EXHIBIT 10.40
CONVERSION DEFERRAL,
WARRANT AND REIMBURSEMENT AGREEMENT
This Warrant and Settlement Agreement (the "Agreement"), is made and
entered into as of April 11, 1995, by and between Citadel Holding Corporation, a
Delaware corporation ("Citadel"), and Craig Corporation, a Delaware corporation
("Craig").
RECITALS
A. Craig owns shares of common stock, par value $.01 per share (the
"Common Stock"), and 3% Cumulative Voting Convertible Preferred Stock, par value
$.01 per share (the "Preferred Stock"), of Citadel.
B. Citadel and Craig are defendants in a lawsuit filed by Dillon
Investors, L.P., a Delaware partnership ("Dillon LP"), in the Court of Chancery
of the State of Delaware in and for New Castle County (C.A. No. 13867) (the
"Delaware Action").
C. Citadel is the plaintiff in a lawsuit filed by it in the United
States District Court, Central District of California (Case No. CV-94-7735 R)
(the "Federal Action", and collectively with the Delaware Action, the
"Actions"), naming as defendants Dillon LP, Roderick H. Dillon, Jr. ("Dillon"),
Roderick H. Dillon, Jr. Foundation, an Ohio trust ("Dillon Trust"), and Roderick
H. Dillon, Jr.-IRA ("Dillon IRA"; Dillon LP, Dillon, Dillon Trust and Dillon IRA
are collectively referred to herein as the "Dillon Parties"), and certain other
individuals.
D. Citadel, Craig and the Dillon Parties have executed agreements to
settle the Actions and to provide mutual releases of all claims related thereto
(the Settlement Agreements"), pursuant to which, among other things, (i) Citadel
is acquiring from the Dillon Parties 666,000 shares of Common Stock and (ii)
Craig has agreed that, prior to February 4, 1996, Craig will not, absent the
approval of a majority of the outstanding shares of Common Stock of Citadel,
exercise its right to tender any share or shares of the Preferred Stock for
conversion into common stock of Citadel pursuant to Section 7 of the Certificate
of Designation of the Preferred Stock.
NOW, THEREFORE, in consideration of the foregoing and the provisions
set forth below, the parties hereto agree as follows:
1. Conversion Deferral. In conformity with the Settlement
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Agreements, Craig hereby agrees, effective on the Closing Date (as defined
below), that, prior to February 4, 1996, Craig will not, absent the approval of
a majority of the outstanding shares of Common Stock of Citadel, exercise its
right to tender any share or shares of the Preferred Stock for conversion into
Common Stock of Citadel pursuant to Section 7 of the Certificate of Designation
of the Preferred Stock (the "Conversion Deferral")
2. Warrant.
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2.1 In consideration of Craig's agreement to the Conversion Deferral,
Citadel hereby grants to Craig, effective on the Closing Date, a warrant (the
"Warrant"), exercisable on or prior to the second anniversary of the date of
this Agreement in whole or from time to time in part, to purchase 666,000 shares
(the "Warrant Shares") of Common Stock of Citadel, representing the number of
shares of Common Stock purchased by Citadel from the Dillon Parties pursuant to
the Settlement Agreements, at a price per share, payable in cash, of $3.00 (the
"Warrant Price"). If the outstanding shares of Common Stock are increased or
decreased, or are changed into or exchanged for a different number or kind of
shares or securities, as a result of one or more reorganizations,
recapitalizations, mergers, consolidations, stock splits, reverse stock splits,
stock dividends, rights offering or similar event, appropriate adjustments shall
be made to the number and type of Warrant Shares and the Warrant Price to
reflect any such event(s), and if Citadel undertakes a rights offering to the
holders of Common Stock of the type described in Exhibit A attached hereto, the
appropriate adjustments shall be those set forth in Exhibit A attached hereto
and incorporated herein by reference.
2.2 The Warrant Shares shall be deemed to be included in the term
"Shares" for purposes of Article Three of that Stock Purchase Agreement dated
October 21, 1994 (the "1994 Agreement") between Citadel and Craig and shall
accordingly be eligible for registration under the Securities Act of 1933, as
amended, in accordance with the terms of the 1994 Agreement; provided, however,
that the date applicable to the Warrant Shares set forth in Section 3.1(b)(vi)
of the 1994 Agreement shall be April 17, 1996.
3. Reimbursement of Expenses. In further consideration of Craig's
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agreement to the Conversion Deferral, Citadel hereby agrees, effective the
Closing Date, to reimburse Craig for its legal fees and expenses, up to a
maximum of $75,000, incurred by Craig in defense of the Delaware Action upon
submission to Citadel of appropriate written invoices and receipts itemizing
such fees and expenses in reasonable detail.
4 Closing Date; Termination. As used herein, the terms "Closing" and
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"Closing Date" shall mean the Closing and Closing Date, respectively,
contemplated by the Stock Exchange and Settlement Agreement dated April 3, 1995
(the "Settlement Agreement") among Citadel and the Dillon Parties. All
provisions of this Agreement are subject to the approval of the Boards of
Directors of Citadel and Craig. If (i) this Agreement has not been approved by
the Boards of Directors of Citadel and Craig on or before April 13, 1995, or
(ii) the Settlement Agreement is terminated for any or no reason prior to the
occurrence of the Closing, then this Agreement shall thereupon immediately and
automatically terminate and shall thereafter have no legal force or effect
whatsoever.
5. Miscellaneous.
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5.1 Notices. All notices, requests, demands and other communications
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hereunder shall be in writing and shall be deemed given if delivered personally
or by facsimile transmission (with subsequent letter confirmation by mail) or
two days after being mailed by certified or registered mail, postage prepaid,
return receipt requested, to the parties, their successors in interest or their
assignees at the following addresses, or at such other addresses as the parties
may designate by written notice in the manner aforesaid:
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If to Craig: Craig Corporation
116 N. Robertson Blvd.
Los Angeles, California 90048
Telecopy: (310) 659-9120
Attention: President
If to Citadel: Citadel Holding Corporation
4565 Colorado Street
Los Angeles, California
Telecopy: (818) 549-3564
Attention: President
5.2 Assignability and Parties in Interest. This Agreement shall not
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be assignable by either of the parties, except that (a) affiliates of Craig may
participate in registrations as contemplated by Section 2.2 and (b) the rights
of Craig under Section 2.2 may be assigned to one acquiror of all Warrant Shares
and Shares under the 1994 Agreement in a private purchase from Craig and its
affiliates if and when such acquiror delivers to Citadel such acquiror's written
agreement to assume all of the obligations of Craig under Article Three of the
1994 Agreement. This Agreement shall inure to the benefit of and be binding
upon the parties and their respective permitted successors and assigns.
5.3 Governing Law. This Agreement shall be governed by, and
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construed and enforced in accordance with, the internal law, and not the law
pertaining to conflicts or choice of law, of the State of California.
5.4 Counterparts. This Agreement may be executed in several
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counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
5.5 Complete Agreement. This Agreement contains the entire agreement
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between the parties with respect to the subject matter hereof and shall
supersede all previous oral and written and all contemporaneous oral
negotiations, commitments and understandings.
5.6 Modifications, Amendments and Waivers. This Agreement may be
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modified, amended or otherwise supplemented only by a writing signed by both of
the parties. No waiver of any right or power hereunder shall be deemed
effective unless and until a writing waiving such right or power is executed by
the party waiving such right or power.
5.7 Attorneys' Fees and Costs. Should any party institute any
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arbitration, action, suit or other proceeding arising out of or relating to this
Agreement, the prevailing party shall be entitled to receive from the losing
party reasonable attorneys' fees and costs incurred in connection therewith.
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5.8 Contract Interpretation; Construction of Agreement.
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(a) 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. Article, section, party and recital references are to this
Agreement unless otherwise stated.
(b) Neither party, nor its respective counsel, shall be deemed the
drafter of this Agreement for purposes of construing the provisions of this
Agreement, and all language in all parts of this Agreement shall be construed in
accordance with its fair meaning, and not strictly for or against either party.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
CRAIG CORPORATION
By: /s/ S. CRAIG TOMPKINS
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Title: President
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CITADEL HOLDING CORPORATION
By: /s/ STEVE WEISS
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Title: President and Chief Executive Officer
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EXHIBIT A
Adjustment for Conventional Rights Issue. If Citadel distributes any
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conventional rights, options or warrants to all holders of its Common Stock,
entitling them to purchase shares of Common Stock at a price per share less than
the Current Market Price per share (as defined below) on the record date
described below, the number of unissued Warrant Shares and the Warrant Price
shall be adjusted as follows:
The number of unissued Warrant Shares shall be adjusted pursuant to
the following formula:
O + A
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WS' = WS X O + PxA
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M
The Warrant Price shall be adjusted pursuant to the following formula:
O + PxA
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WP' = WP X M
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O + A
where:
WS' = the adjusted number of Warrant Shares.
WS = the current number of unissued Warrant Shares.
WP' = the adjusted Warrant Price.
WP = the current Warrant Price.
O = the number of shares of Common Stock outstanding on the
record date.
A = the number of additional shares of Common Stock offered.
P = the offering price per share of additional shares.
M = the "Current Market Price" per share of Common Stock on
the record date, determined by averaging the closing
prices for the Common Stock on the American Stock Exchange
(or other principal exchange or market system on which the
Common Stock then trades) for the ten trading days
immediately preceding the record date.
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The adjustment shall be made successively whenever any such rights, options
or warrants are issued and shall become effective immediately after the record
date for the determination of stockholders entitled to receive the rights,
options or warrants. If at the end of the period during which such rights,
options or warrants are exercisable, not all rights, options or warrants shall
have been exercised, the number of unissued Warrant Shares and the Warrant Price
shall be immediately readjusted to what they would have been if "A" in the above
formula had been the number of shares actually issued.
Unconventional Rights Offerings. If Citadel distributes any unconventional
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rights, options or warrants to all holders of its Common Stock, entitling them
to purchase shares of Common Stock at a price per share less than the Current
Market Price per share on the record date, the parties will negotiate in good
faith for adjustments to the number of unissued Warrant Shares and the Warrant
Price that are fair, just and equitable.
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