:
First Quarter....................... $8.1250 $7.0000
Second Quarter...................... 8.3750 6.6250
Third Quarter....................... 7.5625 5.7500
Fourth Quarter...................... 6.1250 5.0000
Calendar Year 2000:
First Quarter....................... $5.7500 $3.1563
Second Quarter...................... 6.0000 4.5000
Third Quarter....................... 5.8750 3.6250
Fourth Quarter...................... 3.5000 2.1250
Calendar Year 2001:
First Quarter....................... $2.9375 $1.1250
Second Quarter...................... 2.3800 1.6600
Third Quarter....................... 2.2300 1.7500
Fourth Quarter (through October 31). 2.2000 1.5900
Recent Share Prices
The table below presents the per share closing prices of Citadel nonvoting
common stock, Craig common stock and common preference stock and Reading common
stock and the pro forma equivalent market value of Citadel nonvoting common
stock to be issued for Craig common stock and common preference stock and
Reading common stock in the consolidation as of the dates indicated. The pro
forma equivalent market value is determined by multiplying the market prices of
Citadel nonvoting common stock by the fixed number of shares of Citadel
nonvoting common stock to be received for each share of Craig common stock and
common preference stock and Reading common stock in the consolidation. March
19, 2001 was the last trading date before the initial public announcement of
the proposed consolidation. November , 2001 was the latest practicable trading
day before the printing of this joint proxy statement/prospectus.
Pro Forma
Equivalent
Pro Forma Market Value
Pro Forma Equivalent Market of Citadel
Equivalent Market Value of Citadel Nonvoting
Citadel Value of Citadel Craig Nonvoting Common
Nonvoting Craig Nonvoting Common Common Common Stock Reading Stock Received
Common Common Stock Received in Preference Received in the Common in the
Stock Stock the Consolidation Stock Consolidation Stock Consolidation
--------- ------ ----------------- ---------- ----------------- ------- --------------
March 19, 2001... $2.22 $2.40 $2.60 $1.75 $2.60 $2.31 $2.78
November , 2001 $ $ $ $ $ $ $
Stockholders are advised to obtain current market quotations. No assurance
can be given as to the market prices of Craig common stock or common preference
stock or of Reading common stock at any time before the consummation of
consolidation, or as to the market price of Citadel nonvoting common stock or
voting common stock at any time after consolidation. The conversion ratios are
fixed in the consolidation agreement, and we do not intend to adjust the
conversion ratios to compensate Craig stockholders simply for any decrease, in
the market price of Reading common stock or Citadel nonvoting common stock
which could occur before the consolidation becomes effective or simply to
compensate Reading stockholders for any decreases in the market prices of Craig
common stock or common preference stock or of Citadel nonvoting common stock
which might occur before the consolidation becomes effective. Similarly, the
conversion ratios will not be adjusted simply to compensate Citadel
stockholders for any decreases in the market prices of Craig common stock or
common preference stock or of Reading common stock which might occur before the
consolidation becomes effective.
90
Dividends
None of the companies has ever declared or paid cash dividends on its common
stock.
Pursuant to the consolidation agreement, each of the companies has agreed
not to pay cash dividends pending the consummation of consolidation. If the
consolidation is not completed, each of the boards of directors of Citadel,
Craig and Reading anticipates that it would continue its prior policy of
retaining all earnings to finance the operation and expansion of its business.
Citadel also expects to retain all earnings for use in the operation and
expansion of its business and does not anticipate paying any cash dividends
after the consolidation.
91
UNAUDITED PRO FORMA CONSOLIDATION CONDENSED
COMBINED FINANCIAL STATEMENTS
On August 17, 2001, Citadel, Craig and Reading entered into the
consolidation agreement providing for the consolidation of Craig and Reading
with Citadel. The transaction is to be accounted for as a purchase of Craig and
Reading by Citadel, and Craig and Reading's assets acquired and liabilities
assumed will be recorded at their fair value based upon value estimates
calculated by Marshall & Stevens. The actual purchase price for the acquisition
of Craig and Reading, however, cannot be determined since the proposed
acquisition has not yet been completed.
Under the terms of the consolidation agreement, each issued and outstanding
share of Craig common stock and common preference stock will automatically be
converted into 1.17 shares of Citadel nonvoting common stock and each issued
and outstanding share of Reading common stock will automatically be converted
into 1.25 shares of Citadel nonvoting common stock. Of the estimated 21,551,327
shares of Citadel nonvoting common stock shares that will be issued in the
consolidation, approximately 12,239,622 and 9,311,705 shares will be issued to
the former Craig stockholders and Reading stockholders, respectively. Upon
consolidation of the three companies, however, no such distinction will be made
for interests held by former Craig and Reading stockholders. Of these
21,551,327 shares, 9,024,718 shares will be treated as treasury shares, since
they will be held by either Craig or Reading, which will become wholly owned
subsidiaries of Citadel as a result of the consolidation. Additionally, stock
options to purchase common stock or common preference stock of Craig and common
stock of Reading will be assumed by Citadel and become options to purchase an
equivalent number of shares of either Citadel voting common stock or nonvoting
common stock, at each option holder's election.
The unaudited pro forma condensed combined financial statements of Citadel
give effect to the consolidation, based on a preliminary allocation of the
total purchase cost. The historical financial information has been derived from
the respective historical financial statements of Citadel, Craig and Reading,
and should be read in conjunction with these financial statements and the
related notes contained in the companies' annual reports and quarterly reports
that have been furnished with this joint proxy statement/prospectus.
The unaudited pro forma condensed combined statement of operations combines
Citadel's, Craig's and Reading's historical statements of operations for the
year ended December 31, 2000 and the nine months ended September 30, 2001 and
gives effect to the consolidation, including the amortization of goodwill, as
if the consolidation occurred on January 1, 2000. The unaudited pro forma
condensed combined balance sheet assumes the consolidation took place as of
September 30, 2001, and allocates the total purchase consideration to the fair
values of the assets and liabilities of Craig and Reading, based on a
preliminary valuation.
The total estimated purchase consideration of the consolidation has been
allocated on a preliminary basis to assets and liabilities based on
management's estimates of their fair value, with the excess costs over the net
assets acquired allocated to goodwill. This allocation is subject to change
pending a final analysis of the total purchase cost and the fair value of the
assets and liabilities acquired. Management does not anticipate that the impact
from these changes will be material.
The unaudited pro forma condensed combined financial information is
presented for illustrative purposes only and is not necessarily indicative of
the operating results or financial position that would have occurred if the
consolidation had been consummated at the dates indicated, nor is it
necessarily indicative of future operating results or financial position of the
combined company.
92
Consolidated Citadel Holding Corporation
Unaudited Pro Forma Combined Statement of Income
Year Ended December 31, 2000
Consolidating
Eliminations
& Adjustments
----------------
Citadel RDGE CRG Sub-Total RDGE(B) AFC(F) CDL
------- -------- -------- --------- -------- ------ -------
Revenues.......................................... $ 7,384 $ 42,237 $ 42,237 $ 91,858 $(42,237) $4,956 $ (138)(H)
Operating expenses................................ 8,439 67,946 68,522 144,907 (67,946) 4,160 (138)(H)
------- -------- -------- -------- -------- ------ -------
Operating income.................................. $(1,055) $(25,709) $(26,285) $(53,049) $ 25,709 $ 796 $ --
------- -------- -------- -------- -------- ------ -------
Non-operating income (expense).................... (2,483) 11,040 10,352 18,909 (11,040) 28 (455)(C)
(258)(E)
(109)(F)
(240)(G)
------- -------- -------- -------- -------- ------ -------
Earnings before taxes and minority interest....... $(3,538) $(14,669) $(15,933) $(34,140) $ 14,669 $ 824 $(1,062)
------- -------- -------- -------- -------- ------ -------
Income taxes...................................... -- (1,078) (660) (1,738) 1,078 (39)
------- -------- -------- -------- -------- ------ -------
Earnings before minority interest................. $(3,538) $(15,747) $(16,593) $(35,878) $ 15,747 $ 785 $(1,062)
------- -------- -------- -------- -------- ------ -------
Minority interest................................. (4) (77) 4,914 4,833 (4,914) (393)
------- -------- -------- -------- -------- ------ -------
Net earnings...................................... $(3,542) $(15,824) $(11,679) $(31,045) $ 10,833 $ 392 $(1,062)
------- -------- -------- -------- -------- ------ -------
Less: Preferred stock dividends................... $ -- $ (4,030) $ (455) (4,485) $ 4,030
------- -------- -------- -------- -------- ------ -------
Net (loss) income appliable to common shareholders $(3,542) $(19,854) $(12,134) $(35,530) $ 14,863 $ 392 $(1,062)
======= ======== ======== ======== ======== ====== =======
Basic (loss) per share............................ $ (0.47) $ (2.67) $ (1.16)
======= ======== ========
Diluted (loss) per share.......................... $ (0.47) $ (2.67) $ (1.16)
======= ======== ========
Proforma
CRG Consolidated(A)
------ ---------------
Revenues.......................................... $ 54,439
Operating expenses................................ 80,983
------ --------
Operating income.................................. $ -- $(26,544)
------ --------
Non-operating income (expense).................... 1,401(D) 8,229
258(E)
(265)(F)
------ --------
Earnings before taxes and minority interest....... $1,394 $(18,315)
------ --------
Income taxes...................................... (699)
------ --------
Earnings before minority interest................. $1,394 $(19,014)
------ --------
Minority interest................................. (474)
------ --------
Net earnings...................................... $1,394 (19,488)
------ --------
Less: Preferred stock dividends................... $ 455(C)
------ --------
Net (loss) income appliable to common shareholders $1,849 $(19,488)
====== ========
Basic (loss) per share............................ $ (0.89)(I)
========
Diluted (loss) per share.......................... $ (0.89)
========
--------
(A)The consolidated pro forma results presented above do not reflect the
anticipated savings in the general and administrative expenses of
approximately $1,000,000 per year. By combining the three companies,
management expect to eliminate duplication of certain general and
administrative expenses such as SEC filing and reporting costs, audit
expenses, and directors' fees.
(B)Reading is a stand-alone publicly traded company. Craig owns approximately
78% of Reading and consolidates the accounts of Reading. Reading's income
and expenses are eliminated here to avoid double counting of its results for
the year ended December 31, 2000.
(C)Citadel owns all 70,000 shares issued and outstanding of Reading Series A
convertible preferred stock, and is entitled to receive quarterly cumulative
dividends at the annual rate of $455,000, or $113,570 per quarter. In
consolidation, all dividends paid and received on the Series A preferred
stock are eliminated.
(D)Reading and Craig own approximately 48.3% of the outstanding common stock of
Citadel on a consolidated basis and record 48.3% of Citadel's net (loss)
income as equity in earnings of unconsolidated subsidiaries. In
consolidation, the equity pick-up of Citadel's net loss by Craig and Reading
is eliminated.
(E)Citadel, Craig and Reading have related party borrowings at December 31,
2001. All interest expense and interest income recorded by the companies are
eliminated in consolidation.
(F)The consolidated company will have 50% equity interest in the Angelika Film
Center LLC, or AFC (with the other 50% equity interest owned by National
Auto Credit, Inc.), and Citadel Cinemas Inc., a wholly owned subsidiary of
Citadel, has the management rights to the Angelika Film Center & Cafe, the
only operating assets of AFC. In the event of a deadlock between the
members, the deciding vote is cast by the Chairman of Reading. Accordingly,
the consolidated company will consolidate the operations of AFC for
financial reporting purposes and eliminate the equity income recorded by
Citadel and Reading during the year ended December 31, 2000. Prior to the
sale of 50% interest in AFC on April 5, 2000, Reading consolidated the
results of AFC, since it owned a 5/6th interest in the Angelika Film Center.
Subsequent to the sale, Reading accounted for its remaining 1/6th interest
in Angelika Film Center as an equity investment for the period from April 6
to December 31, 2000. As a result, the AFC adjustment column above
represents AFC's operating results for the period from April 6 to December
31, 2000.
(G)Management expects to incur direct transaction costs of approximately
$885,000 in connection with the consolidation as follows: legal - $428,000;
accounting - $134,000; SEC filing fees - $12,500; stock exchange listing
fees - $17,500; fairness advisor fees and costs - $240,000; printing and
mailing - $50,000; and other - $3,000. Of this amount, approximately
$240,000 will be expensed as transaction costs. The remaining $695,000 will
be treated as cost of stock issuance.
(H)Reading provided consulting service to Citadel during the year ended
December 31, 2000. All such consulting fee income and expense recorded by
the companies are eliminated in consolidation.
(I)Based on the conversion ratio of 1.17 shares of Citadel's nonvoting common
stock for each share of Craig common stock and common preference stock and
1.25 shares of Citadel's nonvoting common stock for each share of Reading
common stock, management expects post-consolidation shares outstanding of
21,821,318 (net of treasury shares).
102
Consolidated Citadel Holding Corporation
Unaudited Pro Forma Combined Statement of Income
Nine Months Ended September 30, 2001
Consolidating
Eliminations
& Adjustments
--------------
Citadel Reading Craig Sub-Total Reading(B) AFC(F) Citadel Craig
------- ------- ------- --------- ---------- ------ ------- ------
Revenues........................................... $17,003 $30,656 $30,656 $ 78,315 $(30,656) $5,044
Operating expenses................................. 19,550 34,405 34,737 88,692 (34,405) 3,808
------- ------- ------- -------- -------- ------ ----- ------
Operating income................................... $(2,547) $(3,749) $(4,081) $(10,377) $ 3,749 $1,236 $ -- $ --
------- ------- ------- -------- -------- ------ ----- ------
Non-operating income (expense)..................... (379) (698) (1,190) (2,267) 698 (690) (341)(C) 1,130(C)
(114)(E) 114
(88)(F) (177)(F)
(240)(G)
------- ------- ------- -------- -------- ------ ----- ------
Earnings before taxes and minority interest........ $(2,926) $(4,447) $(5,271) $(12,644) $ 4,447 $ 546 (783) $1,067
Income taxes....................................... (209) (701) (596) (1,506) 701 (16)
------- ------- ------- -------- -------- ------ ----- ------
Earnings before minority interest.................. $(3,135) $(5,148) $(5,867) $(14,150) $ 5,148 $ 530 (783) $1,067
------- ------- ------- -------- -------- ------ ----- ------
Minority interest.................................. (14) (89) 1,621 1,518 (1,621) (265)
------- ------- ------- -------- -------- ------ ----- ------
Net earnings....................................... $(3,149) $(5,237) $(4,246) $(12,632) $ 3,527 $ 265 (783) $1,067
------- ------- ------- -------- -------- ------ ----- ------
Less: Preferred stock dividends.................... $ -- $(3,023) $ (341) (3,364) $ 3,023 $ 341(C)
------- ------- ------- -------- -------- ------
Net (loss) income applicable to common shareholders $(3,149) $(8,260) $(4,587) $(15,996) $ 6,550 $ 265 $(783) $1,408
======= ======= ======= ======== ======== ====== ===== ======
Basic (loss) per share............................. $ (0.32) $ (1.11) $ (0.44)
======= ======= =======
Diluted (loss) per share........................... $ (0.32) $ (1.11) $ (0.44)
======= ======= =======
Proforma
Consolidated(A)
---------------
Revenues........................................... $52,703
Operating expenses................................. 58,095
-------
Operating income................................... $(5,392)
-------
Non-operating income (expense)..................... (1,975)
-------
Earnings before taxes and minority interest........ $(7,367)
Income taxes....................................... (821)
-------
Earnings before minority interest.................. $(8,188)
-------
Minority interest.................................. (368)
-------
Net earnings....................................... $(8,556)
-------
Less: Preferred stock dividends.................... --
-------
Net (loss) income applicable to common shareholders $(8,556)
=======
Basic (loss) per share............................. $ (0.39)(H)
=======
Diluted (loss) per share........................... $ (0.39)
=======
--------
(A)The consolidated pro forma results presented above do not reflect the
anticipated savings in the general and administrative expenses of
approximately $1,000,000 per year. By combining the three companies,
management expects to eliminate duplication of certain general and
administrative expenses such as SEC filing and reporting costs, audit
expenses and directors' fees.
(B)Reading is a stand-alone publicly traded company. Craig owns approximately
78% of Reading and consolidates the accounts of Reading. Reading's income
and expenses are eliminated here to avoid double counting of its results for
the nine months ended September 30, 2001.
(C)Citadel owns all 70,000 shares issued and outstanding of Reading's Series A
convertible preferred stock, and is entitled to receive quarterly cumulative
dividends at the annual rate of $455,000, or $113,570 per quarter. In
consolidation, all dividends paid and received on the Series A preferred
stock are eliminated.
(D)Reading and Craig own approximately 48.3% of the outstanding common stock of
Citadel on a consolidated basis and record 48.3% of Citadel's net (loss)
income as equity in earnings of unconsolidated subsidiaries. In
consolidation, the equity pick-up of Citadel's net loss by Craig and Reading
is eliminated.
(E)Citadel, Craig, and Reading have related party borrowings at September 30,
2001. All interest expense and interest income recorded by the companies are
eliminated in consolidation.
(F)The consolidated company will have 50% equity interest in the AFC (with the
other 50% equity interest owned by National Auto Credit, Inc.) and Citadel
Cinemas, Inc., a wholly owned subsidiary of Citadel, has the management
rights to the Angelika Film Center & Cafe, the only operating assets of AFC.
In the event of a deadlock between the members, the deciding vote is cast by
the Chairman of Reading. Accordingly, the consolidated company will
consolidated the operations of AFC for financial reporting purposes and
eliminate the equity income recorded by Citadel during the nine months ended
September 30, 2001.
(G)Management expects to incur direct transaction costs of approximately
$885,000 in connection with the consolidation as follows: legal - $428,000;
accounting - $134,000; SEC filing fees - $12,500; stock exchange listing
fees - $17,500; fairness advisor fees and costs - $240,000; printing and
mailing - $50,000; and other - $3,000. Of this amount, approximately
$240,000 will be expensed as transaction costs. The remaining $695,000 will
be treated as cost of stock issuance.
(H)Based on the conversion ratio of 1.17 shares of Citadel's nonvoting common
stock for each share of Craig common stock and common preference stock and
1.25 shares of Citadel's nonvoting common stock for each share of Reading
common stock, management expects post-consolidation shares outstanding of
21,821,318 (net of treasury shares).
103
Citadel Holding Corporation
Unaudited Pro Forma Combined Balance Sheet
September 30, 2001
Elimination
of RDGE AFC
ASSETS Citadel Reading Craig [A] Sub-Total [B]
------ ------- -------- -------- ----------- --------- -------
Cash and cash equivalents............................ $ 4,502 $ 3,185 $ 3,461 $ (3,185) $ 7,963 $ 1,097
Receivables.......................................... 2,602 1,994 3,407 (1,994) 6,009 256
Investment in marketable securities.................. 455 -- -- -- 455 --
Prepaid expenses and other current assets............ 1,296 1,847 1,923 (1,847) 3,219 80
------- -------- -------- --------- -------- -------
Total current assets........................... 8,855 7,026 8,791 (7,026) 17,646 1,433
------- -------- -------- --------- -------- -------
Rental properties, less accumulated depreciation..... 8,719 -- -- -- 8,719
Property held for development........................ -- 20,360 20,360 (20,360) 20,360
Property, equipment and improvements................. 20,689 54,894 55,439 (54,894) 76,128 580
Note receivable...................................... -- 7,446 7,446 (7,446) 7,446
Investment in stockholder affiliate.................. 7,000 -- -- -- 7,000
Equity investment in unconsolidated affiliates....... 3,141 12,047 16,041 (12,047) 19,182
Goodwill............................................. 10,372 -- -- -- 10,372 8,816
Capitalized lease transaction costs.................. 711 -- -- -- 711
Other assets......................................... 2,311 2,036 2,178 (2,036) 4,509 274
------- -------- -------- --------- -------- -------
Total assets................................... $61,818 $103,809 $110,255 $(103,809) $172,073 $11,103
======= ======== ======== ========= ======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities
Current portion of note payable...................... 4,813 5,952 7,950 (5,952) 12,763
Convertible Redeemable Series A Preferred Stock...... 7,000 7,000 (7,000) 7,000
Other liabilities.................................... 6,815 10,208 11,121 (10,208) 17,936 544
------- -------- -------- --------- -------- -------
Total current liabilities...................... 11,628 23,160 26,071 (23,160) 37,699 544
------- -------- -------- --------- -------- -------
Long-term portion of notes payable................... 12,734 13,872 13,872 (13,872) 26,606
Other long-term liabilities.......................... 926 5,564 13,932 (5,564) 14,858 1,538
Minority interest in consolidated affiliate.......... 68 429 14,083 (429) 14,151
------- -------- -------- --------- -------- -------
Total liabilities.............................. 25,356 43,025 67,958 (43,025) 93,314 2,082
------- -------- -------- --------- -------- -------
Convertible redeemable Series A Preferred Stock...... -- -- -- -- --
Stockholders' Equity
CDL Class A Non voting Common Stock, par value $.01,
100,000,000 shares authorized, 5,335,913 issued and
outstanding......................................... 88 -- -- -- 80
CDL Class B Voting Common Stock, par value $.01,
20,000,000 shares authorized, 1,333,969 issued and
outstanding......................................... 20 -- -- -- 20
RDGE Series B Preferred Stock........................ -- 1 -- (1) --
RDGE Common Stock.................................... -- 7 -- (7) --
CRG Class A Common Preference Stock.................. -- -- 87 -- 87
CRG Common Stock..................................... -- -- 1,361 -- 1,361
Other capital........................................ 38,360 60,776 62,668 (60,776) 101,028 9,021
Treasury stock....................................... -- -- (21,819) -- (21,819)
Note receivable from stockholder..................... (1,998) -- -- -- (1,998)
------- -------- -------- --------- -------- -------
Total stockholders' equity [I]................. $36,462 $ 60,784 $ 42,297 $ (60,784) $ 78,759 $ 9,021
------- -------- -------- --------- -------- -------
Total liabilities and stockholders' equity..... $61,818 $103,809 $110,255 $(103,809) $172,073 $11,103
======= ======== ======== ========= ======== =======
Acquisition
Adjustments [B]
-----------------
AFC
ELIM RDGE Eliminations &
ASSETS [B] [C] CRG Adjustments Combined
------ ------- -------- -------- -------------- --------
Cash and cash equivalents............................ $ 9,060
Receivables.......................................... 6,265
Investment in marketable securities.................. 455
Prepaid expenses and other current assets............ 3,299
------- -------- -------- -------- --------
Total current assets........................... -- -- 19,079
------- -------- -------- -------- --------
Rental properties, less accumulated depreciation..... 8,719
Property held for development........................ (145) [C] 20,215
Property, equipment and improvements................. 5,654 37 [C] 82,399
Note receivable...................................... (1,706)[F] 5,740
Investment in stockholder affiliate.................. -- (7,000)[F] --
Equity investment in unconsolidated affiliates....... (6,309) 5,423 1,928[C] (16,812)[F] 3,412
Goodwill............................................. 1,799 20,987
Capitalized lease transaction costs.................. 711
Other assets......................................... 4,783
------- -------- -------- -------- --------
Total assets................................... $(4,510) $ 10,932 $ 1,965 $(25,518) $166,045
======= ======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities
Current portion of note payable...................... (3,704)[F] 9,059
Convertible Redeemable Series A Preferred Stock...... (7,000) --
Other liabilities.................................... 2,500 500 [D] 645[H] 22,125
------- -------- -------- -------- --------
Total current liabilities...................... -- 2,500 500 (10,059) 31,184
------- -------- -------- -------- --------
Long-term portion of notes payable................... 26,606
Other long-term liabilities.......................... (4) 16,392
Minority interest in consolidated affiliate.......... 4,511 (13,654) [E] 5,008
------- -------- -------- -------- --------
Total liabilities.............................. 4,511 2,500 (13,154) (10,063) 79,190
------- -------- -------- -------- --------
Convertible redeemable Series A Preferred Stock...... --
Stockholders' Equity
CDL Class A Non voting Common Stock, par value $.01,
100,000,000 shares authorized, 5,335,913 issued and
outstanding......................................... -- 18 [G] 98
CDL Class B Voting Common Stock, par value $.01,
20,000,000 shares authorized, 1,333,969 issued and
outstanding......................................... -- 20
RDGE Series B Preferred Stock........................ 25,900 18,829 [C] (18,829)[F] --
(25,900)[F] --
RDGE Common Stock....................................
CRG Class A Common Preference Stock.................. (87)[F] --
CRG Common Stock..................................... (1,361)[F] --
Other capital........................................ (9,021) (17,468) (3,710) 7,532 86,737
(645)[H]
Treasury stock....................................... 21,819[F] --
Note receivable from stockholder..................... -- 1,998 [F] --
------- -------- -------- -------- --------
Total stockholders' equity [I]................. $(9,021) $ 8,432 $ 15,119 $(15,455) $ 86,855
------- -------- -------- -------- --------
Total liabilities and stockholders' equity..... $(4,510) $ 10,932 $ 1,965 $(25,518) $166,045
======= ======== ======== ======== ========
104
NOTES TO THE PRO FORMA FINANCIAL STATEMENTS
[A]Reading is a stand-alone publicly traded company. Craig owns approximately
78% of Reading and consolidates the accounts of Reading for financial
reporting purposes. Accordingly, the accounts of Reading are eliminated as
its assets and liabilities are already reflected in the consolidated balance
sheet of Craig.
[B]The consolidated company will have 50% equity interest in the AFC (with the
other 50% equity interest owned by National Auto Credit, Inc.) and Citadel
Cinemas, Inc., a wholly owned subsidiary of Citadel, has the management
rights to the Angelika Film Center & Cafe, the only operating assets of AFC.
In the event of a deadlock between the members, the deciding vote is cast by
the Chairman of Reading. Accordingly, the consolidated company will
consolidate AFC for financial reporting purposes. The adjustments represent
Reading's and Citadel's step-up in basis amounting to approximately
$1,639,000 and $160,000, respectively.
[C]Craig's and Reading's real estate and other investment assets have been
analyzed by Marshall & Stevens. As the consolidation of the three companies
are recorded under the purchase accounting method, the fair value will
replace the book value of certain assets as follows:
READING ENTERTAINMENT, INC.
Historical Adjustment Fair Value
---------- ---------- ----------
ASSETS
Property, plant & equipment:
Australia......................................... $46,371 $ 4,843 $51,214
New Zealand....................................... 5,214 (1,132) 4,082
Puerto Rico....................................... 3,075 (49) 3,026
Domestic.......................................... 234 1,992 2,226
--------
5,654
Property held for development:
Monee, Burwood, Newmarket-AUS..................... 11,371 (75) 11,296
Wellington parking facility--NZ................... 8,989 (70) 8,919
--------
(145)
Equity Investment in unconsolidated affiliates:
Investment in Citadel............................. 8,069 2,821 10,890
Investment in Angelika Film Ctr................... 3,168 2,792 5,960
Investment in NZ Joint Venture.................... 810 (190) 620
--------
5,423
--------
Total adjustments to assets................... $ 10,932
========
LIABILITIES & EQUITY
Miscellaneous liabilities............................ -- $ 2,500 $ 2,500
Series B Preferred Stock............................. $ 1 25,900 25,901
Other Capital........................................ 60,776 (17,468) 43,308
--------
Total adjustments to liabilities & equity..... $ 10,932
========
105
CRAIG CORPORATION
Historical Adjustment Fair Value
ASSETS ---------- ---------- ----------
Property, plant & equipment:
Condominium property....................... $ 587 $ 37 $ 624
Equity investment in unconsolidated affiliates
Investment in Citadel...................... 3,994 1,928 5,922
--------
-
Total adjustments to assets............ 1,965
--------
LIABILITIES & EQUITY
Miscellaneous liabilities..................... $ -- $ 500 $ 500
Minority interest............................. 14,083 (14,083) --
Reading stock................................. -- 18,829 18,829
Other capital................................. 1 (3,281) (3,281)
--------
Total adjustments to liabilities &
equity............................... $ 1,965
========
[D]The amount represents additional miscellaneous contingent liabilities.
[E]The minority interest or Reading is duplicated on Craig's consolidated
balance sheet. This is eliminated in consolidation.
[F]All cross-ownership of common and preferred stock, note payable/receivable
transactions between Citadel, Craig and Reading are eliminated in
consolidation.
[G]Record the par value of the estimated 18,696,517 shares of Citadel nonvoting
common stock that will be issued and outstanding upon consolidation of the
three companies. The 18,696,517 shares is calculated as 21,551,327 shares to
be issued, less 2,854,810 treasury shares.
[H]Management expects to incur direct transaction costs of approximately
$885,000 in connection with the consolidation as follows: legal--$428,000;
accounting--$134,000; SEC filing fees--$12,500; stock exchange listing
fees--$17,500; fairness advisor fees and costs--$240,000; printing and
mailing--$50,000; and other--$3,000. Of this amount, approximately $240,000
will be expensed as transaction costs. Remaining $645,000 will be treated as
cost of stock issuance.
[I]The pro forma balance sheet has been prepared to reflect the consolidation
of Craig and Reading by Citadel for 21,551,327 shares of Citadel nonvoting
common stock.
106
COMPARISON OF RIGHTS OF HOLDERS OF CITADEL NONVOTING COMMON STOCK, CRAIG
COMMON STOCK AND COMMON PREFERENCE STOCK AND READING COMMON STOCK
This section of the joint proxy statement/prospectus describes material
differences between the rights of holders of Craig common stock and common
preference stock and holders of Reading common stock and the rights of holders
of Citadel nonvoting common stock. The rights compared are those found in the
respective companies' articles of incorporation and bylaws and provisions of
the corporation laws of Nevada, where each of the companies is incorporated.
While we believe that these descriptions address the material differences, this
summary may not contain all of the information that is important to the
stockholders of Craig and Reading. Craig and Reading stockholders should read
carefully this entire joint proxy statement/prospectus and the documents
referred to in this summary for a more complete understanding of the
differences between the rights of Craig stockholders and Reading stockholders,
on the one hand, and the rights of stockholders of Citadel, on the other.
Craig's articles of incorporation and bylaws currently govern the rights of
stockholders of Craig. Reading's articles of incorporation and bylaws currently
govern the rights of stockholders of Reading. After completion of the
consolidation, the stockholders of both Craig and Reading will become
stockholders of Citadel. As a result, the rights of the former Craig and
Reading stockholders will be governed by Citadel's articles of incorporation
and bylaws.
As a result of the consolidation, Craig and Reading common stockholders will
become holders of Citadel nonvoting common stock. The following is a summary of
a comparison among rights of holders of Citadel stock, Craig stock and Reading
stock. Included in this summary is a comparison of the differences between the
articles and bylaws of each company and Nevada law as set forth in the Nevada
Revised Statutes. This summary is qualified in its entirety by reference to the
full text of Citadel's articles of incorporation and bylaws, Craig's articles
of incorporation and bylaws and Reading's articles of incorporation and bylaws.
Furthermore, the description of the Nevada Revised Statutes is a summary only
and is qualified in its entirety by reference to the Nevada Revised Statutes.
Authorized Common Stock
Citadel
The Citadel articles of incorporation authorize 20,000,000 shares of voting
common stock, $0.01 par value, and 100,000,000 shares of nonvoting common
stock, $0.01 par value. There are currently shares of both classes of common
stock outstanding.
The Citadel articles authorize 20,000,000 shares of preferred stock, $0.01
par value, in one or more series comprising such number of shares and having
such voting power, or no voting power, and such rights, preferences and
limitations, as the Citadel board of directors may determine. No preferred
shares have been issued or are outstanding.
The holders of shares of the Citadel nonvoting common stock have no voting
rights except that the holders of the shares of Citadel nonvoting common stock
are entitled to vote as a separate class on any amendments to Citadel's
articles of incorporation or any merger if either would adversely affect such
nonvoting common stockholders' rights, privileges or preferences, or on any
liquidation or dissolution in which certain nonvoting common stockholders would
receive securities with rights, privileges or preferences less beneficial than
those held by them as holders of nonvoting common stock.
Except for voting power, the Citadel articles entitle holders of Citadel
nonvoting common stock to the same rights, preferences, and privileges with
respect to dividends, distributions or any liquidation or dissolution as
holders of Citadel voting common stock.
98
Craig
Craig's articles of incorporation authorize 7,500,000 shares of Class A
common stock, $0.25 par value, and 20,000,00 shares of Class B common stock,
$0.01 par value. Craig's articles of incorporation also authorize 50,000,000
shares of common preference stock, $0.10 par value. Currently, only shares of
the Class A common stock and common preference stock are issued and outstanding.
Craig articles of incorporation authorize 1,000,000 shares of preferred
stock, $0.01 par value, in one or more series comprising such number of shares
and having such voting power, or no voting power, and such rights, preferences
and limitations, as the Citadel board of directors may determine. No preferred
shares have been issued or are outstanding.
Under Craig's articles of incorporation, holders shares of Craig common
stock are entitled to 30 votes per share of common stock on all matters
submitted to a vote of the Craig stockholders. Holders of shares of common
preference stock are entitled to only one vote per share of common preference
stock on all matters submitted to a vote of the Craig stockholders.
The Craig articles of incorporation provide that holders of Craig common
stock are entitled to share ratably in any dividends declared by the Craig
board of directors, subject to the dividend rights of the holders of Craig
common preference stock and of any holders of preferred stock then outstanding.
In the event of liquidation or dissolution, the Craig articles of
incorporation provide that all holders of Craig preference common stock will
receive a distribution of the assets in the amount of $5 per share; however,
such holders of Craig common preference stock will not be entitled to a payment
from the distribution of the assets of more than $5 until the holders of every
other class of stock ranking junior to such common preference stock are paid $5
per share. After such payments have been made, the holders of the common stock
and common preference stock will be entitled to an equal share-for-share
distribution of any remaining assets, as if a single class.
Reading
The Reading articles of incorporation authorize 25,000,000 shares of common
stock, par value $0.001.
The Reading articles of incorporation authorize 10,000,000 shares of
preferred stock. Reading's certificate of designation creates two classes of
preferred stock: Series A convertible preferred stock, $0.001 par value, of
which 70,000 shares are authorized, issued and outstanding, and Series B
convertible preferred stock, $0.001 par value, of which 550,000 shares are
authorized and issued and outstanding.
Under Nevada law, each share of Reading common stock is entitled to one vote
on all matters submitted to a vote of Reading stockholders. Under the Reading
certificate of designation, the holders of convertible preferred stock are
entitled to 9.64 votes for each share of such convertible preferred stock on
all matters submitted to a vote of the Reading stockholders. The holders of
common stock and convertible preferred stock shall vote together as one class
on all matter submitted to a vote of the Reading's stockholders.
Under Reading's certificate of designation, each share of convertible
preferred stock is entitled to receive a cumulative dividend, when declared by
the board of directors but only out of the funds legally available for dividend
payments, at an annual rate of $6.50; however, the Series B convertible
preferred stock will rank junior to the Series A convertible preferred stock.
Subject to the preferences of the convertible preferred stock, each share of
Reading common stock shall be entitled to share ratably in any dividends
declared by the board of directors.
Under Reading's certificate of designation, upon liquidation or dissolution
of Reading, holders of shares of convertible preferred stock will be entitled
to receive before any other distribution of assets is made, a
108
distribution in the amount of $100 per share plus all dividends accrued and
unpaid; however, the Series B convertible preferred stock will rank junior to
the Series A convertible preferred stock. After such distribution is made, any
payments of remaining assets will be evenly distributed among all of Reading's
classes of stock.
Directors
Number and Term
The Nevada Revised Statutes require that a corporation have at least one
director and permits the articles of incorporation or bylaws to govern the
number and term of directors.
The Citadel bylaws provide that the number of directors comprising the
Citadel board of directors be five. The number of directors may be decreased or
increased, but in no event less than one or greater than ten. Citadel's
directors are elected at the annual meeting of Citadel stockholders, and each
director so elected will hold the office until his successor is duly elected
and qualified or until his earlier resignation or removal. The bylaws
specifically state that directors need not also be stockholders.
The Craig bylaws provide that the number of directors comprising the Craig
board of directors be five. The number of directors may be decreased or
increased, but in no event less than one or greater than ten. Craig's directors
are elected at the annual meeting of Craig stockholders, and each director so
elected will hold the office until his successor is duly elected and qualified
or until his earlier resignation or removal. The bylaws specifically state that
directors need not also be stockholders.
The Reading bylaws provide that the number of directors comprising the
Reading board of directors be six. The number of directors may be decreased or
increased, but in no event less than one or greater than ten. Reading's
directors are elected at the annual meeting of Reading stockholders, and each
director so elected will hold the office until his successor is duly elected
and qualified or until his earlier resignation or removal. The bylaws
specifically state that directors need not also be stockholders.
The Reading articles of incorporation provide that in the event that the
quarterly dividends payable on a series of the Reading convertible preferred
stock are in arrears in an aggregate amount equal to six full quarterly
dividends (which quarters need not be consecutive), the number of directors
constituting Reading's board of director will be increased by one for each
series so in default. The holders of such Reading convertible preferred stock,
whose dividends are so in default, will have the special right to vote
separately as a single class, to elect one director of Reading to fill the
newly created directorship, either at the next annual meeting or at a special
meeting, at the request of the holders of 25% or more of shares of such
convertible preferred stock outstanding. Each director elected by the holders
of a series of convertible preferred stock will hold office until the annual
meeting of stockholders next succeeding his election, or until his successor,
if any, is elected by such holders and qualified. Any director elected by the
holders of a series of Reading convertible preferred stock may be removed only
by a vote of the holders of a majority of the outstanding shares of such series.
Removal
The Nevada Revised Statutes provide that any director may be removed by the
vote of stockholders representing not less than two-thirds voting power of
issued and outstanding stock.
The Citadel, Craig and Reading bylaws each provide that a director may be
removed by the affirmative vote of a two-thirds majority of the voting power of
issued and outstanding stock at any meeting called for such purpose or by
consent filed with the secretary, or in his absence, with any other officer.
Such removal is effective immediately, even if a successor is not
simultaneously elected.
109
Vacancies
Under the Nevada Revised Statutes, all vacancies, including those caused by
an increase in the number of directors, may be filled by a majority of the
remaining directors, even if less than a quorum.
Citadel's, Craig's and Reading's bylaws each provide that vacancies in the
board of directors may be filled by a majority of the remaining directors,
though less than a quorum, or by a sole remaining director, and each directors
so elected will hold office until his successor is elected at an annual or a
special meeting of the stockholders. A vacancy or vacancies in the board of
directors will be deemed to exist in case of death, resignation or removal of
any directors, or if the authorized number of directors is increased, or if the
stockholders fail, at any annual or special meeting of the stockholders at
which any director or directors are elected, to elect the full authorized
number of directors to be voted for at that meeting.
Special Meetings
The Nevada Revised Statutes do not distinguish between regular and special
meetings of stockholders, but instead provide that notice of all meetings of
stockholders must be in writing and signed by the president or the vice-
president, secretary, assistant secretary or by any such person as the
corporation's bylaws may prescribe, permit or the directors may designate.
Under the Citadel bylaws, special meetings of the stockholders may be called
by the chairman of the board or president or by the chairman of the board or
president at the written request of stockholders owning outstanding shares
representing a majority of the voting power of Citadel.
Craig's bylaws provide that special meetings of stockholders may be called
by the chairman of the board, president or secretary at the written request of
the majority of the board of directors or at the written request of
stockholders owning outstanding shares representing a majority of the voting
power of Craig.
Reading's bylaws provide that special meetings of stockholders may be called
by the chairman of the board, vice-chairman of the board, chief executive
officer, president or secretary, or any three or more members of the board by
resolution or at the written request of stockholders owning outstanding shares
representing a majority of the voting power of Reading.
Action by Consent
The Nevada Revised Statutes provide that unless the articles or bylaws
provide otherwise, any action that may be taken at a properly held meeting of
the stockholders may be taken by written consent of such stockholders.
Under Citadel's, Craig's and Reading's bylaws, any action which may be taken
by the vote of stockholders at a meeting may be taken without a meeting if
authorized by the written consent of stockholders holding at least a majority
of the voting power, unless the provisions of the Nevada Revised Statutes or of
Citadel's, Craig's and Reading's articles of incorporation, respectively,
require a different proportion of voting power to authorize such action in
which case such proportion of written consents shall be required.
Indemnification
The Nevada revised statutes provide that a corporation may indemnify any
person who was or is a party to any civil, criminal or administrative action by
reason of the fact that such person is or was a director, officer, employee or
agent of the corporation. Such indemnification may be made by the corporation
if the stockholders, a majority role of disinterested directors, or in certain
circumstances, an opinion issued by counsel, determines that such
indemnification is proper in the circumstances. Alternatively, the articles of
incorporation, bylaws or
101
agreement made by the corporation may provide for the payment of expenses of
such officers, directors, employees and agents of the corporation incurred in
defending any civil or criminal action.
Under Citadel's, Craig's and Reading's bylaws, every person who was or is a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that such person or a person of whom that person is the
legal representative is or was a director, officer, employee or agent of each
company or is or was serving at the request of the Citadel, Craig and Reading,
respectively, or for its benefit as a director, officer, employee or agent of
another corporation, or as its representative in a partnership, joint venture,
trust or other enterprise, shall be indemnified and held harmless to the
fullest extent legally permissible under the Nevada Revised Statutes against
all expenses, liability and loss (including attorneys' fees, judgments, fines
and amounts paid or to be paid in settlement) reasonably incurred or suffered
by such person in connection therewith. The expenses of officers, directors,
employee or agents incurred in defending a civil or criminal action, suit or
proceeding must be paid by the Citadel, Craig and Reading, respectively, as
they are incurred and in advance of the final disposition of the action, suit
or proceeding upon receipt of an undertaking by or on behalf of the director,
officer, employee or agent to repay the amount if it is ultimately determined
by a court of competent jurisdiction that such person is not entitled to be
indemnified by Citadel, Craig and Reading, respectively. Such right of
indemnification shall be a contract right which may be enforced in any manner
desired by such person. Such right of indemnification shall not be exclusive of
any other right which such directors, officers, employees or agents may have or
hereafter acquire and, without limiting the generality of such statement, they
shall be entitled to their respective rights of indemnification under any
bylaw, agreement, vote of stockholders, provision of law or otherwise.
INFORMATION REGARDING CITADEL, CRAIG AND READING
Citadel Holding Corporation
In the consolidation agreement, Citadel, Craig and Reading have agreed to
combine the three companies by merging Craig and Reading with subsidiaries of
Citadel. Upon completion of the consolidation, Craig and Reading will become
wholly owned subsidiaries of Citadel, and Citadel will continue to conduct its
business and will carry on the businesses currently being conducted by Craig
and Reading.
Accompanying this joint proxy statement/prospectus are copies of Citadel's
latest annual report on Form 10-K and quarterly report on Form 10-Q filed with
the Securities and Exchange Commission. These reports contain important
business and financial information about Citadel, and you are urged to read
them in conjunction with this joint proxy statement prospectus.
There are no recent material developments at Citadel that are not described
in its quarterly reports on Form 10-Q.
Craig Merger Sub and Reading Merger Sub are wholly owned subsidiaries of
Citadel formed solely for purposes of facilitating the Craig merger and Reading
merger in the consolidation. They have no significant assets, and engage in no
business or operations apart from their participation in the consolidation.
They each will no longer exist following the consolidation.
Craig Corporation
Upon completion of the consolidation, Craig will become a wholly owned
subsidiary of Citadel, and Citadel will carry on the businesses currently being
conducted by Craig.
Accompanying this joint proxy statement/prospectus are copies of Craig's
latest annual report on Form 10-K and quarterly report on Form 10-Q filed with
the Securities and Exchange Commission. These reports
111
contain important business and financial information, about Craig, and you are
urged to read them in conjunction with this joint proxy statement/prospectus.
Except as described below under "Recent Developments," there are no recent
material developments at Craig that are not described in its quarterly reports
on Form 10-Q.
Reading Entertainment, Inc.
Upon completion of the consolidation, Reading, which will change its name to
"Reading Holdings, Inc.", will become a wholly owned subsidiary of Citadel, and
Citadel will carry on the businesses currently being conducted by Reading.
Accompanying this joint proxy statement/prospectus are copies of Reading's
latest annual report on Form 10-K and quarterly report on Form 10-Q filed with
the Securities and Exchange Commission. These reports contain important
business and financial information about Reading, and you are urged to read
them in conjunction with this joint proxy statement/prospectus.
Except as described below under "Recent Developments," there are no recent
material developments at Reading that are not described in its quarterly
reports on Form 10-Q.
Certain Litigation Relating to the Consolidation
On August 3, 2001, approximately two weeks after the companies' joint
announcement that they had entered into an agreement in principle with respect
to the consolidation, Harbor Finance Partners filed a purported class-action
complaint in the Nevada State District Court, Clark County, Nevada, styled
Harbor Finance Partners, Plaintiff. v. James J. Cotter, Robert F. Smerling, S.
Craig Tompkins, Scott A . Braly, Robert M. Loeffler, Kenneth S. McCormick,
Craig Corporation, and Reading Entertainment, Inc., Case No. A438155. The
Harbor complaint alleges that the Reading directors and Craig, as the
controlling stockholder of Reading, have breached their respective duties to
the stockholders of Reading in various respects, and seeks various remedies,
including preliminary and permanent injunctions against the closing of the
consolidation and monetary damages.
Essentially, the Harbor Finance Partners complaint alleges that the
defendants are attempting to deceive the plaintiff and the class and deprive
them unfairly of their investments in Reading, and that the defendants have
further breached their respective duties by:
. Entering into an agreement that would result in a less than 10% premium
for the exchange of their Reading shares for Citadel nonvoting common
stock and at an exchange ratio that is alleged to be "grossly unfair,
inadequate, and substantially below the fair or inherent value of Reading"
and that allegedly fails to take into account plaintiff's assertion that
"the intrinsic value of the equity of Reading is materially greater than
the consideration being considered, taking into account Reading's asset
value, liquidation value, its expected growth and the strength of its
business;"
. Failing to negotiate any collar on the stock price movements of Citadel to
guarantee that Reading shareholders would receive a premium for their
shares;
. Failing to disclose, "inter alia, the full extent of the future earnings
potential of Reading and the expected increase in profitability;" and
. Entering into a merger transaction which is allegedly an "unlawful plan
and scheme to obtain the entire ownership of Reading at the lowest
possible price" and which will allegedly "deny class members their right
to share proportionately in the true value of Reading's valuable assets,
profitable business, future growth in profits and earnings, while usurping
the same for the benefit of the defendants at an unfair and inadequate
price."
112
Although filed on August 3, 2001, the Harbor Finance Partners complaint was
not served until August 28, 2001, after the directors of the three companies
had approved the execution and delivery of the consolidation agreement. Neither
the directors nor management were aware of the existence of the complaint until
it was served on August 28th.
On September 5, 2001, we invited Harbor Finance Partners to meet with us to
discuss their concerns with respect to the consolidation. In preparation for
that meeting, Reading entered into a Confidentiality Agreement with Harbor
Finance Partners dated September 13, 2001, and on September 17, 2001 forwarded
to Harbor Finance Partners the presentations made by Marshall & Stevens to the
conflicts committees on May 3, 2001, June 21, 2001 and July 17 and 18, 2001.
On September 25, 2001, we met with Messrs. Matt Houston and Ara Skirinian,
counsel for Harbor Finance Partners (plaintiff having apparently determined not
to accept our invitation to participate directly in that meeting), and Ms.
Candace L. Preston, a financial advisor to Harbor Finance Partners who
participated by telephone. According to her resume, Ms. Preston is, and has
been since 2001, the founding member of Financial Markets Analysis, LLC, "a
financial consultant specializing in securities and business valuations in
mergers, acquisitions, appraisals, business planning, brokerage/customer
arbitrations, and litigation" with "significant testimonial experience in
breach of contract, bankruptcy, anti-trust, securities and consumer class
actions. Ms. Preston's resume states that her clients include "private and
public companies, individual and institutional investors and law firms." Mr.
Houston is an attorney in the law firm of Wechsler Harwood Halebian & Feffer,
LLP, located in New York City.
Attending the meeting on our behalf were Messrs. Andrzej Matyczynski and S.
Craig Tompkins. Also present were counsel for Reading, Mr. Mark James, and
counsel for the defendant directors, Mr. Patrick Sheehan. During the meeting,
Mr. Houston and Ms. Preston raised the following concerns on behalf of Harbor
Finance Partners:
. The presence of a "buy-out premium" of less than 10% in light of
precedents cited by Ms. Preston as to the payment of higher premiums in
other "buy-out situations;"
. The use by Marshall & Stevens of six-month trading histories as one
element in their determination of the fair exchange ratio recommended to
the Reading conflicts committee and the Reading board of directors;
. The use by Marshall & Stevens of what Ms. Preston took to be "book value"
numbers in connection with their "market valuation" of Reading and the
lack of the assignment of any specific value to the Reading net operating
loss carryovers in that "market valuation;" and
. The scope and extent of the disclosure in the joint proxy
statement/prospectus. Specifically, Mr. Houston and Ms. Preston expressed
the view that the disclosure was unclear as to the extent to which
appraisals were relied upon in valuing Reading, and that they would
appreciate greater disclosure regarding the basis for the determination to
use a single financial advisor to assist with the setting of the
conversion ratios.
Mr. Houston and Ms. Preston also stated their views that the Reading conversion
ratio should have been 1.7-to-1 based on an average of their adjustments for
each of the above-referenced items.
During the course of this meeting, we expressed management's view that
plaintiff's allegations in the complaint were without merit, and that we intend
to vigorously defend against plaintiff's lawsuit. Following the meeting, we
brought to the attention of the Reading conflicts committee and the Reading
board of directors the issues raised by Mr. Houston and Ms. Preston on Harbor
Finance Partners' behalf, and Mr. Houston undertook to bring to the attention
of Harbor Finance the information presented by us at the meeting. After
considering the issues raised by Harbor Finance Partners, the Reading conflicts
committee and board of directors have determined to continue moving forward
with the consolidation.
113
Security Ownership of Certain Beneficial Owners and Management of Citadel
The following table sets forth as of October 31, 2001, information with
respect to the beneficial ownership of the common stock of Citadel as to:
. Each person known by Citadel to own beneficially more than 5% of the
outstanding shares of its voting common stock and nonvoting common stock.
. Each person who served as Citadel's Chief Executive Officer and each of
Citadel's other three most highly compensated executive officers during
fiscal year 2000.
. Each of Citadel's directors.
. All of Citadel's directors and executive officers as a group.
114
Unless otherwise indicated below, each person or entity named below has an
address in care of Citadel's principal executive offices. Beneficial ownership
is determined in accordance with the rules of the Securities and Exchange
Commission. Shares of voting common stock and nonvoting common stock subject to
options that are presently exercisable or exercisable within 60 days of October
31, 2001 are deemed outstanding for the purpose of computing the percentage
ownership of the person or entity holding the options, but are not treated as
outstanding for the purpose of computing the percentage ownership of any other
person or entity. The numbers reflected in the percentage ownership columns are
based on 7,958,379 shares of Citadel nonvoting common stock and 1,989,585
shares of Citadel nonvoting common stock outstanding as of October 31, 2001 and
the assumption that 20,484,988 shares of Citadel nonvoting common stock and
1,336,330 shares of Citadel voting common stock will be outstanding after the
consolidation. In addition, the numbers assume that all Craig and Reading stock
option holders will elect to have their Craig and Reading options converted
into options to purchase Citadel voting shares in the consolidation. Unless
otherwise indicated below, the persons and entities named in the table have
sole voting and sole investment power with respect to all shares beneficially
owned, subject to community property laws where applicable. This table includes
percentage ownership data reflecting ownership both before and after
consummation of the consolidation. An asterisk denotes beneficial ownership of
less than 1%.
Class A Nonvoting Common Stock
- ---------------------------------------------------------
Number of Shares Percent
- -------------------------- --------------------------
Name and Address of Before the After the Before the After the
Beneficial Ownership consolidation consolidation consolidation consolidation
-------------------- ------------- ------------- ------------- -------------
James J. Cotter........................ 3,879,056(1) 4,205,378(2) 48.74% 21.15%
120 N. Robertson Blvd.
Los Angeles, CA 90048
S. Craig Tompkins...................... 16,000(3) 20,090(4) * *
William C. Soady....................... 20,000(6) 20,000(5) * *
Alfred N. Villasenor, Jr............... 20,000(6) 20,000(6) * *
Robert M. Loeffler..................... 20,000(6) 20,000(6) * *
Robert F. Smerling..................... -- -- * *
Andrzej Matyczynski.................... 20,000(6) 20,000(6) * *
Brett Marsh............................ 6,000(9) 6,000(9) * *
Ellen Cotter........................... -- -- -- *
Margaret Cotter........................ -- -- -- *
Craig Corporation...................... 2,567,823 -- (13) 32.27% --
550 South Hope Street, Suite 1825
Los Angeles, CA 90071
Reading Entertainment, Inc............. 1,690,938 -- (13) 21.25% --
Hecco Ventures......................... -- 1,565,783 -- 7.64%
120 North Robertson Blvd.
Los Angeles, CA 90048
Michael Forman......................... 1,311,233 1,311,233 16.48% 6.40%
120 North Robertson Blvd.
Los Angeles, CA 90048
Pacific Assets Management LLC (14)..... -- 825,834 -- 4.03%
1999 Avenue of the Stars,
Suite 2530
Los Angeles, CA 90067
Private Management Group (15).......... 528,000 528,000 6.63% 2.58%
20 Corporate Park, #400
Irvine, CA 92606
Lawndale Capital Management/
Diamond A Partners LP (16)............ -- 3,011,947 -- 14.70%
One Sansome St. Ste. 3800
San Francisco, CA 94104
All directors and executive officers as
a group (10 persons) (17)............. 3,981,056 4,316,148 49.39% 20.97%
Class B Voting Common Stock
- --------------------------------------------------------
Number of Shares Percent
- ------------------------- --------------------------
Name and Address of Before the After the Before the After the
Beneficial Ownership consolidation consolidation consolidation consolidation
-------------------- ------------- ------------- ------------- -------------
James J. Cotter........................ 981,064(1) 1,817,928(2) 49.31% 64.32%
120 N. Robertson Blvd.
Los Angeles, CA 90048
S. Craig Tompkins...................... -- 65,950(5) -- 4.62%
William C. Soady....................... -- -- -- --
Alfred N. Villasenor, Jr............... -- -- -- --
Robert M. Loeffler..................... -- -- -- --
Robert F. Smerling..................... -- 43,750(7) -- 3.17%
Andrzej Matyczynski.................... -- 23,400(8) 1.72%
Brett Marsh............................ -- 12,500(10) -- --
Ellen Cotter........................... -- 14,840(11) -- 1.10%
Margaret Cotter........................ -- 19,550(12) -- 1.16%
Craig Corporation...................... 653,256 -- (13) 32.83% --
550 South Hope Street, Suite 1825
Los Angeles, CA 90071
Reading Entertainment, Inc............. 422,735 -- (13) 21.25% --
Hecco Ventures......................... -- -- -- --
120 North Robertson Blvd.
Los Angeles, CA 90048
Michael Forman......................... 327,808 327,808 16.48% 24.53%
120 North Robertson Blvd.
Los Angeles, CA 90048
Pacific Assets Management LLC (14)..... 198,958 198,958 10.00% 14.89%
1999 Avenue of the Stars,
Suite 2530
Los Angeles, CA 90067
Private Management Group (15).......... 117,700 117,700 5.92% 8.81%
20 Corporate Park, #400
Irvine, CA 92606
Lawndale Capital Management/
Diamond A Partners LP (16)............ -- -- -- --
One Sansome St. Ste. 3800
San Francisco, CA 94104
All directors and executive officers as
a group (10 persons) (17)............. 981,064 1,995,918 49.31% 66.43%
--------
(1)Includes 2,567,823 shares of nonvoting and 653,256 shares of voting common
stock of Citadel held by Craig.
(2)Includes 1,172,764 and 1,300,864 shares of Craig common and Common A
Preference Stock, respectively, which will be converted to Citadel
nonvoting shares and 1,311,233 shares of Craig shares owned by Mr. Cotter.
Mr. Cotter's holdings of Citadel Class B voting common shares after the
consolidation are comprised of 794,040 voting shares and 696,080 voting
shares, respectively, obtainable from conversion of Reading and Craig stock
options and 327,808 shares owned by him.
108
(3)Includes 16,000 nonvoting shares subject to stock options.
(4)Includes 16,000 nonvoting shares subject to stock options and 2,340
nonvoting shares and 1,750 nonvoting shares, respectively, obtainable from
conversion of shares of Craig and Reading common stock.
(5)Includes 65,950 voting shares obtainable from conversion of Craig and
Reading stock options.
(6)Includes 20,000 nonvoting shares subject to stock options.
(7)Includes 43,750 voting shares obtainable from conversion of Reading stock
options.
(8)Includes 23,400 voting shares obtainable from conversion of Craig stock
options.
(9)Includes 6,000 nonvoting shares subject to stock options.
(10)Includes 12,500 voting shares obtainable from conversion of Reading stock
options.
(11)Includes 2,340 voting shares and 12,500 voting shares, respectively,
obtainable from conversion of Craig and Reading stock options.
(12)Includes 17,550 voting shares obtainable from conversion of Craig stock
options.
(13)Converted to treasury shares upon consolidation.
(14)As reported on schedule 13-G filed with the Securities and Exchange
Commission on June 5, 2001 for Craig and on September 5, 2001 for Citadel.
Includes 825,834 Citadel nonvoting shares obtainable from conversion of
Craig shares owned.
(15)As reported on the 13-G filing dated February 5, 2001.
(16)Based on schedule 13-G filed September 13, 2001 for Reading and based on
schedule 13-G filed June 5, 2001 for Craig. Includes 1,484,863 nonvoting
shares and 1,527,084 nonvoting shares, respectively, obtainable from
conversion of Reading and Craig shares owned.
(17)Includes 102,000 nonvoting shares subject to stock options prior to and
after the consolidation. Includes 1,668,110 voting shares subject to stock
options after the consolidation.
Security Ownership of Certain Beneficial Owners and Management of Craig
The following table sets forth as of October 31, 2001, information with
respect to the beneficial ownership of the common stock of Craig as to:
. Each person known by Craig to own beneficially more than 5% of the
outstanding shares of its common stock or common preference stock.
. Each person who served as Craig's Chief Executive Officer and each of
Craig's other three most highly compensated executive officers during
fiscal year 2000.
. Each of Craig's directors.
. All of Craig's directors and executive officers as a group.
Unless otherwise indicated below, each person or entity named below has an
address in care of Craig's principal executive offices. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission. Shares of common stock and common preference stock subject to
options that are presently exercisable or exercisable within 60 days of October
31, 2001 are deemed outstanding for the purpose of computing the percentage
ownership of the person or entity holding the options, but are not treated as
outstanding for the purpose of computing the percentage ownership of any other
person or entity. The numbers reflected in the percentage ownership columns are
based on 3,402,808 shares of Craig common stock and 7,058,408 shares of Craig
common preference stock outstanding as of October 31, 2001. Unless otherwise
indicated below, the persons and entities named in the table have sole voting
and sole investment power with respect to all shares beneficially owned,
subject to community property laws where applicable. An asterisk denotes
beneficial ownership of less than 1%.
109
Common Preference
Common Stock Stock
------------------- -------------------
Amount Amount
Beneficially Beneficially
Name and Address of Beneficial Owner Owned Percent Owned Percent
------------------------------------ ------------ ------- ------------ -------
James J. Cotter (1)............................ 2,385,142 59.66% 2,021,702 28.64%
120 N. Robertson Blvd.
Los Angeles, CA 90048
Hecco Ventures (1)............................. 617,438 18.14% 720,838 10.21%
120 N. Robertson Blvd.
Los Angeles, CA 90048
Artisan Partners LTD (2)....................... -- -- 702,900 9.96%
Artisan Investment Corporation
1000 North Water Street, #1770
Milwaukee, WI 53202.
Dimensional Fund Advisors, Inc (3)............. 250,300 7.36% -- --
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
First Pacific Advisors, Inc. (4)............... -- -- 474,300 6.72%
11400 West Olympic Blvd., Suite 1200
Los Angeles, CA 90064
Lawndale Capital Management, Inc (5)........... -- -- 1,305,200 18.49%
One Sansome St., Suite 3900
San Francisco, CA 94101
Pacific Assets Management LLC (6).............. -- -- 705,841 10.00%
1999 Avenue of the Stars, Suite 2530
Los Angeles, CA 90067
Scott A. Braly (7)............................. -- -- -- --
Ellen M. Cotter................................ 1,000 * 1,000 *
Margaret Cotter (8)............................ 9,500 -- 9,500 *
William D. Gould (9)........................... 17,000 * 18,000 *
Gerald P. Laheney (10)......................... 15,000 * 15,000 *
Andrzej Matyczynski (11)....................... 20,000 * -- --
S. Craig Tompkins (12)......................... -- -- 37,000 --
All directors and executive officers as a group
(7 persons) (13).............................. 2,447,642 60.58% 2,102,202 29.54%
--------
(1)Includes the common stock and common preference stock owned by Hecco
Ventures, which is a California general partnership. Mr. James J. Cotter is
the general partner of a limited partnership which is the general partner
of Hecco Ventures. Also includes 594,940 shares of common stock subject to
stock options held by Mr. Cotter. Margaret Cotter, a director, and Ellen
Cotter, Vice President of Business Affairs, of Craig for the Company, are
the daughters of Mr. Cotter and each are limited partners in the
above-referenced limited partnership. The other general partners of Hecco
Ventures are Michael Forman and a subsidiary of the Decurion Corporation, a
company privately owned by Michael Forman and certain members of his
family. Hecco Ventures has granted Mr. Cotter the right to vote the shares
held by it.
(2)According to filings with the Securities and Exchange Commission dated
February 9, 2001, includes 702,900 shares of common stock owned of record
by Artisan Partners LTD/Artisan Investment Corporation.
(3)According to filings with the Securities and Exchange Commission dated
February 2, 2001, Dimensional Fund Advisors Inc. is a registered investment
manager to certain other investment vehicles, including commingled group
trusts, and possesses both voting and investment power over the shares of
common stock shown; however, the shares are owned of record by the
commingled group trusts, and Dimensional disclaims beneficial ownership of
all such shares.
110
(4)According to filings with the Securities and Exchange Commission dated May
7, 2001, includes 348,300 shares of shared voting power.
(5)According to filings with the Securities and Exchange Commission dated
April 12, 2001, includes shares owned of record by Diamond A Partners,
L.P., or DAP and by Diamond A Investors L.P., or DAI, over which Lawndale
Capital Management, Inc., or LAM, and Andrew E. Shapiro have shared voting
and dispositive power. According to filings with the Securities and
Exchange Commission, Lawndale Capital Management, Inc., is the investment
advisor to DAP and DAI, which are investment limited partnerships and Mr.
Shapiro is the sole manager of LAM.
(6)According to filings with the Securities and Exchange Commission dated June
5, 2001, includes 705,841 shares as to which voting power is shared with
JMG Triton Offshore Fund Ltd.
(7)Mr. Braly resigned from Craig, effective December 27, 2000.
(8)Includes 7,500 shares each of common stock and common preference stock
subject to stock options.
(9)Includes 2,000 shares of common stock and 3,000 shares of common preference
stock owned by a trust for the benefit of Mr. Gould's children, of which he
is co-trustee; Mr. Gould disclaims beneficial ownership of the shares held
in the trust.
(10)Includes 15,000 shares of common stock and 15,000 shares of common
preference stock subject to stock options.
(11)Includes 20,000 shares of common stock subject to stock options.
(12)Includes 35,000 shares subject to stock options and 2,000 shares held in
various retirement accounts for the benefit of Mr. Tompkins and his wife.
(13)Includes 632,440 shares of common stock and 57,500 shares of common
preference stock subject to stock options.
Security Ownership of Certain Beneficial Owners and Management of Reading
The following table sets forth as of October 31, 2001, information with
respect to the beneficial ownership of the common stock of Reading as to:
. Each person known by Reading to own beneficially more than 5% of the
outstanding shares of its common stock.
. Each person who served as Reading's Chief Executive Officer and each of
Reading's other five most highly compensated executive officers during
fiscal year 2000.
. Each of Reading's directors.
. All of Reading's directors and executive officers as a group.
Unless otherwise indicated below, each person or entity named below has an
address in care of Reading's principal executive offices. Beneficial ownership
is determined in accordance with the rules of the Securities and Exchange
Commission. Shares of common stock subject to options that are presently
exercisable or exercisable within 60 days of October 31, 2001 are deemed
outstanding for the purpose of computing the percentage ownership of the person
or entity holding the options, but are not treated as outstanding for the
purpose of computing the percentage ownership of any other person or entity.
The numbers reflected in the percentage ownership columns are based on
7,449,364 shares of Reading common stock outstanding as of October 31, 2001.
The calculation of the percent of voting stock gives effect to the voting
rights of Reading's outstanding shares of Series A convertible preferred stock,
all of which are owned by a subsidiary of Citadel, and Series B convertible
preferred stock, all of which are owned by Craig. The holders of Reading Series
A and Series B convertible preferred stock are entitled to cast 9.64 votes per
share, voting together with the holders of Reading common stock as a single
class, on any matters presented to shareholders of Reading, except as required
by law. Unless
111
otherwise indicated below, the persons and entities named in the table have
sole voting and sole investment power with respect to all shares beneficially
owned, subject to community property laws where applicable. An asterisk denotes
beneficial ownership of less than 1%.
Amount and Nature of Beneficial Ownership
- --------------------------------------------------------------
Common Stock Preferred Stock
- -------------------- -----------------------------------------
Series A Series B
- -------------------- --------------------
Amount Amount Amount
Beneficially Beneficially Beneficially
Name and Address of Beneficial Owner Owned Percent Owned Percent Owned Percent
------------------------------------ ------------ ------- ------------ ------- ------------ -------
James J. Cotter (1)(2)(3)......... 641,232 4.56% -- -- -- --
Scott A. Braly (4)................ -- -- -- -- -- --
S. Craig Tompkins (5)............. 21,400 * -- -- -- --
Robert M. Loeffler (6)............ 6,000 * -- -- -- --
Kenneth McCormick (6)............. 6,000 * -- -- -- --
Robert Smerling (7)............... 35,000 * -- -- -- --
Andrzej Matyczynski............... -- -- -- -- -- --
Brett Marsh (8)................... 10,000 * -- -- -- --
Ellen Cotter (9).................. 10,000 * -- -- -- --
Craig Corporation (10)(2)......... 10,467,510 58.43% -- -- 550,000 4.10%
550 South Hope Street,
Suite 1825
Los Angeles, CA 90071
Citadel Holding Corporation (2)... 2,241,349 15.97% 70,000 100.00% -- --
550 South Hope Street,
Suite 1825
Los Angeles, CA 90071
Lawndale Capital Management/
Diamond A Partners LP (11)...... 1,187,890 8.85% -- -- -- --
One Sansome Street,
Suite 3900
San Francisco, CA 94104
All directors and executive
officers as a group
(8 persons) (12)................. 729,632 5.16% -- -- -- --
--------
(1)Does not include amounts held by Craig or Citadel.
(2)James J. Cotter is Chairman of the Board and the Chief Executive Officer of
Reading, Craig and Citadel. S. Craig Tompkins is the Vice Chairman of the
Board of Reading, a director and President of Craig, and the Vice Chairman
and Corporate Secretary of Citadel. James J. Cotter is also a principal
stockholder of Craig.
(3)Includes 6,000 shares held in a profit sharing plan and 635,232 shares
subject to stock options. Mr. Cotter is the beneficial owner of 2,385,142
shares of the common stock and 2,021,702 shares of the common preference
stock of Craig. Mr. Cotter is also the principal controlling stockholder of
Craig, having the power, directly or through proxies, to vote securities
representing approximately 51% of the voting power of Craig.
(4)Mr. Braly resigned from Reading, effective December 27, 2000.
(5)Includes 15,000 shares subject to stock options. Excludes 200 shares held
in Mr. Tompkins' wife's retirement plan and 500 shares held in a trust for
Mr. Tompkins' minor child as to which Mr. Tompkins disclaims beneficial
ownership.
(6)Includes 6,000 shares subject to stock options.
112
(7)Includes 35,000 shares subject to stock options.
(8)Includes 10,000 shares subject to stock options.
(9)Includes 10,000 shares subject to stock options.
(10)Includes shares owned, of record, by Craig Management Inc., a wholly-owned
subsidiary of Craig.
(11)According to filings with the Securities and Exchange Commission dated
September 13, 2001. Lawndale Capital Management is the general partner of
Diamond A Partners LP pursuant to limited partnership agreement providing
Lawndale Capital Management the authority to invest the funds of Diamond A.
Partners LP.
(12)Includes 713,232 shares subject to stock options.
113
MANAGEMENT OF CITADEL
Executive Officers
The names of the executive officers of Citadel, other than James J. Cotter
and S. Craig Tompkins, who are nominees for director, together with information
regarding such executive officers, is as follows:
Name Age Title
---- --- -----
Andrzej Matyczynski 48 Chief Financial Officer and Treasurer
Robert F. Smerling. 66 President of City Cinemas/
Citadel Cinemas Inc.
Brett Marsh........ 52 Vice President of Real Estate
Mr. Matyczynski was named Chief Financial Officer and Treasurer of Citadel
and Craig and the Chief Administrative Officer of Reading on November 18, 1999.
Mr. Matyczynski was named the Chief Financial Officer and Treasurer of Reading
effective June 2, 2000. Prior to joining Citadel, Mr. Matyczynski was
associated with Beckman Coulter and its predecessors for more than the past
twenty years and also served as a director for certain Beckman Coulter
subsidiaries. He also is a director and the Treasurer of both Craig Merger Sub
and Reading Merger Sub.
Mr. Smerling was appointed President of Citadel Cinemas Inc. effective
September 1, 2000 following Citadel's acquisition of the City Cinemas. Mr.
Smerling also serves as the President and a director of Reading. Mr. Smerling
has served as President of Reading's various domestic and Puerto Rican
exhibition subsidiaries since 1994. Mr. Smerling served as President of Loews
Theater Management Corporation form May 1990 until November 1993. Mr. Smerling
also served as President and Chief Executive Officer of City Cinemas
Corporation, a motion picture exhibitor located in New York City, from November
1993 to September 2000.
Mr. Marsh has been with Citadel since 1993 and is responsible for Citadel's
real estate activities. Prior to joining Citadel, Mr. Marsh was the Senior Vice
President of Burton Property Trust, Inc., the U.S. real estate subsidiary of
The Burton Group PLC. In this position, Mr. Marsh was responsible for the real
estate portfolio of that company.
Craig Merger Sub and Reading Merger Sub are wholly owned subsidiaries of
Citadel. Messrs. Tompkins and Matyczynski are the sole directors and serve as
the President and the Treasurer, respectively, of both Craig Merger Sub and
Reading Merger Sub. Craig Merger Sub and Reading Merger Sub have no other
executive officers.
121
Summary Compensation Table
Effective January 1, 2000, all executive officers and administrative
employees of Citadel became employees of Craig. At the same time, Craig entered
into management arrangements with Citadel and Reading under which all of the
general and administrative costs of Citadel, Craig and Reading are paid by
Craig and allocated among Craig, Citadel and Reading. Accordingly, subsequent
to December 31, 1999, Citadel has had no employees who were paid directly by
Citadel or its subsidiaries, except for the President of Citadel Cinemas, Inc.
as disclosed below. The following table sets forth the compensation expense
allocated to Citadel for the years ended December 31, 2000, and paid for in
1999, and 1998 for each person who served as Chief Executive Officer at any
time during the last completed fiscal year and each of the four other most
highly compensated executive officers of Citadel:
Long-Term
Compensation
Securities
Other Underlying
Name and Annual Stock Options All Other
Principal Position Year Salary Bonus Compensation(2) Granted Compensation(8)
------------------ ---- -------- ------ --------------- ------------- ---------------
James J. Cotter (2)........ 2000 $119,000 -- $45,000 -- --
Chairman of the Board, 1999 -- -- $45,000 -- --
President and 1998 -- -- $45,000 -- --
Chief Executive Officer
Scott A. Braly (3)......... 2000 $ 15,946 -- -- -- --
Chief Executive Officer 1999 -- -- -- -- --
1998 -- -- -- -- --
S. Craig Tompkins (4)...... 2000 $139,886 -- (1) 40,000 $1,785
Corporate Secretary and 1999 $ 40,000 -- (1) -- --
Vice Chairman of the Board 1998 $ 40,000 -- (1) -- --
Andrzej Matyczynski (5).... 2000 $ 61,200 $4,080 (1) 30,000 $1,490
Chief Financial Officer 1999 -- -- -- -- --
and Treasurer 1998 -- -- -- -- --
Robert F. Smerling (6)..... 2000 $ 87,500 -- (1) -- --
President of City Cinemas/ 1999 -- -- -- -- --
Citadel Cinemas, Inc. 1998 -- -- -- -- --
Brett Marsh (7)............ 2000 $ 57,800 $9,520 (1) 15,000 $4,149
Vice President of 1999 $162,500 -- (1) -- --
Real Estate 1998 $152,500 -- (1) -- --
--------
(1)Excludes perquisites aggregating less than $50,000, or 10% of salary plus
bonus, whichever is less.
(2)Mr. Cotter is paid a director's fee of $45,000 for his services as the
Chairman of the Board. He receives no compensation for serving as the
President and Chief Executive Officer. Mr. Cotter is also paid an annual
consulting fee of $350,000 from Craig, of which approximately 34%, or
$119,000, was allocated to Citadel in 2000.
(3)Mr. Braly was named the Chief Executive Officer of the Citadel, Craig, and
Reading, effective October 16, 2000, and resigned from all three companies,
effective December 27, 2000. Mr. Braly's total compensation with respect to
his employment contract with Craig was approximately $46,900. The salary
shown reflects an allocation to Citadel of approximately 34% of Mr. Braly's
total compensation.
(4)Mr. Tompkins was elected Corporate Secretary in August 1994 and Vice
Chairman in July 1994. Mr. Tompkins was elected as the President of Craig
and was elected to the board of directors of Craig on February 6, 1993. Mr.
Tompkins was granted options to acquire 40,000 shares of Citadel nonvoting
common stock on April 13, 2000. These shares vest over four years in equal
amounts except for the 8,000 shares that vested immediately. The salary
shown above for the years ended December 31, 2000 reflects approximately 34%
of Mr. Tompkins' compensation which was allocated to Citadel. Mr. Tompkin's
total compensation earned in aggregate totaled approximately $410,400 for
the year ended December 31, 2000. In 1999 and 1998, Mr. Tompkins received
$40,000 in director's fees from Citadel.
115
(5)Mr. Matyczynski was named Chief Financial Officer and Treasurer of Citadel
and Craig and the Chief Administrative Officer of Reading on November 18,
1999. Mr. Matyczynski was named the Chief Financial Officer of Reading
effective June 2, 2000. Mr. Matyczynski was also granted options to acquire
30,000 shares of Citadel nonvoting common stock on April 13, 2000, of which
15,000 shares vested on November 18, 2000 and of which 5,000 shares will
vest on each November 18 thereafter. The salary shown above for the year
ended December 31, 2000 reflects approximately 34% of Mr. Matyczynski's
compensation which was allocated to Citadel. Mr. Matyczynski's total
compensation earned in aggregate totaled approximately $180,000 plus $12,000
in bonus. Mr. Matyczynski's aggregate compensation did not exceed $100,000
for the year ended December 31, 1999.
(6)Prior to September 20, 2000, City Cinemas, a third-party affiliate, and
Reading were parties to an executive-sharing arrangement for which Mr.
Smerling was paid an annual salary of $175,000. Effective September 1, 2000,
Citadel Cinemas Inc., a wholly-owned subsidiary of Citadel, acquired the
assets of City Cinemas and appointed Mr. Smerling as its President. Mr.
Smerling also serves as the President and a director of Reading. Mr.
Smerling's salary shown above for the year ended December 31, 2000 reflects
compensation earned from Citadel Cinemas Inc. Citadel was reimbursed for a
portion of Mr. Smerling's salary by Reading pursuant to a separate
management agreement. The executive-sharing arrangement has been superceded
by the general and administrative cost sharing agreement currently in place
between Craig, Citadel and Reading.
(7)Mr. Marsh serves as the Vice President of Real Estate of the Citadel, Craig
and Reading. On April 13, 2000, Mr. Marsh was granted options to acquire
15,000 shares of the Citadel nonvoting common stock. These shares vest
equally over four years except for 3,000 shares that vested immediately. The
salary shown above for the year ended December 31, 2000 reflects
approximately 34% of Mr. Marsh's compensation which was allocated to
Citadel. Mr. Marsh's total compensation earned in aggregate totaled
approximately $182,600 plus $28,000 in bonus.
(8)All other compensation is primarily comprised of approximately 34% of the
employer's match under Craig's 401(k) plan.
Option/SAR Grants in Last Fiscal Year
On April 13, 2000, the Citadel board of directors granted options to the
following directors and officers of Citadel:
Potential Realizable
Value at Assumed
Number of % of Total Annual Rates of Stock
Securities Options/SARs Price Appreciation for
Underlying Granted to Exercise or Option Term
- Options/SARs Employees in Base Price Expiration ----------------------
Granted (#)(1) Fiscal Year ($/Share) Date 5% 10%
- -------------- ------------ ----------- ---------- -------- --------
S. Craig Tompkins..... 40,000(2) 25.81% $2.76 4/13/10 $179,800 $286,300
Andrzej Matyczynski... 30,000(3) 19.35% $2.76 4/13/10 $134,900 $195,200
Brett Marsh........... 15,000(4) 9.68% $2.76 4/13/10 $ 67,400 $107,400
Robert M. Loeffler.... 20,000 12.90% $2.76 4/13/10 $ 89,900 $143,200
William C. Soady...... 20,000 12.90% $2.76 4/13/10 $ 89,900 $143,200
Alfred Villasenor, Jr. 20,000 12.90% $2.76 4/13/10 $ 89,900 $143,200
--------
(1)All grants shown were for nonvoting common stock and, unless otherwise
indicated, vested immediately.
(2)8,000 shares vested immediately on April 13, 2000. The remaining shares will
vest ratably over four years at the rate of 8,000 shares per year.
(3)15,000 shares vested on November 19, 2000. The remaining shares will vest
ratably over three years at the rate of 5,000 shares per year.
(4)3,000 shares vested immediately on April 13, 2000. The remaining shares will
vest ratably over four years at the rate of 3,000 shares per year.
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Aggregated Option/SAR in Last Fiscal Year and Fiscal Year-End Option/SAR Values
Number of Securities
Underlying Unexercised
Shares Acquired Options/SARs at FY-End Value of Unexercised
---------------- ---------------------- In-the-Money Options/SARs at
Name Nonvoting Voting Nonvoting Voting FY-End (%)(1)
---- --------- ------ ------------- ------ ----------------------------
Alfred Villasenor, Jr. -- -- 20,000/0 -- $0/$0 --
S. Craig Tompkins..... -- -- 8,000/32,000 -- $ 0/$0 --
Andrzej Matyczynski... -- -- 15,000/15,000 -- $ 0/$0 --
Brett Marsh........... -- -- 3,000/12,000 -- $ 0/$0 --
Robert M. Loeffler.... -- -- 20,000/0 -- $ 0/$0 --
William C. Soady...... -- -- 20,000/0 -- $ 0/$0 --
--------
(1)Calculated based on closing prices of $2.3750 and $2.5625 for nonvoting
common stock and voting common stock, respectively.
Limitationon Directors' Liability and Indemnification
The Citadel articles of incorporation limit the liability of directors to
the maximum extent permitted by Nevada law. Nevada law provides that except for
certain regulatory exceptions, a director is not individually liable to the
corporation or its stockholders for any damages as a result of any act or
failure to act in his capacity as a director unless it is proven that: (i) his
act or failure to act constituted a breach of his fiduciary duties as a
director; and (ii) his breach of those duties involved intentional misconduct,
fraud or a knowing violation of the law. This limitation of liability does not
apply to liabilities arising under the federal securities laws and does not
affect the availability of equitable remedies such as injunctive relief or
rescission.
The Citadel bylaws provide that Citadel will indemnify its directors and
executive officers and other corporate agents to the fullest extent permitted
by law. We believe that indemnification under the Citadel bylaws covers at
least negligence and gross negligence on the part of indemnified parties. Our
bylaws also permit us to secure insurance on behalf of any officer, director,
employee or other agent for any liability arising out of his or her actions in
this capacity, regardless of whether the bylaws would permit indemnification.
We have entered into indemnification agreements to indemnify our directors
and executive officers, in addition to the indemnification provided for in our
articles of incorporation and bylaws. Stockholders of Citadel are being asked
to notify and approve the form of indemnification agreement as described above
in this joint proxy statement/prospectus. These agreements, among other things,
provide for indemnification of our directors and executive officers for many
expenses, including attorneys' fees, judgments, fines and settlement amounts
incurred by any such person in any action or proceeding, including any action
by or in the right of Citadel, arising out of such person's services as a
director or executive officer of ours, any subsidiary of ours or any other
company or enterprise to which the person provided services at our request. We
believe that these provisions and agreements are necessary to attract and
retain qualified persons as directors and executive officers.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires Citadel's
officers, directors and persons who own more than 10% of Citadel's common stock
to file reports of ownership and changes in ownership with the Securities and
Exchange Commission. The Securities and Exchange Commission rules also require
reporting persons to furnish Citadel with a copy of all Section 16(a) forms
they file.
Based solely on a review of the copies of the forms which Citadel received
and written representations from Citadel officers and directors, we believe
that, during the fiscal year ended December 31, 2000, the reporting persons
complied with all applicable reporting requirements, with the exception of a
late report on Form 3 filed by Mr. Michael Foreman with respect to the
securities acquired by him in the merger of OBI described below
117
under "Certain Relationships and Related-Party Transactions." We understand
that the Form 3 was tardy because Mr. Forman realized only after the Form 3 was
due that the securities he had acquired put him over the 10% threshold for
filing a Form 3.
Compensation Committee Report on Executive Compensation
The report of the Compensation Committee of the Board of Directors of
Citadel with respect to executive compensation shall not be deemed incorporated
by reference by any general statement incorporating by reference this
Proxy/Prospectus into any filing under the Securities Act of 1933, as amended
(the "Securities Act"), or under the Exchange Act, except to the extent that
Citadel specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts.
The Citadel Compensation Committee for the fiscal year ended December 31,
1999 was composed of James J. Cotter and Alfred Villasenor, Jr. In light of the
appointment of Mr. Cotter as the Chief Executive Officer of Citadel, and the
fact that Mr. Cotter's daughter Ellen Cotter had been appointed as the Vice
President of Citadel Cinemas and that it was anticipated that Mr. Cotter's
daughter Margaret Cotter would become the President of Liberty Theatres upon
the acquisition of that company by Citadel, Mr. Cotter resigned as a member of
the Citadel Compensation Committee on July 20, 2000 and was replaced by Mr.
William Soady. Accordingly, the Compensation Committee is now comprised
entirely of independent outside directors and has the same membership as the
Citadel Conflicts Committee.
Historically, the Citadel Compensation Committee has been principally
responsible for reviewing the performance of, and determining the compensation
for, Citadel's executive officers. In this role, the Citadel Compensation
Committee has followed a philosophy that Citadel should have and maintain an
executive compensation program designed to attract and retain talented
executives and motivate them to achieve the business objectives of Citadel that
the Board of Directors believes will enhance stockholder value. Accordingly,
the Company's current compensation strategy is to pay a base salary sufficient
to attract and retain qualified executives and to supplement such base level
compensation with periodic cash bonuses in recognition of individual
performance, and from time-to-time, grant stock options designed to link the
executives' long-term compensation to appreciation in stockholder value.
Citadel has not, in recent periods, had any fixed bonus or incentive
compensation plan.
Citadel's compensation programs and the role of the Citadel compensation
committee are currently in a state of flux, as Citadel, Craig and Reading
recently have attempted to reduce general and administrative costs by
consolidating most of the general and administrative expense of the three
companies at the Craig level. Mr. Cotter is paid a director's fee of $45,000
for his services as the Chairman of the Board. He receives no compensation for
serving as the President and Chief Executive Officer. Mr. Cotter is also paid
an annual consulting fee of $350,000 from Craig, of which approximately 34%, or
$119,000 was allocated to Citadel in 2000. In 2000, all of the executive
employees of the three companies became employees of Craig and are paid their
compensation and receive their employee benefits (other than stock options)
exclusively through Craig. (The only exception to this was Mr. Robert Smerling
who, prior to the acquisition of the City Cinemas cinema chain by Citadel in
September 2000, was an employee of Reading and City Cinemas, and compensated
separately by, Reading and City Cinemas, Inc., and who, after the acquisition
by Citadel of the City Cinemas cinema chain, became an employee of both Reading
and Citadel Cinemas.) The cost of those Citadel executives employed by Craig
have, since January 2000, been allocated among Craig, Citadel and Reading based
upon the relative amount of time spent by each such executive on the business
and affairs of these companies. Initially, this allocation is done by the
management of the three companies (principally, by Mr. Andrzej Matyczynski, the
Chief Financial Officer of each of Citadel, Craig and Reading) and, thereafter,
is periodically reviewed and approved by the conflicts committees of Citadel,
Craig and Reading.
Under this shared general and administrative structure, the compensation
programs of Citadel are principally overseen by Mr. James J. Cotter, the
Chairman of the Board, Chief Executive Officer and controlling stockholder
118
of Citadel, Craig and Reading, and the principal function of the committee has
been to serve as a sounding board for and advisor to Mr. Cotter with respect to
executive compensation matters. No discretionary bonuses were paid or awarded
to any of Citadel's executive officers by Citadel or by Craig in or with
respect to fiscal 2000, and no raises were given to any of Citadel's executive
officers by Citadel or by Craig in or with respect to fiscal 2000, other than
discretionary bonuses in the amount of $10,000 and $25,000 paid to Andrzej
Matyczynski and Brett Marsh, respectively, 34% of which was allocated to
Citadel. These bonuses were determined and authorized by Mr. Cotter, acting as
the Chief Executive Officer of Citadel, Craig and Reading. Also, Ms. Ellen
Cotter, the daughter of Mr. James J. Cotter, while an employee of Reading and
prior to becoming an executive of Citadel, did receive a raise, effective April
2000, in the base salary paid to her by Reading from $147,600 to $150,000,
annually. This raise was authorized by Mr. Robert Smerling, the President of
Reading. Ms. Cotter became an executive officer of Citadel Cinemas in September
2000, and her current compensation, at the annual rate referenced above, is
included within the general and administrative costs allocated among Citadel,
Craig and Reading. The Citadel Compensation Committee did not meet and has
taken no action with respect to executive compensation for fiscal 2000.
In April 2000, stock options were granted to certain officers and directors
of Citadel. The grant of these stock options was recommended by Mr. Cotter, and
approved by the full Citadel Board of Directors, with each director receiving
options abstaining with respect to that portion of the approval relating to the
grant of options to such director. No options were granted to Mr. Cotter. Set
forth below is a table setting out the options granted.
Name Number of Options Exercise Price Expiry Date
---- ----------------- -------------- -----------
Robert M. Loeffler.... 20,000 $2.76 04/13/10
William C. Soady...... 20,000 $2.76 04/13/10
Alfred Villasenor, Jr. 20,000 $2.76 04/13/10
S. Craig Tompkins..... 40,000 $2.76 04/13/10
Andrzej Matyczynski... 30,000 $2.76 04/13/10
Brett Marsh........... 15,000 $2.76 04/13/10
William C. Soady
Alfred Villasenor, Jr.
Report of the Audit Committee
The audit committee of the board of directors of Citadel has adopted a
written charter to govern its operation, a copy of which is attached hereto as
ANNEX F. The audit committee currently is comprised of Messrs. Loeffler, Soady
and Villasenor, Jr., each of whom is an independent director as defined Section
121(A) of the American Stock Exchange listing standards.
The audit committee of the Citadel board of directors oversees and monitors
the participation of Citadel's management and independent auditors throughout
the financial reporting process. No member of the Committee is employed by or
has any other material relationship with Citadel.
In connection with its function to oversee and monitor the financial
reporting process, the audit committee has, among other things: reviewed and
discussed with Citadel's management the audited financial statements for the
fiscal year ended December 31, 2000, discussed with Citadel's independent
auditors those matters required to be discussed by SAS 61 (Codification of
Statements on Auditing Standards, AU 380); received the written disclosures and
letter from Citadel's independent auditors required by Independence Standards
Board Standard No. 1 (Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees); and discussed with Citadel's independent
auditors their independence in light of the nonaudit services performed by them
for Citadel.
119
Based upon the foregoing, the audit committee recommended to the Citadel
board of directors that the audited financial statements be included in
Citadel's annual report on Form 10-K for the fiscal year ended December 31,
2000.
Robert M. Loeffler
William C. Soady
Alfred Villasenor, Jr.
AUDIT FEES
The following table sets forth the aggregate fees billed to Citadel for the
fiscal year ended December 31, 2000 by Deloitte & Touche LLP, its independent
auditors:
Audit Fees.................................................. $34,700
Financial Information Systems Design and Implementation Fees --
All Other Fees.............................................. $14,100
127
Performance Graph
The following line graph below shall not be deemed incorporated by reference
by any general statement incorporating by reference this joint proxy statement
prospectus into any filing under the Securities Exchange Act of 1934, except to
the extent Citadel specifically incorporates this information by reference, and
shall not otherwise be deemed filed under the Exchange Act.
The following line graph compares the cumulative total stockholder return on
Citadel common stock from December 31, 1995 through December 31, 2000 against
the cumulative total return of the Center for Research in Securities Prices
("CRSP") Total Return Index for the (I) New York Stock Exchange
("NYSE")/American Stock Exchange ("AMEX")/NASDAQ Stock Market Index (U.S.
companies) and (ii) the cumulative total return of the Company's current peer
group, the CRSP Total Return Index for NYSE/AMEX/NASDAQ Companies in the SIC
Group Code 6510-6519 (US Companies) (Real Estate Operators (Except Developers)
and Lessors). Peer group returns have been weighted by the market
capitalization of the individual peers. The graph assumes a $100 dollar
investment on December 31, 1995 and reinvestment of all dividends on a daily
basis.
[CHART]
Legend
12/1995 12/1996 12/1997 12/1998 12/1999 12/2000
------- ------- ------- ------- ------- -------
CRSP Total Returns Index for:
Citadel Holding Corporation. 100.0 115.8 178.9 165.8 144.7 94.3
NYSE/AMEX/Nasdaq Stock
Market (US Companies)..... 100.0 121.1 158.7 196.0 245.4 217.9
NYSE/AMEX/NASDAQ Stocks
(SIC 6510-6519 US Comp)... 100.0 115.4 124.9 123.2 116.0 156.9
Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the
previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading
day, the preceding trading day to used.
D. The index level for all series was set to $100.0 on 12/29/1995.
128
Compensation Committee Interlocks and Insider Participation
Messrs. Soady and Villasenor, Jr. serve on Citadel's Compensation Committee.
Mr. Cotter is the Chairman of the Board of Citadel, Craig and Reading. In
addition, Mr. Cotter also served as the Chief Executive Officer of the Citadel,
Craig and Reading prior to October 16, 2000 and returned to such positions
following Mr. Braly's departure on December 27, 2000. Mr. Cotter is the
controlling stockholder of Citadel.
Certain Relationships and Related-Party Transactions
General
Craig, Citadel and Reading operate as part of a group of commonly controlled
companies. In part due to this overlapping ownership and control, the companies
have engaged in a significant number of related-party transactions.
We proposed the consolidation, in part, to address these related-party
transactions. In the consolidation, the holders of outstanding common stock of
Craig and Reading, including Mr. Cotter, would receive shares of Citadel
nonvoting common stock. As a result, Mr. Cotter's voting power will be reduced
from approximately 49% of Citadel currently to slightly under 25%. This is due
to the fact that all of the Citadel voting common stock currently held by Craig
and Reading will become, in effect, treasury shares of Citadel after the
consolidation.
However, in the consolidation, Citadel has agreed to assume the obligations
of Craig and Reading under their currently outstanding options, and has agreed
to allow the holders of such options an election to convert them into options
to acquire either Citadel voting or nonvoting common stock. If Mr. Cotter
elects to receive options to acquire Citadel voting common stock then, in
addition to his beneficial ownership of slightly less than 25% of the
outstanding shares of Citadel voting common stock, he would hold options to
acquire an additional 1,490,120 shares of Citadel voting common stock at the
weighted-average exercise price of $8.03 per share. If Mr. Cotter were to
exercise these options in full, the shares issued would increase Mr. Cotter's
voting power to 64.3% of the total voting power of Citadel after taking into
account the effect of the issuance of his option shares.
Overlapping Management
Prior to 2000, Citadel, Craig and Reading shared some common overhead and
administrative functions and provided various management services to one
another pursuant to various cost-sharing and consulting arrangements. During
2000, Reading moved its executive offices from Philadelphia to Los Angeles, and
the companies reorganized and consolidated their general and administrative
staffs at the Craig level. Consequently, substantially all of the general and
administrative employees of Citadel and Reading are now employed directly by
Craig, and receive all of their health, medical, retirement and other benefits
from Craig. The general and administrative expenses of Craig, Citadel and
Reading are periodically allocated, subject to the review and approval of the
conflicts committees of the boards of directors of Craig, Citadel and Reading,
in accordance with the amount of time spent by these employees providing
services for the respective companies.
Entertainment Property Transactions
In 1999, Reading determined that, in view of its limited capital resources
and the size and scope of its investments and commitments in Australia and New
Zealand, it should focus on its overseas activities and dispose of its domestic
entertainment assets. During this same period, Citadel was searching for hard
asset investment opportunities in which to invest its cash ($21,440,000 at June
30, 1999).
In the summer of that year, management began conversations with NAC, about a
potential transaction in which NAC would acquire, in partnership with Citadel,
all of the domestic cinema assets of Reading, including Reading's rights to
acquire the Manhattan-based City Cinemas chain. In April 2000 Reading conveyed
a 50%
129
membership interest in AFC to NAC in consideration of the issuance to it of
certain securities and granted to NAC, in consideration of the payment by NAC
to Reading of an option fee of $500,000, an option to acquire the remainder of
Readings domestic cinema assets. That option was subject to the right of
Citadel to participate as a 50/50 partner with NAC in those assets, if Citadel
were to so elect. Ultimately, NAC determined not to exercise that option, and
determined instead to invest in a developmental "dot.com" company. Reading has
resold to NAC the securities it received in consideration of the transfer of
the 50% membership interest in AFC for gross proceeds of approximately
$14,702,000.
During this same period, Citadel determined to proceed with the acquisition
from Reading of the remainder of Reading's domestic entertainment assets.
During 2000 and the first quarter of 2001, Reading conveyed to Citadel the
following domestic entertainment assets:
The City Cinemas and OBI Transactions--In December, 1998 Reading entered
into an agreement (the "Sutton Agreement") with Messrs. James J. Cotter and
Michael Forman and certain of their affiliates (collectively referred to
here in as "Sutton") to acquire the City Cinemas chain (the "City Cinemas
Transaction") and OBI (now Liberty Theaters) (the "OBI Merger"). In 2000,
Reading assigned the Sutton Agreement to Citadel, and Citadel reimbursed
Reading for the $1,000,000 deposit Reading had made to Sutton under the
Sutton Agreement. In September 2000, Citadel completed the City Cinemas
Transaction and the OBI Merger under which Citadel leased from Sutton, under
a ten-year operating lease, four cinemas, obtained certain management rights
with respect to an additional six cinemas, and purchased Sutton's 16.7%
membership interest in AFC. Citadel also obtained an option, exercisable in
ten years, to purchase the assets subject to the lease, including two fee
interests, for $48,000,000, and committed to lending Sutton up to
$28,000,000 in 2007. Citadel also merged with OBI, issuing Citadel common
stock for all of the outstanding shares of OBI. The OBI stock was valued at
$10,000,000 in the transaction. As a result of the City Cinemas Transaction,
the management of Angelika Film Center & Cafe (Soho), and two other domestic
cinemas owned by Reading, was transferred from City Cinemas to Citadel.
The Domestic Cinema Transactions--In September, 2000, Citadel also
acquired from Reading the rights to the Angelika Film Center & Cafe project
in Dallas, Texas--an eight screen Angelika style cinema currently under
construction and slated for opening in Summer, 2001 (the "Angelika Dallas"),
in a transaction in which Citadel reimbursed Reading its investment in the
development and assumed Reading's obligations under the lease. Reading, in
turn, assigned to Citadel its interest in the lease and committed to
reimburse Citadel a portion of Citadel's investment in the Angelika Dallas
if Citadel did not achieve at least a 20% return on equity during the second
year of operation of the cinema. In March 2001, Reading sold the remainder
of its domestic cinema assets (other than its residual 33.3% membership
interest in AFC) to Citadel in consideration of the issuance by Citadel of a
two-year purchase-money promissory note in the amount of $1,706,000.
The Royal George Theatre Complex Transaction--In March 1999, Reading
acquired the Royal George Theatre Complex for approximately $3,000,000. The
Royal George was acquired in a newly formed limited liability company
("RGT"). In June 2000, Citadel lent to RGT, at an interest rate of 10% per
annum, the funds needed to retire the purchase-money note issued by RGT to
purchase the theater. In September, 2000 Citadel acquired RGT from Reading
at approximately the same price as was paid by Reading for that complex in
March 1999.
Management of Live Theater Assets--Prior to the OBI Merger, the live
theater assets of OBI and the Royal George Theatre Complex were booked and
managed by Union Square Management, Inc., a third party theatre management
company. Ms. Margaret Cotter, the daughter of James J. Cotter, was at that
time the Senior Vice President of that company. In 1998, Craig guaranteed a
$100,000 bank loan to Mr. Alan Schuster, the principal stockholder and
President of Union Square Management. Following the closing of the OBI
Merger, OBI was renamed Liberty Theaters, Inc. Citadel's live theaters are
now booked and managed by Off Broadway Investments LLC ("OBI Management"), a
company wholly owned by Margaret Cotter. Ms. Cotter is the President of that
company, and of Liberty Theaters but receives no compensation for her
service as the President of Liberty Theaters other than the compensation
paid to OBI Management.
130
OBI Management has been retained on an at-will basis, on substantially the
same terms as Union Square Management, pursuant to a contract that was
reviewed and approved by the Citadel conflicts committee. OBI Management is
a separate company and is not related to the OBI acquired by Citadel in the
OBI Merger and renamed Liberty Theaters.
Investment in Plays--From time to time the companies and Mr. Cotter and
the other members of management of the companies, are afforded the
opportunity to invest in the plays that play or may play in the live
theatres owned by Citadel. These investments are monitored by Mr. Cotter,
and periodically reported to the conflicts committee of the respective
boards of directors of the companies.
Agricultural Transactions
Citadel, Craig and Reading collectively own approximately 40% of the equity
interest in three agricultural partnerships formed in 1997 to purchase
approximately 1,600 acres of agricultural land in Southern California commonly
know as the "Big 4 Ranch." The property is principally improved with mature
citrus groves. The transaction was originated and negotiated by Citadel.
However, in order to satisfy certain federal laws relating to access to federal
water supplies, ownership of the Big 4 Ranch was taken in the agricultural
partnerships, which are owned 40% by Citadel, 40% by Big 4 Ranch, Inc. and 20%
by Visalia LLC. Visalia is owned 1% by Mr. Cotter and 99% by members of his
family.
Big 4 Ranch was initially a wholly owned subsidiary of Citadel, and was spun
off to the stockholders of Citadel immediately prior to the acquisition by the
agricultural partnerships of Big 4 Ranch. Accordingly, Craig and Reading
received their interests in Big 4 Ranch initially as a result of that spin-off.
Thereafter, Craig increased its holdings in Big 4 Ranch through the purchase of
additional Big 4 Ranch shares in privately-negotiated transactions. Craig and
Reading own their interests in the agricultural partnerships indirectly through
their ownership of Citadel and Big 4 Ranch shares. Craig and Reading currently
control Big 4 Ranch, owning 49% of its voting power. In addition, Cecelia and a
trust for the benefit of one of Mr. Tompkins's children own an additional 3.2%
of Big 4 Ranch. Historically, the officers and directors of Craig have served
as the officers and directors of Big 4 Ranch.
The Big 4 Ranch is farmed by Big 4 Ranch Farming, LLC, which is owned 80% by
Citadel and 20% by Visalia. Farming is reimbursed by the agricultural
partnerships for all of its out-of-pocket costs and receives a fee equal to 5%
of the gross revenues of the agricultural partnerships, after deducting the
expenses of picking, packing and hauling. Farming, in turn, contracts with
Cecelia for certain bookkeeping and administrative services, for which it pays
a fee of $6,000 per month. Farming is reimbursed for this expense from the
agricultural partnerships. Cecelia also packs fruit for the agricultural
partnerships, and was paid $72,000 per annum for 1998, 1999, and 2000,
respectively. Citadel, Craig and Reading provide various administrative
services for the agricultural partnerships and Big 4 Ranch, for which they
receive no compensation.
Due to a variety of factors, principally bad weather and market conditions,
the agricultural partnerships have lost in excess of 100% of their equity, and
are being funded by loans from Citadel and Visalia. At the present time, we
intend to limit the activities of the agricultural partnerships to those that
can be covered by the cash flow from their operations. To date, Citadel and
Visalia have lent $4,840,000 and $820,000, respectively, to the agricultural
partnerships, and, in addition, have guaranteed (on an 80/20 basis) some
equipment leases entered into by the agricultural partnerships. Since December
1998, when the agricultural partnerships crop was wiped out by a freeze,
Citadel and Visalia have been funding the agricultural partnerships on an 80/20
basis.
Certain Family Relationships
Mr. Cotter, the principal controlling stockholder of Citadel, Craig and
Reading, has advised the companies boards of directors that he considers his
holdings in Craig and Citadel to be long-term investments to be passed to his
heirs. The directors of Craig, Citadel and Reading believe that it is in the
best interests of these companies, and their respective stockholders, for Mr.
Cotter's heirs to become experienced in the operations and affairs of
131
the members of the companies. Accordingly, Margaret Cotter is a member of the
boards of directors of Craig and Big 4 Ranch, Inc. and the President of Liberty
Theaters. Margaret Cotter has also served as an officer of Cecelia and Union
Square Management, Inc., and is the owner and President of OBI Management.
Ellen Cotter is the Vice President--Business Affairs of Craig and Reading and
of Citadel's cinema subsidiary. James J. Cotter, Jr., the son of James J.
Cotter, serves as a director of Gish Biomedical, Inc., a publicly traded
company in which Citadel has an approximate 16% ownership interest.
Miscellaneous Transactions
Reading has loaned Mr. Robert F. Smerling $105,000 pursuant to a non-
interest bearing demand promissory note.
132
MANAGEMENT OF CRAIG
Directors and Executive Officers
The names of the directors and executive officers of Craig, together with
information regarding such directors and executive officers, are as follows:
Name Age Position
---- --- --------
James J. Cotter........ 62 Chairman of the Board
S. Craig Tompkins...... 50 President and Director
Margaret Cotter........ 31 Director
William D. Gould....... 61 Director
Gerard P. Laheney...... 62 Director
Robert M. Loeffler..... 77 Director
Andrzej Matyczynski.... 48 Chief Financial Officer and Treasurer
Ellen M. Cotter........ 34 Vice President, Business Affairs
For more information regarding Messrs. Cotter, Tompkins and Loeffler, refer
to their biographies under "PROPOSAL TO ELECT CITADEL DIRECTORS."
Ms. Margaret Cotter is a member of the New York State Bar and, since
September 1997, has been Vice President of Cecelia Packing Corporation. From
February 1994 until September 1997, Ms. Cotter was an Assistant District
Attorney for King's County in Brooklyn, New York. Ms. Cotter graduated from
Georgetown University Law Center in 1993 and is the daughter of Mr. James J.
Cotter. Ms. Cotter is a limited partner in James J. Cotter Ltd., which is a
general partner of Hecco Ventures. Ms. Cotter serves as a director of BRI and
is a member of Visalia LLC. She is also President of Off Broadway Investments,
Inc. and the Vice President of Union Square Management, Inc., a company which
provides theatre management services to Reading.
Mr. Gould has been a director of the Craig since 1985, and is Chairman of
the Craig conflicts committee. Mr. Gould served as a director of Citadel
between June 1995, and June 1996, and in December 1997 became a director of
BRI. Since July 1986, Mr. Gould has been a member of Troy & Gould Professional
Corporation, a law firm that Craig has retained during its last fiscal year.
Mr. Laheney has been a director of Craig since 1990. Mr. Laheney served as a
director of Reading Company, the predecessor of Reading, between November 1993
and June 1996. In November 1998, Mr. Laheney became Chairman and President of
BRI and a member of the management committee of each of the Agricultural
Partnerships. Mr. Laheney served in such capacities until his resignation on
February 14, 2000. Between July 1995 and July 1996, Mr. Laheney was a
consultant for Portfolio Resources Group overseeing global equities, fixed
income and foreign exchange investments. Mr. Laheney has been President of
Aegis Investment Management Company, an investment advisory firm specializing
in global investment portfolio management, since August 1993. Mr. Laheney was
Vice President of The Partners Financial Group, Inc., between December 1993
through June 1995 and a Vice President of Dean Witter Reynolds from April 1990
until December 1993.
133
MANAGEMENT OF READING
Directors and Executive Officers
The names of the directors and executive officers of Reading, together with
information regarding such directors and executive officers, are as follows:
Name Age Position
---- --- --------
James J. Cotter.......... 62 Chairman of the Board and Director
Robert F. Smerling....... 65 President and Director
S. Craig Tompkins........ 50 Vice Chairman of the Board and Director
Robert M. Loeffler....... 77 Director
Kenneth S. McCormick..... 49 Director
Brett Marsh.............. 53 Vice President--Real Estate
Andrzej Matyczynski...... 48 Chief Administrative Officer and Chief Financial Officer
Eugene Cheah............. 32 Financial Controller, Australia and New Zealand
Ellen M. Cotter.......... 34 Vice President, Business Affairs; President of Reading
Entertainment Australia Pty, Ltd.
David Lawson............. 42 Director of Real Estate Development, Australia and
New Zealand
Neil Pentecost........... 42 Chief Operating Officer, Australia and New Zealand
For more information regarding Messrs. Cotter, Tompkins and Loeffler, refer
to their biographies under "PROPOSAL TO ELECT CITADEL DIRECTORS." For more
information regarding Messrs. Smerling, Marsh, and Matyczynski, see "MANAGEMENT
OF CITADEL."
Mr. McCormick has been a director of Reading since July 1999 and is the sole
member of the Reading conflicts committee. During 1999, Mr. McCormick served as
the Senior Executive Vice President of Metro-Goldwyn-Meyer, Inc., responsible
for strategic development. Prior to joining Metro-Godlwyn-Meyer, Mr. McCormick
was a managing director of J.P. Morgan & Co. for more than the prior five years.
Mr. Cheah has been the Financial Controller of Reading Entertainment
Australia Pty, Ltd. ("Reading Australia") since August 1998. Mr. Cheah served
as the Planning and Projects Manager (Retail Strategy and Projects) for Myer
Grace Bros. from 1996 to 1998, and as Project Accounting Manager (Property
Development) for Coles Myer Properties from 1992 to 1995. Prior thereto, he was
a Senior Accountant (Business Services) with Price Waterhouse.
Ms. Ellen Cotter has been Vice President, Business Affairs of Reading since
March 1998 and President of Reading Australia since September 1999. Ms. Cotter
has been Vice President of Business Affairs of Craig since August 1996, Vice
President of Angelika Cinemas, Inc. since May 1998 and Secretary/Treasurer of
Citadel Agriculture, Inc. since December 1997. From October 1992 through July
1996, Ms. Cotter was an attorney specializing in corporate law with White &
Case, a New York law firm. Ms. Cotter is the daughter of James J. Cotter. Ms.
Cotter is a member of Visalia and a limited partner in James J. Cotter, Ltd.,
of which Mr. Cotter is the general partner, which is a general partner of Hecco
Ventures, a privately held investment partnership.
Mr. Lawson has been the Director of Real Estate Development for Australia
and New Zealand since December 1998, and since May 1999 has served as a
director of the Reading's principal Australian operating company, Reading
Australia. Prior to joining the Reading, Mr. Lawson served as the Asset General
Manager responsible for New South Wales for Westfield from 1996 to 1998, and as
the General Manager (Retail Property Development) for Coles Myer Properties
from 1994 to 1995.
Mr. Pentecost has been the Chief Operating Officer for Australia and New
Zealand since August 1999 and a director of Reading Australia since September
1999. Prior to joining Reading, Mr. Pentecost was with Hoyts, where he served
in a number of positions, most recently serving as Operations and Services
Manager (National). Mr. Pentecost joined Hoyts in 1995. Prior thereto, Mr.
Pentecost served as the Director of Retail Services (Operations) for KFC in
Australia.
134
INDEPENDENT PUBLIC ACCOUNTANTS
Citadel expects that a representative of Deloitte & Touche LLP will attend
the Citadel annual meeting and will have the opportunity to make a statement if
he or she desires to do so and to respond to appropriate questions.
ANNUAL REPORT TO CITADEL STOCKHOLDERS
Copies of Citadel's annual report on Form 10-K for the year ended December
31, 2000 and quarterly report on Form 10-Q for the quarter ended September 30,
2001 are being furnished with this joint proxy statement/prospectus.
CITADEL STOCKHOLDER PROPOSALS
Any Citadel stockholder who, in accordance with and subject to the
provisions of the proxy rules of the Securities and Exchange Commission, wishes
to submit a proposal for inclusion in Citadel's proxy statement for its 2002
annual meeting of stockholders, must deliver such proposal in writing to the
Secretary of Citadel at Citadel's principal executive offices at 550 South Hope
Street, Suite 1825, Los Angeles, CA 90071, no later than , 2002. If Citadel is
not notified of a stockholder proposal by , 2002, the proxies held by
management of Citadel may confer discretionary authority to vote against such
stockholder proposal, even though such proposal is not discussed in the proxy
statement.
The Citadel board of directors will consider written nominations for
directors from stockholders. Nominations for the election of directors made by
the stockholders of Citadel must be made by written notice delivered to the
Secretary of Citadel at Citadel's principal executive offices not less than 120
days prior to the first anniversary of the immediately preceding annual meeting
of stockholders at which directors are elected. Such written notice must set
forth, among other things, the name, age, address and principal occupation or
employment of such nominee, the number of shares of Citadel's common stock
beneficially owned by such nominee and such other information as is required by
the proxy rules of the Securities and Exchange Commission with respect to a
nominee of Citadel's board of directors. Citadel will not consider any
nomination that is not made in accordance with the foregoing procedure.
DESCRIPTION OF CITADEL CAPITAL STOCK
Citadel is authorized to issue 20,000,000 shares of voting common stock,
$0.01 par value, 100,000,000 shares of nonvoting common stock, $0.01 par value,
and 20,000,000 shares of undesignated preferred stock, $0.01 par value.
Immediately after the consolidation, based on shares of Craig common stock and
common preference stock and Reading common stock outstanding as of October 31,
2001, we estimate that there will be approximately 1,336,330 shares of Citadel
voting common stock outstanding and 20,484,988 shares of Citadel nonvoting
shares outstanding, 1,996,820 shares of Citadel common stock will be issuable
upon exercise of outstanding options assuming there are no option exercises and
no additional option grants after October 31, 2001, and no shares of Citadel
preferred stock will be issued and outstanding.
Common Stock
Holders of Citadel voting common stock are entitled to one vote per share on
all matters to be voted upon by the stockholders. Holders of voting common
stock do not have cumulative voting rights, and, therefore, holders of a
majority of the shares voting for the election of directors can elect all of
the directors. If this occurs, the holders of the remaining shares will not be
able to elect any directors.
135
Holders of Citadel nonvoting common stock have no voting rights except that
the holders of nonvoting common stock will be entitled to vote as a separate
class on any amendments to the Citadel articles of incorporation or any merger
that would adversely affect their rights, privileges or preferences or any
liquidation or dissolution in which such holders would receive securities with
rights, privileges or preferences less beneficial to them as holders of such
Citadel nonvoting common stock.
Holders of Citadel voting common stock and nonvoting common stock are
entitled to receive any dividends that our board of directors may declare from
funds legally available for distribution. Citadel has never declared or paid
cash dividends on our common stock and expects to retain future earnings, if
any, for use in the operation and expansion of our business. As a result, we do
not anticipate paying any cash dividends in the foreseeable future. In
addition, Citadel may in the future enter into agreements with lenders that
could prohibit our paying cash dividends.
In the event of liquidation, dissolution or winding up of Citadel, the
holders of Citadel voting common stock and nonvoting common stock are entitled
to share ratably in all assets legally available for distribution after payment
of all debts and other liabilities and subject to the prior rights of any
holders of preferred stock then outstanding. Holders of common stock have no
preemptive or other subscription or conversion rights. There are no redemption
or sinking fund provisions applicable to the Citadel voting common stock and
nonvoting common stock.
Preferred Stock
Citadel is authorized to issue 20,000,000 shares of undesignated preferred
stock. The Citadel board of directors has the authority without any further
stockholder vote to issue the preferred stock in one or more series and to fix
the price and rights of the preferred stock. The issuance of preferred stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of delaying, deferring or
preventing a change in control of Citadel. It could also adversely affect the
market price of Citadel common stock and the voting and other rights of the
holders of Citadel common stock. Citadel has no current plans to issue any
shares of preferred stock.
Transfer Agent and Registrar
The transfer agent and registrar for the Citadel common stock is Mellon
Investor Services LLC and can be contacted by phone at (800) 522-6645.
LEGAL OPINION
The validity of the shares of Citadel common stock offered by this joint
proxy statement/prospectus has been passed upon for Citadel by Kummer Kaempfer
Bonner & Renshaw, Las Vegas, Nevada.
EXPERTS
The financial statements and the related financial statement schedule of
Citadel incorporated in this joint proxy statement/prospectus by reference from
Citadel's annual report on Form 10-K for the year ended December 31, 2000 have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and have been so
incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The financial statements as of and for the years ended December 31, 2000 and
1999 of Reading incorporated in this joint proxy statement/prospectus by
reference from Reading's annual report on Form 10-K
136
for the year ended December 31, 2000 have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report, which is incorporated
herein by reference, and have been so incorporated in reliance upon the report
of such firm given upon their authority as experts in accounting and auditing.
The financial statements as of the years ended December 31, 2000 and 1999 of
Craig incorporated in this joint proxy statement/prospectus by reference from
Craig's annual report on Form 10-K for the year ended December 31, 2000 have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and have been so
incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The financial statements of Reading for the year ended December 31, 1998
appearing in Reading's annual report on Form 10-K and incorporated by reference
in this joint proxy statement/prospectus have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon included
therein and incorporated herein by reference. Such financial statements are
incorporated herein by reference in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Craig Corporation for the year
ended December 31, 1998 appearing in Craig Corporation's Annual Report (Form
10-K) and incorporated by reference in the Joint Proxy Statement of Citadel
Holding Corporation, Craig Corporation and Reading Entertainment, Inc. which is
referred to and made a part of this Registration Statement, have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report
thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given on the authority of such firm as experts in
accounting and auditing.
DOCUMENTS INCORPORATED BY REFERENCE
You should rely only on the information contained in or furnished with this
joint proxy statement/prospectus or to which we have referred you. We have not
authorized anyone to provide you with any different information.
The following documents, which were filed by Citadel with the Securities and
Exchange Commission, are incorporated by reference in this joint proxy
statement/prospectus:
. Citadel's annual report on Form 10-K for the fiscal year ended December
31, 2000, filed on April 12, 2001.
. Citadel's quarterly report on Form 10-Q for the fiscal quarter ended March
31, 2001, filed on May 15, 2001.
. Citadel's quarterly report on Form 10-Q for the fiscal quarter ended June
30, 2001.
. Citadel's current report on Form 8-K, dated July 18, 2001, which describes
the agreement in principle to accomplish the consolidation.
. Citadel's current report on Form 8-K, dated August 17, 2001, which
describes the consolidation agreement.
. Citadel's quarterly report on Form 10-Q for the fiscal quarter ended
September 30, 2001.
The following documents, which were filed by Craig with the Securities and
Exchange Commission, are incorporated by reference in this joint proxy
statement/prospectus:
. Craig's annual report on Form 10-K for the fiscal year ended December 31,
2000.
. Craig's quarterly report on Form 10-Q for the fiscal quarter ended March
31, 2001.
. Craig's quarterly report on Form 10-Q for the fiscal quarter ended June
30, 2001.
137
. Craig's current report on Form 8-K, dated July 18, 2001, which describes
the agreement in principle to accomplish the consolidation
. Craig's current report on Form 8-K, dated August 17, 2001, which describes
the consolidation agreement.
. Craig's quarterly report on Form 10-Q for the fiscal quarter ended
September 30, 2001.
The following documents, which were filed by Reading with the Securities and
Exchange Commission, are incorporated by reference into this joint proxy
statement/prospectus:
. Reading's annual report on Form 10-K for the fiscal year ended December
31, 2000.
. Reading's quarterly report on Form 10-Q for the fiscal quarter ended March
31, 2001.
. Reading's quarterly report on Form 10-Q for the fiscal quarter ended June
30, 2001.
. Reading's current report on Form 8-K, dated July 18, 2001, which describes
the agreement in principle to accomplish the consolidation.
. Reading's current report on Form 8-K, dated August 17, 2001, which
describes the consolidation agreement.
. Reading's quarterly report on Form 10-Q for the fiscal quarter ended
September 30, 2001.
All documents filed by Citadel, Craig or Reading under Section 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934, after the date of this
joint proxy statement/prospectus and before the date of the joint meetings of
stockholders of Citadel, Craig and Reading are incorporated by reference and
deemed to be a part of this joint proxy statement/prospectus from the date of
filing of those documents.
Any statement contained in a document incorporated or deemed to be
incorporated in this document by reference will be deemed to be modified or
superseded for purposes of this joint proxy statement/prospectus to the extent
that a statement contained in this document or any other subsequently filed
document that is deemed to be incorporated in this document by reference
modifies or supersedes the statement. Any statement so modified or superseded
will not be deemed, except as so modified or superseded, to constitute a part
of this joint proxy statement/prospectus.
The documents incorporated by reference into this joint proxy
statement/prospectus, if not being delivered with this joint proxy
statement/prospectus, are available from Citadel, Craig and Reading upon
request. We will provide to you a copy of any and all of the information that
is incorporated by reference in this joint proxy statement/prospectus (not
including exhibits to the information, unless those exhibits are specifically
incorporated by reference into this joint proxy statement/prospectus, and not
including documents that are being delivered with this joint proxy
statement/prospectus), without charge, upon written or oral request. YOU SHOULD
MAKE ANY REQUEST FOR DOCUMENTS BY , 2001 TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS.
All requests for documents relating to Citadel, Craig or Reading should be
directed to:
Citadel Holding Corporation
550 S. Hope Street, Suite 1875
Los Angeles, California 90071
(213) 239-0555
Attention: Andrzej Matyczynski
Citadel, Craig and Reading have filed reports, proxy statements and other
information with the Securities and Exchange Commission. Copies of their
reports, proxy statements and other information may be inspected and copied at
the public reference facilities maintained by the Securities and Exchange
Commission at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549.
138
Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference Section of the Securities and Exchange Commission,
450 Fifth Street, N.W., Washington, D.C. 20549 or by calling the SEC at
1-800-SEC-0330. The Securities and Exchange Commission maintains a website that
contains reports, proxy statements and other information regarding each of us.
The address of the Securities and Exchange Commission website is
http://www.sec.gov.
Reports, proxy statements and other information concerning Citadel may also
be inspected at:
. The American Stock Exchange, 86 Trinity Place, New York, New York 10006.
Reports, proxy statements and other information concerning Craig may also be
inspected at:
. The New York Stock Exchange, 20 Broad Street, New York, New York 10005.
Reports, proxy statements and other information concerning Reading may also
be inspected at:
. The National Association of Securities Dealers, 1735 K Street, N.W.,
Washington, D.C. 20006.
Citadel has filed a registration statement under the Securities Act with the
Securities and Exchange Commission with respect to the Citadel shares to be
issued in connection with the consolidation. This joint proxy
statement/prospectus constitutes the prospectus of Citadel filed as part of the
registration statement. This joint proxy statement/prospectus does not contain
all of the information set forth in the registration statement because certain
parts of the registration statement are omitted as permitted by the rules and
regulations of the Securities and Exchange Commission. You may inspect and copy
the registration statement at any of the addresses listed above.
THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO PURCHASE, CITADEL SHARES OR THE SOLICITATION OF A PROXY, IN ANY
JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE
THE OFFER, SOLICITATION OF AN OFFER OR PROXY STATEMENT IN THAT JURISDICTION.
NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF SECURITIES MEANS, UNDER ANY CIRCUMSTANCES, THAT THERE HAS BEEN
NO CHANGE IN THE INFORMATION SET FORTH OR INCORPORATED IN THIS DOCUMENT BY
REFERENCE OR IN ITS AFFAIRS SINCE THE DATE OF THIS JOINT PROXY
STATEMENT/PROSPECTUS.
THE INFORMATION CONTAINED IN THIS DOCUMENT WITH RESPECT TO CITADEL WAS
PROVIDED BY CITADEL.
THE INFORMATION CONTAINED IN THIS DOCUMENT WITH RESPECT TO CRAIG WAS
PROVIDED BY CRAIG.
THE INFORMATION CONTAINED IN THIS DOCUMENT WITH RESPECT TO READING WAS
PROVIDED BY READING.
139
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--------------------------------------------------------------------------------
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
CITADEL HOLDING CORPORATION
CRAIG MERGER SUB, INC.
READING MERGER SUB, INC.
CRAIG CORPORATION
AND
READING ENTERTAINMENT, INC.
Dated as of August 17, 2001
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
----
ARTICLE I THE MERGERS.............................................. 1
Section 1.1 The Mergers....................................... 1
Section 1.2 Effective Time of the Mergers..................... 1
Section 1.3 Tax Treatment..................................... 1
Section 1.4 Accounting Treatment.............................. 1
ARTICLE II THE SURVIVING CORPORATIONS.............................. 2
Section 2.1 Articles of Incorporation......................... 2
Section 2.2 Bylaws............................................ 2
Section 2.3 Directors and Officers............................ 2
ARTICLE III CONVERSION OF SHARES................................... 2
Section 3.1 Conversion of Capital Stock....................... 2
Section 3.2 Surrender and Payment............................. 5
Section 3.3 Stock Options..................................... 6
Section 3.4 No Fractional Shares.............................. 7
Section 3.5 Closing........................................... 7
Section 3.6 Affiliates........................................ 7
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF CRAIG................. 7
Section 4.1 Organization and Qualification.................... 7
Section 4.2 Capitalization.................................... 8
Section 4.3 Authority......................................... 8
Section 4.4 Consents and Approvals; No Violation.............. 9
Section 4.5 Craig SEC Reports................................. 9
Section 4.6 Financial Statements.............................. 10
Section 4.7 Absence of Undisclosed Liabilities................ 10
Section 4.8 Absence of Certain Changes........................ 10
Section 4.9 Taxes............................................. 10
Section 4.10 Litigation........................................ 11
Section 4.11 Employee Benefit Plans; ERISA..................... 12
Section 4.12 Environmental Liability........................... 12
Section 4.13 Compliance with Applicable Laws................... 13
Section 4.14 Insurance......................................... 14
Section 4.15 Labor Matters; Employees.......................... 14
Section 4.16 Permits........................................... 14
Section 4.17 Material Contracts................................ 15
Section 4.18 Required Stockholder Vote or Consent.............. 15
Section 4.19 Proxy Statement/Prospectus; Registration Statement 15
Section 4.20 Intellectual Property............................. 15
Section 4.21 Brokers........................................... 16
Section 4.22 Fairness Opinion.................................. 16
ARTICLE V REPRESENTATIONS AND WARRANTIES OF READING................ 16
Section 5.1 Organization and Qualification.................... 16
Section 5.2 Capitalization.................................... 17
Section 5.3 Authority......................................... 17
Section 5.4 Consents and Approvals; No Violation.............. 18
Section 5.5 Reading SEC Reports............................... 18
Section 5.6 Financial Statements.............................. 18
Section 5.7 Absence of Undisclosed Liabilities................ 19
-i-
Section 5.8 Absence of Certain Changes............................................. 19
Section 5.9 Taxes.................................................................. 19
Section 5.10 Litigation............................................................. 20
Section 5.11 Employee Benefit Plans; ERISA.......................................... 20
Section 5.12 Environmental Liability................................................ 21
Section 5.13 Compliance with Applicable Laws........................................ 22
Section 5.14 Insurance.............................................................. 22
Section 5.15 Labor Matters; Employees............................................... 22
Section 5.16 Permits................................................................ 23
Section 5.17 Material Contracts..................................................... 23
Section 5.18 Required Stockholder Vote or Consent................................... 23
Section 5.19 Proxy Statement/Prospectus; Registration Statement..................... 24
Section 5.20 Intellectual Property.................................................. 24
Section 5.21 Brokers................................................................ 24
Section 5.22 Fairness Opinion....................................................... 24
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PARENT..................................... 24
Section 6.1 Organization and Qualification......................................... 25
Section 6.2 Capitalization......................................................... 25
Section 6.3 Authority.............................................................. 26
Section 6.4 Consents and Approvals; No Violation................................... 26
Section 6.5 Parent SEC Reports..................................................... 27
Section 6.6 Parent Financial Statements............................................ 27
Section 6.7 Absence of Undisclosed Liabilities..................................... 27
Section 6.8 Absence of Certain Changes............................................. 27
Section 6.9 Taxes.................................................................. 28
Section 6.10 Litigation............................................................. 28
Section 6.11 Employee Benefit Plans; ERISA.......................................... 29
Section 6.12 Environmental Liability................................................ 29
Section 6.13 Compliance with Applicable Laws........................................ 30
Section 6.14 Insurance.............................................................. 31
Section 6.15 Labor Matters; Employees............................................... 31
Section 6.16 Permits................................................................ 31
Section 6.17 Material Contracts..................................................... 32
Section 6.18 Required Stockholder Vote or Consent................................... 32
Section 6.19 Proxy Statement/Prospectus; Registration Statement..................... 32
Section 6.20 Intellectual Property.................................................. 33
Section 6.21 Brokers................................................................ 33
Section 6.22 Fairness Opinion....................................................... 33
ARTICLE VII CONDUCT OF BUSINESS PENDING THE MERGERS..................................... 33
Section 7.1 Conduct of Business by the Parent and the Companies Pending the Mergers 33
ARTICLE VIII ADDITIONAL AGREEMENTS...................................................... 35
Section 8.1 Access and Information................................................. 35
Section 8.2 Directors' and Officers' Indemnification............................... 35
Section 8.3 Further Assurances..................................................... 35
Section 8.4 Expenses............................................................... 36
Section 8.5 Cooperation............................................................ 36
Section 8.6 Publicity.............................................................. 36
Section 8.7 Additional Actions..................................................... 36
Section 8.8 Filings................................................................ 36
Section 8.9 Consents............................................................... 36
Section 8.10 Employee Matters; Benefit Plans........................................ 37
-ii-
Section 8.11 Stockholders Meetings................................................... 37
Section 8.12 Preparation of the Proxy Statement/Prospectus and Registration Statement 38
Section 8.13 Stock Exchange Listing.................................................. 39
Section 8.14 Notice of Certain Events................................................ 39
Section 8.15 Affiliate Agreements.................................................... 39
Section 8.16 Stockholder Litigation.................................................. 39
Section 8.17 Voting Covenant......................................................... 40
Section 8.18 Repurchase Obligation................................................... 40
ARTICLE IX CONDITIONS TO CONSUMMATION OF THE MERGERS...................................... 40
Section 9.1 Conditions to the Obligation of Each Party.............................. 40
Section 9.2 Conditions to the Obligations of Parent................................. 41
Section 9.3 Conditions to the Obligations of Craig.................................. 41
Section 9.4 Conditions to the Obligations of Reading................................ 41
ARTICLE X SURVIVAL........................................................................ 42
Section 10.1 Survival of Representations and Warranties.............................. 42
Section 10.2 Survival of Covenants and Agreements.................................... 42
ARTICLE XI TERMINATION, AMENDMENT AND WAIVER.............................................. 42
Section 11.1 Termination............................................................. 42
Section 11.2 Effect of Termination................................................... 43
ARTICLE XII MISCELLANEOUS................................................................. 43
Section 12.1 Notices................................................................. 43
Section 12.2 Separability............................................................ 44
Section 12.3 Assignment.............................................................. 44
Section 12.4 Interpretation.......................................................... 45
Section 12.5 Counterparts............................................................ 45
Section 12.6 Entire Agreement........................................................ 45
Section 12.7 Governing Law........................................................... 45
Section 12.8 Attorneys' Fees......................................................... 45
Section 12.9 No Third Party Beneficiaries............................................ 45
Section 12.10 Amendments and Supplements.............................................. 45
Section 12.11 Extensions, Waivers, Etc................................................ 45
-iii-
Exhibits
--------
Exhibit 8.15 Affiliate Agreement
-iv-
DEFINED TERMS
affiliates........................................ 51
Agreement......................................... 1
AMEX.............................................. 50
Ancillary Agreements.............................. 11, 22
Audit............................................. 14
Closing........................................... 9
Closing Date...................................... 9
Code.............................................. 1
cold comfort...................................... 50
Company........................................... 1
Craig............................................. 1
Craig and Reading Stock........................... 6
Craig and Reading Stock Certificates.............. 5
Craig and Reading Stock Exchange Ratios........... 8
Craig and Reading Stock Merger Consideration...... 5
Craig and Reading Stock Options................... 8
Craig Benefit Plans............................... 15
Craig Capital Stock............................... 10
Craig Class B Stock............................... 10
Craig Common Preference Stock..................... 3
Craig Common Preference Stock Certificate......... 4
Craig Common Preference Stock Exchange Ratio...... 4
Craig Common Preference Stock Merger Consideration 4
Craig Common Stock................................ 3
Craig Common Stock Certificate.................... 3
Craig Common Stock Exchange Ratio................. 3
Craig Common Stock Merger Consideration........... 3
Craig Disclosure Letter........................... 9
Craig ERISA Affiliate............................. 15
Craig Financial Statements........................ 13
Craig Material Adverse Effect..................... 10
Craig Material Contracts.......................... 19
Craig Merger...................................... 1
Craig Merger Sub.................................. 1
Craig Merger Sub Common Stock..................... 5
Craig Preferred Stock............................. 10
Craig SEC Reports................................. 12
Craig Special Meeting............................. 49
Craig Stockholders' Approval...................... 19
Craig Surviving Corporation....................... 1
Customary Post-Closing Consents................... 11
Effective Time.................................... 1
Enforceability Exception.......................... 11
Environmental Laws................................ 16
ERISA............................................. 15
Exchange Act...................................... 11
Exchange Agent.................................... 6
Exchange Fund..................................... 6
Expenses.......................................... 46
GAAP.............................................. 2
-v-
Governmental Authority................... 11
Hazardous Substances..................... 16
Intellectual Property.................... 20
Joint Fairness Opinion................... 21
Lien..................................... 12
Liens.................................... 12
mass layoff.............................. 18
Mergers.................................. 1
multi-employer plan...................... 16
multiple employer plan................... 16
NRS...................................... 1
Optionee Election........................ 8
Parent................................... 1
Parent Annual Meeting.................... 49
Parent Benefit Plans..................... 37
Parent Capital Stock..................... 33
Parent Class A Stock..................... 3
Parent Class B Stock..................... 5
Parent Disclosure Letter................. 32
Parent ERISA Affiliate................... 37
Parent Financial Statements.............. 35
Parent Material Adverse Effect........... 32
Parent Material Contracts................ 41
Parent Preferred Stock................... 33
Parent SEC Reports....................... 35
Parent Stock Option Plan................. 42
Parent Stockholders' Approval............ 42
PBGC..................................... 15
Permits.................................. 19
Person................................... 7
plant closing............................ 18
Proxy Statement/Prospectus............... 20
Reading.................................. 1
Reading Benefit Plans.................... 26
Reading Capital Stock.................... 22
Reading Common Stock..................... 4
Reading Common Stock Certificate......... 4
Reading Common Stock Exchange Ratio...... 4
Reading Common Stock Merger Consideration 4
Reading Disclosure Letter................ 21
Reading ERISA Affiliate.................. 26
Reading Financial Statements............. 24
Reading Material Adverse Effect.......... 22
Reading Material Contracts............... 30
Reading Merger........................... 1
Reading Merger Sub....................... 1
Reading Merger Sub Common Stock.......... 5
Reading SEC Reports...................... 24
Reading Series A Stock................... 4
Reading Series B Stock................... 5
Reading Special Meeting.................. 49
Reading Stockholders' Approval........... 31
-vi-
Reading Surviving Corporation 1
Registration Statement....... 20
Replacement Plans............ 48
reportable events............ 15
Retained Employees........... 47
SEC.......................... 12
Securities Act............... 11
single employer.............. 15
Subsidiary................... 10
Surviving Corporations....... 1
Tax Authority................ 14
Tax Returns.................. 14
Taxes........................ 14
Termination Date............. 55
WARN Act..................... 18
-vii-
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") is entered into as of
August 17, 2001, by and among Citadel Holding Corporation, a Nevada corporation
("Parent"), Craig Merger Sub, Inc., a Nevada corporation and direct,
wholly-owned subsidiary of Parent ("Craig Merger Sub"), Reading Merger Sub,
Inc., a Nevada corporation and direct, wholly-owned subsidiary of Parent
("Reading Merger Sub"), Craig Corporation, a Nevada corporation ("Craig"), and
Reading Entertainment, Inc., a Nevada corporation ("Reading" and together with
"Craig," the "Companies" or sometimes individually referred to as a "Company").
Whereas, the respective boards of directors of Parent, Craig and Reading
deem it advisable and in the best interests of their respective stockholders
that Craig Merger Sub merge with and into Craig (the "Craig Merger") and that
Reading Merger Sub merge with and into Reading (the "Reading Merger" and
together with the Craig Merger, the "Mergers") upon the terms and subject to
the conditions set forth herein; and
Whereas, the respective conflicts committees of the respective boards of
directors of Parent, Craig and Reading have recommended to their respective
boards of directors the exchange ratios set forth in this Agreement, based in
part on the fairness opinion referred to in Sections 4.22, 5.22 and 6.22
hereof, and such boards of directors have approved the Mergers;
Now, Therefore, in consideration of the premises and the representations,
warranties and agreements contained herein, the parties hereto agree as
follows:
ARTICLE I
THE MERGERS
Section 1.1 The Mergers
Upon the terms and subject to the conditions hereof, at the Effective Time
(as defined in Section 1.2 hereof), (a) Craig Merger Sub shall merge with and
into Craig and the separate corporate existence of Craig Merger Sub shall
thereupon cease and Craig shall be the surviving corporation in the Merger (the
"Craig Surviving Corporation"), and (b) Reading Merger Sub shall merge with and
into Reading and the separate corporate existence of Reading Merger Sub shall
thereupon cease and Reading shall be the surviving corporation in the Merger
(the "Reading Surviving Corporation" and together with the Craig Surviving
Corporation, the "Surviving Corporations"). The Mergers shall have the effect
set forth in Chapter 92A of the Nevada Revised Statutes (the "NRS").
Section 1.2 Effective Time of the Mergers
Each of the Mergers shall become effective (the "Effective Time") upon the
later of (i) the filing of properly executed articles of merger relating to
each of the Craig Merger and the Reading Merger with the Nevada Secretary of
State in accordance with Chapter 92A of the NRS, or (ii) at such later time as
the parties shall agree and set forth in such articles of merger. The filing of
both of the articles of merger referred to above shall be made simultaneously
and as soon as practicable on the Closing Date set forth in Section 3.5.
Section 1.3 Tax Treatment
It is intended that each of the Mergers shall be treated for federal income
tax purposes as taxable transactions under the Code.
Section 1.4 Accounting Treatment
It is intended that each of the Mergers shall be accounted for in accordance
with generally accepted accounting principles ("GAAP") as purchase transactions
for financial accounting purposes.
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ARTICLE II
THE SURVIVING CORPORATIONS
Section 2.1 Articles of Incorporation
The articles of incorporation of Parent shall be amended to change Parent's
name to "Reading International, Inc." The articles of incorporation of Craig in
effect immediately prior to the Effective Time shall be the articles of
incorporation of the Craig Surviving Corporation at and after the Effective
Time until thereafter amended in accordance with the terms thereof and the NRS.
The articles of incorporation of Reading in effect immediately prior to the
Effective Time shall be the articles of incorporation of the Reading Surviving
Corporation at and after the Effective Time until thereafter amended in
accordance with the terms thereof and the NRS; provided, that at the Effective
Time such articles of incorporation shall be amended to change Reading
Surviving Corporation's name to "Reading Holdings, Inc."
Section 2.2 Bylaws
The bylaws of Parent shall be amended to reflect Parent's name change as
provided in Section 2.1. The bylaws of Craig as in effect immediately prior to
the Effective Time shall be the bylaws of the Craig Surviving Corporation at
and after the Effective Time, and thereafter may be amended in accordance with
their terms and as provided by the articles of incorporation of the Craig
Surviving Corporation and the NRS. The bylaws of Reading as in effect
immediately prior to the Effective Time shall be the bylaws of the Reading
Surviving Corporation at and after the Effective Time, and thereafter may be
amended in accordance with their terms and as provided by the articles of
incorporation of the Reading Surviving Corporation and the NRS; provided, that
at the Effective Time such bylaws shall be amended to reflect Reading Surviving
Corporation's name change as provided in Section 2.1.
Section 2.3 Directors and Officers
At and after the Effective Time, the directors and officers of Parent shall
be the directors and officers of Parent immediately prior to the Effective
Time, until their respective successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the articles of incorporation and bylaws of Parent. At and after the
Effective Time, the directors and officers of Craig Surviving Corporation shall
be the directors and officers of Craig immediately prior to the Effective Time,
until their respective successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the articles of incorporation and bylaws of Craig Surviving Corporation.
At and after the Effective Time, the directors and officers of Reading
Surviving Corporation shall be the directors and officers of Reading
immediately prior to the Effective Time, until their respective successors have
been duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the articles of incorporation and
bylaws of Reading Surviving Corporation.
ARTICLE III
CONVERSION OF SHARES
Section 3.1 Conversion of Capital Stock
As of the Effective Time, by virtue of the Mergers and without any action on
the part of the holders of any capital stock described below:
a. Craig
(i) Each share of common stock, par value $0.25 per share, of Craig ("Craig
Common Stock") issued and outstanding immediately prior to the Effective Time
shall be converted (subject to Section 3.4) into the right to receive 1.17
shares (the "Craig Common Stock Exchange Ratio") of Class A non-voting common
stock, par value $0.01 per share, of Parent ("Parent Class A Stock"). All such
shares of Craig Common Stock, when so
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converted, shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and the holder of a certificate ("Craig
Common Stock Certificate") that, immediately prior to the Effective Time,
represented outstanding shares of Craig Common Stock shall cease to have any
ownership or other rights with respect thereto, except the right to receive,
upon the surrender of such Craig Common Stock Certificate, the Parent Class A
Stock (the "Craig Common Stock Merger Consideration") to which such holder is
entitled pursuant to this Section 3.1(a)(i), without interest. Until
surrendered as contemplated by this Section 3.1(a)(i), each Craig Common Stock
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the Craig Common Stock Merger
Consideration as contemplated by this Section 3.1. Notwithstanding the
foregoing, if between the date of this Agreement and the Effective Time the
outstanding shares of Parent Class A Stock or Craig Common Stock shall have
been changed into a different number of shares or a different class, by reason
of any stock dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares, the Craig Common Stock Exchange Ratio shall
be correspondingly adjusted to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares.
(ii) Each share of Class A common preference stock, par value $0.01 per
share, of Craig ("Craig Common Preference Stock") issued and outstanding
immediately prior to the Effective Time shall be converted (subject to Section
3.4) into the right to receive 1.17 shares (the "Craig Common Preference Stock
Exchange Ratio") of Parent Class A Stock. All such shares of Craig Common
Preference Stock, when so converted, shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and the holder
of a certificate ("Craig Common Preference Stock Certificate") that,
immediately prior to the Effective Time, represented outstanding shares of
Craig Common Preference Stock shall cease to have any ownership or other rights
with respect thereto, except the right to receive, upon the surrender of such
Craig Common Preference Stock Certificate, the Parent Class A Stock (the "Craig
Common Preference Stock Merger Consideration") to which such holder is entitled
pursuant to this Section 3.1(a)(ii), without interest. Until surrendered as
contemplated by this Section 3.1, each Craig Common Preference Stock
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the Craig Common Preference Stock
Merger Consideration as contemplated by this Section 3.1. Notwithstanding the
foregoing, if between the date of this Agreement and the Effective Time the
outstanding shares of Parent Class A Stock or Craig Common Preference Stock
shall have been changed into a different number of shares or a different class,
by reason of any stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares, the Craig Common
Preference Stock Exchange Ratio shall be correspondingly adjusted to reflect
such stock dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares.
b. Reading
(i) Each share of common stock, par value $0.001 per share, of Reading
("Reading Common Stock") issued and outstanding immediately prior to the
Effective Time shall be converted (subject to Section 3.4) into the right to
receive 1.25 shares (the "Reading Common Stock Exchange Ratio") of Parent Class
A Stock. All such shares of Reading Common Stock, when so converted, shall no
longer be outstanding and shall automatically be canceled and retired and shall
cease to exist, and the holder of a certificate ("Reading Common Stock
Certificate") that, immediately prior to the Effective Time, represented
outstanding shares of Reading Common Stock shall cease to have any ownership or
other rights with respect thereto, except the right to receive, upon the
surrender of such Reading Common Stock Certificate, the Parent Class A Stock
(the "Reading Common Stock Merger Consideration") to which such holder is
entitled pursuant to this Section 3.1(b)(i), without interest. Until
surrendered as contemplated by this Section 3.1, each Reading Common Stock
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the Reading Common Stock Merger
Consideration as contemplated by this Section 3.1. Notwithstanding the
foregoing, if between the date of this Agreement and the Effective Time the
outstanding shares of Parent Class A Stock or Reading Common Stock shall have
been changed into a different number of shares or a different class, by reason
of any stock dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares, the Reading Common Stock Exchange Ratio
shall be correspondingly adjusted to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares.
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(ii) Each share of Series A convertible redeemable preferred stock, par
value $0.001 per share, of Reading ("Reading Series A Stock") issued and
outstanding immediately prior to the Effective Time shall remain outstanding
and shall not be affected by the Reading Merger.
(iii) Each share of Series B convertible preferred stock, par value $0.001
per share, of Reading ("Reading Series B Stock") issued and outstanding
immediately prior to the Effective Time shall remain outstanding and shall not
be affected by the Reading Merger.
c. Parent
Each share of Parent Class A Stock and Class B voting common stock, par
value $0.01 per share ("Parent Class B Stock"), issued and outstanding
immediately prior to the Effective Time shall remain outstanding and shall not
be affected by the Mergers.
d. CraigMerger Sub
Each share of common stock, par value $0.001 per share, of Craig Merger Sub
(the "Craig Merger Sub Common Stock") issued and outstanding immediately prior
to the Effective Time shall automatically be converted into and become one
fully paid and nonassessable share of common stock, par value $0.25 per share,
of Craig Surviving Corporation, and shall, after the Craig Merger, be the only
shares of Craig Surviving Corporation issued and outstanding.
e. ReadingMerger Sub
Each share of common stock, par value $0.001 per share, of Reading Merger
Sub (the "Reading Merger Sub Common Stock") issued and outstanding immediately
prior to the Effective Time shall automatically be converted into and become
one fully paid and nonassessable share of common stock, par value of $0.001 per
share, of Reading Surviving Corporation, and shall, after the Reading Merger,
be the only common shares of Reading Surviving Corporation issued and
outstanding.
f. General
No dividends or other distributions declared or made after the Effective
Time with a record date after the Effective Time shall be paid to the holder of
any unsurrendered Craig Common Stock Certificate, Craig Common Preference Stock
Certificate or Reading Common Stock Certificate (collectively, the "Craig and
Reading Stock Certificates") with respect to the Craig Common Stock Merger
Consideration, Craig Common Preference Stock Merger Consideration or Reading
Common Stock Merger Consideration (collectively, the "Craig and Reading Stock
Merger Consideration") represented thereby until the holder of record of such
Craig and Reading Stock Certificate, as applicable, shall surrender such Craig
and Reading Stock Certificate in accordance with Section 3.2. Subject to the
effect of applicable laws (including, without limitation, escheat and abandoned
property laws), following surrender of any such Craig and Reading Stock
Certificate, there shall be paid to the record holder of the certificate or
certificates representing the Craig and Reading Stock Merger Consideration, as
applicable, issued in exchange therefor, without interest, (i) the amount of
any dividends or other distributions with a record date after the Effective
Time theretofore paid with respect to such Craig and Reading Stock Merger
Consideration, as applicable, and (ii) if the payment date for any dividend or
distribution payable with respect to such Craig and Reading Stock Merger
Consideration, as applicable, has not occurred prior to the surrender of such
Craig and Reading Stock Certificate, as applicable, at the appropriate payment
date therefor, the amount of dividends or other distributions with a record
date after the Effective Time but prior to the surrender of such Craig and
Reading Stock Certificate and a payment date subsequent to the surrender of
such Craig and Reading Stock Certificate.
A-4
g. All Parent Class A Stock issued upon the surrender of the Craig and
Reading Stock Certificates, as applicable, in accordance with the terms hereof
shall be deemed to have been issued in full satisfaction of all rights
pertaining to such Craig and Reading Stock Certificates, as applicable, and
Craig Common Stock, Craig Common Preference Stock and Reading Common Stock
(collectively, the "Craig and Reading Stock") formerly represented thereby, and
from and after the Effective Time there shall be no further registration of
transfers effected on the stock transfer books of the Craig Surviving
Corporation or the Reading Surviving Corporation of shares of the Craig and
Reading Stock which were outstanding immediately prior to the Effective Time.
If, after the Effective Time, Craig and Reading Stock Certificates, as
applicable, are presented to either Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article III.
Section3.2 Surrender and Payment
a. Prior to the Effective Time, Parent shall appoint an agent reasonably
acceptable to Craig and Reading (the "Exchange Agent") for the purpose of
exchanging Craig and Reading Stock Certificates formerly representing Craig and
Reading Stock, as applicable. At or prior to the Effective Time, Parent shall
deposit with the Exchange Agent for the benefit of the holders of Craig and
Reading Stock, for exchange in accordance with this Section 3.2 through the
Exchange Agent, (i) as of the Effective Time, certificates representing the
Craig and Reading Stock Merger Consideration to be issued pursuant to Section
3.1(a) and Section 3.1(b), as applicable, and (ii) from time to time as
necessary, cash to be paid in lieu of fractional shares pursuant to Section 3.4
(such certificates for the Craig and Reading Stock Merger Consideration and
such cash being hereinafter referred to as the "Exchange Fund"). The Exchange
Agent shall, pursuant to irrevocable instructions, deliver the Craig and
Reading Stock Merger Consideration, as applicable, in exchange for surrendered
Craig and Reading Stock Certificates formerly representing Craig and Reading
Stock pursuant to Section 3.1 out of the Exchange Fund. Except as contemplated
by Section 3.2(e), the Exchange Fund shall not be used for any other purpose.
b. Promptly after the Effective Time, Parent will send, or will cause the
Exchange Agent to send, to each holder of a Craig and Reading Stock Certificate
or Certificates, as applicable, that immediately prior to the Effective Time
represented outstanding Craig and Reading Stock a letter of transmittal and
instructions for use in effecting the exchange of such Craig and Reading Stock
Certificate or Certificates, as applicable, for certificates representing the
Craig and Reading Stock Merger Consideration and, if applicable, cash in lieu
of fractional shares. Provision also shall be made for holders of Craig and
Reading Stock Certificates to procure in person immediately after the Effective
Time a letter of transmittal and instructions and to deliver in person
immediately after the Effective Time such letter of transmittal and Craig and
Reading Stock Certificates in exchange for the Craig and Reading Stock Merger
Consideration and, if applicable, cash, in lieu of fractional shares.
c. After the Effective Time, Craig Common Stock Certificates, Craig Common
Preference Stock Certificates and Reading Common Stock Certificates shall
represent the right, upon surrender thereof to the Exchange Agent, together
with a duly executed and properly completed letter of transmittal relating
thereto, to receive in exchange therefor that number of whole shares of Parent
Class A Stock, and, if applicable, cash that such holder has the right to
receive pursuant to Sections 3.1 and 3.4 after giving effect to any required
tax withholding, and the Craig Common Stock Certificates, Craig Common
Preference Stock Certificates and Reading Common Stock Certificates so
surrendered shall be canceled. No interest will be paid or will accrue on any
cash amount payable upon the surrender of any such Craig Common Stock
Certificates, Craig Common Preference Stock Certificates and Reading Common
Stock Certificates.
d. If any shares of Parent Class A Stock are to be issued and/or cash to be
paid to a Person other than the registered holder of the Craig Common Stock
Certificates, Craig Preference Stock Certificates or Reading Common Stock
Certificates surrendered in exchange therefor, it shall be a condition to such
issuance that the Craig Common Stock Certificates, Craig Preference Stock
Certificates or Reading Common Stock Certificates so surrendered shall be
properly endorsed or otherwise be in proper form for transfer and that the
Person requesting such issuance shall pay to the Exchange Agent any transfer or
other taxes required as a result of such issuance to a Person other than the
registered holder or establish to the satisfaction of the Exchange Agent that
such tax has been paid or is not applicable. For purposes of this Agreement,
"Person" means an individual, a corporation, a limited-liability company, a
partnership, an association, a trust or any other entity or organization,
including a governmental or political subdivision or any agency or
instrumentality thereof.
A-5
e. Any Craig and Reading Stock Merger Consideration and any cash in the
Exchange Fund that remain unclaimed by the holders of Craig and Reading Stock
one year after the Effective Time shall be returned to Parent, upon demand, and
any such holder who has not exchanged such holder's Craig and Reading Stock
Certificates in accordance with this Section 3.2 prior to that time shall
thereafter look only to Parent, as a general creditor thereof, to exchange such
Craig and Reading Stock Certificates or to pay amounts to which such holder is
entitled pursuant to Section 3.1. If outstanding Craig and Reading Stock
Certificates are not surrendered prior to six years after the Effective Time
(or, in any particular case, prior to such earlier date on which any Craig and
Reading Stock Merger Consideration issuable in respect of such Craig and
Reading Stock Certificates or the dividends and other distributions, if any,
described below would otherwise escheat to or become the property of any
governmental unit or agency), the Craig and Reading Stock Merger Consideration
issuable in respect of such Craig and Reading Stock Certificates, and the
amount of dividends and other distributions, if any, which have become payable
and which thereafter become payable on the Craig and Reading Stock Merger
Consideration evidenced by such Craig and Reading Stock Certificates as
provided herein shall, to the extent permitted by applicable law, become the
property of Parent, free and clear of all claims or interest of any Person
previously entitled thereto. Notwithstanding the foregoing, none of Parent,
Craig, Reading or the Surviving Corporations shall be liable to any holder of
Craig and Reading Stock Certificates for any amount paid, or Craig and Reading
Stock Merger Consideration, cash or dividends delivered, to a public official
pursuant to applicable abandoned property, escheat or similar laws.
f. If any Craig and Reading Stock Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Craig and Reading Stock Certificate to be lost, stolen or
destroyed and, if required by the Surviving Corporations, the posting by such
Person of a bond in such reasonable amount as Parent may direct as indemnity
against any claim that may be made against it with respect to such Craig and
Reading Stock Certificate, the Exchange Agent will issue in exchange for such
lost, stolen or destroyed Craig and Reading Stock Certificate the Craig and
Reading Stock Merger Consideration and, if applicable, cash and unpaid
dividends and other distributions on any Craig and Reading Stock Merger
Consideration deliverable in respect thereof pursuant to this Agreement.
Section 3.3 Stock Options
a. At the Effective Time, automatically and without any action on the part
of the holder thereof, each outstanding stock option (including stock options
granted under stock option plans and stock options granted under separate
contracts) of Craig and Reading outstanding at the Effective Time (the "Craig
and Reading Stock Options") shall be assumed by Parent and converted into an
option to purchase, pursuant to a plan or separate contract, as the case may
be, that number of shares of either Parent Class A Stock or Parent Class B
Stock (as shall be specified in a written election (the "Optionee Election") by
each respective holder) set forth below. In the case where an option holder has
made an Optionee Election to receive either an option to purchase Parent Class
A Stock or Parent Class B Stock, the Craig and Reading Stock Option shall
automatically be converted into an option to purchase that number of shares of
Parent Class A Stock (rounded down to the nearest whole share) of Parent Class
A Stock or Parent Class B Stock, as applicable, determined by multiplying the
number of shares of Craig and Reading Stock, as applicable, issuable upon the
exercise of such Craig and Reading Stock Option immediately prior to the
Effective Time by the applicable stock exchange ratio: Craig Common Stock
Exchange Ratio, Craig Common Preference Stock Exchange Ratio or Reading Common
Stock Exchange Ratio (collectively, the "Craig and Reading Stock Exchange
Ratios"), at an exercise price per share equal to the per share exercise price
of such option divided by the appropriate Craig and Reading Stock Exchange
Ratio (rounded up to the nearest whole cent) and otherwise upon the same terms
and conditions as such applicable Craig and Reading Stock Option.
Notwithstanding the above, in the case of any option to which Section 421 of
the Code applies by reason of the qualifications under Section 422 or 423 of
such Code, the exercise price, the number of shares purchasable pursuant to
such option and the terms and conditions of exercise of such option shall
comply with Section 424(a) of the Code. Parent shall take all corporate actions
necessary to reserve for issuance a sufficient number of shares of Parent Class
A Stock or Parent Class B Stock, as applicable, for delivery upon exercise of
Craig and Reading Stock Options assumed by Parent pursuant to this Section 3.3.
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b. As promptly as practicable after the Effective Time, Parent shall file a
Registration Statement on Form S-8 (or any successor or other appropriate
forms, as the case may be) with respect to the shares of Parent Class A Stock
and Parent Class B Stock subject to Craig and Reading Stock Options and shall
use all reasonable efforts to maintain the effectiveness of such registration
statement or registration statements (and maintain the current status of the
prospectus or prospectuses contained therein) for so long as such options
remain outstanding.
Section 3.4 No Fractional Shares
No fractional shares of Parent Class A Stock shall be issued in the Mergers
and fractional share interests shall not entitle the owner thereof to vote or
to any rights of a stockholder of Parent. All holders of fractional shares of
Parent Class A Stock shall be entitled to receive, in lieu thereof, an amount
in cash determined by multiplying the fraction of a share of Parent Class A
Stock to which such holder would otherwise have been entitled by the average
closing sales price of Parent Class A Stock as reported by the American Stock
Exchange for the five trading days immediately prior to the Effective Time.
Section 3.5 Closing
The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of the Citadel Holding Corporation,
at 10:00 a.m., local time, on the day (the "Closing Date") on which all of the
conditions set forth in Article IX hereof are satisfied or waived, or at such
other date and time as Parent, Craig and Reading shall otherwise agree.
Section 3.6 Affiliates
Notwithstanding anything to the contrary contained in Article III, Craig and
Reading Stock Certificates surrendered for exchange by any affiliate (as
defined in Section 8.15) of Craig or Reading shall not be exchanged until the
later of (a) the date Parent has received an Affiliate Agreement (as defined in
Section 8.15) from such affiliate or (b) the date such shares of Parent Class A
Stock are transferable pursuant to the Affiliate Agreement regardless of
whether such agreement was executed by the affiliate.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CRAIG
Craig represents and warrants to Parent and to Reading that the statements
contained in this Article IV are true and correct except as set forth herein or
except as disclosed in a disclosure letter delivered by Craig to Parent and
Reading as of the date hereof (the "Craig Disclosure Letter"):
Section 4.1 Organization and Qualification
a. Craig is a corporation duly organized, validly existing and in good
standing under the laws of the State of Nevada, is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
in which the character of Craig's properties or the nature of its business
makes such qualification necessary, except in jurisdictions, if any, where the
failure to be so qualified would not result in a Craig Material Adverse Effect
(as defined below). Craig has all requisite corporate or other power and
authority to own, use or lease its properties and to carry on its business as
it is now being conducted. Craig has made available to Parent and Reading a
complete and correct copy of its articles of incorporation and bylaws, each as
amended to date, and Craig's articles of incorporation and bylaws as so
delivered are in full force and effect. Craig is not in default in any respect
in the performance, observation or fulfillment of any provision of its articles
of incorporation or bylaws.
b. Each of Craig's Subsidiaries that is a corporation has been duly
organized, is validly existing and in good standing under the laws of its
jurisdiction of incorporation, is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the character
of such Subsidiary's properties or
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the nature of its business makes such qualification necessary, except in
jurisdictions, if any, where the failure to be so qualified would not result in
a Craig Material Adverse Effect. Each of Craig's Subsidiaries that is not a
corporation has been duly organized, is validly existing and in good standing
under the laws of its jurisdiction of organization, is duly qualified to do
business as a foreign entity and is in good standing in the jurisdictions in
which the character of such Subsidiary's properties or the nature of its
business makes such qualification necessary, except in jurisdictions, if any,
where the failure to be so qualified would not result in a Craig Material
Adverse Effect. Each of Craig's Subsidiaries has the requisite corporate or
other power and authority to own, use or lease its properties and to carry on
its business as it is now being conducted and as it is now proposed to be
conducted. No Subsidiary of Craig is in default in any respect in the
performance, observation or fulfillment of any provision of its articles of
incorporation or bylaws (or similar organizational documents).
c. For purposes of this Agreement, (i) a "Craig Material Adverse Effect"
shall mean any event, circumstance, condition, development or occurrence
causing, resulting in or having (or with the passage of time likely to cause,
result in or have) a material adverse effect on the financial condition,
business, assets, properties or results of operations of Craig and its
Subsidiaries taken as a whole; provided, that such term shall not include
effects that are (a) not applicable primarily to Craig resulting from market
conditions generally in the real estate, movie exhibition and/or off-Broadway
theater industries or (b) from any matter or facts previously disclosed in the
Craig SEC Reports (as defined in Section 4.5 below), in this Agreement and/or
in the Craig Disclosure Letter; and (ii) "Subsidiary" shall mean, with respect
to any party, any corporation or other organization, whether incorporated or
unincorporated, of which (x) at least a majority of the securities or other
interests having by their terms voting power to elect a majority of the Board
of Directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly beneficially owned
or controlled by such party or by any one or more of its subsidiaries, or by
such party and one or more of its subsidiaries, or (y) such party or any
Subsidiary of such party is a general partner of a partnership or a manager of
a limited-liability company. For purposes of this Agreement, neither Parent nor
Reading shall be deemed a "Subsidiary" of Craig and Parent shall not be deemed
a "Subsidiary" of Reading.
Section 4.2 Capitalization
The authorized capital stock of Craig consists of 7,500,000 shares of Craig
Common Stock, 50,000,000 shares of Craig Common Preference Stock, 20,000,000
shares of Class B common stock, par value of $0.01 per share ("Craig Class B
Stock"), and 1,000,000 shares of Preferred Stock, par value of $0.01 per share
("Craig Preferred Stock" and together with Craig Common Stock, Craig Common
Preference Stock, and Craig Class B Stock, the "Craig Capital Stock"). As of
the date of this Agreement, (a) 3,402,808 shares of Craig Common Stock were
issued and outstanding, (b) 7,058,408 shares of Craig Common Preference Stock
were issued and outstanding, (c) no shares of Craig Class B Stock were issued
and outstanding, (d) no shares of Craig Preferred Stock were issued and
outstanding and (e) stock options to acquire 664,940 shares of Craig Common
Stock and 65,000 shares of Craig Common Preference Stock were outstanding under
all stock option plans and agreements of Craig or its Subsidiaries. All of the
outstanding shares of Craig Capital Stock are validly issued, fully paid and
nonassessable, and free of preemptive rights. Except as set forth above, there
are no outstanding subscriptions, options, rights, warrants, convertible
securities, stock appreciation rights, phantom equity, or other agreements or
commitments obligating Craig to issue, transfer, sell, redeem, repurchase or
otherwise acquire any shares of its capital stock of any class.
Section 4.3 Authority
Craig has full corporate power and authority to execute and deliver this
Agreement and any other agreement executed and delivered in connection herewith
(the "Ancillary Agreements") to which Craig is or will be a party and, subject
to obtaining Craig Stockholders' Approval as contemplated by Section 8.11, to
consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance of this Agreement and the Ancillary Agreements to
which Craig is or will be a party and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized by
Craig's Board of Directors, and no other corporate proceedings on the part of
Craig are necessary to authorize this Agreement and the Ancillary
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Agreements to which Craig is or will be a party or to consummate the
transactions contemplated hereby or thereby, other than Craig Stockholders'
Approval as contemplated by Section 8.11 hereof. This Agreement has been, and
the Ancillary Agreements to which Craig is or will be a party are, or upon
execution will be, duly and validly executed and delivered by Craig and,
assuming the due authorization, execution and delivery hereof and thereof by
the other parties hereto and thereto, constitutes, or upon execution will
constitute, valid and binding obligations of Craig enforceable against Craig in
accordance with their respective terms, except as such enforceability may be
subject to the effects of bankruptcy, insolvency, reorganization, moratorium
and other laws relating to or affecting the rights of creditors and of general
principles of equity (the "Enforceability Exception").
Section 4.4 Consents and Approvals; No Violation
The execution and delivery of this Agreement, the consummation of the
transactions contemplated hereby and the performance by Craig of its
obligations hereunder will not:
a. conflict with any provision of Craig's articles of incorporation or
bylaws or the articles of incorporation or bylaws (or other similar
organizational documents) of any of its Subsidiaries;
b. subject to obtaining of any requisite approvals of Craig's stockholders
as contemplated by Section 8.11 hereof, require any consent, waiver, approval,
order, authorization or permit of, or registration, filing with or notification
to, (i) any governmental or regulatory authority or agency (a "Governmental
Authority"), except for applicable requirements of the Securities Act of 1933,
as amended (the "Securities Act"), the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), state securities or blue sky laws, and approvals
that are ministerial in nature and are customarily obtained from Governmental
Authorities after the Effective Time in connection with transactions of the
same nature as are contemplated hereby ("Customary Post-Closing Consents"(C))
or (ii) any third party other than a Governmental Authority, other than such
non-Governmental Authority third party consents, waivers, approvals, orders,
authorizations and permits that would not (x) result in a Craig Material
Adverse Effect, (y) materially impair the ability of Craig or any of its
Subsidiaries, as the case may be, to perform its obligations under this
Agreement or any Ancillary Agreement or (z) prevent the consummation of any of
the transactions contemplated by this Agreement;
c. result in any violation of or the breach of or constitute a default (with
notice or lapse of time or both) under, or give rise to any right of
termination, cancellation or acceleration or guaranteed payments or a loss of a
material benefit under, any of the terms, conditions or provisions of any note,
lease, mortgage, license, agreement or other instrument or obligation to which
Craig or any of its Subsidiaries is a party or by which Craig or any of its
Subsidiaries or any of their respective properties or assets may be bound,
except for such violations, breaches, defaults, or rights of termination,
cancellation or acceleration, or losses as to which requisite waivers or
consents have been obtained or which, individually or in the aggregate, would
not (i) result in a Craig Material Adverse Effect, (ii) materially impair the
ability of Craig or any of its Subsidiaries to perform its obligations under
this Agreement or any Ancillary Agreement or (iii) prevent the consummation of
any of the transactions contemplated by this Agreement;
d. violate the provisions of any order, writ, injunction, judgment, decree,
statute, rule or regulation applicable to Craig or any of its Subsidiaries;
e. result in the creation of any lien, mortgage, pledge, security interest,
encumbrance, claim or change of any kind ("Lien," if singular, or "Liens," if
plural) upon any shares of capital stock or material properties or assets of
Craig or any of its Subsidiaries under any agreement or instrument to which
Craig or any of its Subsidiaries is a party or by which Craig or any of its
Subsidiaries or any of their properties or assets is bound; or
f. result in any holder of any securities of Craig being entitled to
appraisal, dissenters' or similar rights.
Section 4.5 Craig SEC Reports
Craig has filed with the Securities and Exchange Commission (the "SEC"), and
has heretofore made available to Parent and Reading true and complete copies
of, each form, registration statement, report, schedule,
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proxy or information statement and other document (including exhibits and
amendments thereto), including without limitation its annual reports to
stockholders, required to be filed by it or its predecessors with the SEC since
January 1, 1996 under the Securities Act or the Exchange Act (collectively, the
"Craig SEC Reports"). As of the respective dates such Craig SEC Reports were
filed or, if any such Craig SEC Reports were amended, as of the date such
amendment was filed, each of the Craig SEC Reports, including without
limitation any financial statements or schedules included therein, (a) complied
in all material respects with all applicable requirements of the Securities Act
and the Exchange Act, as the case may be, and the applicable rules and
regulations promulgated thereunder, and (b) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading.
Section 4.6 Financial Statements
Each of the consolidated financial statements of Craig contained in the
Craig SEC Reports (including any related notes and schedules) (the "Craig
Financial Statements") has been prepared from, and is in accordance with, the
books and records of Craig and its consolidated Subsidiaries, complies in all
material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, has been
prepared in accordance with GAAP applied on a consistent basis (except as may
be indicated in the notes thereto and subject, in the case of quarterly
financial statements, to normal and recurring year end adjustments) and fairly
presents, in conformity with GAAP applied on a consistent basis (except as may
be indicated in the notes thereto), the consolidated financial position of
Craig and its Subsidiaries as of the date thereof and the consolidated results
of operations and cash flows (and changes in financial position, if any) of
Craig and its Subsidiaries for the periods presented therein (subject to normal
year end adjustments and the absence of financial footnotes in the case of any
unaudited interim financial statements).
Section 4.7 Absence of Undisclosed Liabilities
Except as reflected in the Craig Financial Statements or in the Craig SEC
Reports filed and publicly available prior to the date of this Agreement,
neither Craig nor any of its Subsidiaries has incurred any liabilities or
obligations of any nature (contingent or otherwise) that, individually or in
the aggregate, would have a Craig Material Adverse Effect.
Section 4.8 Absence of Certain Changes
Except as disclosed in the Craig SEC Reports filed and publicly available
prior to the date of this Agreement or as contemplated by this Agreement, since
June 30, 2001 (a) Craig and its Subsidiaries have conducted their business in
all material respects in the ordinary course consistent with past practices,
(b) there has not been any change or development, or combination of changes or
developments that, individually or in the aggregate, would have a Craig
Material Adverse Effect, (c) there has not been any declaration, setting aside
or payment of any dividend or other distribution with respect to any shares of
capital stock of Craig, or any repurchase, redemption or other acquisition by
Craig or any of its Subsidiaries of any outstanding shares of capital stock or
other securities of, or other ownership interests in, Craig or any of its
Subsidiaries, (d) there has not been any amendment of any term of any
outstanding security of Craig or any of its Subsidiaries, and (e) there has not
been any change in any method of accounting or accounting practice by Craig or
any of its Subsidiaries, except for any such change required by reason of a
concurrent change in GAAP or to conform a Subsidiary's accounting policies and
practices to those of Craig.
Section 4.9 Taxes
Except as otherwise disclosed in the Craig SEC Reports filed and publicly
available prior to the date of this Agreement and for matters that would not
have a Craig Material Adverse Effect:
a. Craig and each of its Subsidiaries have timely filed (or have had timely
filed on their behalf) or will file or cause to be timely filed, all material
Tax Returns (as defined below) required by applicable law to be filed by
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any of them prior to or as of the Closing Date. All such Tax Returns and
amendments thereto are or will be true, complete and correct in all material
respects.
b. Craig and each of its Subsidiaries have paid (or have had paid on their
behalf), or where payment is not yet due, have established (or have had
established on their behalf and for their sole benefit and recourse), or will
establish or cause to be established on or before the Closing Date, an adequate
accrual for the payment of all material Taxes (as defined below) due with
respect to any period ending prior to or as of the Closing Date.
c. No Audit (as defined below) by a Tax Authority (as defined below) is
pending or threatened with respect to any Tax Returns filed by, or Taxes due
from, Craig or any Subsidiary. No issue has been raised by any Tax Authority in
any Audit of Craig or any of its Subsidiaries that if raised with respect to
any other period not so audited could be expected to result in a material
proposed deficiency for any period not so audited. No material deficiency or
adjustment for any Taxes has been assessed against Craig or any of its
Subsidiaries. There are no liens for Taxes upon the assets of Craig or any of
its Subsidiaries, except liens for current Taxes not yet delinquent.
d. Except with respect to the tax year ended June 30, 1997, neither Craig
nor any of its Subsidiaries has given or been requested to give any waiver of
statutes of limitations relating to the payment of Taxes or have executed
powers of attorney with respect to Tax matters, which will be outstanding as of
the Closing Date.
e. Prior to the date hereof, Craig and its Subsidiaries have disclosed, and
provided or made available true and complete copies to Parent of, all material
Tax sharing, Tax indemnity, or similar agreements to which Craig or any of its
Subsidiaries are a party to, is bound by, or has any obligation or liability
for Taxes.
f. As used in this Agreement, (i) "Audit" shall mean any audit, assessment
of Taxes, other examination by any Tax Authority, proceeding or appeal of such
proceeding relating to Taxes; (ii) "Taxes" shall mean all Federal, state, local
and foreign taxes, and other assessments of a similar nature (whether imposed
directly or through withholding), including any interest, additions to tax, or
penalties applicable thereto; (iii) "Tax Authority" shall mean the Internal
Revenue Service and any other domestic or foreign Governmental Authority
responsible for the administration of any Taxes; and (iv) "Tax Returns" shall
mean all Federal, state, local and foreign tax returns, declarations,
statements, reports, schedules, forms and information returns and any amended
Tax Return relating to Taxes.
Section 4.10 Litigation
Except as disclosed in the Craig SEC Reports filed and publicly available
prior to the date of this Agreement and for matters that would not have a Craig
Material Adverse Effect, there is no suit, claim, action, proceeding or
investigation pending or, to Craig's knowledge, threatened against or directly
affecting Craig, any Subsidiaries of Craig or any of the directors or officers
of Craig or any of its Subsidiaries in their capacity as such, nor is there any
reasonable basis therefor that could reasonably be expected to have a Craig
Material Adverse Effect, if adversely determined. Neither Craig nor any of its
Subsidiaries, nor any officer, director or employee of Craig or any of its
Subsidiaries, has been permanently or temporarily enjoined by any order,
judgment or decree of any court or any other Governmental Authority from
engaging in or continuing any conduct or practice in connection with the
business, assets or properties of Craig or such Subsidiary nor, to the
knowledge of Craig, is Craig, any Subsidiary or any officer, director or
employee of Craig or its Subsidiaries under investigation by any Governmental
Authority. Except as disclosed in the Craig SEC Reports filed and publicly
available prior to the date of this Agreement, there is not in existence any
order, judgment or decree of any court or other tribunal or other agency
enjoining or requiring Craig or any of its Subsidiaries to take any action of
any kind with respect to its business, assets or properties. Notwithstanding
the foregoing, no representation or warranty in this Section 4.10 is made with
respect to Environmental Laws, which are covered exclusively by the provisions
set forth in Section 4.12.
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Section 4.11 Employee Benefit Plans; ERISA
a. With respect to each employee benefit, retirement or deferred
compensation plan or arrangement (including but not limited to any plans
described in section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), sponsored, maintained or contributed to by Craig or
any trade or business, whether or not incorporated, which together with Craig
would be deemed a "single employer" within the meaning of Section 414(b), (c)
or (m) of the Code or section 4001(b)(1) of ERISA (a "Craig ERISA Affiliate")
within six years prior to the Effective Time (each a "Craig Benefit Plan"): (i)
if intended to qualify under section 401(a) or 401(k) of the Code, such plan
satisfies the requirements of such sections, has received a favorable
determination letter from the Internal Revenue Service with respect to its
qualification, and its related trust has been determined to be exempt from tax
under section 501(a) of the Code and, to the knowledge of Craig, nothing has
occurred since the date of such letter to adversely affect such qualification
or exemption; (ii) each such plan has been administered in substantial
compliance with its terms and applicable law, except for any noncompliance with
respect to any such plan that could not reasonably be expected to result in a
Craig Material Adverse Effect; (iii) neither Craig nor any Craig ERISA
Affiliate has engaged in, and Craig and each Craig ERISA Affiliate do not have
any knowledge of any Person that has engaged in, any transaction or acted or
failed to act in any manner that would subject Craig or any Craig ERISA
Affiliate to any liability for a breach of fiduciary duty under ERISA that
could reasonably be expected to result in a Craig Material Adverse Effect; (iv)
no disputes are pending or, to the knowledge of Craig or any Company ERISA
Affiliate, threatened; (v) neither Craig nor any Craig ERISA Affiliate has
engaged in, and Craig and each Craig ERISA Affiliate do not have any knowledge
of any person that has engaged in, any transaction in violation of Section
406(a) or (b) of ERISA or Section 4975 of the Code for which no exemption
exists under Section 408 of ERISA or Section 4975(c) of the Code or Section
4975(d) of the Code that could reasonably be expected to result in a Craig
Material Adverse Effect; (vi) to the knowledge of Craig, there have been no
"reportable events" within the meaning of Section 4043 of ERISA for which the
30 day notice requirement of ERISA has not been waived by the Pension Benefit
Guaranty Corporation (the "PBGC"); (vii) all contributions due have been made
on a timely basis (within, where applicable, the time limit established under
section 302 of ERISA or Code section 412); (viii) no notice of intent to
terminate such plan has been given under section 4041 of ERISA and no
proceeding has been instituted under section 4042 of ERISA to terminate such
plan; and (ix) except for defined benefit plans (if applicable), such plan may
be terminated on a prospective basis without any continuing liability for
benefits other than benefits accrued to the date of such termination. All
contributions made or required to be made under any Craig Benefit Plan meet the
requirements for deductibility under the Code, and all contributions which are
required and which have not been made have been properly recorded on the books
of Craig or a Craig ERISA Affiliate.
b. No Craig Benefit Plan is a "multi-employer plan" (as defined in section
4001(a)(3) of ERISA) or a "multiple employer plan" (within the meaning of
section 413(c) of the Code). No event has occurred with respect to Craig or a
Craig ERISA Affiliate in connection with which Craig could be subject to any
liability, lien or encumbrance with respect to any Craig Benefit Plan or any
employee benefit plan described in section 3(3) of ERISA maintained, sponsored
or contributed to by a Craig ERISA Affiliate under ERISA or the Code.
c. Except as set forth in the Craig SEC Reports filed and publicly available
prior to the date of this Agreement or except as could not reasonably be
expected to result in a Craig Material Adverse Effect, no employees of Craig or
any of its Subsidiaries are covered by any severance plan or similar
arrangement.
Section 4.12 Environmental Liability
Except as set forth in the Craig SEC Reports filed and publicly available
prior to the date of this Agreement and except for matters that would not have
a Craig Material Adverse Effect:
a. The businesses of Craig and its Subsidiaries have been and are operated
in material compliance with all federal, state and local environmental
protection, health and safety or similar laws, statutes, ordinances,
restrictions, licenses, rules, regulations, permit conditions and legal
requirements, including without limitation the Federal Clean Water Act, Safe
Drinking Water Act, Resource Conservation & Recovery Act, Clean Air Act,
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Outer Continental Shelf Lands Act, Comprehensive Environmental Response,
Compensation and Liability Act, and Emergency Planning and Community Right to
Know Act, each as amended and currently in effect (together, "Environmental
Laws").
b. Neither Craig nor any of its Subsidiaries has caused or allowed the
generation, treatment, manufacture, processing, distribution, use, storage,
discharge, release, disposal, transport or handling of any chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous substances,
petroleum, petroleum products or any substance regulated under any
Environmental Law ("Hazardous Substances") at any of its properties or
facilities, except in material compliance with all Environmental Laws, and, to
Craig's knowledge, no generation, manufacture, processing, distribution, use,
treatment, handling, storage, discharge, release, disposal, transport or
handling of any Hazardous Substances has occurred at any property or facility
owned, leased or operated by Craig or any of its Subsidiaries except in
material compliance with all Environmental Laws.
c. Neither Craig nor any of its Subsidiaries has received any written notice
from any Governmental Authority or third party or, to the knowledge of Craig,
any other communication alleging or concerning any material violation by Craig
or any of its Subsidiaries of, or responsibility or liability of Craig or any
of its Subsidiaries under, any Environmental Law.
There are no pending, or to the knowledge of Craig, threatened, claims,
suits, actions, proceedings or investigations with respect to the businesses or
operations of Craig or any of its Subsidiaries alleging or concerning any
material violation of or responsibility or liability under any Environmental
Law that, if adversely determined, could reasonably be expected to have a Craig
Material Adverse Effect, nor does Craig have any knowledge of any fact or
condition that could give rise to such a claim, suit, action, proceeding or
investigation.
d. Craig and its Subsidiaries are in possession of all material approvals,
permits, licenses, registrations and similar type authorizations from all
Governmental Authorities under all Environmental Laws with respect to the
operation of the businesses of Craig and its Subsidiaries; there are no pending
or, to the knowledge of Craig, threatened, actions, proceedings or
investigations seeking to modify, revoke or deny renewal of any of such
approvals, permits, licenses, registrations and authorizations; and Craig does
not have knowledge of any fact or condition that is reasonably likely to give
rise to any action, proceeding or investigation to modify, revoke or deny
renewal of any of such approvals, permits, licenses, registrations and
authorizations.
e. There has been no discharge, release or disposal by Craig or its
Subsidiaries or, to Craig's knowledge, any predecessor in interest at any of
the properties owned or operated by Craig, its Subsidiaries or a predecessor in
interest, or to the knowledge of Craig, at any disposal or treatment facility
which received Hazardous Substances generated by Craig, its Subsidiaries, or
any predecessor in interest which could reasonably be expected to result in
liabilities that have a Craig Material Adverse Effect.
f. To Craig's knowledge, no pending claims have been asserted or threatened
to be asserted against Craig or its Subsidiaries for any personal injury
(including wrongful death) or property damage (real or personal) arising out of
exposure to Hazardous Substances used, handled, generated, transported or
disposed by Craig or its Subsidiaries at property owned or operated by Craig or
its Subsidiaries, except as could not reasonably be expected to have a Craig
Material Adverse Effect.
Section 4.13 Compliance with Applicable Laws
Craig and each of its Subsidiaries hold all material approvals, licenses,
permits, registrations and similar type authorizations necessary for the lawful
conduct of their respective businesses, as now conducted, and such businesses
are not being, and neither Craig nor any of its Subsidiaries has received any
notice from any Governmental Authority or person that any such business has
been or is being conducted in violation of any law, ordinance or regulation,
including without limitation any law, ordinance or regulation relating to
occupational health and safety, except for possible violations which either
individually or in the aggregate have not resulted
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and would not result in a Craig Material Adverse Effect; provided, however,
notwithstanding the foregoing, no representation or warranty in this Section
4.13 is made with respect to Environmental Laws, which are covered exclusively
by the provisions set forth in Section 4.12.
Section 4.14 Insurance
Craig and its Subsidiaries currently have in place all policies of insurance
which are reasonably required in connection with the operation of the
businesses of Craig and its Subsidiaries as currently conducted in accordance
with applicable laws and all agreements relating to Craig and its Subsidiaries.
None of Craig, any of its Subsidiaries or any other party to any such insurance
policy is in breach or default thereunder (including with respect to the
payment of premiums or the giving of notices), and Craig does not know of any
occurrence or any event which (with notice or the lapse of time or both) would
constitute such a breach or default or permit termination, modification or
acceleration under the policy, except for such breaches or defaults which,
individually or in the aggregate, would not have a Craig Material Adverse
Effect.
Section 4.15 Labor Matters; Employees
a. Except as set forth in the Craig SEC Reports filed and publicly available
prior to the date of this Agreement and except for such matters that alone or
in conjunction with other similar or related matters would not have a Craig
Material Adverse Effect, (i) there is no labor strike, dispute, slowdown, work
stoppage or lockout actually pending or, to the knowledge of Craig, threatened
against or affecting Craig or any of its Subsidiaries, (ii) none of Craig or
any of its Subsidiaries is a party to or bound by any collective bargaining or
similar agreement with any labor organization, or work rules or practices
agreed to with any labor organization or employee association applicable to
employees of Craig or any of its Subsidiaries, (iii) none of the employees of
Craig or any of its Subsidiaries are represented by any labor organization,
(iv) Craig and its Subsidiaries have each at all times been in material
compliance with all applicable laws respecting employment and employment
practices, terms and conditions of employment, wages, hours of work and
occupational safety and health, and are not engaged in any unfair labor
practices as defined in the National Labor Relations Act or other applicable
law, ordinance or regulation, (v) there is no unfair labor practice charge or
complaint against any of Craig or any of its Subsidiaries pending or, to the
knowledge of Craig, threatened before the National Labor Relations Board or any
similar state or foreign agency, (vi) there is no grievance or arbitration
proceeding arising out of any collective bargaining agreement or other
grievance procedure relating to Craig or any of its Subsidiaries, (vii) neither
the Occupational Safety and Health Administration nor any corresponding state
agency has threatened to file any citation, and there are no pending citations,
relating to Craig or any of its Subsidiaries, and (viii) there is no employee
or governmental claim or investigation, including any charges to the Equal
Employment Opportunity Commission or state employment practice agency,
investigations regarding Fair Labor Standards Act compliance, audits by the
Office of Federal Contractor Compliance Programs, sexual harassment complaints
or demand letters or threatened claims.
b. Since the enactment of the Worker Adjustment and Retraining Notification
Act of 1988 ("WARN Act"), none of Craig or any of its Subsidiaries has
effectuated (i) a "plant closing" (as defined in the WARN Act) affecting any
site of employment or one or more facilities or operating units within any site
of employment or facility of any of Craig or any of its Subsidiaries, or (ii) a
"mass layoff" (as defined in the WARN Act) affecting any site of employment or
facility of Craig or any of its Subsidiaries, nor has Craig or any of its
Subsidiaries been affected by any transaction or engaged in layoffs or
employment terminations sufficient in number to trigger application of any
similar state or local law, in each case that could reasonably be expected to
have a Craig Material Adverse Effect.
Section 4.16 Permits
Immediately prior to the Effective Time and except for Customary
Post-Closing Consents, Craig and its Subsidiaries hold all of the permits,
licenses, certificates, consents, approvals, entitlements, plans, surveys,
relocation plans, environmental impact reports and other authorizations of
Governmental Authorities ("Permits") required or necessary to construct, own,
operate, use and/or maintain its properties and conduct its operations as
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presently conducted, except for such Permits, the lack of which, individually
or in the aggregate, would not have a Craig Material Adverse Effect; provided,
however, that notwithstanding the foregoing, no representation or warranty in
this Section 4.16 is made with respect to Permits issued pursuant to
Environmental Laws, which are covered exclusively by the provisions set forth
in Section 4.12.
Section 4.17 Material Contracts
a. Craig has filed as exhibits to the Craig SEC Reports filed and publicly
available prior to the date of this Agreement a list of each contract, lease,
indenture, agreement, arrangement or understanding to which Craig or any of its
Subsidiaries is subject that is of a type that would be required to be included
as an exhibit to a Form S-1 Registration Statement pursuant to the rules and
regulations of the SEC if such a registration statement was filed by Craig,
exclusive of any contracts that would be required to be filed with the SEC due
to Craig's ownership of securities of Reading or Parent (collectively, the
"Craig Material Contracts").
b. Except as set forth in the Craig SEC Reports filed and publicly available
prior to the date of this Agreement, (i) all Craig Material Contracts are in
full force and effect and are the valid and legally binding obligations of the
parties thereto and are enforceable in accordance with their respective terms;
(ii) Craig is not in material breach or default with respect to, and to the
knowledge of Craig, no other party to any Craig Material Contract is in
material breach or default with respect to, its obligations thereunder,
including with respect to payments or otherwise; and (iii) no party to any
Craig Material Contract has given notice of any action to terminate, cancel,
rescind or procure a judicial reformation thereof.
c. Except as set forth in the Craig SEC Reports filed and publicly available
prior to the date of this Agreement, as of the date of this Agreement with
respect to authorizations for expenditures executed on or after June 30, 2001,
there are no material outstanding calls for payments that are due or that Craig
or its Subsidiaries are committed to make that have not been made.
Section 4.18 Required Stockholder Vote or Consent
The only vote of the holders of any class or series of capital stock of
Craig that will be necessary to consummate the Craig Merger and the other
transactions contemplated by this Agreement is the approval of this Agreement
by the holders of a majority of the voting power of the outstanding shares of
Craig Common Stock and Craig Common Preference Stock on the record date, voting
together as a single class ("Craig Stockholders' Approval").
Section 4.19 Proxy Statement/Prospectus; Registration Statement
None of the information to be supplied by Craig or its Subsidiaries for
inclusion in (a) the joint proxy statement relating to the Craig Special
Meeting, Reading Special Meeting and the Parent Annual Meeting (as defined
below) (also constituting the prospectus in respect of Parent Class A Stock
into which shares of Craig and Reading Stock will be converted) (the "Proxy
Statement/Prospectus"), to be filed by the Companies and Parent with the SEC,
and any amendments or supplements thereto, or (b) the Registration Statement on
Form S-4 (the "Registration Statement") to be filed by Parent with the SEC in
connection with the Mergers, and any amendments or supplements thereto, will,
at the respective times such documents are filed, and, in the case of the Proxy
Statement/Prospectus, at the time the Proxy Statement/Prospectus or any
amendment or supplement thereto is first mailed to stockholders of Parent and
the Companies, at the time such stockholders vote on approval of this Agreement
and at the Effective Time, and, in the case of the Registration Statement, when
it becomes effective under the Securities Act, contain any untrue statement of
a material fact or omit to state any material fact required to be made therein
or necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
Section 4.20 Intellectual Property
Craig or its Subsidiaries own, or are licensed or otherwise have the right
to use, all patents, patent rights, trademarks, rights, trade names, trade name
rights, service marks, service mark rights, copyrights, technology,
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know-how, processes and other proprietary intellectual property rights and
computer programs ("Intellectual Property") currently used in the conduct of
the business of Craig and its Subsidiaries, except where the failure to so own
or otherwise have the right to use such intellectual property would not,
individually or in the aggregate, have a Craig Material Adverse Effect. No
person has notified either Craig or any of its Subsidiaries that their use of
the Intellectual Property infringes on the rights of any person, subject to
such claims and infringements as do not, individually or in the aggregate, give
rise to any liability on the part of Craig and its Subsidiaries that could have
a Craig Material Adverse Effect, and, to Craig's knowledge, no person is
infringing on any right of Craig or any of its Subsidiaries with respect to any
such Intellectual Property. No claims are pending or, to Craig's knowledge,
threatened that Craig or any of its Subsidiaries is infringing or otherwise
adversely affecting the rights of any person with regard to any Intellectual
Property other than claims which, if adversely determined, would not be likely
to have a Craig Material Adverse Effect.
Section 4.21 Brokers
No broker, finder or investment banker (other than Marshall & Stevens,
Incorporated, the fees and expenses of which shall be paid in equal shares by
Parent, Craig and Reading) is entitled to any brokerage, finder's fee or other
fee or commission payable by Craig or any of its Subsidiaries in connection
with the transactions contemplated by this Agreement based upon arrangements
made by and on behalf of Craig or any of its Subsidiaries.
Section 4.22 Fairness Opinion
The Board of Directors of Craig has received a written opinion from Marshall
& Stevens, Incorporated addressed jointly to the Boards of Directors and
respective Conflicts Committees of the Boards of Directors (the "Joint Fairness
Opinion") to the effect that, as of the date of such opinion, the Craig Common
Stock Exchange Ratio and Craig Common Preference Stock Exchange Ratio are fair
from a financial point of view to the public holders of the Craig Common Stock
and Craig Common Preference Stock. True and complete copies of the Joint
Fairness Opinion have been given to Parent and Reading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF READING
Reading represents and warrants to Parent and Craig that the statements
contained in this Article V are true and correct except as set forth herein
except as disclosed in a disclosure letter delivered by Reading to Parent and
Craig as of the date hereof (the "Reading Disclosure Letter"):
Section 5.1 Organization and Qualification
a. Reading is a corporation duly organized, validly existing and in good
standing under the laws of the State of Nevada, is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
in which the character of Reading's properties or the nature of its business
makes such qualification necessary, except in jurisdictions, if any, where the
failure to be so qualified would not result in a Reading Material Adverse
Effect (as defined below). Reading has all requisite corporate or other power
and authority to own, use or lease its properties and to carry on its business
as it is now being conducted. Reading has made available to Parent and Craig a
complete and correct copy of its articles of incorporation and bylaws, each as
amended to date, and Reading's articles of incorporation and bylaws as so
delivered are in full force and effect. Reading is not in default in any
respect in the performance, observation or fulfillment of any provision of its
articles of incorporation or bylaws.
b. Each of Reading's Subsidiaries that is a corporation has been duly
organized, is validly existing and in good standing under the laws of its
jurisdiction of incorporation, is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the character
of such Subsidiary's properties or the nature of its business makes such
qualification necessary, except in jurisdictions, if any, where the failure to
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be so qualified would not result in a Reading Material Adverse Effect. Each of
Reading's Subsidiaries that is not a corporation has been duly organized, is
validly existing and in good standing under the laws of its jurisdiction of
organization, is duly qualified to do business as a foreign entity and is in
good standing in each jurisdiction in which the character of such Subsidiary's
properties or the nature of its business makes such qualification necessary,
except in jurisdictions, if any, where the failure to be so qualified would not
result in a Reading Material Adverse Effect. Each of Reading's Subsidiaries has
the requisite corporate or other power and authority to own, use or lease its
properties and to carry on its business as it is now being conducted and as it
is now proposed to be conducted. Reading has made available to Parent a
complete and correct copy of the articles of incorporation and bylaws (or
similar organizational documents) of each of Reading's Subsidiaries, each as
amended to date, and the articles of incorporation and bylaws (or similar
organizational documents) as so delivered are in full force and effect. No
Subsidiary of Reading is in default in any respect in the performance,
observation or fulfillment of any provision of its articles of incorporation or
bylaws (or similar organizational documents).
c. For purposes of this Agreement, a "Reading Material Adverse Effect" shall
mean any event, circumstance, condition, development or occurrence causing,
resulting in or having (or with the passage of time likely to cause, result in
or have) a material adverse effect on the financial condition, business,
assets, properties or results of operations of Reading and its Subsidiaries
taken as a whole; provided, that such term shall not include effects that are
(a) not applicable primarily to Reading resulting from market conditions
generally in the motion picture theater industry or (b) from any matter or
facts previously disclosed in the Reading SEC Reports (as defined in Section
5.5 below), in this Agreement and/or in the Reading Disclosure Letter.
Section 5.2 Capitalization
The authorized capital stock of Reading consists of 25,000,000 shares of
Reading Common Stock, 70,000 shares of Reading Series A Stock and 550,000
shares of Reading Series B Stock (together, the "Reading Capital Stock"). As of
the date of this Agreement, (a) 7,449,364 shares of Reading Common Stock were
issued and outstanding, (b) 70,000 shares of Reading Series A Stock were issued
and outstanding, (c) 550,000 shares of Reading Series B Stock were issued and
outstanding, and (d) stock options to acquire 775,232 shares of Reading Common
Stock were outstanding under all stock option plans and agreements of Reading
or its Subsidiaries. All of the outstanding shares of Reading Capital Stock are
validly issued, fully paid and nonassessable, and free of preemptive rights.
Except as set forth above, there are no outstanding subscriptions, options,
rights, warrants, convertible securities, stock appreciation rights, phantom
equity, or other agreements or commitments obligating Reading to issue,
transfer, sell, redeem, repurchase or otherwise acquire any shares of its
capital stock of any class.
Section 5.3 Authority
Reading has full corporate power and authority to execute and deliver this
Agreement and any other agreement executed and delivered in connection herewith
(the "Ancillary Agreements") to which Reading is or will be a party and,
subject to obtaining Reading Stockholders' Approval as contemplated by Section
8.11, to consummate the transactions contemplated hereby and thereby. The
execution, delivery and performance of this Agreement and the Ancillary
Agreements to which Reading is or will be a party and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by Reading's Board of Directors, and no other corporate proceedings
on the part of Reading are necessary to authorize this Agreement and the
Ancillary Agreements to which Reading is or will be a party or to consummate
the transactions contemplated hereby or thereby, other than Reading
Stockholders? Approval as contemplated by Section 8.11 hereof. This Agreement
has been, and the Ancillary Agreements to which Reading is or will be a party
are, or upon execution will be, duly and validly executed and delivered by
Reading and, assuming the due authorization, execution and delivery hereof and
thereof by the other parties hereto and thereto, constitutes, or upon execution
will constitute, valid and binding obligations of Reading enforceable against
Reading in accordance with their respective terms, except as such
enforceability may be subject to the Enforceability Exception.
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Section 5.4 Consents and Approvals; No Violation
The execution and delivery of this Agreement, the consummation of the
transactions contemplated hereby and the performance by Reading of its
obligations hereunder will not:
a. conflict with any provision of Reading's articles of incorporation or
bylaws or the articles of incorporation or bylaws (or other similar
organizational documents) of any of its Subsidiaries;
b. subject to obtaining of any requisite approvals of Reading's stockholders
as contemplated by Section 8.11 hereof, require any consent, waiver, approval,
order, authorization or permit of, or registration, filing with or notification
to, (i) any Governmental Authority, except for applicable requirements of the
Securities Act, the Exchange Act, state securities or blue sky laws, and
Customary Post-Closing Consents or (ii) any third party other than a
Governmental Authority, other than such non-Governmental Authority third party
consents, waivers, approvals, orders, authorizations and permits that would not
(x) result in a Reading Material Adverse Effect, (y) materially impair the
ability of Reading or any of its Subsidiaries, as the case may be, to perform
its obligations under this Agreement or any Ancillary Agreement or (z) prevent
the consummation of any of the transactions contemplated by this Agreement;
c. result in any violation of or the breach of or constitute a default (with
notice or lapse of time or both) under, or give rise to any right of
termination, cancellation or acceleration or guaranteed payments or a loss of a
material benefit under, any of the terms, conditions or provisions of any note,
lease, mortgage, license, agreement or other instrument or obligation to which
Reading or any of its Subsidiaries is a party or by which Reading or any of its
Subsidiaries or any of their respective properties or assets may be bound,
except for such violations, breaches, defaults, or rights of termination,
cancellation or acceleration, or losses as to which requisite waivers or
consents have been obtained or which, individually or in the aggregate, would
not (i) result in a Reading Material Adverse Effect, (ii) materially impair the
ability of Reading or any of its Subsidiaries to perform its obligations under
this Agreement or any Ancillary Agreement or (iii) prevent the consummation of
any of the transactions contemplated by this Agreement;
d. violate the provisions of any order, writ, injunction, judgment, decree,
statute, rule or regulation applicable to Reading or any of its Subsidiaries;
e. result in the creation of any Lien upon any shares of capital stock or
material properties or assets of Reading or any of its Subsidiaries under any
agreement or instrument to which Reading or any of its Subsidiaries is a party
or by which Reading or any of its Subsidiaries or any of their properties or
assets is bound; or
f. result in any holder of any securities of Reading being entitled to
appraisal, dissenters' or similar rights.
Section 5.5 Reading SEC Reports
Reading has filed with the SEC, and has heretofore made available to Parent
and Craig true and complete copies of, each form, registration statement,
report, schedule, proxy or information statement and other document (including
exhibits and amendments thereto), including without limitation its annual
reports to stockholders, required to be filed by it or its predecessors with
the SEC since January 1, 1996 under the Securities Act or the Exchange Act
(collectively, the "Reading SEC Reports"). As of the respective dates such
Reading SEC Reports were filed or, if any such Reading SEC Reports were
amended, as of the date such amendment was filed, each of the Reading SEC
Reports, including without limitation any financial statements or schedules
included therein, (a) complied in all material respects with all applicable
requirements of the Securities Act and the Exchange Act, as the case may be,
and the applicable rules and regulations promulgated thereunder, and (b) did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
Section 5.6 Financial Statements
Each of the consolidated financial statements of Reading contained in the
Reading SEC Reports (including any related notes and schedules) ("Reading
Financial Statements") has been prepared from, and is in accordance
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with, the books and records of Reading and its consolidated Subsidiaries,
complies in all material respects with applicable accounting requirements and
with the published rules and regulations of the SEC with respect thereto, has
been prepared in accordance with GAAP applied on a consistent basis (except as
may be indicated in the notes thereto and subject, in the case of quarterly
financial statements, to normal and recurring year end adjustments) and fairly
presents, in conformity with GAAP applied on a consistent basis (except as may
be indicated in the notes thereto), the consolidated financial position of
Reading and its Subsidiaries as of the date thereof and the consolidated
results of operations and cash flows (and changes in financial position, if
any) of Reading and its Subsidiaries for the periods presented therein (subject
to normal year end adjustments and the absence of financial footnotes in the
case of any unaudited interim financial statements).
Section 5.7 Absence of Undisclosed Liabilities
Except as reflected in the Reading Financial Statements or in the Reading
SEC Reports filed and publicly available prior to the date of this Agreement,
neither Reading nor any of its Subsidiaries has incurred any liabilities or
obligations of any nature (contingent or otherwise) that, individually or in
the aggregate, would have a Reading Material Adverse Effect.
Section 5.8 Absence of Certain Changes
Except as disclosed in the Reading SEC Reports filed and publicly available
prior to the date of this Agreement or as contemplated by this Agreement, since
June 30, 2001 (a) Reading and its Subsidiaries have conducted their business in
all material respects in the ordinary course consistent with past practices,
(b) there has not been any change or development, or combination of changes or
developments that, individually or in the aggregate, would have a Reading
Material Adverse Effect, (c) there has not been any declaration, setting aside
or payment of any dividend or other distribution with respect to any shares of
capital stock of Reading, or any repurchase, redemption or other acquisition by
Reading or any of its Subsidiaries of any outstanding shares of capital stock
or other securities of, or other ownership interests in, Reading or any of its
Subsidiaries, (d) there has not been any amendment of any term of any
outstanding security of Reading or any of its Subsidiaries, and (e) there has
not been any change in any method of accounting or accounting practice by
Reading or any of its Subsidiaries, except for any such change required by
reason of a concurrent change in GAAP or to conform a Subsidiary's accounting
policies and practices to those of Reading.
Section 5.9 Taxes
Except as otherwise disclosed in the Reading SEC Reports filed and publicly
available prior to the date of this Agreement and for matters that would not
have a Reading Material Adverse Effect:
a. Reading and each of its Subsidiaries have timely filed (or have had
timely filed on their behalf) or will file or cause to be timely filed, all
material Tax Returns required by applicable law to be filed by any of them
prior to or as of the Closing Date. All such Tax Returns and amendments thereto
are or will be true, complete and correct in all material respects.
b. Reading and each of its Subsidiaries have paid (or have had paid on their
behalf), or where payment is not yet due, have established (or have had
established on their behalf and for their sole benefit and recourse), or will
establish or cause to be established on or before the Closing Date, an adequate
accrual for the payment of all material Taxes due with respect to any period
ending prior to or as of the Closing Date.
c. No Audit by a Tax Authority is pending or threatened with respect to any
Tax Returns filed by, or Taxes due from, Reading or any Subsidiary. No issue
has been raised by any Tax Authority in any Audit of Reading or any of its
Subsidiaries that if raised with respect to any other period not so audited
could be expected to result in a material proposed deficiency for any period
not so audited. No material deficiency or adjustment for any Taxes has been
assessed against Reading or any of its Subsidiaries. There are no liens for
Taxes upon the assets of Reading or any of its Subsidiaries, except liens for
current Taxes not yet delinquent.
d. Except with respect to the tax year ended December 31, 1996, neither
Reading nor any of its Subsidiaries has given or been requested to give any
waiver of statutes of limitations relating to the payment of Taxes or have
executed powers of attorney with respect to Tax matters, which will be
outstanding as of the Closing Date.
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e. Prior to the date hereof, Reading and its Subsidiaries have disclosed,
and provided or made available true and complete copies to Parent of, all
material Tax sharing, Tax indemnity, or similar agreements to which Reading or
any of its Subsidiaries are a party to, is bound by, or has any obligation or
liability for Taxes.
Section 5.10 Litigation
Except as disclosed in the Reading SEC Reports filed and publicly available
prior to the date of this Agreement and for matters that would not have a
Reading Material Adverse Effect, there is no suit, claim, action, proceeding or
investigation pending or, to Reading's knowledge, threatened against or
directly affecting Reading, any Subsidiaries of Reading or any of the directors
or officers of Reading or any of its Subsidiaries in their capacity as such,
nor is there any reasonable basis therefor that could reasonably be expected to
have a Reading Material Adverse Effect, if adversely determined. Neither
Reading nor any of its Subsidiaries, nor any officer, director or employee of
Reading or any of its Subsidiaries, has been permanently or temporarily
enjoined by any order, judgment or decree of any court or any other
Governmental Authority from engaging in or continuing any conduct or practice
in connection with the business, assets or properties of Reading or such
Subsidiary nor, to the knowledge of Reading, is Reading, any Subsidiary or any
officer, director or employee of Reading or its Subsidiaries under
investigation by any Governmental Authority. Except as disclosed in the Reading
SEC Reports filed and publicly available prior to the date of this Agreement,
there is not in existence any order, judgment or decree of any court or other
tribunal or other agency enjoining or requiring Reading or any of its
Subsidiaries to take any action of any kind with respect to its business,
assets or properties. Notwithstanding the foregoing, no representation or
warranty in this Section 5.10 is made with respect to Environmental Laws, which
are covered exclusively by the provisions set forth in Section 5.12.
Section 5.11 Employee Benefit Plans; ERISA
a. With respect to each employee benefit, retirement or deferred
compensation plan or arrangement (including but not limited to any plans
described in section 3(3) of ERISA)), sponsored, maintained or contributed to
by Reading or any trade or business, whether or not incorporated, which
together with Reading would be deemed a "single employer" within the meaning of
Section 414(b), (c) or (m) of the Code or section 4001(b)(1) of ERISA (a
"Reading ERISA Affiliate") within six years prior to the Effective Time (each a
"Reading Benefit Plan"): (i) if intended to qualify under section 401(a) or
401(k) of the Code, such plan satisfies the requirements of such sections, has
received a favorable determination letter from the Internal Revenue Service
with respect to its qualification, and its related trust has been determined to
be exempt from tax under section 501(a) of the Code and, to the knowledge of
Reading, nothing has occurred since the date of such letter to adversely affect
such qualification or exemption; (ii) each such plan has been administered in
substantial compliance with its terms and applicable law, except for any
noncompliance with respect to any such plan that could not reasonably be
expected to result in a Reading Material Adverse Effect; (iii) neither Reading
nor any Reading ERISA Affiliate has engaged in, and Reading and each Reading
ERISA Affiliate do not have any knowledge of any Person that has engaged in,
any transaction or acted or failed to act in any manner that would subject
Reading or any Reading ERISA Affiliate to any liability for a breach of
fiduciary duty under ERISA that could reasonably be expected to result in a
Reading Material Adverse Effect; (iv) no disputes are pending or, to the
knowledge of Reading or any Reading ERISA Affiliate, threatened; (v) neither
Reading nor any Reading ERISA Affiliate has engaged in, and Reading and each
Reading ERISA Affiliate do not have any knowledge of any person that has
engaged in, any transaction in violation of Section 406(a) or (b) of ERISA or
Section 4975 of the Code for which no exemption exists under Section 408 of
ERISA or Section 4975(c) of the Code or Section 4975(d) of the Code that could
reasonably be expected to result in a Reading Material Adverse Effect; (vi) to
the knowledge of Reading, there have been no "reportable events" within the
meaning of Section 4043 of ERISA for which the 30 day notice requirement of
ERISA has not been waived by the PBGC; (vii) all contributions due have been
made on a timely basis (within, where applicable, the time limit established
under section 302 of ERISA or Code section 412); (viii) no notice of intent to
terminate such plan has been given under section 4041 of ERISA and no
proceeding has been instituted under section 4042 of ERISA to terminate such
plan; and (ix) except for defined benefit plans (if applicable), such plan may
be terminated on a prospective basis
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without any continuing liability for benefits other than benefits accrued to
the date of such termination. All contributions made or required to be made
under any Reading Benefit Plan meet the requirements for deductibility under
the Code, and all contributions which are required and which have not been made
have been properly recorded on the books of Reading or a Reading ERISA
Affiliate.
b. No Reading Benefit Plan is a "multi-employer plan" (as defined in section
4001(a)(3) of ERISA) or a "multiple employer plan" (within the meaning of
section 413(c) of the Code). No event has occurred with respect to Reading or a
Reading ERISA Affiliate in connection with which Reading could be subject to
any liability, lien or encumbrance with respect to any Reading Benefit Plan or
any employee benefit plan described in section 3(3) of ERISA maintained,
sponsored or contributed to by a Reading ERISA Affiliate under ERISA or the
Code.
c. Except as set forth in the Reading SEC Reports filed and publicly
available prior to the date of this Agreement or except as could not reasonably
be expected to result in a Reading Material Adverse Effect, no employees of
Reading or any of its Subsidiaries are covered by any severance plan or similar
arrangement.
Section 5.12 Environmental Liability
Except as set forth in the Reading SEC Reports filed and publicly available
prior to the date of this Agreement and except for matters that would not have
a Reading Material Adverse Effect:
a. The businesses of Reading and its Subsidiaries have been and are operated
in material compliance with all Environmental Laws.
b. Neither Reading nor any of its Subsidiaries has caused or allowed the
generation, treatment, manufacture, processing, distribution, use, storage,
discharge, release, disposal, transport or handling of any Hazardous Substances
at any of its properties or facilities, except in material compliance with all
Environmental Laws, and, to Reading's knowledge, no generation, manufacture,
processing, distribution, use, treatment, handling, storage, discharge,
release, disposal, transport or handling of any Hazardous Substances has
occurred at any property or facility owned, leased or operated by Reading or
any of its Subsidiaries except in material compliance with all Environmental
Laws.
c. Neither Reading nor any of its Subsidiaries has received any written
notice from any Governmental Authority or third party or, to the knowledge of
Reading, any other communication alleging or concerning any material violation
by Reading or any of its Subsidiaries of, or responsibility or liability of
Reading or any of its Subsidiaries under, any Environmental Law. There are no
pending, or to the knowledge of Reading, threatened, claims, suits, actions,
proceedings or investigations with respect to the businesses or operations of
Reading or any of its Subsidiaries alleging or concerning any material
violation of or responsibility or liability under any Environmental Law that,
if adversely determined, could reasonably be expected to have a Reading
Material Adverse Effect, nor does Reading have any knowledge of any fact or
condition that could give rise to such a claim, suit, action, proceeding or
investigation.
d. Reading and its Subsidiaries are in possession of all material approvals,
permits, licenses, registrations and similar type authorizations from all
Governmental Authorities under all Environmental Laws with respect to the
operation of the businesses of Reading and its Subsidiaries; there are no
pending or, to the knowledge of Reading, threatened, actions, proceedings or
investigations seeking to modify, revoke or deny renewal of any of such
approvals, permits, licenses, registrations and authorizations; and Reading
does not have knowledge of any fact or condition that is reasonably likely to
give rise to any action, proceeding or investigation to modify, revoke or deny
renewal of any of such approvals, permits, licenses, registrations and
authorizations.
e. There has been no discharge, release or disposal by Reading or its
Subsidiaries or, to Reading's knowledge, any predecessor in interest at any of
the properties owned or operated by Reading, its Subsidiaries or a predecessor
in interest, or to the knowledge of Reading, at any disposal or treatment
facility which received Hazardous Substances generated by Reading, its
Subsidiaries, or any predecessor in interest which could reasonably be expected
to have a Reading Material Adverse Effect.
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f. To Reading's knowledge, no pending claims have been asserted or
threatened to be asserted against Reading or its Subsidiaries for any personal
injury (including wrongful death) or property damage (real or personal) arising
out of exposure to Hazardous Substances used, handled, generated, transported
or disposed by Reading or its Subsidiaries at property owned or operated by
Reading or its Subsidiaries, except as could not reasonably be expected to have
a Reading Material Adverse Effect.
Section 5.13 Compliance with Applicable Laws
Reading and each of its Subsidiaries hold all material approvals, licenses,
permits, registrations and similar type authorizations necessary for the lawful
conduct of their respective businesses, as now conducted, and such businesses
are not being, and neither Reading nor any of its Subsidiaries has received any
notice from any Governmental Authority or person that any such business has
been or is being conducted in violation of any law, ordinance or regulation,
including without limitation any law, ordinance or regulation relating to
occupational health and safety, except for possible violations which either
individually or in the aggregate have not resulted and would not result in a
Reading Material Adverse Effect; provided, however, notwithstanding the
foregoing, no representation or warranty in this Section 5.13 is made with
respect to Environmental Laws, which are covered exclusively by the provisions
set forth in Section 5.12.
Section 5.14 Insurance
Reading and its Subsidiaries currently have in place all policies of
insurance which are required in connection with the operation of the businesses
of Reading and its Subsidiaries as currently conducted in accordance with
applicable laws and all agreements relating to Reading and its Subsidiaries.
Reading has made available to Parent a true, complete and correct copy of each
such policy or the binder therefor. None of Reading, any of its Subsidiaries or
any other party to such insurance policy is in breach or default thereunder
(including with respect to the payment of premiums or the giving of notices),
and Reading does not know of any occurrence or any event which (with notice or
the lapse of time or both) would constitute such a breach or default or permit
termination, modification or acceleration under the policy, except for such
breaches or defaults which, individually or in the aggregate, would not have a
Reading Material Adverse Effect.
Section 5.15 Labor Matters; Employees
a. Except as set forth in the Reading SEC Reports filed and publicly
available prior to the date of this Agreement and except for such matters that
alone or in conjunction with other similar or related matters would not have a
Reading Adverse Effect, (i) there is no labor strike, dispute, slowdown, work
stoppage or lockout actually pending or, to the knowledge of Reading,
threatened against or affecting Reading or any of its Subsidiaries and, during
the past five years, there has not been any such action, (ii) none of Reading
or any of its Subsidiaries is a party to or bound by any collective bargaining
or similar agreement with any labor organization, or work rules or practices
agreed to with any labor organization or employee association applicable to
employees of Reading or any of its Subsidiaries, (iii) none of the employees of
Reading or any of its Subsidiaries are represented by any labor organization
and none of Reading or any of its Subsidiaries have any knowledge of any
current union organizing activities among the employees of Reading or any of
its Subsidiaries nor does any question concerning representation exist
concerning such employees, (iv) Reading and its Subsidiaries have each at all
times been in material compliance with all applicable laws respecting
employment and employment practices, terms and conditions of employment, wages,
hours of work and occupational safety and health, and are not engaged in any
unfair labor practices as defined in the National Labor Relations Act or other
applicable law, ordinance or regulation, (v) there is no unfair labor practice
charge or complaint against any of Reading or any of its Subsidiaries pending
or, to the knowledge of Reading, threatened before the National Labor Relations
Board or any similar state or foreign agency, (vi) there is no grievance or
arbitration proceeding arising out of any collective bargaining agreement or
other grievance procedure relating to Reading or any of its Subsidiaries, (vii)
neither the Occupational Safety and Health Administration nor any corresponding
state agency has threatened to file any citation, and there are no pending
citations, relating to Reading or any of its Subsidiaries, and (viii) there is
no employee or governmental claim or investigation, including any charges to
the Equal
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Employment Opportunity Commission or state employment practice agency,
investigations regarding Fair Labor Standards Act compliance, audits by the
Office of Federal Contractor Compliance Programs, sexual harassment complaints
or demand letters or threatened claims.
b. Since the enactment of the WARN Act, none of Reading or any of its
Subsidiaries has effectuated (i) a "plant closing" (as defined in the WARN Act)
affecting any site of employment or one or more facilities or operating units
within any site of employment or facility of any of Reading or any of its
Subsidiaries, or (ii) a "mass layoff" (as defined in the WARN Act) affecting
any site of employment or facility of Reading or any of its Subsidiaries, nor
has Reading or any of its Subsidiaries been affected by any transaction or
engaged in layoffs or employment terminations sufficient in number to trigger
application of any similar state or local law, in each case that could
reasonably be expected to have a Reading Material Adverse Effect.
Section 5.16 Permits
Immediately prior to the Effective Time and except for Customary
Post-Closing Consents, Reading and its Subsidiaries hold all of the Permits
required or necessary to construct, own, operate, use and/or maintain its
properties and conduct its operations as presently conducted, except for such
Permits, the lack of which, individually or in the aggregate, would not have a
Reading Material Adverse Effect; provided, however, that notwithstanding the
foregoing, no representation or warranty in this Section 5.16 is made with
respect to Permits issued pursuant to Environmental Laws, which are covered
exclusively by the provisions set forth in Section 5.12.
Section 5.17 Material Contracts
a. Reading has filed as exhibits to the Reading SEC Reports filed and
publicly available prior to the date of this Agreement a list of each contract,
lease, indenture, agreement, arrangement or understanding to which Reading or
any of its Subsidiaries is subject that is of a type that would be required to
be included as an exhibit to a Form S-1 Registration Statement pursuant to the
rules and regulations of the SEC if such a registration statement was filed by
Reading, exclusive of any contracts that would be required to be filed with the
SEC due to Reading's ownership of securities of Craig or Parent (collectively,
the "Reading Material Contracts").
b. Except as set forth in the Reading SEC Reports filed and publicly
available prior to the date of this Agreement, (i) all Reading Material
Contracts are in full force and effect and are the valid and legally binding
obligations of the parties thereto and are enforceable in accordance with their
respective terms; (ii) Reading is not in material breach or default with
respect to, and to the knowledge of Reading, no other party to any Reading
Material Contract is in material breach or default with respect to, its
obligations thereunder, including with respect to payments or otherwise; and
(iii) no party to any Reading Material Contract has given notice of any action
to terminate, cancel, rescind or procure a judicial reformation thereof.
c. Except as set forth in the Reading SEC Reports filed and publicly
available prior to the date of this Agreement, as of the date of this Agreement
with respect to authorizations for expenditures executed on or after June 30,
2001, there are no material outstanding calls for payments that are due or that
Reading or its Subsidiaries are committed to make that have not been made.
Section 5.18 Required Stockholder Vote or Consent
The only vote of the holders of any class or series of capital stock of
Reading that will be necessary to consummate the Reading Merger and the other
transactions contemplated by this Agreement is the approval of this Agreement
by the holders of a majority of the voting power of the outstanding shares of
Reading Common Stock, Reading Series A Stock and Reading Series B Stock, on the
record date, voting together as a single class ("Reading Stockholders'
Approval").
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Section 5.19 Proxy Statement/Prospectus; Registration Statement
None of the information to be supplied by Reading or its Subsidiaries for
inclusion in (a) the Proxy Statement/Prospectus, to be filed by the Companies
and Parent with the SEC, and any amendments or supplements thereto, or (b) the
Registration Statement to be filed by Parent with the SEC in connection with
the Mergers, and any amendments or supplements thereto, will, at the respective
times such documents are filed, and, in the case of the Proxy Statement/
Prospectus, at the time the Proxy Statement/Prospectus or any amendment or
supplement thereto is first mailed to stockholders of Parent and the Companies,
at the time such stockholders vote on approval of this Agreement and at the
Effective Time, and, in the case of the Registration Statement, when it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be made therein or
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
Section 5.20 Intellectual Property
Reading or its Subsidiaries own, or are licensed or otherwise have the right
to use, all Intellectual Property currently used in the conduct of the business
of Reading and its Subsidiaries, except where the failure to so own or
otherwise have the right to use such intellectual property would not,
individually or in the aggregate, have a Reading Material Adverse Effect. No
person has notified either Reading or any of its Subsidiaries that their use of
the Intellectual Property infringes on the rights of any person, subject to
such claims and infringements as do not, individually or in the aggregate, give
rise to any liability on the part of Reading and its Subsidiaries that could
have a Reading Material Adverse Effect, and, to Reading's knowledge, no person
is infringing on any right of Reading or any of its Subsidiaries with respect
to any such Intellectual Property. No claims are pending or, to Reading's
knowledge, threatened that Reading or any of its Subsidiaries is infringing or
otherwise adversely affecting the rights of any person with regard to any
Intellectual Property other than claims which, if adversely determined, would
not be likely to have a Reading Material Adverse Effect.
Section 5.21 Brokers
No broker, finder or investment banker (other than Marshall & Stevens,
Incorporated, the fees and expenses of which shall be paid in equal shares by
Parent, Craig and Reading) is entitled to any brokerage, finder's fee or other
fee or commission payable by Reading or any of its Subsidiaries in connection
with the transactions contemplated by this Agreement based upon arrangements
made by and on behalf of Reading or any of its Subsidiaries.
Section 5.22 Fairness Opinion
The Board of Directors of Reading has received the Joint Fairness Opinion to
the effect that, as of the date of such opinion, the Reading Common Stock
Exchange Ratio, Reading Series A Stock Exchange Ratio and Reading Series B
Stock Exchange Ratio are fair from a financial point of view to the public
holders of the Reading Common Stock. True and complete copies of the Joint
Fairness Opinion have been given to Parent and Craig.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent, Craig Merger Sub and Reading Merger Sub jointly and severally
represent and warrant to the Companies as follows except as disclosed in a
disclosure letter delivered by Parent to Craig and Reading as of the date
hereof (the "Parent Disclosure Letter"):
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Section 6.1 Organization and Qualification
a. Parent is a corporation duly organized, validly existing and in good
standing under the laws of the State of Nevada, is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
in which the character of Parent's properties or the nature of its business
makes such qualification necessary, except in jurisdictions, if any, where the
failure to be so qualified would not result in a Parent Material Adverse Effect
(as defined below). Parent has all requisite corporate or other power and
authority to own, use or lease its properties and to carry on its business as
it is now being conducted. Parent has made available to the Companies a
complete and correct copy of its articles of incorporation and bylaws, each as
amended to date, and Parent's articles of incorporation and bylaws as so
delivered are in full force and effect. Parent is not in default in any respect
in the performance, observation or fulfillment of any provision of its articles
of incorporation or bylaws.
b. Each of Parent's Subsidiaries that is a corporation has been duly
organized, is validly existing and in good standing under the laws of its
jurisdiction of incorporation, is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the character
of such Subsidiary's properties or the nature of its business makes such
qualification necessary, except in jurisdictions, if any, where the failure to
be so qualified would not result in a Parent Material Adverse Effect. Each of
Parent's Subsidiaries that is not a corporation has been duly organized, is
validly existing and in good standing under the laws of its jurisdiction of
organization, is duly qualified to do business as a foreign entity and is in
good standing in each jurisdiction in which the character of such Subsidiary's
properties or the nature of its business makes such qualification necessary,
except in jurisdictions, if any, where the failure to be so qualified would not
result in a Parent Material Adverse Effect. Each of Parent's Subsidiaries has
all requisite corporate or other power and authority to own, use or lease its
properties and to carry on its business as it is now being conducted and as it
is now proposed to be conducted. No Subsidiary of Parent is in default in any
respect in the performance, observation or fulfillment of any provision of its
articles of incorporation or bylaws (or similar organizational documents).
c. For purposes of this Agreement, a "Parent Material Adverse Effect" shall
mean any event, circumstance, condition, development or occurrence causing,
resulting in or having (or with the passage of time likely to cause, result in
or have) a material adverse effect on the financial condition, business,
assets, properties or results of operations of Parent and its Subsidiaries,
taken as a whole; provided, that such term shall not include effects that are
(a) not applicable primarily to Parent resulting from market conditions
generally in the real estate, motion picture theater or off-Broadway industries
or (b) from any matter or facts previously disclosed in the Parent SEC Reports
(as defined in Section 6.5 below), in this Agreement and/or in the Parent
Disclosure Letter.
d. Craig Merger Sub and Reading Merger Sub are direct, wholly-owned
subsidiaries of Parent, were formed solely for the purpose of engaging in the
transactions contemplated by this Agreement and have not engaged in any
business activities or conducted any operations of any kind, entered into any
agreement or arrangement with any Person or entity, or incurred, directly or
indirectly, any material liabilities or obligations, in each case except in
connection with their incorporation, the negotiation of this Agreement, the
Mergers and the transactions contemplated hereby.
Section 6.2 Capitalization
The authorized capital stock of Parent consists of 100,000,000 shares of
Parent Class A Stock, 20,000,000 shares of Parent Class B Stock, and 20,000,000
shares of Preferred Stock, par value of $0.01 per share ("Parent Preferred
Stock" and together with Parent Class A Stock and Parent Class B Stock, the
"Parent Capital Stock"). As of the date of this Agreement, Parent has (a)
7,958,379 shares of Parent Class A Stock issued and outstanding, (b) 1,989,585
shares of Parent Class B Stock issued and outstanding, (c) no shares of Parent
Preferred Stock issued and outstanding and (d) outstanding stock options to
acquire 155,900 shares of Parent Class A Stock and no shares of Parent Class B
Stock under all stock option plans and agreements of Parent. The authorized
capital stock of Craig Merger Sub consists of 1,000 shares of Craig Merger Sub
Common Stock. As of the date of this Agreement, Craig Merger Sub has 100 shares
of Craig Merger Sub Common Stock outstanding. The authorized capital stock of
Reading Merger Sub consists of 1,000 shares of Reading Merger Sub Common Stock.
As of the date of this Agreement, Reading Merger Sub has 100 shares of Reading
Merger Sub Common Stock outstanding
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All outstanding shares of Parent Capital, Craig Merger Sub Common Stock and
Reading Merger Sub Common Stock are validly issued, fully paid and
nonassessable, and free of preemptive rights. Except as set forth above, and
other than this Agreement, there are no outstanding subscriptions, options,
rights, warrants, convertible securities, stock appreciation rights, phantom
equity, or other agreements or commitments obligating Parent, Craig Merger Sub
or Reading Merger Sub to issue, transfer, sell, redeem, repurchase or otherwise
acquire any shares of its respective capital stock of any class.
Section 6.3 Authority
Each of Parent, Craig Merger Sub and Reading Merger Sub has full corporate
power and authority to execute and deliver this Agreement and the Ancillary
Agreements to which each of Parent, Craig Merger Sub and Reading Merger Sub is
or will be a party and, subject to Parent obtaining the Parent Stockholders'
Approval as contemplated by Section 8.11, to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance of
this Agreement and the Ancillary Agreements to which each of Parent, Craig
Merger Sub and Reading Merger Sub is or will be a party and the consummation of
the transactions contemplated hereby and thereby have been duly and validly
authorized by the Board of Directors of Parent, Craig Merger Sub and Reading
Merger Sub, and no other corporate proceedings on the part of Parent, Craig
Merger Sub or Reading Merger Sub are necessary to authorize this Agreement or
the Ancillary Agreements to which any of them are or will be a party or to
consummate the transactions contemplated hereby or thereby, other than
obtaining the Parent Stockholders' Approval as contemplated by Section 8.11
hereof. This Agreement has been, and the Ancillary Agreements to which Parent,
Craig Merger Sub or Reading Merger Sub is or will be a party are, or upon
execution will be, duly and validly executed and delivered by Parent, Craig
Merger Sub or Reading Merger Sub, as applicable, and, assuming the due
authorization, execution and delivery hereof and thereof by the other parties
hereto and thereto, constitutes or upon execution will constitute, valid and
binding obligations of Parent enforceable against Parent, Craig Merger Sub or
Reading Merger Sub, as applicable, in accordance with their respective terms,
except for the Enforceability Exception.
Section 6.4 Consents and Approvals; No Violation
The execution and delivery of this Agreement, the consummation of the
transactions contemplated hereby and the performance by Parent, Craig Merger
Sub or Reading Merger Sub of their respective obligations hereunder will not:
a. conflict with any provision of the articles of incorporation or bylaws of
Parent, Craig Merger Sub or Reading Merger Sub or the articles of incorporation
or bylaws (or other similar organizational documents) of any of their
Subsidiaries;
b. subject to obtaining Parent Stockholders' Approval as contemplated by
Section 8.11 hereof, require any consent, waiver, approval, order,
authorization or permit of, or registration, filing with or notification to,
(i) any Governmental Authority, except for applicable requirements of the
Securities Act, the Exchange Act, state securities or blue sky laws and
Customary Post-Closing Consents or (ii) any third party other than a
Governmental Authority, other than such non-Governmental Authority third party
consents, waivers, approvals, orders, authorizations and permits that would not
(x) result in a Parent Material Adverse Effect, (y) materially impair the
ability of Parent or any of its Subsidiaries to perform its obligations under
this Agreement or any Ancillary Agreement or (z) prevent the consummation of
any of the transactions contemplated by this Agreement;
c. result in any violation of or the breach of or constitute a default (with
notice or lapse of time or both) under, or give rise to any right of
termination, cancellation or acceleration or guaranteed payments or a loss of a
material benefit under, any of the terms, conditions or provisions of any note,
lease, mortgage, license, agreement or other instrument or obligation to which
Parent or any of its Subsidiaries is a party or by which Parent or any of its
Subsidiaries or any of their respective properties or assets may be bound,
except for such violations, breaches, defaults, or rights of termination,
cancellation or acceleration, or losses as to which requisite waivers or
consents
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have been obtained or which, individually or in the aggregate, would not (i)
result in a Parent Material Adverse Effect, (ii) materially impair the ability
of Parent or any of its Subsidiaries to perform its obligations under this
Agreement or any Ancillary Agreement or (iii) prevent the consummation of any
of the transactions contemplated by this Agreement;
d. violate the provisions of any order, writ, injunction, judgment, decree,
statute, rule or regulation applicable to Parent or any of its Subsidiaries;
e. result in the creation of any Lien upon any material properties or assets
or on any shares of capital stock of Parent or its Subsidiaries under any
agreement or instrument to which Parent or any of its Subsidiaries is a party
or by which Parent or any of its Subsidiaries or any of their properties or
assets is bound; or
f. result in any holder of any securities of Parent being entitled to
appraisal, dissenters' or similar rights.
Section 6.5 Parent SEC Reports
Parent has filed with the SEC, and has heretofore made available to the
Companies true and complete copies of, each form, registration statement,
report, schedule, proxy or information statement and other document (including
exhibits and amendments thereto), including without limitation its annual
reports to stockholders, to be filed with the SEC since January 1, 1996 under
the Securities Act or the Exchange Act (collectively, the "Parent SEC
Reports"). As of the respective dates such Parent SEC Reports were filed or, if
any such Parent SEC Reports were amended, as of the date such amendment was
filed, each of the Parent SEC Reports, including without limitation any
financial statements or schedules included therein, (a) complied in all
material respects with all applicable requirements of the Securities Act and
the Exchange Act, as the case may be, and the applicable rules and regulations
promulgated thereunder, and (b) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Section 6.6 Parent Financial Statements
Each of the consolidated financial statements of Parent contained in the
Parent SEC Reports (including any related notes and schedules) ("Parent
Financial Statements") has been prepared from, and is in accordance with, the
books and records of Parent and its consolidated Subsidiaries, complies in all
material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, has been
prepared in accordance with GAAP applied on a consistent basis (except as may
be indicated in the notes thereto and subject, in the case of quarterly
financial statements, to normal and recurring year end adjustments) and fairly
presents, in conformity with GAAP applied on a consistent basis (except as may
be indicated in the notes thereto), the consolidated financial position of
Parent and its Subsidiaries as of the date thereof and the consolidated results
of operations and cash flows (and changes in financial position, if any) of
Parent and its Subsidiaries for the periods presented therein (subject to
normal year end adjustments and the absence of financial footnotes in the case
of any unaudited interim financial statements).
Section 6.7 Absence of Undisclosed Liabilities
Except as reflected in the Parent Financial Statements or in the Parent SEC
Reports filed and publicly available prior to the date of this Agreement,
neither Parent nor any of its Subsidiaries has incurred any liabilities or
obligations of any nature (contingent or otherwise) that would have a Parent
Material Adverse Effect.
Section 6.8 Absence of Certain Changes
Except as contemplated by this Agreement, or disclosed in the Parent SEC
Reports filed and publicly available prior to the date of this Agreement, since
June 30, 2001 (a) Parent and its Subsidiaries have conducted their business in
all material respects in the ordinary course consistent with past practices,
(b) there has not been
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any change or development, or combination of changes or developments that,
individually or in the aggregate, would have a Parent Material Adverse Effect,
(c) there has not been any declaration, setting aside or payment of any
dividend or other distribution with respect to any shares of capital stock of
Parent or any repurchase, redemption or other acquisition by Parent or any of
its Subsidiaries of any outstanding shares of capital
stock or other securities of, or other ownership interests in, Parent or any of
its Subsidiaries, (d) there has not been any amendment of any term of any
outstanding security of Parent, and (e) there has not been any change in any
method of accounting or accounting practice by Parent, except for any such
change required by reason of a concurrent change in GAAP or to conform a
Subsidiary's accounting policies and practices to those of Parent.
Section 6.9 Taxes
Except as otherwise disclosed in the Parent SEC Reports filed and publicly
available prior to the date of this Agreement and for matters that would not
have a Parent Material Adverse Effect:
a. Parent and each of its Subsidiaries have timely filed (or have had timely
filed on their behalf) or will file or cause to be timely filed, all material
Tax Returns required by applicable law to be filed by any of them prior to or
as of the Closing Date. All such Tax Returns and amendments thereto are or will
be true, complete and correct in all material respects.
b. Parent and each of its Subsidiaries have paid (or have had paid on their
behalf), or where payment is not yet due, have established (or have had
established on their behalf and for their sole benefit and recourse), or will
establish or cause to be established on or before the Closing Date, an adequate
accrual for the payment of all material Taxes due with respect to any period
ending prior to or as of the Closing Date.
c. No Audit by a Tax Authority is pending or threatened with respect to any
Tax Returns filed by, or Taxes due from, Parent or any Subsidiary. No issue has
been raised by any Tax Authority in any Audit of Parent or any of its
Subsidiaries that if raised with respect to any other period not so audited
could be expected to result in a material proposed deficiency for any period
not so audited. No material deficiency or adjustment for any Taxes has been
threatened, proposed, asserted or assessed against Parent or any of its
Subsidiaries. There are no liens for Taxes upon the assets of Parent or any of
its Subsidiaries, except liens for current Taxes not yet delinquent.
d. Neither Parent nor any of its Subsidiaries has given or been requested to
give any waiver of statutes of limitations relating to the payment of Taxes or
have executed powers of attorney with respect to Tax matters, which will be
outstanding as of the Closing Date.
e. Prior to the date hereof, Parent and its Subsidiaries have disclosed, and
provided or made available true and complete copies to the Companies of, all
material Tax sharing, Tax indemnity, or similar agreements to which Parent or
any of its Subsidiaries is a party to, is bound by, or has any obligation or
liability for Taxes.
Section 6.10 Litigation
Except as disclosed in the Parent SEC Reports filed and publicly available
prior to the date of this Agreement and for matters that would not have a
Parent Material Adverse Effect, there is no suit, claim, action, proceeding or
investigation pending or, to Parent's knowledge, threatened against or directly
affecting Parent, any Subsidiaries of Parent or any of the directors or
officers of Parent or any of its Subsidiaries in their capacity as such, nor is
there any reasonable basis therefor that could reasonably be expected to have a
Parent Material Adverse Effect, if adversely determined. Neither Parent nor any
of its Subsidiaries, nor any officer, director or employee of Parent or any of
its Subsidiaries, has been permanently or temporarily enjoined by any order,
judgment or decree of any court or any other Governmental Authority from
engaging in or continuing any conduct or practice in connection with the
business, assets or properties of Parent or such Subsidiary, nor, to the
knowledge of Parent, is Parent, any Subsidiary or any officer, director or
employee of Parent or its Subsidiaries under investigation by any Governmental
Authority. Except as disclosed in the Parent SEC Reports filed and publicly
available prior to the date of this Agreement, there is not in existence any
order, judgment or decree of
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any court or other tribunal or other agency enjoining or requiring Parent or
any of its Subsidiaries to take any action of any kind with respect to its
business, assets or properties. Notwithstanding the foregoing, no
representation or warranty in this Section 6.10 is made with respect to
Environmental Laws, which are covered exclusively by the provisions set forth
in Section 6.12.
Section 6.11 Employee Benefit Plans; ERISA
a. With respect to each employee benefit, retirement or deferred
compensation plan or arrangement, if any, (including but not limited to any
plans described in section 3(3) of ERISA), sponsored, maintained or contributed
to by Parent or any trade or business, whether or not incorporated, which
together with Parent would be deemed a "single employer" within the meaning of
Section 414(b), (c) or (m) of the Code or section 4001(b)(1) of ERISA (a
"Parent ERISA Affiliate") within six years prior to the Effective Time (each a
"Parent Benefit Plan"): (i) if intended to qualify under section 401(a) or
401(k) of the Code, such plan satisfies the requirements of such sections, has
received a favorable determination letter from the Internal Revenue Service
with respect to its qualification, and its related trust has been determined to
be exempt from tax under section 501(a) of the Code and, to the knowledge of
Parent, nothing has occurred since the date of such letter to adversely affect
such qualification or exemption; (ii) each such plan has been administered in
substantial compliance with its terms and applicable law, except for any
noncompliance with respect to any such plan that could not reasonably be
expected to result in a Parent Material Adverse Effect; (iii) neither Parent
nor any Parent ERISA Affiliate has engaged in, and Parent and each Parent ERISA
Affiliate do not have any knowledge of any Person that has engaged in, any
transaction or acted or failed to act in any manner that would subject Parent
or any Parent ERISA Affiliate to any liability for a breach of fiduciary duty
under ERISA that could reasonably be expected to result in a Parent Material
Adverse Effect; (iv) no disputes are pending, or, to the knowledge of Parent or
any Parent ERISA Affiliate, threatened; (v) neither Parent nor any Parent ERISA
Affiliate has engaged in, and Parent and each Parent ERISA Affiliate do not
have any knowledge of any person that has engaged in, any transaction in
violation of Section 406(a) or (b) of ERISA or Section 4975 of the Code for
which no exemption exists under Section 408 of ERISA or Section 4975(c) of the
Code or Section 4975(d) of the Code that could reasonably be expected to result
in a Parent Material Adverse Effect; (vi) to the knowledge of Parent, there
have been no ?reportable events? within the meaning of Section 4043 of ERISA
for which the 30 day notice requirement of ERISA has not been waived by the
PBGC; (vii) all contributions due have been made on a timely basis (within,
where applicable, the time limit established under section 302 of ERISA or Code
section 412); (viii) no notice of intent to terminate such plan has been given
under Section 4041 of ERISA and no proceeding has been instituted under section
4042 of ERISA to terminate such plan; and (ix) except for defined benefit plans
(if applicable), such plan may be terminated on a prospective basis without any
continuing liability for benefits other than benefits accrued to the date of
such termination. All contributions made or required to be made under any
Parent Benefit Plan meet the requirements for deductibility under the Code, and
all contributions which are required and which have not been made have been
properly recorded on the books of Parent or a Parent ERISA Affiliate.
b. No Parent Benefit Plan is a "multi-employer plan" (as defined in section
4001(a)(3) of ERISA) or a "multiple employer plan" (within the meaning of
section 413(c) of the Code). No event has occurred with respect to Parent or a
Parent ERISA Affiliate in connection with which Parent could be subject to any
liability, lien or encumbrance with respect to any Parent Benefit Plan or any
employee benefit plan described in Section 3(3) of ERISA maintained, sponsored
or contributed to by a Parent ERISA Affiliate under ERISA or the Code.
c. Except as set forth in the Parent SEC Reports filed and publicly
available prior to the date of this Agreement or except as could not reasonably
be expected to result in a Parent Material Adverse Effect, no employees of
Parent or any of its Subsidiaries are covered by any severance plan or similar
arrangement.
Section 6.12 Environmental Liability
Except as set forth in the Parent SEC Reports filed and publicly available
prior to the date of this Agreement and except for matters that would not have
a Parent Material Adverse Effect:
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a. The businesses of Parent and its Subsidiaries have been and are operated
in material compliance with all Environmental Laws.
b. Neither Parent nor any of its Subsidiaries has caused or allowed the
generation, treatment, manufacture, processing, distribution, use, storage,
discharge, release, disposal, transport or handling of any Hazardous Substances
at any of its properties or facilities except in material compliance with all
Environmental Laws, and, to Parent's knowledge, no generation, manufacture,
processing, distribution, use, treatment, handling, storage, discharge,
release, disposal, transport or handling of any Hazardous Substances has
occurred at any property or facility owned, leased or operated by Parent or any
of its Subsidiaries except in material compliance with all Environmental Laws.
c. Neither Parent nor any of its Subsidiaries has received any written
notice from any Governmental Authority or third party or, to the knowledge of
Parent, any other communication alleging or concerning any material violation
by Parent or any of its Subsidiaries of, or responsibility or liability of
Parent or any of its Subsidiaries under, any Environmental Law. There are no
pending, or to the knowledge of Parent, threatened, claims, suits, actions,
proceedings or investigations with respect to the businesses or operations of
Parent or any of its Subsidiaries alleging or concerning any material violation
of or responsibility or liability under any Environmental Law that, if
adversely determined, could reasonably be expected to have a Parent Material
Adverse Effect, nor does Parent have any knowledge of any fact or condition
that could give rise to such a claim, suit, action, proceeding or
investigation.
d. Parent and its Subsidiaries are in possession of all material approvals,
permits, licenses, registrations and similar type authorizations from all
Governmental Authorities under all Environmental Laws with respect to the
operation of the businesses of Parent and its Subsidiaries; there are no
pending or, to the knowledge of Parent, threatened, actions, proceedings or
investigations seeking to modify, revoke or deny renewal of any of such
approvals, permits, licenses registrations and authorizations; and Parent does
not have knowledge of any fact or condition that is reasonably likely to give
rise to any action, proceeding or investigation to modify, revoke or deny
renewal of any of such approvals, permits, licenses, registrations and
authorizations.
e. There has been no discharge, release or disposal by Parent or its
Subsidiaries or, to Parent's knowledge, any predecessor in interest at any of
the properties owned or operated by Parent, its Subsidiaries, or a predecessor
in interest, or to the knowledge of Parent, at any disposal or treatment
facility which received Hazardous Substances generated by Parent, its
Subsidiaries, or any predecessor in interest which could reasonably be expected
to have a Parent Material Adverse Effect.
f. To Parent's knowledge, no pending claims have been asserted or threatened
to be asserted against Parent or its Subsidiaries for any personal injury
(including wrongful death) or property damage (real or personal) arising out of
exposure to Hazardous Substances used, handled, generated, transported or
disposed by Parent or its Subsidiaries at property owned or operated by Parent
or its Subsidiaries, except as could not reasonably be expected to have a
Parent Material Adverse Effect.
Section 6.13 Compliance with Applicable Laws
Parent and each of its Subsidiaries hold all material approvals, licenses,
permits, registrations and similar type authorizations necessary for the lawful
conduct of their respective businesses, as now conducted, and such businesses
are not being, and neither Parent nor any of its Subsidiaries has received any
notice from any Governmental Authority or person that any such business has
been or is being, conducted in violation of any law, ordinance or regulation,
including without limitation any law, ordinance or regulation relating to
occupational health and safety, except for possible violations which either
individually or in the aggregate have not resulted and would not result in a
Parent Material Adverse Effect; provided, however, notwithstanding the
foregoing, no representation or warranty in this Section 6.13 is made with
respect to Environmental Laws, which are covered exclusively by the provisions
set forth in Section 6.12.
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Section 6.14 Insurance
Parent and its Subsidiaries currently have in place all policies which are
required in connection with the operation of the businesses of Parent and its
Subsidiaries as currently conducted in accordance with applicable laws and all
agreements relating to Parent and its Subsidiaries. Parent has made available
to the Companies a true, complete and correct copy of each such policy or the
binder therefor. None of Parent, any of its Subsidiaries or any other party to
the policy is in breach or default thereunder (including with respect to the
payment of premiums or the giving of notices), and Parent does not know of any
occurrence or any event which (with notice or the lapse of time or both) would
constitute such a breach or default or permit termination, modification or
acceleration under the policy, except for such breaches or defaults which,
individually or in the aggregate, would not have a Parent Material Adverse
Effect.
Section 6.15 Labor Matters; Employees
a. Except as set forth in the Parent SEC Reports filed and publicly
available prior to the date of this Agreement and except for such matters that
alone or in conjunction with other similar or related matters would not have a
Parent Material Adverse Effect, (i) there is no labor strike, dispute,
slowdown, work stoppage or lockout actually pending or, to the knowledge of
Parent, threatened against or affecting Parent or any of its Subsidiaries and,
during the past five years, there has not been any such action, (ii) none of
Parent or any of its Subsidiaries is a party to or bound by any collective
bargaining or similar agreement with any labor organization, or work rules or
practices agreed to with any labor organization or employee association
applicable to employees of Parent or any of its Subsidiaries, (iii) none of the
employees of Parent or any of its Subsidiaries are represented by any labor
organization and none of Parent or any of its Subsidiaries have any knowledge
of any current union organizing activities among the employees of Parent or any
of its Subsidiaries nor does any question concerning representation exist
concerning such employees, (iv) Parent and its Subsidiaries have each at all
times been in material compliance with all applicable laws respecting
employment and employment practices, terms and conditions of employment, wages,
hours of work and occupational safety and health, and are not engaged in any
unfair labor practices as defined in the National Labor Relations Act or other
applicable law, ordinance or regulation, (v) there is no unfair labor practice
charge or complaint against any of Parent or any of its Subsidiaries pending
or, to the knowledge of Parent, threatened before the National Labor Relations
Board or any similar state or foreign agency, (vi) there is no grievance or
arbitration proceeding arising out of any collective bargaining agreement or
other grievance procedure relating to Parent or any of its Subsidiaries, (vii)
neither the Occupational Safety and Health Administration nor any corresponding
state agency has threatened to file any citation, and there are no pending
citations, relating to Parent or any of its Subsidiaries, and (viii) there is
no employee or governmental claim or investigation, including any charges to
the Equal Employment Opportunity Commission or state employment practice
agency, investigations regarding Fair Labor Standards Act compliance, audits by
the Office of Federal Contractor Compliance Programs, sexual harassment
complaints or demand letters or threatened claims.
b. Since the enactment of the WARN Act, none of Parent or any of its
Subsidiaries has effectuated (i) a "plant closing" (as defined in the WARN Act)
affecting any site of employment or one or more facilities or operating units
within any site of employment or facility of any of Parent or any of its
Subsidiaries, or (ii) a "mass layoff" (as defined in the WARN Act) affecting
any site of employment or facility of Parent or any of its Subsidiaries, nor
has Parent or any of its Subsidiaries been affected by any transaction or
engaged in layoffs or employment terminations sufficient in number to trigger
application of any similar state or local law, in each case that could
reasonably be expected to have a Parent Material Adverse Effect.
Section 6.16 Permits
Immediately prior to the Effective Time and except for Customary Post-
Closing Consents, Parent or its Subsidiaries will hold all of the Permits
required or necessary to construct, run, operate, use and/or maintain their
properties and conduct their operations as presently conducted, except for such
Permits, the lack of which, individually or in the aggregate, would not have a
Parent Material Adverse Effect; provided, however, that
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notwithstanding the foregoing, no representation or warranty in this Section
6.16 is made with respect to Permits issued pursuant to Environmental Laws,
which are covered exclusively by the provisions set forth in Section 6.12.
Section 6.17 Material Contracts
a. Parent has filed as exhibits to the Parent SEC Reports filed and publicly
available prior to the date of this Agreement a list of each contract, lease,
indenture, agreement, arrangement or understanding to which Parent or any of
its Subsidiaries is subject that is of a type that would be required to be
included as an exhibit to a Form S-1 Registration Statement pursuant to the
rules and regulations of the SEC if such a registration statement was filed by
Parent, exclusive of any contracts that would be required to be filed with the
SEC due to Parent's ownership of securities of Craig or Reading (the "Parent
Material Contracts").
b. Except as set forth in the Parent SEC Reports, (i) all Parent Material
Contracts are in full force and effect and are the valid and legally binding
obligations of the parties thereto and are enforceable in accordance with their
respective terms; (ii) the Parent is not in material breach or default with
respect to, and to the knowledge of the Parent, no other party to any Parent
Material Contract is in material breach or default with respect to, its
obligations thereunder, including with respect to payments or otherwise; and
(iii) no party to any Parent Material Contract has given notice of any action
to terminate, cancel, rescind or procure a judicial reformation thereof.
c. As of the date of this Agreement, except as set forth in the Parent SEC
Reports filed and publicly available prior to the date of this Agreement, with
respect to authorizations for expenditure executed on or after June 30, 2001,
there are no material outstanding calls for payments that are due or which
Parent or its Subsidiaries are committed to make that have not been made.
Section 6.18 Required Stockholder Vote or Consent
The only vote of the holders of any class or series of capital stock of
Parent that will be necessary to consummate the Mergers and the other
transactions contemplated by this Agreement is the approval of (a)(i) the
issuance of Parent Class A Stock under this Agreement, (ii) the amendment of
Parent's 1999 Stock Option Plan (the "Parent Stock Option Plan") to increase
the number of shares reserved for issuance under the plan, and (iii) the
issuance of shares of Parent Class A Stock and Parent Class B Stock in respect
of the Craig and Reading Stock Options to be assumed pursuant to Section 3.3,
by a majority of the votes cast by holders of Parent Class B Stock represented
in person or by proxy at the Parent Annual Meeting, and (b) the amendment to
the Parent's articles of incorporation to change the name of Parent by a
majority of the voting power of Parent's shares (collectively, the "Parent
Stockholders' Approval").
Section 6.19 Proxy Statement/Prospectus; Registration Statement
None of the information to be supplied by Parent or its Subsidiaries for
inclusion in (a) the Proxy Statement/Prospectus to be filed by the Companies
and Parent with the SEC, and any amendments or supplements thereto, or (b) the
Registration Statement to be filed by Parent with the SEC in connection with
the Mergers, and any amendments or supplements thereto, will, at the respective
times such documents are filed, and, in the case of the Proxy Statement/
Prospectus, at the time the Proxy Statement/Prospectus or any amendment or
supplement thereto is first mailed to stockholders of the Companies and Parent,
at the time such stockholders vote on approval of this Agreement and the
issuance, and reservation for issuance, of the shares of Parent Class A Stock
and Parent Class B Stock and at the Effective Time, and, in the case of the
Registration Statement, when it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be made therein or necessary in order to make the statements
made therein, in the light of the circumstances under which they were made, not
misleading.
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Section 6.20 Intellectual Property
Parent or its Subsidiaries own, or are licensed or otherwise have the right
to use, all Intellectual Property currently used in the conduct of the business
of Parent and its Subsidiaries, except where the failure to so own or otherwise
have the right to use such intellectual property would not, individually or in
the aggregate, have a Parent Material Adverse Effect. No person has notified
either Parent or any of its Subsidiaries that their use of the Intellectual
Property infringes on the rights of any person, subject to such claims and
infringements as do not, individually or in the aggregate, give rise to any
liability on the part of Parent and its Subsidiaries that could have a Parent
Material Adverse Effect, and, to Parent's knowledge, no person is infringing on
any right of Parent or any of its Subsidiaries with respect to any such
Intellectual Property. No claims are pending or, to Parent's knowledge,
threatened that Parent or any of its Subsidiaries is infringing or otherwise
adversely affecting the rights of any person with regard to any Intellectual
Property other than claims which, if adversely determined, would not be likely
to have a Parent Adverse Effect.
Section 6.21 Brokers
No broker, finder or investment banker is entitled to any brokerage,
finder's fee or other fee or commission payable by Parent or any of its
Subsidiaries in connection with the transactions contemplated by this Agreement
based upon arrangements made by and on behalf of Parent or any of its
Subsidiaries.
Section 6.22 Fairness Opinion
The Board of Directors of Parent has received the Joint Fairness Opinion to
the effect that, as of the date of such opinion, the Craig and Reading Stock
Exchange Ratios are fair to the public holders of Parent Class A Stock and
Parent Class B Stock from a financial point of view. A true and complete copy
of the Joint Fairness Opinion has been given to the Companies.
ARTICLE VII
CONDUCT OF BUSINESS PENDING THE MERGERS
Section 7.1 Conduct of Business by the Parent and the Companies Pending the
Mergers
From the date hereof until the Effective Time, unless Parent, Craig and
Reading shall otherwise agree in writing, or as otherwise contemplated by this
Agreement, Parent, Craig and Reading and their respective Subsidiaries shall
conduct their business in the ordinary course consistent with past practice and
shall use all reasonable efforts to preserve intact their business
organizations and relationships with third parties, subject to the terms of
this Agreement. Except as otherwise provided in this Agreement, and without
limiting the generality of the foregoing, from the date hereof until the
Effective Time, without the written consent of Parent, Craig and Reading, which
consent shall not be unreasonably withheld:
a. Neither Parent, Craig or Reading will adopt or propose any change to
their articles of incorporation or bylaws;
b. Except for the dividend payments in the aggregate amount of approximately
$114,000 payable quarterly with respect to the Reading Series A Stock, neither
Parent, Craig or Reading will (i) declare, set aside or pay any dividend or
other distribution with respect to any shares of capital stock of the
respective Parent, Craig and Reading, or (ii) repurchase, redeem or otherwise
acquire any outstanding shares of capital stock or other securities of, or
other ownership interests in, the respective company;
c. Neither Parent, Craig or Reading will, nor permit any of its Subsidiaries
to, merge or consolidate with any other person or acquire assets of any other
person except in the ordinary course of business or pursuant to transactions
among wholly-owned subsidiaries of the respective company;
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d. Neither Parent, Craig and Reading will, nor permit any of its
Subsidiaries to, sell, lease, license or otherwise surrender, relinquish or
dispose of any material assets or properties (other than among Craig and its
direct and indirect wholly owned Subsidiaries or among Reading and its direct
and indirect wholly owned Subsidiaries or among Parent and its direct and
indirect wholly owned Subsidiaries) except in the ordinary course of business;
e. Neither Parent, Craig or Reading will or permit any of its Subsidiaries
to (i) issue any securities (whether through the issuance or granting of
options, warrants, rights or otherwise and except pursuant to existing
obligations disclosed in the following, as applicable: Craig SEC Reports,
Reading SEC Reports or Parent SEC Reports filed and publicly available as of
the date of this Agreement), (ii) enter into any amendment of any term of any
outstanding security of such company or of any of its Subsidiaries, (iii) incur
any material indebtedness, except trade debt in the ordinary course of business
and debt pursuant to existing or previously disclosed contemplated credit
facilities or arrangements, (iv) fail to make any required contribution to any
Craig Benefit Plan, Reading Benefit Plan, or Parent Benefit Plan, as
applicable, (v) increase in any material respect compensation, bonus or other
benefits payable to, or modify or amend any employment agreements or severance
agreements with, any executive officer except, in the case of executives other
than the chief executive officer of such company, with the approval of the
Chairman of the Board of Parent, Craig or Reading, as the case may be, or (vi)
enter into any settlement or consent with respect to any pending litigation,
other than settlements in the ordinary course of business or on terms which are
not otherwise materially adverse to Parent, Craig and Reading, as the case may
be, and its Subsidiaries taken as a whole;
f. Parent, Craig and Reading will not change any method of accounting or
accounting practice by Parent, Craig and Reading or any of their Subsidiaries,
except for any such change required by GAAP;
g. Parent, Craig and Reading will not take any action or permit any of their
respective Subsidiaries to take any action that would give rise to a claim
under the WARN Act or any similar state law or regulation because of a "plant
closing" or "mass layoff" (each as defined in the WARN Act);
h. Neither Parent, Craig or Reading, nor any of its Subsidiaries will become
bound or obligated to participate in any operation, or consent to participate
in any operation that will individually cost in excess of $5.0 million, unless
the operation is a currently existing obligation of the respective company or
any of its Subsidiaries.
i. Neither Parent, Craig or Reading will, nor permit any of its Subsidiaries
to, (i) take, or agree or commit to take, any action that would make any
representation and warranty of the respective company hereunder inaccurate in
any material respect at, or as of any time prior to, the Effective Time or (ii)
omit, or agree or commit to omit, to take any action necessary to prevent any
such representation or warranty from being inaccurate in any material respect
at any such time;
j. Neither Parent, Craig or Reading nor any of its Subsidiaries shall (i)
adopt, amend (other than amendments that reduce the amounts payable by the
respective company or any Subsidiary, or amendments required by law to preserve
the qualified status of the Craig Benefit Plan, Reading Benefit Plan or Parent
Benefit Plan, as applicable) or assume an obligation to contribute to any
employee benefit plan or arrangement of any type or collective bargaining
agreement or enter into any employment, severance or similar contract with any
person (including, without limitation, contracts with management of the
respective company or any Subsidiary that might require that payments be made
upon the consummation of the transactions contemplated hereby) or, except as
provided in Section 7.1(e)(v), amend any such existing contracts to increase
any amounts payable thereunder or benefits provided thereunder, (ii) engage in
any transaction (either acting alone or in conjunction with any Craig Benefit
Plan, Reading Benefit Plan, or Parent Benefit Plan, as applicable, or trust
created thereunder) in connection with which the respective company or any
Subsidiary could be subjected (directly or indirectly) to either a civil
penalty assessed pursuant to subsections (c), (i) or (l) of Section 502 of
ERISA or a tax imposed pursuant to Chapter 43 of Subtitle D of the Code, (iii)
terminate any Craig Benefit Plan, Reading Benefit Plan, or Parent Benefit Plan,
as applicable, in a manner, or take any other action with respect to any Craig
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Benefit Plan, Reading Benefit Plan, or Parent Benefit Plan, as applicable, that
could result in the liability of the respective company or any Subsidiary to
any person, (iv) take any action that could adversely affect the qualification
of any Craig Benefit Plan, Reading Benefit Plan, or Parent Benefit Plan, as
applicable, or its compliance with the applicable requirements of ERISA, (v)
fail to make full payment when due of all amounts which, under the provisions
of any Craig Benefit Plan, Reading Benefit Plan, or Parent Benefit Plan, as
applicable, any agreement relating thereto or applicable law, the respective
company or any Subsidiary are required to pay as contributions thereto or (vi)
fail to file, on a timely basis, all reports and forms required by federal
regulations with respect to any Craig Benefit Plan, Reading Benefit Plan, or
Parent Benefit Plan, as applicable;
k. Parent, Craig and Reading will not make any election under any of their
stock option plans to pay cash in exchange for terminating awards under such
plans; and
l. Neither Parent, Craig or Reading will, nor permit any of its Subsidiaries
to, agree or commit to do any of the foregoing.
ARTICLE VIII
ADDITIONAL AGREEMENTS
Section 8.1 Access and Information
The parties shall each afford to the other and to the other's financial
advisors, legal counsel, accountants, consultants, financing sources, and other
authorized representatives access during normal business hours throughout the
period prior to the Effective Time to all of its books, records, properties,
contracts, leases, plants and personnel and, during such period, each shall
furnish promptly to the other (a) a copy of each report, schedule and other
document filed or received by it pursuant to the requirements of federal or
state securities laws, and (b) all other information as such other party
reasonably may request. Each party shall hold in confidence all nonpublic
information until such time as such information is otherwise publicly available
and, if this Agreement is terminated, each party will deliver to the other all
documents, work papers and other materials (including copies) obtained by such
party or on its behalf from the other party as a result of this Agreement or in
connection herewith, whether so obtained before or after the execution hereof.
Section 8.2 Directors' and Officers' Indemnification
Upon the effectiveness of the Mergers, Parent shall assume the obligations
of Craig and Reading, whether arising prior to or after such effectiveness,
under any then existing indemnification agreements between such directors and
executive officers and Craig and/or Reading, as the case may be, so long as
such indemnification agreements are materially in the form previously or
hereafter approved by Parent for the purpose of providing indemnification
benefits to Parent's officers and directors.
Section 8.3 Further Assurances
Each party hereto agrees to use all reasonable efforts to obtain all
consents and approvals and to do all other things necessary for the
consummation of the transactions contemplated by this Agreement. The parties
agree to take such further action to deliver or cause to be delivered to each
other at the Closing and at such other times thereafter as shall be reasonably
agreed by such additional agreements or instruments as any of them may
reasonably request for the purpose of carrying out this Agreement and
agreements and transactions contemplated hereby and thereby. The parties shall
afford each other access to all information, documents, records and personnel
who may be necessary for any party to comply with laws or regulations
(including without limitation the filing and payment of taxes and handling tax
audits), to fulfill its obligations with respect to indemnification hereunder
or to defend itself against suits or claims of others. Each of Parent and the
Companies shall duly preserve all files, records or any similar items of Parent
or the Companies received or obtained as a result of the Mergers with the same
care and for the same period of time as each would preserve its own similar
assets.
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Section 8.4 Expenses
a. All Expenses (as defined below) incurred by the parties hereto shall be
borne solely and entirely by the party that has incurred such Expenses;
provided, however, that the Expenses (including fees and expenses of legal
counsel, accountants, investment bankers, experts and consultants) related to
preparing, printing, filing and mailing the Registration Statement, the Proxy
Statement/Prospectus and all SEC and other regulatory filing fees incurred in
connection with the Registration Statement, Proxy Statement/Prospectus and
governmental regulatory matters, shall be allocated as separately agreed
between the Parties.
b. "Expenses" as used in this Agreement shall include all reasonable out-
of-pocket expenses (including, without limitation, all reasonable fees and
expenses of counsel, accountants, investment bankers, experts and consultants
to a party hereto and its affiliates) incurred by a party or on its behalf in
connection with or related to the authorization, preparation, negotiation,
execution and performance of this Agreement, the preparation, printing, filing
and mailing of the Registration Statement, the Proxy Statement/Prospectus, the
solicitation of stockholder approvals, requisite governmental approvals and all
other matters related to the consummation of the transactions contemplated
hereby.
Section 8.5 Cooperation
Subject to compliance with applicable law, from the date hereof until the
Effective Time, each of the parties hereto shall confer on a regular and
frequent basis with one or more representatives of the other parties to report
operational matters of materiality and the general status of ongoing operations
and shall promptly provide the other parties or their counsel with copies of
all filings made by such party with any Governmental Authority in connection
with this Agreement and the transactions contemplated hereby.
Section 8.6 Publicity
Neither the Companies, Parent nor any of their respective affiliates shall
issue or cause the publication of any press release or other announcement with
respect to the Mergers, this Agreement or the other transactions contemplated
hereby without the prior consultation of the other parties, except as may be
required by law or by any listing agreement with a national securities exchange
and will use reasonable efforts to provide copies of such release or other
announcement to the other parties hereto, and give due consideration to such
comments as such other parties may have, prior to such release.
Section 8.7 Additional Actions
Subject to the terms and conditions of this Agreement, each of the parties
hereto agrees to use all reasonable efforts to take, or cause to be taken, all
action and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations, or to remove any injunctions
or other impediments or delays, to consummate and make effective the Mergers
and the other transactions contemplated by this Agreement, subject, however, to
the appropriate vote of stockholders of Craig, Reading and Parent required so
to vote.
Section 8.8 Filings
Each party hereto shall make all filings required to be made by such party
in connection herewith or desirable to achieve the purposes contemplated
hereby, and shall cooperate as needed with respect to any such filing by any
other party hereto.
Section 8.9 Consents
Each of Parent, Craig and Reading shall use all reasonable efforts to obtain
all consents necessary or advisable in connection with its obligations
hereunder.
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Section 8.10 Employee Matters; Benefit Plans
Parent, Craig and Reading will evaluate their personnel needs and consider
continuing the employment of certain employees of Parent, Craig and Reading and
their Subsidiaries on a case-by-case basis. After the Effective Time, Parent
will initially provide to any employees of Parent, Craig and Reading and their
Subsidiaries who are to be employed by Parent, Craig or Reading immediately
after the Effective Time (the "Retained Employees") substantially the same base
salary or wages provided to such employees prior to the Effective Time, subject
to such changes in base salary or wages as shall be determined by Parent after
the Effective Time. Parent shall take all reasonable actions necessary or
appropriate to permit the Retained Employees to continue to participate from
and after the Effective Time in the employee benefit plans or arrangements in
which such Retained Employees were participating immediately prior to the
Effective Time. Notwithstanding the foregoing, Parent may permit any such
employee benefit plan or arrangement to be terminated or discontinued on or
after the Effective Time, provided that Parent shall (a) take all reasonable
actions necessary or appropriate to permit the Retained Employees participating
in such employee benefit plan or arrangement to immediately thereafter
participate in employee benefit plans or arrangements comparable to those
maintained with respect to the remainder of the Retained Employees (the
"Replacement Plans"), (b) with respect to a Replacement Plan that is a group
health plan (i) credit such Retained Employees, for the year during which
participation in the Replacement Plan begins, with any deductibles and
co-payments already incurred during such year under the terminated or
discontinued group health plan and (ii) waive any preexisting condition
limitations applicable to the Retained Employees (and their eligible
dependents) under the Replacement Plan to the extent that a Retained Employee's
(or dependent's) condition would not have operated as a preexisting condition
under the terminated or discontinued group health plan, and (c)(i) cause each
Replacement Plan that is an employee pension benefit plan (as such term is
defined in Section 3(2) of ERISA) intended to be qualified under Section 401 of
the Code to be amended to provide that the Retained Employees shall receive
credit for participation and vesting purposes under such plan for their period
of employment with the respective Company, its Subsidiaries and their
predecessors to the extent such predecessor employment was recognized by the
respective Company and its Subsidiaries and (ii) credit the Retained Employees
under each other Replacement Plan that is not described in the preceding clause
for their period of employment with the respective Company, its Subsidiaries
and their predecessors to the extent such predecessor employment was recognized
by the respective Company or its Subsidiaries. At the Effective Time, Parent
shall assume the obligations of the respective Companies and their Subsidiaries
under the Craig Benefit Plan, the Reading Benefit Plan and any employment
contracts or severance agreements. The terms of each such Craig Benefit Plan
and Reading Benefit Plan shall continue to apply in accordance with their
terms.
b. Prior to the Closing, the respective board of directors of Parent, Craig
and Reading, as applicable, shall, by resolution duly adopted by such board of
directors or a duly authorized committee thereof, approve and adopt, for
purposes of exemption from "short-swing" profit liability under Section 16(b)
of the Exchange Act, (i) the disposition and the conversion at the Effective
Time of the shares of Craig and Reading Common Stock held by officers,
directors and affiliates of the respective Companies into shares of Parent A
Common Stock as a result of the conversion of shares in the Merger, (ii) the
assumption by Parent of the Craig and Reading Stock Options of the officers,
directors and affiliates of the respective Companies, and (iii) the deemed
grant of options to purchase Parent A Common Stock or Parent B Common Stock
under the Craig and Reading Stock Options (as converted pursuant to Section
3.3) for purposes of Section 16(b) of the Exchange Act. Such resolution shall
set forth the name of applicable "insiders" for purposes of Section 16 of the
Exchange Act and, for each "insider," the number of shares of Craig and Reading
Common Stock to be converted into shares of Parent A Common Stock at the
Effective Time, the number and material terms of the Craig and Reading Stock
Options to be assumed by Parent at the Effective Time, and that the approval is
being granted to exempt the transaction under Rule 16b-3 under the Exchange
Act.
Section 8.11 Stockholders Meetings
a. Craig and Reading each shall, as promptly as reasonably practicable after
the date hereof, (i) take all steps reasonably necessary to call, give notice
of, convene and hold a special meeting of its stockholders
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(individually, the "Craig Special Meeting" and the "Reading Special Meeting")
for the purpose of securing the Craig Stockholders' Approval or Reading
Stockholders' Approval as applicable, (ii) distribute to its stockholders the
Proxy Statement/Prospectus in accordance with applicable federal and state law
and with its respective articles of incorporation and bylaws, which Proxy
Statement/Prospectus shall contain the recommendation of the board of directors
of the respective Company that its stockholders approve this Agreement and the
transactions contemplated hereby, (iii) use all reasonable efforts to solicit
from its stockholders proxies in favor of the approval of this Agreement and
the transactions contemplated hereby and to secure the Craig Stockholders'
Approval or Reading Stockholders' Approval as applicable, and (iv) cooperate
and consult with Parent with respect to each of the foregoing matters.
b. Parent shall, as promptly as reasonably practicable after the date
hereof, (i) take all steps reasonably necessary to call, give notice of,
convene and hold the annual meeting of its stockholders (the "Parent Annual
Meeting") for the purpose of, among other things, securing the Parent
Stockholders' Approval, (ii) distribute to its stockholders the Proxy
Statement/Prospectus in accordance with applicable federal and state law and
its articles of incorporation and bylaws, which Proxy Statement/Prospectus
shall contain the recommendation of the Parent board of directors that its
stockholders approve this Agreement and (iii) use all reasonable efforts to
solicit from its stockholders proxies in favor of approval of this Agreement
and to secure the Parent Stockholders' Approval, and (iv) cooperate and consult
with the Companies with respect to each of the foregoing matters.
c. The Parent Annual Meeting, Craig Special Meeting and Reading Special
Meeting shall be held on the same day unless otherwise agreed by Parent and the
Companies.
Section 8.12 Preparation of the Proxy Statement/Prospectus and Registration
Statement
a. Parent, Craig and Reading shall promptly prepare and file with the SEC a
preliminary version of the Proxy Statement/Prospectus and will use all
reasonable efforts to respond to the comments of the SEC in connection
therewith and to furnish all information required to prepare the definitive
Proxy Statement/Prospectus. At any time from (and including) the initial filing
with the SEC of the Proxy Statement/Prospectus, Parent shall file with the SEC
the Registration Statement containing the Proxy Statement/Prospectus so long as
Parent shall have provided to the Companies a copy of the Registration
Statement containing the Proxy Statement/Prospectus at least five days prior to
any filing thereof and any supplement or amendment at least two days prior to
any filing thereof. Subject to the foregoing sentence, the date that the
Registration Statement is filed with the SEC shall be determined jointly by
Parent, Craig and Reading. Each of Parent, Craig and Reading shall use all
reasonable efforts to have the Registration Statement declared effective under
the Securities Act as promptly as practicable after such filing. Parent shall
also take any action (other than qualifying to do business in any jurisdiction
in which it is not now so qualified or filing a general consent to service of
process in any jurisdiction) required to be taken under any applicable state
securities laws in connection with the issuance of Parent Class A Stock in the
Mergers and Craig and Reading shall furnish all information concerning Craig
and Reading and the holders of shares of Craig's and Reading's capital stock as
may be reasonably requested in connection with any such action. Promptly after
the effectiveness of the Registration Statement, each of Parent, Craig and
Reading shall cause the Proxy Statement/Prospectus to be mailed to its
respective stockholders, and if necessary, after the definitive Proxy
Statement/Prospectus shall have been mailed, promptly circulate amended,
supplemented or supplemental proxy materials and, if required in connection
therewith, re-solicit proxies. Parent shall advise Craig and Reading and Craig
and Reading shall advise Parent, as applicable, promptly after they receive
notice thereof, of the time when the Registration Statement shall become
effective or any supplement or amendment has been filed, the issuance of any
stop order, the suspension of the qualification of the Parent Class A Stock for
offering or sale in any jurisdiction, or any request by the SEC for amendment
of the Proxy Statement/Prospectus or the Registration Statement or comments
thereon and responses thereto or requests by the SEC for additional
information.
b. Following receipt by Deloitte & Touche LLP, Parent's independent
auditors, of an appropriate request from either Company pursuant to SAS No. 72,
Parent shall use all reasonable efforts to cause to be delivered to each of the
respective Companies a letter of Deloitte & Touche LLP, dated a date within two
business days before the effective date of the Registration Statement, and
addressed to the Companies, in form and substance
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reasonably satisfactory to the Company making the request and customary in
scope and substance for "cold comfort" letters delivered by independent public
accountants in connection with registration statements and proxy statements
similar to the Proxy Statement/Prospectus.
c. Following receipt by Deloitte & Touche LLP, the independent auditors of
Craig and Reading, of an appropriate request from Parent pursuant to SAS No.
72, the respective Company shall use all reasonable efforts to cause to be
delivered to Parent a letter of Deloitte & Touche LLP, as applicable, dated a
date within two business days before the effective date of the Registration
Statement, and addressed to Parent, in form and substance satisfactory to
Parent and customary in scope and substance for "cold comfort" letters
delivered by independent public accountants in connection with registration
statements and proxy statements similar to the Proxy Statement/Prospectus.
Section 8.13 Stock Exchange Listing
Parent shall use all reasonable efforts to cause the Parent Class A Stock to
be issued in the Mergers and the Parent Class A Stock and/or Class B Stock
issuable under the Craig and Reading Stock Options to be assumed pursuant to
the Mergers, to be approved for listing on the American Stock Exchange (the
"AMEX") prior to the Effective Time, in each case, subject to official notice
of issuance.
Section 8.14 Notice of Certain Events
Each party to this Agreement shall promptly as reasonably practicable notify
the other parties hereto of:
a. any notice or other communication from any Person alleging that the
consent of such Person (or other Person) is or may be required in connection
with the transactions contemplated by this Agreement;
b. any notice or other communication from any Governmental Authority in
connection with the transactions contemplated by this Agreement;
c. any actions, suits, claims, investigations or proceedings commenced or,
to the best of its knowledge, threatened against, relating to or involving or
otherwise affecting it or any of its Subsidiaries which, if pending on the date
of this Agreement, would have been required to have been disclosed pursuant to
Section 4.10 or 4.12, 5.10 or 5.12, or 6.10 or 6.12 or which relate to the
consummation of the transactions contemplated by this Agreement;
d. any notice of, or other communication relating to, a default or event
that, with notice or lapse of time or both, would become a default, received by
it or any of its Subsidiaries subsequent to the date of this Agreement, under
any material agreement; and
e. any Craig Material Adverse Effect, Reading Material Adverse Effect or
Parent Material Adverse Effect or the occurrence of any event which is
reasonably likely to result in a Craig Material Adverse Effect, Reading
Material Adverse Effect or a Parent Material Adverse Effect, as the case may
be.
Section 8.15 Affiliate Agreements
Each Company shall identify in a letter to Parent all persons who are, on
the date hereof, "affiliates" of the Company, as such term is used in Rule 145
under the Securities Act. Each Company shall use all reasonable efforts to
cause its respective affiliates to deliver to Parent not later than ten days
prior to the date of the Craig Special Meeting or Reading Special Meeting as
applicable, a written agreement substantially in the form attached hereto as
Exhibit 8.15 (an "Affiliate Agreement"), and shall use all reasonable efforts
to cause persons who become "affiliates" after such date but prior to the
Closing Date to execute and deliver an Affiliate Agreement at least five days
prior to the Closing Date.
Section 8.16 Stockholder Litigation
Each of Parent and the Companies shall give the other the reasonable
opportunity to participate in the defense of any litigation against Parent or
the Companies, as applicable, and its directors relating to the transactions
contemplated by this Agreement.
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Section 8.17 Voting Covenant
Until the termination of this Agreement in accordance with the terms hereof,
Parent, Craig and Reading, and James J. Cotter, each hereby agrees that, at the
Parent Annual Meeting, the Craig Special Meeting and the Reading Special
Meeting, as the case may be, or any other meeting of the stockholders of
Parent, Craig or Reading, however called, and in any action by written consent
of the stockholders of Parent, Craig or Reading, Parent, Craig and Reading, and
James J. Cotter, each will vote all of its or his respective shares of voting
stock of Parent, Craig and Reading beneficially owned or controlled by each of
them (a) in favor of adoption of the Merger Agreement and approval of the
Merger, (b) in favor of issuance of the Parent Class A Stock in respect of the
Mergers, in favor of the amendments to Parent's articles of incorporation to
change the name of Parent, in favor of the amendment to the Parent Stock Option
Plan to increase the number of shares reserved for issuance, in favor of the
authorization of the number of shares of Parent Class A Stock and Parent Class
B Stock reserved for issuance under the Craig and Reading Stock Options to be
assumed pursuant to Section 3.3 and in favor of the form of indemnification
agreement by the officers and directors of Parent, and (c) in favor of the
other transactions contemplated by the Merger Agreement, and in favor of any
other matter necessary to the consummation of the transactions contemplated by
the Merger Agreement and considered and voted upon by the stockholders of
Parent, Craig and/or Reading (or any class thereof). In addition, Parent, Craig
and Reading, and James J. Cotter, each agree that it or he will, upon request
by Parent, furnish written confirmation, in form and substance reasonably
acceptable to Parent, of such stockholder's vote in favor of the Parent Class A
Stock issuance, the Merger Agreement, the Merger and/or other related matters.
Section 8.18 Repurchase Obligation
Any right of Parent to require that Reading repurchase certain shares of
Reading Series A Stock shall be tolled by mutual agreement of Parent and
Reading and shall not be exercised until the later to occur of 90 days after
(i) October 15, 2001 or (ii) the termination of this Agreement.
ARTICLE IX
CONDITIONS TO CONSUMMATION OF THE MERGERS
Section 9.1 Conditions to the Obligation of Each Party
The respective obligations of each party to effect the Mergers shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
a. The Craig Stockholders' Approval, Reading Stockholders' Approval and the
Parent Stockholders' Approval shall have been obtained.
b. No action, suit or proceeding instituted by any Governmental Authority
shall be pending and no statute, rule or regulation and no injunction, order,
decree or judgment of any court or Governmental Authority of competent
jurisdiction shall be in effect, in each case which would prohibit, restrain,
enjoin or restrict the consummation of the Mergers.
c. The Registration Statement shall have become effective in accordance with
the provisions of the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall be in effect and no
proceeding for such purpose shall be pending before or threatened by the SEC.
d. Each Company and Parent shall have obtained such permits, authorizations,
consents, or approvals required to consummate the transactions contemplated
hereby.
e. The shares of Parent Class A Stock to be issued in the Mergers shall have
been approved for listing on the AMEX, subject to official notice of issuance.
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f. Marshall & Stevens, Incorporated shall not have withdrawn or modified in
any material way its Joint Fairness Opinion.
Section 9.2 Conditions to the Obligations of Parent
The obligation of Parent to effect the Mergers is subject to the
satisfaction at or prior to the Effective Time of the following conditions:
a. Each Company shall have performed in all material respects its
obligations under this Agreement required to be performed by it at or prior to
the Effective Time and the representations and warranties of the respective
Company contained in this Agreement, to the extent qualified with respect to
materiality shall be true and correct in all respects, and to the extent not so
qualified shall be true and correct in all material respects, in each case as
of the date of this Agreement and at and as of the Effective Time as if made at
and as of such time, except as expressly contemplated by this Agreement and
except that the accuracy of representations and warranties that by their terms
speak as of the date of this Agreement or some other date will be determined as
of such date, and Parent shall have received a certificate of the Chief
Executive Officer and Chief Financial Officer of each Company as to the
satisfaction of this condition.
b. All proceedings to be taken by each Company in connection with the
transactions contemplated by this Agreement and all documents, instruments and
certificates to be delivered by each Company in connection with the
transactions contemplated by this Agreement shall be reasonably satisfactory in
form and substance to Parent and its counsel.
c. From the date of this Agreement through the Effective Time, there shall
not have occurred any change in the financial condition, business, operations
or prospects of each Company and its Subsidiaries, taken as a whole, that would
constitute a Craig Material Adverse Effect or Reading Material Adverse Effect
as applicable, other than any such change that affects both Parent and the
respective Company in a substantially similar manner.
Section 9.3 Conditions to the Obligations of Craig
The obligation of Craig to effect the Craig Merger is subject to the
satisfaction at or prior to the Effective Time of the following conditions:
a. Parent and Reading each shall have performed in all material respects its
obligations under this Agreement required to be performed by it at or prior to
the Effective Time and the representations and warranties of Parent and
Reading, as the case may be, contained in this Agreement, to the extent
qualified with respect to materiality shall be true and correct in all
respects, and to the extent not so qualified shall be true and correct in all
material respects, in each case as of the date of this Agreement and at and as
of the Effective Time as if made at and as of such time, except as expressly
contemplated by this Agreement and except that the accuracy of representations
and warranties that by their terms speak as of the date of this Agreement or
some other date will be determined as of such date, and Craig shall have
received a certificate of the Chief Executive Officer and Chief Financial
Officer of Parent and Reading, as the case may be, as to the satisfaction of
this condition.
b. All proceedings to be taken by Parent and Reading, as the case may be, in
connection with the transactions contemplated by this Agreement and all
documents, instruments and certificates to be delivered by Parent and Reading,
as the case may be, in connection with the transactions contemplated by this
Agreement shall be reasonably satisfactory in form and substance to Craig and
its counsel.
c. From the date of this Agreement through the Effective Time, there shall
not have occurred any change in the financial condition, business, operations
or prospects of Parent or Reading or their respective Subsidiaries, taken as a
whole, that would constitute a Parent Material Adverse Effect or a Reading
Material Adverse Effect, other than any such change that affects each of
Parent, Reading and Craig in a substantially similar manner.
Section 9.4 Conditions to the Obligations of Reading
The obligation of Reading to effect the Reading Merger is subject to the
satisfaction at or prior to the Effective Time of the following conditions:
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a. Parent and Craig each shall have performed in all material respects its
obligations under this Agreement required to be performed by it at or prior to
the Effective Time and the representations and warranties of Parent and Craig,
as the case may be, contained in this Agreement, to the extent qualified with
respect to materiality shall be true and correct in all respects, and to the
extent not so qualified shall be true and correct in all material respects, in
each case as of the date of this Agreement and at and as of the Effective Time
as if made at and as of such time, except as expressly contemplated by this
Agreement and except that the accuracy of representations and warranties that
by their terms speak as of the date of this Agreement or some other date will
be determined as of such date, and Reading shall have received a certificate of
the Chief Executive Officer and Chief Financial Officer of Parent and Craig, as
the case may be, as to the satisfaction of this condition.
b. All proceedings to be taken by Parent and Craig, as the case may be, in
connection with the transactions contemplated by this Agreement and all
documents, instruments and certificates to be delivered by Parent and Craig, as
the case may be, in connection with the transactions contemplated by this
Agreement shall be reasonably satisfactory in form and substance to Reading and
its counsel.
c. From the date of this Agreement through the Effective Time, there shall
not have occurred any change in the financial condition, business, operations
or prospects of Parent or Craig or their respective Subsidiaries, taken as a
whole, that would constitute a Parent Material Adverse Effect or a Craig
Material Adverse Effect, other than any such change that affects each of
Parent, Craig and Reading in a substantially similar manner.
ARTICLE X
SURVIVAL
Section 10.1 Survival of Representations and Warranties
The representations and warranties of the parties contained in this
Agreement shall not survive the Effective Time.
Section 10.2 Survival of Covenants and Agreements
The covenants and agreements of the parties to be performed after the
Effective Time contained in this Agreement shall survive the Effective Time.
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER
Section 11.1 Termination
This Agreement may be terminated at any time prior to the Effective Time,
whether before or after approval by the stockholders of Craig, Reading or
Parent:
a. by the mutual written consent of Parent, Craig and Reading;
b. by Parent, Craig or Reading if the Effective Time shall not have occurred
on or before January 30, 2002 (the "Termination Date"); provided that the party
seeking to terminate this Agreement pursuant to this Section 11.1(b) shall not
have breached in any material respect its obligations under this Agreement in
any manner that shall have proximately contributed to the failure to consummate
the Mergers on or before the Termination Date;
c. by Craig, Reading or Parent if there has been a material breach by one of
the other parties of any representation, warranty, covenant or agreement set
forth in this Agreement which breach (if susceptible to cure) has not been
cured in all material respects within 20 business days following receipt by
each party of notice of such breach;
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d. by Craig, Reading or Parent, if there shall be any applicable law, rule
or regulation that makes consummation of the Mergers illegal or if any
judgment, injunction, order or decree of a court or other Governmental
Authority of competent jurisdiction shall restrain or prohibit the consummation
of the Mergers, and such judgment, injunction, order or decree shall become
final and nonappealable; provided, that the party seeking to terminate this
Agreement pursuant to this Section 11.1(d) shall have used its best efforts to
remove or lift such restraint or prohibition; or
e. by Craig, Reading or Parent, if the requisite stockholder approvals
referred to in Section 8.11 have not been obtained upon a vote at a duly held
meeting of stockholders or at any adjournment or postponement thereof.
Section 11.2 Effect of Termination
In the event of termination of the Agreement and the abandonment of any one
or more of the Mergers pursuant to this Article XI, all obligations of the
parties shall terminate, except the obligations of the parties pursuant to this
Section 11.2 and except for the provisions of Sections 8.1, 8.4, 8.6 and 12.8,
provided that nothing herein shall relieve any party from liability for any
breaches hereof.
ARTICLE XII
MISCELLANEOUS
Section 12.1 Notices
All notices or communications hereunder shall be in writing (including
facsimile or similar writing) addressed as follows:
To Citadel, Craig Merger Sub S. Craig Tompkins
or Reading Merger Sub: Vice Chairman of the Board of Directors
Citadel Holding Corporation
550 S. Hope Street, Suite 1825
Los Angeles, California 90071
Facsimile No: (213) 239-0548
with a copy to: Kummer Kaempfer Bonner & Renshaw
Seventh Floor
3800 Howard Hughes Parkway
Las Vegas, Nevada 89109
Attention: Michael J. Bonner
Facsimile No: (702) 796-7181
and William Soady
Citadel Conflicts Committee Chairman
c/o Citadel Holding Corporation
550 S. Hope Street, Suite 1825
Los Angeles, California 90071
Facsimile No: (213) 239-0548
To Craig: S. Craig Tompkins
President
Craig Corporation
550 S. Hope Street, Suite 1825
Los Angeles, California 90071
Facsimile No: (213) 239-0548
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with a copy to: Troy & Gould
16th Floor
1801 Century Park East
Los Angeles, California 90067
Attention: Dale Short
Facsimile No: (310) 201-4746
and William Gould
Craig Conflicts Committee Chairman
c/o Troy & Gould
16th Floor
1801 Century Park East
Los Angeles, California 90067
Facsimile No: (310) 201-4746
To Reading: S. Craig Tompkins
Vice Chairman of the Board of
Directors Reading Entertainment, Inc.
550 S. Hope Street, Suite 1825
Los Angeles, California 90071
Facsimile No: (213) 239-0548
with a copy to: Jones Vargas
3773 Howard Hughes Parkway
Las Vegas, Nevada 89109
Attention: Craig Norville
Facsimile No: (702) 734-2722
and Kenneth McCormick
Reading Conflicts Committee Chairman
c/o Reading Entertainment, Inc.
550 S. Hope Street, Suite 1825
Los Angeles, California 90071
Facsimile No: (213) 239-0548
Any such notice or communication shall be deemed given (i) when made, if made
by hand delivery, and upon confirmation of receipt, if made by facsimile, (ii)
one business day after being deposited with a next-day courier, postage
prepaid, or (iii) three business days after being sent certified or registered
mail, return receipt requested, postage prepaid, in each case addressed as
above (or to such other address as such party may designate in writing from
time to time).
Section 12.2 Separability
If any provision of this Agreement shall be declared to be invalid or
unenforceable, in whole or in part, such invalidity or unenforceability shall
not affect the remaining provisions hereof which shall remain in full force and
effect.
Section 12.3 Assignment
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, legal representatives, successors, and
assigns; provided, however, that neither this Agreement nor any rights
hereunder shall be assignable or otherwise subject to hypothecation and any
assignment in violation hereof shall be null and void.
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Section 12.4 Interpretation
The headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
Section 12.5 Counterparts
This Agreement may be executed in one or more counterparts, all of which
shall be considered one and the same Agreement, and shall become effective when
one or more such counterparts have been signed by each of the parties and
delivered to each party.
Section 12.6 Entire Agreement
This Agreement and the Confidentiality Agreement represent the entire
Agreement of the parties with respect to the subject matter hereof and shall
supersede any and all previous contracts, arrangements or understandings
between the parties hereto with respect to the subject matter hereof.
Section 12.7 Governing Law
This Agreement shall be construed, interpreted, and governed in accordance
with the laws of Nevada, without reference to rules relating to conflicts of
law.
Section 12.8 Attorneys' Fees
If any action at law or equity, including an action for declaratory relief,
is brought to enforce or interpret any provision of this Agreement, the
prevailing party shall be entitled to recover reasonable attorneys' fees and
expenses from the other party, which fees and expenses shall be in addition to
any other relief which may be awarded.
Section 12.9 No Third Party Beneficiaries
Except as provided in Section 8.2 or Section 8.10, no person or entity other
than the parties hereto is an intended beneficiary of this Agreement or any
portion hereof.
Section 12.10 Amendments and Supplements
At any time before or after approval of the matters presented in connection
with the Mergers by the respective stockholders of Parent and the Companies and
prior to the Effective Time, this Agreement may be amended or supplemented in
writing by Parent and the Companies with respect to any of the terms contained
in this Agreement, except as otherwise provided by law.
Section 12.11 Extensions, Waivers, Etc.
At any time prior to the Effective Time, either party may:
a. extend the time for the performance of any of the obligations or acts of
the other party;
b. waive any inaccuracies in the representations and warranties of the other
party contained herein or in any document delivered pursuant hereto; or
c. waive compliance with any of the agreements or conditions of the other
party contained herein.
Notwithstanding the foregoing, no failure or delay by Parent or the
Companies in exercising any right hereunder shall operate as a waiver thereof
nor shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right hereunder. Any agreement on
the part of a party hereto to any such extension or waiver shall be valid only
if set forth in an instrument in writing signed on behalf of such party.
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In Witness Whereof, the parties hereto have duly executed this Agreement as
of the day and year first above written.
CITADEL HOLDING CORPORATION
/S/ ANDRZEJ MATYCZYNSKI
By:__________________________________
Name: Andrzej Matyczynski
Title: Chief Financial
Officer
CRAIG MERGER SUB, INC.
/S/ ANDRZEJ MATYCZYNSKI
By:__________________________________
Name: Andrzej Matyczynski
Title: Chief Financial
Officer
READING MERGER SUB, INC.
/S/ ANDRZEJ MATYCZYNSKI
By:__________________________________
Name: Andrzej Matyczynski
Title: Chief Financial Officer
CRAIG CORPORATION
/S/ S. CRAIG TOMPKINS
By:__________________________________
Name: S. Craig Tompkins
Title: President
READING ENTERTAINMENT, INC.
/S/ JAMES J. COTTER
By:__________________________________
Name: James J. Cotter
Title: Chairman
For purposes only of Section 8.17:
/S/ JAMES J. COTTER
_____________________________________
James J. Cotter
A-46
Exhibit 8.15
Form of Affiliate Agreement
Citadel Holding Corporation
550 S. Hope Street, Suite 1825
Los Angeles, California 90071
Gentlemen:
Reference is made to the Agreement and Plan of Merger (the "Merger
Agreement") dated as of , 2001, among Citadel Holding Corporation, a Nevada
corporation ("Parent"), Craig Merger Sub, Inc., a Nevada corporation ("Craig
Merger Sub"), Reading Merger Sub, a Nevada corporation ("Reading Merger Sub"),
Craig Corporation, a Nevada corporation ("Craig") and Reading Entertainment,
Inc., a Nevada corporation ("Reading"), pursuant to which Craig Merger Sub will
be merged with and into Craig, and Reading Merger Sub will be merged with and
into Reading. Pursuant to the terms and conditions of the Merger Agreement,
upon consummation of the transactions contemplated thereby, each share of
(a)(i) common stock, par value $0.25 per share, of Craig and/or (ii) Class A
common preference stock, par value $0.01 per share, of Craig owned by the
undersigned as of the Effective Time (as defined in the Merger Agreement) will
be converted into and exchangeable for 1.17 shares of Class A non-voting common
stock, par value $0.01 per share, of Parent ("Parent A Common Stock"); and/or
(b) common stock, par value $0.001 per share, of Reading owned by the
undersigned as of the Effective Time will be converted into 1.25 shares of
Parent A Common Stock.
The undersigned understands that he may be deemed to be an "affiliate" of
Craig or Reading for purposes of Rule 145 promulgated under the Securities Act
of 1933, as amended (the "Act"). The undersigned is delivering this letter of
undertaking and commitment pursuant to Section 8.15 of the Merger Agreement.
With respect to such shares of Parent Class A Non-voting Common Stock, par
value $0.01 per share, as may be received by the undersigned pursuant to the
Merger Agreement (the "Shares"), the undersigned represents to and agrees with
Parent that:
A. The undersigned will not make any offer to sell or any sale or other
disposition of all or any part of the Shares in violation of the Act or
the rules and regulations thereunder, including without limitation Rule
145, and will hold all the Shares subject to all applicable provisions
of the Act and the rules and regulations thereunder.
B. The undersigned has been advised that the offering, sale and delivery of
the Shares to the undersigned pursuant to the Merger Agreement will be
registered under the Act on a Registration Statement on Form S-4. The
undersigned has also been advised, however, that, since the undersigned
may be deemed an "affiliate" of Craig or Reading, any public reoffering
or resale by the undersigned of any of the Shares will, under current
law, require either (i) the further registration under the Act of the
Shares to be sold, (ii) compliance with Rule 145 promulgated under the
Act (permitting limited sales under certain circumstances) or (iii) the
availability of another exemption from registration under the Act.
C. The undersign also understands that if Parent should deem it necessary
to comply with the requirements of the Act, stop transfer instructions
will be given to its transfer agents with respect to the Shares and that
there will be placed on the certificates for the Shares, or any
substitutions therefor, a legend stating in substance:
"The securities represented by this certificate were issued in a
transaction under Rule 145 promulgated under the Securities Act of
1933, as amended (the "Act"), and may be sold, transferred or
otherwise disposed of only upon receipt by the Corporation of an
opinion of counsel
acceptable to it that the securities are being sold in compliance
with the limitations of Rule 145 or that some other exemption from
registration under the Act is available, or pursuant to a
registration statement under the Act."
Execution of this letter shall not be considered an admission on the part of
the undersigned that the undersigned is an "affiliate" of Craig or Reading for
purposes of Rule 145 under the Act or as a waiver of any rights the undersigned
may have to any claim that the undersigned is not such an affiliate on or after
the date of this letter.
Very truly yours,
--------------------------------------
Signature
--------------------------------------
Name
--------------------------------------
Date
ANNEX B
FAIRNESS OPINION
FOR THE CONSOLIDATION OF
CRAIG CORPORATION
READING ENTERTAINMENT, INC.
CITADEL HOLDING CORPORATION
August 16, 2001 File Reference: 31-11-20222
TheBoards of Directors of:
Craig Corporation
Reading Entertainment, Inc.
Citadel Holding Corporation
TheConflicts Committees of the Boards of Directors of:
Craig Corporation
Reading Entertainment, Inc.
Citadel Holding Corporation
c/o Mr. S. Craig Tompkins
Craig Corporation
550 South Hope Street, Suite 1825
Los Angeles, California 90071
Craig Corporation ("Craig"), Reading Entertainment, Inc. ("Reading") and
Citadel Holding Corporation ("Citadel") (and collectively "the Companies")
currently operate as an interrelated family of companies, with substantially
overlapping management and ownership. It is our understanding that the Boards
of Directors of Craig, Reading and Citadel have determined that it would be in
the best interests of their respective companies and their respective
stockholders if the three companies were to be consolidated into a single
publicly traded entity. As such, the Boards of Directors of Craig, Reading and
Citadel have announced that an Agreement in Principle has been entered into
between the three companies providing for the consolidation of the three
companies under Citadel, in a merger of equals transaction (the
"Consolidation"). The Consolidation will be structured as a merger of Craig
(the "Craig Merger") with a newly formed first tier subsidiary of Citadel
(referred to herein as "NewCraigCo") and a merger of Reading (the "Reading
Merger") with another newly formed first tier subsidiary of Citadel (referred
to herein as "NewReadingCo").
Upon the effective date of the Craig Merger, every share of the Common
Stock, par value $0.25, of Craig and every share of the Class A Common
Preference Stock, par value $0.01, of Craig will be converted into 1.17 shares
of Citadel Class A Nonvoting Common Stock, par value $0.01 (the "Citadel Class
A Stock"). Upon the effective date of the Reading Merger, every share of the
Common Stock, par value $0.001, of Reading will be converted into 1.25 shares
of Citadel Class A Stock. All holders of options to acquire equity securities
of Craig or Reading will have the option to receive, upon the effective date of
the merger, replacement options to acquire either Citadel Class A Common Stock
or Citadel Class B Voting Common Stock, as the holders of such options may
elect. The above is collectively referred to as the "Merger Consideration."
Holders of Citadel Class A Nonvoting Common Stock and Citadel Class B Voting
Common Stock will hold the same shares immediately after the Consolidation as
they did immediately prior to the Consolidation, since Citadel will be the
survivor in the transaction.
You have requested our opinion ("the Opinion") as to whether the
Consolidation and Merger Consideration is fair to the public shareholders of
Craig, Reading and Citadel, from a financial point of view, pursuant to the
terms and subject to the conditions set forth in the Definitive Triparty Merger
Agreement. We have also been engaged to give advice with respect to the
relative values of the three companies, a fair exchange ratio of Citadel Class
A Nonvoting Common Stock for shares of Reading Common Stock, Craig Common Stock
and Craig Common Preference Stock, whether the Consolidation is in the best
interest of the three Companies and whether the same consideration (i.e.,
common equity) should be provided to all stockholders. The date of this Opinion
is August 16, 2001.
In arriving at our Opinion, we received and reviewed the following
information listed on Exhibit A attached.
B-1
The Board of Directors of Craig Corporation
Reading Entertainment, Inc. and Citadel Holding Corporation
August 16, 2001
Page 2
In addition to reviewing the attached information, we have among other
things:
1. Analyzed daily stock prices and trading volumes for Craig Common Stock,
Craig Common Preference Stock, Reading Common Stock, Citadel Class A
Nonvoting Common Stock and Citadel Class B Voting Stock for the period
June 1, 2000 through July 11, 2001.
2. Considered the nature of the business and the history of the Companies
and their strategic business units ("SBUs"); the economic outlooks of
the United States, Puerto Rico, Australia, and New Zealand in general;
the outlooks for the cinema and theater industries in particular; the
SBUs earnings before interest and taxes (EBIT), earnings before
interest, taxes, depreciation and amortization (EBITDA), revenues, book
capital, and total assets for the past 5 years (1996-2000) and the
three-month interim period ended March 31, 2001; the outlook for future
EBIT, EBITDA and revenues; the net book value and adjusted market value
of the Companies; the Companies' financial condition; and the Companies'
dividend-paying capacity.
3. Considered the nature of the underlying real estate holdings of the
Companies, relevant cost data, the local real estate markets for such
holdings; and the income and cash generating capacity of the holdings.
4. Analyzed financial statements, prices and other materials regarding
guideline publicly traded companies in the cinema industry; multiples of
EBIT, EBITDA revenues, book capital and total assets of such guideline
publicly traded companies; required rates of return on debt and equity
capital; and such other relevant material as we deemed appropriate.
5. Analyzed the financial terms; operating results; financial condition;
and multiples of EBIT, EBITDA, revenues, book capital and total assets
of companies, to the extent publicly available, involved in certain
recent business combinations in the cinema industry.
6. Compared certain statistical and financial information of the Companies
with similar information for certain guideline publicly traded companies
and industry composites in the cinema industry.
7. Analyzed the terms of certain real estate transactions, to the extent
publicly available, for properties considered comparable to the
underlying real estate holdings of the Companies.
8. Conducted discount cash flow analyses and capitalization of income/cash
flow on various SBUs and underlying real estate holdings of the
Companies.
9. Visited the Companies' headquarters in Los Angeles, California and
conducted interviews with and relied upon the representations of
Chairman and Chief Executive Officer James J. Cotter; Reading and
Citadel Vice Chairman and Craig President, S. Craig Tompkins; Chief
Financial Officer, Andrzej Matyczynski; and Vice President-Real Estate,
Brett Marsh concerning the operations, financial condition, future
prospects, and projected operations and performance of the Companies and
their SBUs and underlying real estate holdings.
10.Visited certain other offices and real estate holdings of the Companies
and conducted interviews with other employees of the Companies
concerning the SBUs and underlying real estate holdings.
11.Conducted such other financial studies, analyses and inquiries, and
considered such other matters as we deemed necessary and appropriate for
our Opinion.
In rendering our Opinion, we have not independently verified the accuracy
and completeness of the financial information or other information furnished by
the Companies orally or in writing, or other information
B-2
The Board of Directors of Craig Corporation
Reading Entertainment, Inc. and Citadel Holding Corporation
August 16, 2001
Page 3
obtained from publicly available sources. We reviewed the best currently
available estimates and judgments of the management of the Companies, as to the
expected future financial and operating performance of the Companies and their
SBUs and underlying real estate holdings, and did not undertake any obligation
independently to verify the underlying assumptions made in connection with such
forecasts, estimates or judgments. Our Opinion is based on business, economic,
market and other conditions as they exist as of the date of this Opinion. We
have assumed that the factual circumstances and terms, as they exist at the
date of this Opinion, will remain substantially unchanged through the time the
Consolidation is completed.
This Opinion has been prepared for the Boards of Directors of and for the
Conflicts Committees of the Boards of Directors of Craig, Reading and Citadel
in connection with their respective consideration of the Consolidation. This
Opinion may be included in the combination proxy/registration statement sent by
the Companies to their shareholders concerning the Consolidation so long as the
Opinion is reproduced in full in such combination proxy/registration statement
and any summary of the Opinion in the combination proxy/registration statement
is reasonably acceptable to Marshall & Stevens Incorporated. Our fee for the
provision of this Opinion is not contingent upon our conclusion regarding the
fairness of the Consolidation to the public shareholders of the Companies, from
a financial point of view.
Based upon the foregoing and upon such other factors as deemed relevant,
including the attached assumptions and limiting conditions, it is our Opinion
that, as of the date of this Opinion, the Consolidation and the Merger
Consideration are fair to the public shareholders of Craig Corporation, Reading
Entertainment, Inc. and Citadel Holding Corporation, from a financial point of
view, pursuant to the terms and subject to the conditions set forth in the
Definitive Triparty Merger Agreement.
Very truly yours,
/S/ MARSHALL & STEVENS INCORPORATED
JFS/ced
B-3
ASSUMPTIONS AND LIMITING CONDITIONS
Title
No investigation of legal title was made, and we render no opinion as to
ownership of the Companies or their SBUs or underlying assets.
Date of Opinion
The date of this Opinion is August 16, 2001. The amounts reported are based
on the purchasing power of the relevant currencies as of that date. The analyst
assumes no responsibility for economic or physical factors occurring subsequent
to the date of this Opinion that may affect the Opinion reported.
Visitation
The Companies and certain SBUs and underlying real estate holdings were
visited by senior analysts of Marshall & Stevens Incorporated. When the date of
our visit differs from the date of our Opinion, we assume no material change in
the operations of the Companies or their SBUs or the underlying real estate
holdings unless otherwise noted in the Opinion.
Non-Financial and Valuation Expertise
No opinion is intended to be expressed for matters that require legal or
specialized expertise, investigation, or knowledge beyond that customarily
employed by financial analysts or valuation consultants.
Information and Data
Information supplied by others that was considered in this analysis is from
sources believed to be reliable, and no further responsibility is assumed for
its accuracy. We reserve the right to make such adjustments to the Opinion
herein reported based upon consideration of additional or more reliable data
that may become available subsequent to the issuance of this Opinion.
Litigation Support
Depositions, expert testimony, attendance in court, and all
preparations/support for same arising from this Opinion shall not be required
unless arrangements for such services have been previously made.
Management
The Opinion expressed herein assumes the continuation of prudent management
policies over whatever period of time is deemed reasonable and necessary to
maintain the character and integrity of the Companies or their SBUs or
underlying real estate holdings.
Purpose
We have presented Marshall & Stevens Incorporated's considered Opinion based
on the facts and data obtained during the course of this investigation. This
Opinion has been prepared for the sole purpose stated herein and shall not be
used for any other purpose.
Unexpected Conditions
We assume there are no hidden or unexpected conditions associated with the
Companies or their SBUs or underlying real estate holdings that might adversely
affect value. We also assume no responsibility for changes in market conditions
that may require an adjustment to our Opinion.
B-4
Hazardous Substances
Hazardous substances, if present within a business, can introduce an actual
or potential liability that may adversely affect the marketability and value of
the Companies or their SBUs or underlying real estate holdings. In this
Opinion, with the exception of the environmental liability associated with the
Reading North Viaduct Property located in the city of Philadelphia, no
consideration has been given to such liabilities or their impact on value.
Contingent Liabilities
Our conclusions do not consider the impact of any contingent liabilities of
the Companies, either known or unknown, except those those relative to the 1996
tax returns of Reading and Craig that are under review by the Internal Revenue
Service. According to the Management of the Companies, as of the date of this
Opinion, there were no contingent liabilities that were considered material,
other than those mentioned in the preceding sentence.
Future Events/Projections
The reader is advised that this Opinion is somewhat dependent upon future
events with respect to industry performance, economic conditions, and the
ability of the Companies and their SBUs and underlying real estate holdings to
meet certain operating projections. In this Opinion, the operating projections
have been developed from information supplied by the Management of the
Companies and their SBUs and underlying real estate holdings. The operating
projections incorporate various assumptions including, but not limited to, net
sales, net sales growth, profit margins, income taxes, depreciation, capital
expenditures, working capital levels, and discount rates, all of which are
critical to the Opinion. The operating projections are deemed to be reasonable
and valid at the date of this Opinion; however, there is no assurance or
implied guarantee that the assumed facts will be validated or that the
circumstances will actually occur. We reserve the right to make adjustments to
this Opinion herein reported as may be required by any modifications in the
prospective outlook for the economy, the industry, and/or the operations of the
Companies or their SBUs or underlying real estate holdings.
B-5
EXHIBIT A
1.Draft Form of Definitive Merger Agreement
2.Draft Form of Quarterly Reports on Form 10Q for Citadel Holding Corporation,
Craig Corporation and Reading Entertainment Inc. for the quarterly period
ended June 30, 2001
3.Draft Board Resolutions
4.Draft Form of S-4 Proxy/Registration Statement
5.Draft of Agreement in Principle
6.July 18, 2001 Press Release relative to Consolidation Transaction
7.Form 10-K for Reading Entertainment Inc. for the fiscal year ended December
31, 2000
8.Form 10-K for Craig Corporation for the fiscal year ended December 31, 2000
9.Form 10-K for Citadel Holding Corporation for the fiscal year ended December
31, 2000
10.Reading Entertainment, Inc. Form 10-Q for the period ended March 31, 2001
11.Craig Corporation Form 10-Q for the period ended March 31, 2001
12.Citadel Holding Corporation Form 10-Q for the period ended March 31, 2001
13.Profit & Loss Accounts at December 2000
14.Profit & Loss Accounts at March 2001
15.Trends of 1998, 1999 and 2000
16.2001 Budget
17.Australia's 2002-2003 cash flow
18.Brand Building Income Statement for the years ended 1998, 1999 and 2000
19.Big 4 Ranch Income Statement for the years ended 1998, 1999 and 2000
20.Big 4 Ranch, Inc. Balance Sheets as of March 31, 2001 and Income Statement
for the three months ended March 31, 2001
21.Domestic Real Estate Book Values
22.Australian Real Estate Book Values
23.Murray Hill Transaction
24.City Cinemas Agreement and Plan of Merger
25.Certificate of Designation of Reading Entertainment, Inc. setting forth the
Voting Powers, Designations, Preferences, Limitations, Restrictions and
Relative Rights of Series A Voting Cumulative Convertible Preferred Stock
and Series B Voting Cumulative Convertible Preferred Stock
26.Reading Entertainment, Inc. Non-Qualified Stock Option Agreement
27.Citadel Holding Corporation 1999 Stock Option Plan
28.Craig Corporation 1999 Stock Option Plan
29.Reading Entertainment, Inc. list of subsidiaries and incorporation dates
30.Reading Entertainment, Inc. Consolidated Subsidiaries and Unconsolidated
Interests
31.Union Square sale package
32.Craig Corporation Proxy Statement for annual meeting held in 1999
33.Craig Corporation Form 8-K filed January 21, 2001
34.Craig Corporation Class A Common Stock Preliminary Prospectus Dated April
21, 1990
35.March 20, 2001 Press Release relative to Consolidation Transaction
36.Opinion of IRS National Office about the transfer of Slater Stock by Craig
to Reading
37.Board Paper relative to Maitland Cinemas March 2001
38.Form 3 and 4 for JMG and Pacific Assets Management investment in Craig
common preference stock
39.Reconciliation of real estate book values
40.Breakdown of balance sheet accounts
41.Reading Entertainment, Inc. property information asset summary
42.Fax from Pat Rucci to Cherin Mooradian dated 6/6/2001 detailing book value
as of December 2000 of the Reading Co. real estate owned within Philadelphia
43.REI Memorandum to Cheryl Quinlan from Kathie Smith dated 4/4/2001 detailing
REI properties
44.Complete appraisal of real property by Cushman & Wakefield Inc. dated
January 28, 2000 on the Orpheum Theater--summary report
45.Valuation report by LandMark White--dated 11/21/2000 on the Bundaberg
Reading Cinema
46.CB Richard Ellis valuation report prepared for the Bank of New Zealand on
Wakefield Carpark, 24 Tory Street, Wellington
47.Lease summary at 9/30/2000 on Waurn Ponds 8
48.Valuation report dated 12/22/1999 on Waurnvale Shopping Centre Geelong
Reading Cinemas
49.Memorandum of sale of Murray Hill Theatre dated 5/11/2001 from Ira S. Levin
to Michael R. Forman et al
50.Cushman & Wakefield Inc. Limited Appraisal in a restricted format value-in-
use report--date 6/21/2000 on the Minetta Lane Theater
51.Complete appraisal in a summary format dated 3/27/2000 by Cushman &
Wakefield of the Union Square Theater
52.Newmark Realty Advisors confidential investment memorandum on 44 Union
Square East
53.Organization chart of Reading Entertainment, Inc., as of February 2001
54.LandMark White valuation report as of 12/5/2000 on Red Yard, 100 Parramatta
Road, Auburn, NSW
55.LandMark White valuation as of 1/6/2000 on 100 Parramatta Road Auburn, NSW
56.LandMark White valuation report as of 12/5/2000 of Belmont Entertainment
Complex, Knutsford Avenue and Fulham Street, Belmont, WA
57.LandMark White valuation report as of November 21, 2000 on Horner, Hall
Everage Streets, Moonee Ponds
58.Lease summary as of 9/30/2000 on Townville 6
59.Lease summary as of 9/30/2000 on Mandurah 6
60.Lease summary as of 9/30/2000 on Dubbo 5
61.Lease summary as of 9/30/2000 on Market City 5
62.Lease summary as of 9/30/2000 on Melbourne
63.Lease summary as of 9/30/2000 on Redbank Queenlands 8
64.Lease summary as of 9/30/2000 on Harbourtown
65.Lease summary as of 9/30/2000 in The Classic
66.Lease summary as of 9/30/2000 on Plaza Carolina
67.Lease summary as of 9/30/2000 on Palma Real Humacao
68.Lease summary as of 9/30/2000 on Mayaguez Mall
69.Lease summary as of 9/30/2000 on Mayaguez Town Center (University)
70.Lease summary as of 9/30/2000 on Plaza Del Norte Hatillo
71.Lease summary as of 9/30/2000 on Plaza Las Americas
72.Lease summary as of 9/30/2000 on Senorial Plaza
73.Lease summary as of 9/30/2000 on Cayey
74.Wilmington & Northern Trial balance--combined totals as of 5/30/2001
75.CB Richard Ellis, complete appraisal in self-contained report form of 600
Brand Building Glendale, California, as of 11/9/2000
76.Alliance appraisal of Bay 4 Farm, as of 1/1/2000 in Summary format
77.Lease summary as of 9/30/2000 in Mission Bay 4
78.LandMark White Valuation Report, retail development 121 Enoggera Road,
Newmarket QLD 4057 dated 11/10/2000
79.CB Richard Ellis valuation report on Courtenay central site, Courtenay
Place, Wakefield Street, Wellington--dated August 2000
80.CB Richard Ellis--valuation report of the Courtenay Central Cinema a retail
complex, Courtenay Place, Wellington--dated September 2000
81.LandMark White valuation Report on Burwood Brickwork site, 78 Middleborough
Road, Burwood--dated 12/15/2000
82.Alliance Appraisal's valuation report on Big 4 farm as of 12/1/2000
ANNEX C
FIRST AMENDMENT TO THE 1999 STOCK OPTION PLAN
OF CITADEL HOLDING CORPORATION
This First Amendment to the 1999 Stock Option Plan of Citadel Holding
Corporation (the "First Amendment") is adopted this 16th day of August, 2001 by
the board of directors of Citadel Holding Corporation (the "Company") and its
stockholders.
R E C I T A L S
Whereas, the 1999 Stock Option Plan of Citadel Holding Corporation (the
"Plan") was approved by the stockholders of the Company on September 12, 2000;
Whereas, the board of directors of the Company have approved of a
consolidation transaction, in which two newly-formed subsidiaries of the
Company will be merged with and into Craig Corporation ("Craig") and Reading
Entertainment, Inc. ("Reading), pursuant to the terms of the Agreement and Plan
of Merger, dated as of August 17, 2001, among the Company, Craig and Reading
(the "Merger Agreement");
Whereas, pursuant to the Merger Agreement, the Company has agreed to, among
other things, (i) assume each outstanding stock option of Craig and Reading,
and (ii) change the name of the Company to Reading International, Inc.; and
Whereas, upon the effectiveness of the consolidation, each option to
purchase Craig or Reading common stock that is outstanding immediately prior to
the consolidation will automatically become an option to purchase either Class
A non-voting common stock, par value $0.01 per share, of the Company ("Class A
Stock") or Class B voting common stock, par value $0.01 per share, of the
Company ("Class B Stock" and together with Class A Stock, "Common Stock"); and
Whereas, the Merger Agreement and each of the transactions contemplated
therein, including this First Amendment, was approved by the stockholders of
the Company on , 2001.
Now therefore, in consideration of the recitals, covenants and conditions
contained herein, and for other good valuable consideration the receipt and
sufficiency of which is hereby acknowledged. The Company and its stockholders
agree to amend the Plan as follows:
1. AMENDMENT TO THE NAME OF THE OPTION PLAN
The name of the Plan shall be amended to be called the "1999 Stock Option
Plan of Reading International, Inc.".
2. AMENDMENT TO PARAGRAPH 3 OF THE OPTION PLAN
Paragraph 3 of the Option Plan is amended in its entirety to read as follows:
Subject to the provisions of 6.1.1 of this Plan, the total number of shares
of stock which may be issued under options granted pursuant to this Plan
shall not exceed 1,350,000 shares of Common Stock. The shares covered by the
portion of any grant under this Plan which expires, terminates or is
cancelled unexercised shall become available again for grants under this
Plan. Where the exercise price of an Option is paid by means of the
optionee's surrender of previously owned shares of Common Stock or the
Company's withholding of shares otherwise issuable upon exercise of the
Option as permitted herein, only the net number of shares issued and which
remain outstanding in connection with such exercise shall be deemed
C-1
"issued" and no longer available for issuance under this Plan. No eligible
person shall be granted Options during any twelve month period covering more
than 100,000 shares.
3. CONFLICT BETWEEN THE FIRST AMENDMENT AND THE OPTION PLAN
If there is a conflict between any of the provisions of this First Amendment
and any of the provisions of the Plan, the provisions of this First Amendment
shall control.
4. NO OTHER AMENDMENTS OR CHANGES
Except as expressly amended or modified by this First Amendment, all of the
terms and conditions of the Plan shall remain unchanged and in full force and
effect.
5. GOVERNING LAW
This First Amendment shall be governed by and construed in accordance with
Nevada law.
CITADEL HOLDING CORPORATION
By:
Its:
C-2
ANNEX D
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
CITADEL HOLDING CORPORATION
A Nevada Corporation
The undersigned hereby certify as follows:
1. They are the duly elected and acting President and Secretary of Citadel
Holding Corporation (the "Corporation").
2. On August 16, 2001, the Board of Directors of the Corporation approved
the amendment of the Corporation's Articles of Incorporation, pursuant to
Section 78.385 of the Nevada Revised Statutes, as amended.
3. On October 24, 2001, upon the recommendation of the Board of Directors of
the Corporation, the stockholders holding a majority of the outstanding voting
common stock of the Corporation approved the amendment of the Corporation's
Articles of Incorporation.
4. That the Articles of Incorporation of the Corporation are hereby amended
as follows:
ARTICLE I
NAME
The name of the corporation is Reading International, Inc. (the
"Corporation").
In Witness Whereof, the undersigned have executed this Certificate of
Amendment as of the day of , 2001.
, President
, Secretary
D-1
ANNEX E
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (this "Agreement") is made this day of
, 20 , between , a Nevada corporation (the "Company"), and , an individual
("Indemnitee").
RECITALS
Whereas, Indemnitee is either a member of the board of directors ("Board" or
"Board of Directors"), an officer, an employee or an agent of the Company, or
more than one of such positions, or is serving at the request of the Company as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, and in such capacity or capacities is
performing a valuable service for the Company;
Whereas, the Corporation has adopted bylaws ("Bylaws") providing for the
indemnification of the officers, directors, employees and agents of the Company
or individuals serving at the request of the Company as directors, officers,
employees or agents of another corporation, partnership, joint venture, trust
or other enterprise; ("Covered Persons");
Whereas, the Bylaws and Nevada Revised Statute ("NRS") Sections 78.751 and
78.7502 (the "State Statutes") specifically provide that they are not
exclusive, and thereby contemplate that agreements may be entered into between
the Company and a Covered Person with respect to indemnification of such
Covered Person;
Whereas, Indemnitee is willing to serve, to continue to serve, and to take
on additional service for and on behalf of the Company on the condition that
Indemnitee is indemnified as set forth in this Agreement;
Whereas, it is intended that Indemnitee shall be paid promptly by the
Company all amounts necessary to effectuate in full the indemnity provided in
this Agreement; and
Whereas, to induce Indemnitee to continue to serve as a director, officer,
employee or agent, the Company has determined and agreed to enter into this
Agreement with Indemnitee.
Now, Therefore, in consideration of Indemnitee's continued service as a
director or officer of the Company after the date hereof, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Company and Indemnitee hereby agree as follows:
AGREEMENT
1. Indemnification of Indemnitee. The Company hereby agrees to hold harmless
and indemnify Indemnitee to the fullest extent authorized or permitted by the
provisions of the State Statutes, or any successor statute or amendment
thereof, or any other statutory provisions authorizing or permitting such
indemnification that is adopted after the date of this Agreement.
2. Additional Indemnity. Subject only to the exclusions set forth in Section
3 of this Agreement, the Company hereby further agrees to hold harmless,
indemnify and defend Indemnitee:
(a) against any and all expenses (including fees for attorneys, accountants,
private investigators, court and transcript costs, fees and expenses of
witnesses, travel expenses and all other like disbursements or expenses
reasonably incurred by or for Indemnitee), judgments damages, fines, penalties
and amounts paid in settlement
E-1
(including all interest assessments and other charges paid or payable in
connection with or in respect of such judgment, fines, penalties, or amounts
paid in settlement) actually and reasonably incurred by or for Indemnitee in
connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (including
an action by or in the right of the Company)(a "Covered Action") to which
Indemnitee is made a party as a result of the fact that at the time of the act
or omission which is the subject matter of such Covered Action the Indemnitee
was a director, officer, employee or agent of the Company, and
(b) otherwise to the fullest extent as may be provided to Indemnitee by the
Company under the non-exclusivity provisions of Article VII of the Bylaws of
the Company and the State Statutes. The provisions of this Agreement are in
addition to, and not in limitation of, the provisions of such Article VII and
the State Statutes.
3. Limitations on Additional Indemnity. No indemnity pursuant to Sections 1
and 2 of this Agreement shall be paid by the Company to the extent that:
(a) payment therefor is actually made to Indemnitee under a valid and
collectible insurance policy or policies, except with respect to any excess
amount due to Indemnitee beyond the amount of payment to Indemnitee under such
insurance policy or policies. Notwithstanding the availability of such
insurance policy or policies, Indemnitee also may claim indemnification from
the Company pursuant to this Agreement by assigning to the Company in writing
any claims of Indemnitee under such insurance policy or policies to the extent
of the amount Indemnitee is paid by the Company;
(b) Indemnitee is indemnified by the Company otherwise than pursuant to this
Agreement;
(c) final judgment is rendered against Indemnitee for the payment of
dividends or other distributions to stockholders of the Company in violation of
the provisions of Subsection 2 of Nevada Revised Statutes (S) 78.300, as
amended;
(d) final judgment is rendered against Indemnitee for an accounting of
profits made from the purchase or sale by Indemnitee of securities of the
Company pursuant to the provisions of Section 16(b) of the Securities Exchange
Act of 1934, as amended (the "Act"), or other similar provisions of any
federal, state or local statutory law;
(e) Indemnitee's conduct giving rise to the claim for indemnification is
finally adjudged by a court of competent jurisdiction to have been a breach of
fiduciary duty which involved intentional misconduct, fraud or a knowing
violation of the law; and/or
(f) except as otherwise provided in this Agreement, in connection with all
or any part of a suit or other proceeding which is initiated or maintained by
or on behalf of Indemnitee, or any suit or other proceeding by Indemnitee
against the Company or its directors, officers, employees or other agents,
unless (i) such indemnification is expressly required by Nevada law; (ii) the
suit or other proceeding was expressly authorized by an official act of the
Board of Directors of the Company or (iii) such indemnification is provided by
the Company, in its sole discretion, pursuant to the powers vested in the
Company under Nevada law.
4. Continuation of Indemnity. All agreements and obligations of the Company
contained in this Agreement shall continue during the period Indemnitee is a
Covered Person (, and shall continue thereafter for so long as Indemnitee shall
be subject to any possible claim or threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
by reason of the fact that Indemnitee was a Covered Person.
5. Advancement of Expenses. In the event Indemnitee incurs costs or expenses
in connection with the defense of any such civil, criminal, administrative or
investigative action, suit or proceeding (including any costs or expenses
incurred for any appeal therefor), the Company agrees to pay such costs or
expenses as they are
E-2
incurred and in advance of the final disposition of the action, suit or
proceeding within 30 calendar days of submission of bills or vouchers for such
costs or expenses, provided that Indemnitee delivers to Company prior to such
payment a written undertaking by or on behalf of Indemnitee to repay the amount
paid by the Company if it is ultimately determined by a court of competent
jurisdiction that Indemnitee is not entitled to be indemnified by the Company.
By such undertaking, Indemnitee agrees to reimburse the Company for all amounts
paid by the Company in defending such civil, criminal, administrative or
investigative action, suit or proceeding against Indemnitee, including amounts
paid in settlement, in the event and only to the extent that it is ultimately
determined by a court of competent jurisdiction that Indemnitee is not entitled
to be indemnified by the Company for such expenses under the provisions of the
State Statute, Bylaws, this Agreement or otherwise. However, in the case of an
action brought against Indemnitee by the Company pursuant to the provisions of
Section 16(b) of the Act, or other similar provisions of any federal, state or
local statutory law for an accounting of profits made from the purchase or sale
by Indemnitee of securities of the Company, Indemnitee's costs and expenses
will not be advanced unless such advancement is approved by the Board of
Directors by a majority vote of a quorum consisting of directors who are not
parties to the action, suit or proceeding, or, if such a quorum cannot be
obtained, by independent legal counsel in a written opinion that such
indemnification is proper in the circumstances.
6. Presumptions and Effect on Certain Proceedings. Upon making a request for
indemnification, Indemnitee shall be presumed to be entitled to indemnification
under this Agreement. The termination of any action, suit or proceeding by
judgment, order, settlement, arbitration award, conviction or by a plea of nolo
contendere or its equivalent shall not affect this presumption except as may be
provided in Section 3 of this Agreement.
7. Notification and Defense of Claim. Promptly after receipt by Indemnitee
of notice of the commencement of any action, suit or proceeding, if a request
with respect thereto is to be made against the Company under this Agreement,
Indemnitee shall notify the Company of the commencement thereof; but the
failure by Indemnitee to notify the Company will not relieve the Company of any
liability which it may have to Indemnitee under this Agreement or otherwise.
With respect to any such action, suit or proceeding as to which Indemnitee
notifies the Company as required herein:
(a) The Company shall be entitled to participate therein at its own expense;
and
(b) Except as otherwise provided below, to the extent that it may wish, the
Company, jointly with any other indemnifying party similarly notified, shall be
entitled to assume the defense of Indemnitee with counsel reasonably
satisfactory to Indemnitee. After notice from the Company to Indemnitee of its
election to assume the defense of Indemnitee in the action, suit or proceeding,
the Company will not be liable to Indemnitee under this Agreement for any legal
or other expenses subsequently incurred by Indemnitee in connection with the
defense thereof, other than reasonable costs of investigation or as otherwise
provided below. Indemnitee shall have the right to employ its own counsel in
such action, suit or proceeding, but the fees and expenses of such counsel
incurred after notice from the Company of its assumption of the defense shall
be at the sole expense of Indemnitee unless (i) the employment of counsel by
Indemnitee at the Company's expense has been authorized in writing by the
Company; (ii) Indemnitee shall have reasonably concluded, upon advice of
counsel experienced in such matters, that there may be a conflict of interest
between the Company and Indemnitee in the conduct of the defense of such
action; or (iii) the Company shall not in fact have employed counsel to assume
the defense of such action, suit or proceeding. In each such instance set forth
in (i) through (iii) of this paragraph (b), the reasonable cost of Indemnitee's
counsel shall be borne by the Company. Notwithstanding the foregoing, the
Company shall not be entitled to assume the defense of any action, suit or
proceeding brought against Indemnitee by or on behalf of the Company or as to
which Indemnitee shall have reasonably made the conclusion provided in (ii)
above.
(c) The Company shall not be liable to indemnify Indemnitee under this
Agreement for any amounts paid in settlement of any action or claim effected
without the Company's prior written consent. The Company shall
E-3
not settle any action or claim in any manner that would impose any penalty or
limitation on Indemnitee without Indemnitee's prior written consent. Neither
the Company nor Indemnitee will unreasonably withhold consent to any proposed
settlement.
8. Enforcement.
(a) The Company expressly confirms and agrees that it has entered into this
Agreement and assumed the obligations imposed on the Company hereby in order to
induce Indemnitee to continue as a Covered Person, and acknowledges that
Indemnitee is relying on this Agreement in continuing in such capacity.
(b) In the event Indemnitee is required to bring any action to enforce his
or her rights or to collect moneys due under this Agreement, the Company shall
advance Indemnitee all of Indemnitee's reasonable fees and expenses in bringing
and pursuing such action. Indemnitee shall be responsible for reimbursement to
the Company of such advance in the event that Indemnitee is not successful in
such action.
9. No Employment Rights. Nothing in this Agreement is intended to confer on
Indemnitee any right to continue in the employ of the Company for any period of
time or to interfere with or otherwise restrict in any way the rights of the
Company or of Indemnitee, which rights are hereby expressly reserved by each,
to terminate Indemnitee's service at any time and for any reason, with or
without cause, except as may be provided otherwise in an agreement, if any,
between the Company and Indemnitee.
10. Severability. Each of the provisions of this Agreement are separate and
distinct and independent of one another, so that if any provision of this
Agreement shall be held by a court of competent jurisdiction to be invalid or
unenforceable for any reason, such invalidity or unenforceability shall not
effect the validity or enforceability of the other provisions of this
Agreement. If any provision of this Agreement is so held to be invalid or
unenforceable, the parties agree that the court making such determination shall
have the power to amend such provision or to delete specific words or phrases
so that such provision shall then be enforceable to the fullest extent
permitted by law unless such change is contrary to the intent of the parties
hereto.
11. Subrogation. In the event of payment to Indemnitee under this Agreement,
the Company shall be subrogated to the extent of the amount of such payment to
all rights of recovery of Indemnitee, who shall execute all papers required and
shall do everything that may be necessary or reasonable to secure such rights,
including, without limitation, the execution of such documents necessary or
reasonable to enable the Company to effectively bring suit to enforce such
rights.
12. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Nevada without resort to conflict of
laws principles.
13. Binding Effect; Amendment. This Agreement shall be binding on the
parties, their heirs, personal representatives, successors and assigns, and
shall inure to the benefit of Indemnitee, his or her heirs, personal
representatives and assigns, and to the benefit of the Company, its successors
and assigns. No amendment, modification, termination or cancellation of this
Agreement shall be effective unless in a writing signed by both parties.
E-4
14. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
when delivered by hand and receipted for by the party to whom said
communication shall have been directed or (ii), if mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which said communication is so mailed and addressed to the appropriate party
at the following address:
If to Indemnitee: ____________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
If to the Company: ___________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
With a copy to: ____________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
A party may change its address by delivering notice of such change in the
manner set forth in this Section 14.
In Witness Whereof, the parties hereto have executed this Indemnification
Agreement as of the date first above written.
"Indemnitee" "Company"
By:
Its:
E-5
ANNEX F
CITADEL HOLDING CORPORATION
AUDIT COMMITTEE CHARTER
MAY 23, 2000
This Audit Committee Charter ("Charter") has been adopted by the Board of
Directors ("BOD") of Citadel Holding Corporation ("Citadel" or the "Company").
The Audit Committee of Citadel ("Committee") shall review and reassess this
charter annually and recommend any proposed changes to the BOD for approval.
Role and Independence: Organization
The Committee assists the BOD in fulfilling its responsibility for oversight
of the quality and integrity of the accounting, auditing, internal control and
financial reporting practices of the Company. The Committee will also have
other duties as assigned by the BOD from time to time.
The membership of the Committee shall consist of at least three directors,
who are each free of any relationship that, in the opinion of the BOD, may
interfere with such member's individual exercise of independent judgment. Each
Committee member shall also meet the independence and financial literacy
requirements for serving on audit committees, and at least one member shall
have accounting, or related financial management expertise, all as set forth in
the applicable rules of the American Stock Exchange. The Committee shall
maintain free and open communication with the independent auditors and Company
management. In discharging its oversight role, the Committee is empowered to
investigate any matter relating to the Company's accounting, auditing, internal
control or financial reporting practices brought to its attention, with full
access to all of the Company books, records, facilities, and personnel. The
Committee may retain outside counsel, auditors or other advisors.
One member of the Committee shall be appointed as chair. The chair shall be
responsible for leadership of the Committee, including scheduling and presiding
over meetings, preparing agendas, and making regular reports to the Board. The
chair will also maintain regular liaison with the CEO, CFO, and the lead
independent audit partner.
The Committee shall meet at least four times a year, or more frequently as
the Committee considers necessary. At least once each year, the Committee shall
have separate private meetings with the independent auditors and management.
Responsibilities
Although the Committee may wish to consider other duties from time to time,
the general recurring activities of the Committee in carrying out its oversight
roles are described below. The Committee shall be responsible for:
. Recommending to the BOD the independent auditors to be retained (or
nominated for shareholder approval) to audit the financial statements of
the Company. Such auditors are ultimately accountable to the BOD and the
Committee, as representatives of the shareholders.
. Evaluating, together with the Board and management, the performance of
the independent auditors and, where appropriate, replacing such
auditors.
. Obtaining annually from the independent auditors a formal written
statement describing all relationships between the auditors and the
Company, consistent with Independence Standards Board Number 1. The
Committee shall actively engage in a dialogue with the independent
auditors with respect to any relationships that may impact the
objectivity and independence of the auditors and shall take, or
recommend that the Board take, appropriate actions to oversee and
satisfy itself as to the auditors independence.
F-1
. Reviewing the audited financial statements and discussing them with
management and the independent auditors. These discussions shall include
the matters required to be discussed under Statement of Auditing
Standards No. 61 and consideration of the quality of the Company's
accounting principles as applied in its financial reporting, including a
review of particularly sensitive accounting estimates, reserves and
accruals, judgmental areas, audit adjustments (whether or not recorded),
and other such inquiries as the Committee or the independent auditors
shall deem appropriate. Based on such review, the Committee shall make
its recommendation to the Board as to the inclusion of the Company's
audited financial statements in the Company's Annual Report on Form
10-K.
. Reviewing the annual management letter with the independent auditors.
. Reviewing and approving audit fees.
. Reviewing alleged fraudulent actions or violations of law as reported by
the independent auditors and communicating such matters to the BOD as
deemed appropriate.
. Issuing an annual report to be included in the Company's proxy statement
as required by the rules of the Securities and Exchange Commission.
. Overseeing the relationship with the independent auditors, including
discussing with the auditors the nature and rigor of the audit process,
receiving and reviewing audit reports, and providing the auditors full
access to the Committee (and the BOD) to report on any and all
appropriate matters.
. Discussing with a representative of management and the independent
auditors: (1) the interim financial information contained in the
Company's Quarterly Report on Form 10-Q prior to its filing, and (2) the
results of the review of such information by the independent auditors.
. Discussing with management and the independent auditors the quality and
adequacy of and compliance with the Company's internal controls.
. Discussing with management and/or the Company's general counsel any
legal matters (including the status of pending litigation) that may have
a material impact on the Company's financial statements, and any
material reports or inquiries from regulatory or governmental agencies.
The Committee's job is one of oversight. Management is responsible for the
preparation of the Company's financial statements and the independent auditors
are responsible for auditing those financial statement. The Committee and the
BOD recognize that management and the independent auditors have more resources
and time, and more detailed knowledge and information regarding the Company's
accounting, auditing, internal control, and financial reporting practices that
the Committee does. Accordingly, the Committee's oversight role does not
provide any expert or special assurance as to the financial statements and
other financial information provided by the Company to its shareholders and
others.
F-2
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
As permitted by Chapter 78 of Nevada Revised Statutes, the registrant's
articles of incorporation includes a provision that limits the liability of
directors and officers to the maximum extent permitted by Nevada law. Nevada
law provides that except for certain regulatory exceptions, a director or
officer is not individually liable to the corporation or its stockholders for
money damages as a result of any act or failure to act in his capacity as a
director or officer unless it is proven that: (i) his act or failure to act
constituted a breach of his fiduciary duties as a director or officer; and (ii)
the breach of those duties involved intentional misconduct, fraud or a knowing
violation of law.
As permitted by Section 78.7502 and 78.751 of the Nevada Revised Statutes,
the registrant's articles of incorporation further provide:
. For mandatory indemnification, to the fullest extent permitted by
applicable law, for any person who is or was a director or officer,
or is or was serving at the request of the registrant as a director,
officer, employee or agent of another corporation or of a
partnership, joint venture, trust, enterprise or nonprofit entity,
including service with respect to employee benefit plans, against all
liability and loss suffered and expenses (including attorneys' fees)
reasonably incurred by such person.
. That the registrant's obligation to indemnify any person who was or
is serving at the registrant's request as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust, enterprise or nonprofit entity must be reduced by any amount
such person may collect as indemnification from such other
corporation, partnership, joint venture, trust, enterprise or
nonprofit entity.
. That the registrant must advance to all indemnified parties the
expenses (including attorney's fees) incurred in defending any
proceeding provided that indemnified parties (if they are directors
or officers) must provide the registrant an undertaking to repay such
advances if indemnification is determined to be unavailable.
. That the rights conferred in the articles of incorporation are not
exclusive.
. That the registrant may not retroactively amend the articles of
incorporation provisions relating to indemnity.
The indemnification provision in the registrant's articles of incorporation may
be sufficiently broad to permit indemnification of the registrant's directors
and officers for liabilities arising under the Securities Act.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
Exhibit No. Description
----------- -----------
2.1 Agreement and Plan of Merger dated as of August 17, 2001 by and among Citadel Holding
Corporation, Craig Merger Sub, Inc., Reading Merger Sub, Inc., Craig Corporation and Reading
Entertainment, Inc. (filed as Exhibit 10 to Citadel's Current Report on Form 8-K dated August 17,
2001 and incorporated herein by reference).
3.1 Amended and Restated Articles of Incorporation of Citadel Holding Corporation (filed as
Exhibit 3.1 to Citadel's Annual Report on Form 10-K for the year ended December 31, 1999 and
incorporated herein by reference).
II-1
Exhibit No. Description
----------- -----------
3.2 Amended and Restated Bylaws of Citadel Holding Corporation (filed as Exhibit 3.2 to Citadel's
Annual Report on Form 10-K for the year ended December 31, 1999 and incorporated herein by
reference).
4.1 Specimen Class A Nonvoting Common Stock Certificate of Citadel Holding Corporation.*
4.2 Specimen Class B Voting Common Stock Certificate of Citadel Holding Corporation.*
5.1 Opinion of Kummer Kaempfer Bonner & Renshaw regarding the legality of the securities being
issued.*
10.1 Tax Disaffiliation Agreement dated as of August 4, 1994 by and between Citadel Holding
Corporation and Fidelity Federal Bank (filed as Exhibit 10.27 to Citadel's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1994 and incorporated herein by reference).
10.2 Exchange Agreement dated September 4, 1996 among Citadel Holding Corporation, Citadel
Acquisition Corp., Inc., Craig Corporation, Craig Management, Inc., Reading Entertainment, Inc.,
and Reading Company (filed as Exhibit 10.51 to Citadel's Annual Report on Form 10-K for the
year ended December 31, 1996 and incorporated herein by reference).
10.3 Asset Put and Registration Rights Agreement dated October 15, 1996 among Citadel Holding
Corporation, Citadel Acquisition Corp., Inc., Reading Entertainment, Inc., and Craig Corporation
(filed as Exhibit 10.52 to Citadel's Annual Report on Form 10-K for the year ended December 31,
1996 and incorporated herein by reference).
10.4 Articles of Incorporation of Reading Entertainment, Inc., (filed as Exhibit 10.7 to Citadel's Annual
Report on Form 10-K for the year ended December 31, 1999 and incorporated herein by
reference).
10.5 Certificate of Designation of the Series A Voting Cumulative Convertible Preferred Stock of
Reading Entertainment, Inc. (filed as Exhibit 10.7a to Citadel's Annual Report on Form 10-K for
the year ended December 31, 1999 and incorporated herein by reference).
10.6 Stock Purchase Agreement dated as of April 11, 1997 by and between Citadel Holding
Corporation and Craig Corporation (filed as Exhibit 10.56 to Citadel's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997 and incorporated herein by reference).
10.7 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 Citadel's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 and incorporated herein by
reference).
10.8 Management Services Agreement dated December 26, 1997 between Big 4 Farming LLC and
Cecilia Packing (filed as Exhibit 10.71 to Citadel's Annual Report on Form 10-K for the year
ended December 31, 1997 and incorporated herein by reference).
10.9 Promissory Note dated December 20, 1999 between Citadel Holding Corporation and Nationwide
Life Insurance 3 (filed as Exhibit 10.36 to Citadel's Annual Report on Form 10-K for the year
ended December 31, 1999 and incorporated herein by reference).
10.10 Employment Agreement between Citadel Holding Corporation and Andrzej Matyczynski (filed as
Exhibit 10.37 to Citadel's Annual Report on Form 10-K for the year ended December 31, 1999
and incorporated herein by reference).**
10.11 Citadel 1999 Employee Stock Option Plan (filed as Exhibit 10.38 to Citadel's Annual Report on
Form 10-K for the year ended December 31, 1999 and incorporated herein by reference).
10.12 Amendment and Plan of Merger dated as of July 28, 2000 by and among Citadel Holding
Corporation, Citadel Off Broadway Theatre, Inc., Off Broadway Investments, Inc., Michael R.
Forman and James J. Cotter (filed as Exhibit A to Citadel's Proxy Statement on Schedule14A
dated August 12, 2000 and incorporated herein by reference).
II-2
Exhibit No. Description
----------- -----------
10.13 Form of Indemnification Agreement between Citadel Holding Corporation and each of its
directors and executive officers (contained as ANNEX F to the joint proxy statement (prospectus
made part of this registration statement).
10.14 Agreement and Plan of Merger, dated as of July 28, 2000, among Citadel, Citadel Off Broadway
Theatres, Inc., OBI, Michael R. Forman, and James J. Cotter (filed as Exhibit A to the Proxy
Statement dated August 12, 2000 of Citadel and incorporated herein by reference). (Schedules to
the Agreement and Plan of Merger are listed in the table of contents thereto and will be filed with
the Commission on request of the Commission.)
10.15 Agreement of Purchase and Sale of Membership Interest, dated as of July 28, 2000, among Citadel
Cinemas, Inc. ("Citadel Cinemas"), James J. Cotter, and Michael R. Forman (filed as Exhibit 10.1
to Citadel's Current Report on Form 8-K dated September 19, 2000 and incorporated herein by
reference).
10.16 Promissory Note, dated as of July 28, 2000, from Citadel Cinemas payable to James J. Cotter, in
the principal amount of $2,250,000 (filed as Exhibit 10.2 to Citadel's Current Report on Form 8-K
dated September 19, 2000 and incorporated herein by reference).
10.17 Promissory Note, dated as of July 28, 2000, from Citadel Cinemas payable to Michael R. Forman
in the principal amount of $2,250,000 (filed as Exhibit 10.3 to Citadel's Current Report on
Form 8-K dated September 19, 2000 and incorporated herein by reference).
10.18 Guaranty, dated as of July 28, 2000, by Citadel of Citadel Cinema's obligations under the
Promissory Note to James J. Cotter (filed as Exhibit 10.4 to Citadel's Current Report on Form 8-K
dated September 19, 2000 and incorporated herein by reference).
10.19 Guaranty, dated as of July 28, 2000 of Citadel of Citadel Cinemas's obligations under the
Promissory Note to Michael R. Forman (filed as Exhibit 10.5 to Citadel's Current Report on
Form 8-K dated September 19, 2000 and incorporated herein by reference).
10.20 Lease Agreement, dated as of July 28, 2000, between Sutton Hill Capital, L.L.C. ("SHC") and
Citadel Cinemas (filed as Exhibit 10.6 to Citadel's Current Report on Form 8-K dated
September 19, 2000 and incorporated herein by reference).
10.21 Lease Guarantee, dated as of July 28, 2000, by Citadel of Citadel Cinemas's obligations under the
Lease Agreement (filed as Exhibit 10.7 to Citadel's Current Report on Form 8-K dated
September 19, 2000 and incorporated herein by reference).
10.22 Agreement With Respect to Fee Option, dated as of July 29, 2000, between SHC and Citadel
Realty, Inc. (filed as Exhibit 10.8 to Citadel's Current Report on Form 8-K dated September 19,
2000 and incorporated herein by reference).
10.23 Guaranty, dated as of July 28, 2000, by Citadel of Citadel Realty, Inc.'s obligations under the
Agreement With Respect to Fee Option (filed as Exhibit 10.9 to Citadel's Current Report on
Form 8-K dated September 19, 2000 and incorporated herein by reference).
10.24 Guaranty, dated as of July 28, 2000, by James J. Cotter and Michael R. Forman (filed as
Exhibit 10.10 to Citadel's Current Report on Form 8-K dated September 19, 2000 and
incorporated herein by reference).
10.25 Guaranty dated as of July 28, 2000, by Sutton Hill Associates with respect to certain obligations of
SHC (filed as Exhibit 10.13 to Citadel's Current Report on Form 8-K dated September 19, 2000
and incorporated herein by reference).
10.26 License Agreement, dated as of July 28, 2000, between SHC and Citadel Cinemas (filed as
Exhibit 10.14 to Citadel's Current Report on Form 8-K dated September 19, 2000 and
incorporated herein by reference).
II-3
Exhibit No. Description
----------- -----------
10.27 Administrative Services Agreement, dated as of July 28, 2000, between City Cinemas, Inc. and
Citadel Cinemas (filed as Exhibit 10.15 to Citadel's Current Report on Form 8-K dated
September 19, 2000 and incorporated herein by reference).
10.28 Submanagement Agreement, dated as of July 28, 2000, between City Cinemas, Inc. and Citadel
Cinemas (filed as Exhibit 10.16 to Citadel's Current Report on Form 8-K dated September 19,
2000 and incorporated herein by reference).
10.29 Citadel Standby Credit Facility, dated as of July 28, 2000, between SHC and Citadel (filed as
Exhibit 10.17 to Citadel's Current Report on Form 8-K dated September 19, 2000 and
incorporated herein by reference).
10.30 Registration Rights Agreement, dated as of September 20, 2000, among Citadel, James J. Cotter,
and Michael R. Forman (filed as Exhibit 10.18 to Citadel's Current Report on Form 8-K dated
September 19, 2000 and incorporated herein by reference).
21.1 Subsidiaries of Citadel Holding Corporation (filed as Exhibit 21.1 to Citadel's Annual Report on
Form 10-K for the year ended December 31, 1999 and incorporated herein by reference).
23.1 Consent of Deloitte & Touche LLP relating to Citadel Holding Corporation.*
23.2 Consent of Deloitte & Touche LLP relating to Craig Corporation.*
23.3 Consent of Deloitte & Touche LLP relating to Reading Entertainment, Inc.*
23.4 Consent of Ernst & Young LLP relating to Craig Corporation.*
23.5 Consent of Ernst & Young LLP relating to Reading Entertainment, Inc.*
23.6 Consent of Kummer Kaempfer Bonner & Renshaw (included in Exhibit 5.1).*
23.7 Consent of Marshall & Stevens Incorporated.*
24.1 Power of Attorney regarding this Registration Statement.***
99.1 Form of Citadel Holding Corporation Proxy Card.*
99.2 Form of Craig Corporation Proxy Card.*
99.3 Form of Reading Entertainment, Inc. Proxy Card.*
99.4 Form of Craig Corporation Option Holder Election.*
99.5 Form of Reading Entertainment, Inc. Option Holder Election.*
--------
* Included herewith.
** These exhibits constitute the executive compensation plans and
arrangements of Citadel Holding Corporation.
***Previously filed.
(b)Financial Statement Schedules
Financial Statement Schedule III--Real Estate and Accumulated
Depreciation.
(c)Reports, Opinions or Appraisals
Opinion of Marshall & Stevens Incorporated (attached as ANNEX B to the joint
proxy statement/prospectus filed as part of this registration statement and
incorporated herein by reference).
Item 22. Undertakings
(1) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
II-4
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be initial bona fide offering thereof.
(2) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(3) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (2) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Exchange Act and is used
in connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(4) Insofar as the indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
(5) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporate documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(6) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act, Citadel Holding
Corporation has duly caused this pre-effective Amendment No. 1 to Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, State of California, on the 16th of
November, 2001.
CITADEL HOLDING CORPORATION
By: /s/ ANDRZEJ MATYCZYNSKI
-----------------------------------
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
pre-effective Amendment No. 1 to Registration Statement has been signed by the
following persons in the capacities and on the dates indicated:
/S/ JAMES J. COTTER
-------------------------- Chairman and Chief Executive Officer November 16, 2001
James J. Cotter (Principal Executive Officer)
/S/ ANDRZEJ MATYCZYNSKI
-------------------------- Chief Financial Officer (Principal November 16, 2001
Andrzej Matyczynski Financial and Accounting Officer)
/S/ S. CRAIG TOMPKINS
-------------------------- Director November 16, 2001
S. Craig Tompkins
/S/ ROBERT M. LOEFFLER
-------------------------- Director November 16, 2001
Robert M. Loeffler
/S/ WILLIAM C. SOADY
-------------------------- Director November 16, 2001
William C. Soady
/S/ ALFRED VILLASENOR, JR.
-------------------------- Director November 16, 2001
Alfred Villasenor, Jr.
II-6
Financial Statement Schedule III
Real Estate and Accumulated Depreciation
DECEMBER 31, 2000
(Dollars in thousands)
Initial Cost
--------------------
Costs Capitalized
Building and Subsequent to
Encumbrances Land Improvements Acquisition
------------ ------- ------------ -----------------
Commercial office building $10,872 $2,951 $4,180 $2,919
Life on Which
Accumulated Date Depreciation
Land Building Total Depreciation Acquired is Computed
------ -------- ------- ------------ -------- -------------
Commercial office building $2,951 $7,099 $10,050 $(1,021) 5/8/95 40
(1)The property listed above was 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, 2000 for federal
income tax purposes approximated $7,514,000.
(2)The following reconciliation reflects the aggregate rollforward activity of
property held and accumulated depreciation for the three years ended
December 31, 2000.
Gross Amount Accumulated Depreciation
------------ ------------------------
Balance at January 1, 1998.. $14,535 $ (883)
Depreciation expense..... -- (363)
Improvements............. 588 --
------- -------
Balance at December 31, 1998 $15,123 $(1,246)
Depreciation expense..... -- (206)
Cost of real estate sold. (6,608) 700
Other.................... (32) --
------- -------
Balance at December 31, 1999 $ 8,483 $ (752)
Depreciation expense..... -- (269)
Improvements............. 1,567 --
------- -------
Balance at December 31, 2000 $10,050 $(1,021)
======= =======
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
2.1 Agreement and Plan of Merger dated as of August 17, 2001 by and among Citadel Holding
Corporation, Craig Merger Sub, Inc., Reading Merger Sub, Inc., Craig Corporation and Reading
Entertainment, Inc. (filed as Exhibit 10 to Citadel's current report on Form 8-K dated August 17,
2001 and incorporated herein by reference).
3.1 Amended and Restated Articles of Incorporation of Citadel Holding Corporation (filed as
Exhibit 3.1 to Citadel's Annual Report on Form 10-K for the year ended December 31, 1999 and
incorporated herein by reference).
3.2 Amended and Restated Bylaws of Citadel Holding Corporation (filed as Exhibit 3.2 to Citadel's
Annual Report on Form 10-K for the year ended December 31, 1999 and incorporated herein by
reference).
4.1 Specimen Class A Nonvoting Common Stock Certificate of Citadel Holding Corporation.
4.2 Specimen Class B Voting Common Stock Certificate of Citadel Holding Corporation.
5.1 Opinion of Kummer Kaempfer Bonner & Renshaw regarding the legality of the securities being
issued.
10.1 Tax Disaffiliation Agreement dated as of August 4, 1994 by and between Citadel Holding
Corporation and Fidelity Federal Bank (filed as Exhibit 10.27 to Citadel's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1994 and incorporated herein by reference).
10.2 Exchange Agreement dated September 4, 1996 among Citadel Holding Corporation, Citadel
Acquisition Corp., Inc., Craig Corporation, Craig Management, Inc., Reading Entertainment, Inc.,
and Reading Company (filed as Exhibit 10.51 to Citadel's Annual Report on Form 10-K for the
year ended December 31, 1996 and incorporated herein by reference).
10.3 Asset Put and Registration Rights Agreement dated October 15, 1996 among Citadel Holding
Corporation, Citadel Acquisition Corp., Inc., Reading Entertainment, Inc., and Craig Corporation
(filed as Exhibit 10.52 to Citadel's Annual Report on Form 10-K for the year ended December 31,
1996 and incorporated herein by reference).
10.4 Articles of Incorporation of Reading Entertainment, Inc., (filed as Exhibit 10.7 to Citadel's Annual
Report on Form 10-K for the year ended December 31, 1999 and incorporated herein by
reference).
10.5 Certificate of Designation of the Series A Voting Cumulative Convertible Preferred Stock of
Reading Entertainment, Inc. (filed as Exhibit 10.7a to Citadel's Annual Report on Form 10-K for
the year ended December 31, 1999 and incorporated herein by reference).
10.6 Stock Purchase Agreement dated as of April 11, 1997 by and between Citadel Holding
Corporation and Craig Corporation (filed as Exhibit 10.56 to Citadel's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997 and incorporated herein by reference).
10.7 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 Citadel's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 and incorporated herein by
reference).
10.8 Management Services Agreement dated December 26, 1997 between Big 4 Farming LLC and
Cecilia Packing (filed as Exhibit 10.71 to Citadel's Annual Report on Form 10-K for the year
ended December 31, 1997 and incorporated herein by reference).
10.9 Promissory Note dated December 20, 1999 between Citadel Holding Corporation and Nationwide
Life Insurance 3 (filed as Exhibit 10.36 to Citadel's Annual Report on Form 10-K for the year
ended December 31, 1999 and incorporated herein by reference).
Exhibit No. Description
----------- -----------
10.10 Employment Agreement between Citadel Holding Corporation and Andrzej Matyczynski (filed as
Exhibit 10.37 to Citadel's Annual Report on Form 10-K for the year ended December 31, 1999
and incorporated herein by reference).**
10.11 Citadel 1999 Employee Stock Option Plan (filed as Exhibit 10.38 to Citadel's Annual Report on
Form 10-K for the year ended December 31, 1999 and incorporated herein by reference).**
10.12 Amendment and Plan of Merger dated as of July 28, 2000 by and among Citadel Holding
Corporation, Citadel Off Broadway Theatre, Inc., Off Broadway Investments, Inc., Michael R.
Forman and James J. Cotter (filed as Exhibit A to Citadel's Proxy Statement on Schedule 14A
dated August 12, 2000 and incorporated herein by reference).
10.13 Form of Indemnification Agreement between Citadel Holding Corporation and each of its
directors and executive officers (contained as ANNEX F to the joint proxy statement (prospectus
made part of this registration statement).
10.14 Agreement and Plan of Merger, dated as of July 28, 2000, among Citadel, Citadel Off Broadway
Theatres, Inc., OBI, Michael R. Forman, and James J. Cotter. (filed as Exhibit A to the Proxy
Statement dated August 12, 2000 of Citadel and incorporated herein by reference). (Schedules to
the Agreement and Plan of Merger are listed in the table of contents thereto and will be filed with
the Commission on request of the Commission.)
10.15 Agreement of Purchase and Sale of Membership Interest, dated as of July 28, 2000, among Citadel
Cinemas, Inc. ("Citadel Cinemas"), James J. Cotter, and Michael R. Forman (filed as Exhibit 10.1
to Citadel's Current Report on Form 8-K dated September 19, 2000 and incorporated herein by
reference).
10.16 Promissory Note, dated as of July 28, 2000, from Citadel Cinemas payable to James J. Cotter, in
the principal amount of $2,250,000 (filed as Exhibit 10.2 to Citadel's Current Report on Form 8-K
dated September 19, 2000 and incorporated herein by reference).
10.17 Promissory Note, dated as of July 28, 2000, from Citadel Cinemas payable to Michael R. Forman
in the principal amount of $2,250,000 (filed as Exhibit 10.3 to Citadel's Current Report on
Form 8-K dated September 19, 2000 and incorporated herein by reference).
10.18 Guaranty, dated as of July 28, 2000, by Citadel of Citadel Cinema's obligations under the
Promissory Note to James J. Cotter (filed as Exhibit 10.4 to Citadel's Current Report on Form 8-K
dated September 19, 2000 and incorporated herein by reference).
10.19 Guaranty, dated as of July 28, 2000 of Citadel of Citadel Cinemas's obligations under the
Promissory Note to Michael R. Forman (filed as Exhibit 10.5 to Citadel's Current Report on
Form 8-K dated September 19, 2000 and incorporated herein by reference).
10.20 Lease Agreement, dated as of July 28, 2000, between Sutton Hill Capital, L.L.C. ("SHC") and
Citadel Cinemas (filed as Exhibit 10.6 to Citadel's Current Report on Form 8-K dated
September 19, 2000 and incorporated herein by reference).
10.21 Lease Guarantee, dated as of July 28, 2000, by Citadel of Citadel Cinemas's obligations under the
Lease Agreement (filed as Exhibit 10.7 to Citadel's Current Report on Form 8-K dated
September 19, 2000 and incorporated herein by reference).
10.22 Agreement With Respect to Fee Option, dated as of July 29, 2000, between SHC and Citadel
Realty, Inc. (filed as Exhibit 10.8 to Citadel's Current Report on Form 8-K dated September 19,
2000 and incorporated herein by reference).
10.23 Guaranty, dated as of July 28, 2000, by Citadel of Citadel Realty, Inc.'s obligations under the
Agreement With Respect to Fee Option (filed as Exhibit 10.9 to Citadel's Current Report on
Form 8-K dated September 19, 2000 and incorporated herein by reference).
Exhibit No. Description
----------- -----------
10.24 Guaranty, dated as of July 28, 2000, by James J. Cotter and Michael R. Forman (filed as
Exhibit 10.10 to Citadel's Current Report on Form 8-K dated September 19, 2000 and
incorporated herein by reference).
10.25 Guaranty dated as of July 28, 2000, by Sutton Hill Associates with respect to certain obligations of
SHC (filed as Exhibit 10.13 to Citadel's Current Report on Form 8-K dated September 19, 2000
and incorporated herein by reference).
10.26 License Agreement, dated as of July 28, 2000, between SHC and Citadel Cinemas (filed as
Exhibit 10.14 to Citadel's Current Report on Form 8-K dated September 19, 2000 and
incorporated herein by reference).
10.27 Administrative Services Agreement, dated as of July 28, 2000, between City Cinemas, Inc. and
Citadel Cinemas (filed as Exhibit 10.15 to Citadel's Current Report on Form 8-K dated
September 19, 2000 and incorporated herein by reference).
10.28 Submanagement Agreement, dated as of July 28, 2000, between City Cinemas, Inc. and Citadel
Cinemas (filed as Exhibit 10.16 to Citadel's Current Report on Form 8-K dated September 19,
2000 and incorporated herein by reference).
10.29 Citadel Standby Credit Facility, dated as of July 28, 2000, between SHC and Citadel (filed as
Exhibit 10.17 to Citadel's Current Report on Form 8-K dated September 19, 2000 and
incorporated herein by reference).
10.30 Registrations Rights Agreement, dated as of September 20, 2000, among Citadel, James J. Cotter,
and Michael R. Forman (filed as Exhibit 10.18 to Citadel's Current Report on Form 8-K dated
September 19, 2000 and incorporated herein by reference).
21.1 Subsidiaries of Citadel Holding Corporation (filed as Exhibit 21.1 to Citadel's Annual Report on
Form 10-K for the year ended December 31, 1999 and incorporated herein by reference).
23.1 Consent of Deloitte & Touche LLP relating to Citadel Holding Corporation.
23.2 Consent of Deloitte & Touche LLP relating to Craig Corporation.
23.3 Consent of Deloitte & Touche LLP relating to Reading Entertainment, Inc.
23.4 Consent of Ernst & Young LLP relating to Craig Corporation.
23.5 Consent of Ernst & Young LLP relating to Reading Entertainment, Inc.
23.6 Consent of Kummer Kaempfer Bonner & Renshaw (included in Exhibit 5.1).
23.7 Consent of Marshall & Stevens Incorporated.
24.1 Power of Attorney regarding this Registration Statement (contained on page II-7 of this
registration statement). ***
99.1 Form of Citadel Holding Corporation Proxy Card.
99.2 Form of Craig Corporation Proxy Card.
99.3 Form of Reading Entertainment, Inc. Proxy Card.
99.4 Form of Craig Corporation Option Holder Election.
99.5 Form of Reading Entertainment, Inc. Option Holder Election.
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***Previously filed