SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996
OR
[ ]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number 0-16423
CITADEL ENVIRONMENTAL GROUP, INC.
(Name of Small Business Issuer in Its Charter)
Colorado 84-0907969
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3617 East Thousand Oaks Boulevard, Suite 223
Thousand Oaks, CA 91362
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number: (805) 777-3450
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, No Par Value
(Title of class)
Check whether the issuer: (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes No X
Check if disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated b y reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.[ ]
The issuer's revenues for the most recent fiscal year were $0.
The aggregate market value of the voting stock held by
non-affiliates, based upon the average bid and asked prices of
the Common Stock on September 30, 1997 was $ 3,665,200. Shares
of Common Stock held by each officer and director and by each
person who owns 5% or more of the outstanding Common Stock have
been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
The number of shares outstanding of the issuer's Common Stock, as
of September 30, 1997 was 5,879,709.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
<PAGE>
PART I
ITEM 1.DESCRIPTION OF BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Citadel Asset Management, Ltd. was registered as an investment
adviser under the Investment Advisers Act of 1940 upon its
incorporation in Colorado in July 1983 and, until September 1992,
was primarily engaged in the business of rendering investment
advisory and management services. The Company was inactive from
fiscal 1993 through fiscal 1995. The name was changed to Citadel
Environmental Group, Inc. (The "Company", or "Citadel") in August
1996.
The Company's Articles of Incorporation were amended in January
1995 to increase the Company's authorized common stock to
25,000,000 shares with no par value, convert each outstanding
share of Series A preferred stock into one share of common stock,
and eliminate all unpaid dividends on any share of preferred
stock.
On August 12, 1996 Citadel acquired all the outstanding common
stock of Tonopah Resources International, Inc., ("TRI"). All of
the outstanding common stock of TRI was acquired for 1,050,000
shares of newly issued common stock of Citadel, and 1,500,000
shares of Series A Preferred, 1,500,000 shares of Series B
Preferred, and 2,000,000 shares of Series C Preferred. In
conjunction with the acquisition, Citadel assumed or guaranteed
$1,134,000 of TRI indebtedness.
Following the acquisition, the shareholders of TRI owned
approximately 56% of the outstanding shares of Citadel's common
stock and 100% of Citadel's preferred shares. Effective September
30,1996 the Board of Directors of the Company voted to
discontinue the operations of TRI. In conjunction with the
discontinuance and in order to strengthen the financial position
of the Company and encourage new investors, the Company issued
2,840,000 shares of Citadel Common Stock in exchange for all of
the Series A, B and C Preferred Stock and the cancellation
of $1,100,000 in TRI debt. On September 22, 1997, the Company
sold its equity interest in TRI to the Chairman of the Board of
Citadel for $9,250 in cash and contingent consideration of
$100,000. (See Item 12. "Certain Relationships and Related
Transactions").
On March 26, 1997, the Company acquired a 64.45% interest in
Applied Medical Recovery, Inc. ("AMR"), an Arizona corporation,
engaged in reprocessing and recycling of non-critical medical
instruments and devices in exchange for 1,633,608 shares of
common stock.
The Company's executive offices are located at 3617 East Thousand
Oaks Boulevard, Suite 223 Thousand Oaks, CA 91362 and its
telephone and fax numbers are (805) 777-3450 and (805) 777-3460,
respectively.
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<PAGE> DESCRIPTION OF BUSINESS
The Company owns a 64.45% interest in Applied Medical Recovery,
Inc. ("AMR"), an Arizona corporation, engaged in reprocessing and
recycling of non-critical medical instruments and devices.
AMR and its subsidiaries have developed a proprietary service
which allows for the recovery and re-use of previously used and
contaminated, (disposable) non-critical surgical instruments and
related medical devices. The FDA has not yet developed
regulations for the new niche reprocessing industry. However, the
regulations are expected to be issued by late 1997 or early 1998.
Until there are published standards, AMR is following FDA
Regulation #1722513 which relates to good manufacturing
practices. Prior to the creation of the independent reprocessor
of surgical instruments and/or medical devices, only hospitals
reprocessed instruments. Hospitals do not fall under the
regulation of the FDA and therefore no known regulations are
currently in place. Instruments and/or devices are segregated and
collected at the point of use in specially designated containers,
reprocessed at AMR's plants and are "sold back" to the healthcare
facility(point of origin) for reuse. AMR believes that its
reprocessing system may save the healthcare facility up to 50%
in instrument replacement costs. The types of noncritical
instruments and/or devices AMR reprocesses include: floor grade
instruments (laceration and suture trays); laparoscopic babcocks,
graspers, scissors; cutting and saw blade; knives, shears,
forceps, burs, and others.
The reprocessing system protocol includes performing the
following general functions:
1)Initial cleaning - both ultrasonic and manual;
2)Log-in inspection - tracking each instrument for
individual history;
3)Sharpening and honing (if necessary);
4)Quality control microscopic inspection;
5)Final cleaning - instrument is dried and lubricated (if
necessary) and prepared for packaging;
6)Quality control inspection;
7)Packaging and sterilization;
8)Quality control inspection;
9)Sterilization of instrument is validated by independent
laboratory; and
10)Instrument shipped back to healthcare facility client for
reuse.
Under ordinary conditions, instruments can be reprocessed from
three to eight times, depending upon the nature and quality of
the instrument. Once an instrument is no longer usable by AMR's
customers, the instrument may be sold into the foreign (overseas)
medical instrument markets, in bulk to metal recyclers, to
morticians or, disposed of through regular in-house medical
waste sterilization/disposal.
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<PAGE>
Industry research indicates that approximately 40 billion medical
instruments and devices are utilized in the U.S. each year. AMR
believes that approximately 15-20% of these instruments and
devices are candidates for AMR's reprocessing protocol. AMR's
reprocessing service fees range from $5.00 to $300.00 per
instrument Fees are customarily based on the type of instrument
reprocessed.
AMR has developed an array of services which allow hospitals and
surgery centers to minimize the generation of non-recyclable
medical waste. AMR's recovery and reprocessing services address
both used and unused medical products utilized in intervention,
diagnostic and surgical procedures. AMR's programs intend to
safely and effectively collect for recycle and/or resale: (i)
disposable operating room towels, (ii) stainless steel
instruments, (iii) plastic components and (iv) opened/unused
surgical supplies. AMR will also purchase in bulk (from the
healthcare facility) floor grade instruments and out-sourced
sterile kits for reprocessing. The healthcare facility may
purchase the reprocessed floor grade instruments and out-sourced
non-sterile kits from AMR at prices which are substantially below
historic costs. AMR provides in-house training and coordinating
of its various collection programs within the each healthcare
facility.
It is expected that AMR customers will realize cost reductions as
a result of purchasing reprocessed instruments as well as a
result of the reduced volume of medical waste generated and
requiring disposal.
In May 1997 AMR opened a reprocessing plant in Phoenix,
Arizona, in a leased facility of approximately 15,000 square feet
and in late June 1997 closed its 4,000 square foot facility in
St. George, Utah.
Competition
The market in which Applied Medical Recovery operates and will be
operating can be characterized as a new developing market which
has not been fully defined. Many of AMR's actual and potential
competitors are small companies with comparable financial and
human resources and most have shorter operating histories. To the
extent competitors and potential competitors offer comparable or
more efficient technologies and to the extent larger companies,
with greater resources, better operating efficiencies, and more
extensive capabilities to collect, recycle and distribute
products, enter into AMR's markets, the company's ability to
compete effectively could be adversely effected.
Employees
As of November 1, 1997, Citadel employs two persons full time,
all of which are in executive positions.
AMR currently has 31 employees of whom six are employed at the
corporate office, three of which are executives and three of
which are clerical. The remaining employees are employed at the
Phoenix reprocessing facility. When the Phoenix facility is
fully operational it will accommodate up to three shifts per day
with each shift employing approximately 40 employees.
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ITEM 2. DESCRIPTION OF PROPERTY
Citadel's executive and administrative offices are located in
Thousand Oaks, California. The Company leases approximately 700
square feet, on a month-to-month basis, with a monthly rental
of approximately $700. These facilities are believed to be
adequate for current operations.
AMR's executive and administrative offices are located in
Phoenix, Arizona. Corporate offices occupy approximately 3,000
square feet, on a month-to-month basis, for a monthly rental of
approximately $3,500. The 15,000 square foot reprocessing
facility is also located in Phoenix, Arizona, for a monthly
rental of $5,500 under a three year lease term which commenced in
May 1997 and which also carries a three year renewal option. The
lease has been guaranteed by certain officers, directors and
major shareholders of AMR.
ITEM 3. LEGAL PROCEEDINGS
There are no pending legal proceedings against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There have been no matters submitted to a vote of security
holders during the quarter ended
December 31, 1996.
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<PAGE> PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock began trading in the over-the-counter
market on the OTC Bulletin Board under the symbol "ASEM" in April
1996. In September 1996, the stock symbol changed and currently
trades under the symbol "CTEV". There was no active trading
market for the Company's Common Stock for more than seven years
prior to April 1996. Since April 1996, trading activity with
respect to the Company's Common Stock has been limited and
sporadic.
The following table reflects the high and low bid prices of the
Company's Common Stock as reported by the OTC Bulletin Board
commencing April 1996 . Such prices are inter-dealer quotations
without retail mark-ups, mark-downs or commissions, and may not
represent actual
transactions.
<TABLE>
<CAPTION>
Fiscal
Year Quarter High Low
<S> <C> <C> <C>
1996 03/31/96 0 0
1996 06/30/96 1 15/16 1/4
1996 09/30/96 2 1 3/8
1996 12/31/96 1 7/16 5/8
1995 03/31/95 0 0
1995 06/30/95 0 0
1995 09/30/95 0 0
1995 12/31/95 0 0
</TABLE>
As of September 30, 1997, there were approximately 51 holders of
record of the Company's common stock.
The Company has no formal policy concerning the declaration of
dividends and has not issued any common stock dividends to date.
The payment of dividends is within the discretion of the Board
of Directors. The payment of any future dividends will be
contingent upon future earnings, if any, its financial condition
and capital requirements, general business conditions and other
factors.
ITEM 6.MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS
Overview
Citadel's focus is to acquire controlling interest in operating
companies in growth industries and increase the value of the
investment by providing or locating the managerial,
administrative and financial assistance necessary to facilitate
growth. The Company is dependent upon additional debt or equity
financing in order to provide these services for the benefit of
its controlled subsidiaries. There is no assurance that the
Company will be able to raise such capital.
6
<PAGE>
In August 1996, the Company acquired all of the outstanding
common stock of Tonopah Resources International, Inc. in exchange
for a combination of Citadel Common and Preferred Stock. See
Liquidity and Capital Resources. The investment did not meet
performance objectives and commenced liquidation in September
1996. In September 1997, the Company sold the stock in the
substantially liquidated subsidiary to Citadel's Chairman of the
Board. (See "Certain Relationships and Related Transactions").
In March 1997, the Company acquired controlling interest in
Applied Medical Recovery, Inc. in exchange for Citadel Common
Stock.
Plan of Operations
The Company intends to assist AMR's expansion of its medical
reprocessing and recovery activities on a national and
international basis. The medical reprocessing and recovery
business has four distinct operating segments.
1) Through 47 independent sales representatives, AMR contacts
individual hospitals and surgical centers and offers, on a fee
for service basis, to reprocess their non-critical medical
instruments and devices. To date, AMR's primary business has
come from the southeast and northeast sections of the United
States and since inception in 1995, AMR has serviced over 200
accounts. AMR has developed several innovative approaches to
obtaining instruments from its customers which have increased
the quantity of the instruments recovered and therefore
reprocessed. AMR established a "mail away" program in 1996 which
substantially increased the amount of instruments recovered from
those facilities which entered AMR's program. All instruments
received from a hospital are reprocessed and then returned to
that facility. Ownership of these instruments is generally
retained by the hospital. AMR is paid a fee for reprocessing
which averages approximately 50% of the price the hospital
originally paid for the instrument.
2) AMR is targeting hospital groups whereby it can contract for
reprocessing on behalf of a number of hospitals and surgical
centers with common ownership. Under this approach, AMR can
reprocess instruments and then act as a central supply for the
entire group. In this case, depending on the size of the group,
and the volume of instruments involved, AMR may joint venture a
facility with a major hospital or healthcare group and process
their instruments exclusively. This would provide substantial
savings to the group and improve inventory controls for the
individual hospitals involved.
3) The Company is negotiating with a major medical waste
transportation and disposal firm which would generate for AMR a
substantial supply of instruments to be reprocessed. Although no
assurance can be given that AMR will be successful in these
negotiations, under the terms of the agreement, the waste company
would deliver the instruments, for a fee, to a decontamination
center owned and operated by AMR. The instruments then would be
decontaminated and sent to the Phoenix plant for reprocessing
and then returned back to the hospital of origin. That hospital
would then be charged a fee, or the instruments could be held in
AMR's inventory for overseas sales (See Item 4 below).
4)Instruments and devices received by AMR which are not under
contract with a healthcare facility become the property of AMR
and will, if suitable for reprocessing, be held in AMR's
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inventory. AMR believes that there is a substantial overseas
market for disposable instruments which are currently thrown away
in the United States. AMR intends, either through joint ventures
or direct sales to international distributors, to sell
reprocessed instruments overseas and then reprocess through
offshore facilities the instruments several more times, depending
on the instrument. Once the instrument is outside the United
States it can have a separate reprocessing operation. AMR
currently has no overseas contractual relationships.
AMR currently has 34 employees of whom seven are employed at the
corporate office, five of which are executives and two of which
are clerical. The remaining employees are employed at the
Phoenix facility. When the Phoenix facility is fully
operational, a single shift will employ approximately 40
employees.
Citadel expects to assist in the national and international
expansion of AMR by providing capital(generally in the form of
loans) and certain management expertise. Citadel has committed
to AMR that Citadel would make available a $1,500,000 working
capital line of credit and assist in obtaining an additional
$2,000,000 in debt financing for expansion. To date, Citadel has
loaned AMR $745,000 under the line of credit with future
borrowing dependent upon Citadel's ability to raise additional
capital. To date, the additional $2,000,000 in debt has not yet
been secured. Absent the additional financing, AMR will not have
the capital necessary to achieve its plan of operations.
Liquidity and Capital Resources
The Company's cash and cash equivalents at December 31, 1996 are
$43,256 compared to $1,565 at December 31, 1995. The increase
in cash and cash equivalents of $41,691 is principally due to
$280,000 in proceeds from the private placement of Common Stock
discussed below (see "Private Placement - Common Stock") less the
cash requirements of operations for the period. Included in the
operating loss of $3,185,336 for the period is a loss from
discontinued operations of $2,943,136. With the exception of the
funding and write-off of a $61,539 loan to the discontinued
operations, net of repayments, the expenses related to
discontinued operations were principally non-cash and involved
the issuance of common stock and the assumption of debt, as
discussed below (see "Tonopah Resources International, Inc.
/Discontinued Operations"). Other significant components of the
operating loss not utilizing cash were a $70,211 increase in
accounts payable, a $16,518 increase in payroll taxes payable and
a $33,761 increase in accrued interest payable.
Private Placement - Common Stock
Effective September 30, 1996, the Company completed a private
placement of 186,667 units consisting of one share of no par
convertible preferred stock and one warrant, for $1.50 per unit.
The warrant allows the purchaser to purchase one share of common
stock at $3.00 per share and expire two years from date of
issuance. In conjunction with a subsequent private placement of
common stock (See "Subsequent Events - Private Placement of
Preferred Stock"), all preferred shareholders' converted their
shares and warrants into convertible preferred stock and warrants
issued in accordance with the terms of the subsequent private
placement. The common shares issuable under this placement were
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not issued as of December 31, 1996 and were accordingly shown as
stock subscriptions under current liabilities on the December 31,
1996 financial statements.
Tonopah Resources International, Inc. ("TRI")/Discontinued
Operations
On August 12, 1996 Citadel acquired all the outstanding common
stock of Tonopah Resources International, Inc., ("TRI"). All of
the outstanding common stock of TRI was acquired for
1,050,000 shares of newly issued common stock of Citadel, and
1,500,000 shares of Series A Preferred, 1,500,000 shares of
Series B Preferred, and 2,000,000 shares of Series C Preferred.
In conjunction with the acquisition, Citadel assumed or
guaranteed $1,134,000 of TRI indebtedness.
During fiscal 1996, Citadel loaned TRI $89,938 for working
capital purposes.
Following the acquisition, the shareholders of TRI owned
approximately 56% of the outstanding shares of Citadel's common
stock and 100% of Citadel's preferred shares. Effective September
30,1996 the Board of Directors of the Company voted to
discontinue the operations of TRI. In conjunction with the
discontinuance, and in order to strengthen the financial position
of the Company and encourage new investors, the Company issued
2,840,000 shares of Citadel Common Stock during fiscal 1997 in
exchange for all of the Series A, B and C Preferred Stock
and the cancellation of $1,100,000 in TRI debt. On September 22,
1997, the Company sold its equity interest in TRI to the Chairman
of the Board of Citadel for $9,250 in cash and contingent
consideration of $100,000.
Discontinued operations for the year ended December 1, 1996
includes the following:
Value of Citadel common and preferred stock issued $ 1,646,000
Debt Assumed 1,134,000
Subsequent debt incurred 71,836
Accrued interest on above debt 33,761
Write-off of loan to TRI, net of repayments 61,539
$ 2,947,136
In conjunction with the discontinuance of TRI, certain
subsidiaries of TRI were sold. Despite the sale of these
subsidiaries, certain liabilities at the subsidiary level could
be asserted to be Citadel liabilities. These contingent
liabilities related to the disposal of TRI subsidiaries aggregate
approximately $1,000,000 and consist of the following:
Allen-Moore Diversified Services, Inc. TRI held a 51% ownership
interest in the issued and outstanding Common Stock of
Allen-Moore Diversified Services, Inc. ("AMDS")and on May 20,1997
sold its total interest in AMDS to All Western Oil, Inc. for
$65,000. TRI also received a mutual release of obligations from
the new owner and the AMDS stockholders' owning the remaining
49% of the Common Stock, both as corporate officers and
individually. AMDS has delinquent federal and state payroll
taxes amounting to $171,263 and accounts payable of $92,407 as
of December 31, 1996. As the accounting records for AMDS have
not been made available, it is presently uncertain to what extent
these amounts increased during fiscal 1997. AMDS was also in
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violation of EPA Hazardous Waste laws and has been formally
charged with these violations. The chief operating officer of
AMDS was also personally charged with violations and all
government actions are pending. The AMDS corporation could be
held liable for a fine in the maximum of $500,000, or as little
as a $5,000. fine as the violations have been rectified. It is
uncertain to what extent, if any, Citadel could be held liable
for these fines should AMDS be unable to satisfy them. If the
mutual releases prevail, Citadel will have no liability for
these amounts.
Arizona Hazardous Waste, Inc. TRI owned all of the issued and
outstanding Common Stock of Arizona Hazardous Waste, Inc.
("AHW"). On April 9, 1997 TRI sold all of the fixed assets of
AHW to Envirosolve Southwest, Inc. for the sum of $115,000.
Following the application of these proceeds, AHW has delinquent
federal and state payroll taxes amounting to $14,687 and accounts
payable of $154,397 as of December 31, 1996. AHW ceased all
business activity during the first quarter of 1997. It is
uncertain to what extent, if any, Citadel could be held liable
for these amounts.
GEC Construction and Management, Inc. TRI held a 49% ownership
interest in the Common Stock of GEC Construction and Management,
Inc.("GEC"). On December 2, 1996 TRI reached an agreement with
the 51% shareholder of GEC to return to the 51% shareholder TRI's
stock in GEC along with any future rights to purchase stock of
GEC, in exchange for TRI not foreclosing on it's secured
receivable from GEC. TRI has assisted GEC with collection of
outstanding accounts receivable and used such proceeds to retire
TRI indebtedness and GEC payroll tax liabilities. The records of
GEC are unavailable and therefore, any contingent liability for
remaining unpaid payroll taxes cannot be determined.
Subsequent Events - Retirement of Series A, B, and C Preferred
The Company issued 2,840,000 shares of Citadel Common Stock
during fiscal 1997 in exchange for all of the Series A, B and C
Preferred Stock issued in conjunction with the TRI acquisition
and the cancellation of $1,100,000 in TRI debt.
Subsequent Events - Private Placement of Convertible Preferred
Stock
On April 30, 1997 the Company completed a private placement of
717,500 units consisting of one share of no par convertible
preferred stock, one A warrant and one B warrant, for $1.00 per
unit. The preferred stock is convertible into common stock on a
one-for-one basis and carries a 5% annual dividend payable in
common shares. Two A warrants allow the holder to purchase one
share of common stock at $1.25 per share. The warrants expire one
year from date of issuance (October 1997) or 90 days following
the registration of the underlying common shares, whichever
is greater. Two B warrants allow the holder to purchase one share
of common stock at $1.50 per share. The warrants expire two years
from date of issuance (October 1998) or 90 days following
the registration of the underlying common shares, whichever is
greater. In conjunction with this private placement, all
shareholders who acquired stock in the Company's previous private
placement (See "Private Placement - Common Stock), converted
their common shares and warrants into preferred stock and
warrants issued in accordance with the terms of this private
placement.
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On November 8, 1997 the Board of Directors voted to extend the
expiration dates for the Series A and B warrants to October
1998 and October 1999, respectively.
Subsequent Events - Acquisition of Applied Medical Recovery, Inc.
On March 26, 1997, the Company acquired a 64.45% interest in
Applied Medical Recovery, Inc.("AMR"), an Arizona corporation,
engaged in reprocessing and recycling of non-critical medical
instruments and devices in exchange for 1,633,608 shares of
common stock.
Subsequent Events - Loan Agreement with Applied Medical Recovery,
Inc.
On July 1, 1997, Citadel entered into a loan agreement with AMR.
The loans are covered by a Multiple Advance Promissory Note in
the amount of $3,500,000, bearing interest at Wells Fargo
prime rate plus two percent (2%) per annum with principal and
interest due and payable on or before July 1,1998. The note is
secured by a Security Agreement on all of the assets of AMR and
its subsidiaries. As of November 1, 1997, Citadel has advanced
$745,000 to AMR pursuant to this Multiple Advance Promissory
Note.
Subsequent Events - Officer's Severance Agreement
On January 14, 1997 the Company entered into an agreement with
Richard Landi, accepting his retirement as President of the
Company effective February 1, 1997. Pursuant to the agreement the
Company became liable for twelve months of full compensation from
February 1, 1997 through January 1, 1998 at $8,333. per month
payable bi-monthly. The Company made payments through
March 31, 1997 and has not made any further payment to date. The
unpaid balance at October 31, 1997 is $83,333. The Company is
seeking arbitration to reach a mutually satisfactory settlement.
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<PAGE>
ITEM 7.FINANCIAL STATEMENTS
The Consolidated Financial Statements of the Company are attached
as follows:
Index to Financial Statements F-1
Citadel Environmental Group, Inc. Financial
Statements as of and for the year ended
December 31, 1996 F-3 through F-19
Citadel Asset Management, Ltd. Financial
Statements as of and for the year
ended December 31, 1995 F-20 through F-26
ITEM 8.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On October 28, 1996 the Board of Directors received notice of the
resignation of Schumacher & Associates, Inc. as the Company's
auditors due to the relocation of the Company's corporate
offices. For each of the past two years, the report of
Schumacher & Associates, Inc on the Company's financial
statements did not include an adverse opinion or a disclaimer of
opinion, nor was it modified as to uncertainties, audit scope, or
accounting principles.
To the best of our knowledge and belief during the 24 months
preceding the resignation of Schumacher & Associates, Inc as our
auditors, there existed no disagreements relating to any matter
of accounting principles or practices, financial statement
disclosures, auditing scope or procedure, or compliance with
applicable rules or the commission, which problems, if not
resolved to the satisfaction of Schumacher & Associates, Inc
would have caused them to make reference to the subject matter of
any disagreements in connection with their report.
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PART III
ITEM 9.DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS
Information with respect to the executive officers and directors
of the Company is set forth
below:
Company Positions
Name Age and Offices
Robert R. Barber 56 Chairman of the Board
Louis F. Coppage 60 President, Chief
Financial Officer and
Director
Georgette W. Pagano 39 Corporate Secretary
Business experience of Directors and Executive Officers of
Citadel.
Robert R. Barber. Mr. Barber was elected to the Board of
Directors of Citadel in August 1996 and was elected Chairman of
the Board in January 1997. Mr. Barber has for more than the past
five years been Chairman of the Board and the Chief Executive
Officer of North American Recycling Systems, Inc.. Prior to
forming North American Recycling Systems, he was the President
and Chief Executive Officer of North American Recycling
Corporation since its inception in 1974 which has been involved
in medical waste treatment among other businesses. He is a past
Vice Chairman of the National Solid Waste Recyclers Council and
is a member of the Steering Committee for the New York Solid
Waste Industries Association. Mr. Barber is also a
member of the National Solid Waste Management Association. Mr.
Barber obtained a BA degree in Liberal Arts from Siena College in
1970.
Louis F. Coppage. Mr. Coppage was elected to the Board of
Directors of Citadel in August, 1997 and as elected President and
Chief Financial Officer in September 1997. Mr. Coppage is also
acting Chairman and CEO of American Consolidated Growth
Corporation (AMGC). He has over twenty years of executive and
managerial experience with both domestic and international
operations involving finance and business development for both
private and public corporations.
From 1993 to present, he has held advisory positions and has
provided investment banking consulting services for AMGC and its
affiliate companies, where he assisted in the turnaround and
restructuring of the companies. He is currently a member of the
Board of Directors of
AGTsports, Inc. Mr. Coppage has served as financial consultant
for numerous clients in real estate, energy, insurance management
and investment holdings related businesses. He holds memberships
in several civic, social and charitable organizations.
Georgette W. Pagano. Ms. Pagano has been Corporate Secretary
since March 1997. Ms. Pagano has extensive corporate experience
with a number of public companies beginning with Conversion
Industries in 1984. Prior to joining Conversion, Ms. Pagano
was a stockbroker with the firm of Thomson McKinnon Securities.
She has served as a Director of two public companies.
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<PAGE>
Information with respect to the executive officers and directors
of AMR is set forth below:
Company Positions
Name Age and Offices
Ricardo Ferreira 35 Chief Executive Officer
Timothy Einwechter 44 Chief Financial Officer
Richard McKeon 33 Vice President Marketing
Jeff Zander 39 Vice President Compliance
Georgette W. Pagano 39 Corporate Secretary
Louis F. Coppage 60 Chairman of the Board
Robert R. Barber 56 Director
Pauline R. Sill 45 Director
Reuben Sandler, Ph.D. 60 Director
Raymond L. Graves 62 Director
Business experience of Directors and Executive Officers of AMR.
Ricardo Ferreira. Mr. Ferreira has been AMR's Chief Executive
Officer since May 1997. Prior to joining AMR, Mr. Ferreira was
the President and CEO of Healthworks Managed Care Services, Inc.,
a private company engaged in the provision of rehabilitation
services and Executive Partner of a golf and housing development
in Scottsdale, Arizona. Mr. Ferreira was also the founder,
President and CEO of International Managed Health Care Ltd., a
private company engaged in the provision of rehabilitation
services and prior to this was a corporate banker at The Royal
Bank of Canada. Mr. Ferreira is a member of the Foundation Board
of Doctors Hospital in Toronto, Canada and is The Chairman of the
Advancement Board at the University of Toronto. Mr. Ferreira has
a Business Administration Degree from the University of Toronto.
Timothy Einwechter. Mr. Einwechter has been AMR's Chief
Financial Officer since May 1997. Prior to joining AMR, Mr.
Einwechter was the Chief Operating Officer of Healthworks Managed
Care Services Inc., a private company engaged in the provision of
rehabilitation services and is Managing Partner of a golf and
housing development in Scottsdale, Arizona. Mr. Einwechter has
been the Chief Financial Officer of International Managed Health
Care Ltd., a private company engaged in the provision of
rehabilitation services. He was also the Chief Financial Officer
of Dynacare Health Services Inc., a publicly traded health
services company engaged in the business of providing home health
care and laboratory diagnostic services. Mr. Einwechter was a
Vice President of Versa Care Limited a private company engaged in
the provision of seniors accommodation. Mr. Einwechter received
his Bachelor of Business Administration Honors Degree from
Wilfrid Laurier University and is a Chartered Accountant.
14
<PAGE>
Richard McKeon. Mr. McKeon has been the Vice President in charge
of Sales and Marketing for AMR since March 1996. Mr. McKeon
developed a successful sales career in the specialty medical and
surgical products industry. After experience in sales, marketing
and management, in 1995 Mr. McKeon founded Stratton Industries,
developing specialized surgical laser peripheral equipment to be
marketed nationally, while developing a regional sales
organization in the southwest. Mr. McKeon earned a Bachelor of
Arts in Business Administration from Loyola Marymount University.
Jeff Zander. Mr. Zander has been Vice President of Regulatory
Affairs for AMR since 1996 and currently manages regulatory and
industry standards compliance as well as coordination of legal
affairs and special projects. Mr. Zander was a contributing
editor to the ECRI publication: "Reuse of Single-Use Devices:
Making an Informed Decision." He is also a member of the
Regulatory Affairs Professional Society. Prior to joining AMR,
Mr. Zander served as an officer in the U.S. Marine Corps. Prior
to his military service, Mr. Zander was a business analyst for
Dunn & Bradstreet. He received his Bachelor of Science with
honors from Columbia College and his Juris Doctorate from Brigham
Young University where he was an editor on the Public Law
Journal.
Pauline R. Sill. Ms. Sill, a founder of the company, was
President since its inception in 1996 through. September 1997.
Ms. Sill has been a director of AMR since April 1997. In
addition, Ms. Sill has been Chief Executive Officer and
shareholder of Arizona Medical Waste, a subsidiary of AMR, since
1993. Arizona Medical Waste is a treatment facility that
specializes in the recovery/recycling of commodity items that are
out-sourced to secondary markets. Ms. Sill is on the committee of
the National Solid Waste Management Association. She is also a
member of the National Association of Women Business Owners and
"Who's Who Worldwide, Registry of Business Leaders 1994/95". Ms.
Sill obtained an Associate Degree in Accounting and Business from
Duqensee University and Phoenix Community College.
Raymond L. Graves. Mr. Graves has been a Director of AMR since
April 1997. He is the President of R. L. Graves & Associates, a
financial services company specializing in personal and corporate
pension planning. Prior to that, Mr. Graves was President of
Lincoln National Life, an Arizona financial services company. Mr.
Graves has been in the financial services business for over 30
years. He received his Bachelor of Science degree from Tarkio
College, Missouri, and completed Graduate Work at Iowa State
Teachers College and Kansas State University.
Rueben Sandler. Ph.D. Dr. Sandler has been a Director of AMR
since May 1997. He has been an executive management consultant in
Australia and New Zealand for approximately ten years. Dr.
Sandler was executive Vice President of R&D Laboratories and
President of IPA Information Systems, a medical software company
which was sold to Newport Pharmaceuticals. Dr. Sandler is
currently the President of the Branded Distributors Division of
the National Pharmaceutical Alliance. Dr. Sandler received his
Ph.D. in Mathematics from the University of Chicago.
15
<PAGE>
For a description of the backgrounds of Georgette W. Pagano,
Louis F. Coppage and Robert R. Barber, officer and directors of
AMR, please see "Officers and Directors of the Company" above.
Mr. Barber and Mr. Coppage have been Directors of AMR since
April 1997 and October 1997, respectively.
A former executive officer of the Company will receive a
severance payment of approximately $8,300 per month through
January 1988. He has been paid approximately $25,000 since
January 1997.
Compliance With Section 16(a) of the Exchange Act
The following officers, directors and/or 10 percent shareholders
of the Company have filed late reports of Forms 3, 4 or 5 with
respect to the number of transactions indicated or have failed to
file a required Form 3, 4 or 5 for the period of July 1, 1994 to
June 30, 1995 as indicated in the following table:
Name None
Number of Late Reports None
Number of Transactions None
Failure to File a Report None
16
<PAGE>
ITEM 10.EXECUTIVE COMPENSATION
The following table sets forth the total remuneration of the
Chief
Executive Officer and the four most highly compensated executives
whose salary and bonus for the year ended December 31, 1996
exceeded$100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Name and
Principal Position Year Salary Bonus Other
- ------------------ ------ ------- ------ ------
<S> <C> <C> <C> <C>
Richard Landi, 1996 $25,000 0 0
President and CEO (1) 1995 0 0 0
Wayne Boss, 1996 0 0 0
President and CEO (2) 1995 0 0 0
</TABLE>
_____________________________
(1) Mr. Landi commenced employment in September 1996 and resigned
in
February 1997.
(2) Mr. Boss resigned in August 1996.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
NONE
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NONE
Compensation of Directors
Non-employee directors are not compensated for each Board meeting
they
attend, other than for the reimbursement of expenses. Employee
directors do not receive any additional compensation for Board or
committee service.
17
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information regarding the
ownership of
the Company's equity securities by (i) each person known by the
Company to own 5 % or more of each class of equity securities,
(ii)
each officer and director of the Company, and by (iii) all
executive
officers and directors as a group.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of
Beneficial Owner Ownership Percent of
Class
<S> <C> <C>
Robert R. Barber (1) 0 0
3617 East Thousand Oaks Blvd
Suite 223
Thousand Oaks, CA 91362
Louis F. Coppage (1) 0 0
3617 East Thousand Oaks Blvd
Suite 223
Thousand Oaks, CA 91362
Georgette W. Pagano 0 0
3617 East Thousand Oaks Blvd
Suite 223
Thousand Oaks, CA 91362
Pauline R. Sill 517,620 9%
c/o Arizona Medical Waste
4519 W. Colter
Glendale, AZ 85301
Frances Financial Limited 808,400 14%
c/o Jean-Paul da Costa
Piper, Smith & Basham
31 Warwick Square
London, England SWIV2AF
Koshar Limited 1,467,205 25%
c/o Jean-Paul da Costa
Piper, Smith & Basham
31 Warwick Square
London, England SWIV2AF
All Directors and Officers 0 0
as a Group (2)
</TABLE>
________________________
(1) Director.
* under 1%
ITEM 12.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 22, 1997, the Company sold its equity interest in
Tonopah Resources International, Inc. to the Chairman of the
Board of Citadel for $9,250 in cash and contingent consideration
of $100,000.
18
<PAGE>
ITEM 13.EXHIBITS AND REPORTS ON FORM 8-K
(a)Exhibits
Exhibit No. Description Page
3.1 Articles of Incorporation.
3.2 By-laws.
10.1 Share Exchange Agreement between
Citadel Environmental
Group, Inc. and Applied Medical Recovery, Inc. dated
as of March 26,1997.*
10.2 Purchase and Sales Agreement between Citadel
Environmental Group, Inc. and Robert R. Barber dated
September 22, 1997.*
16 Letter from Schumacher & Associates, Inc regarding
change in certifying accountant.*
21 Subsidiaries of the registrant *
27 Financial Data.*
* Filed herewith
(b)Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the
period covered by this report.
19
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Citadel Environmental Group, Inc.
(Registrant)
Date: November 26, 1997 By: Louis F Coppage
President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signature Title Date
- ------------- ---------------------- ----------
President, Chief Financial
Louis F. Coppage Officer and Director 11/26/97
Robert R. Barber Chairman of the Board 11/26/97
20
<PAGE>
CITADEL ENVIRONMENTAL GROUP, INC.
INDEX TO FINANCIAL STATEMENTS
Citadel Environmental Group, Inc. as of and for the year ended
December 31, 1996:
Report of Independent Accountants F-3/4
Balance Sheet F-5
Statement of Income and Accumulated Deficit F-6
Statement of Cash Flows F-7
Statement of Changes in Stockholders' Equity F-8
Notes to Financial Statements F-9
Citadel Asset Management, Ltd. as of and for the year ended
December 31, 1995:
Report of Independent Accountants F-20
Balance Sheet F-21
Statement of Operations F-21
Statement of stockholders' Equity F-23
Statement of Cash Flows F-24
Notes to Financial Statements F-25
F-1
<PAGE>
FINANCIAL STATEMENTS
CITADEL ENVIRONMENTAL GROUP, INC.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders
of Citadel Environmental Group, Inc.
(Formerly Citadel Asset Management, Ltd.)
Westlake, California
We have audited the accompanying balance sheet of Citadel
Environmental Group, Inc. (formerly Citadel Asset Management,
Ltd.),as of December 31, 1996 and the related statements of income,
accumulated deficit, changes in shareholders' equity, and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, the financial statements referred to in the
first paragraph present fairly, in all material respects, the financial
position of Citadel Environmental Group, Inc. (formerly Citadel Asset
Management, Ltd.) as of December 31, 1996 and the results of its operations
and its cash flows for the year then ended, in conformity with generally
accepted accounting principals.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 7 to the financial statements, the Company has not had significant
operating revenues in several years and as of
December 31, 1996 does not own any assets that would generate any significant
operating revenues. These conditions raise substantial doubt about its
ability to continue as a going concern. Management's plans regarding those
matters are described in Note 8 Subsequent Events. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
F-3
<PAGE>
To The Board of Directors and Stockholders
of Citadel Environmental Group, Inc.
Page 2
INDEPENDENT AUDITORS' REPORT
As more fully discussed in Note 6, during 1996 the Company
discontinued its operations of its wholly owned subsidiary
Tonopah Resources International, Inc. and instituted a plan of
liquidation. As discussed in Note 8 Subsequent Events, the Company has been
successful in its liquidation.
The Company through its ownership of Tonopah Resources
International, Inc. has a potential Contingent Liability as more
fully discussed in Note 9. Management has elected not to accrue any liability
due to the undeterminable probability of the Contingent Liability and the
unascertainable financial impact.
SKEEHAN & COMPANY
October 31, 1997
F-4
<PAGE>
<TABLE>
<CAPTION>
CITADEL ENVIRONMENTAL GROUP, INC.
(Formerly Citadel Asset Management, Ltd.)
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
Current Assets
<S> <C> <C>
Cash $ 43,256
Notes Receivable 50,000
Accrued Interest Receivable 69
Total Current Assets $ 93,325
Total Assets $ 93,325
</TABLE>
See Accompanying Independent Auditor's Report
and Notes to Financial Statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
CITADEL ENVIRONMENTAL GROUP, INC.
(Formerly Citadel Asset Management, Ltd.)
BALANCE SHEET
DECEMBER 31, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
<S> <C> <C>
Accounts Payable $ 75,473
Payroll Taxes Payable 16,518
Notes Payable - Current Portion 1,225,836
Accrued Interest Payable 33,761
Stock Subscriptions 280,000
Total Current Liabilities $ 1,631,588
Total Liabilities 1,631,588
Stockholders' (Deficit)
Common Stock, no par value, authorized
25,000,000 shares, issued and outstanding
1,784,644 shares 2,112,637
Preferred Stock-Series A, .01 par value
authorized 1,500,000 shares, issued and
outstanding 1,500,000 shares 15,000
Preferred Stock-Series B, .01 par value
authorized 1,500,000 shares, issued and
outstanding 1,500,000 shares 15,000
Preferred Stock-Series C, .01 par value,
authorized 2,000,000 shares, issued and
outstanding 2,000,000 shares 20,000
Accumulated (Deficit) (3,700,900)
Total Stockholders' (Deficit) (1,538,263)
Total Liabilities and Stockholders' (Deficit) $ 93,325
</TABLE>
See Accompanying Independent Auditor's Report
and Notes to Financial Statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
CITADEL ENVIRONMENTAL GROUP, INC.
(Formerly Citadel Asset Management, Ltd.)
STATEMENTS OF INCOME AND ACCUMULATED DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1996
Income
<S> <C> <C>
Interest Income $ 86
Total Income $ 86
Expenses
Salaries $ 45,153
Payroll Tax Expense 3,932
Consulting Fees 69,244
Legal and Accounting 66,427
Miscellaneous 3,234
Insurance 5,777
Office Expense 8,269
Travel 3,971
Telephone 3,309
Business Development 1,026
Stock Transfer Fees 2,054
Private Placement Costs 34,890
Total Expenses 247,286
Net (Loss) Before Discontinued Operations (247,200)
Discontinued Operations (Loss) (2,943,136)
Net Loss (3,190,336)
Accumulated (Deficit) January 1, 1996 (510,564)
Accumulated (Deficit) December 31, 1996 $ 3,700,900)
Loss Per Weighted-Average Share of Common
Stock Outstanding
From Continuing Operations $ (0.22)
From Discontinued Operations (2.65)
Total Loss Per Share $ (2.87)
Weighted Average Number of Common Shares, Outstanding 1,108,694
</TABLE>
See Accompanying Independent Auditor's Report
and Notes to Financial Statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
CITADEL ENVIRONMENTAL GROUP, INC.
(Formerly Citadel Asset Management, Ltd.)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
Cash Flows From Operating Activities
<S> <C> <C>
Net (Loss) $ (3,190,336)
Adjustments to Reconcile Net Loss to
Net Cash Used In Operating Activities
(Increase) Decrease in:
Receivable from Affiliates$ 12,500
Accrued Interest Receivable (69)
Increase (Decrease) in:
Accounts Payable 75,211
Payable to Stockholders (7,730)
Payroll Taxes Payable 16,518
Assumption of Tonopah Debt 1,225,836
Accrued Interest Payable 33,761
Stock Issued to Acquire
Discontinued Operations 1,596,000
Total Adjustments 2,952,027
Net Cash (Used In) Operating Activities (238,309)
Cash Flows Provided by Financing Activities
Stock Subscriptions 280,000
Net Cash Provided by Financing Activities 280,000
Net Increase In Cash 41,691
Cash, January 1, 1996 1,565
Cash, December 31, 1996 $ 43,256
</TABLE>
See Accompanying Independent Auditor's Report
and Notes to Financial Statements.
F-8
<PAGE>
<TABLE>
<CAPTION>
CITADEL ENVIRONMENTAL GROUP, INC.
(Formerly Citadel Asset Management, Ltd.)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
Common Stock Preferred Stock Contri-
------------ --------------- buted Accum- Stock-
Shares Amount Shares Amount Capital ulated holders'
(Deficit) (Deficit)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, 12/31/95 432,744 $476,637 $ $40,000 $(510,564) $ 6,073
Reclassify to Common 40,000 (40,000)
Correct Shares Issued 1,900
Shares Issued to
Purchase Tonopah 1,050,000 1,596,000 2,000,000 50,000 1,646,000
Net (Loss) 12/31/96 (3,190,336) (3,190,336)
Balance 12/31/96 1,784,644 2,112,637 2,000,000 50,000 0 (3,700,900)(1,538,263)
</TABLE>
See Accompanying Independent Auditor's Report
and Notes to Financial Statements.
F-9
<PAGE>
CITADEL ENVIRONMENTAL GROUP, INC.
(Formerly Citadel Asset Management, Ltd.)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Company Organization
Citadel Environmental Group, Inc. (formerly Citadel Asset
Management, Ltd.) (the Company) was organized on July 1,1983 for
the primary purpose of providing investment advisory
services. The Company was a registered investment advisor under the Investment
Advisors Act of 1940 until December, 1992. During 1995,1994, and 1993 the
Company has been relatively inactive. On August 12,1996 the Company changed
its name and became active and changed its purpose to that of an investment
company which acquires controlling interest in operating companies. After
acquisition the Company will provide operating capital, management advisory
services, and assist in developing markets.
Accounting Method
The Company maintains its books and records, presents its financial
statements, and files its income tax returns utilizing the accrual method of
accounting. The accrual method recognizes income when earned and expenses
when incurred.
Property and Equipment
Property and Equipment consisting of Office furniture and equipment are
recorded at cost. Depreciation is recorded using allowable methods over the
useful lives of the assets. All property and equipment assets were fully
depreciated at December 31, 1995 and therefore, no expense is recorded in
these financial statements.
Upon sale or retirement of property and equipment the related cost and
accumulated depreciation are eliminated from the accounts and the resulting
gain or loss is recognized. Repairs and maintenance expenditures that do not
extend the useful lives are included in expenses during the period they are
incurred.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported revenues and expenses during the
reporting period. Actual results may differ from those estimates.
NOTE 2 NOTE RECEIVABLE
On December 27, 1996 the Company loaned money to Applied Medical
Technologies, Inc.,(an Arizona Limited Liability Company) in the amount of
$50,000. bearing interest at the rate of 10% per annum. The note is payable
in monthly interest payments starting on February 1, 1997 and monthly
thereafter, with principal repayable on demand, however, if the contemplated
acquisition of Applied Medical Technologies, Inc. by the Company is not
completed by February 1, 1997 then all principal and interest is due and
payable.
F-10
<PAGE>
CITADEL ENVIRONMENTAL GROUP, INC.
(Formerly Citadel Asset Management, Ltd.)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 2 NOTE RECEIVABLE - Continued
Accrued interest receivable at December 31, 1996 is $69.(See Note 8 Subsequent
Events for more information on the note receivable and the acquisition of
Applied Medical Technologies, Inc.)
NOTE 3 NOTES PAYABLE-CURRENT PORTION
The Company had note payable obligations as of December 31, 1996 that were
assumed and or guaranteed through the acquisition of Tonopah Resources
International, Inc. (TRI) as of August 12, 1996.
Promissory Notes payable to Stockholder's
of TRI, secured by the Stock in TRI due on
September 30, 1996 bearing interest at Prime
plus 3.5% per annum. $ 1,100,000.00
Short term debt on related party stockholders'
of TRI assumed by the Company 30,000.00
Promissory Note Payable in favor of Charin
Management dated December 1, 1996 bearing
interest at the rate of 10% per annum.
Principal is repayable on demand with
interest payable monthly starting January 1,
1997 and continuing each month until the
principal is fully paid. The note is unsecured
and was for services connected with the
acquisition of TRI. 20,000.00
Promissory Note Payable to JPM Pension Fund
bearing interest at the rate of 10% per annum.
Principal and interest are repayable on demand.
This note was assumed during the acquisition of TRI. 4.000.00
F-11
<PAGE>
CITADEL ENVIRONMENTAL GROUP, INC.
(Formerly Citadel Asset Management, Ltd.)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 3 NOTES PAYABLE-CURRENT PORTION - Continued
Promissory Note Payable to David D'Appolonia,
former director of the Company and an officer
of TRI, for various loans made and services
rendered and unpaid by TRI. The debt was
stipulated by court order of judgement issued
by the Superior Court of Arizona in and for the
County of Maricopa. 71,836.00
Total Notes Payable-Current Portion $ 1,225,836.00
(See Note 8 Subsequent Events for more information regarding the notes
payables)
Accrued interest payable on the above notes at December 31, 1996 is $33,761.00
NOTE 4 STOCK SUBSCRIPTIONS
The Company on August 5, 1996 issued a Private Placement Memorandum offering
up to 666,667 shares of its common stock at a price of $1.50 per share. The
proceeds from the solicitation were for the use in funding the various
operations of the subsidiaries of TRI. The common stock for the subscriptions
were not issued as of December 31, 1996 and therefore, the amounts are shown
in these financial statements as a liability. The total shares subscribed
were 186,666 at $1.50 representing an increase in the common stock account
when issued in the amount of $280,000.00.
(See Note 8 Subsequent Events for more information regarding stock
subscriptions)
NOTE 5 STOCKHOLDERS' EQUITY
During the year ended December 31, 1996 the Company became aware that the
total number of shares reported in the Independent Auditors' Report for the
year ended December 31, 1995 were incorrect by 1900 shares. The American
Securities Transfer and Trust, Inc. certified records report the shareholders
issued and outstanding for the year ended December 31, 1995 to be 734,644
shares and the Auditors' Report states 732,744 shares. These financial
statements reflect the adjustment of the 1900 shares as certified by American
Securities Transfer and Trust, Inc.
F-12
<PAGE>
CITADEL ENVIRONMENTAL GROUP, INC.
(Formerly Citadel Asset Management, Ltd.)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 5 STOCKHOLDERS' EQUITY - Continued
The Company through Board of Directors action also reclassified the prior
years reported Contributed Capital of $40,000.00 into the Common Stock Value.
Neither of these actions effect the overall Stockholders' Equity. On August
12, 1996 the Company acquired through a stock issuance all of the stock of The
Tonopah Resources International, Inc. corporation and along with it
substantial interest in its subsidiaries. The Company issued 1,050,000 shares
of common stock at a value of $1.52 per share or $1,596,000.00 plus the
issuance of three classes of preferred stock with a par value of $.01 per
share totaling 5,000,000 shares or $50,000.00 in value. On October 21, 1996
the Board of
Directors declared that the acquisition was filled with problems and that the
Subsidiaries of Tonopah would have to be liquidated and that the Company would
formally discontinue operations of Tonopah and its subsidiaries.
On December 15, 1996 the Company offered through a Private Placement
Memorandum 1,000,000 shares of its Preferred, no par, stock at $1.00 per
share, plus one A Warrant and one B Warrant. Two A Warrants allow the holder
to purchase 1 share of Common Stock at $1.25 per share and Two B Warrants
allow the holder to purchase 1 share of Common Stock at $1.50 per share.
Concurrent with this offering the Company has offered to exchange an
additional 280,000 shares for the securities sold in the August 5, 1996
Private Placement which closed on September 30, 1996.
(See Note 8 Subsequent Events for more information on events effecting the
stockholders' equity)
NOTE 6 DISCONTINUED OPERATIONS
On October 11, 1996 the Board of Directors resolved that Tonopah
Resources International, Inc., which it had purchased on August 12,1996 needed
to be restructured. The restructuring plan included the liquidation of its
subsidiary companies and the discontinuance of Tonopah's operation. Since the
acquisition and the discontinuance of the operations all occurred within the
quarter ending September 31, 1996 the Board of Directors have elected to
collapse all the transactions with Tonopah into a Common Stock for Common
Stock transaction. The Company has further elected to treat the investment
value of the transaction as a current year expense resulting in a carrying
value of the Tonopah Stock of zero.
The following transactions reflect the amount shown on the financial statement
as discontinued operations:
1)Issuance of Common stock for the purchase of
Tonopah $ 1,596,000
2)Issuance of referred stock for the purchase of
Tonopah 50,000
F-13
<PAGE>
CITADEL ENVIRONMENTAL GROUP, INC.
(Formerly Citadel Asset Management, Ltd.)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 6 DISCONTINUED OPERATIONS - Continued
3)Assumption of Tonopah Stockholder debt 1,130,000
4)Assumption of Tonopah debt to David D'Appolonia 71,836
5)Write off of funds advanced to Tonopah and its
subsidiaries 89,938
6)Proceeds from sale of certain assets of
subsidiaries (28,399)
7)Accrued interest on Debts Assumed 33,761
Total Discontinued Operations $ 2,943,136
(See Note 8 Subsequent Events for more information regarding the
Tonopah transactions)
NOTE 7 GOING CONCERN
The Company's continued existence is in doubt. The Company has not had any
significant operating revenues in several years and as of December 31, 1996
the Company does not own any assets that would generate any operating
revenues.
Management believes that actions subsequent to December 31, 1996 and that were
started before December 31, 1996 will correct their financial requirements and
provide the necessary funds to acquire the assets needed to generate the
required operating revenues and therefore, be able to recover from prior
operating losses.
(See Note 8 Subsequent Events for more information regarding actions to
eliminate the going concern)
NOTE 8 SUBSEQUENT EVENTS
Tonopah Resources International, Inc.
Subsequent to the October 11, 1996 an action taken by the Company's Board of
Directors an agreement was reached with the collective shareholders of the
1,500,000 shares of Preferred Series A Stock, the 1,500,000 shares of
Preferred Series B Stock, the 2,000,000 shares of Preferred Series C Stock and
the holders of $700,000.00 worth of the assumed Tonopah $1,100,000.00 notes to
exchange the above for 2,440,000 shares of the Company's Common Stock.
Subsequent to December 31, 1996 the exchange transaction was completed and the
shares were exchanged.
F-14
<PAGE>
CITADEL ENVIRONMENTAL GROUP, INC.
(Formerly Citadel Asset Management, Ltd.)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 8 SUBSEQUENT EVENTS - Continued
Stock Subscriptions
All of the shares purchased from the August 5, 1996 Private Placement
Memorandum offering were during the period January 1, 1997 through April 30,
1997 converted pursuant to the offering dated December 15, 1997. The effect
to the stockholders' equity is nil. The future effects would be in allowing
the August 5, 1996 subscribers to reduce price at which they may use their
warrants. The total dollar effect to this reduction if converted would be
$177,500 or $.64 per share.
Private Placement Memorandum December 15, 1996
On April 30, 1997 the December 15, 1996 Private Placement Offering closed.
The results of the offering are as follows:
<TABLE>
<CAPTION>
Subscriptions Shares Funds
<S> <C> <C>
Convertible Preferred, no par 717,500 $ 717,500.00
Series A Warrants 717,500 Nil
Series B Warrants 717,500 Nil
</TABLE>
The conversion from the August 5, 1996 Private Placement Offering
resulted in the transferring 280,000 shares of Common Stock for 280,000 shares
of Convertible Preferred Stock and the transfer of 280,000 Warrants
convertible into 280,000 shares of Common Stock at a price of $3.00 per share
into 280,000 Warrants convertible into 190,000 shares of Common Stock at $1.25
per share and 280,000 Warrants convertible into 190,000 shares of Common Stock
at $1.50 per share.
Therefore, effective as of April 30, 1997 the Company had issued and
outstanding the following:
Convertible Preferred Stock, no par 997,500 shares
Series A Warrants 997,500 warrants
Series B Warrants 997,500 warrants
Conversion of Debt for Stock
On May 22, 1997 the Company entered into an agreement with Koshar
Limited and Francis Enterprises Limited to retire their individual debts in
the amount of $200,000.00 respectively by issuing 200,000 shares of Common
Stock plus 100,000 Warrants each convertible into 100,000 shares each of the
Company's Common Stock at $1.25 per share convertible anytime within two years
of issuance.
When the May 22, 1997 transactions are combined with the $700,000.00
conversion discussed above under the Tonopah paragraph the total Promissory
debt at December 31, 1996 in the amount of $1,100,000.00 is retired. As of
the date of these financial statements the stock for the May 22, 1997
transactions have not been issued.
F-15
<PAGE>
CITADEL ENVIRONMENTAL GROUP, INC.
(Formerly Citadel Asset Management, Ltd.)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 8 SUBSEQUENT EVENTS - Continued
Accrued Interest
Subsequent to December 31, 1996 and pursuant to the Company's Board of
Directors meeting held October 21, 1996 the Company issued 21,457 shares of
Common Stock as partial payment on the accrued interest as of December 31,
1996.
Purchase of Applied Medical Recovery, Inc.
On March 26, 1997 the Company entered into a Share Exchange Agreement with the
shareholders of Applied Medical Recovery, Inc. (AMR) (an Arizona Corporation)
for the Company to acquire a 51% ownership interest by exchanging 1,530,000
shares of newly issued restricted Common Stock for 102 shares of AMR Common
Stock. AMR had 200 shares of issued and outstanding Common Stock at March 26,
1997. Concurrently, with the above transaction AMR acquired a 99.9% ownership
interest in both Arizona Medical Recovery & Reprocessing, LLC (AMRR)and
Applied Medical Technologies, LLC (AMT) and the Company was assigned a .1%
ownership interest in order to keep the Arizona Limited Liability status in
existence. After the completion of the share exchange the Company purchased
an additional 13.54% ownership interest for 103,608 shares of its common
stock, bringing the overall acquisition of AMR to an 64.54% ownership interest
with 1,633,608 shares of common stock having been issued.
Within the Share Exchange Agreement the Company has agreed to loan or cause to
be loaned to AMR for shortfalls in their forecasted statement of operations up
to $1,500,000.00 and have further agreed that within two years from closing
that the Company will loan or cause to be loaned an additional $2,000,000.00
for necessary capital expenditures as approved by the AMR Board of Directors.
The loans to AMR are to be used by its subsidiaries AMRR and AMT and are
documented and secured by the following.
The loans are covered by a Multiple Advance Promissory Note in the amount of
$3,500,000.00 bearing interest at Wells Fargo prime rate plus two percent (2%)
per annum dated July 1, 1997 with principal and interest all do and payable on
or before July 1, 1998. The note is secured by a Security Agreement on all of
the assets owned at the time of the loan and against any and all assets
acquired while the note and security agreement are outstanding. The Security
Agreement encompasses AMR as the Grantor and AMT, and AMRR as the Secured
Parties.
As of the date of these financial statements the balance owing the Company by
Arizona Medical Recovery, Inc. is $745,000.00.
Discontinued Operations
During the year 1997 the Company has completed most of the intended
liquidation of the Tonopah purchase that occurred on August 12, 1996. The
Tonopah Resources International, Inc. Common Stock was sold to Robert Barber,
Chairman of the Board for Citadel. The stock was sold for $9,250 plus a
contingent note for 50% of the recovery of Medical Waste of New Mexico, up to
$100,000. At the date of these financial statements the Medical Waste of New
Mexico would appear to have too many filing requirements to render any
additional income to the Company.
F-16
<PAGE>
CITADEL ENVIRONMENTAL GROUP, INC.
(Formerly Citadel Asset Management, Ltd.)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 8 SUBSEQUENT EVENTS - Continued
As of the date of these financial statements the subsidiaries of
Tonopah have either been sold or are in the process of being liquidated as
follows:
1)Allen-Moore Diversified Services, Inc.
Tonopah held a 51% ownership interest in the Issued and Outstanding Common
Stock of AMDS and on May 20, 1997 sold its total interest in AMDS to All
Western Oil, Inc. for $65,000.00. Tonopah also received a Mutual Release of
obligations from the new owner and the AMDS stockholders owning 49% both as
corporate officers and individually.
2)Arizona Hazardous Waste, Inc.
Tonopah owned all of the issued and outstanding Common Stock of AHW. On April
9, 1997 Tonopah sold all of the fixed assets of AHW to Envorosolve Southwest,
Inc. for the sum of $115,000.00. With the funds received Tonopah retired
debts of AHW to the extent of the available funds.
3)GEC Construction and Management, Inc.
Tonopah held a 49% ownership interest in the Common Stock of GEC. On December
2, 1996 Tonopah reached an agreement with the 51%
shareholder of GEC to return its stock along with any future rights to
purchase stock in exchange for not foreclosing on its secured receivable owed
to Tonopah from GEC. GEC further agreed to allow the officers of Tonopah to
solicit the collection from the receivables owed to GEC by customers. Tonopah
has successfully collected on one of the accounts by settlement in the amount
of $200,000.00 and has by agreement retired some of the debt owed to it and
then retired outstanding payroll tax liabilities to the federal and state
government agencies. Tonopah further has retired debt owed to one of its
former officer's
NOTE 8 SUBSEQUENT EVENTS - Continued
David D'Appolonia which also held a judgement against GEC and
jointly against Citadel Environmental Group, Inc. Currently,
Tonopah is still continuing to handle the collection of receivables which
further includes a receivable that is part of a counter litigation against GEC
which occurred prior to Tonopah's investment in GEC. The current status of
this litigation is on hold as the plaintiff's have not pursued any further
action at this date.
Officer's Severance Agreement
On January 14, 1997 the Company entered into an agreement with Richard Landi,
accepting his retirement as President of the Company effective February 1,
1997. Pursuant to the agreement the Company became liable for twelve months
of full compensation from February 1, 1997 through January 1, 1998 at
$8,333.33 per month payable bi-monthly. The Company made payments through
March 31, 1997 and due to lack of available funds has not made any further
payment to date. The remaining balance at October 31, 1997 is $83,333.33.
The Company is seeking arbitration to
reach a mutually satisfactory settlement.
F-17
<PAGE>
CITADEL ENVIRONMENTAL GROUP, INC.
(Formerly Citadel Asset Management, Ltd.)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 9 CONTINGENT LIABILITY
The Company during 1996 acquired 100% of the common stock outstanding of
Tonopah Resources International, Inc., which owned a controlling interest in
Allen-Moore Diversified Services, Inc., Arizona Hazardous Waste, Inc. and GEC
Construction and Management, Inc. Tonopah and its subsidiaries had operating
debts unpaid and environmental violation problems prior to the date of the
Companies acquisition. At the time, the Company decided to discontinue its
operation of Tonopah and its subsidiaries and to liquidate its ownership
position, the various
entities continued to have financial and legal problems. The
contingent liability discussed herein, regards the potential for any of these
unpaid debts and/or potential fines by government agencies becoming the
financial responsibility of the Company. Legal counsel is unable to render an
opinion as to the probability of any of these events becoming a financial
liability against the assets of the Company and a reasonable estimate of the
potential financial impact is unascertainable. Management estimates that the
maximum amount of exposure to be no greater than $1,000,000 based on the last
known liabilities of the various entities and the maximum potential fines the
courts could levy on the alleged environmental violations. The lack of
determinable probability in accessing these events coupled with the events as
noted in Note 8 have led management to not accrue contingent liability and to
include the disclosure for information purposes only.
F-18
<PAGE>
FINANCIAL STATEMENTS
CITADEL ASSET MANAGEMENT, LTD.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1995
F-19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Citadel Asset Management, Ltd., Colorado Springs, Colorado
We have audited the accompanying balance sheet of Citadel Asset
Management, Ltd. as of December 31, 1995 and the related
statement
of operations, stockholders' equity, and cash flows for the year
ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility
is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit
also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion the financial statements referred to above present
fairly, in all material respects, the financial position of
Citadel
Asset Management, Ltd. at December 31, 1995 , and the results of
its operations, its changes in stockholders' equity and its cash
flows for the year ended December 31, 1995 in conformity with
generally accepted accounting principles.
Schumacher & Associates, Inc.
12835 E. Arapahoe Road
Tower II, Suite 110
Englewood, CO 80112
March 18, 1996
F-20
<PAGE>
<TABLE>
CITADEL ASSET MANAGEMENT, LTD.
BALANCE SHEET
DECEMBER 31, 1995
<CAPTION>
Assets
<S> <C>
Current Assets:
Cash and cash equivalents $ 1,565
Total current assets 1,565
Furniture and Equipment:
Furniture and Equipment 21,352
Less: accumulated depreciation (21,352)
Furniture and Equipment - net 0
Receivable from affiliates (Note 2) 12,500
$ 14,065
Liabilities
Current Liabilities:
Accounts payable $ 262
Payable to stockholder 7,730
Total current liabilities 7,992
Stockholders' Equity (Note 3)
Preferred stock, Series A, no par value;
2,000,000 shares authorized,
none issued and outstanding 0
Preferred stock, Series B, no par value;
200,000 shares authorized,
none issued and outstanding 0
Preferred stock, Series C, no par value;
500,000 shares authorized,
none issued and outstanding 0
Common stock, no par value, 25,000,000 shares
authorized, 732,744 issued and outstanding 476,637
Additional paid-in capital 40,000
Accumulated deficit (510,564)
Total stockholder's equity 6,073
</TABLE>
$ 14,065
See notes to financial statements.
F-21
<PAGE>
<TABLE>
CITADEL ASSET MANAGEMENT, LTD.
STATEMENT OF OPERATIONS
FOR YEAR ENDED DECEMBER 31, 1995
<CAPTION>
Revenue:
<S> <C>
Miscellaneous income $ 202
Costs and Expenses:
Depreciation 629
Professional fees 2,650
Other 4,716
7,995
Operating loss (7,793)
Other revenue (expense):
Interest income 37
Allowance for losses on receivables from
affiliates (Note 2) (7,147)
(7,110)
Net loss $ 14,903)
Net loss per share $ (0.02)
Shares outstanding, as retroactively adjusted 732,744
</TABLE>
See notes to financial statements.
F-22
<PAGE>
<TABLE>
CITADEL ASSET MANAGEMENT, LTD.
STATEMENT OF STOCKHOLDER'S EQUITY
YEAR ENDED DECEMBER 31, 1995
<CAPTION>
Preferred Common Contrib- Accumu-
uted lated
Stock Stock Capital Deficit Total
<S> <C> <C> <C> <C> <C>
Balance December 31,1994 0 476,637 40,000 (495,661) 20,976
Net loss (14,903) (14,903)
Balance December 31, 1995 0 476,637 40,000 (510,564) 6,073
</TABLE>
See notes to financial statements.
F-2
<PAGE>
<TABLE>
CITADEL ASSET MANAGEMENT, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR YEARS ENDED JULY 31, 1997 AND 1996
<CAPTION>
Cash flows from operating activities:
<S> <C>
Net Loss $ (14,903)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation 629
Reserve for losses on receivables from
affiliates 7,147
Decrease in accounts payable and other
current liabilities (1,824)
Increase in payable to stockholders 6,770
(2,181)
Cash flows from investing activities:
Other 2,123
Cash flows from financing activities 0
Net decrease in cash and cash equivalents (58)
Cash and cash equivalents:
Beginning of Year 1,623
End of year $ 1,565
Supplemental cash flow information:
Interest payments $ 0
Income tax payments $ 0
</TABLE>
See notes to financial statements.
F-24
<PAGE>
CITADEL ASSET MANAGEMENT, LTD.
NOTES TO FINANCIAL STATEMENTS
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business - Citadel Asset Management, Ltd. (the
"Company") was organized on July 1, 1983 for the primary purpose of
providing investment advisory services. The Company was a
registered investment advisor under the Investment Advisors Act of
1940 until December, 1992. During 1995, 1994 and 1993 the Company
has been relatively inactive.
Furniture and Equipment - Furniture and equipment are recorded at
cost and are depreciated using accelerated methods over
useful lives of five years.
Concentration of Credit Risk - Financial instruments which
potentially subject the Company to concentrations of credit risk
consist principally of advances to an affiliate. See Note 2.
Statements of Cash Flows - The Company considers funds held in money
market accounts and certificates of deposit which mature within three
months from the date of acquisition to be cash equivalents.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to
make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
2. TRANSACTIONS WITH RELATED PARTIES
The Company had a receivable from an affiliated
company in the amount of $200,000 plus accrued interest at December
31, 1995. The ffiliate's only asset was an investment in securities
of a small public company with a carrying value of $12,500 at
December 31, 1995. Under the terms of the agreement the Company had
the right to require liquidation of the affiliate and all of its
assets transferred to the Company in partial payment of the
balance due. Subsequent to December 31, 1995 the securities were
sold for $41,452 with the proceeds going to the Company as
payment on the receivable.
As of December 31, 1995 an officer had advanced $7,730 to the
Company. The advance is payable on demand.
F-25
<PAGE>
CITADEL ASSET MANAGEMENT, LTD.
NOTES TO FINANCIAL STATEMENTS
3. STOCKHOLDERS' EQUITY
Prior to 1995 the Company had preferred stock outstanding. During
January, 1995 the preferred stock outstanding was converted to
common and all past unpaid dividends on the preferred stock were
eliminated. The financial statements as of December 31, 1994 have
been retroactively adjusted to give effect to the January, 1995
conversion of preferred stock to common and the elimination of the
preferred dividends.
In 1986, the Company adopted an Incentive Stock Option Plan. Under
such plan, options to purchase a maximum of 250,000 shares of
Series A preferred stock may be granted to employees of the
Company. The duration during which the options will be exercisable
will be determined by the Company, provided that
an Option granted to a 10% or less shareholder shall be exercised
within ten years after date of grant and an option granted to a
greater than 10% shareholder shall be exercised within five years
after date of grant. The exercise price of options granted to
employees who are 10% or less will be the fair market value of the
preferred shares on the date the option is granted. Options granted to
employees holding more than 10% of the Company's common stock will have
an exercise price of not less than 110% of the fair market value of
the shares on the date of grant. To date, no options have been
granted under the plan.
4. INCOME TAXES
As of December 31, 1995, the Company has a net operating loss
carry forward of approximately $280,000 which expires in various
years through 2010. Utilization of the net operating loss carryover
may be limited or eliminated if there is a change of
control of the Company. The receivables from affiliates have been
written off for financial statement reporting purposes but
not for income tax purposes. If these amounts are not ultimately
collected, the net operating loss would be approximately $510,000.
As of December 31, 1995, the Company had total deferred tax
assets of approximately $102,000 due to the operating loss
carryforwards. However, because of the uncertainty of potential
realization of these tax assets, the Company has provided a
valuation allowance for the entire $102,000. Thus, no tax assets
have been recorded in the financial statements as of December 31,
1995.
F-26
Citadel Environmental Group, Inc., form 10K-SB, Exhibit 10.1
SHARE EXCHANGE AGREEMENT
This Share Exchange Agreement is entered into as of March 26,
1997, by and among Citadel Environmental Group, Inc., a Colorado
corporation ("Company"), Applied Medical Recovery, Inc., an Arizona
corporation ("AMR") and each of the persons whose names and
addresses are set forth on Exhibit A attached hereto and
incorporated herein by this reference (the "AMR Shareholders").
R E C I T A L S
WHEREAS, the AMR Shareholders own all of the issued and
outstanding capital stock of "AMR"; and
WHEREAS, AMR owns 99.9% of Applied Medical Technologies, LLC
and Arizona Medical Recovery and Reprocessing, LLC, each of which
is an Arizona Limited Liability Company ("AMT" and "AMRR,"
respectively); and
WHEREAS, the AMR Shareholders have entered into that certain
agreement and plan of exchange dated as of the 26 day of March,
1997, exchanging in the aggregate all of their respective ownership
interests in AMT and AMRR for 200 shares of AMR Common Stock,
constituting all of the issued and outstanding shares of AMR; and
WHEREAS, the Company is a "public company" whose shares trade
on the Nasdaq Bulletin Board; and
WHEREAS, the Company has been a holding company which seeks to
acquire small to medium sized environmental businesses; and
WHEREAS, the Company as of September 30, 1996 has elected to
liquidate its interests in various partially owned subsidiaries
engaged in handling, treatment and disposal of various categories
of solid and hazardous waste; and
WHEREAS, the Company currently seeks to acquire at least a 51%
ownership interest of AMR from the AMR Shareholders in exchange for
1,530,000 shares of the Company's restricted common stock; and
WHEREAS, the AMR Shareholders desire to exchange, in the
aggregate, 102 shares of common stock of AMR, constituting 51% of
all of the issued and outstanding shares of capital stock of AMR in
exchange for 1,530,000 shares of newly issued restricted common
stock of the Company, upon the terms set forth and described
herein.
1
<PAGE> A G R E E M E N T
NOW THEREFORE, in consideration of the premises, the mutual
promises, agreements, provisions and covenants herein contained,
the parties hereby agree as follows:
ARTICLE 1
DEFINITIONS/EXCHANGE/CLOSING
1.1Definitions.
For all purposes of this Agreement, except as otherwise
expressly provided unless the context otherwise requires,
(a)the terms defined in this Article 1 have the meaning
assigned to them in this Article 1 and include the plural as well
as the singular,
(b)all accounting terms not otherwise defined herein
have the meanings assigned under generally accepted accounting
principals,
(c)all references in this Agreement to designated
"Articles," "Sections" and other subdivisions are to the designated
Articles, Sections and other subdivisions of the body of this
Agreement,
(d)pronouns of either gender or neuter shall include,
as appropriate, the other pronoun forms, and
(e)the words, "herein," "hereof" and "hereunder" and
other words of similar import refer to this Agreement as a whole
and not to any particular Article, Section or other subdivision.
As used in this Agreement and the Exhibits and Schedules
delivered pursuant to this Agreement, the following definitions
shall apply.
"Action" means any action, complaint, petition, investigation,
suit or other proceeding, whether civil or criminal, in law or in
equity, or before any arbitrator or Governmental Entity.
"Agreement" means this Agreement by and among Company, and the
AMR Shareholders as amended or supplemented together with all
Exhibits and Schedules attached or incorporated by reference.
"Approval" means any approval, authorization, consent,
qualification or registration, or any waiver of any of the
foregoing, required to be obtained from, or any notice, statement
or other communication required to be filed with or delivered to,
any Governmental Entity or any other Person.
"Associate" of a Person means
2
<PAGE>
(f)a corporation or organization of which such person
is an officer or partner or is, directly or indirectly, the
beneficial owner of 10% of more of any class of equity securities;
(g)any trust or other estate in which such person has
a substantial beneficial interest or as to which such person serves
as trustee or in a similar capacity; and
(h)any relative or spouse of such person or any
relative of such spouse.
"Auditors" means Skeehan & Company, independent public
accountants to the Company, and (to be named by the Board of
Directors), independent public accountants to AMR.
"AMR Shares" means 51% all of the issued and outstanding
shares of AMR common stock.
"Business" means the business of AMR and its subsidiaries as
currently conducted, and shall be deemed to include any of the
following incidents of such business: income, cash flow,
operations, condition (financial or other), assets, properties,
anticipated revenues, prospects, liabilities and personnel.
"Closing" means the consummation of the purchase and sale of
the AMR Shares under this Agreement.
"Closing Date" means the date of the Closing.
"Code" means the Internal Revenue Code of 1986, as amended.
"Contract" means any agreement, arrangement, bond, commitment,
franchise, indemnity, indenture, instrument, lease, license or
understanding, whether or not in writing.
"Disclosure Schedule" means the Disclosure Schedule dated the
date hereof and delivered by the AMR Shareholders and the Company.
The Sections of the Disclosure Schedule shall be numbered to
correspond to the applicable Section of this Agreement and,
together with all matters under such heading, shall be deemed to
qualify only that section.
"Employee Plan" means any employee benefit plan, collective
bargaining, employment or severance agreement or other similar
arrangement to which AMR is a party or by which it is bound,
legally or otherwise.
"Encumbrance" means any claim, charge, easement, encumbrance,
lease, covenant, security interest, lien, option, pledge, rights of
others, or restriction (whether on voting, sale, transfer,
disposition or otherwise), whether imposed by agreement,
understanding, law, equity or otherwise, except for any
restrictions on transfer generally arising under any applicable
federal or state securities law.
3
<PAGE>
"Equity Securities" means any capital stock or other equity
interest or any securities convertible into or exchangeable for
capital stock or any other rights, warrants or options to acquire
any of the foregoing securities.
"GAAP" means generally accepted accounting principles in the
United States, as in effect from time to time,
"Governmental Entity" means any government or any agency,
bureau, board, commission, court, department, official, political
subdivision, tribunal or other instrumentality of any government,
whether federal, state or local, domestic or foreign.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the related regulations
and published interpretations.
"Hazardous Substance" means (but shall not be limited to)
substances that are defined or listed in, or otherwise classified
pursuant to, any applicable Laws as "hazardous substances,"
"hazardous materials," "hazardous wastes" or "toxic substances," or
any other formulation intended to define, list or classify
substances by reason of deleterious properties such as
ignitibility, corrosivity, reactivity, radioactivity,
carcinogenicity, reproduction toxicity or "EP toxicity," and
petroleum and drilling fluids, produced waters and other wastes
associated with the exploration, development, or production of
crude oil, natural gas or geothermal energy.
"Indemnifiable Claim" means any Loss for or against which any
party is entitled to indemnification under this Agreement;
"Indemnified Party" means the party entitled to indemnity
hereunder; and "Indemnifying Party" means the party obligated to
provide indemnification hereunder.
"Intangible Property" means any trade secret, secret process
or other confidential information or know-how and any and all
Marks.
"IRS" means the Internal Revenue Service or any successor
entity.
"Law" means any constitutional provision, statute or other
law, rule, regulation, or interpretation of any Governmental Entity
and any Order.
"Loss" means any action, cost, damage, disbursement, expense,
liability, loss, deficiency, diminution in value, obligation,
penalty or settlement of any kind or nature, whether foreseeable or
unforeseeable, including but not limited to, interest or other
carrying costs, penalties, legal, accounting and other professional
fees and expenses incurred in the investigation, collection,
prosecution and defense of claims and amounts paid in settlement,
that may be imposed on or otherwise incurred or suffered by the
specified person.
"Mark" means any brand name, copyright, patent, service mark,
trademark, tradename, and all registrations or applications for
registration of any of the foregoing.
4
<PAGE>
"Material Adverse Effect" means any change in or effect on AMR
or the Company that is materially adverse to the Business.
"Material Contract" means those Contracts listed on the
Disclosure Schedule as Material Contracts.
"Order" means any decree, injunction, judgment, order, ruling,
assessment or writ.
"Permit" means any license, permit, franchise, certificate of
authority, or order, or any waiver of the foregoing, required to be
issued by any Governmental Entity.
"Person" means an association, a corporation, an individual,
a partnership, a trust or other entity or organization, including
a Governmental Entity.
"Subsidiary" means any Person in which AMR has a direct or
indirect equity or ownership interest in excess of 5%.
"Tax" means any foreign, federal, state, county or local
income, sales and use, excise, franchise, real and personal
property, transfer, gross receipt, capital stock, production,
business and occupation, disability, employment, payroll, severance
or withholding tax or charge imposed by any Governmental Entity,
any interest and penalties (civil or criminal) related thereto or
to the nonpayment thereof, and any Loss in connection with the
determination, settlement or litigation of any Tax liability.
"Tax Return" means a report, return or other information
required to be supplied to a Governmental Entity with respect to
Taxes.
1.2Transfer of AMR Shares by AMR Shareholders.
Subject to the terms and conditions of this Agreement,
the AMR Shareholders agree to transfer and convey the AMR Shares
and deliver the certificates evidencing the AMR Shares to Company
at the Closing. The certificates will be properly endorsed for
transfer to or accompanied by a duly executed stock power in favor
of the Company or its nominee as Company may have directed prior to
the Closing Date and otherwise in a form acceptable for transfer on
the books of AMR.
1.3Purchase of the AMR Shares by Company.
Subject to the terms and conditions of this Agreement,
Company agrees to acquire the AMR Shares from the AMR Shareholders
and to issue, convey, transfer and deliver 1,530,000 shares of
common stock of the Company (the "Restricted Shares") to the AMR
Shareholders as set forth on Exhibit A attached hereto.
1.4The Closing.
The Closing will take place at the offices of
AMR , at 10:00 a.m. on March 26, 1997 or on
such other date, not later than March __, 1997, which the Company
and a majority in interest of the AMR Shareholders may mutually
choose, provided that the Closing is not dependent on the Company's
receiving any minimum number of AMR Shares.
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ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE AMR SHAREHOLDERS
Except as otherwise indicated on the Disclosure Schedule, AMR
and the AMR Shareholders represent, warrant and agree to the best
of their knowledge and except as disclosed in writing to Company,
as follows:
2.1Organization and Related Matters.
AMR is a corporation duly organized, validly existing and
in good standing under the laws of Arizona. AMR has two
Subsidiaries, Applied Medical Recovery and Reprocessing, LLC
("AMRR") and Applied Medical Technologies, LLC ("AMT"), each of
which is a limited liability company formed under the laws of
Arizona. AMR, AMRR and AMT are each in good standing under the
laws of Arizona and have all necessary corporate or company power
and authority to own their properties and assets and to carry on
their respective businesses as now conducted. There are no
jurisdictions outside of Arizona and Utah where the character or
the location of the assets owned or leased by AMR, AMRR and AMT (or
any of them) or the nature of the Business requires licensing or
qualification. True, correct and complete copies of the charter
documents of AMR as in effect on the date hereof have been
delivered to Company.
2.2AMR Shares.
The AMR Shareholders own all of their shares of capital
stock of AMR beneficially and of record, free and clear of any and
all covenants, conditions, rights or other Encumbrances. At the
Closing, the Company will acquire good and marketable title to and
complete ownership of the AMR Shares, free of any and all
covenants, conditions, or other Encumbrances. The authorized
capital stock of AMR consists of 40,000,000 shares, of which
20,000,000 are shares of common stock and 20,000,000 are shares of
preferred stock, of which 200 shares of common stock are issued and
outstanding. There are no outstanding contracts or other rights to
subscribe for or purchase, or Contracts or other obligations to
issue or grant any rights to acquire, any Equity Securities of AMR,
or to restructure or recapitalize AMR. There are no outstanding
Contracts of any of the AMR Shareholders or AMR to repurchase,
redeem or otherwise acquire any Equity Securities of AMR. All
shares of capital stock of AMR are duly authorized, validly issued
and outstanding and are fully paid and nonassessable and were
issued in conformity with applicable laws. There are no preemptive
rights in respect of any Equity securities of AMR. Any Equity
Securities of AMR which were issued and reacquired by AMR were so
reacquired (and, if reissued, so reissued) in compliance with all
applicable Laws, and AMR has no outstanding obligation or liability
with respect thereto.
2.3Financial Statements; Changes; Contingencies.
(a)Unaudited Financial Statements. AMR has delivered
to the Company pro forma consolidated balance sheets for AMR at
December 31, 1996 and the related statements of loss and deficit
and the monthly delinquency reports, if any, for the months then
ended. All such interim financial statements have been prepared in
accordance with GAAP consistently applied during the periods
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covered (except as disclosed therein), the statements of loss and
deficit present fairly the results of operations of AMR and its
Subsidiaries for the respective periods covered, and the balance
sheets present fairly the financial condition of AMR and its
Subsidiaries as of their respective dates, except that such
financial statements may omit footnote disclosures required by GAAP
to the extent the content thereof would not materially differ in
nature or amount from those disclosures reported in the most recent
audited period, and year-end adjustments to the extent not
material. Notwithstanding the foregoing, all such interim
financial statements reflect all adjustments (which consist only of
normal recurring adjustments not material in amount) necessary for
a fair presentation.
(b)No Material Adverse Changes. Since December 31,
1996, whether or not in the ordinary course of business, there has
not been, occurred or arisen:
(i)any change in or event affecting AMR and any of
its Subsidiaries, the Business or the AMR Shares that has
had or may reasonably be expected to have a Material
Adverse Effect.
(ii)any agreement (other than a Material Contract
listed on the Disclosure Schedule), condition, action or
omission which would be proscribed by (or require consent
under) Section 4.3 had it existed, occurred or arisen
after the date of this Agreement,
(iii)any strike or other labor dispute, or
(iv)any casualty, loss, damage or destruction
whether or not covered by insurance) or any material
property of AMR or the Subsidiaries.
(c)No Other Liabilities or Contingencies. To the best
knowledge of the AMR Shareholders, AMR does not have any
liabilities of any nature, whether accrued, absolute, contingent or
otherwise, and whether due or to become due, probable of assertion
or not, that, in accordance with GAAP applied on a consistent
basis, should have been but were not reflected or disclosed in the
financial statements (including the notes thereto) referred to in
subsections (a) and (b) above, except liabilities which were
incurred after March ___, 1997, in the ordinary course of business
or disclosed in the Disclosure Schedule.
2.4Tax and Other Returns and Reports.
AMR has filed and has caused its Subsidiaries to timely
file or will, on or before the Closing Date, file all Tax Returns
required to be filed by it or them and has paid all Taxes due for
all periods ending on or before December 31, 1996, which Taxes are
required to be paid by it on or before the Closing Date. Adequate
provision has been made in the books and records of AMR and in the
financial statements referred to in Section 2.3 above or delivered
to the Company, for all Taxes relating to operations through, or
property owned on or before, the date of the most recent of such
financial statements. No liability for Taxes has arisen since such
date other than in the ordinary course of AMR's business. All
required Tax Returns including amendments to date, have been
prepared in good faith without negligence or willful
misrepresentation and are complete and accurate in all material
respects. No Governmental Entity has, during the past three years,
examined or is in the process of examining any Tax Returns of AMR
and its Subsidiaries. No Governmental Entity has proposed
(tentatively or definitively), asserted or assessed or, to the best
knowledge of the AMR Shareholders, threatened to propose or assert,
any deficiency, assessment or claim for Taxes and there would be no
basis for any such delinquency, assessment or claim.
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2.5Material Contracts.
AMR has duly performed all its obligations and each
Subsidiary has duly performed its obligations to the extent that
such obligations to perform have accrued under any Contract; and no
material breach or default, alleged material breach or default, or
event which would (with the passage of time, notice or both)
constitute a material breach or default thereunder by AMR, or any
of its Subsidiaries, or, to the best knowledge of the AMR
Shareholders, by any other party or obligor with respect thereto,
has occurred or as a result of this Agreement or performance will
occur. Consummation of the transactions contemplated by this
Agreement will not (and will not give any Person a right to)
terminate or modify any rights of, or accelerate or augment any
obligation of, AMR or any of its Subsidiaries under any Material
Contract.
2.6Tangible Property.
(a)Neither AMR nor any of its Subsidiaries owns any
real property except for that leased property or properties which
are identified on the Disclosure Schedule. There is no pending or
threatened action that would materially interfere with the quiet
enjoyment of any such leasehold by AMR or any of the Subsidiaries.
(b)AMR and its Subsidiaries each owns or leases all
tangible personal property that is material to the Business free of
Encumbrances except for Encumbrances consisting of liens for Taxes
not yet due.
(c)All material leasehold properties held by AMR, or
its Subsidiaries, as lessee are held under valid, binding and
enforceable leases, subject only to such exceptions as are not,
individually or in the aggregate, material to the Business. All
material tangible properties of AMR or any of the Subsidiaries are
in a good state of maintenance and repair (except for ordinary wear
and tear) and are adequate for the Business.
2.7Intangible Property.
Each of AMR or any of the Subsidiaries has no Intangible
Property, required for use in connection with the Business.
2.8Authorization; No Conflicts.
The execution, delivery and performance of this Agreement
and or related agreements by AMR has been duly and validly
authorized by the Board of Directors of AMR and by all other
necessary corporate action on the part of AMR. The Shareholders of
AMR have the full capacity, right, power and authority to enter
into this Agreement and any related agreements to which they are
parties. Each AMR Shareholder has the full capacity, right, power
and authority to transfer, convey and sell the AMR Shares owned by
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such Shareholder to the Company at the Closing. The execution,
delivery and performance of this Agreement by the Shareholders of
AMR and the execution, delivery and performance of any related
agreements or contemplated transactions by the Shareholders of AMR
will not violate, or constitute a breach or default (whether upon
lapse of time and/or the occurrence of any act or event or
otherwise) under, the charter documents or by-laws of AMR or any
Material Contract of AMR, result in the imposition of any
Encumbrance against any asset or properties of AMR, or violate any
Law. No Permits and Approvals are required to be obtained by the
Shareholders of AMR, or for AMR Shares to consummate the
transactions contemplated by this Agreement. The execution and
delivery of this Agreement by the Shareholders of AMR and the
performance of this Agreement and any related or contemplated
transactions by the Shareholders of AMR or the Company will not
require filing or registration with, or the issuance of any Permit
by, any other third party or Governmental Entity. The "ultimate
parent entity" of AMR and all entities which such entity controls
directly or indirectly did not have annual net sales (as stated on
the last regularly prepared annual income statement or statements)
or total assets (as stated on the last regularly prepared balance
sheet or sheets) of $100,000,000 or more, and, to the best
knowledge of the AMR Shareholders, the consummation of the
transactions contemplated by this Agreement would not require any
filings under the Hart-Scott-Rodino Act.
2.9Legal Proceedings.
There is no Order or Action pending, or, to the best
knowledge of the AMR Shareholders, threatened, against or affecting
AMR or any of its properties or assets that individually or when
aggregated with one or more other Orders or Actions has or might
reasonably be expected to have a Material Adverse Effect, or
adversely affect AMR's ability to perform this Agreement or any
aspect of the transactions contemplated by this Agreement. There
is no matter as to which the AMR Shareholders or AMR has received
any notice, claim or assertion, or, to the best knowledge of the
AMR Shareholders, which otherwise has been threatened against or
affecting any director, officer, employee, agent or representative
of AMR or any other Person, in connection with which any such
Person has or may reasonably be expected to have any right to be
indemnified by AMR.
2.10Minute Books.
The minute books of AMR accurately reflect all actions
and proceedings taken to date by its shareholders, board of
directors and committees, and such minute books contain true and
complete copies of the charter documents of AMR and all related
amendments. The stock record books of AMR reflect accurately all
transactions in its capital stock of all classes.
2.11Accounting Records; Internal Controls.
(a)Accounting Records. AMR and Subsidiaries have
records that accurately and validly reflect their transactions, and
accounting controls sufficient to insure that such transactions are
(i) executed in accordance with management's general or specific
authorization and (ii) recorded so as to maintain accountability
for assets.
(b)Data Processing; Access. Such records, to the
extent they contain important information that is not easily and
readily available elsewhere, have been duplicated, and such
duplicates are stored safely and securely pursuant to procedures
and techniques utilized by companies of comparable size in similar
lines of business.
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2.12Insurance.
AMR and Subsidiaries do not have policies of insurance
against any of the risks associated with its or their Business
except as set forth on the Disclosure Schedule.
2.13Permits.
AMR and its Subsidiaries each holds all material Permits
that are required by any Governmental Entity to permit them or
either of them to conduct its business as now conducted, and all
such permits are valid and in full force and effect and will remain
so upon consummation of the transactions contemplated by this
Agreement. To the best knowledge of the AMR Shareholders, no
suspension, cancellation or termination of any of such Permits is
threatened or imminent.
2.14Compliance with Law.
(a)Each of AMR, AMRR, AMT and any other Subsidiary is
organized and has conducted its businesses in accordance with
applicable Laws in all material respects, and the forms, procedures
and practices of AMR and its Subsidiaries are in compliance with
all such Laws, to the extent applicable, in all material respects.
(b)The use and operation of the assets of AMR and its
Subsidiaries are in compliance in all material respects with all
applicable Laws and there is no material violation of any of such
Laws.
2.15Employee Benefits.
Except as may be set forth in an Employment Agreement
between Pauline Sill and AMR and except as set forth on the
Disclosure Schedule, there are no employee benefit plans or other
employee benefits accruing for the benefit of any employee of AMR
and its Subsidiaries.
2.16Certain Interests; Dividends.
No AMR Shareholder and no officer or director of AMR and
its Subsidiaries, and no Associate of any such individual, has any
material interest in any property used in or pertaining to the
Business; no such Person is indebted or otherwise obligated to AMR;
and AMR is not indebted or otherwise obligated to any such Person,
except for amounts due under normal arrangements applicable to all
employees generally as to salary or reimbursement of ordinary
business expenses not unusual in amount or significance. The
consummation of the transactions contemplated by this Agreement
will not (either alone, or upon the occurrence of any act or event,
or with the lapse of time, or both) result in any benefit or
payment (severance or other) arising or becoming due from AMR or
the successor or assign thereof or from any Subsidiary to any
Person. Except as expressly permitted by this Agreement, there has
been no dividend or other distribution of assets or securities
whether consisting of money, property or any other thing of value,
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declared, issued or paid to or for the benefit of the AMR
Shareholders subsequent to the date of the most recent financial
statements described in Section 2.3. Since December 31, 1996,
neither AMR nor any Subsidiary has paid or accrued any special
bonuses to any officer, director or employee.
2.17No Brokers, Finders or Financial Advisors.
No agent, broker, finder or investment or commercial
banker, or other Person or firm engaged by or acting on behalf of
the AMR Shareholders or AMR or any of their respective Affiliates
in connection with the negotiation, execution or performance of
this Agreement or the transactions contemplated by this Agreement,
is or will be entitled to any brokerage or finder's or similar fee
or other commission as a result of this Agreement or such
transactions.
2.18Environmental Compliance.
To the best knowledge of the AMR Shareholders, (i) AMR
has not generated, used, transported, treated, stored, released or
disposed of, or has suffered or permitted anyone else to generate,
use, transport, treat, store, release or dispose of any Hazardous
Substance in violation of any Laws, (ii) there has not been any
generation, use, transportation, treatment, storage, release or
disposal of any Hazardous substance in connection with the conduct
of the Business of AMR or the use of any property or facility of
AMR or to the knowledge of the AMR Shareholders any nearby or
adjacent properties or facilities, which has created or might
reasonably be expected to create any liability under any Laws or
which would require reporting to or notification of any
Governmental Entity, (iii) no asbestos or polychlorinated biphenyl
or underground storage tank is contained in or located at any
facility of AMR, and (iv) any Hazardous Substance handled or dealt
with in any way in connection with the business of AMR, whether
before or during ownership by the AMR Shareholders, has been and is
being handled or dealt with in all respects in compliance with
applicable Laws.
2.19Accuracy of Information.
The statements, representations and warranties contained
in the Disclosure Schedule are true, and all lists contained
therein are complete and correct. None of the information
expressly required by this Agreement to be supplied by or on behalf
of the AMR Shareholders to the Company, or contained in this
Agreement, the Disclosure Schedule or the documents listed in the
Disclosure Schedule, did contain or will contain, at the respective
times such information is or was delivered, any untrue statement of
a material fact, or omitted or will omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading. If to the knowledge of an AMR
Shareholder any of such information at any time subsequent to
delivery and prior to Closing becomes untrue or misleading, in any
material respect, such AMR Shareholder will promptly notify the
Company in writing of such fact and the reason for such change.
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2.20Investment Representation.
The Restricted Shares are restricted securities within
the meaning of the United States federal securities laws, and each
AMR Shareholder is acquiring the Restricted Shares for such AMR
Shareholder's own account for investment purposes only and not with
a view to or for sale in connection with the distribution thereof.
The certificate or certificates evidencing the Restricted Shares
shall bear a legend substantially as follows:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR
ANY STATE OR SECURITIES LAWS AND NEITHER THESE SECURITIES NOR
ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR SUCH
LAWS OR AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH
LAWS WHICH, IN THE OPINION OF COUNSEL SATISFACTORY TO THE
ISSUER, IS AVAILABLE."
2.21Restricted Shares Are Speculative Securities;
Registration Rights.
The Restricted Shares are speculative securities and
involve a high degree of risk including a risk of complete loss of
investment. Upon completion of the share exchanges contemplated by
this Agreement the active business of the Company will be
substantially that of AMR. THE COMPANY HAS NOT REGISTERED OR
QUALIFIED THE RESTRICTED SHARES UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT") OR UNDER THE STATE SECURITIES LAWS OF
ARIZONA, CALIFORNIA, COLORADO OR ANY OTHER STATE. The Company will
undertake to file a registration statement under the Act (the
"Registration Statement") covering the Restricted Shares within
four months of Closing and will use its reasonable best efforts to
cause the registration to become effective under the Act. The AMR
Shareholders acknowledge that the Company can give no assurance
that the Securities and Exchange Commission will declare the
Registration Statement to be effective or that the Registration
Statement will remain effective through any period necessary to
sell all or any part of the Restricted Shares. The AMR
Shareholders have made their individual decisions to enter into
this Agreement based on their own examination of the Company or
based on such advice from their own independent advisors as they
deemed appropriate and not based on the recommendations of any
party directly affiliated with the Company.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF COMPANY
The Company represents, warrants and agrees as follows:
3.1Organization and Related Matters.
The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Colorado. The Company has all necessary corporate power and
authority to carry on its business as now being conducted. The
Company has the necessary corporate power and authority to execute,
deliver and perform this Agreement and any related agreements to
which it is a party.
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3.2Authorization.
The execution, delivery and performance of this Agreement
and any related agreements, by the Company has been duly and
validly authorized by the Board of Directors of the Company and by
all other necessary corporate action on the part of the Company.
This Agreement constitutes the legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with
its respective terms except as such enforceability may be limited
by bankruptcy, insolvency, reorganization, moratorium and other
similar laws and equitable principles relating to or limiting
creditors' rights generally.
3.3No Conflicts; Possible "Blue Sky" Violations.
The execution, delivery and performance of this Agreement
and any related agreements by the Company will not violate the
provisions of, or constitute a breach or default whether upon lapse
of time and/or the occurrence of any act or event or otherwise
under (a) the charter documents of the Company, (b) any Law to
which the Company is subject or (c) any Contract to which the
Company is a party that is material to the financial condition,
results of operations or conduct of the business of the Company.
The execution and delivery of this Agreement by the Company and the
performance of this Agreement and any related or contemplated
transaction by the Company will not require filing or registration
with, or the issuance of any Permit by, any other third party or
Governmental Entity except that the Company has not sought to
qualify the Restricted Shares under the jurisdiction of any state.
The failure so to qualify the Restricted Shares may constitute a
violation of the "blue sky" or other laws (the "Blue Sky
Violations" and in the singular, a "Blue Sky Violation") of one or
more of the states in which the AMR Shareholders reside. In the
event it is determined that the offer or issuance of the Restricted
Shares by the Company in exchange for the AMR Shares constitute
Blue Sky Violations then the AMR Shareholders or certain of them
may be afforded rights to rescind their exchange of AMR Shares for
Restricted Shares. The "ultimate parent " of the Company and all
entities which such controls directly or indirectly did not have
annual net sales (as stated on the last regularly prepared annual
income statement or statements) or total assets (as stated on the
last regularly prepared balance sheet or sheets) of $10,000,000 or
more, and, to the best knowledge of the Company, the consummation
of the transactions contemplated by this Agreement would not
require any filings under the Hart-Scott-Rodino Act.
3.4No Brokers, Finders or Financial Advisors.
No agent, broker, finder or investment or commercial
banker, or other Person or firm engaged by or acting on behalf of
the Company in connection with the negotiation, execution or
performance of this Agreement or the transactions contemplated by
this Agreement, is or will be entitled to any broker's or finder's
or similar fees or other commissions as a result of this Agreement
or such transactions.
3.5Investment Representation.
The Company is acquiring the AMR Shares from the AMR
Shareholders for the Company's own account, for investment purposes
only and not with a view to or for sale in connection with the
distribution thereof. THE CERTIFICATE OR CERTIFICATES EVIDENCING
THE AMR SHARES WILL CONTAIN A LEGEND OR LEGENDS SUBSTANTIALLY
SIMILAR TO THE LEGEND SET FORTH IN SECTION 2.20.
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3.6Financial Statements; Changes; Contingencies.
(a)Financial Statements. The Company has delivered to
AMR and the AMR Shareholders balance sheets for the Company at
September 30, 1996 and at December 31, 1995, and the related
statements of operations (reflecting zero revenues) for the periods
then ended. All such financial statements have been prepared
largely in conformity with GAAP applied on a consistent basis
(except for changes, if any, disclosed therein). Such statements
of operations present fairly the results of operations and cash
flows of the Company for the respective periods covered, and the
balance sheets present fairly the financial condition of the
Company as of their respective dates. Since September 30, 1996,
there has been no change in any of the significant accounting
policies, practices or procedures of the Company.
(b)No Material Adverse Changes. Since September 30,
1996, whether or not in the ordinary course of business, there has
not been, occurred or arisen:
(i)any change in or event affecting the Company,
that has had or may reasonably be expected to have a
Material Adverse Effect,
(ii)any agreement (other than a Material Contract
listed on the Disclosure Schedule),
(iii)any strike or other labor dispute, or
(iv)any casualty, loss, damage or destruction
whether or not covered by insurance) or any material
property of the Company.
(c)No Other Liabilities or Contingencies. To the best
of the Company's knowledge, the Company does not have any
liabilities of any nature, whether accrued, absolute, contingent or
otherwise, and whether due or to become due, probable of assertion
or not, that, in accordance with GAAP applied on a consistent
basis, should have been but were not reflected or disclosed in the
financial statements (including the notes thereto) referred to in
subsections (a) and (b) above, except liabilities which were
incurred after September 30, 1996, in the ordinary course of
business or disclosed in the Disclosure Schedule.
3.7Tax and Other Returns and Reports.
The Company has timely filed or will file, on or before
the Closing Date, all Tax Returns required to be filed by it on or
before the Closing Date and has paid all Taxes due for all periods
ending on or before December 31, 1996, which Taxes are required to
be paid by it on or before the Closing Date. Adequate provision
has been made in the books and records of the Company and in the
financial statements referred to in Section 3.7 above or delivered
to the AMR Shareholders, for all Taxes relating to operations
through, or property owned on or before, the date of the most
recent of such financial statements. No liability for Taxes has
arisen since such date other than in the ordinary course of the
Company's business. All required Tax Returns including amendments
to date, have been prepared in good faith without negligence or
willful misrepresentation and are complete and accurate in all
material respects. No Governmental Entity has, during the past
three years, examined or is in the process of examining any Tax
Returns of the Company. No Governmental Entity has proposed
(tentatively or definitively), asserted or assessed or, to the best
knowledge of the Company, threatened to propose or assert, any
deficiency, assessment or claim for Taxes and there would be no
basis for any such delinquency, assessment or claim.
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3.8Material Contracts.
Each Material Contract of the Company is to the knowledge
of the Company valid and subsisting; the Company has duly performed
all its obligations thereunder to the extent that such obligations
to perform have accrued; and no material breach or default, alleged
material breach or default, or event which would (with the passage
of time, notice or both) constitute a material breach or default
thereunder by the Company or, to the best knowledge of the Company,
by any other party or obligor with respect thereto, has occurred or
as a result of this Agreement or performance will occur.
Consummation of the transactions contemplated by this Agreement
will not (and will not give any Person a right to) terminate or
modify any rights of, or accelerate or augment any obligation of
the Company under any Material Contract.
3.9Legal Proceedings.
There is no Order or Action pending, or, to the best
knowledge of the Company, threatened, against or affecting the
Company or any of its properties or assets that individually or
when aggregated with one or more other Orders or Actions has or
might reasonably be expected to have a Material Adverse Effect, or
adversely affect the Company's ability to perform this Agreement or
any aspect of the transactions contemplated by this Agreement.
There is no matter as to which the Company has received any notice,
claim or assertion, or, to the best knowledge of the Company, which
otherwise has been threatened against or affecting any director,
officer, employee, agent or representative of the Company or any
other Person, in connection with which any such Person has or may
reasonably be expected to have any right to be indemnified by the
Company.
3.10Minute Books.
The minute books of the Company accurately reflect all
actions and proceedings taken to date by its shareholders, board of
directors and committees, and such minute books contain true and
complete copies of the charter documents of the Company and all
related amendments. The stock record books of the Company reflect
accurately all transactions in its capital stock of all classes.
3.11Accounting Records; Internal Controls.
Accounting Records. The Company has records that
accurately and validly reflect its transactions, and accounting
controls sufficient to insure that such transactions are executed
in accordance with management's general or specific authorization.
3.12Authorized Capital. The authorized capital of the
Company consists of 25,000,000 common shares with no par value, of
which at September 30, 1996 a total of 4,524,744 shares have been
issued and are outstanding as fully paid and non-assessable. No
more than 7,000,000 shares of common stock will be outstanding
prior to the Closing.
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3.13The Company has not declared or paid any dividends of any
kind nor declared or made any other distributions of any kind
whatsoever including, without limitation, by way of redemption or
repurchase or reduction of authorized capital.
3.14No change will occur in the Articles of Incorporation,
By-laws or other charter documents of the Company from the date
hereof to the Closing Date.
3.15Based upon a budget and forecast (the "Forecast")
prepared by AMR, attached hereto as Exhibit B and incorporated
herein by this reference, the Company has agreed to lend upon
commercial terms to AMR or cause loans to be made to AMR from time
to time, as may be needed to bridge any shortfall of money as set
forth on the Forecast, provided that the obligation of the Company
hereunder shall be limited to a maximum of $1,500,000. The Company
has also agreed that for a period of two years from Closing it will
on behalf of AMR obtain or cause to be obtained, loan upon
commercial terms or cause to be loaned, up to an additional
$2,000,000 for necessary capital expenditures approved by the Board
of Directors of AMR.
ARTICLE 4
COVENANTS WITH RESPECT TO CONDUCT
OF AMR PRIOR TO CLOSING
4.1Access.
AMR and the AMR Shareholders shall cause AMR to authorize
and permit the Company and its representatives (which term shall be
deemed to include its independent accountants and counsel and
representatives of prospective financing institutions of the
Company) to have reasonable access during normal business hours,
upon reasonable notice and in such manner as will not unreasonably
interfere with the conduct of its business, to all of its
properties, books, records, operating instructions and procedures,
Tax Returns and all other information with respect to the Business
as the Company may from time to time request, and to make copies of
such books, records and other documents and to discuss its business
with such other Persons, including, without limitation, its
directors, officers, employees, accountants and counsel and, with
prior notice to AMR, its suppliers, customers and creditors, as the
Company considers necessary or appropriate for the purposes of
familiarizing itself with the Business, obtaining any necessary
Approvals of or Permits for the transactions contemplated by this
Agreement and conducting an evaluation of the organization and
Business of AMR and the Subsidiaries.
4.2Material Adverse Changes; Reports; Financial Statements.
(a)AMR and the AMR Shareholders will promptly notify
the Company of any event of which AMR and the AMR Shareholders
obtain knowledge which has had or might reasonably be expected to
have a Material Adverse Effect or which if known as of the date
hereof would have been required to be disclosed to the Company.
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(b)AMR will furnish to the Company (i) as soon as
available, and in any event within five days after it is prepared,
any report by AMR for submission to its board of directors and the
working papers related thereto and other operating or financial
reports (including any projections and budgets) prepared for
management and the working papers related thereto, (ii) as soon as
available, copies of all nonconfidential portions of all reports,
renewals, filings, certificates, statements and other documents
filed with any Governmental Entity, (iii) monthly and quarterly
unaudited balance sheets, statements of earnings and delinquency
reports for AMR and any of its Subsidiaries, and (iv) such other
reports as the Company may reasonably request relating to AMR and
any of its Subsidiaries. Each of the financial statements
delivered pursuant to this Section 4.2(b) shall be prepared in
accordance with GAAP consistently applied during the periods
covered (except as disclosed therein), except that such financial
statements may omit footnote disclosures required by GAAP to the
extent the content thereof would not materially differ in nature or
amount from those disclosures reported in the most recent audited
period and year end adjustments to the extent not material. Each
of the financial statements delivered pursuant to this Section
4.2(b) shall be accompanied by a certificate of the chief financial
officer of AMR to the effect that such financial statement presents
fairly the financial condition and results of operations of AMR and
any of its Subsidiaries for the periods covered and reflects all
adjustments (which consist only of normal recurring adjustments not
material in amount) necessary for a fair presentation.
4.3Conduct of Business.
AMR and the AMR Shareholders jointly and severally agree
with and for the benefit of the Company that AMR and its
Subsidiaries shall not, without the prior consent in writing of the
Company which may be withheld for any reason, (a) conduct the
Business in any manner except in the ordinary course consistent
with past practices; or (b) pay special bonuses to any officer,
director or employee or declare and pay dividends.
4.4Notification of Certain Matters.
AMR and the AMR Shareholders shall give prompt notice to
the Company, and the Company shall give prompt notice to AMR and
the AMR Shareholders, of (i) the occurrence, or failure to occur,
of any event that would be likely to cause any representation or
warranty contained in this Agreement to be untrue or inaccurate in
any material respect at any time from the date of this Agreement to
the Closing Date and (ii) any failure of the Company or AMR and the
AMR Shareholders, as the case may be, to comply with or satisfy, in
any material respect, any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement. Except as
provided in Section 7.4, no such notification shall affect the
representations or warranties of the parties or the conditions to
their respective obligations hereunder.
4.5Permits and Approvals.
AMR, the AMR Shareholders and the Company each agree to
cooperate and use their best efforts to obtain (and will
immediately prepare all registrations, filings and applications,
requests and notices preliminary to) all Approvals and Permits that
may be necessary or which may be reasonably requested by the
Company to consummate the transactions contemplated by this
Agreement. To the extent that the approval of a third party with
respect to any Contract is required in connection with the
transactions contemplated by this Agreement, AMR and the AMR
Shareholders shall use their best efforts to obtain such Approval
prior to the Closing Date.
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4.6Preservation of Business Prior to Closing Date.
During the period beginning on the date hereof and ending
on the Closing Date, (a) the AMR Shareholders shall use their
reasonable efforts to preserve the Business and to preserve the
good will of customers, suppliers and others having business
relations with AMR and (b) the AMR Shareholders and the Company
shall consult with each other concerning, and the AMR Shareholders
shall cooperate to keep available to the Company, the services of
the officers and employees of AMR that the Company may wish to have
AMR retain. Nothing in this Section shall obligate the Company or
AMR after the Closing to retain or offer employment to any officer
or employee of AMR.
4.7Inconsistent Agreements.
The AMR Shareholders shall not, either directly or
indirectly, through AMR or otherwise, initiate, solicit or
encourage any inquiry, offer or proposal with respect to, or
furnish any information relating to, or participate in any
negotiations or discussions concerning, any acquisition, merger,
tender or exchange offer or other form of business combination, of
the assets or AMR Shares or other securities of AMR, other than as
expressly contemplated by this Agreement. The AMR Shareholders
shall promptly notify the Company of the details of any discussions
with or proposal or offer from any other Person relating to an
acquisition, merger, tender or exchange offer or other form of
business combination involving AMR, any of its securities or
substantial assets or any other proposal, the acceptance of which
would be inconsistent with the consummation of this Agreement in
accordance with its terms.
ARTICLE 5
COVENANTS WITH RESPECT TO CONDUCT OF THE COMPANY
PRIOR TO CLOSING
5.1Material Adverse Changes. The Company will promptly
disclose to AMR and the AMR Shareholders any change in or effect on
the Company occurring after the date hereof which is materially
adverse to its business or financial position prior to the Closing.
5.2Access. The Company will authorize and permit
representatives of AMR and the AMR Shareholders to have reasonable
access during normal business hours, upon reasonable notice and in
such manner as will not unreasonably interfere with the conduct of
its business, to all of its properties, books, records, operating
instructions and procedures, Tax Returns and all other information
with respect to the Business as AMR and the AMR Shareholders may
from time to time request, and to make copies of such books,
records and other documents and to discuss its business with such
other Persons, including, without limitation, its directors,
officers, employees, accountants and counsel and, with prior notice
to AMR, its suppliers, customers and creditors, as AMR and the AMR
Shareholders consider necessary or appropriate for the purposes of
familiarizing itself with the Business, obtaining any necessary
Approvals of or Permits for the transactions contemplated by this
Agreement and conducting an evaluation of the organization and
Business of the Company.
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5.3Notification of Certain Matters. The Company shall give
prompt notice to AMR and the AMR Shareholders of (i) the
occurrence, or failure to occur, of any event that would be likely
to cause any representation or warranty contained in this Agreement
to be untrue or inaccurate in any material respect at any time from
the date of this Agreement to the Closing Date and (ii) any failure
of the Company or AMR and the AMR Shareholders, as the case may be,
to comply with or satisfy, in any material respect, any covenant,
condition or agreement to be complied with or satisfied by it under
this Agreement. Except as provided in Section 7.4, no such
notification shall affect the representations or warranties of the
parties or the conditions to their respective obligations
hereunder.
5.4Permits and Approvals. The Company agrees to cooperate
and use its best efforts to obtain (and will immediately prepare
all registrations, filings and applications, requests and notices
preliminary to) all Approvals and Permits that may be necessary or
which may be reasonably requested by AMR and the AMR Shareholders
to consummate the transactions contemplated by this Agreement. To
the extent that the approval of a third party with respect to any
Contract is required in connection with the transactions
contemplated by this Agreement, the Company shall use its best
efforts to obtain such Approval prior to the Closing Date.
ARTICLE 6
CONDITIONS OF PURCHASE
6.1General Conditions.
The obligations of the parties to effect the Closing
shall be subject to the following conditions unless waived in
writing by all parties:
(a)No Orders; Legal Proceedings.No Law or Order shall
have been enacted, entered, issued, promulgated or enforced by any
Governmental Entity, nor shall any Action have been instituted and
remain pending at what would otherwise be the Closing Date, which
prohibits or restricts or would (if successful) prohibit or
restrict the transactions contemplated by this Agreement or (with
respect to obligations of the Company only) which would not permit
the Business as presently conducted to continue unimpaired
following the Closing Date. No Governmental Entity shall have
notified any party to this Agreement that consummation of the
transactions contemplated by this Agreement would constitute a
violation of any Laws of any jurisdiction and that it intends to
commence proceedings to restrain or prohibit such transactions or
force divestiture or rescission, unless such Governmental Entity
shall have withdrawn such notice and abandoned any such proceedings
prior to the time which otherwise would have been the Closing Date.
(b)Approvals. To the extent required by applicable
Law, all Permits and Approvals required to be obtained from any
Governmental Entity shall have been received or obtained on or
prior to the Closing Date.
6.2Conditions to Obligations of the Company.
The obligations of the Company to effect the Closing
shall be subject to the following conditions except to the extent
waived in writing by the Company:
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(a)Representations and Warranties and Covenants of the
AMR Shareholders. The representations and warranties of the AMR
Shareholders herein contained shall be true at the Closing Date
with same effect as though made at such time; the AMR Shareholders
shall have performed all obligations and complied with all
covenants and conditions required by this Agreement to be performed
or complied with by it at or prior to the Closing Date.
(b)No Material Adverse Effect. There shall not have
been any Material Adverse Effect relating to AMR and its
Subsidiaries subsequent to December 31, 1996.
(c)Consents. The AMR Shareholders shall have obtained
and provided to the Company any required Approvals and Permits,
each in form and substance reasonably satisfactory to the Company.
(d)Due Diligence. The Company shall not, in the course
of its ongoing business investigation, have discovered information
not previously disclosed by the AMR Shareholders or AMR, which the
Company reasonably believes has or is likely to have a Material
Adverse Effect or is materially inconsistent with information
disclosed to the Company prior to the date hereof.
(e)Acquisition of AMR Shares. The Company shall have
received the AMR Shares in exchange for the Restricted Shares. To
the extent that one or more AMR Shareholders do not exchange their
shares of AMR common stock for shares of common stock of the
Company, as set forth next to the names of such AMR Shareholders on
Exhibit A attached hereto (the "AMR Shortfall") the Company may
acquire the AMR Shortfall from other AMR Shareholders.
6.3Conditions to Obligations of the AMR Shareholders.
The obligations of the AMR Shareholders to effect the
Closing shall be subject to the following conditions, except to the
extent waived by any of the AMR Shareholders:
(a)Representations and Warranties and Covenants of the
Company. The representations and warranties of the Company herein
contained shall be true at the Closing Date with same effect as
though made at such time; the Company shall have performed all
obligations and complied with all covenants and conditions required
by this Agreement to be performed or complied with by it at or
prior to the Closing Date.
(b)No Material Adverse Effect. There shall not have
been any Material Adverse Effect relating to the Company subsequent
to September 30, 1996.
(c)Consents. The Company shall have obtained and
provided to the AMR Shareholders any required Approvals and
Permits, each in form and substance reasonably satisfactory to the
AMR Shareholders.
(d)Due Diligence. The AMR Shareholders shall not, in
the course of its ongoing business investigation, have discovered
information not previously disclosed by the Company which the AMR
Shareholders reasonably believe has or is likely to have a Material
Adverse Effect or is materially inconsistent with information
disclosed to the AMR Shareholders prior to the date hereof.
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<PAGE>
ARTICLE 7
TERMINATION OF OBLIGATIONS; SURVIVAL
7.1Termination of Agreement.
Anything herein to the contrary notwithstanding, this
Agreement and the transactions contemplated by this Agreement shall
terminate if the Closing does not occur on or before the close of
business on April 10, 1997, unless extended by mutual consent in
writing of the Company and the AMR Shareholders and otherwise may
be terminated at any time before the Closing as follows and in no
other manner:
(a)Mutual Consent. By mutual consent in writing of the
Company and the AMR Shareholders.
(b)Conditions to the Company's Performance Not Met. By
the Company by written notice to the AMR Shareholders if any event
occurs or conditions exists which would render impossible the
satisfaction of one or more conditions to the obligations of the
Company to consummate the transactions contemplated by this
Agreement as set forth in Section 6.1 or 6.2.
(c)Conditions to Performance by AMR's Shareholders Not
Met. By the AMR Shareholders by written notice to the Company if
any event occurs or condition exists which would render impossible
the satisfaction of one or more conditions to the obligation of the
AMR Shareholders to consummate the transactions contemplated by
this Agreement as set forth in Section 6.1 or 6.3.
(d)Inaccurate Information. By the Company if any
material information expressly required by this Agreement or the
Disclosure Schedule to be delivered by or on behalf of the AMR
Shareholders or AMR to the Company is inaccurate or incomplete in
any material respect.
(e)Material Breach. By the Company or the AMR
Shareholders if there has been a material misrepresentation or
other material breach by the other party in its representations,
warranties and covenants set forth herein; provided, however, that
if such breach is susceptible to cure, the breaching party shall
have five business days after receipt of notice from the other
party of its intention to terminate this Agreement if such breach
continues in which to cure such breach.
7.2Effect of Termination.
In the event that this Agreement shall be terminated
pursuant to Section 7.1, all further obligations of the parties
under this Agreement shall terminate without further liability of
any party to another; provided that the obligations of the parties
contained in Article VIII, Section 9.9 and Section 9.12 shall
survive any such termination. A termination under Section 7.1
shall not relieve any party of any liability for a breach of, or
for any misrepresentation under, this Agreement, or be deemed to
constitute a waiver of any available remedy (including specific
performance if available) for any such breach or misrepresentation.
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7.3Survival of Representations and Warranties.
The representations and warranties contained in or made
pursuant to this Agreement shall survive the Closing and expire at
the end of 12 full calendar months after the Closing.
7.4Effect of Closing Over Known Unsatisfied Conditions.
If, with actual knowledge of the failure of any condition
or breach of any representation and warranty, either the Company or
the AMR Shareholders elect to proceed with the Closing, the
condition that is unsatisfied at the Closing Date shall be deemed
to be waived; provided, however, that the foregoing provision shall
not limit any party's right not to waive any condition or right to
condition any waiver hereunder upon mutually acceptable conditions.
Such decision shall constitute a waiver of any liability for breach
of or misrepresentation under this Agreement, but only with respect
to, and such waiver shall be limited to the extent of, the facts or
circumstances, actually known by the electing party, giving rise to
or in respect of such waived condition. Notwithstanding the
foregoing, the Company has expressly notified AMR and the AMR
Shareholders that the Company does not waive the obligation of AMR,
including the obligation of any AMR Subsidiary to collect promptly
any funds owing by Arizona Medical Waste, an Arizona-based company
owned or controlled by an officer of AMR.
ARTICLE 8
INDEMNIFICATION
8.1Obligations of the AMR Shareholders.
The AMR Shareholders shall indemnify and hold harmless
the Company and AMR, and their respective directors, officers,
employees, affiliates, agents and assigns from and against any and
all Losses of the Company or AMR, directly or indirectly, as a
result of, or based upon or arising from:
(a)any inaccuracy in or breach or nonperformance of any
of the representations, warranties, covenants or agreements made by
AMR in or pursuant to this Agreement; or
(b)any other matter as to which the AMR Shareholders in
other provisions of this Agreement have agreed to indemnify the
Company or (subsequent to Closing) AMR.
8.2Obligations of the Company.
The Company agrees to indemnify and hold harmless the AMR
Shareholders from and against any Losses of the AMR Shareholders,
directly or indirectly, as a result of, or based upon or arising
from, any inaccuracy in or breach or nonperformance of any of the
representations, warranties, covenants or agreements made by the
Company in or pursuant to this Agreement.
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8.3Procedure.
(a)Notice. Any party seeking indemnification with
respect to any Loss shall give notice to the Indemnifying Party.
(b)Defense. If any claim, demand or liability is
asserted by any third party against any Indemnified Party, the
Indemnifying Party shall, upon the written request of the
Indemnified Party, defend any actions or proceedings brought
against the Indemnified Party in respect of matters embraced by the
indemnity, but the Indemnified Party shall have the right to
conduct and control the defense, compromise or settlement of any
Indemnifiable Claim if the Indemnified Party chooses to do so, on
behalf of and for the account and risk of the Indemnifying Party
who shall be bound by the result so obtained to the extent provided
herein; provided, however, that the Indemnified Party shall not
settle or compromise any Indemnifiable Claim without the written
consent of the Indemnifying Party, which consent shall not be
unreasonably withheld. If, after a request to defend any action or
proceeding, the Indemnifying Party neglects to defend the
Indemnified Party, a recovery against the latter suffered by it in
good faith, is conclusive in its favor against the Indemnifying
Party; provided, however, that, if the Indemnifying Party has not
received reasonable notice of the action or proceeding against the
Indemnified Party, or is not allowed to control its defense,
judgment against the Indemnified Party is only presumptive evidence
against the Indemnifying Party. The parties shall cooperate in the
defense of all third party claims which may give rise to
Indemnifiable Claims hereunder. In connection with the defense of
any claim, each party shall make available to the party controlling
such defense, any books, records or other documents within its
control that are reasonably requested in the course of such
defense.
(c)Tax Adjustments. Any amount payable by the
Indemnifying Party to or on behalf of an Indemnified Party in
respect of a Loss shall be adjusted as follows:
(i)If such Indemnified Party is liable for any
additional Taxes as a result of the payment of amounts in
respect of an Indemnifiable Claim, the Indemnifying Party
will pay to the Indemnified Party in addition to such
amounts in respect of the Loss within 10 days after being
notified by the Indemnified Party of the payment of such
liability (x) an amount equal to such additional Taxes
(the "Tax Reimbursement Amount") plus (y) any additional
amounts required to pay additional Taxes imposed with
respect to the Tax Reimbursement Amount and with respect
to amounts payable under this clause (y), with the result
that the Indemnified Party shall have received from the
Indemnifying Party, net of the payment of Taxes, an
amount equal to the Loss.
(ii)The Indemnified Party shall reimburse the
Indemnifying Party an amount equal to the net reduction
in any year in the liability for payment of Taxes (that
are based upon or measured by income) of the Indemnified
Party or any member of a consolidated or combined tax
group of which the Indemnified Party is, or was at any
time, part, which reduction has been actually realized
with respect to any period after the Closing Date and
which reduction would not have been realized but for the
amounts paid (or any audit adjustment or deficiency with
respect thereto, if applicable) in respect of a Loss, or
amounts paid by the Indemnified Party pursuant to this
paragraph (a "net Tax Benefit"). The amount of any Net
Tax Benefit shall be paid not later than 15 days after
the date on which such Net Tax Benefit shall be realized.
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(d)Interest. Any amounts payable by the Indemnifying
Part to or on behalf of an Indemnified Party in respect of a Loss
shall be paid together with interest on such amount, from and
including date of Loss to the date of payment, at a rate equal to
the Prime Rate; provided, however, that such interest shall not be
payable with respect to Losses which include an interest factor;
and provided further that, with respect to Losses which were, at
December 31, 1996, so remote or contingent that it would not have
been appropriate under GAAP to record them on the financial
statements of AMR, AMRR, AMT or any other Subsidiary on such date,
except no interest shall be payable until the Indemnified Party is
required to make a payment with respect to such Loss or to record
the liability which ultimately results in such Loss on its or AMR's
financial statements.
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<PAGE> 8.4Notice by the AMR Shareholders.
The AMR Shareholders agree to notify the Company of any
liabilities, claims or misrepresentations, breaches or other
matters covered by this Article VIII upon discovery or receipt of
notice thereof (other than from the Company), whether before or
after Closing.
8.5Not Exclusive Remedy.
This Article VIII shall not be deemed to preclude or
otherwise limit in any way the exercise of any other rights or
pursuit of other remedies for the breach of this Agreement or with
respect to any misrepresentation.
8.6Limitations on Indemnification.
No party shall be required to indemnify any other Person
under this Article VIII unless the Loss for which indemnity would
otherwise be payable by such party exceeds $50,000 individually or
$100,000 in the aggregate, and in such event, the Indemnifying
Party
shall be responsible for the full amount of any Loss.
ARTICLE 9
GENERAL
9.1Amendments; Waivers.
This Agreement and any schedule or exhibit attached
hereto may be amended only by agreement in writing of all parties.
No waiver of any provision nor consent to any exception to the
terms of this Agreement shall be effective unless in writing and
signed by the party to be bound and then only to the specific
purpose, extent and instance so provided.
9.2Schedules; Exhibits; Integration.
Each schedule and exhibit delivered pursuant to the terms
of this Agreement shall be in writing and shall constitute a part
of this Agreement, although schedules need not be attached to each
copy of this Agreement. This Agreement, together with such
schedules and exhibits, constitutes the entire agreement among the
parties pertaining to the subject matter hereof and supersedes all
prior agreements and understandings of the parties in connection
therewith.
9.3Best Efforts; Further Assurances.
Except as otherwise expressly provided herein, each party
will use its best efforts to cause all conditions to its
obligations hereunder to be timely satisfied and to perform and
fulfill all obligations on its part to be performed and fulfilled
under this Agreement, to the end that the transactions contemplated
by this Agreement shall be effected substantially in accordance
with its terms as soon as reasonably practicable. The parties
shall cooperate with each other in such actions and in securing
requisite Approvals. Each party shall execute and deliver both
before and after the Closing such further certificates, agreements
and other documents and take such other actions as the other party
may reasonably request to consummate or implement the transactions
contemplated hereby or to evidence such events or matters.
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9.4Governing Law.
This Agreement and the legal relations between the
parties shall be governed by and construed in accordance with the
laws of the State of Arizona applicable to contracts made and
performed in such State without regard to conflicts of law
doctrines, except to the extent that certain matters are preempted
by federal law or governed by the law of the jurisdiction of
organization of the respective parties.
9.5No Assignment.
Neither this Agreement nor any rights or obligations
under it are assignable except that (i) the Company may assign its
rights, and delegate its obligations, hereunder (including but not
limited to its rights under Article VIII) to any subsidiary of the
Company.
9.6Headings.
The descriptive headings of the Articles, Sections and
subsections of this Agreement are for convenience only and do not
constitute a part of this Agreement.
9.7Counterparts.
This Agreement any amendment hereto or any other
agreement (or document) delivered pursuant hereto may be executed
in one or more counterparts and by different parties in separate
counterparts. All of such counterparts shall constitute one and
the same agreement (or other document) and shall become effective
(unless otherwise provided therein) when one or more counterparts
have been signed by each party and delivered to the other party.
9.8Publicity and Reports.
The AMR Shareholders and the Company shall coordinate all
publicity relating to the transactions contemplated by this
Agreement and no party shall issue any press release, publicity
statement or other public notice relating to this Agreement, or the
transactions contemplated by this Agreement, without consulting
with the other party except to the extent that a particular action
is required by applicable law or stock exchange or regulatory
policy.
9.9Confidentiality.
All information disclosed in writing by any party (or its
representatives) in connection with the transactions contemplated
by this Agreement to any other party (or its representatives) shall
be kept confidential by such other party and its representatives
and shall not be used by any such Persons other than as
contemplated by this Agreement, except to the extent that such
information or disclosure (i) was known by the recipient when
received, (ii) is or hereafter becomes lawfully obtainable from
other sources, (iii) is necessary or appropriate to disclose to a
Governmental Entity or stock exchange having jurisdiction over the
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<PAGE>
parties, or (iv) may otherwise be required by law. If this
Agreement is terminated in accordance with its terms, each party
shall use all reasonable efforts to return upon written request
from the other party all documents (and reproductions thereof)
received by it or its representatives from such other party (and,
in the case of reproductions, all such reproductions made by the
receiving party) that include information not within the exceptions
contained in the first sentence of this Section 99, unless the
recipients provide assurances reasonably satisfactory to the
requesting party that such documents have been destroyed.
9.10Parties in Interest.
This Agreement shall be binding upon and inure to the
benefit of each party, and nothing in this Agreement, express or
implied, is intended to confer upon any other Person any rights or
remedies of any nature whatsoever under or by reason of this
Agreement except for Sections 8.1 and 9.5 (which are intended to be
for the benefit of the Persons provided for therein and may be
enforced by such Persons). Nothing in this Agreement is intended
to relieve or discharge the obligation of any third person to any
party to this Agreement.
9.11Notices.
Any notice or other communication hereunder must be given
in writing and (a) delivered in person, (b) transmitted by telex,
telefax or other telecommunications mechanism or (c) mailed by
certified or registered mail, postage prepaid, receipt request, as
follows:
If to AMR Shareholders:
To the name or names and address or addresses
set forth on Exhibit A attached hereto.
With a copy to their counsel:
Plattner Schneidman & Schneider
1707 East Highland, Suite 190
Phoenix, Arizona 85016
Attention: Laura M. Stoper, Esq.
If to AMR:
Applied Medical Recovery, Inc.
3010 North Second Street
Phoenix, Arizona 85004
Attention: Pauline Sill, President
With a copy to its counsel:
Jennings, Strouss & Salmon, P.L.C.
One Renaissance Square
Two North Central Avenue
Phoenix, Arizona 85004
Attention: R. Quinn De Angelis, Jr.
27
<PAGE> If to the Company:
Citadel Environmental Group, Inc.
3617 E. Thousand Oaks Boulevard, Suite 223
Thousand Oaks, California 91362
With a copy to its counsel:
Resch Polster Alpert & Berger, LLP
10390 Santa Monica Boulevard, 4th Floor
Los Angeles, California 90025
Attn: Aaron A. Grunfeld, Esq.
or to such other address or to such other person as either party
shall have last designated by such notice to the other party. Each
such notice or other communication shall be effective (i) if given
by telecommunication, when transmitted to the applicable number so
specified in (or pursuant to) this Section 9.11 and an appropriate
answer back is received, (ii) if given by mail, three days after
such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid or (iii) if given by any
other means, when actually received at such address.
9.12Expenses.
AMR and the Company shall each pay its own expenses
incident to the negotiation, preparation and performance of this
Agreement and the transactions contemplated hereby, including but
not limited to the fees, expenses and disbursements of their
respective advisors, accountants and counsel.
9.13Remedies; Waiver.
All rights and remedies existing under this Agreement and
any related agreements or documents are cumulative to and not
exclusive of, any rights or remedies otherwise available. No
failure on the part of any party to exercise or delay in exercising
any right hereunder shall be deemed a waiver thereof, nor shall any
single or partial exercise preclude any further or other exercise
of such or any other right.
9.14Attorney Fees.
In the event of any Action for the breach of this
Agreement or misrepresentation by any party, the prevailing party
shall be entitled to reasonable attorney's fees, costs and
expenses, including the costs of arbitration, incurred in
connection with such action.
9.15Knowledge Convention.
Whenever any statement herein or in any schedule,
exhibit, certificate or other documents delivered to any party
pursuant to this Agreement is made "to its knowledge" or "to its
best knowledge" or words of similar intent or effect of any party
or its representative, such person shall be under no duty to
investigate such matter.
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<PAGE> 9.16Representation by Counsel; Interpretation.
The AMR Shareholders and the Company each acknowledge
that each party to this Agreement has been represented by counsel
in connection with this Agreement and the transactions contemplated
by this Agreement. Accordingly, any rule of Law, including but not
limited to Section 1654 of the California Civil Code, or any legal
decision that would require interpretation of any claimed
ambiguities in this Agreement against the party that drafted it has
no application and is expressly waived. The provisions of this
Agreement shall be interpreted in a reasonable manner to effect the
intent of the Company and the AMR Shareholders.
9.17Specific Performance.
The AMR Shareholders and the Company each acknowledge
that, in view of the uniqueness of the Business and the
transactions contemplated by this Agreement, each party would not
have an adequate remedy at law for money damages in the event that
this Agreement has not been performed in accordance with its terms,
and therefore agrees that the other party shall be entitled to
specific enforcement of the terms hereof in addition to any other
remedy to which it may be entitled, at law or in equity.
9.18Severability.
If any provision of this Agreement is determined to be
invalid, illegal or unenforceable by any Governmental Entity, the
remaining provisions of this Agreement to the extent permitted by
Law shall remain in full force and effect provided that the
economic and legal substance of the transactions contemplated is
not affected in any manner materially adverse to any party.
9.19Arbitration; Waiver of Jury Trial.
Any controversy, dispute or claim under, arising out of,
in connection with or in relation to this Agreement shall be
settled, at the request of either party, by arbitration conducted
in accordance with the Center for Public Resources Rules for Non-
Administered Arbitration or Business Disputes, by three
arbitrators, of whom the Company and the AMR Shareholders each
shall appoint one and the third shall be selected by the other two.
The arbitration shall be governed by the United States Arbitration
Act (9 U.S.C.§§ 1-16). The arbitration of such issues,
including
the determination of any amount of damages suffered by any party
hereto by reason of the acts or omissions of any other party, shall
be final and binding upon the parties to the maximum extent
permitted by law, except that the arbitrators shall not be
authorized to award punitive damages with respect to any such
claim, dispute or controversy. No party shall seek (and no
arbitrators shall be authorized to award) any punitive damages
relating to any matters under, arising out of, in connection with
or relating to this Agreement in the proceedings hereunder or in
any other forum. The parties intend that this Section shall be
valid, binding, enforceable and irrevocable and shall survive the
termination of this Agreement. The place of arbitration shall be
selected by the arbitrators in the County of Los Angeles.
Judgment upon the award rendered by the arbitrators may be entered
by any court having jurisdiction thereof. By executing this
Agreement, the parties hereto hereby waive any rights they may
possess to have any controversy, dispute or claim under, arising
out of, in connection with or in relation to this Agreement
litigated in a court or jury trial.
29
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its duly authorized officers as of the
day and year first above written.
APPLIED MEDICAL RECOVERY, INC.
An Arizona Corporation
By: Pauline Sill
Its: President
The "Company"
CITADEL ENVIRONMENTAL GROUP, INC.
A Colorado Corporation
By: Don Chelius
Its: President
30
Citadel Environmental Group, Inc., form 10K-SB, Exhibit 10.2
PURCHASE AND SALES AGREEMENT
This Purchase and Sales Agreement (the "Agreement") is entered
into on September 22, 1997, by and between Citadel Environmental
Group, Inc., a Colorado Corporation ("Citadel") and, Robert R.
Barber ("Barber").
R E C I T A L S
A.Citadel owns all of the outstanding
shares of Tonopah Resources International capital stock and Tonopah
has had various interest in GEC Construction, Arizona Hazardous
Waste, Allen Moore Diversified and Medical Waste of New Mexico
(hereinafter "Tonopah Affiliate Companies").
B.As of October 15, 1996, Citadel had
determined to discontinue Tonopah's operations and to liquidate
and/or sell it's assets as of the period ending September 30, 1996.
C.All Officers and Directors of
Tonopah and Tonopah Affiliate Companies resigned, effective
September 30, 1996.
D.Robert R. Barber became the only
Director and Officer of Tonopah, effective September 30, 1996, and
was charged with the orderly liquidation of Tonopah's assets and
discharge of its liabilities.
E.Barber has maintained all books,
records, contracts, bank accounts, etc., since on or about November
1, 1996.
F.Most of the assets and liabilities
of Tonopah have been sold and/or discharged with only a few major
assets remaining, those being two uncertain receivables totaling
over $400,000 and the residual value of permit drawings,
engineering reports and other necessary items for the proposed
medical waste facility in Roswell, New Mexico.
G.There is undetermined value of the
assets of Tonopah ranging from several hundred thousand dollars to
zero and Citadel is unable to spend the time or money necessary to
attempt to recover said value.
H.Barber is familiar with the assets
and liabilities of Tonopah and has worked diligently for over ten
months to define said liabilities and assets.
I.The parties hereto desire to enter
into this Agreement to provide for the acquisition of Tonopah by
Barber.
J. Citadel agrees to sell any and all remaining
assets and liabilities, evidenced by the shares of Tonopah, held by
Citadel, to Barber for consideration of Nine Thousand Two Hundred
Fifty Dollars ($9,250) in cash and a contingent note of 50% of the
recovery of Medical Waste of New Mexico, up to $100,000.
1
<PAGE>
A G R E E M E N T
NOW THEREFORE, in consideration of the mutual agreements,
provision and covenants herein contained, the parties hereby agree
as follows:
ARTICLE 1
DEFINITIONS/PURCHASE/CLOSING
1.1 Definitions.
For all purpose of this Agreement,
except as otherwise expressly provided unless the context otherwise
requires,
(a)The terms defined in this
Article 1 have the meaning assigned to them in this Article 1 and
include the plural as well as the singular,
(b)All accounting terms not
otherwise defined herein have the meanings assigned under generally
accepted accounting principals,
(c)All references in this
Agreement to designated "Articles", "Sections" and other
subdivisions
are to the designated Articles, Sections and the other subdivisions
of the body of this Agreement,
(d)Pronouns of either gender or
neuter shall include, as appropriate, the other pronoun forms, and
(e)The words, "herein", "hereof"
and "hereunder" and other words of similar import refer to this
Agreement as a whole and not to any particular Article, Section or
other subdivision.
1.2 Purchase of the Tonopah Shares by
Barber.
Subject to the terms and conditions
of this Agreement, Barber agrees to acquire the Tonopah Shares from
Citadel and Citadel agrees to convey, transfer and deliver all
outstanding capital stock of Tonopah to Barber.
1.3 The Closing.
The Closing will take place at the
offices of Citadel, at 10:00 a.m. on October 1,, 1997.
2
<PAGE>
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF CITADEL
Citadel represents, warrants and agrees as follows:
2.1 Organization and Related Matters.
Citadel is a corporation duly
organized, validly existing and in good standing under the laws of
the State of Colorado. Citadel has all necessary corporate power
and authority to carry on its business as now being conducted.
Citadel has the necessary corporate power and authority to execute,
deliver and perform this Agreement and any related agreements to
which it is a party.
2.2 Authorization.
The execution, delivery and
performance of this Agreement and any related agreements, by
Citadel has been duly and validly authorized by the Board of
Directors of Citadel and by all other necessary corporate action on
the part of Citadel. This Agreement constitutes the legal, valid
and binding obligation of Citadel, enforceable against Citadel in
accordance with its respective terms except as such enforceability
may be limited to bankruptcy, insolvency, reorganization,
moratorium and other similar laws and equitable principles relating
to or limiting creditors' rights generally.
2.3 No Brokers, Finders or Financial
Advisors.
No agent, broker, finder or
investment or commercial banker, or other person or firm engaged by
or acting on behalf of Citadel in connection with the negotiation,
execution or performance of this Agreement or the transactions
contemplated by this Agreement, is or will be entitled to any
broker's or finder's or similar fees or other commissions as a
result of this Agreement or such transactions.
2.4 Financial Statement; Changes;
Contingencies.
(a)Financial Statements.
Citadel has delivered to Barber balance sheets for Tonopah at
September 30, 1996 and at December 31, 1995, and the related
statements of operations (reflecting zero revenues) for the period
then ended. All such financial statements have been prepared
largely in conformity with generally accepted accounting principles
applied on a consistent basis (except for changes, if any disclosed
therein). Such statements of operations present fairly the results
of operations and cash flows of Tonopah for the respective period
covered, and the balance sheets present fairly the financial
condition of Tonopah as of their respective dates. Since October
15, 1996, there has been no change in any of the significant
accounting policies, practices or procedures of Tonopah.
(b)No Material Adverse Changes.
Since September 30, 1996, whether or not in the ordinary course of
business, there has not been, occurred or arisen:
3
<PAGE>
(i)any change in or event
affecting Tonopah, that has had
or may reasonably be expected to
have a Material Adverse Effect
that is not known to Barber.
(ii)any agreement (other than
a Material Contract listed on the
Disclosure Schedule);
(iii) any strike or other
labor dispute; or
(iv)any casualty, loss, damage
or destruction whether or not
covered by insurance, of any
material property of Tonopah.
(c)No Other Liabilities or
Contingencies. To the best of Citadel's knowledge, Tonopah does
not have any liabilities of any nature, whether accrued, absolute,
continent or otherwise, and whether due to become due, probable of
assertion or not, that, in accordance with GAAP applied on a
consistent basis, should have been but were not reflected or
disclosed in the financial statements (including the notes thereto)
referred to in subsections (a) and (b) above, except liabilities
which were incurred after September 30, 1996, in the ordinary
course of business or disclosed in the Disclosure Schedule.
2.5 Legal Proceedings.
There is no Order or Action
pending, or, to the best knowledge of Citadel, threatened, against
or affecting Tonopah or any of its properties or assets that
individually or when aggregated with one or more other Orders or
Actions has or might reasonably be expected to have a Material
Adverse Effect, or adversely affect Citadel's ability to perform
this Agreement or any aspect of the transactions contemplated by
this Agreement. There is no matter as to which Citadel has
received any notice, claim or assertion, or to the best knowledge
of Citadel, which otherwise has been threatened against or
affecting any director, officer, employee, agent or representative
of Citadel or any other Person, in connection with which any such
Person has or may reasonably be expected to have any right to be
indemnified by Citadel.
2.6 Minute Books.
The minute books of Tonopah
accurately reflect all actions and proceedings taken to date by its
shareholders, Board of Directors and committees, and such minute
books contain true and complete copies of the charter documents of
Tonopah and all related amendments. The stock record books of
Tonopah reflect accurately all transactions in its capital stock of
all classes.
4
<PAGE>
2.7 Accounting Records; Internal
Controls.
Accounting Records. Citadel has
records that accurately and validly reflect Tonopah's transactions,
and accounting controls sufficient to insure that such transactions
are executed in accordance with management's general or specific
authorization.
2.8Authorized Capital. The authorized
capital for Tonopah consists of 1,000 shares of common stock, $.01
par value, of which at September 30, 1996, a total of 1,000 shares
1,000 shares of common stock are issued and outstanding. All of
the shares are validly issued, fully paid and non-assessable.
There are no outstanding subscriptions, options, rights, warrants,
convertible securities, or other agreements or commitments
obligating Tonopah to issue or to transfer from treasury any
additional shares of its capital stock of any class. No more than
1,000 shares of Common Stock will be outstanding prior to the
Closing.
2.9Citadel has not declared or paid
any dividends of any kind nor declared or made any other
distribution of any kind whatsoever including, without limitation,
by way of redemption or repurchase or reduction of authorized
capital.
2.10No change will occur in the
Articles of Incorporation, By-Laws or other charter documents of
Tonopah from the date hereof to the Closing Date.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BARBER
Robert R. Barber ("Barber") represents and warrants and agrees
to the best of his knowledge and except as disclosed in writing to
Citadel, as follows:
3.1Barber as an individual, who since
November, 1996, has been solely responsible for all accounting,
contractual agreements, and maintenance of the books and records of
Tonopah.
3.2Tonopah has remained in good
standing and was incorporated in the State of Nevada in September
of 1995.
3.3Material Contracts.
Since September 30, 1996, Tonopah
has duly performed all its obligations and each of its affiliated
companies has duly performed its obligations to the extent that
such obligations to perform have accrued under any Contract; and no
material breach or default, alleged material breach or default, or
event which would (with the passage of time, notice or both)
constitute a material breach or default thereunder by Barber, to
the best knowledge of Barber, by any other party or obligor with
respect thereto, has occurred or as a result of this Agreement or
performance will occur. Consummation of the transactions
contemplated by this Agreement will not give any Person a right to
terminate or modify any rights of, or accelerate or augment any
obligation of Barber under any Material Contract.
5
<PAGE>
3.4Tangible Property.
Neither Tonopah nor any of its
affiliate companies owns any real property.
3.5Intangible Property.
Each of Tonopah or any of its
affiliate companies has no Intangible Property, required for use in
connection with the Business.
3.6 Minute Books.
The minute books of Tonopah
accurately reflect all actions and proceedings taken to date by its
shareholders, Board of Directors and committees, and such minute
books contain true and complete copies of the charter documents of
Tonopah and all related amendments. The stock record books of
Tonopah reflect accurately all transactions in its capital stock of
all classes.
5
<PAGE>
3.7 Accounting Records; Internal
Controls.
Tonopah and is affiliated companies
have records that accurately and validly reflect their
transactions, and accounting controls sufficient to insure that
such transactions are (i) executed in accordance with management's
general or specific authorization and (ii) recorded so as to
maintain accountability for assets.
3.8No Brokers, Finder or Financial
Advisors.
No agent, broker, finder or
investment or commercial banker, or other Person or firm engaged by
or acting on behalf of Barber, in connection with the negotiation,
execution or performance of this Agreement or the transactions
contemplated by this Agreement, is or will be entitled to any
brokerage or finder's or similar fee or other commission as a
result of this Agreement or such transactions.
ARTICLE 4
CONDITIONS OF PURCHASE
4.1 General Conditions.
The obligations of the parties to
effect the Closing shall be subject to the following conditions
unless waived in writing by all parties:
(a)Approvals. To the extent
required by applicable Law, all Approvals required to be obtained
from any Governmental Entity shall have been received or obtained
on or prior to the Closing Date.
4.2 Conditions to Obligations of
Barber.
The obligations of Barber to effect
the Closing shall be subject to the following conditions except to
the extent waived in writing by Barber:
(a)Representations and
Warranties and Covenants of Barber. The representations and
warranties of Barber herein contained shall be true at the Closing
Date with same effect as though made at such time; that Barber
shall have performed all obligations and complied with all
covenants and conditions required by this Agreement to be performed
or complied with by it or at or prior to the Closing Date.
(b)No Material Adverse Effect.
There shall not have been any Material Adverse Effect relating
to Tonopah or its affiliated companies subsequent to September 30,
1996.
(c)Due Diligence. Barber shall
not, in the course of his ongoing business investigation, have
discovered information not previously disclosed by Barber, which
Barber reasonably believes has or is likely to have a Material
Adverse Effect or is materially inconsistent with information
disclosed to Citadel prior to the date hereof.
6
<PAGE>
4.3 Conditions to Obligations of
Citadel.
The obligations of Citadel to
effect the Closing shall be subject to the following conditions,
except to the extent waived by Citadel:
(a)Representations and
Warranties and Covenants of Citadel. The representations and
warranties of Citadel herein contained shall be true at the Closing
Date with same effect as though made at such time; Citadel shall
have performed all obligations and completed with all covenants and
conditions required by this Agreement to be performed or complied
with by its at or prior to the Closing Date.
(b)No Material Adverse Effect.
There shall not have been any Material Adverse Effect relating
to Citadel subsequent to September 30, 1996.
(d)Due Diligence. Citadel shall
not, in the course of its ongoing business investigations, have
discovered information not previously disclosed by Citadel which
Citadel reasonably believes has or is likely to have a Material
Adverse Effect or is materially inconsistent with the information
disclosed to Citadel prior to the date hereof.
ARTICLE 5
INDEMNIFICATION
5.1 Obligations of Barber.
Barber shall indemnify the hold
harmless Citadel, and their respective directors, officers,
employees, affiliates, agents and assigns from and against any and
all Losses of Tonopah, directly or indirectly, as a result of, or
based upon or arising from:
(a)any inaccuracy in or breach
or nonperformance of any of the representations, warranties,
covenants or agreements made by Barber in or pursuant to this
Agreement; or
(b)any other matter as to which
Barber in other provisions of this Agreement has agreed to
indemnify Citadel or (subsequent to Closing) Tonopah.
5.2 Obligations of Citadel.
Citadel agrees to indemnify and
hold harmless Barber from and against any Losses of Tonopah,
directly or indirectly, as a result of, or based upon or arising
from any inaccuracy in or breach or nonperformance of any of the
representations, warranties, covenants or agreements made by
Citadel in or pursuant to this Agreement.
5.3 Procedure.
(a)Notice. Any party seeking
indemnification with respect to any Loss shall give notice to the
Indemnifying Party.
7
<PAGE>
5.4 Notice by Barber.
Barber agrees to notify Citadel of
any liabilities, claims or misrepresentations, breaches or other
matters covered by this Article V upon discovery or receipt of
notice thereof (other than from Citadel), whether before or after
Closing.
5.5 Limitations on Indemnification.
No party shall be required to
indemnify any other Person under this Article V unless the Loss for
which indemnity would otherwise be payable by such party exceeds
$25,000 individually or $50,000 in the aggregate, and in such
event, the Indemnifying Party shall be responsible for the full
amount of any Loss.
ARTICLE 6
GENERAL
6.1 Amendments; Waivers.
This Agreement and any schedule or
exhibit attached hereto may be amended only by agreement in writing
of all parties. No waiver of any provision nor consent to any
exception to the terms of this Agreement shall be effective unless
in writing and signed by the party to be bound and then only to the
specific purchase, extent and instance so provided.
6.2 Schedules; Exhibit; Integration.
Each schedule and exhibit delivered pursuant to the terms of
this Agreement shall be in writing and shall constitute a part of
this Agreement, although schedules need not be attached to each
copy of this Agreement. This Agreement, together with such
schedules and exhibits, constitutes the entire agreement among the
parties pertaining to the subject matter hereof and supersedes all
prior agreements and understandings of the parties in connection
therewith.
6.3 Best Efforts; Further Assurances.
Except as otherwise expressly
provided herein, each party will use its best efforts to cause all
conditions to its obligations hereunder to be timely satisfied and
to perform and fulfill all obligations on its part to be performed
and fulfilled under this Agreement, to the end that the transaction
contemplated by this Agreement shall be effected substantially in
accordance with its terms as soon as reasonably practicable. The
parties shall cooperate with each other in such actions and in
securing requisite Approvals. Each party shall execute and deliver
both before and after the Closing such further certificates,
agreements and other documents and take such other actions as the
other party may reasonably request to consummate or implement the
transaction contemplated hereby or to evidence such events or
matters.
8
<PAGE>
6.4 Governing Law.
This Agreement and the legal
relations between the parties shall be governed by and construed in
accordance with the laws of the State of California applicable to
contracts made and performed in such State without regard to
conflicts of law doctrines, except to the extent that certain
matters are preempted by federal law or governed by the law of the
jurisdiction of organization of the respective parties.
6.5 Headings.
The descriptive headings of the
Articles, Sections and subsections of this Agreement are for
convenience only and do not constitute a part of this Agreement.
6.6. Counterparts.
This Agreement any amendment hereto
or any other agreement (or document) delivered pursuant hereto may
be executed in one or more counterparts and by different parties in
separate counterparts. All of such counterparts shall constitute
one and the same agreement (or other document) and shall become
effective (unless otherwise provided therein) when one or more
counterparts have been signed by each party and delivered to the
other party.
6.7 Confidentiality.
All information disclosed in
writing by any party (or its representatives) in connection with
the transactions contemplated by this Agreement to any other party
(or its representatives) shall be kept confidential by such other
party and its representatives and shall not be used by any such
Persons other than as contemplated by this Agreement, except to the
extent that such information or disclosure (i) was known by the
recipient when received, or (ii) is or hereafter becomes lawfully
obtainable from other sources, (iii) is necessary or appropriate to
disclose to a Governmental Entity or stock exchange having
jurisdiction over the parties, or (iv) may otherwise be required by
law. If this Agreement is terminated in accordance with its terms,
each party shall use all reasonable efforts to return upon written
request from the other party all documents (and reproductions
thereof) received by it or its representatives from such other
party (and, in the case of reproduction, all such reproductions
made by the receiving party) that include information not within
the exceptions contained in the first sentence of this Section 6.7,
unless the recipients provide assurances reasonably satisfactory to
the requesting party that such documents have been destroyed.
6.8. Notices.
Any notice or other communication
hereunder must be given in writing and (a) delivered in person, (b)
transmitted by telex, telefax or other telecommunications mechanism
or (c) mailed by certified or registered mail, postage prepaid,
receipt request, as follows:
If to Citadel:
Citadel Environmental Group, Inc.
3617 E. Thousand Oaks Boulevard
Suite 223
Thousand Oaks, CA 91362
Attn: Georgette W. Pagano,
Corporate Secretary
9
<PAGE> With a copy to its counsel:
Resch, Polster, Alpert & Berger,
LLP
10390 Santa Monica Boulevard
4th Floor
Los Angeles, CA 90025
Attn: Aaron A. Grunfeld, Esq.
If to Barber:
Mr. Robert R. Barber
P.O. Box 2285
28855 Desert Princess Way
Cathedral City, CA 92235
6.9 Expenses.
Barber and Citadel shall each pay
its own expenses incident to the negotiation, preparation and
performance of this Agreement and the transactions contemplated
hereby, include but not limited to the fees, expenses and
disbursements of their respective advisors, accountants and
counsel.
6.10 Knowledge Convention.
Whenever any statement herein or
in any schedule, exhibit, certificate or other documents delivered
to any party pursuant to this Agreement is made "to its knowledge"
or "to its best knowledge" or words of similar intent or effect of
any party or its representative, such person shall be under no duty
to investigate such matter.
6.11 Specific Performance.
Barber and Citadel each acknowledge
that, in view of the uniqueness of the Business and the
transactions contemplated by this Agreement, each party would not
have an adequate remedy at law for money damages in the event that
his Agreement has not been performed in accordance with its terms,
and therefore agrees that the other party shall be entitled to
specific enforcement of the terms hereof in addition to any other
remedy to which it may be entitled, at law or in equity.
6.12 Arbitration; Waiver of Jury
Trial.
Any controversy, dispute or claim
under, arising out of, in connection with or in relation to this
Agreement shall be settled, a the request of either party, by
arbitration conducted in accordance with the Center for Public
Resources Rules for Non-Administered Arbitration or Business
Disputes, by three arbitrators, of whom Citadel and Barber each
shall appoint one and the third shall be selected by the other two.
The arbitration shall be governed by the United States Arbitration
10
<PAGE>
Act (9 U.S.C. §§ 1-16). The arbitration of such issues,
including
the determination of any amount of damages suffered by any party
hereto by reason of the acts or omissions of any other party, shall
be final and binding upon the parties to the maximum extent
permitted by law, except that the arbitrators shall not be
authorized to award punitive damages with respect to any such
claim, dispute or controversy. No party shall seek ( and no
arbitrators shall be authorized to award) any punitive damages
relating to any matters under, arising out of, in connection with
or relating to this Agreement in the proceedings hereunder or in
any other forum. The parties intend that this Section shall be
valid, binding, enforceable and irrevocable and shall survive the
termination of this Agreement. The place of arbitration shall be
selected by the arbitrators in the County of Riverside, California.
Judgment upon the award rendered by the arbitrators may be entered
by any court having jurisdiction thereof. by executing this
Agreement, the parties hereto hereby waive any rights they may
possess to have any controversy, dispute or claim under, arising
out of, in connection with or in relation to this Agreement
litigated in a court or jury trial.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its duly authorized officers as of the
day and year first above written.
CITADEL ENVIRONMENTAL GROUP,
INC.
a Colorado corporation
By Louis F. Coppage
Director
ROBERT R. BARBER,
an individual
By Robert R Barber
11
Citadel Environmental Group, Inc., form 10K-SB, Exhibit 16
SCHUMACHER & ASSOCIATES, INC.
12835 EAST ARAPAHOE ROAD
TOWER II, SUITE 110
ENGLEWOOD, COLORADO 80112
November 1, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen:
We have read the statements made by Citadel Environment Group, Inc.
(Copy attached), which we understand will be filed with the
Commission, pursuant to Item 8 of Form 10-KSB, as part of the
Company's Form 10-KSB report for the year ending December 31, 1996.
We agree with the statements concerning our firm in such Form 10-
KSB.
Sincerely
SCHUMACHER & ASSOCIATES,
INC
<PAGE> CITADEL ENVIRONMENTAL GROUP, INC.
FORM 10-KSB
FOR THE YEAR ENDING DECEMBER 31, 1996
ITEM 8.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On October 28, 1996 the Board of Directors received notice of the
resignation of Schumacher & Associates, Inc. as the Company's
auditors due to the relocation of the Company's corporate offices.
For each of the past two years, the report of Schumacher &
Associates, Inc on the Company's financial statements did not
include an adverse opinion or a disclaimer of opinion, nor was it
modified as to uncertainties, audit scope, or accounting
principles.
To the best of our knowledge and belief during the 24 months
preceding the resignation of Schumacher & Associates, Inc as our
auditors, there existed no disagreements relating to any matter of
accounting principles or practices, financial statement
disclosures, auditing scope or procedure, or compliance with
applicable rules or the commission, which problems, if not resolved
to the satisfaction of Schumacher & Associates, Inc would have
caused them to make reference to the subject matter of any
disagreements in connection with their report.
Citadel Environmental Group, Inc., form 10K-SB, Exhibit 21
CITADEL ENVIRONMENTAL GROUP, INC.
FORM 10-KSB
FOR THE YEAR ENDING DECEMBER 31, 1996
Subsidiaries of the Registrant
Tonopah Resources International, Inc.
Applied Medical Recovery, Inc.
