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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. 2)
Filed by the Registrant[ ]
Filed by a Party other than the Registrant[X]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Citadel Holding Corporation
(Name of Registrant as Specified In Its Charter)
Dillon Investors, L.P.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act
Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
________________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
________________________________________________________________________
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
________________________________________________
2) Form, Schedule or Registration Statement No.:
________________________________________________
3) Filing Party:
________________________________________________
4) Date Filed:
________________________________________________
PRELIMINARY COPY - NOVEMBER [^] 21, 1994
DILLON INVESTORS, L.P.
__________
PROXY STATEMENT
In Opposition to the Board of Directors of
Citadel Holding Corporation
___________
ANNUAL MEETING OF STOCKHOLDERS
OF CITADEL HOLDING CORPORATION
To be held on December 12, 1994
To the Stockholders of Citadel Holding Corporation:
INTRODUCTION
This Proxy Statement, the accompanying letter and the
enclosed GREEN proxy card are furnished in connection with the
solicitation of proxies (the "Proxy Solicitation") by and on
behalf of Dillon Investors, L.P., a Delaware limited partnership
("Dillon"), to be used in connection with the Annual Meeting of
Stockholders (the "Annual Meeting") of Citadel Holding
Corporation, a Delaware corporation (the "Company"), to be held
on December 12, 1994, and at any and all adjournments or
postponements thereof. Dillon is soliciting proxies pursuant to
this Proxy Statement to elect the nominees of Dillon named herein
(the "Dillon Nominees") to the Board of Directors of the Company
(the "Board") and to oppose the authorization of additional
shares of common stock of the Company and the grant of authority
to the current Board to adjourn the Annual Meeting in its
discretion, as proposed by the Company. The Annual Meeting will
be held on December 12, 1994 at such time and place as specified
in the Company's Notice of Annual Meeting of Stockholders and
Proxy Statement (the "Company Proxy Statement"). This Proxy
Statement and the enclosed GREEN proxy card are first being
furnished to stockholders of the Company on or about November
___, 1994.
Based on 6,669,924 shares of common stock, par value $.01
per share (the "Shares"), of the Company reported as outstanding
as of the November [^] 14, 1994 record date in the preliminary
copies of the Notice of Annual Meeting of Stockholders and Proxy
Statement (the "Company Preliminary Proxy Statement") filed by
the Company with the Securities and Exchange Commission (the
"Commission") on [^] November 17, 1994, Dillon, Roderick H.
Dillon, Jr., Roderick H. Dillon, Jr. - IRA and Roderick H.
Dillon, Jr. Foundation (which are sometimes referred to herein
collectively as the "Dillon Entities") hold 659,000 Shares or
approximately 9.88% of the outstanding Shares as of such date.
On November 10, 1994, the Company issued to its controlling
stockholder, Craig Corporation ("Craig"), 1,329,114 shares of its
3% Cumulative Voting Convertible Preferred Stock (the "New
Preferred Stock"). Dillon is contesting such issuance as
improper (see "BACKGROUND OF THE PROXY SOLICITATION"). The New
Preferred Stock, which is convertible into Shares at any time,
votes jointly with the Shares on most matters, including the
election of directors, on a share-for-share basis. The Shares
and the shares of New Preferred Stock are collectively referred
to herein as the "Voting Stock." Dillon holds approximately
8.24% of the 7,999,038 Voting Stock outstanding as of the
November 14 record date.
By letter dated October 13, 1994, Dillon asked the Board to
promptly call a 1994 annual meeting of stockholders (which,
pursuant to the Company's By-Laws, should have been held in May
1994) and to respond publicly to inquiries concerning the current
business strategy of the Company and the best course of action to
maximize stockholder value. Other than scheduling the Annual
Meeting for December 12, 1994, the Board did not respond to
Dillon's letter. Dillon now seeks your votes in support of an
alternative slate of nominees at the Annual Meeting. Dillon
believes that you, the true owners of the Company, should have
the right to decide for yourselves how the Company should be
operated.
THE ABILITY OF DILLON TO HOLD PROXIES FOR THE ELECTION OF
THE DILLON NOMINEES (BUT NOT WITH RESPECT TO OTHER MATTERS BEING
CONSIDERED AT THE ANNUAL MEETING) IS DEPENDENT UPON THE RECEIPT
OF ADVICE FROM THE OFFICE OF THRIFT SUPERVISION (THE "OTS") WITH
RESPECT TO THE APPLICABILITY OF THE OTS CONTROL REGULATIONS TO
THE SOLICITATION OF PROXIES FOR THE ELECTION OF DIRECTORS AT THE
ANNUAL MEETING. SEE "REGULATORY APPROVALS."
DILLON URGES YOU TO SIGN, DATE AND RETURN TO DILLON THE
ENCLOSED GREEN PROXY CARD TO VOTE FOR THE ELECTION OF THE DILLON
NOMINEES AS DIRECTORS AND AGAINST ALL OTHER PROPOSALS.
BACKGROUND OF THE PROXY SOLICITATION
The Dillon Entities purchased their 659,000 Shares from
March 17, 1993 through March 16, 1994 at prices ranging from
$20.22 per Share to $4.54 per Share. On September 7, 1994, the
[^] reported [^] low for the Shares on the American Stock
Exchange ("AMEX") was $3.50, the lowest price at which the Shares
[^] had traded in the past ten years. (On November 17, 1994, the
Shares sunk to a new low on the AMEX of $3.44). As a result of
the weakness in the market price of the Shares, and the results
of the recapitalization and restructuring involving the Company
and its formerly wholly owned subsidiary, Fidelity Federal Bank,
a Federal Savings Bank ("Fidelity"), which were materially less
favorable to the Company than had been anticipated (see "REASONS
TO REPLACE THE PRESENT BOARD WITH THE DILLON NOMINEES"), the
Dillon Entities began to consider seeking a greater voice in the
Company's affairs.
As set forth above, by letter dated October 13, 1994,
Dillon asked the Board to promptly call a 1994 annual meeting of
stockholders (which, pursuant to the Company's By-Laws, should
have been held in May 1994) and to respond publicly to inquiries
concerning the current business strategy of the Company and the
best course of action to maximize stockholder value. Other than
scheduling the Annual Meeting for December 12, 1994, with a
record date of November 4, 1994, the Board did not respond to
Dillon's letter. In that letter, Dillon stated its opinion that
a dissolution and liquidation of the Company's assets would seem
to be the best strategy to maximize the value of the Shares to
stockholders. Dillon does not believe that such value is
maximized through the current operation of the Company as a real
estate company, as evidenced by the recent market prices for the
Shares.
On October 21, 1994, the Company sold 74,300 Shares to
Craig [^], which resulted in Craig's owning more than 10% of the
outstanding Shares. Craig's Chairman, James Cotter, and
President, S. Craig Tompkins, serve as the Company's Chairman and
Vice Chairman, respectively. The agreed upon purchase price was
the lesser of the average trading price for the Shares on (a) the
three trading days preceding October 21, 1994 or (b) the five
trading days following October 21, 1994. The actual price paid
by Craig for such additional Shares was $3.85 per Share(1).
____________
(Footnote 1 above)
OTS approval for Craig to purchase in excess of 10% of the outstanding Shares
was scheduled to expire on October 23, 1994; thus, the issuance of such
Shares, at what Dillon believes to be depressed market prices, enabled Craig
to buy additional Shares in the future without regulatory delay. Craig had
stated in Amendment No. 13 to its Schedule 13D filed with the Commission on
October 26, 1994 that it would have been unwilling to file an agreement with
the OTS to avoid such delay because such an agreement "would have substantially
limited Craig's ability to exercise an influence over the business and affairs
of" the Company.
_____________
On November 4, 1994, Dillon filed an amendment to its
Schedule 13D stating its intention to solicit proxies to elect a
slate of nominees to the Board. Also on November 4, the Company
announced that the record date for the stockholders entitled to
vote at the Annual Meeting had been changed from November 4, 1994
to November 11, 1994.
On November 7, 1994, Dillon commenced litigation (the
"Delaware Litigation") in the Court of Chancery of the State of
Delaware in and for New Castle County against the Company, its
present directors James J. Cotter, Steve Wesson, Peter W. Geiger,
S. Craig Tompkins and Alfred Villasenor, Jr. (the "Individual
Defendants") and Craig alleging that the attempt by the Company's
Board to change the record date for the Annual Meeting was not
for a proper corporate or business purpose of the Company but to
enable the Individual Defendants to perpetuate themselves in
office by improperly manipulating the corporate machinery of the
Company so as to permit them to issue additional Shares to Craig
or other "friendly hands" prior to the new record date and, in
addition, alleging that the Company's issuance in October of the
74,300 Shares to Craig was done for inadequate consideration and
not for a proper business purpose of the Company but rather to
enable the Individual Defendants to maintain themselves in office
and to affect adversely and to impede the voting rights of Dillon
and the other stockholders of the Company at the Annual Meeting.
The complaint sought an order declaring that such 74,300 Shares
were improperly issued and enjoining Craig from voting such
Shares at the Annual Meeting, determining that any Shares issued
by the Company after November 4, 1994 shall not be voted or
counted towards a quorum at the Annual Meeting, and preliminarily
and permanently enjoining the Individual Defendants and the
Company from issuing any Shares prior to the Annual Meeting.
Also on November 7, Roderick H. Dillon, Jr. delivered a consent
to the Company, together with a letter announcing Dillon's
intention to engage in a consent solicitation.
On November 8, 1994, the Company announced that the record
date for purposes of the Annual Meeting was November 14, 1994,
and that the prior announcement "erroneously reported the record
date of the meeting." On November 11, 1994, the Company issued a
press release indicating that it had sold to Craig 1,329,114
shares of [^] New Preferred Stock [^] on November 10, 1994 at a
price of $3.95 per share by exchanging such shares for $5.2
million of debt owed by the Company to Craig. The New Preferred
Stock votes jointly with the Shares on most matters, including
the election of directors, on a share-for-share basis and is
convertible into Shares at any time, at the option of the holder,
at a conversion ratio based upon the market price of the Shares
(up to a maximum price of $5.00). The New Preferred Stock is
redeemable at a premium at the option of the Company after
November 10, 1997. Holders of the New Preferred Stock have the
right to require the Company to purchase their shares at a
premium under certain circumstances, including a change of
control (which would include failure of the existing directors or
any persons elected or nominated by the existing directors to
constitute a majority of the Board).
On November 14, 1994, Dillon amended its complaint filed in
the Delaware Litigation to seek rescission of the sale of the New
Preferred Stock and to preliminarily and permanently enjoin the
voting of such stock at the Annual Meeting or otherwise. Such
amended complaint alleges that such issuance of New Preferred
Stock was in violation of the Board's fiduciary duties, as such
stock was issued for inadequate consideration and not for a
proper business or corporate purpose of the Company. The shares
of New Preferred Stock were issued at a share price below the
closing sales price for the Shares on the AMEX on such date,
notwithstanding the fact that such New Preferred Stock has
superior liquidation, dividend and redemption rights to the
Shares, voting rights equal to the Shares and is convertible into
Shares. Dillon believes that the New Preferred Stock was issued
to Craig solely for the purposes of improperly increasing Craig's
voting power, diluting the voting power of the Company's existing
stockholders other than Craig and entrenching the Company's
management. On November 9, 1994, prior to the Company's issuance
of the New Preferred Stock to Craig, the Court scheduled a trial
beginning January 4, 1995, after determining that a prompt trial
after the Annual Meeting, together with a status quo order
preserving the parties in the position they were from the time of
the Annual Meeting through conclusion of the trial, would afford
sufficient relief. The Court did, however, indicate that it
would entertain a new request for injunctive relief should
significant events occur. Dillon has not definitively determined
whether to request relief from the Court prior to the Annual
Meeting, although Dillon will continue to monitor the situation.
If the Dillon Nominees are elected by vote at the Annual Meeting
or pursuant to written consent, it is Dillon's intention to
prosecute the Delaware Litigation in order to invalidate the
issuance of the New Preferred Stock.
On November 16, 1994, the Company commenced litigation in
California seeking to forbid Dillon, among others, from
soliciting proxies or voting its own Shares at the Annual
Meeting, and also filed an answer and counterclaim in the
Delaware Litigation seeking to invalidate Dillon's proposed
consent solicitation (see "Consent Solicitation," below)(2).
The California Litigation Defendants intend to vigorously defend
against such claims in the California Litigation, and Dillon
intends to vigorously defend against the counterclaim in the
Delaware Litigation.
___________
(Footnote 2 above)
The action, commenced in the United States District Court for the Central
District of California (the "California Litigation"), against the Dillon
Entities and the Dillon Nominees (collectively, the "California Litigation
Defendants") alleges that the California Litigation Defendants have violated
Section 13(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations promulgated thereunder by
failing to disclose certain information in their Schedule 13D and the
amendments thereto. The Company's complaint seeks an order forbidding the
California Litigation Defendants from, among other things, soliciting any
proxies or consents related to the Shares until the California Litigation
Defendants have disclosed the material information allegedly omitted from,
and corrected the information allegedly misstated in, their Schedule 13D
and the amendments thereto, voting any Shares pursuant to any proxy or
consent which may be granted pursuant to the Proxy Solicitation or acquiring
or attempting to acquire any further Shares, in either case prior to the date
ten days following public dissemination of the corrective disclosures.
________________
The Distribution, the Real Estate Sales and the Dissolution
Dillon believes that you, the true owners of the Company,
should have the right to decide for yourselves how the Company
should be operated. If elected, the Dillon Nominees intend to
propose, subject to their fiduciary duties, that the Company (i)
effect a pro rata distribution of the shares of Fidelity
currently held by the Company to the stockholders of the Company
(the "Distribution"), (ii) effect an orderly sale of the
Company's real estate assets at the best available price (the
"Real Estate Sales") and (iii) thereafter promptly dissolve and
liquidate the Company (the "Dissolution"). None of the Dillon
Entities or their affiliates would participate in any transaction
with the Company regarding a sale or liquidation of any of the
Company's assets, other than pursuant to their pro rata interest
as stockholders.
Consent Solicitation
As an alternate means to facilitate the consummation of the
Distribution, the Real Estate Sales and the Dissolution, Dillon
is [^] soliciting consents from stockholders of the Company (the
"Consent Solicitation"), concurrently with the Proxy Solicitation
, to its proposals to (i) remove all the incumbent directors of
the Company, (ii) elect the Dillon Nominees to the Board and
(iii) amend the Company's By-Laws to restrict the indemnification
of (or advancement of expenses to) its officers, directors,
employees and agents without the prior approval of the holders of
a majority of outstanding Shares. Dillon believes that the
Consent Solicitation is necessary [^] because the [^] record [^]
date for [^] the Consent Solicitation [^] is before the issuance
of 16.6% of the Voting Stock to Craig and before the reset record
date for the Annual Meeting. The earlier record date for the
Consent Solicitation of November 7, 1994, rather than the
Company's proposed November 14, 1994 record date for the Proxy
Solicitation, allows only the record holders of Shares (as the
only voting securities) prior to the issuance of the New
Preferred Stock, to vote their Shares with respect to how the
Company should be operated.
Assuming Dillon is successful in the Proxy Solicitation and
the Consent Solicitation is still pending, it is Dillon's current
intention not to pursue the completion of the Consent
Solicitation or the amendment of the Company's By-Laws in the
manner provided above.
DILLON URGES YOU TO SIGN, DATE AND RETURN TO DILLON THE
ENCLOSED GREEN PROXY CARD TO VOTE FOR THE ELECTION OF THE DILLON
NOMINEES AS DIRECTORS.
REASONS TO REPLACE THE PRESENT BOARD WITH THE DILLON NOMINEES
Poor Operating Performance
The Company has incurred significant operating losses
during recent years, primarily as a result of the poor
performance of Fidelity. The Company reported a net loss of
$92.0 million ($13.95 per Share) for the second quarter of 1994,
and a loss of $106.8 million ($16.19 per Share) for the six
months ended June 30, 1994, as reported in the Company's
Quarterly Report on Form 10-Q for the period ended June 30, 1994
(the "Form 10-Q"). As a result of such losses, the Company
commenced a series of steps to internally reorganize in order to,
among other things, strengthen Fidelity's operations. The
Company ultimately entered into a restructuring and
recapitalization transaction (the "Restructuring and
Recapitalization"), major aspects of which were consummated on
August 4, 1994.
Pursuant to the Restructuring and Recapitalization,
Fidelity transferred certain of its real estate assets to a
newly-formed subsidiary of the Company and made a public offering
which resulted in the reduction of the Company's equity interest
in Fidelity from 100% to approximately 16.18%. The Board
announced that, following the Restructuring and Recapitalization,
the Company would become a real estate company and focus on the
servicing and enhancement of its real estate portfolio.
Unfortunately, as noted by the Company in the Form 10-Q,
the results of the Restructuring and Recapitalization were
materially less favorable to the Company than had previously been
anticipated. In light of such results, by letter dated October
13, 1994, Dillon asked the Board to respond publicly to inquiries
concerning the current business strategy of the Company, the
action required to effect a pro rata distribution to the
stockholders of the Company of the shares of Fidelity currently
held by the Company, whether a dissolution of the Company and
liquidation of its assets would be the best strategy to maximize
stockholder value, and why, in light of the consummation of the
Restructuring and Recapitalization, the Company is still
registered with the OTS as a savings and loan holding company.
The Board did not respond to Dillon's inquiries and appears
unwilling to consider proposals to operate the Company in any
manner other than as a real estate company. The Board's only
action to date has been to reset the record date for the Annual
Meeting and, prior to such new date, issue securities having over
1.3 million votes to Craig for what Dillon believes was
inadequate consideration, so that Craig would be able to vote
such securities at the Annual Meeting for the existing directors,
including Craig's own Chairman and its President.
Dillon is concerned that the Board may dispose of the
shares of Fidelity held by the Company and may use the proceeds
of such disposition in furtherance of its stated plans to develop
the Company as a real estate company. Likewise, Dillon is
concerned that the Board, which is seeking stockholder approval
at the Annual Meeting to double the number of authorized Shares
(see "MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING - PROPOSAL
2: AUTHORIZATION OF ADDITIONAL SHARES OF COMMON STOCK"), will
issue additional Shares and use the proceeds of such issuances in
furtherance of such plans. Such issuances could also be utilized
to further increase the stock ownership of management and persons
friendly to management in order to provide them an even greater
voice in pursuing such plans.
Interested-Party Transactions
Dillon is also concerned that the current Board will
continue a pattern of interested-party transactions with its
controlling stockholder, Craig, and Craig's officers who also
serve on the Company's Board.
In August 1994, the Company entered into an $8.2 million
line of credit agreement with Craig (the "Craig Line of Credit")
which has a one year maturity (subject to an option to extend for
a period of six months). The Craig Line of Credit, among other
things, paid Craig a $205,000 up front "commitment fee," up to
$100,000 for "expenses" and interest at three percentage points
over the prime rate for a fully secured loan. $5.2 million of
the $6.2 million outstanding loan under the Craig Line of Credit
was then replaced only three months later by the issuance to
Craig of the New Preferred Stock, and Craig's commitment to
extend any further loans under the Craig Line of Credit was
terminated. The exchange of debt for New Preferred Stock took
place at a price below the current market price for the Shares,
notwithstanding the fact that the New Preferred Stock votes
jointly with the Shares on most matters, is convertible into
Shares and has superior liquidation, dividend and redemption
rights to the Shares. In the event of a change of control
(including failure of the existing directors or their nominees to
constitute a majority of the Board), such New Preferred Stock
also gives Craig the right to cause the Company to repurchase the
New Preferred Stock at a premium equal to approximately $39,000
per month from the date of issuance to the date of repurchase.
In addition, Dillon notes that the Company Preliminary
Proxy Statement indicates that the annual fees paid to the
Company's Chairman, James Cotter, who is also the Chairman of
Craig, were more than doubled to $100,000 in December 1993,
retroactive to October 1991. Following such retroactive increase
and payment, in August 1994 the Board reduced future payments to
Mr. Cotter to $45,000 per year. The Company's Vice Chairman, S.
Craig Tompkins, who is the President of Craig, receives a fee of
at least $35,000 per year from the Company.
Dillon's investment of over $3.8 million in the Company was
intended to be an investment in a savings and loan with real
estate assets, not [^] in a real estate company. Dillon further
believes that most other stockholders did not intend to invest in
a real estate company. Dillon now seeks your votes in support of
an alternative slate of nominees at the Annual Meeting. Dillon
believes that you, the true owners of the Company, should have
the right to decide for yourselves how the Company should be
operated. Our nominees are committed to maximizing [^] value for
ALL stockholders by establishing the stockholders' direct
investment in Fidelity, selling the real estate assets of the
Company and dissolving the Company and liquidating any remaining
assets, as described below. None of the Dillon Entities or their
affiliates would participate in any transaction with the Company
regarding a sale or liquidation of any of the Company's assets,
other than pursuant to their pro rata interest as stockholders.
YOU CAN TAKE SOME IMMEDIATE STEPS TO HELP OBTAIN THE
MAXIMUM VALUE FOR YOUR SHARES BY SIGNING, DATING AND RETURNING
YOUR GREEN PROXY CARD FOR THE ELECTION OF THE DILLON NOMINEES TO
THE BOARD.
DILLON'S STRATEGY FOR THE COMPANY
The Distribution
In connection with the Restructuring and Recapitalization,
the Company's equity interest in Fidelity was reclassified into
4,202,243 shares of Fidelity's non-voting Class B Common Stock
(the "Fidelity Class B Stock"), representing approximately 16.18%
of the outstanding shares of Fidelity.
Dillon believes that, to maximize [^] value for all
stockholders and establish the stockholders' direct investment in
Fidelity, the Board should effect a pro rata distribution of the
shares of Fidelity currently held by the Company to the
stockholders of the Company (the "Distribution"). Dillon
believes that the value of such shares of Fidelity are being
discounted by the market due to the operation of the Company as a
real estate company, wherein such shares are mixed with the
Company's real estate assets. While there is not an active
market for Fidelity shares, which are currently unregistered,
Dillon has been informed by J.P. Morgan Securities Inc., the
principal market maker for the Fidelity voting Class A Common
Stock (the "Fidelity Class A Stock") (into which the Fidelity
Class B Stock is automatically convertible upon transfer by the
Company to an unaffiliated party) that since the offering of
Fidelity common stock at $5.25 per share pursuant to the
Restructuring and Recapitalization, the Fidelity Class A Stock
has traded between $5.00 and $5.75 per share. These prices would
be equal to approximately $3.15 to $3.62 per Share (on a primary
basis, not including as outstanding Shares issuable upon
conversion of the New Preferred Stock issued to Craig). Dillon
therefore believes that the shares of Fidelity would be more
valuable to the stockholders of the Company if held by them
directly, as opposed to being held by the Company.
If elected, the Dillon Nominees intend to fix a record date
for the Distribution as soon as practicable and distribute to
each holder of Shares on such record date, on a pro rata basis,
shares of Fidelity. As a result of the Distribution,
stockholders of the Company would hold shares in both the Company
and Fidelity.
All stockholders of the Company would likely receive shares
of Fidelity Class A Stock as a result of the Distribution.
Currently, the Company holds shares of Fidelity Class B Stock.
However, the terms of the Fidelity Class B Stock provide that
such shares will automatically be converted into shares of
Fidelity Class A Stock when they are received by any person who
is not [^] a holder of at least 5% or more of Fidelity's
outstanding common stock or a member of a "group" under Section
13(d) of the Exchange Act which holds at least 5% or more of
Fidelity's outstanding common stock (collectively, a "Fidelity 5%
Holder"). In addition, the terms of the Fidelity Class B Stock
provide that all shares of Fidelity Class B Stock will
automatically be converted into shares of Fidelity Class A Stock
at such time as all shares of Fidelity Class B Stock represent
less than 10% of the outstanding common stock of Fidelity on a
fully diluted basis. Since the Fidelity Class B Stock currently
represents approximately 16.18% of the outstanding fully diluted
common stock of Fidelity and since, according to the Company
Preliminary Proxy Statement and Fidelity's offering materials in
the Restructuring and Recapitalization, less than 25% of the
Company's stockholders [^] could be considered Fidelity 5%
Holders, the Distribution would likely cause all stockholders of
the Company[^] to receive Fidelity Class A Stock. The
preferences and privileges of the Fidelity Class A Stock and the
Fidelity Class B Stock are the same except with respect to voting
rights and conversion rights.
The exact timing and details of the Distribution will
depend on a variety of factors and legal requirements, including
determination by the Dillon Nominees that the Fidelity shares
received in the Distribution by the Company's stockholders (other
than affiliates, if any, of Fidelity) will be freely
transferable. This may require registration of the Fidelity
shares pursuant to existing registration rights for such shares,
which rights are not exercisable by the Company until March 31,
1995[^] (the date on which Fidelity's Report on Form 10-K for the
fiscal year ended December 31, 1994 is due). If for any reason
Fidelity were not to honor such registration rights in accordance
with their terms, the Distribution could be delayed until such
registration is effected. In addition, the Company has indicated
that Fidelity shares currently are required to trade in minimum
blocks of 100,000 shares. Such restriction will expire upon the
filing of Fidelity's Annual Report on Form 10-K for the year
ended December 31, 1994, which is due no later than March 31,
1995.
Notwithstanding their present belief that the Distribution
would maximize stockholder value, in the event that the Dillon
Nominees, following their election and after careful review of
then available information, were to determine, pursuant to the
exercise of their fiduciary duties, that stockholder values would
be maximized by other alternatives, such as a block or other sale
of the Fidelity shares and distribution of the net proceeds to
the Company's stockholders, the Dillon Nominees would pursue such
alternatives.
Real Estate Sales
As set forth above, Dillon's investment of over $3.8
million in the Company was not made for the purpose of investing
in a real estate company. Dillon also believes that most of the
Company's other stockholders did not intend to invest in a real
estate company. Based upon statements made by the Company in the
Form 10-Q, Dillon believes that the Company's real estate assets
(including assets on which the Company holds purchase options)
have a market value in excess of their purchase price or option
exercise price(3). Therefore, Dillon believes that, to maximize
stockholder value, the Board should effect an orderly sale of the
real estate assets of the Company at the best available price
(the "Real Estate Sales"). The timing of the Real Estate Sales
will be determined after consideration of all relevant factors,
including detailed information then available regarding the
status of the properties and the condition of the relevant
property markets at that time, in order to maximize proceeds to
the Company and its stockholders. See "MATTERS TO BE CONSIDERED
AT THE ANNUAL MEETING -Proposal 1: Election of Directors -
Dillon Nominees," for information with respect to the extensive
real estate experience of the Dillon Nominees.
_______________
- ------------------ COMPARISON OF FOOTNOTES ------------------
- -FOOTNOTE 1-
[^] OTS approval for Craig to purchase in excess of 10% of the
outstanding Shares was scheduled to expire on October 23, 1994;
thus, the issuance of such Shares, at what Dillon believes to be
depressed market prices, enabled Craig to buy additional Shares
in the future without regulatory delay. Craig had stated in
Amendment No. 13 to its Schedule 13D filed with the Commission on
October 26, 1994 that it would have been unwilling to file an
agreement with the OTS to avoid such delay because such an
agreement "would have substantially limited Craig's ability to
exercise an influence over the business and affairs of" the
Company.
- -FOOTNOTE 2-
The action, commenced in the United States District Court for the
Central District of California (the "California Litigation"),
against the Dillon Entities and the Dillon Nominees
(collectively, the "California Litigation Defendants") alleges
that the California Litigation Defendants have violated Section
13(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations promulgated
thereunder by failing to disclose certain information in their
Schedule 13D and the amendments thereto. The Company's complaint
seeks an order forbidding the California Litigation Defendants
from, among other things, soliciting any proxies or consents
related to the Shares until the California Litigation Defendants
have disclosed the material information allegedly omitted from,
and corrected the information allegedly misstated in, their
Schedule 13D and the amendments thereto, voting any Shares
pursuant to any proxy or consent which may be granted pursuant to
the Proxy Solicitation or acquiring or attempting to acquire any
further Shares, in either case prior to the date ten days
following public dissemination of the corrective disclosures.
- -FOOTNOTE [2] 3-
The Form 10-Q states that with "active management and certain
capital expenditures, the Company's owned properties "if sold on
an individual basis, could be worth more than [the Company]
purchased them for in [connection with the Restructuring and
Recapitalization], but there can be no assurance on this point."
In addition, the Form 10-Q states that the value of the options
could be "up to $3 million above the exercise price of [the
options], before costs the Company would incur in connection with
the exercise, which may be significant." The terms of the options
indicate that they are transferable prior to exercise.
- -FOOTNOTE 4-
The election of the Dillon Nominees would, depending upon the
outcome of the Delaware Litigation (see "BACKGROUND OF THE PROXY
SOLICITATION"), either permit Craig to accelerate its original
$6.2 million loan to the Company or to accelerate the remaining
$950,000 loan and require the Company to repurchase the New
Preferred Stock at a premium, for a total cost to the Company of
$6.2 million plus approximately $39,000 per month, pro rated,
from the date of issuance to the date of redemption of the New
Preferred Stock. Although Dillon has not approached any financing
sources with respect to the Company's obtaining funds to enable
it to meet such obligations, Dillon believes that financing,
secured by such assets, would be available, based upon the fact
that Craig was willing to supply the Craig Line of Credit and the
Company's statements with respect to its real estate assets in
the Form 10-Q (see "DILLON'S STRATEGY FOR THE COMPANY - Real
Estate Sales"), although there can be no assurance on this point.
- -FOOTNOTE 1-
The 659,000 Shares include (i) 647,000 Shares held by Dillon,
(ii) 5,000 Shares held by Roderick H. Dillon, Jr., (iii) 5,000
Shares held by Roderick H. Dillon Jr. - IRA, and (iv) 2,000
Shares held by Roderick H. Dillon, Jr. Foundation.
- -FOOTNOTE 1-
Except as otherwise indicated, the persons listed as beneficial
owners of the Shares have the sole voting and investment power
with respect to such Shares.
- -FOOTNOTE 2-
[^] Includes the 1,329,114 shares of [^] New Preferred Stock
issued by the Company to Craig on November 10, 1994, which shares
are immediately convertible into Shares.
- -FOOTNOTE 1-
Rounded to the nearest cent.
- -FOOTNOTE 2-
Purchased by Roderick H. Dillon, Jr. - IRA.
- -FOOTNOTE 3-
Purchased by Roderick H. Dillon, Jr. Foundation.
- -FOOTNOTE 4-
Purchased by Roderick H. Dillon, Jr.
- -FOOTNOTE 5-
Purchased by Roderick H. Dillon, Jr. Foundation.
- -FOOTNOTE 6-
Purchased by Bradley C. Shoup - IRA.
PRELIMINARY COPY
[front of proxy card]
PROXY - Citadel Holding Corporation - Solicited by Dillon Investors, L.P.
for Annual Meeting December 12, 1994
The undersigned, revoking all other proxies heretofore given,
appoints Roderick H. Dillon, Jr. and Bradley C. Shoup, and each
of them, with full power of substitution, as proxy or proxies, to
vote all shares of the undersigned of Common Stock of Citadel
Holding Corporation at the Annual Meeting of Stockholders on
December 12, 1994, and at any adjournment or postponement thereof
(the "Annual Meeting"), as instructed below upon the proposals
which are more fully set forth in the Proxy Statement of Dillon
Investors, L.P. ("Dillon"), dated November ____, 1994 (receipt of
which is acknowledged) and in their discretion upon any other
matters as may properly come before the meeting, including but
not limited to, any proposal to adjourn or postpone the meeting,
provided, however, that this appointment shall not be effective
to vote with respect to Proposal 1 (Election of Directors) unless
and until Dillon has received advice from the Office of Thrift
Supervision ("OTS") confirming that the OTS Control Regulations
will not preclude Dillon from holding proxies to vote for
directors at the Annual Meeting, or Dillon is otherwise able to
hold such proxies without violating such Regulations.
Dillon Investors, L.P. Recommends a Vote FOR all Nominees listed
and AGAINST Proposal 2
1. ELECTION OF
DIRECTORS: ___ FOR all ___ WITHHOLD AUTHORITY to
nominees vote for all nominees
listed listed below
below
(except as marked to
the contrary below)
Roderick H. Dillon, Jr., Bradley C. Shoup, Timothy M. Kelley, Ralph V.
Whitworth and Jordan M. Spiegel
(INSTRUCTION: To vote for all nominees listed here, mark the
"FOR" line above; to withhold authority for all nominees listed
here, mark the "WITHHOLD AUTHORITY" line above; and to withhold
authority to vote for any individual nominee listed here, mark
the "FOR" line above and write the nominee's name in the space
below):
2. AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION:
FOR ___ AGAINST ___ ABSTAIN ___
3. GRANT OF AUTHORITY TO CURRENT BOARD TO ADJOURN ANNUAL
MEETING:
FOR ___ AGAINST ___ ABSTAIN ___
(Continued on reverse side)
[REVERSE OF PROXY CARD]
The shares represented hereby will be voted in accordance with
the directions given in this proxy. If not otherwise directed
herein, shares represented by this proxy will be voted FOR all
nominees listed in Proposal 1 and AGAINST [^] Proposals 2 and 3.
The shares represented hereby may be voted to adjourn the Annual
Meeting, or the proxies named herein may determine not to present
this proxy at the Annual Meeting in order to defeat a quorum, if,
in their sole discretion, they believe such action to be
desirable in furtherance of Dillon's stated objectives. If any
other matters are properly brought before the Annual Meeting,
such proxies will be voted on such matters as such persons, in
their sole discretion and consistent with the federal proxy
rules, may determine.
Dated: ________________, 1994
_______________________________
(Signature)
_______________________________
(Signature if jointly held)
Title: ________________________
Please sign exactly as name appears herein. When shares are
held by joint tenants, both should sign; when signing as an
attorney, executor, administrator, trustee or guardian, give
full title as such. If a corporation, sign in full corporate
name by President or other authorized officer. If a
partnership, sign in partnership name by authorized partner.
PLEASE SIGN, DATE AND MAIL PROMPTLY IN THE POSTAGE-PAID ENVELOPE
ENCLOSED.