<PAGE>
 
                                                                   EXHIBIT 10.47



                             STOCK PLEDGE AGREEMENT
                             ----------------------

       STOCK PLEDGE AGREEMENT, dated as of April 11, 1997 (as amended from time
to time, the "Agreement"), by and among CRAIG CORPORATION, a Delaware
              ---------
corporation ("Pledgor"), and CITADEL HOLDING CORPORATION, a Delaware corporation
              -------
(the "Secured Party").
      -------------

                                R E C I T A L S
                                ---------------

     A.   The Pledgor holds a warrant (the "Warrant") to purchase Six Hundred
Sixty-Six Thousand (666,000) shares of common stock (the "Common Stock") of the
Secured Party at an exercise price of Three Dollars ($3.00) per share, which
Warrant the Pledgor plans to exercise on April 11, 1997.

     B.   The Secured Party has agreed to make a loan to the Pledgor, which loan
shall be evidenced by a Promissory Note dated April 11, 1997 in the principal
amount of One Million Nine Hundred Ninety-Eight Thousand Dollars ($1,998,000)
(the "Note"), which amount shall be used by the Pledgor to purchase the Common
      ----                                                                    
Stock.

     C.   It is a condition to the extension of such loan that the Note be
secured by a pledge of Five Hundred Thousand (500,000) shares of common stock,
par value $.001 per share, of Reading Entertainment, Inc., a Delaware
corporation, held by the Pledgor (the "Pledged Stock") to the Secured Party as
                                       -------------                          
set forth herein.

     D.   Section 153 of the Delaware General Corporation Law provides for the
acceptance of a secured promissory note in consideration for the issuance of
stock by a company.

                               A G R E E M E N T
                               -----------------
       NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

                                  ARTICLE 1.

                        DEFINITIONS AND RELATED MATTERS
                        -------------------------------

     SECTION 1.1  DEFINITIONS.
                  ----------- 

     Capitalized terms not otherwise defined herein have the respective meanings
set forth in the Note.  In addition, the following terms with initial capital
letters have the following meanings:

     "ACCELERATION" is defined in Section 5.2.
      ------------                            
<PAGE>
 
     "AFFILIATE" means, with respect to a Person, any other Person that,
      ---------                                                         
directly or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such first Person.  The term
"control" means the possession, directly or indirectly, of the power to direct
--------                                                                      
or cause the direction of the management or policies of a Person, whether
through the ownership of voting securities or other equity interests, by
contract or otherwise, and the terms "controlled" and "common control" have
                                      ----------       --------------      
correlative meanings.  Notwithstanding the foregoing, in no event shall the
Secured Party be deemed to be an Affiliate of the Pledgor.

     "BANKRUPTCY CODE" means Title 11 of the United States Code (11 U.S.C.
      ---------------                                                     
Section 101 et seq.), as amended from time to time, or any successor statute.
            -- ---                                                           

     "CHARGES" means all federal, state, county, city, municipal or other taxes,
      -------                                                                   
levies, assessments or charges that, if not paid when due, may result in a Lien
of any Governmental Authority against Collateral.

     "COLLATERAL" is defined in Section 2.1.
      ----------                            

     "DEFAULT" means any condition or event that, with the giving of notice or
      -------                                                                 
the lapse of time, or both, would become an Event of Default, unless cured or
waived.

     "EVENT OF DEFAULT" is defined in Section 5.1.
      ----------------                            

     "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended (or
      ------------                                                           
any similar statute from time to time in effect).

     "GOVERNMENTAL APPROVAL" means any authorization, approval, permit or
      ---------------------                                              
license of or by or filing with any Governmental Authority.

     "GOVERNMENTAL AUTHORITY" means any nation, any state or other political
      ----------------------                                                
subdivision thereof and any entity exercising executive, legislative, judicial,
regulatory or administrative functions of government, including any tribunal or
arbitrator(s) of competent jurisdiction.

     "LIEN" means any lien, mortgage, pledge, security interest, charge or
      ----                                                                
encumbrance of any kind (including any conditional sale or other title retention
agreement or any lease in the nature thereof) and any agreement to give or
refrain from giving any of the foregoing.

     "NOTE" is defined in the Recitals.
      ----                             

     "PERSON" means an individual, a corporation, a partnership, a trust, an
      ------                                                                
unincorporated organization or any other entity or organization, including a
Governmental Authority.

                                       2
<PAGE>
 
     "PLEDGED STOCK" shall have the definition set forth in the Recitals, as
      -------------                                                         
modified by Section 4.10.

     "PLEDGOR" is defined in the Preamble.
      -------                             

     "PROCEEDS" is defined in Section 2.1.
      --------                            

     "SECURED OBLIGATIONS" is defined in Section 2.2.
      -------------------                            

     "SECURED PARTY" is defined in the Preamble.
      -------------                             

     "SECURITIES ACT" means the Securities Act of 1933, as amended (or any
      --------------                                                      
similar statute from time to time in effect).

     "SECURITY INTEREST" is defined in Section 2.1.
      -----------------                            

     "UCC" means the Uniform Commercial Code (as amended from time to time) of
      ---                                                                     
the State of California.

     SECTION 1.2.  RELATED MATTERS.
                   --------------- 

     1.2.1.  TERMS USED IN THE UCC.  Unless the context clearly otherwise
             ---------------------
requires, all lower-case terms used and not otherwise defined herein that are
used or defined in Article 8 or 9 (or any equivalent subpart) of the UCC have
the same meanings herein.


     1.2.2.  CONSTRUCTION.  Unless the context of this Agreement clearly
             ------------
requires otherwise, references to the plural include the singular, the singular
includes the plural, the part includes the whole, and "including" is not
limiting. The words "hereof," "herein," "hereby," "hereunder" and similar terms
in this Agreement refer to this Agreement as a whole (including the Preamble,
the Recitals and all Schedules and Exhibits) and not to any particular provision
of this Agreement. Article, section, subsection, exhibit, recital, preamble and
schedule references in this Agreement are to this Agreement unless otherwise
specified. References in this Agreement to any agreement, other document or law
"as amended" or "as amended from time to time," or to amendments of any document
or law, shall include any amendments, supplements, replacements, renewals,
waivers or other modifications not prohibited by the Note Documents. References
in this Agreement to any law (or any part thereof) include any rules and
regulations promulgated thereunder (or with respect to such part) by the
relevant Governmental Authority, as amended from time to time.

     1.2.3.  GOVERNING LAW.  This Agreement shall be governed by, and construed
             -------------
in accordance with, the laws of the State of California (other than choice of
law rules that would require the application of the laws of any other
jurisdiction).

                                       3
<PAGE>
 
     1.2.4.  HEADINGS.  The Article and Section headings used in this Agreement
             --------   
are for convenience of reference only and shall not affect the construction
hereof.

     1.2.5   SEVERABILITY.  If any provision of this Agreement or any Lien or
             ------------
other right hereunder shall be held to be invalid, illegal or unenforceable
under applicable laws and regulations in any jurisdiction, such provision, Lien
or other right shall be ineffective only to the extent of such invalidity,
illegality or unenforceability, which shall not affect any other provisions
herein or any other Lien or right granted hereby or the validity, legality or
enforceability of such provision, Lien or right in any other jurisdiction.

     1.2.6.  NO PARTY DEEMED DRAFTER.  None of the parties to this Agreement,
             -----------------------
nor their respective counsel, shall be deemed to be the drafter of this
Agreement, and all provisions of this Agreement shall be interpreted in
accordance with their fair meaning, and not strictly for or against any party
hereto.

                                    ARTICLE 2.

                   THE SECURITY INTEREST; SECURED OBLIGATIONS
                   ------------------------------------------


     SECTION 2.1.  SECURITY INTEREST.  To secure the payment and performance of
                   -----------------
the Secured Obligations (as defined below) as and when due, the Pledgor hereby
conveys, pledges, assigns and transfers to the Secured Party, and grants to the
Secured Party a security interest (the "Security Interest") in, all right,
                                        -----------------
title, claim and interest of the Pledgor in and to the following property,
whether now owned and existing or hereafter acquired or arising, and wherever
located (such property being, collectively, the "Collateral"):
                                                 ----------   

     2.1.1.  The Pledged Stock and all certificates and instruments representing
or evidencing the Pledged Stock;

     2.1.2.  Any and all proceeds and products of any of the foregoing, whether
now held and existing or hereafter acquired or arising, including any and all
cash, securities, instruments and other property from time to time paid, payable
or otherwise distributed in respect of or in exchange for any or all of the
foregoing (collectively, the "Proceeds"). "Proceeds" shall include (i) any
                              --------      --------                       
options, warrants, securities or other property issued or delivered by the
issuer of or obligor on any Collateral as a stock dividend or distribution in
connection with any reclassification, increase or reduction of capital or issued
or delivered in connection with any merger or other reorganization, and (ii) any
property received upon the liquidation or dissolution of any issuer of or
obligor on any Collateral or upon or in respect of any distribution of capital.

                                       4
<PAGE>
 
     SECTION 2.2.  SECURED OBLIGATIONS.
                   ------------------- 

     The Security Interest shall secure the due and punctual payment and
performance of any and all present and future obligations and liabilities of

     (a) the Pledgor of every type or description to the Secured Party, or any
of its successors or assigns, arising under or in connection with the Note; and

     (b) the Pledgor of every type or description to the Secured Party, or any
of its successors or assigns, or any other Person arising under or in connection
with this Agreement;

in each case whether for principal, interest, fees, expenses, indemnities or
other amounts (including attorneys' fees and expenses), whether due or not due,
direct or indirect, joint and/or several, absolute or contingent, voluntary or
involuntary, liquidated or unliquidated, determined or undetermined, now or
hereafter existing, renewed or restructured, whether or not from time to time
decreased or extinguished and later increased, created or incurred, whether or
not arising after the commencement of a proceeding under the Bankruptcy Code
(including post-petition interest) and whether or not allowed or allowable as a
claim in any such proceeding (all obligations and liabilities described in this
Section 2.2 are collectively referred to herein as the "Secured Obligations").
                                                        -------------------   

                                   ARTICLE 3.

                         WARRANTIES AND REPRESENTATIONS
                         ------------------------------

       The Pledgor makes the following representations and warranties, all of
which shall survive until termination of this Agreement pursuant to Section 6.7.

     SECTION 3.1.  POWERS.  The Pledgor has all requisite power and authority to
                   ------
enter into the Note and this Agreement and to carry out the transactions
contemplated hereby and thereby.

     SECTION 3.2.  BINDING EFFECT, NO CONFLICT, ETC.
                   -------------------------------- 

     3.2.1. The Note and this Agreement have been duly executed and delivered by
the Pledgor and such agreements are the legal, valid and binding obligations of
the Pledgor, enforceable against it in accordance with their respective terms,
except as enforcement may be limited by equitable principles and by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to creditors'
rights generally. The execution, delivery and performance by the Pledgor of the
Note and this Agreement, the consummation of the transactions contemplated
hereby or thereby, and the exercise by the Secured Party of any of the voting
and other rights or remedies hereunder, do not and will not (a) conflict with,
result in a breach of or constitute (or, with the giving of notice or lapse of
time, or both, constitute) a default under, or require the approval or consent
of any Person pursuant to, or accelerate any obligations under, any agreement,
contract, 

                                       5
<PAGE>
 
instrument, understanding or arrangement to which the Pledgor is a party or by
which the Pledgor or any of its assets is bound, or violate any provision of
applicable laws and regulations binding on the Pledgor, or (b) result in the
creation or imposition of any Lien of any nature whatsoever upon any of the
Pledgor's assets except for Liens created under this Agreement. No Governmental
Approval is or will be required in connection with the execution, delivery and
performance by the Pledgor of the Note or this Agreement, the consummation of
the transactions contemplated hereby or thereby, or the exercise by the Secured
Party of any of the voting and other rights or remedies hereunder, or to ensure
the legality, validity or enforceability hereof or thereof, except as may be
required in connection with the disposition of Collateral by laws affecting the
offering and sale of securities generally.

     SECTION 3.3. TITLE TO COLLATERAL; VALIDITY AND PERFECTION OF SECURITY
                  --------------------------------------------------------
INTEREST; ABSENCE OF OTHER LIENS.
-------------------------------- 

     3.3.1. The Pledgor has good and marketable title to all Collateral. The
Security Interest constitutes a valid and, upon delivery of all Collateral to
the Secured Party pursuant to Section 4.1 hereof, perfected first priority Lien
in all of the Collateral and secures payment and performance of the Secured
Obligations.

     3.3.2. The Collateral is free and clear of all Liens other than the
Security Interest and Liens arising under the Shareholder Agreement.

                                  ARTICLE 4.


                            COVENANTS AND AGREEMENTS
                            ------------------------

     SECTION 4.1.  DELIVERY OF PLEDGED COLLATERAL, ETC.
                   ----------------------------------- 

     4.1.1. On the date hereof, the Pledgor is delivering to the Secured Party
all Collateral consisting of certificated securities, instruments or the like
the physical possession of which is necessary in order for the Security Interest
to be perfected or delivery of which was requested by the Secured Party to
assure the priority of the Security Interest therein. The Pledgor shall deliver
to the Secured Party promptly after acquisition thereof all Collateral acquired
after the date hereof. All Collateral shall be in suitable form for transfer by
delivery, or be accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance satisfactory to the Secured
Party. The Secured Party shall have the right, at any time in its discretion and
without notice to the Pledgor, to transfer to or to register in the name of the
Secured Party or its nominee any or all of the Collateral, subject only to the
revocable rights specified in Section 4.6.1. In addition, the Secured Party
shall have the right at any time to exchange certificates or instruments
representing or evidencing Collateral for certificates or instruments of smaller
or larger denominations.

                                       6
<PAGE>
 
     4.1.2. Without limitation of subsection (a) above, if the Pledgor receives
or becomes entitled to receive any securities issued by any issuer of
Collateral, or any successor thereto, in any manner in substitution for or with
respect to any of the Collateral, or if the Pledgor shall become entitled to
receive or shall receive any securities or other property in addition to, in
substitution of, as a conversion of, or in exchange for, or with respect to any
of the Collateral, the Pledgor shall receive the same as the agent for the
Secured Party, and shall hold the same in trust for and deliver the same
promptly to the Secured Party in the exact form in which received, together with
appropriate instruments of transfer or assignments in blank, to be held by the
Secured Party as Collateral hereunder.

     SECTION 4.2.  FURTHER ASSURANCES.  The Pledgor shall, at its own expense,
                   ------------------
perform on request of the Secured Party, such acts as may be necessary or
advisable in the opinion of the Secured Party, or that the Secured Party may
request at any time, to assure the attachment, perfection and first priority of
the Security Interest, to exercise the rights and remedies of the Secured Party
hereunder or to carry out the intent of this Agreement. Without limiting the
foregoing, the Pledgor shall, upon request of the Secured Party, execute and
deliver a UCC-1 financing statement covering the Collateral in a form
satisfactory for filing in the Office of the Secretary of State of the State of
California.

     SECTION 4.3.  POWER OF ATTORNEY. The Pledgor hereby irrevocably appoints
                   -----------------
the Secured Party and its employees and agents as the Pledgor's true and lawful
attorneys-in-fact, with full power of substitution, to do (a) all things
required to be done by the Pledgor under this Agreement, and (b) to do all
things that the Secured Party may deem necessary or advisable to assure the
attachment, perfection and first priority of the Security Interest or otherwise
to exercise the rights and remedies of the Secured Party hereunder or carry out
the intent of this Agreement (including by voting any Collateral as contemplated
by Section 4.7), in each case irrespective of whether a Default or Event of
Default then exists (except as otherwise provided herein) and at the Pledgor's
expense. Without limitation, the Secured Party and its officers and agents shall
be entitled to do all of the following, as fully as the Pledgor might: (a)
affix, by facsimile signature or otherwise, the general or special endorsement
of the Pledgor, in such manner as the Secured Party shall deem advisable, to any
Collateral that has been delivered to or obtained by the Secured Party without
appropriate endorsement or assignment, which endorsement shall be effective for
all purposes, and (b) vote any Collateral as contemplated by Section 4.7.

     SECTION 4.4.  PAYMENT OF CHARGES AND CLAIMS.  The Pledgor shall pay (a) all
                   ----------------------------- 
Charges imposed upon any Collateral, and (b) all claims that have become due and
payable and, under applicable laws and regulations, have or may become Liens
upon any Collateral, in each case before any penalty shall be incurred with
respect thereto. If the Pledgor fails to pay or obtain the discharge of any
Charge, claim or Lien required to be paid or discharged under this Section and
asserted against any of the Collateral, the Secured Party may, at any time and
from time to time, in its sole discretion and without

                                       7
<PAGE>
 
waiving or releasing any obligation of the Pledgor under this Agreement or
waiving any Default or Event of Default, make such payment, obtain such
discharge or take such other action with respect thereto as the Secured Party
deems advisable, and all amounts so expended by the Secured Party shall be
included in the Secured Obligations.

     SECTION 4.5.  DUTY OF CARE.  The Secured Party shall have no duty of care
                   ------------
with respect to the Collateral, except that the Secured Party shall have an
obligation to exercise reasonable care with respect to Collateral in its
possession; provided that (i) the Secured Party shall be deemed to have
exercised reasonable care if Collateral in its possession is accorded treatment
substantially comparable to that which the Secured Party accords its own
property or treatment substantially in accordance with actions requested by the
Pledgor in writing, and (ii) the Secured Party shall have no obligation to take
any actions to preserve rights against other parties with respect to any
Collateral. Without limitation, the Secured Party shall (A) bear no risk or
expense with respect to any Collateral and (B) have no duty with respect to
calls, conversions, presentments, maturities, notices or other matters relating
to Collateral, or to maximize interest or other returns with respect thereto.

     4.5.1. The Pledgor hereby agrees to indemnify and hold harmless the Secured
Party and its directors, officers, employees and agents against any and all
claims, actions, liabilities, costs and expenses of any kind or nature
whatsoever (including reasonable fees and disbursements of counsel) that may be
imposed on, incurred by, or asserted against any of them, in any way relating to
or arising out of this Agreement or any action taken or omitted by them
hereunder, except to the extent a court holds in a final and nonappealable
judgment that they directly resulted from the negligence or misconduct of such
indemnified Persons.

     SECTION 4.6.  SALE OF COLLATERAL; FURTHER ENCUMBRANCES.  The Pledgor shall
                   ----------------------------------------
not (a) except for dispositions with the prior written consent of the Secured
Party, sell, lease or otherwise dispose of any Collateral, or any interest
therein, or (b) grant or suffer to exist any other Lien in or on any Collateral.
If any Collateral, or any interest therein, is disposed of in violation of these
provisions, the Security Interest shall continue in such Collateral or interest
notwithstanding such disposition, and the Pledgor shall deliver all Proceeds
thereof to the Secured Party to be held as Collateral hereunder.

     SECTION 4.7.  VOTING AND OTHER CONSENSUAL RIGHTS.  
                   ----------------------------------

     4.7.1. So long as no Event of Default shall exist, the Pledgor shall be
entitled to exercise any and all voting and other consensual rights pertaining
to any Collateral, for any purpose not inconsistent with the terms of this
Agreement.

     4.7.2. So long as an Event of Default shall exist, at the sole option of 
the Secured Party, any or all rights of the Pledgor to exercise voting and other
consensual rights as permitted above shall cease, and the Secured Party, if and
when it notifies the 

                                       8
<PAGE>
 
Pledgor of the exercise of such option, shall have the sole right to exercise
any or all such voting and other consensual rights.

     4.8. DISTRIBUTIONS.
          -------------

     4.8.1. Any and all cash paid or otherwise distributed in respect of the
Collateral shall be applied toward satisfaction of the Secured Obligations, and
the Pledgor shall, upon receipt of any such payment or distribution, hold it in
trust for the benefit of the Secured Party and shall immediately deliver the
same to the Secured Party for application against the Secured Obligations. Any
and all dividends and other distributions paid, distributed or payable (other
than in cash) in respect of Collateral, whether in respect of the liquidation or
dissolution of any issuer thereof or upon or in respect of any distribution of
capital or redemption or exchange of any Collateral, shall constitute additional
Collateral and shall be delivered to the Secured Party, in the exact form
received, to be held as Collateral hereunder.

     4.8.2. All cash and other property required to be delivered to the Secured
Party hereunder shall, if received by the Pledgor, be received in trust for the
benefit of the Secured Party, be segregated from the other property of the
Pledgor, and promptly be delivered to the Secured Party in the same form as so
received (with any appropriate endorsements or assignments).

     SECTION 4.9. REGISTRATION RIGHTS.
                  -------------------

     4.9.1  The Pledgor agrees that, at any time following the occurrence of an
Acceleration, upon request of the Secured Party and without expense to the
Secured Party, it shall at its own expense:

            4.9.1.1. prepare, cause to be filed and use its best efforts to
cause to become effective with respect to the Collateral one or more
registration or qualification statements and similar documents under the
applicable federal, state or other securities laws with respect to the public
offering and sale of the Collateral and to obtain such Governmental Approvals
for the sale of the Collateral as the Secured Party may request in connection
with any such offering or sale; and

            4.9.1.2. furnish the Secured Party with such amendments to such
registration statements and other documents and such legal opinions,
prospectuses and other documents as the Secured Party may from time to time
request and do such further acts and things as the Secured Party may deem
necessary or advisable to effectuate the offering and sale by the Secured Party
of such Collateral in compliance with applicable laws and regulations.

     4.9.2. The Pledgor agrees to indemnify and hold harmless the Secured Party
and each underwriter (within the meaning of the Securities Act) acting in the
transaction, and each Person controlling (within the meaning of the Securities
Act) the Secured Party or underwriter, from and against any and all claims,
actions, liabilities, 

                                       9
<PAGE>
 
costs and expenses (including legal fees and expenses) based upon or arising out
of any actual or alleged untrue statement of a material fact contained in any
such registration statement, qualification statement or similar document, or any
actual or alleged omission to state a material fact required to be stated in any
such document, or necessary to make the statements contained therein not
misleading. If the indemnification provided for in this Section 4.9 is
unavailable to or otherwise insufficient to hold harmless an indemnified party
hereunder in respect of any claims, actions, liabilities, costs or expenses
referred to herein, then the Pledgor, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such claims, actions, liabilities, costs or expenses in such
proportion as is appropriate to reflect the relative fault of the Pledgor, the
Secured Party and each underwriter in connection with the statements or
omissions that resulted in such claims, actions, liabilities, costs or expenses,
as well as any other relevant equitable considerations.

     SECTION 4.10. PLEDGED STOCK. Within two (2) weeks of the date hereof, the
                   -------------
Pledgor agrees to substitute in replacement of the Pledged Stock Five Hundred
Thousand (500,000) shares of common stock, par value $.001 per share, of Reading
Entertainment, Inc., a Delaware corporation, which either (i) have been owned by
the Pledgor, and fully paid for, for a period of at least one (1) year preceding
the date hereof, or (ii) do not constitute "restricted securities" within the
meaning of that term under Rule 144 promulgated under the Securities Act (the
"Substitute Stock"), accompanied by a certificate of a responsible officer of
the Pledgor representing and warranting that the Substitute Stock meets such
criteria. From and after such substitution the Substitute Stock shall for all
purposes of this Agreement constitute the Pledged Stock.

     SECTION 4.11. FILING OF APPLICABLE FORMS PURSUANT TO MARGIN REQUIREMENTS.
                   ----------------------------------------------------------
The Pledgor agrees to file Form F. R. G-3 in relation to the Pledged Stock in
order to comply with applicable margin requirements issued by the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board") pursuant
to Section 7 of the Exchange Act.

                                  ARTICLE 5.


               EVENTS OF DEFAULT: RIGHTS AND REMEDIES ON DEFAULT
               -------------------------------------------------

     SECTION 5.1. EVENT OF DEFAULT.  The occurrence of any one or more of the
                  ----------------
following shall constitute an event of default (an "Event of Default"):
                                                    ----------------

     5.1.1. The Pledgor shall fail to pay when due any principal (whether at
stated maturity, upon acceleration, upon required prepayment or otherwise) or
other sum due under the Note, which default is not cured within ten (10)
business days after written notice to the Pledgor;

     5.1.2. The Pledgor (i) shall default in the payment, beyond any period of
grace provided therefor, of any principal of or interest of the Secured
Obligations in an 

                                       10
<PAGE>
 
amount exceeding $200,000, or (ii) shall commit any breach of or default under
any other term of any agreement or indenture or instrument relating to the
Secured Obligations, if the effect of such breach or default is to cause, or to
permit the Holder (or a person on behalf of such holders) to cause (upon the
giving of notice or the lapse of time or both, or otherwise), any such Secured
Obligation to become or be declared due and payable prior to its stated maturity
(or to be, or become required to be, purchased or redeemed prior to its stated
maturity) or to cause, or to permit the holder or holders thereof to cause, the
Pledgor to be deprived of any of the Pledgor's assets having a value in excess
of $200,000;

     5.1.3. Any representation or warranty or certification made or furnished
by the Pledgor under this Agreement or any other related document shall prove to
have been false or incorrect in any material respect when made (or deemed made);

     5.1.4. The Pledgor shall fail to perform, comply with or observe any
agreement or obligation to be performed or complied with by it under this
Agreement (other than those provisions referred to in Section 5.1.1 above) or
any other related document, and such failure shall not have been remedied within
30 days after notice thereof from the Lender to the Pledgor;

     5.1.5. There shall be commenced against the Pledgor an involuntary case
seeking the liquidation or reorganization of the Pledgor under Chapter 7, 11 or
13, respectively, of the Bankruptcy Code or any similar proceeding under any
other applicable law or an involuntary case or proceeding seeking the
appointment of a receiver, liquidator, sequestrator, custodian, trustee or other
officer having similar powers of the Pledgor or to take possession of all or a
substantial portion of its property or to operate all or a substantial portion
of its business, and any of the following events occur: (i) the Pledgor consents
to the institution of the involuntary case or proceeding; (ii) the petition
commencing the involuntary case or proceeding is not timely controverted; (iii)
the petition commencing the involuntary case or proceeding remains undismissed
and unstayed for a period of 60 days; or (iv) an order for relief shall have
been issued or entered therein;

     5.1.6. The Pledgor shall institute a voluntary case seeking liquidation or
reorganization under Chapter 7, 11 or 13, respectively, of the Bankruptcy Code
or any similar proceeding under any other applicable law, or shall consent
thereto; or shall consent to the conversion of an involuntary case to a
voluntary case; or shall file a petition, answer a complaint or otherwise
institute any proceeding seeking, or shall consent or acquiesce to the
appointment of, a receiver, liquidator, sequestrator, custodian, trustee or
other officer with similar powers of it or to take possession of all or a
substantial portion of its property or to operate all or a substantial portion
of its business; or shall make a general assignment for the benefit of
creditors; or shall generally not pay its debts as they become due; or the board
of directors (or any committee thereof) of the Pledgor adopts any resolution or
otherwise authorize action to approve any of the foregoing;

                                       11
<PAGE>
 
     5.1.7. This Agreement, the Note or any other related document, or any
material provision in any of them, shall cease to be in full force and effect as
against the Pledgor for any reason other than a release or termination thereof
upon the payment and satisfaction of the Secured Obligations thereunder pursuant
to its terms, or the Pledgor shall contest or purport to repudiate or disavow
any of its obligations thereunder or the validity of enforceability thereof.

     SECTION 5.2. REMEDIES. If (a) upon or after the occurrence of any Event of
                  --------
Default, the Secured Party elects to exercise remedies under this Agreement or
(b) there occurs an Event of Default under Section 5.1.5 or 5.1.6 (the
occurrence of any such event shall be referred to as an "Acceleration"), then,
                                                        --------------
whether or not all the Secured Obligations shall have become immediately due and
payable:

     5.2.1. In addition to all its other rights, powers and remedies under this
Agreement and applicable laws and regulations, the Secured Party shall have, and
may exercise, any and all of the rights, powers and remedies of a secured party
under the UCC, all of which rights, powers and remedies shall be cumulative and
not exclusive, to the extent permitted by applicable laws and regulations.

     5.2.2. The Secured Party shall have the right, all at the Secured Party's
sole option and as the Secured Party in its discretion may deem necessary or
advisable, to do any or all of the following:

            5.2.2.1. to foreclose the Security Interest by any available
judicial procedure or without judicial process; and

            5.2.2.2. to exercise any and all other rights, powers, privileges
and remedies of an owner of the Collateral.

     5.2.3. The Secured Party shall have the right to sell or otherwise dispose
of all or any Collateral at public or private sale or sales, with such notice as
may be required by Section 5.4 in lots or in bulk, at any exchange, over the
counter or at any of the Secured Party's offices or elsewhere, for cash or on
credit, with or without representations or warranties, all as the Secured Party,
in its discretion, may deem advisable. The Collateral need not be present at any
such sales. If sale of all or any part of the Collateral is made on credit or
for future delivery, the Collateral so sold may be retained by the Secured Party
until the sale price is paid by the purchaser thereof, but the Secured Party
shall not incur any liability in case any such purchaser shall fail to take up
and pay for the Collateral so sold and, in case of any such failure, such
Collateral may be sold again upon like notice. The Secured Party shall not be
obligated to make any sale of the Collateral regardless of notice of sale having
been given. The Secured Party may purchase all or any part of the Collateral at
public or, if permitted by applicable laws and regulations, private sale, and in
lieu of actual payment of the purchase price, the Secured Party may apply
against such purchase price any amount of the Secured Obligations. The Pledgor
agrees that any sale of Collateral conducted by the Secured Party in accordance

                                       12
<PAGE>
 
with the foregoing provisions of this Section and Section 5.2.4 shall be deemed
to be a commercially reasonable sale under Section 9-504 of the UCC.

     5.2.4. The Secured Party shall not be required to register or qualify any
of the Collateral that constitutes securities under applicable state or federal
securities laws in connection with any sale or other disposition thereof if such
disposition is effected in a manner that complies with all applicable federal
and state securities laws. The Secured Party shall be authorized at any such
disposition (if it deems it advisable to do so) to restrict the prospective
bidders or purchasers to persons who will represent and agree that they are
"accredited investors" or "qualified institutional buyers" under applicable laws
and regulations and purchasing the Collateral for their own account for
investment and not with a view to the distribution or sale thereof. If any such
Collateral is sold at private sale, the Pledgor agrees that if such Collateral
is sold in a manner that the Secured Party in good faith believes to be
reasonable under the circumstances then existing, then (A) the sale shall be
deemed to be commercially reasonable in all respects, (B) the Pledgor shall not
be entitled to a credit against the Secured Obligations in an amount in excess
of the purchase price, and (C) the Secured Party shall not incur any liability
or responsibility to the Pledgor in connection therewith, notwithstanding the
possibility that a substantially higher price might have been realized at a
public sale. The Pledgor recognizes that a ready market may not exist for such
Collateral if it is not regularly traded on a recognized securities exchange,
and that a sale by the Secured Party of any such Collateral for an amount
substantially less than the price that might have been achieved had the
Collateral been so traded may be commercially reasonable in view of the
difficulties that may be encountered in attempting to sell Collateral that is
privately traded.

     SECTION 5.3. APPLICATION OF PROCEEDS.  
                  -----------------------

     5.3.1. Any cash proceeds received by the Secured Party in respect of any
sale of, collection from, or other realization upon, all or any part of the
Collateral following the occurrence of an Acceleration or otherwise (including
insurance proceeds) may be held by the Secured Party as Collateral and/or then
or at any time thereafter applied as follows:

            5.3.1.1. first, to pay all advances, charges, costs and expenses
payable to the Secured Party pursuant to Section 6.1; and

            5.3.1.2. second, to pay the Secured Obligations in the order
determined by the Secured Party in its sole discretion.

     5.3.2 The Pledgor and any other Person then obligated therefor shall pay to
the Secured Party on demand any deficiency with regard to the Secured
Obligations that may remain after such sale, collection or realization of, from
or upon the Collateral.

     SECTION 5.4. NOTICE.  Unless the Collateral is perishable or threatens to
                  ------
decline speedily in value or is of a type customarily sold on a recognized
market, the 

                                       13
<PAGE>
 
Secured Party will send or otherwise make available to the Pledgor reasonable
notice of the time and place of any public sale or of the time on or after which
any private sale of any Collateral is to be made. The Pledgor agrees that any
notice required to be given by the Secured Party of a sale or other disposition
of Collateral, or any other intended action by the Secured Party, that is
received in accordance with the provisions set forth in Section 6.4 five (5)days
prior to such proposed action shall constitute commercially reasonable and fair
notice thereof to the Pledgor. The Secured Party may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor and such sale may, without further notice, be made at the time and
place to which it was so adjourned. The Pledgor hereby waives any right to
receive notice of any public or private sale of any Collateral or other security
for the Secured Obligations except as expressly provided for in this Section.

                                  ARTICLE 6.

                                    GENERAL
                                    -------

     SECTION 6.1. SECURED PARTY'S EXPENSES, INCLUDING ATTORNEYS' FEES.
                  ---------------------------------------------------
Regardless of the occurrence of a Default or Event of Default, the Pledgor
agrees to pay to the Secured Party any and all advances, charges, costs and
expenses, including the fees and expenses of counsel and any experts or agents,
that the Secured Party may incur in connection with (a) the administration of
this Agreement, (b) the creation, perfection or continuation of the Security
Interest or protection of its priority or the Collateral, including the
discharging of any prior or junior Lien or adverse claim against the Collateral
or any part thereof that is not permitted hereby or by the Note, (c) the
custody, preservation or sale of, collection from, or other realization upon,
any of the Collateral, (d) the exercise or enforcement of any of the rights,
powers or remedies of the Secured Party under this Agreement or under applicable
laws and regulations or in any workout or restructuring or insolvency or
bankruptcy proceeding or (e) the failure by the Pledgor to perform or observe
any of the provisions hereof. All such amounts and all other amounts payable
hereunder shall be payable on demand, together with interest at a rate equal to
the lesser of (i) the Default Interest Rate (as defined in the Note) (based on a
year of 360 days), or (ii) the maximum rate allowed by applicable laws and
regulations, from and including the due date to and excluding the date of
payment.

     SECTION 6.2. AMENDMENTS AND OTHER MODIFICATIONS. No amendment of any
                  ----------------------------------
provision of this Agreement (including a waiver thereof or consent relating
thereto) shall be effective unless the same shall be in writing and signed by
the Secured Party. Any waiver or consent relating to any provision of this
Agreement shall be effective only in the specific instance and for the specific
purpose for which given. No notice to or demand on the Pledgor in any case shall
entitle the Pledgor to any other or further notice or demand in similar or other
circumstances.

     SECTION 6.3. CUMULATIVE REMEDIES; FAILURE OR DELAY.  The rights and
                  -------------------------------------  
remedies provided for under this Agreement are cumulative and are not exclusive
of any 

                                       14
<PAGE>
 
rights and remedies that may be available to the Secured Party under applicable
laws and regulations or otherwise. No failure or delay on the part of the
Secured Party in the exercise of any power, right or remedy under this Agreement
shall impair such power, right or remedy or shall operate as a waiver thereof,
nor shall any single or partial exercise of any such power, right or remedy
preclude other or further exercise of such or any other power, right or remedy.

     SECTION 6.4. NOTICES, ETC. All notices and other communications under this
                  ------------
Agreement shall be in writing and shall be personally delivered or sent by
prepaid courier, by overnight, registered or certified mail (postage prepaid) or
by prepaid telex, telecopy or telegram, and shall be deemed given when received
by the intended recipient thereof. Unless otherwise specified in a notice given
in accordance with the foregoing provisions of this Section 6.4, notices and
other communications shall be given to the parties hereto at their respective
addresses (or to their respective telex or telecopier numbers) indicated on the
signature page(s) hereto.

     SECTION 6.5. SUCCESSORS AND ASSIGNS.  This Agreement shall be binding upon
                  ----------------------
and, subject to the next sentence, inure to the benefit of the Pledgor and the
Secured Party and their respective successors and assigns. The Pledgor shall not
assign nor transfer any of its rights or obligations hereunder without the prior
written consent of the Secured Party. The benefits of this Agreement shall pass
automatically with any assignment of the Secured Obligations (or any portion
thereof), to the extent of such assignment.

     SECTION 6.6. PAYMENTS SET ASIDE.  Notwithstanding anything to the contrary
                  ------------------
herein contained, this Agreement, the Secured Obligations and the Security
Interest shall continue to be effective or be reinstated, as the case may be, if
at any time any payment, or any part thereof, of any or all of the Secured
Obligations is rescinded, invalidated, declared to be fraudulent or preferential
or otherwise required to be restored or returned by the Secured Party in
connection with any bankruptcy, reorganization or similar proceeding involving
the Pledgor, any other party liable with respect to the Secured Obligations or
otherwise, if the proceeds of any Collateral are required to be returned by the
Secured Party under any such circumstances, or if the Secured Party elects to
return any such payment or proceeds or any part thereof in its sole discretion,
all as though such payment had not been made or such proceeds not been received.
Without limiting the generality of the foregoing, if prior to any such
rescission, invalidation, declaration, restoration or return, this Agreement
shall have been canceled or surrendered or the Security Interest or any
Collateral shall have been released or terminated in connection with such
cancellation or surrender, this Agreement and the Security Interest and such
Collateral shall be reinstated in full force and effect, and such prior
cancellation or surrender shall not diminish, discharge or otherwise affect the
obligations of the Pledgor in respect of the amount of the affected payment or
application of proceeds, the Security Interest or such Collateral.

                                       15
<PAGE>
 
     SECTION 6.7. CONTINUING SECURITY INTEREST; TERMINATION.  This Agreement
                  -----------------------------------------
shall create a continuing security interest in the Collateral and, except as
provided below, the Security Interest and all agreements, representations and
warranties made herein shall survive until, and this Agreement shall terminate
only upon, the indefeasible payment in full of the Secured Obligations.

     Notwithstanding anything in this Agreement or applicable laws and
regulations to the contrary, the agreements of the Pledgor set forth in Sections
4.5.1, 4.9 and 6.1 shall survive the payment of all other Secured Obligations
and the termination of this Agreement.

     SECTION 6.8. WAIVER AND ESTOPPEL. Except as otherwise provided in this
                  -------------------
Agreement, the Pledgor hereby waives: (a) presentment, protest, notice of
dishonor, release, compromise, settlement, extension or renewal and any other
notice of or with respect to the Secured Obligations and hereby ratifies and
confirms whatever the Secured Party may do in this regard; (b) notice prior to
taking possession or control of any Collateral or any bond or security that
might be required by any court prior to allowing the Secured Party to exercise
any of their rights, powers or remedies; (c) the benefit of all valuation,
appraisement, redemption and exemption laws; (d) any rights to require
marshaling of the Collateral upon any sale or otherwise to direct the order in
which the Collateral shall be sold; (e) any set-off; and (f) any rights to
require the Secured Party to proceed against any Person, proceed against or
exhaust any Collateral or any other security interests or guaranties or pursue
any other remedy in the Secured Party's power, or to pursue any of such rights
in any particular order or manner, and any defenses arising by reason of any
disability or defense of any Person.

     SECTION 6.9. EXECUTION IN COUNTERPARTS.  This Agreement may be executed in
                  -------------------------
any number of counterparts, each of which counterparts, when so executed and
delivered, shall be deemed to be an original and all of which counterparts,
taken together, shall constitute but one and the same Agreement.

     SECTION 6.10. COMPLETE AGREEMENT. This Agreement, together with the
                   ------------------
exhibits and schedules hereto, is intended by the parties as a final expression
of their agreement regarding the subject matter hereof and as a complete and
exclusive statement of the terms and conditions of such agreement.

     SECTION 6.11.  LIMITATION OF LIABILITY.  No claim shall be made by the
                    -----------------------
Pledgor against the Secured Party or the affiliates, directors, officers,
employees or agents of the Secured Party for any special, indirect,
consequential or punitive damages in respect of any claim for breach of contract
or under any other theory of liability arising out of or related to the
transactions contemplated by this Agreement, or any act, omission or event
occurring in connection therewith; and the Pledgor hereby waives, releases and
agrees not to sue upon any claim for any such damages, whether or not accrued
and whether or not known or suspected to exist in its favor.

                                       16
<PAGE>
 
     SECTION 6.12. WAIVER OF TRIAL BY JURY.  THE PLEDGOR AND THE SECURED PARTY
                   -----------------------
WAIVE THE RIGHT TO A TRIAL BY JURY IN ANY ACTION UNDER THIS AGREEMENT,
REGARDLESS OF WHICH PARTY INITIATES SUCH ACTION OR ACTIONS. 

                                       17
<PAGE>
 
     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first set forth above. 


PLEDGOR:
-------

CRAIG CORPORATION                             Address:  550 South Hope Street   
                                                        Suite 1825              
                                                        Los Angeles, CA 90071   
By: /s/ Robin Skophammer
   ---------------------------                Telecopy:  (213) 239-0548
Title: Chief Financial Officer
      ------------------------
 


SECURED PARTY:
-------------

CITADEL HOLDING CORPORATION                   Address:  550 South Hope Street   
                                                        Suite 1825              
                                                        Los Angeles, CA 90071   
By: /s/ S. Craig Tompkins
   -------------------------                  Telecopy:  (213) 239-0548   
Title: Vice Chairman
      ----------------------


 

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