Exhibit 10.21
Reading Company
30 South 15th Street, Suite 1300
Philadelphia, Pennsylvania 19102
August 12, 1996
Mr. Steve Wesson
President
Citadel Holding Corporation
550 S. Hope Street, Suite 1825
Los Angeles, California 90071
Ms. Robin W. Skophammer
Chief Financial Officer
Craig Corporation
550 S. Hope Street, Suite 1825
Los Angeles, California 90071
Dear Mr. Wesson and Ms. Skophammer:
This letter is intended to set forth the principal terms of a proposed
transaction among Reading Company ("Reading"), Citadel Holding Corporation
("Citadel"), Craig Corporation ("Craig"), Reading Entertainment, Inc. ("Reading
Entertainment"), Craig Management, Inc., ("CMI"), and Citadel Acquisition Corp.,
Inc. ("CAC"). It is understood that this letter is not a binding agreement, but
constitutes a statement of intentions only and is subject to the preparation,
execution and delivery of definitive documentation by each of Reading, Reading
Entertainment, Citadel, CAC, Craig and CMI, and, in the case of Reading, to the
approval of its stockholders and to the delivery of fairness and legal opinions
to the respective parties.
Reading is planning to form a new holding company (the "Holding Company
Transaction") to be organized under the laws of the State of Delaware under the
name Reading Entertainment. Promptly following the completion of the Holding
Company Transaction, Reading Entertainment would issue the securities described
below in exchange for the consideration described below.
1. Citadel Holding Corporation and Citadel Acquisition Corp., Inc.:
---------------------------------------------------------------
1.1 Consideration to be Paid: Cash in the amount of $7 million, by
------------------------
wire transfer in currently available funds at the closing.
1.2 Reading Entertainment Securities to be Issued: Series A Voting
---------------------------------------------
Cumulative Convertible Preferred Stock, with the following terms:
Stated Value: $7 million, $100 per share.
------------
Dividend: 6 1/2% per annum, payable quarterly, and
-------- cumulative to the extent not paid.
Conversion Price: $11.50 per share
----------------
. No conversion for 18 months, unless there is
a public disclosure or announcement of a
transaction that would result in a third
party (other than a Craig affiliate) owning
50% or more of common stock or voting rights
of Reading or other change in control of
Reading.
. On change of control, Reading would have the
right to (i) call Citadel or CAC owned Series
A preferred shares (at a redemption premium
of 8% per annum ("p.a.") from date of
issuance through year 4 then decreasing 1%
p.a. thereafter beginning in year 5) only if
Craig assumes Citadel's asset put obligation
described below and (ii) call all other
Series A preferred shares (at the redemption
premium specified in clause (i) above.
Citadel has the right to put (at stated value
plus accrued but unpaid dividends and the
same redemption premium). In the event Craig
assumes the asset put obligation, Craig will
agree to issue Craig Class A Common
Preference Stock (the "Craig Stock") and the
exercise price for the Craig Stock to be
increased or decreased from Craig Stock
market price to reflect the percentage of
discount or premium on Reading stock
(measured in terms of percentage difference
between market price of Reading stock on
change of control date and $11.75 or $12.25
per share, as applicable) which Citadel would
be entitled to receive. Craig Stock market
price (prior to adjustment) to be measured
over 20 consecutive trading days prior to
change of control date.
Vote Per Share: 9.64 votes, which is approximately equal to
-------------- Stated Value / Common Stock price at close of
trading on the date of this Letter of Intent.
. Usual and customary preferred voting rights,
plus separate class vote for modifications or
issuance of any senior or pari passu equity
securities.
Forced conversion: Trading average of 135% of conversion price over
----------------- 180 trading day period.
Term: Perpetual
----
Put Rights: After 5 years at stated value plus accrued but
---------- unpaid dividends. In addition, right to put if
dividend is in arrears
4 quarters; but in no event shall put be
exercised sooner than 18 months.
Call Rights: Callable after 5 years at 108% of stated value
----------- plus accrued but unpaid dividends, decreasing
thereafter at 2% p.a.
Ranking: Senior to the Series B Preferred Stock.
-------
Registration Rights: Two demands; unlimited piggyback.
--------------------
Transferability: Freely transferable, except for restrictions
--------------- based upon securities laws or charter
provisions.
Other: . Reading has the right of first offer on 100%
----- of any common or preferred stock of Reading
that Citadel sells. Reading will have 10
business days from being offered the stock at
a stated price. If Reading does not elect to
purchase within 10 business days, Citadel has
180 days to sell at that or higher price.
1.3 Asset Put: Citadel will have the right to exchange all or
---------
substantially all of its assets (other than Excluded Assets), together with
any debt encumbering or related to such assets, for Reading Common Stock.
Term: Immediately exercisable by Citadel. Notice of
---- exercise must be delivered on or before 30 days
after filing of Reading's annual report on Form
10-K for fiscal 1999.
Assets: (1) $20M in Net Asset Value (Gross Value less
------ liabilities including debt), of existing
assets (including cash and cash proceeds)
at fixed stock price set forth below; (2)
existing assets over $20M in Net Asset
Value (up to a maximum of $30M in Net Asset
Value), and after acquired assets (other
than cash) can only be put at market price
of stock, and (3) after acquired assets
over $5 M can only be put with Reading's
consent. No restrictions on Citadel
encumbering existing assets with additional
or refinanced debt.
Excluded Assets: (1) the Series A Preferred Stock and Common
--------------- Stock issued on conversion,
(2) cash or marketable securities as Citadel
may require to maintain appropriate level
of liquidity,
(3) assets with liabilities in excess of fair
market value of assets, and
(4) after acquired assets over $5M (except with
Reading's consent).
Asset Value: Fair market value
-----------
Common Stock Price
------------------
issued in Exchange: Up to October '97 $11.75 per share thereafter
------------------ $12.25 per share. If average trading price of
Reading Common Stock is in excess of 130% of put
price for more than 60 days, then Citadel shall
have 120 days, after notice from Reading, to
give notice of exercise of the asset put. If
Citadel does not give notice of exercise at this
time, then put price shall be fair market value
of Common Stock. Reading shall convert a portion
of the Common Stock into debt for that amount
that would take the cumulative change of control
percentage of Reading under IRC (S) 382 over 45%
after exercise of the asset put. The amount
converted to debt would be based on the value of
Common Stock that would have been received. The
economic terms of the debt would be determined
by an independent investment banker. If Citadel
elects to sell the debt within 90 days from
issuance, Reading will take all reasonable
actions to assist in selling. Reading to
reimburse Citadel for Citadel's expenses and for
amount by which the net proceeds from the sale
of the debt is less than the value of the Common
Stock that would have been received on the date
of conversion.
Registration Rights: Reading Common Stock received to have same
------------------- registration rights as described in Section 1.2.
Information Statement: Reading's expense
---------------------
Citadel 3% Preferred Stock: Redemption premium accrual rate reduced to 3%
-------------------------- from Closing (no retroactive adjustment). No
conversion for a one-year period commencing on
the 15th day following the filing of Citadel's
Form 10-K for fiscal 1996, except in the event
of a change of control of Citadel.
1.4 Other Provisions: Reading will reimburse Citadel and CAC for
----------------
their reasonable out of pocket expenses (including fees and expenses of
legal counsel and financial advisors) with respect to the transaction, up
to a maximum reimbursement of $280,000.
2. Craig Corporation and Craig Management, Inc.:
-------------------------------------------
2.1 Consideration to be Paid: Craig and CMI will deliver at the
------------------------
closing their entire right, title and interest in the following assets:
a. 693,650 shares of Series B Stater Bros. Holdings Inc. 10.5%
Preferred Stock, stated value $100.00 per share,
b. 1,329,114 shares of Citadel 3% Cumulative Voting Convertible
Preferred Stock, stated value $3.95 per share, and
c. 50% Membership interest and any related interest in Reading
International Cinemas LLC.
2.2 Reading Entertainment Securities to be Issued:
---------------------------------------------
a. Series B Voting Cumulative Convertible Preferred Stock, with
the following terms:
Stated Value: $55.0 million, $100 per share
------------
Dividend: 6 1/2% per annum, payable quarterly, and
-------- cumulative to the extent not paid.
Conversion Price: $12.25 per share
----------------
a. No conversion for 18 months.
b. Forced Conversion: no forced conversion for
first five years and then forced conversion
when average trading price of 135% of
conversion price over 180 trading day period.
Vote Per Share: 9.64 votes, which is approximately equal to
-------------- stated value / Common Stock price at the close
of trading on the date of this Letter of Intent.
Plus, usual and customary preferred voting
rights, including right to elect director in the
event of missed dividends for six or more
quarters, whether or not consecutive.
Term: Perpetual
----
Put Rights: None
----------
Call Rights: No call for first five years and then callable
----------- at 108% of stated value plus accrued but unpaid
dividends, decreasing thereafter at 2% p.a.
Ranking: Junior to Series A Preferred Stock
-------
Registration Rights: None
-------------------
Transferability: Freely transferable, except for restrictions
--------------- based upon securities laws or charter
provisions.
b. 2,476,190 shares of Reading Entertainment Common Stock
2.3 Other Agreements: Craig will agree to vote its shares in Reading
----------------
in favor of the Holding Company Transaction and in favor of the approval of
the transactions contemplated hereby. At the closing, (i) the Amended and
Restated Capital Funding Agreement between Reading Investment Company Inc.,
Craig and CMI dated March 8, 1996, and (ii) the Warrant and Preferred
Purchase Options set forth in the Stock Purchase and Sale Agreement dated
March 27, 1996 by and between Craig and Reading Holdings, Inc., will be
terminated.
The definitive documentation will include, among other things, usual and
customary terms and conditions including usual and customary representations,
warranties, indemnities and conditions to closing. It shall be a condition to
Closing for Citadel and CAC, on the one hand, and Craig and CMI, on the other,
that the other party shall have performed all of its obligations under the
Exchange Agreement. Each of the parties represents that they have reviewed a
draft dated August 8, 1996 of the proposed Exchange Agreement and that they are
in substantial agreement with respect to the material terms and conditions set
forth therein.
The parties agree to consult with one another in the preparation of a press
release reasonably acceptable to all parties announcing the transactions
contemplated by this agreement and as to the wording of any applicable filings
made on Form 13D with respect to Reading and/or Citadel, and to thereafter
refrain from public statements concerning the transaction, absent prior
notification to and consultation with the other parties hereto.
If this letter of intent correctly sets forth our understanding, please so
indicate by executing and returning a copy of this letter. By executing and
delivering this letter of intent, subject to the satisfaction of the conditions
precedent set forth in this letter, Reading is representing and warranting that
the above terms and conditions have been reviewed and approved by the
Independent Committee of, and the Board of Directors of, Reading, after advice
and counsel from its legal counsel and financial advisors. By executing and
delivering this letter of intent, subject to the satisfaction of certain of the
conditions precedent set forth in this letter, Citadel, CAC, Craig and CMI are
similarly representing and warranting that the above terms and conditions, in so
far as they relate to Citadel or to Craig, as the case may be, have been
reviewed and approved by the Independent Committees of, and the Boards of
Directors of, Citadel or Craig as the case may be, after advice and counsel from
their respective legal counsel and financial advisors.
Very truly yours,
/s/James J. Wunderle
James J. Wunderle
Chief Financial Officer
ACKNOWLEDGED AND AGREED
Citadel Holding Corporation Craig Corporation
/s/ Steve Wesson /s/ Robin W. Skophammer
- ---------------- -----------------------
By: Steve Wesson By: Robin W. Skophammer
Its: President Its: Chief Financial Officer
Date: August 12, 1996 Date: August 12, 1996