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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, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from: _____ to ____
Commission file number 0-16423
SAN HOLDINGS, INC.
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(Name of Small Business Issuer in Its Charter)
Colorado 84-0907969
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
900 W. Castleton Road, Suite 100
Castle Rock, Colorado 80104
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(Address of Principal Executive Offices, Including Zip Code)
Issuer's Telephone Number: (303) 297-9656
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
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(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 [X]
No [ ]
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 by 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 $60,327.
As of March 31, 2000, 8,393,337 shares of common stock were outstanding, and
the aggregate market value of the common stock of the Registrant held by non-
affiliates was approximately $103,446,000.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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PART I.
This annual report on Form 10-KSB may contain forward-looking statements
that involve risks and uncertainties. The reader is cautioned that the actual
results will differ (and may differ materially) from the results discussed in
such forward-looking statements. Factors that could cause or contribute to
such differences include those factors discussed herein under "Factors That
May Affect Future Results" and elsewhere in this Report generally.
ITEM 1. BUSINESS.
GENERAL
SAN Holdings, Inc. (the "Company") is a Colorado corporation formed in
1983 as Citadel Asset Management Ltd, an investment advisory business. The
Company provided financial management services until 1992 when it became
inactive. In 1996, the Company's name was changed to Citadel Environmental
Group, Inc. During the years 1996 to 1999, the Company was primarily engaged
in developing its investment in a medical instrument reprocessing business,
Applied Medical Recovery, Inc. ("AMR"). In March 1998, AMR was sold to
Alliance Medical Corporation, of Phoenix, Arizona, and the Company became a
creditor and shareholder of Alliance without an operating business or source
of revenues. In fiscal 1998 and 1999, the Company adopted a new business plan
designed to identify new business opportunities and to eliminate outstanding
debts through the issuance of restricted common stock. (See Certain
Relationships and Related Transactions, below).
On January 7, 2000, the Company acquired 100% of the outstanding stock of
Storage Area Networks, a data storage solutions and services business, by
issuing 3,800,000 shares of the Company's Series BB convertible preferred
stock to the shareholders of Storage Area Networks.
On January 21, 2000, the Company acquired 100% of the outstanding stock
of CoComp Inc., a business serving commercial data storage customers in the
western United States.
On March 1, 2000, the Company changed its name to SAN Holdings, Inc. The
Company's executive offices are located at 900 W. Castleton Road, Suite 100,
Castle Rock, CO 80104. Its telephone number is (303) 660-3933, and its web
site address is "www.sanz-inc.com."
Unless the context otherwise requires, the term "Company" as used herein
refers to SAN Holdings, Inc. and its wholly owned subsidiaries Storage Area
Networks and CoComp, Inc. These two subsidiaries operate under the name
Storage Area Networks.
DESCRIPTION OF BUSINESS
Storage Area Networks, a Nevada corporation established in 1998, is a
wholly owned subsidiary of the Company. It is a provider of data storage
solutions for commercial businesses and the federal government, and it
provides professional engineering services to design, integrate, and support
fibre channel storage area network solutions. Storage area networks are
intelligent connectivity infrastructures that link multiple hosts to multiple
storage devices. Storage area network applications, such as LAN-free backup,
storage consolidation, data sharing, remote mirroring, and high speed
performance clustering enable businesses to improve application performance
and increase capacity rapidly while reducing the cost of storing and managing
their data. Key projects of Storage Area Networks since 1998 include systems
integration for the U.S. Federal Government: assisting in the design and
installation of an electronic data storage architecture in support of NASA's
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Space Flight Operations, a back-up and recovery solution for the Defense
Logistics Agency's Supply Centers, and storage systems for the Environmental
Protection Agency and over a dozen other federal agencies.
CoComp is a provider of fibre attach storage area networks to internet-
based broad band providers and e-commerce business data centers. The business
operations run parallel to the business of Storage Area Networks with an
emphasis on providing fibre channel storage area network solutions for
commercial customers: e-commerce and "dot.com" companies as well as medium to
large traditional businesses with complex data management system requirements.
The acquisition of CoComp Inc. provides the Company with greater access to
commercial markets and added marketing offices in Dallas, Texas, Phoenix,
Arizona, and in Colorado in Colorado Springs, Boulder, Denver and Castle Rock.
CoComp has worked with large IT businesses such as HP and INTEL, where CoComp
provided production data back-up and recovery support solutions for INTEL's
chip manufacturing facilities in the U.S.
PRODUCTS AND SERVICES
The Company represents manufacturers of "best of breed" storage area
network hardware and software products including the BROCADE SilkWorm family
of fibre channel switches and software, StorageTek automated tape library
systems, METASTOR Disk Storage, Gadzoox managed hubs, EMULEX routers and hubs,
Storage Area Networks's own Geospatial Information System, as well as back-up
and recovery solutions, and software systems by Tivoli and VERITAS. The
Company is a certified BROCADE[R] Fabric Integrator[TM] and has received
comprehensive training on advanced storage area network configuration and
integration. The Company designs high-performance storage area networks using
the best combination of these products for the needs of each customer. The
network components are designed to support various forms of storage area
network architecture, including point-to-point, arbitrated loop and switched
fabric networks. The Company's engineers provide the technical expertise to
enable organizations to attain the benefits of these solutions. The following
summarizes the key features and benefits of the Company's products: end-to-end
data storage solutions for customers featuring "best of breed" devices and
components, highly experienced technical engineers, direct relationships with
manufacturers and end users featuring "turnkey" solutions.
INDUSTRY BACKGROUND
Information management has become a necessity for many organizations
today. The broad deployment of widely dispersed computer networks combined
with the widespread use of the Internet, intranets and electronic commerce
have allowed organizations to provide employees, customers and suppliers with
access to vast amounts of data. However, this dramatic growth in the amount of
data generated, stored, protected and accessed has created increasingly
difficult information management problems. Compounding these problems are the
greater number and types of users who access this data, as well as the
proliferation of various types of software applications across many different
computer devices that use different protocols for the input and output of
data. Organizations therefore are seeking to implement processes and systems
that effectively and efficiently store, manage and ensure the integrity and
availability of data 24 hours-a-day, seven days-a-week, 365 days-a-year.
While data storage capacity and microprocessor speeds have increased
dramatically, the speed at which information is transmitted from storage
systems to microprocessors has not increased nearly as rapidly. This imbalance
has resulted in bottlenecks at the interconnection points where the input and
output of data occurs. These interconnect points are commonly referred to as
the I/O. These I/O bottlenecks can cause large delays in the movement of data
within a network, significantly slowing down the network's day-to-day
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operations. The I/O bottleneck persists due, in large part, to the
limitations of the computer protocols that traditionally have been used to
transport data across the I/O.
One of the most commonly used I/O protocols is the small computer system
interface, or SCSI. While widely used, SCSI has inherent performance
limitations, including:
* the amount of data SCSI can transport at one time;
* the physical distances over which SCSI can operate;
* the limited number of storage devices SCSI can connect to a
server;
* SCSI's inability to grow with and adapt to the requirements of
growing and changing computer networks;
* SCSI's lack of management capabilities; and
* SCSI's inability to connect more than one server to a storage
device, thereby restricting data accessibility.
For example, a SCSI connection enables data throughput of only 40 or 80
megabytes per second, can transmit data over no more than 25 meters, and can
support a maximum of only 15 devices. In addition, SCSI does not have any
inherent capability to manage storage systems or any devices attached to those
systems. As a result, already busy network servers also must perform these
tasks. Finally, a SCSI-connected device can only be accessed by a single
server. If the server becomes unavailable for any reason, data on its
connected device becomes inaccessible. Despite its limitations, SCSI currently
is the most prevalent interconnect, or I/O, protocol and is expected to remain
an important I/O protocol in the future.
Adding to the problems created by the I/O bottleneck is the so-called
"point-to-point" architecture used in the vast majority of enterprise
computing systems today. This architecture relies on a dedicated,
point-to-point SCSI connection between each server and only one storage
device. In effect, each server/storage pair becomes an island. To perform data
backup -- making a copy of data to protect it from loss or corruption -- data
must be moved from a storage system, through its attached server, over the
primary computer network (referred to as the local area network, or LAN), then
through another server to a backup storage system.
Because users can access information residing on a storage device only
from the server connected to that storage device, and because a significant
amount of data must be moved across the local area network, two bottlenecks
occur. First, the amount of data which can traverse the SCSI interconnect
between the server and the storage device at a given time is severely limited,
the information going to and coming from the storage device is more difficult
to access and manage, and the risk of data loss is increased. As the number of
requests for stored data from the server grows, congestion within the server
increases and server performance further decreases. Second, the LAN becomes
congested, slowing an organization's day-to-day operations. As a result, many
organizations are moving away from point-to-point storage system architectures
to reduce I/O bottlenecks and improve their overall information management.
FIBRE CHANNEL STORAGE AREA NETWORKS
The higher performance Fibre Channel protocol has received broad
recognition as a means to address many of the current limitations and
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difficulties of information management. Fibre Channel is an industry standard
interconnect protocol developed in the early 1990s and approved by the
American National Standards Institute in 1994. Fibre Channel enables data
throughput of more than 100 megabytes per second, can transmit data over
distances of up to 10 kilometers and can enable the interconnection of
hundreds of different servers and storage systems. As a result of these
capabilities, Fibre Channel has enabled the evolution of a new network storage
architecture: the storage area network.
A storage area network is a high-speed computer network dedicated to data
storage that allows different types of storage devices, such as tape libraries
and disk arrays, to be shared by all end users through network servers.
Similar to the way in which traditional local and wide area computer networks
permit any end user on the network to access any network server, a storage
area network creates a "pool" of data storage that can be shared by multiple
servers. Through various configurations similar to those used in traditional
computer networks, storage area network's can connect any server with any
storage system, and storage systems with each other. This any-to-any
connectivity enables large amounts of data to be shared and accessed among
servers and storage systems running different computer operating systems or
software applications.
Three key devices enable the interconnection of a storage area network
with other network components, as well as the various components of the
storage area network with each other:
* The Storage Hub is a Fibre Channel-based device which connects Fibre
Channel servers to Fibre Channel storage devices via a single shared
data communication path. Leading suppliers of storage hubs include
Gadzoox Networks and Vixel.
* The Storage Switch is a Fibre Channel-based device which connects
Fibre Channel servers to Fibre Channel storage devices via multiple
communication paths. Leading suppliers of storage switches include
Ancor Communications, Brocade Communications and McDATA.
* The Storage Router is a device which, in effect, translates
communications across different computer protocols, including both
SCSI and Fibre Channel, in order to connect all of the various
components of the storage area network, including servers, storage
systems, storage hubs and storage switches. By enabling data
transport across multiple computer protocols, storage routers
facilitate seamless communication between the storage area network
and attached SCSI-based servers and storage systems. As such, storage
routers enable both server-to-storage and storage-to-storage
communication.
Fibre Channel storage area networks have enabled a number of important
applications, including:
* LAN-FREE BACKUP. Disruptions to a computer system can result in the
loss or corruption of data. Therefore, most organizations regularly
perform data backup by moving data from storage systems to separate or
off-site storage systems or data centers where the data can be safely
stored. Because data backup can account for a significant portion of
the data traffic over local area networks, it is often a major
contributor to bottlenecks at the input/output interconnect. As
networks are increasingly required to be available to users on an
around-the-clock basis, the available time during which data backup
can be performed has decreased, while the time required to perform
backup has increased due to the growth of the amount of data being
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backed up. Unlike traditional backup which entails the use of multiple
servers to access each of their storage devices, LAN-free backup uses
the storage area network to move data from a storage system through
one server then directly to a backup storage system. By moving the
data backup function from the LAN to the storage area network,
LAN-free backup substantially reduces I/O bottlenecks.
* SERVER-FREE BACKUP. The development of server-free backup has the
potential to further extend the benefits of LAN-free backup by
virtually removing the server from the backup process. This
application will enable automated data movement between storage
systems directly across the storage area network, allowing data backup
while utilizing a very small percentage of the server's internal data
processing capacity. As a result, organizations will no longer need to
identify lengthy time periods, or "backup windows," for disconnecting
servers from the network in order to perform backup.
* SHARED STORAGE. In the traditional point-to-point storage
architecture, a significant portion of storage resources are
underutilized because they are accessible only by a single server
which may not efficiently use the resource. With storage area
network's multiple servers can access the same storage devices,
enabling more stored data to be available to more users, and reducing
the need to add more servers or storage devices to support greater
storage requirements.
* DATA MIRRORING AND DISASTER TOLERANCE. Storage area network's improve
an organization's ability to ensure the integrity of its data by
facilitating data replication, or mirroring, and enhanced disaster
tolerance and recovery. In mirroring, two copies of transaction data
are created and maintained on separate storage systems. This
redundancy reduces the chance of data loss or corruption. Because
storage area network's enable very high data transmission rates and
support transmission distances of up to 10 kilometers per Fibre
Channel link, storage area network's enable mirroring across storage
systems that may be many kilometers apart from each other. These
capabilities also facilitate the creation and maintenance of offsite
data centers that support business recovery in the event data is lost
at a primary storage site.
As storage area networks are relatively new, most storage devices in the
market continue to be sold with the small computer system interface.
Additionally, most organizations have made significant investments in storage
devices and servers that use the small computer system interface. Thus, in
order to enable organizations to achieve the benefits of deploying a storage
area network, the storage area network must be able to operate in conjunction
with the different I/O protocols employed by the devices which are connected
to it or within it. Because many organizations have made significant
investments in computer equipment which uses the small computer system
interface protocol, organizations are reluctant to replace these devices on a
wholesale basis or to stop purchasing them. As a result, these organizations
will require their Fibre Channel-based storage area network's to communicate
with SCSI-based devices.
Several other current and emerging I/O protocols also are expected to be
incorporated into commercial storage area network products, servers and
storage systems in the future. These protocols include asynchronous transfer
mode, which would support the high-speed transmission of data between multiple
storage area network's via networks operating over large distances, otherwise
known as wide area networks. Other current and future I/O protocols under
development are intended to reduce the incidence of I/O bottlenecks. These
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include Next Generation I/O (NGIO) and Future I/O, as well as Infiniband, the
recently announced combination of these two competing protocols. As new
protocols achieve commercial acceptance, the products and services provided by
the Company will be increasingly essential to connect these devices to the
storage area network, enabling seamless communication among servers, storage
devices and other storage area network components that utilize different
computer protocols.
THE COMPANY'S SOLUTION
The Company designs and implements comprehensive data storage solutions
and provides technical consulting and servicing for customers on a national
basis. The Company is not a manufacturer; its products and services are
purchased by end-user organizations of all sizes in the public and private
sector. The Company is a provider of professional engineering services to
design, integrate, and support fibre channel storage area network solutions.
Management believes that the Company's products and services help
organizations improve and reduce their total cost of information management by
offering a number of important benefits, including:
FACILITATING EFFICIENT BACKUP AND RECOVERY. The Company's applications
help connect SCSI tape storage systems to Fibre Channel storage area networks
for LAN-free backup. By allowing the backup process to be accomplished across
the storage area network, rather than across the local area network, a storage
area network helps remove a common source of congestion within the LAN. As a
result, the primary computer network has greater availability to perform
day-to-day operations. LAN-free backup also provides flexibility to conduct
backup at any time of day. This capability is increasingly important as users
demand network availability around the clock and from geographically
dispersed locations. By removing the server almost entirely from the backup
process, server-free backup will offer further significant reductions in
network server utilization. The Company's systems also support the distance
capabilities of Fibre Channel storage area networks, enabling long distance
data mirroring and the creation of redundant data sites to restore data when a
dedicated storage system fails or is damaged.
PROVIDING BROAD, VERIFIED INTEROPERABILITY. Many of the Company's high
quality products are designed by the best manufacturers in the industry to
function together, or interoperate, with all commercially available Fibre
Channel storage hubs and storage switches, as well as other storage area
network components, including storage devices, host bus adapters, operating
systems and storage management software. Such products can function in
thousands of different configurations of storage area network's, thus
providing organizations with flexibility in designing and changing their
storage area networks to fit their own specific needs. Furthermore, the
Company's storage solutions support concurrent transmissions of data utilizing
multiple computer protocols, including SCSI and the Internet Protocol. The
Company's storage solutions can be deployed in storage area network's which
connect servers running diverse operating systems, including NetWare, Unix and
Windows NT.
INCREASING SCALABILITY AND IMPLEMENTATION FLEXIBILITY. The Company's
customized systems are designed to operate in any storage area network
computing environment and are designed to be able to adapt as organizations
grow and change their computer networks to address their increasing data
storage and information management needs. The Company utilizes components
designed to work in all Fibre Channel storage area network configurations so
that organizations can modify their storage architecture to address their
changing needs without changing their existing storage components.
Organizations can incrementally add storage hardware as backup demands grow or
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as new storage devices are added to their networks. Many of the devices sold
by the Company can be configured to support data transmission over copper or
fiber optic lines.
ENHANCING STORAGE AREA NETWORK MANAGEABILITY. The Company's storage area
network systems are designed with features that support an organization's
ability to conduct systems diagnostics and management, as well as real-time
application monitoring, from remote locations. In addition, the proprietary
software embedded in our storage routers enhances the ability of an
organization to manage storage systems that are attached to the storage router
by translating network management protocols to storage management protocols.
To this end, we work closely with leading independent software vendors, such
as BMC Software, Computer Associates, Hewlett-Packard and Tivoli Systems, to
ensure that our storage routers can be managed through their network
management software products.
LEVERAGING EXISTING SERVER AND STORAGE SYSTEM INVESTMENTS. The
Company's storage routers enable an organization's continued use of its large
installed base of servers and storage devices that rely on the small computer
system interface within a storage area network. In addition to enabling
organizations to preserve these existing investments, the Company's storage
routers improve the functionality of those systems when operated in
conjunction with a storage area network. For example, by connecting SCSI-only
servers to storage area network's, a process referred to as server migration,
our storage routers enable those SCSI servers to run applications on a storage
area network. By allowing consolidation of storage resources in centralized
facilities, the Company's solutions also reduce the need for organizations to
maintain a number of geographically dispersed and costly data storage centers
and enable them to more efficiently use their existing data storage capacity.
SALES AND MARKETING
The Company bases its sales and marketing strategy on a direct sales
model executed through a sales staff of approximately 15 individuals based in
Dallas, Texas; Phoenix, Arizona; and Castle Rock, Colorado. For the past two
years, the Company's sales activity has focused principally on direct
marketing to federal and commercial customers throughout the United States.
As the market for storage area networks products matures, the Company believes
that direct sales will represent an increasing percentage of its total
revenues. While the Company sells most of its products today through direct
sales, with an expanded sales channel the Company believes that it will gain
broader brand awareness and a greater presence in the departmental and
mid-sized business markets where distributors, resellers and system
integrators generally have a strong presence and can influence product
adoption choices.
The Company's marketing organization primarily focuses on coordinating
strategic planning activities which help the Company to determine market
segments to pursue, understand size and growth characteristics of these market
segments, analyze competition within the market segments, define product
features to successfully penetrate market segments and construct business
analyses to measure expected return on investments. Additionally, the
Company's marketing efforts are geared toward developing key relationships
with OEMs, distributors, resellers and system integrators; participating in
tradeshows to promote and launch our services, and coordinating the Company's
involvement in various industry standards organizations. In order to raise
potential customer awareness of the benefits of our data storage solutions and
services, the Company also intends to increase its advertising in trade
publications.
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MANUFACTURING
The Company manufactures no products and is a reseller of OEM "best of
breed" components produced by manufacturers such as BROCADE, CROSSROADS
SYSTEMS, IBM, STORAGETEK, METASTOR, VERITAS, and others.
RESEARCH AND DEVELOPMENT
The Company is not engaged in material research and development
activities excepting certain testing procedures of storage area network
systems at its interoperability and testing center in Colorado. At the
center, the Company's technical managers supervise the design and
implementation of storage systems and solutions to ensure the highest levels
of performance as required by the Company's customers.
COMPETITION
The market for storage area networks products and services is
increasingly competitive. The Company anticipates that the market for its
services and systems will continually evolve and will be subject to rapid
technological change. The Company currently faces competition from ATTO,
Vanguard, MCSI, Cranel, Chaparral, Pathlight and, to some extent, Computer
Network Technologies. In addition, the Company expects to face competition in
the future from one or more of the following sources:
* OEMs, including the Company's customers and potential customers;
* LAN router manufacturers;
* storage system industry suppliers, including manufacturers and
vendors of other storage area networks products or entire storage area
networks systems; and
* other innovative start-up companies.
As the market for storage area networks products grows, the Company also
may face competition from traditional networking companies and other
manufacturers of networking products. These networking companies may enter
the storage router market by introducing their own products or by entering
into strategic relationships with or acquiring other existing storage area
network product providers. It is also possible that OEM customers could
develop and introduce products competitive with the Company's product
offerings.
Management believes the competitive factors in the storage are network
market include the following:
* OEM endorsement;
* product reliability and verified interoperability;
* customer service and technical support;
* product performance and features;
* brand awareness and credibility;
* ability to meet delivery schedules;
* strength of distribution channel; and
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* price.
TRADE NAMES
The Company has registered the trade name "Storage Area Networks" in
forty-six states.
INTELLECTUAL PROPERTY
The Company does not own any patents or intellectual property.
EMPLOYEES
At December 31, 1999, the Company employed no persons full time, with two
executive officer positions filled on a part time basis. As a result of the
January 2000 acquisitions of Storage Area Networks and CoComp, the Company now
has four 4 executive officer employees and 25 subsidiary employees with 4
engaged in engineering; 12 in sales; 6 in marketing and customer support; and
3 in administration, information technology, human resources and finance.
None of the Company's employees are represented by a labor union. The Company
has not experienced any work stoppages and considers its relations with its
employees to be good.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
In addition to the other information in this Form 10-KSB, the following
factors should be considered in evaluating our business. The risks and
uncertainties described below are those that we believe may materially affect
our company. Additional risks and uncertainties that we are unaware of or that
we deem immaterial also may become important factors that affect our company.
DUE TO OUR LIMITED OPERATING HISTORY AND THE UNCERTAIN DEVELOPMENT OF THE
STORAGE AREA NETWORK MARKET, WE MAY HAVE DIFFICULTY ACCURATELY PREDICTING
REVENUE FOR FUTURE PERIODS AND APPROPRIATELY BUDGETING FOR EXPENSES.
We have generated product revenue for approximately two years through our
two subsidiaries and, thus, we have only a short history from which to predict
future revenue. This limited operating experience, combined with the rapidly
evolving nature of the storage area network market in which we sell our
products and other factors which are beyond our control, reduces our ability
to accurately forecast our quarterly and annual revenue. However, we use our
forecasted revenue to establish our expense budget. Most of our expenses are
fixed in the short term or incurred in advance of anticipated revenue. As a
result, we may not be able to decrease our expenses in a timely manner to
offset any shortfall of revenue. We are currently expanding our staff and
increasing our expenses in anticipation of future revenue growth. If our
revenue does not increase as anticipated, significant losses could result due
to our higher expense levels.
WE HAVE EXPERIENCED AND EXPECT TO CONTINUE TO EXPERIENCE SIGNIFICANT
PERIOD-TO-PERIOD FLUCTUATIONS IN OUR REVENUE AND OPERATING RESULTS, WHICH MAY
RESULT IN VOLATILITY IN OUR STOCK PRICE.
We have experienced and expect to continue to experience significant
period-to-period fluctuations in our revenue and operating results due to a
number of factors, and any such variations and factors may cause our stock
price to fluctuate. Accordingly, you should not rely on the results of any
past quarterly or annual periods as an indication of our future performance.
It is likely that in some future period our operating results will be below
the expectations of public market analysts or investors. If this occurs, our
stock price may drop, perhaps significantly.
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A number of factors may particularly contribute to fluctuations in our
revenue and operating results, including:
* the timing of orders from, and product integration by, our customers,
and the tendency of these customers to change their order requirements
frequently with little or no advance notice to us;
* the rate of adoption of storage area networks as an alternative to
existing data storage and management systems;
* deferrals of customer orders in anticipation of new products, services
or product enhancements from us or our competitors or from other
providers of storage area network products; and
* the rate at which new markets emerge for products we are currently
developing.
OUR BUSINESS IS DEPENDENT ON THE STORAGE AREA NETWORK MARKET WHICH IS NEW AND
UNPREDICTABLE, AND IF THIS MARKET DOES NOT DEVELOP AND EXPAND AS WE
ANTICIPATE, OUR BUSINESS WILL SUFFER.
Fibre Channel-based storage area networks, or SANs, were first deployed
in 1997. As a result, the market for SANs and related products has only
recently begun to develop and is rapidly evolving. Because this market is new,
it is difficult to predict its potential size or future growth rate. Our
service and product offerings emphasize storage area networking technology
and, therefore, our business is dependent to a large degree on the SAN market.
Accordingly, the widespread adoption of SANs for use in organizations'
computing systems is critical to our future success. Most of the organizations
that potentially may purchase our products have invested substantial resources
in their existing computing and data storage systems and, as a result, may be
reluctant or slow to adopt a new approach like SANs. SANs are often
implemented in connection with the deployment of new storage systems and
servers. Therefore, our future success is also substantially dependent on the
market for new storage systems and servers. Furthermore, the ability of the
different components used in a SAN to function effectively, or interoperate,
with each other when placed in a computing system has not yet been achieved on
a widespread basis. Until greater interoperability is achieved, customers may
be reluctant to deploy SANs.
WE ARE A RELATIVELY SMALL COMPANY WITH LIMITED RESOURCES COMPARED TO SOME OF
OUR CURRENT AND POTENTIAL COMPETITORS.
Some of our current and potential competitors have longer operating
histories, significantly greater resources, broader name recognition and a
larger installed base of customers than we have. As a result, these
competitors may have greater credibility with our existing and potential
customers. They also may be able to adopt more aggressive pricing policies and
devote greater resources to the development, promotion and sale of their
products than we can to ours, which would allow them to respond more quickly
than us to new or emerging technologies or changes in customer requirements.
In addition, some of our current and potential competitors have already
established supplier or joint development relationships with decision makers
at our current or potential customers. These competitors may be able to
leverage their existing relationships to discourage these customers from
purchasing products from us or to persuade them to replace our products with
their products. Increased competition could decrease our prices, reduce our
sales, lower our margins, or decrease our market share. These and other
competitive pressures may prevent us from competing successfully against
current or future competitors, and may materially harm our business.
11
<PAGE>
WE DEPEND ON OUR KEY PERSONNEL TO MANAGE OUR BUSINESS EFFECTIVELY IN A RAPIDLY
CHANGING MARKET, AND IF WE ARE UNABLE TO RETAIN OUR CURRENT PERSONNEL AND HIRE
ADDITIONAL PERSONNEL, OUR ABILITY TO SELL OUR PRODUCTS COULD BE HARMED.
We believe our future success will depend in large part upon our ability
to attract and retain highly skilled managerial, engineering and sales and
marketing personnel. In particular, due to the relatively early stage of our
business, we believe that our future success is highly dependent on L. W.
Buxton and Warren Smith, the co-founders of Storage Area Networks, to provide
continuity in the execution of our growth plans. The loss of the services of
any of our key employees, the inability to attract or retain qualified
personnel in the future or delays in hiring required personnel, particularly
engineers and sales personnel, could delay the development and introduction
of, and negatively impact our ability to sell, our products.
ANY ACQUISITIONS WE MAKE COULD DISRUPT OUR BUSINESS AND HARM OUR FINANCIAL
CONDITION.
As part of our growth strategy, we intend to review opportunities to
acquire other businesses or technologies that would complement our current
products, expand the breadth of our markets or enhance our technical
capabilities. Acquisitions entail a number of risks that could materially and
adversely affect our business and operating results, including:
* problems integrating the acquired operations, technologies or
products with our existing business and products;
* diversion of management's time and attention from our core business;
* difficulties in retaining business relationships with suppliers and
customers of the acquired company;
* risks associated with entering markets in which we lack prior
experience; and
* potential loss of key employees of the acquired company.
INSIDERS WILL CONTINUE TO HAVE SUBSTANTIAL CONTROL OVER OUR COMPANY AND COULD
DELAY OR PREVENT A CHANGE IN CORPORATE CONTROL.
At March 31, 2000, our executive officers and directors, and their
respective affiliates, beneficially owned, in the aggregate, approximately 33%
of our outstanding common stock. As a result, these stockholders will be able
to exert significant control over all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. This concentration of voting power could delay or prevent an
acquisition of our company on terms which other stockholders may desire.
OUR STOCK PRICE MAY BE VOLATILE.
The market price of our common stock has been volatile in the past and
may be volatile in the future. The market price of our common stock may be
significantly affected by the following factors:
* actual or anticipated fluctuations in our operating results;
* changes in financial estimates by securities analysts or our
failure to perform in line with such estimates;
* changes in market valuations of other technology companies,
particularly those that sell products used in storage area networks;
12
<PAGE>
* announcements by us or our competitors of significant technical
innovations, acquisitions, strategic partnerships, joint ventures or
capital commitments;
* departures of key personnel.
The stock market has experienced extreme volatility that often has been
unrelated to the performance of particular companies. These market
fluctuations may cause our stock price to fall regardless of our performance.
PUBLIC MARKET FOR THE COMPANY'S COMMON STOCK.
Although there is a limited market for the Company's Common Stock, there
can be no assurance that such a market can be sustained. The investment
community could show little or no interest in the Company in the future. As a
result, purchasers of the Company's securities may have difficulty in selling
such securities should they desire to do so. The Common Stock currently
trades on the NASD's Bulletin Board.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's principal administrative, sales and marketing, education,
customer support and research and development facilities are located in a
single office building at 900 W. Castleton Road, Castle Rock, CO 80104. The
Company currently occupies approximately 10,000 square feet of office space in
the facility. The term of the lease is 5 years; June 1, 1999 through May 31,
2005, and represents a lease commitment of $122,147 per year. The Company
also maintains sales and marketing offices, each with 400 square feet or less,
in Dallas, Texas, Phoenix, Arizona, Boulder, Colorado, and Colorado Springs,
Colorado.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any pending legal proceedings which
management believes could have a material adverse effect on its financial
position, except as follows:
On May 15, 1999, the Company filed a lawsuit against 3Si Holdings, Inc.
("3Si") in the District Court, Arapahoe County, Colorado, Civil Action No. 99
CV 1784, seeking payment of fifteen unpaid invoices totaling $745,637.
On March 16, 2000 the Company entered into a Settlement Agreement(the
"Agreement") with 3Si in which 3Si stipulated that the amount of debt owed by
3Si to the Company is $2,261,047.88. The Company agreed to convert this debt
into 6,460,137 shares of the common stock of 3Si, which values the shares at
$.35 per share. 3Si is a publicly-traded company whose shares trade on the
OTC Bulletin Board under the symbol TSIH. The Agreement further provides that
3Si is required to redeem the shares under the provisions set forth in the
Agreement. As revenues come in from certain specified sources, 3Si is
required to use those funds to redeem the shares issued to the Company. In
addition 3Si is required to pay to the Company 50% of any equity infusions or
loans. All redemptions during the first six months will be at a price of $.35
per share, and all redemptions thereafter will be at $.52 or the then current
market price, whichever is higher.
The shares of 3Si which the Company will receive will be restricted
shares, but 3Si has agreed that if it has not redeemed at least $750,000 of
the shares within 185 days, it will file a registration statement with the SEC
to cover the resale of the remaining shares owned by the Company.
13
<PAGE>
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, 1999.
14
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) MARKET INFORMATION. The Company's Common Stock trades in the over-
the-counter market, under the symbol "SANZ." The following table sets forth
the high and low bid prices for the Company's Common Stock for the periods
indicated as reported by the OTC Bulletin Board. These prices are believed to
be inter-dealer quotations and do not include retail mark-ups, mark-downs, or
other fees or commissions, and may not necessarily represent actual
transactions.
QUARTER ENDED HIGH BID* LOW BID*
------------- -------- -------
March 31, 1998 $41.625 $31.50
June 30, 1998 $40.50 $32.625
September 30, 1998 $32.625 $ 9.00
December 31, 1998 $ 9.00 $ 6.75
March 31, 1999 $ 6.75 $ 2.25
June 30, 1999 $ 6.75 $ 2.25
September 30, 1999 $ 2.52 $ 2.25
December 31, 1999 $ 7.20 $ 1.125
* The above prices have been adjusted to reflect the 1 for 36 reverse
split effective March 2, 2000.
(b) HOLDERS. As of March 28, 2000, the Company had 140 shareholders of
record. This does not include shareholders who hold stock in their accounts
at broker/dealers.
(c) DIVIDENDS. The Company has never paid a cash dividend on its common
stock and does not expect to pay a cash dividend in the foreseeable future.
On December 20, 1999, the Company declared a dividend of its
shareholdings of Alliance Medical Corporation. 578,190 Alliance common
shares, a private non-trading security, are payable to all common and
preferred shareholders of Citadel, pro rata, as of December 31, 1999 with any
fractional shares rounded up to equal one share. The Company has placed the
Alliance shares in escrow with James K. Kreutz and Associates, P.C. of
Englewood, Colorado. These shares will be distributed once Alliance becomes
an SEC reporting Company. If this does not occur by December 31, 2001, the
shares will be returned to the Company.
(d) RECENT SALES OF UNREGISTERED SECURITIES. During the three months
ended December 31, 1999, the Company had five transactions involving the sale
of unregistered shares of the Company's common stock:
1. During October 1999, the Company issued 50,000 (pre-split) shares to
an existing shareholder upon conversion of a debenture.
2. During November 1999, the Company issued 9,108,200 (pre-split) shares
to an accredited investor upon conversion of $91,082 in debt owed by the
Company to the investor.
3. During November 1999, the Company issued a total of 432,000 (pre-
split) shares to seven partners of a law firm as payment for prior legal
services.
4. During November 1999, the Company issued 1,765,725 (pre-split) shares
to Estate Management Services ("EMS") in connection with the termination of a
15
<PAGE>
Consulting Agreement which the Company had entered into with EMS on July 1,
1998. EMS was already a shareholder of the Company and was an "accredited
investor."
5. During December 1999, the Company issued 22,937 (pre-split) shares to
holders of the Company's preferred stock for the October dividend on the
preferred stock.
Each shareholder was provided current information on the Company and
given the opportunity to ask questions of management. Except for the
dividends on the preferred stock each of these transactions was entered into
after negotiations between the Company and the shareholder. Appropriate
restrictive legends were placed on all certificates and stop transfer
instructions were issued to the transfer agent.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
OVERVIEW
The Company's historic focus was to acquire controlling interests 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.
On March 26, 1997, the Company acquired a 64% interest in AMR in exchange
for 1,633,608 pre-split shares of the Company's common stock. In March 1998,
the Company tendered its investment in AMR to Alliance Medical Corporation
("Alliance"), a private company established for the purpose of merging AMR and
a competitor, ORRIS, Inc. As a result of the transaction, the Company
received 621,025 Alliance common shares and a note receivable of $720,575. In
July 1999, the Company entered into a settlement agreement with Alliance
pursuant to which the Company converted the note receivable into 266,880
common shares of Alliance at $2.70 per share, and received a cash payment of
accrued interest of $150,000, and payment of consulting fees of $14,250. As
the Company had fully reserved all amounts due from Alliance, the settlement
resulted in a gain to the Company of $103,923.
For the year ended December 31, 1999, the Company was principally
involved in settling its delinquent indebtedness and collecting amounts due
from Alliance. During 1999 the Company settled numerous delinquent accounts
payable and notes payable balances in consideration of a combination of cash
payments aggregating $83,000, the issuance of 10,530,000 pre-split shares of
the Company's common stock valued at $237,000, and 245,000 shares of Alliance
valued at $0, for total consideration of $320,000 and a gain on settlement of
debt of $544,410.
RESULTS OF OPERATIONS
As of December 31, 1999 the Company had no assets other than minor cash
balances and a leased car and had settled substantially all of its delinquent
indebtedness.
Revenues for the year ended December 31, 1999 were $60,327 as compared to
revenues of $122,875 for the year ended December 31, 1998. The only revenue
for 1999 was interest income received from Alliance in connection with the
settlement of the note receivable from Alliance.
General and administrative expenses for the year ended December 31, 1999
were $391,967 as compared to $362,406 for the year ended December 31, 1998.
The increase in general and administrative expenses was due to the efforts to
clean up the Company's balance sheet.
16
<PAGE>
Interest expense increased from $28,034 in the year ended December 31,
1998 to $104,309 in the year ended December 31, 1999 due to the treatment of
the settlements which were reached during 1999 regarding debt owed by the
Company in which restricted stock was issued to retire the debt.
The Company recognized a gain on settlement of $103,923 during the year
ended December 31, 1999 due to the settlement of the receivable due from
Alliance.
The Company recognized a gain on extinguishment of debt of $544,026
during the year ended December 31, 1999 due to the settlement of various debts
owed by the Company.
The Company had a net income before tax of $212,384 in the year ended
December 31, 1999 compared to a net loss of $385,440 in the year ended
December 31, 1998. The 1999 net income was due principally to the
extraordinary item relating to the extinguishment of debt.
The revenues and expenses for the year ending December 31, 2000, will be
significantly larger than they were for the prior year due to the acquisitions
of the two subsidiaries discussed below and in the Business section in Item 1.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at December 31, 1999, was a negative
$31,490 compared to a negative $503,308 at December 31, 1998.
On January 7, 2000 the Company issued 3,800,000 shares of Series BB
convertible preferred stock in exchange for all the outstanding stock of
Storage Area Networks. Immediately following the closing of this acquisition,
the Company sold 2,685,325 shares of Series AA convertible preferred stock for
$1.50 per share, generating approximately $3,652,095 after expenses. The
Company also sold 497,334 units of Series AAA convertible preferred stock and
common stock warrants for approximately $1,383,562, after expenses. Each unit
contains one share of AAA convertible preferred stock and two 120-day common
stock warrants with an exercise price of $3.50 per share, and $5.00 per share,
respectively.
On January 21, 2000, the Company acquired all the outstanding stock of
CoComp, Inc. in exchange for $1,079,000 in cash, $951,000 in promissory notes
and common stock valued at $1,000,000.
YEAR 2000
The Company did not experience any significant problems relating to the
change in the year 2000. Efforts to make changes to systems and establishing
contingency plans were effective. Additionally, external parties supplying
services to the Company experienced no significant problems. As of March 31,
2000, no significant losses were incurred relating to any customer as a direct
result of Y2K. The Company intends to continue to monitor computer data
sensitive issues. It is possible, although management does not consider it
likely, that other dates in the year 2000 may further affect computer software
and systems or that a year 2000 problem has not yet been discovered by the
Company, or third parties with which the Company conducts business.
17
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
The Consolidated Financial Statements of the Company are attached as
follows:
Page
Independent Auditor's Report ............................ F-1
Balance Sheets - December 31, 1999 and 1998 ............. F-2
Statements of Operations for the Years Ended
December 31, 1999 and 1998 .............................. F-4
Statements of Cash Flows for the Years Ended
December 31, 1999 and 1998 .............................. F-5
Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1999 and 1998 .......... F-6
Notes to the Financial Statements - December 31,
1999 and 1998 ........................................... F-7
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
18
<PAGE>
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:
Name Age Company Positions and Offices
---- --- -----------------------------
Louis F. Coppage 63 Chairman of the Board
L.W. Buxton 63 President, Chief Executive Officer and Director
Warren Smith 48 Vice President, Chief Operating Officer and
Director
Cory J. Coppage 36 Treasurer, Corporate Secretary and Director
BUSINESS EXPERIENCE OF DIRECTORS AND EXECUTIVE OFFICERS OF CITADEL
LOUIS F. COPPAGE - CHAIRMAN. Mr. Coppage, 63, was elected to the Board
of Directors of the Company in August 1997, and served as President from
September 1997 to January 2000. 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 1986 to present, Mr. Coppage has served as a financial
consultant for numerous clients in real estate, energy, insurance, and
investments. He has provided advisory services with an emphasis on the
capital formation process for corporate clients including SyberSay
Communications, of Walnut Creek, CA, and Universal Management Inc., of Denver,
CO. From 1978 to 1986, Mr. Coppage was founder and principal of American
Energy Investments, Inc., of Denver, CO. From 1969 to 1979 he was president
of Foresee, Ltd., an energy development company, and of Coppage & Associates,
a financial planning company in Denver, CO. Mr. Coppage studied business at
the University of Maryland and Emporia State College before beginning his
career at Connecticut General Life Insurance Company in 1964, where he was
recognized for his achievements in publications such as Time, Newsweek and
U.S. World Report. He was a founding member of the insurance and financial
planning groups, Top of the Table and The Forum.
L.W. BUXTON - PRESIDENT AND CEO. L.W. "Buck" Buxton has served as
President, CEO and a Director of the Company since January 7, 2000, when the
Company completed its acquisition of Storage Area Networks, and he has served
as President and a Director of Storage Area Networks since November 1998. Mr.
Buxton's professional experience includes 30 years of service in the US Air
Force, where he gained experience and insight into data processing economies
of scale, and technology support requirements of the federal government. In
his final position, he served as a Colonel managing a software development
directorate with a total budget approaching $1 billion, before retiring in
1991. From 1995 through 1998 he was employed by and served as a director of
3Si Corporation, of Englewood, CO. Mr. Buxton earned a Bachelor of Science
Degree in Accounting from Indiana University and a Master of Business
Administration Degree from the University of Southern California.
WARREN SMITH - CHIEF OPERATING OFFICER, VICE PRESIDENT AND DIRECTOR.
Warren Smith has served as Vice President and a Director of the Company since
January 7, 2000, when the Company completed its acquisition of Storage Area
Networks, and he has served as Vice President and a Director of Storage Area
Networks since November 1998. From 1994 to 1997, he was the director of
marketing programs to the Federal Government for 3Si Corporation, a software
19
<PAGE>
development company in Denver, Colorado. From 1992 to 1994, he was the
director of federal programs at CNS in Denver. From 1984 to 1987, he held a
progression of engineering and program management positions with Fortune 500
companies, GTE, Entek and Raytheon. Mr. Smith served as a Captain in the US
Air Force for 10 years in a variety of positions in the fields of counter-
intelligence and satellite operations. He is a graduate (1973) of the US Air
Force Academy and received a masters degree in operations research from the
USAF Institute of Technology in 1981.
CORY J. COPPAGE - TREASURER, SECRETARY AND DIRECTOR. Mr. Coppage joined
the Company as Secretary in 1999 and became Treasurer and a member of the
Board of Directors in January 2000. He has over ten years of business
management experience working with various public and private companies. From
1989 to 1994 he was a Vice President of Marketing for Liability Insurance
Operations Network, Inc., and W.J. Plemons Insurance Agency of Atlanta,
Georgia. From 1994 to 1998, he was Secretary and Director of American
Consolidated Growth Corporation, a public holding company. From 1997 to 1999
he served as an officer and director of AGTsports, Inc. of Denver, Colorado.
Mr. Coppage holds a Bachelor's of Science Degree in Business Administration
from Regis University (1985) and has completed work-study programs in the
areas of Business Management and SEC reporting and compliance issues.
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 on 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 from January 1, 1999 to December 31, 1999, as indicated in the
following table:
Number of Number of Failure to
Name Late Reports Transactions File a Report
---- ------------ ------------ -------------
No Late Reports 0 0 0
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth information regarding the executive
compensation for the Company's President and each other executive officer
whose total annual salary and bonus exceeded $100,000 for the years ended
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------- ----------------- --------
SECURI-
TIES
UNDERLY-
OTHER RE- ING ALL
ANNUAL STRICTED OPTIONS/ OTHER
NAME AND PRINCIPAL COMPEN- STOCK SARs LTIP COMPEN-
POSITION YEAR SALARY BONUS SATION AWARD(S) (NUMBER) PAYOUTS SATION
- ------------------ ---- ------- ----- ------ -------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Louis F. Coppage, 1999 -0- 0 -- -- -- -- --
Chairman & CEO 1998 -0- 0 -- -- -- -- --
</TABLE>
20
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
None
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
None
COMPENSATION OF DIRECTORS
Employee directors do not receive any additional compensation for Board
or committee service. Non-employee directors are not compensated for each
Board meeting they attend, other than for the reimbursement of expenses.
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.
Name and Address of Amount and Nature of Percent
Beneficial Owner Ownership of Class
- ------------------- -------------------- --------
Louis F. Coppage 50,000 (1) *
900 Castleton Road
Suite 100
Castle Rock, Colorado 80104
L. W. Buxton 1,447,667 (2) 17.1%
900 Castleton Road
Suite 210
Castle Rock, Colorado 80104
Warren Smith 1,338,667 (3) 15.8%
900 Castleton Road
Suite 210
Castle Rock, Colorado 80104
Cory J. Coppage 50,000 (1) *
900 Castleton Road
Suite 100
Castle Rock, Colorado 80104
All Directors and Officers 2,886,334 33.4%
as a Group
________________________
* Less than one percent.
(1) Represents shares underlying currently exercisable options.
(2) Includes 1,367,667 shares held of record by Mr. Buxton and 80,000 shares
underlying currently exercisable options.
(3) Includes 1,278,667 shares held of record by Mr. Smith and 60,000 shares
underlying currently exercisable options.
21
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In March 1999 the Company settled an overdue note payable to a non-
affiliated third party. The note payable and accrued interest of $62,291 as
of December 31, 1998 were settled for a cash payment of $35,000 and the
issuance of 300,000 pre-split shares of Citadel valued at $ 15,000, for total
consideration of $ 50,000 and a gain on settlement of debt of $ 12,291. In
conjunction with this settlement, Louis Coppage, the President and CEO, loaned
the Company the $35,000 necessary for the payment of the settlement pursuant
to a 10% promissory note with interest and principal due March 1, 2001. The
promissory note was secured by 17,500 shares of Alliance and provided an
option to purchase the shares comprising the collateral at a price of $2.00
per share for a period of up to one year following the repayment of the note.
In November 1999, the Company redeemed the Note from the Holder's assignee in
exchange for 37,042 restricted common shares based on a fair market value of
$37,042.
During fiscal 1999, the Company recognized $292,141 in compensation
expense as a result of a July 1, 1998 consulting agreement with Estate
Management Services ("EMS"), a principal shareholder, for business development
services. The agreement was terminated in November 1999 upon payment of
1,765,725 (pre-split) restricted common shares of the Company. The Company
also transferred to EMS 64,466 shares of Alliance Medical Corporation Common
Stock, a non-trading security.
In January 2000, the 917,500 shares of the Company's preferred stock
outstanding as of December 31, 1999 were converted into 4,587,500 shares of
common stock.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
Exhibit
Number Description Location
- ------- ----------- --------
3.1 Articles of Incorporation Incorporated by reference to
original registration statement
3.2 By-laws, as amended Filed herewith electronically
3.3 Articles of Amendment to Filed herewith electronically
Articles of Incorporation
(Series AA Convertible
Preferred Stock dated
January 7, 2000)
3.4 Articles of Amendment to Filed herewith electronically
Articles of Incorporation
(Series BB Convertible
Preferred Stock dated
November 22, 1999)
3.5 Articles of Amendment to Filed herewith electronically
Articles of Incorporation
(Series AAA Convertible
Preferred Stock dated
January 10, 2000)
22
<PAGE>
3.6 Articles of Amendment to Filed herewith electronically
Articles of Incorporation
Changing the Name to
SAN Holdings, Inc.
10 Share Exchange Agreement between Incorporated by reference to
Citadel Environmental Group, Inc. Exhibit 10.1 to the Registrant's
and Applied Medical Recovery, Form 10-K dated December 31, 1996
Inc. dated as of March 26, 1997
10.1 Purchase and Sales Agreement Incorporated by reference to
between Citadel Environmental Exhibit 10.2 to the Registrant's
Group, Inc. a Robert R. Barber Form 10-K dated December 31, 1996
dated September 22, 1997
10.2 Share Exchange Agreement between Incorporated by reference to
Citadel Environmental Group and Exhibit 10 to the Registrant's
Storage Area Networks dated Form 8-K dated January 7, 2000
January 7, 2000
10.3 Purchase Agreement by and among Incorporated by reference to
the Company, Storage Area Exhibit 10.1 to the Registrant's
Networks and Brent J. Duckworth Form 8-K dated January 21, 2000
10.4 Purchase Agreement by and among Incorporated by reference to
the Company, Storage Area Exhibit 10.2 to the Registrant's
Networks and Lawrence J. Chisesi Form 8-K dated January 21, 2000
10.5 Purchase Agreement by and among Incorporated by reference to
the Company, Storage Area Exhibit 10.3 to the Registrant's
Networks and Kent A. Shields Form 8-K dated January 21, 2000
10.6 Purchase Agreement by and among Incorporated by reference to
the Company, Storage Area Exhibit 10.4 to the Registrant's
Networks and Steve Davis Form 8-K dated January 21, 2000
27 Financial Data Filed electronically 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.
23
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders
of Citadel Environmental Group, Inc.
Denver, Colorado
I have audited the accompanying balance sheets of Citadel Environmental Group,
Inc. as of December 31, 1999 and 1998 and the related statements of
operations, cash flows, and changes in stockholders' deficit for the years
then ended. These financial statements are the responsibility of the
Company's management. My responsibility is to express an opinion on these
financial statements based on my audits.
I conducted my audits in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audits 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. I believe that my audits provided a reasonable basis
for my opinion.
In my opinion, the financial statements referred to in the first paragraph
present fairly, in all material respects, the financial position of Citadel
Environmental Group, Inc. as of December 31, 1999 and 1998 and the results of
its operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has not had significant operating revenues
in several years and as of December 31, 1999 does not own any assets that
could 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 2, Going
Concern, and Note 17, Subsequent Events. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
/s/ Skeehan & Company
SKEEHAN & COMPANY
Pasadena, California
March 23, 2000
F-1
<PAGE>
CITADEL ENVIRONMENTAL GROUP, INC.
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
1999 1998
----------- -----------
Current Assets
Cash $ 2,716 $ 9
Prepaid Expense 0 198,308
----------- -----------
Total Current Assets 2,716 198,317
----------- -----------
Property and Equipment, Net 27,671 0
----------- -----------
Other Assets
Note receivable-affiliate 0 720,575
Management fees receivable-affiliate 0 60,000
Accrued interest receivable-affiliate 0 145,627
----------- -----------
0 926,202
Less: Allowance for uncollectibles 0 (926,202)
----------- -----------
Total Other Assets 0 0
----------- -----------
Total Assets $ 30,387 $ 198,317
=========== ===========
See Accompanying Independent Auditor's Report
and Notes to the Financial Statements
F-2
<PAGE>
CITADEL ENVIRONMENTAL GROUP, INC.
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
LIABILITIES AND STOCKHOLDERS' DEFICIT
1999 1998
----------- -----------
Current Liabilities
Accounts payable $ 32,124 $ 151,883
Payroll taxes payable 0 1,826
Capital lease obligations - current 482 0
Notes payable 0 74,938
Accrued expenses 0 291,378
Franchise tax payable 1,600 1,600
Convertible debentures 0 180,000
----------- -----------
Total Current Liabilities 34,206 701,625
Capital Lease Obligations - Net of Current 14,518 0
----------- -----------
Total Liabilities 48,724 701,625
----------- -----------
Stockholders' Deficit
Preferred stock- convertible, no par value,
authorized 1,199,000 shares, issued and
outstanding: 917,500 shares in 1999 and 1998 873,250 873,250
Common stock, no par value, authorized
25,000,000 shares, issued and outstanding:
540,228 in 1999 and 199,185 shares in 1998 5,801,049 5,526,168
Accumulated deficit (6,692,636) (6,902,726)
----------- -----------
Total Stockholders' Deficit (18,337) (503,308)
----------- -----------
Total Liabilities and Stockholders'
Deficit $ 30,387 $ 198,317
=========== ===========
See Accompanying Independent Auditor's Report
and Notes to the Financial Statements
F-3
<PAGE>
CITADEL ENVIRONMENTAL GROUP, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
----------- -----------
Revenues:
Management fees-affiliate $ 0 $ 15,000
Interest income-affiliate 60,327 107,875
----------- -----------
Total Revenue 60,327 122,875
----------- -----------
Operating Expenses:
General and administrative expenses 391,967 362,406
----------- -----------
Loss From Operations (331,640) (239,531)
----------- -----------
Other Income/(Expense):
Interest expense (104,309) (28,034)
Gain on settlement 103,923 0
Provision for uncollectibles from affiliate 0 (117,875)
----------- -----------
Total Other Income/(Expense) (386) (145,909)
----------- -----------
(Loss) Before Taxes and Extraordinary
Items (332,026) (385,440)
Provision For Income Taxes 0 (800)
----------- -----------
Income/(Loss) Before Extraordinary Item (332,026) (386,240)
Extraordinary item - gain on extinguishment
of debt (net of income tax of $0) 544,410 0
----------- -----------
Net Income (Loss) $ 212,384 $ (386,240)
----------- -----------
Earnings Per Common Share:
(Loss) From Operations Before
Extraordinary Item $ (1.28) $ (2.04)
Extraordinary Item 2.11 0.00
----------- -----------
Net Income/(Loss) $ 0.83 $ (2.04)
=========== ===========
Earnings Per Common Share - Diluted:
(Loss) From Operations Before
Extraordinary Item $ (0.87) $ (2.04)
Extraordinary Item 1.45 0.00
----------- -----------
Net Income/(Loss) $ 0.58 $ (2.04)
=========== ===========
Weighted-Average Number of Common Shares
Outstanding Used in Basic EPS Calculation 258,554 188,481
=========== ===========
See Accompanying Independent Auditor's Report
and Notes to the Financial Statements
F-4
<PAGE>
CITADEL ENVIRONMENTAL GROUP, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
----------- -----------
Operating Activities:
Net Income/(Loss) $ 212,384 $ (386,240)
Adjustments to Reconcile Net Income/(Loss) to
Cash Used in Operating Activities:
(Increase) Decrease in:
Depreciation 666 0
Interest receivable - affiliate 145,627 0
Management fees receivable - affiliate 14,250 0
Allowance for uncollectibles - affiliate 103,923 0
Prepaid expense 198,308 0
Increase (Decrease) in:
Accounts payable (132,670) 49,866
Franchise taxes payable 0 800
Accrued expenses (39,044) 140,610
Extraordinary gain (544,410) 0
----------- -----------
Cash Used in Operating Activities (40,966) (194,964)
----------- -----------
Investing Activities:
Acquisition of capital lease asset (13,337) 0
Loan advance to affiliate 0 (575)
Payment received on affiliate 0 5,000
----------- -----------
Cash Provided By/(Used In) Investing Activities (13,337) 4,425
----------- -----------
Financing Activities:
Proceeds from convertible debentures 0 25,000
Proceeds from exercises of warrants 0 159,000
Loan repayments (35,000) 0
Proceeds from loans 92,010 5,000
----------- -----------
Cash Provided By Financing Activities 57,010 189,000
----------- -----------
Net Increase/(Decrease) in Cash 2,707 (1,539)
Beginning Cash 9 1,548
----------- -----------
Ending Cash $ 2,716 $ 9
=========== ===========
See Accompanying Independent Auditor's Report
and Notes to the Financial Statements
F-5
<PAGE>
CITADEL ENVIRONMENTAL GROUP, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Common Stock Preferred Stock Accumulated Stockholders'
Shares Amount Shares Amount (Deficit) Equity/(Deficit)
-------- ---------- ------- -------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31,
1997 $176,883 $3,353,032 997,500 $953,250 $(4,937,228) $(630,946)
Correction (See Note
12) 1,531,508 (1,531,508)
-------- ---------- ------- -------- ----------- ---------
Adjusted Balance
December 31, 1997 176,883 4,884,540 997,500 953,250 (6,468,736) (630,946)
Common stock issued
for consulting fee 8,981 258,662 258,662
Common shares issued
on warrant sales 5,617 154,185 154,185
Common stock issued
acquisition AMR 85
Conversion of debt and
interest to stock 4,071 101,031 101,031
Conversion of preferred
stock to common 2,222 80,000 (80,000) (80,000)
Preferred dividend-
common stock 1,326 47,750 (47,750)
Net loss - 1998 (386,240) (386,240)
-------- ---------- ------- -------- ----------- ---------
Balance December 31,
1998, Restated 199,185 $5,526,168 917,500 $873,250 $(6,902,726) $(503,308)
Preferred dividend -
common stock 1,274 2,294 (2,294)
Conversion of debt and
Interest to common
stock 290,721 237,272 237,272
Common stock issued
per EMS termination
Agreement 49,048 35,315 35,315
Net income - 1999 212,384 212,384
-------- ---------- ------- -------- ----------- ---------
Balance December 31,
1999 540,228 $5,801,049 917,500 $873,250 $(6,692,636) $(18,337)
======== ========== ======= ======== =========== =========
</TABLE>
See Accompanying Independent Auditor's Report
and Notes to the Financial Statements
F-6
<PAGE>
CITADEL ENVIRONMENTAL GROUP, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Company Organization
Citadel Environmental Group, Inc. (the "Company") was organized on July 1,
1983. The Company was inactive during 1993, 1994, and 1995. On August 12,
1996 the Company recommenced operations and became an investment company,
which acquires controlling and non-controlling interest in operating
companies. The Company provided operating capital, management advisory
services, and assistance in market development for emerging growth companies
in which it invests.
During fiscal 1996 to 1999, the Company was primarily engaged in developing
its investment in a medical instrument reprocessing business, Applied Medical
Recovery, Inc. ("AMR"). In March 1998, AMR was sold to Alliance Medical
Corporation, of Phoenix, Arizona, and the Company became a creditor and
shareholder of Alliance without an operating business or source of revenues.
In fiscal 1998 and 1999, the Company adopted a new business plan designed to
identify new business opportunities and to eliminate outstanding debts through
the issuance of restricted common stock.
At December 31, 1999 the Company had pending transactions to acquire 100% of
the outstanding stock of Storage Area Networks, a data storage solutions and
services business and 100% of the outstanding stock of CoComp, a business
serving commercial data storage customers. See Note 17 Subsequent Events.
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 consists of transportation equipment held under capital
leases and are recorded at cost. Depreciation is recorded using the
straight-line method over the useful lives of the assets. Depreciation
expense for the years ended December 31, 1998 and 1999 was $0 and $666
respectively.
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 expensed during the period they are incurred.
Principles of Consolidation
It is the Company's policy to prepare its financial statements consolidated
with subsidiaries when the Company owns a controlling interest of 50% or more
of the outstanding voting stock in the subsidiary. The Company will prepare
its financial statements on the equity method when the controlling interest is
between 20% and 50%, or when the controlling interest exceeds 50%, but
expectation for maintaining a controlling interest is temporary. On
investments for less than 20% the Company will present the investment at cost.
See Accompanying Independent Auditor's Report
F-7
<PAGE>
CITADEL ENVIRONMENTAL GROUP, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONT'D
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
Capital Lease
The Company leases an auto under a capital lease agreement expiring in 2002.
The assets and liabilities under capital leases are recorded at the lower of
the present value of the minimum lease payments or the fair market value of
the asset. Following is a summary of future minimum lease payments as of
December 31, 1999:
2000 $ 482
2001 602
2002 13,916
-------
Total $15,000
=======
Concentration Risk
During 1999, the Company only received income from AMR, a related party
entity, which the Company owns a minority interest in its parent company,
Alliance. Therefore this concentration gives added risk to the potential lack
of future revenues.
Operating Leases
The Company during 1998 leased office facilities in Thousand Oaks, California
on a month to month basis. Subsequent to that the Company operated out of the
corporate secretary's home office without any rental obligations. Starting in
March 1999 the corporate offices were moved to Denver, Colorado. During 1999,
the Company shared office space with the president of the company on a month
to month rental agreement of $1,367 per month. Rent expense for the years
ended 1999 and 1998 are $10,140 and $6,355, respectively.
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.
See Accompanying Independent Auditor's Report
F-8
<PAGE>
CITADEL ENVIRONMENTAL GROUP, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONT'D
Provision for Uncollectibles/Asset Impairment
Due to uncertainty regarding the Company's receivables from AMR, the Company
has classified the receivables as impaired and has fully reserved the
following assets. In 1999, the receivables were negotiated and settled for
cash and Alliance stock. The settlement resulted in a gain of $103,923 to the
Company and is reported in the statement of operations. The amounts due from
AMR and its parent Alliance are as follows:
December 31,
1999 1998
------- --------
Note Receivable $ 0 $720,575
Management Fee 0 60,000
Accrued Interest 0 145,627
------- --------
$ 0 $926,202
======= ========
Earnings Per Share
Earnings per share were computed by dividing income available to common
stockholders by the weighted-average number of shares outstanding during the
year and was adjusted to reflect the 36 for 1 reverse split (Note 17
Subsequent Events).
NOTE 2 - 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, 1999
the Company did not own any liquid assets that would generate any operating
revenues.
Management believes that the reduction of debt initiated prior to and
subsequent to December 31, 1999 will reduce the Company's financial
deficiencies and provide the necessary financing to acquire the assets needed
to generate the sufficient operating revenues and recover from continued
operating losses. Subsequent to December 31, 1999 the Company acquired two
operating companies with aggregate revenues in excess of $21,000,000. See Note
17 Subsequent Events.
See Accompanying Independent Auditor's Report
F-9
<PAGE>
CITADEL ENVIRONMENTAL GROUP, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 3 - PREPAID EXPENSE - CONSULTING FEES
On July 1, 1998 the Company entered into a consulting agreement with Estate
Management Services ("EMS") for business development services. The agreement
was to expire December 31, 2000 and was paid as follows:
Citadel Environmental Group Common Stock (Pre-Split) 323,328 shares
Alliance Medical Corporation Common Stock 27,250 shares
Based on a fair market value of $0.80 and $0 for the Citadel and Alliance
shares, respectively, the Company recognized $258,662 in consulting expense as
a result of this agreement, $198,308 of which was deferred as of December 31,
1998. Fair market value was derived from stock prices on actual trading
activity. In 1999, the Company terminated the contract due to the pending
transaction with S.A.N. Note 17 Subsequent events and 1,765,725 pre split
shares were issued to terminate the contract. Therefore, the remaining
deferred balance was expensed in 1999. Consulting expense for the years ended
1999 and 1998 were $292,141 and $60,354 respectively.
NOTE 4 - DUE FROM AFFILIATE - GAIN ON SETTLEMENT
Note receivable and accrued interest
The note receivable due from an affiliate is a Multiple Advance Promissory
Note from AMR a wholly owned subsidiary of Alliance in an amount not to exceed
$3,500,000, bearing interest at Wells Fargo prime rate plus two percent (2%)
per annum and dated July 1, 1997, with principal and interest due and payable
on or before July 1, 1998. The note was settled in 1999 by the receipt of
266,880 shares of Alliance stock in full payment of note.
Management fees
Management fees were accrued pursuant to an agreement between the Company and
AMR, which was terminated in March 1998 concurrent with the acquisition of AMR
by Alliance. The Company settled with AMR in 1999 for payment of $164,250.
The amount received represented $14,250 in accrued management fees and
$150,000 in accrued interest.
Valuation reserve
Due to concerns regarding the ability of Alliance to repay the indebtedness,
accrued interest and management fees, a provision for uncollectibles was
established at December 31, 1998 to provide a reserve for all receivables due
from AMR. In 1999, the settlement referenced above resulted in a gain of
$103,923 based on the recovery of the valuation reserve over the amount
provided for.
See Accompanying Independent Auditor's Report
F-10
<PAGE>
CITADEL ENVIRONMENTAL GROUP, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 5 - INVESTMENTS
Alliance Medical Corporation (Alliance)/Applied Medical Recovery, Inc. ("AMR")
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 pre-split common stock. In March 1998 Citadel tendered
its investment in AMR to Alliance Medical Corporation ("Alliance") in exchange
for 621,025 shares or 32% of Alliance. Alliance was established for the sole
purposes of acquiring controlling interest of both AMR and a direct
competitor, Orris, Inc. Due to subsequent issuance of stock by Alliance,
Citadel's percentage of ownership was reduced to below 20% as of December 31,
1998. The investment in Alliance was intended to be temporary. At December 31,
1999 the Company no longer had an investment in Alliance. All remaining shares
were distributed to the common shareholders as a dividend, see Note 16 Common
Stock Dividend.
The Company has not recognized in these financial statements the value of
Alliance shares accepted by one of its creditors in 1998. The value
determined by a third party acceptance would thereby give determinable value
to the asset and create income as reportable on the Statements of Operations.
Management recognized this transaction in 1999 year based on the settlement
agreed to and the issuance of Alliance stock in 1999 as full payment of the
obligation.
Unaudited Financial Summary of Alliance at May 31, 1998 is as follows:
Total Current Assets $ 1,171,014
Net Property and Equipment 1,002,614
Total Other Assets 422,284
-----------
Total Assets $ 2,595,912
-----------
Total Current Liabilities $ 4,347,586
Total Long-Term Debts 153,588
Private Placement Debts 170,000
-----------
Total Liabilities 4,801,174
Total Stockholders (Deficit) (2,205,262)
-----------
Total Liabilities and Stockholders'
Deficit $ 2,595,912
-----------
See Accompanying Independent Auditor's Report
F-11
<PAGE>
CITADEL ENVIRONMENTAL GROUP, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 6 - NOTES PAYABLE
Notes payable are as follows as of December 31, 1999 and 1998:
1999 1998
------- --------
Unsecured promissory note payable to previous Chief
Financial Officer of Citadel dated August 1, 1997,
representing unpaid compensation, due on demand
with interest at 10%. $ 0 $ 54,938
Unsecured promissory note to an individual dated
June 22, 1998, due on demand with interest at 10%. 0 20,000
------- --------
Total Notes Payable $ 0 $ 74,938
======= ========
Convertible debentures are as follows as of December 31, 1999 and 1998:
1999 1998
------- --------
Unsecured convertible promissory note dated
September 30 1997, due on demand or July 1,
2002 with interest at 8.75%, convertible based on
$2.00 per common share $ 0 $ 30,000
Unsecured convertible promissory note in the
amount of $200,000 dated September 26, 1997,
due March 26, 1998 with interest at 10%,
convertible based on 50 % of the common stocks
average closing bid price for the previous 10 days
(See Subsequent Events Note 17 first paragraph) 0 150,000
------ --------
Total Convertible Debentures $ 0 $180,000
====== ========
At December 31, 1998 the Company was in default under the terms of all notes
and convertible debentures payable and all principal and accrued interest was
currently due and payable. During 1999, the Company received cash and issued
notes payable to common shareholders in the amount of $92,010. Additionally
the Company settled all outstanding notes payable and convertible debentures
through the rights to exercise, conversion of notes payable to stock and cash
payments, see Note 14 Extraordinary Item Debt Restructuring.
See Accompanying Independent Auditor's Report
F-12
<PAGE>
CITADEL ENVIRONMENTAL GROUP, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 7 - ACCRUED EXPENSES
Accrued expenses are as follows as of December 31, 1999 and 1998:
1999 1998
------ --------
Interest on notes payable $ 0 $ 24,662
Accrued severance 0 83,334
Accrued consulting fees 0 180,000
Miscellaneous 0 3,382
------ --------
Total Accrued Expenses $ 0 $291,378
====== ========
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
due to lack of available funds has not made any further payment to date. The
remaining balance at December 31, 1998 is $83,334. The Company settled with
Richard Landi in 1999 for a cash payment of $36,500 and issuance of 150,000
restricted shares of pre-split common stock and 8,000 shares of Alliance.
Accrued consulting fees were settled in 1999 by issuance of 255,760 restricted
shares of pre-split common stock, see Note 14 Extraordinary Item Debt
Restructuring.
NOTE 8 - INCOME TAXES
The Company files its tax returns using the same accounting method as it does
for financial statement reporting. The Company has unused net operating losses
carried forward from inception in the amount of $5,137,448. Based on estimated
future income tax rates (30%) would result in a deferred tax benefit of
$1,541,234. Management has established a valuation allowance equal to the
potential benefit of NOL's based on the estimated likelihood that the
carryforwards would expire prior to utilization. The only provision that is
reflected in these statements is for the minimum franchise tax due to the
State of California in 1998 and $0 in 1999. Subsequent to December 31, 1999
the Company was involved in a reverse acquisition (see Note 17 - Subsequent
Events). The reverse acquisition created a change in control and therefore
will limit future benefits.
NOTE 9 - STOCKHOLDERS' DEFICIT
Private Placement of Convertible Preferred Stock
On April 30, 1997 the Company completed a private placement of 917,500 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. Two B warrants allow the holder to purchase one share of common
See Accompanying Independent Auditor's Report
F-13
<PAGE>
CITADEL ENVIRONMENTAL GROUP, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 9 - STOCKHOLDERS' DEFICIT CONT'D
stock at $1.50 per share. The warrants expire two years from date of issuance.
In conjunction with this private placement, all shareholders who acquired
stock in the Company's previous private placement , converted their common
shares and warrants into preferred stock and warrants issued in accordance
with the terms of this private placement. The warrants expired October 31,
1999.
In 1999 and 1998 the Board of Directors authorized the issuance of 45,875
shares and 47,750 shares of pre-split common stock, respectively, in payment
of the semi-annual dividend requirement on the preferred stock.
The preferred stock is non-voting with a participating cumulative dividend and
has no preferences on involuntary conversion other than for payment at stated
value. Subsequent to December 31, 1999 the preferred stockholders converted
into common shares at a ratio of five pre-split shares of common to one share
of preferred (see Note 17 Subsequent Events).
NOTE 10 - SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information: 1999 1998
-------- -------
Cash paid for income taxes $ 0 $ 0
Cash paid for interest expense $104,309 $24,752
Schedule of non-cash investing and financing activities:
In 1998, the Company issued 323,328 shares of pre-split common stock valued at
$258,662 in exchange for consulting services.
In 1998, 3,000 shares of pre-split common stock was issued to a former
shareholder of AMR.
In 1998, debt valued at $101,031 was converted into 146,550 shares of
pre-split common stock.
In 1998, 80,000 shares of preferred stock valued at $80,000 were converted
into 80,000 shares of pre-split common stock.
In 1998, the Board of Directors declared and issued a pre-split common stock
dividend of 47,750 shares valued at $47,750 to the preferred shareholders.
In 1999, the Company issued 10,465,960 shares of Citadel pre-split common
stock valued at $237,000, and 245,000 shares of Alliance common stock valued
at $0, in conjunction with the settlement of indebtedness to shareholders that
was in default.
In 1999, the Board of Directors declared and issued a pre-split common stock
dividend of 45,875 shares valued at $2,294 to the preferred shareholders.
In 1999, the Company issued 1,765,725 shares of pre-split common stock valued
at $35,315 to EMS in accordance with the termination agreement.
In 1999, the company purchased an auto costing $28,337 for $13,337 in cash and
$15,000 in capital lease obligation.
See Accompanying Independent Auditor's Report
F-14
<PAGE>
CITADEL ENVIRONMENTAL GROUP, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 11 - LITIGATION
The Company is not a party to any other pending legal proceedings which
management believes could have a material adverse effect on its financial
position.
NOTE 12 - CORRECTION OF AN ERROR
In March 1997, the Company acquired AMR for Citadel stock, which was exchanged
for shares in AMR's parent Alliance , see Note 5. At the end of 1997,
management determined that the investment was worthless. Management valued
the investment at the Balance Sheet date of December 31, 1997 instead of the
transaction date in March. In the Company's 10-QSB filed for the first
quarter of 1997, the transaction was listed at a value of $2,042,010 based on
the trading price of the common stock. The stock issued was restricted and
therefore, at least, a twenty five percent discount should have applied to
that value at the time of the transaction. The amount should have been
recorded at an estimate closer to $1,531,508. At December 31, 1997 when
management determined that the investment had no value, the $1,531,508 should
be written off through operations. This correction is to record the initial
investment at $1,531,508 as an increase in the value of common stock and to
write off the investment through operations by charging the accumulated
deficit. This correction is shown as a restatement of the ending 1997 balance
in stockholders' equity. The net effect is no change in total stockholders'
equity
NOTE 13 - EARNING PER SHARE
The following data shows the amounts used in computing earnings per share and
the effect on income and the weighted average number of shares of dilutive
potential common stock. The number of shares used in the calculations for 1999
reflect a 5 for 1 preferred stock conversion on March 28, 2000.
The Company has not disclosed diluted earnings per share information for 1998
because the 71,180 shares of common stock for convertible preferred stock with
outstanding warrants and 417 shares of common stock for convertible bonds
would be antidilutive.
Loss from operations before
extraordinary items $(332,026)
Less: Preferred dividends (2,294)
---------
Loss available to common stockholders
used in basic EPS $(334,320)
---------
Loss available to common stockholders
after assumed conversions of dilutive
securities $(334,320)
=========
Weighted average number of common shares
Used in basic EPS 258,554
Effect of dilutive shares 124,653
---------
Weighted average number of common shares
and dilutive potential common stock 383,207
=========
See Accompanying Independent Auditor's Report
F-15
<PAGE>
CITADEL ENVIRONMENTAL GROUP, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 14 - EXTRAORDINARY ITEM - DEBT RESTRUCTURING
During 1999, the Company retired $636,838 in liabilities for $37,500 in cash
and $54,928 in Citadel common stock. The transaction resulted in an
extraordinary gain of $544,410 ($1.45 per share and $2.11 per diluted share),
net of income tax.
Number of Amount of
Pre-split Shares Gain
---------------- ---------
Chelius Settlement 300,000 $ 12,291
Oriental New Investors Settlement 0 162,082
Walker Ryan Settlement 100,000 49,115
Shareholder Solutions Settlement 20,000 3,513
Bakamu (McGrain) Settlement 255,760 165,528
Bar Eleven Settlement 50,000 32,684
Landi Settlement 150,000 39,333
Nycon Settlement 25,000 14,491
Nye Settlement 25,000 14,481
Yaspan Settlement 0 7,476
Resch Polster 432,000 43,416
Underwood Settlement 9,108,200 0
---------- --------
Totals 10,465,960 $544,410
========== ========
NOTE 15 - RELATED PARTY TRANSACTIONS
The Company in 1999 agreed to a settlement with AMR for the outstanding
interest receivable, management fees receivable, and a note receivable due and
the agreement resulted in a gain on settlement, see Note 4.
The Company, in 1998 and 1999, paid consulting fees and had prepaid expenses
to a shareholder of record at December 31, 1999, See Note 3.
The Company, in 1998 and 1999, had notes payable due to officers and
shareholders of the Company which were converted into common stock, see Note 6
And Note 14.
The Company, in 1998 and 1999, had accrued expenses due to a former officer
and a shareholder of the Company, which were converted into common stock, see
Note 7 and Note 14.
The Company, in 1998 and 1999, had a consulting agreement with a shareholder
of the Company and the accrued balance was paid in full with common stock.
The Company during 1999 leased office space on a month to month basis as a
subtenant to the president of the Company, see Note 1.
See Accompanying Independent Auditor's Report
F-16
<PAGE>
CITADEL ENVIRONMENTAL GROUP, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 16 - COMMON STOCK DIVIDEND
On December 20, 1999, the Company declared a dividend of its shareholdings of
Alliance Medical Corporation. 578,190 Alliance common shares, a private
non-trading security, are payable to all common and preferred shareholders of
Citadel, pro-rata, as of December 31, 1999 with any fractional shares rounded
up to equal one share. The Company has placed the Alliance shares in escrow
with James K. Kreutz and Associates, P.C. of Englewood, Colorado. These
shares will be distributed once Alliance becomes an SEC reporting company. If
this does not occur by December 31, 2001, the shares will be returned to the
Company. The transaction represents no value on Citadels financial statements
as of December 31, 1999.
NOTE 17 - SUBSEQUENT EVENTS
In January 2000 the original preferred shareholders converted their preferred
shares into 4,587,500 shares of pre-split common stock, representing five
shares of common for each share of preferred.
On January 7, 2000 the Company issued 3,800,000 shares of Series BB
convertible preferred stock in exchange for all the outstanding stock of
Storage Area Networks ("SAN"), a data storage provider based in Colorado. The
Company announced that it intends to seek shareholder approval of a 1 for 36
reverse stock split in March 2000. Following the closing of this acquisition
Citadel issued 3,182,659 shares of Series AA and Series AAA convertible
preferred stock for $1.50 and $3.00 per share respectively, generating net
proceeds of approximately $5,035,657. The share exchange with SAN will be
treated as a reverse acquisition for accounting purposes with San as the
acquirer of Citadel. A finders fee equal to 220,000 shares of Citadel common
stock is due following the completion of the proposed 1 for 36 reverse stock
split.
On January 21, 2000, in exchange for $1,079,000 in cash, $951,000 in
promissory notes and Citadel common stock valued at $1,000,000, Citadel
acquired all the outstanding stock of Co Comp, Inc., a provider of data
storage systems and services based in Colorado. The Citadel common shares were
to be issued within 15 days from the effective date of the proposed 1 for 36
reverse stock split. The number of shares of Citadel common stock issued was
88,888.
On March 1, 2000 the shareholders approved a name change from Citadel
Environmental Group, Inc. to San Holdings, Inc. Additionally the shareholders
approved a 1 for 36 reverse split of the Company's issued and outstanding
common stock, which was effective on March 2, 2000.
The Company's unaudited proforma financial statements are presented below and
reflect the consolidated balance sheet at December 31, 1999 and statement of
income as if the companies were consolidated for the period then ended. SAN's
year-end is November 30. The financial information of SAN reflects amounts at
November 30, 1999 and for the year then ended.
See Accompanying Independent Auditor's Report
F-17
<PAGE>
CITADEL ENVIRONMENTAL GROUP, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 17 - SUBSEQUENT EVENTS (CONTINUED)
<TABLE>
<CAPTION>
Unaudited Proforma Consolidated Balance Sheet
12/31/1999
(In Thousands)
Assets
Elimina- Consoli-
SAN CoComp CEG Other tions dated
------ ------ ------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Current Assets $1,982 $2,027 $ 3 $ 5,035 <FN2> $ 0 $ 7,968
Current Assets (1,079)<FN4>
Property and Equip.,
Net 22 105 27 154
Goodwill, Net 1,079 <FN4> (983)<FN6> 2,047
Goodwill, Net 951 <FN3>
Goodwill, Net 1,000 <FN1>
Other Assets 2,326 2,326
------ ------ ------- ------- -------- --------
Total $4,330 $2,132 $ 30 $ 6,986 $ (983) $ 12,495
====== ====== ======= ======= ======== ========
Liabilities and Stockholder Equity
Current Liabilities $4,199 $1,131 $ 34 $ 0 $ 0 $ 5,364
Long Term Liabilities 6 14 951 <FN3> 971
Common Stock 12 525 5,801 873 <FN5> (7,199)<FN6> 6,047
Common Stock 5,035 <FN7>
Common Stock 1,000 <FN1>
Paid in Capital 53 53
Preferred Stock 873 5,035 <FN2> 0
Preferred Stock (5,035)<FN7>
Preferred Stock (873)<FN5>
Retained Earnings
(Accum. Deficit) 60 476 (6,692) 6,216 <FN6> 60
------ ------ ------- ------- -------- --------
Total $4,330 $2,132 $ 30 $ 6,986 $ 983 $ 12,495
====== ====== ======= ======= ======== ========
Notes to Proforma Consolidated Balance Sheet (In Thousands):
<FN>
<FN1> Issuance of 89 shares of stock for purchase of CoComp, valued at $1,000.
<FN2> Issuance of 3,182 shares of Series AA and Series AAA preferred stock for cash.
<FN3> Assumption of $951 in acquisition debt of CoComp.
<FN4> Payment of $1,079 in cash for CoComp.
<FN5> Conversion of CEG preferred stock to pre-acquisition common stock.
<FN6> To eliminate CEG preferred and CoComp acquisition equity.
<FN7> To record conversion of Series AA and AAA preferred stock to common.
<FN8> Other assets comprised of (in thousands):
Accounts Receivable, Long-Term, Net $1,934
Cost of Purchased Contracts, Net 390
Deposits 2
------
Total $2,326
======
</FN>
</TABLE>
See Accompanying Independent Auditor's Report
F-18
<PAGE>
CITADEL ENVIRONMENTAL GROUP, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 17 - SUBSEQUENT EVENTS (CONTINUED)
<TABLE>
<CAPTION>
Unaudited Proforma Consolidated Income Statement
12/31/1999
(In Thousands)
Assets
Elimina- Consoli-
SAN CoComp CEG Other tions dated
------ ------ ------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues $12,308 $9,259 $ 60 $ 0 $ 0 $ 21,627
Operating Expenses 12,303 8,861 391 21,555
Income (Loss) from
Operations 5 398 (331) 72
Other Income (Expense) 81 6 (1) (136)<FN1> (16)
Other Income (Expense) 148 <FN2>
Other Income (Expense) (114)<FN3>
Income/(Loss) Before Tax 86 404 (332) (102)<FN1> 56
<FN2><FN3>
Provision for Tax 25 (12)<FN4> 13
Income Before Extra-
ordinary Item 61 404 (332) (90) 43
Extraordinary
Item, Net of Tax 544 544
------- ------ ------- ------- -------- --------
Net Income $ 61 $ 404 $ 212 $ (90) $ 0 $ 587
------- ------ ------- ------- -------- --------
Earnings Per Share:<FN5>
Income/(Loss) From
Operations Before
Extraordinary Item $ 0.06
Extraordinary Item 0.68
--------
Net Income $ 0.74
--------
Notes to Proforma Consolidated Income Statement:
<FN>
<FN1> Amortization of goodwill due to acquisition, amortized over 15 years.
<FN2> Earnings of 5% on net funds received from preferred private placement.
<FN3> Interest expense on acquisition debt of CoComp at 12% per annum.
<FN4> Provision for taxes based on CoComp conversion from S-corporation status to
C-Corporation due to acquisition, the effect of items (1) and (2) above, and based
on consolidated earnings.
<FN5> Earnings per Share is calculated based on conversions of preferred stock, series BB, AA,
and AAA and taking into consideration the reverse stock split. Weighted average number
of common shares used in EPS calculation totaled 7,959.
</FN>
</TABLE>
See Accompanying Independent Auditor's Report
F-19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act
of 1934, the Registrant has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
SAN HOLDINGS, INC.
Date: April 14, 2000 By:/s/ Louis F. Coppage
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
--------- ----- ----
/s/ Louis F. Coppage Chairman of the Board April 14, 2000
Louis F. Coppage
/s/ L. W. Buxton President and Chief April 14, 2000
L.W. Buxton Executive Officer
/s/ Warren Smith Director April 14, 2000
Warren Smith
/s/ Cory J. Coppage Director April 14, 2000
Cory J. Coppage
AMENDED BYLAWS
OF
SAN HOLDINGS, INC.
ARTICLE I
OFFICES
1.1 Business Office. The principal office and place of business of the
corporation shall be at 900 Castleton Road, Suite 100, Castle Rock, Colorado
80104. Other offices and places of business may be established from time to
time by resolution of the Board of Directors or as the business of the
corporation may require.
1.2 Registered Office. The registered office of the corporation,
required by the Colorado Business Corporation Act to be maintained in the
State of Colorado, may be, but need not be, identical with the principal
office in the State of Colorado, and the address of the registered office may
be changed from time to time by the Board of Directors.
ARTICLE II
SHARES AND TRANSFER THEREOF
2.1 Regulation. The Board of Directors may make such rules and
regulations as it may deem appropriate concerning the issuance, transfer and
registration of certificates for shares of the corporation, including the
appointment of transfer agents and registrars.
2.2 Certificates for Shares. Certificates representing shares of the
corporation shall be respectively numbered serially for each class of shares,
or series thereof, as they are issued, shall be impressed with the corporate
seal or a facsimile thereof, and shall be signed by the Chairman or Vice
Chairman of the Board of Directors or by the President or a Vice-President and
by the Treasurer or an Assistant Treasurer or by the Secretary or an Assistant
Secretary; provided that any or all of the signatures may be facsimiles if the
certificate is countersigned by a transfer agent, or registered by a
registrar, other than the corporation itself or its employee. Each
certificate shall state the name of the corporation, the fact that the
corporation is organized or incorporated under the laws of the State of
Colorado, the name of the person to whom issued, the date of issue, the class
(or series of any class), the number of shares represented thereby and the par
value of the shares represented thereby or a statement that such shares are
without par value. A statement of the designations, preferences,
qualifications, limitations, restrictions and special or relative rights of
the shares of each class shall be set forth in full or summarized on the face
or back of the certificates which the corporation shall issue, or in lieu
thereof, the certificate may set forth that such a statement or summary will
be furnished to any shareholder upon request without charge. Each certificate
shall be otherwise in such form as may be prescribed by the Board of Directors
and as shall conform to the rules of any stock exchange on which the shares
may be listed. The corporation shall not issue certificates representing
fractional shares and shall not be obligated to make any transfers creating a
fractional interest in a share of stock. The corporation may issue scrip in
lieu of any fractional shares, such scrip to have terms and conditions
specified by the Board of Directors.
<PAGE>
2.3 Cancellation of Certificates. All certificates surrendered to the
corporation for transfer shall be cancelled and no new certificates shall be
issued in lieu thereof until the former certificate for a like number of
shares shall have been surrendered and cancelled, except as herein provided
with respect to lost, stolen or destroyed certificates.
2.4 Lost, Stolen or Destroyed Certificates. Any shareholder claiming
that his certificate for shares is lost, stolen or destroyed may make an
affidavit or affirmation of the fact and lodge the same with the Secretary of
the corporation, accompanied by a signed application for a new certificate.
Thereupon, and upon the giving of a satisfactory bond of indemnity to the
corporation not exceeding an amount double the value of the shares as
represented by such certificate (the necessity for such bond and the amount
required to be determined by the President and Treasurer of the corporation),
a new certificate may be issued of the same tenor and representing the same
number, class and series of shares as were represented by the certificate al-
leged to be lost, stolen or destroyed.
2.5 Transfer of Shares. Subject to the terms of any shareholder
agreement relating to the transfer of shares or other transfer restrictions
contained in the Articles of Incorporation or authorized therein, shares of
the corporation shall be transferable on the books of the corporation by the
holder thereof in person or by his duly authorized attorney, upon the
surrender and cancellation of a certificate or certificates for a like number
of shares. Upon presentation and surrender of a certificate for shares
properly endorsed and payment of all taxes therefor, the transferee shall be
entitled to a new certificate or certificates in lieu thereof. As against the
corporation, a transfer of shares can be made only on the books of the
corporation and in the manner hereinabove provided, and the corporation shall
be entitled to treat the holder of record of any share as the owner thereof
and shall not be bound to recognize any equitable or other claim to or
interest in such share on the part of any other person, whether or not it
shall have express or other notice thereof, save as expressly provided by the
statutes of the State of Colorado.
2.6 Transfer Agent. Unless otherwise specified by the Board of
Directors by resolution, the Secretary of the corporation shall act as
transfer agent of the certificates representing the shares of stock of the
corporation. He shall maintain a stock transfer book, the stubs in which
shall set forth among other things, the names and addresses of the holders of
all issued shares of the corporation, the number of shares held by each, the
certificate numbers representing such shares, the date of issue of the
certificates representing such shares, and whether or not such shares
originate from original issue or from transfer. Subject to Section 3.7, the
names and addresses of the shareholders as they appear on the stubs of the
stock transfer book shall be conclusive evidence as to who are the
shareholders of record and as such entitled to receive notice of the meetings
of shareholders; to vote at such meetings; to examine the list of the
shareholders entitled to vote at meetings; to receive dividends; and to own,
enjoy and exercise any other property or rights deriving from such shares
against the corporation. Each shareholder shall be responsible for notifying
the Secretary in writing of any change in his name or address and failure so
to do will relieve the corporation, its directors, officers and agents, from
liability for failure to direct notices or other documents, or pay over or
transfer dividends or other property or rights, to a name or address other
than the name and address appearing on the stub of the stock transfer book.
2.7 Close of Transfer Book and Record Date. For the purpose of
determining shareholders entitled to notice of or to vote at any meeting of
shareholders, or any adjournment thereof, or entitled to receive payment of
any dividend, or in order to make a determination of shareholders for any
other proper purpose, the Board of Directors may provide that the stock
2
<PAGE>
transfer books shall be closed for a stated period, but not to exceed, in any
case, fifty days. If the stock transfer books shall be closed for the purpose
of determining shareholders entitled to notice of, or to vote at a meeting of
shareholders, such books shall be closed for at least ten days immediately
preceding such meeting. In lieu of closing the stock transfer books, the
Board of Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than fifty
days and, in case of a meeting of shareholders, not less than ten days prior
to the date on which the particular action requiring such determination of
shareholders is to be taken. If the stock transfer books are not closed and
no record date is fixed for the determination of shareholders entitled to
notice of or to vote at a meeting of shareholders, or shareholders entitled to
receive payment of a dividend, the date on which notice of the meeting is
mailed or the date on which the resolution of the Board of Directors declaring
such dividend is adopted, as the case may be, shall be the record date for
such determination of shareholders. When a determination of shareholders
entitled to vote at any meeting of shareholders has been made as provided in
this section, such determination shall apply to any adjournment thereof.
ARTICLE III
SHAREHOLDERS AND MEETINGS THEREOF
3.1 Shareholders of Record. Only shareholders of record on the books of
the corporation shall be entitled to be treated by the corporation as holders
in fact of the shares standing in their respective names, and the corporation
shall not be bound to recognize any equitable or other claim to, or interest
in, any shares on the part of any other person, firm or corporation, whether
or not it shall have express or other notice thereof, except as expressly
provided by the laws of Colorado.
3.2 Meetings. Meetings of shareholders shall be held at the principal
office of the corporation, or at such other place as specified from time to
time by the Board of Directors. If the Board of Directors shall specify
another location such change in location shall be recorded on the notice
calling such meeting.
3.3 Annual Meeting. In the absence of a resolution of the Board of
Directors providing otherwise, the annual meeting of shareholders of the
corporation for the election of directors, and for the transaction of such
other business as may properly come before the meeting, shall be held at such
time as may be determined by Board of Directors by resolution in conformance
with Colorado law. If the election of Directors shall not be held on the day
so designated for any annual meeting of the shareholders, the Board of
Directors shall cause the election to be held at a special meeting of the
shareholders as soon thereafter as may be convenient.
3.4 Special Meetings. Special meetings of shareholders, for any purpose
or purposes, unless otherwise prescribed by statute, may be called by the
President, the Board of Directors, the holders of not less than one-tenth of
all the shares entitled to vote at the meeting, or legal counsel of the
corporation as last designated by resolution of the Board of Directors.
3.5 Notice. Written notice stating the place, day and hour of the
meeting and, in case of a special meeting, the purpose or purposes for which
the meeting is called, shall be delivered unless otherwise prescribed by
statute not less than ten days nor more than sixty days before the date of the
meeting, either personally or by mail, by or at the direction of the
President, the Secretary, or the officer or person calling the meeting to each
shareholder of record entitled to vote at such meeting; except that, if the
authorized shares are to be increased, at least thirty days' notice shall be
given. Notice to shareholders of record, if mailed, shall be deemed given as
3
<PAGE>
to any shareholder of record, when deposited in the United States mail,
addressed to the shareholder at his address as it appears on the stock
transfer books of the corporation, with postage thereon prepaid, but if three
successive letters mailed to the last-known address of any shareholder of
record are returned as undeliverable, no further notices to such shareholder
shall be necessary, until another address for such shareholder is made known
to the corporation.
3.6 Meeting of All Shareholders. If all of the shareholders shall meet
at any time and place, either within or without the State of Colorado, and
consent to the holding of a meeting at such time and place, such meeting shall
be valid without call or notice, and at such meeting any corporate action may
be taken.
3.7 Voting Record. The officer or agent having charge of the stock
transfer books for shares of the corporation shall make, at least ten days
before such meeting of shareholders, a complete record of the shareholders
entitled to vote at each meeting of shareholders or any adjournment thereof,
arranged in alphabetical order, with the address and the number of shares held
by each. The record, for a period of ten days prior to such meeting, shall be
kept on file either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting, or, if not
so specified, at the place where the meeting is to be held, whether within or
without the State of Colorado, and shall be subject to inspection by any
share- holder for any purpose germane to the meeting at any time during usual
business hours. Such record shall be produced and kept open at the time and
place of the meeting and shall be subject to the inspection of any shareholder
for any purpose germane to the meeting during the whole time of the meeting
for the purposes thereof. The original stock transfer books shall be the
prima facie evidence as to who are the shareholders entitled to examine the
record or transfer books or to vote at any meeting of shareholders.
3.8 Quorum. A majority of the outstanding shares of the corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at any meeting of shareholders, except as otherwise provided by the Colorado
Business Corporation Act and the Articles of Incorporation. In the absence of
a quorum at any such meeting, a majority of the shares so represented may
adjourn the meeting from time to time for a period not to exceed sixty days
without further notice. At such adjourned meeting at which a quorum shall be
presentor represented, any business may be transacted which might have been
transacted at the meeting as originally noticed. The shareholders present at
a duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
3.9 Manner of Acting. If a quorum is present, the affirmative vote of
the majority of the shares represented at the meeting and entitled to vote on
the subject matter shall be the act of the shareholders, unless the vote of a
greater proportion or number or voting by classes is otherwise required by
statute or by the Articles of Incorporation or these Bylaws.
3.10 Proxies. At all meetings of shareholders a shareholder may vote in
person or by proxy executed in writing by the shareholder or by his duly
authorized attorney-in-fact. Such proxy shall be filed with the Secretary of
the corporation before or at the time of the meeting. No proxy shall be valid
after three years from the date of its execution, unless otherwise provided in
the proxy.
4
<PAGE>
3.11 Voting of Shares. Unless otherwise provided by these Bylaws or the
Articles of Incorporation, each outstanding share entitled to vote shall be
entitled to one vote upon each matter submitted to a vote at a meeting of
shareholders, and each fractional share shall be entitled to a corresponding
fractional vote on each such matter.
3.12 Voting of Shares by Certain Holders. Shares standing in the name of
another corporation may be voted by such officer, agent or proxy as the bylaws
of such corporation may prescribe, or, in the absence of such provision, as
the Board of Directors of such other corporation may determine. Shares
standing in the name of a deceased person, a minor ward or an incompetent
person, may be voted by his administrator, executor, court appointed guardian
or conservator, either in person or by proxy without a transfer of such shares
into the name of such administrator, executor, court appointed guardian or
conservator. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name. Shares standing
in the name of a receiver may be voted by such receiver, and shares held by or
under the control of a receiver may be voted by such receiver without the
transfer thereof into his name if authority so to do be contained in an
appropriate order of the court by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote
such shares until the shares have been transferred into the name of the
pledgee, and thereafter the pledgee shall be entitled to vote the shares so
transferred. Neither shares of its own stock belonging to this corporation,
nor shares of its own stock held by it in a fiduciary capacity, nor shares of
its own stock held by another corporation if the majority of shares entitled
to vote for the election of directors of such corporation is held by this
corporation may be voted, directly or indirectly, at any meeting and shall not
be counted in determining the total number of outstanding shares at any given
time. Redeemable shares which have been called for redemption shall not be
entitled to vote on any matter and shall not be deemed outstanding shares on
and after the date on which written notice of redemption has been mailed to
shareholders and a sum sufficient to redeem such shares has been irrevocably
deposited or set aside to pay the redemption price to the holders of the
shares upon surrender of certificates therefor.
3.13 Informal Action by Shareholders. Any action required or permitted
to be taken at a meeting of the shareholders may be taken without a meeting if
a consent in writing, setting forth the action so taken, shall be signed by
all of the shareholders entitled to vote with respect to the subject matter
thereof.
3.14 Voting by Ballot. Voting on any question or in any election may be
by voice vote unless the presiding officer shall order or any shareholder
shall demand that voting be by ballot.
3.15 Cumulative Voting. No shareholder shall be permitted to cumulate
his votes by giving one candidate as many votes as the number of such
directors multiplied by the number of his shares shall equal, or by
distributing such votes on the same principal among any number of candidates.
ARTICLE IV
DIRECTORS, POWERS AND MEETINGS
4.1 Board of Directors. The business and affairs of the corporation
shall be managed by a board of not less than one (1) nor more than seven (7)
Directors. Directors need not be shareholders of the corporation or residents
of the State of Colorado and who shall be elected at the annual meeting of
shareholders or some adjournment thereof. Directors shall hold office until
5
<PAGE>
the next succeeding annual meeting of shareholders and until their successors
shall have been elected and shall qualify. The Board of Directors may
increase or decrease, to not less than one (1) nor more than seven (7), the
number of directors by resolution.
4.2 Regular Meetings. A regular, annual meeting of the Board of
Directors shall be held at the same place as, and immediately after, the
annual meeting of shareholders, and no notice shall be required in connection
therewith. The annual meeting of the Board of Directors shall be for the
purpose of electing officers and the transaction of such other business as may
come before the meeting. The Board of Directors may provide, by resolution,
the time and place, either within or without the State of Colorado, for the
holding of additional regular meetings without other notice than such
resolution.
4.3 Special Meetings. Special meetings of the Board of Directors may be
called by or at the request of the President or any two directors if there are
two or more directors of the Corporation. The person or persons authorized to
call special meetings of the Board of Directors may fix any place, either
within or without the State of Colorado, as the place for holding any special
meeting of the Board of Directors called by them.
4.4 Notice. Written notice of any special meeting of directors shall be
given as follows:
(a) By mail to each director at his business address at least three
days prior to the meeting; or
(b) By personal delivery or telegram at least twenty-four hours
prior to the meeting to the business address of each director, or in the event
such notice is given on a Saturday, Sunday or holiday, to the residence
address of each director. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail, so addressed, with postage
thereon prepaid. If notice be given by telegram, such notice shall be deemed
to be delivered when the telegram is delivered to the telegraph company. Any
director may waive notice of any meeting. The attendance of a director at any
meeting shall constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
4.5 Participation by Electronic Means. Except as may be otherwise
provided by the Articles of Incorporation or Bylaws, members of the Board of
Directors or any committee designated by such Board may participate in a
meeting of the Board or committee by means of conference telephone or similar
communications equipment by which all persons participating in the meeting can
hear each other at the same time. Such participation shall constitute
presence in person at the meeting.
4.6 Quorum and Manner of Acting. A quorum at all meetings of the Board
of Directors shall consist of a majority of the number of directors then
holding office, but a smaller number may adjourn from time to time without
further notice, until a quorum is secured. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the act
of the Board of Directors, unless the act of a greater number is required by
the laws of the State of Colorado or by the Articles of Incorporation or these
Bylaws.
6
<PAGE>
4.7 Organization. The Board of Directors shall elect a chairman to
preside at each meeting of the Board of Directors. The Board of Directors
shall elect a Secretary to record the discussions and resolutions of each
meeting.
4.8 Presumption of Assent. A director of the corporation who is present
at a meeting of the Board of Directors at which action on any corporate matter
is taken shall be presumed to have assented to the action taken unless his
dissent shall be entered in the minutes of the meeting or unless he shall file
his written dissent to such action with the person acting as the Secretary of
the meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary of the corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a
director who voted in favor of such action.
4.9 Informal Action By Directors. Any action required or permitted to
be taken by the Board of Directors, or a committee thereof, at a meeting may
be taken without a meeting if a consent in writing, setting forth the action
so taken, shall be signed by all the directors or all the committee members
entitled to vote with respect to the subject matter thereof.
4.10 Vacancies. Any vacancy occurring in the Board of Directors may be
filled by the affirmative vote of a majority of the remaining directors though
less than a quorum of the Board of Directors. A director elected to fill a
vacancy shall be elected for the unexpired term of his predecessor in office,
and shall hold such office until his successor is duly elected and shall
qualify. Any directorship to be filled by reason of an increase in the number
of directors shall be filled by the affirmative vote of a majority of the
directors then in office or by an election at an annual meeting, or at a
special meeting of shareholders called for that purpose. A director chosen to
fill a position resulting from an increase in the number of directors shall
hold office only until the next election of directors by the shareholders.
4.11 Compensation. By resolution of the Board of Directors and
irrespective of any personal interest of any of the members, each director may
be paid his expenses, if any, of attendance at each meeting of the Board of
Directors, and may be paid a stated salary as director or a fixed sum for
attendance at each meeting of the Board of Directors or both. No such payment
shall preclude any director from serving the corporation in any other capacity
and receiving compensation therefor.
4.12 Removal of Directors. Any director or directors of the corporation
may be removed at any time, with or without cause, in the manner provided in
the Colorado Business Corporation Act.
4.13 Resignations. A director of the corporation may resign at any time
by giving written notice to the Board of Directors, President or Secretary of
the corporation. The resignation shall take effect upon the date of receipt
of such notice, or at any later period of time specified therein. The
acceptance of such resignation shall not be necessary to make it effective,
unless the resignation requires it to be effective as such.
4.14 General Powers. The business and affairs of the corporation shall
be managed by the Board of Directors which may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or by
the Articles of Incorporation or by these Bylaws directed or required to be
exercised or done by the shareholders. The directors shall pass upon any and
all bills or claims of officers for salaries or other compensation and, if
deemed advisable, shall contract with officers, employees, directors,
attorneys, accountants, and other persons to render services to the
corporation.
7
<PAGE>
ARTICLE V
OFFICERS
5.1 Term and Compensation. The elective officers of the corporation
shall consist of at least a President, a Secretary and a Treasurer, each of
whom shall be eighteen years or older and who shall be elected by the Board of
Directors at its annual meeting. Unless removed in accordance with procedures
established by law and these Bylaws, the said officers shall serve until the
next succeeding annual meeting of the Board of Directors and until their
respective successors are elected and shall qualify. Any number of offices
may be held by the same person at the same time. The Board may elect or
appoint such other officers and agents as it may deem advisable, who shall
hold office during the pleasure of the Board.
5.2 Powers. The officers of the corporation shall exercise and perform
the respective powers, duties and functions as are stated below, and as may be
assigned to them by the Board of Directors.
(a) The President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. He shall preside, when present, at all meetings of the
shareholders and of the Board of Directors unless a different chairman of such
meetings is elected by the Board of Directors.
(b) In the absence or disability of the President, the
Vice-President or Vice-Presidents, if any, in order of their rank as fixed by
the Board of Directors, and if not ranked, the Vice-Presidents in the order
designated by the Board of Directors, shall perform all the duties of the
President, and when so acting shall have all the powers of, and be subject to
all the restrictions on the President. Each Vice-President shall have such
other powers and perform such other duties as may from time to time be
assigned to him by the President or the Board of Directors.
(c) The Secretary shall prepare and maintain accurate minutes of
all meetings of the shareholders and the Board of Directors unless a different
Secretary of such meetings is elected by the Board of Directors. He shall
keep, or cause to be kept a record of the shareholders of the corporation and
shall be responsible for the giving of notice of meetings of the shareholders
or the Board of Directors. The Secretary shall prepare and maintain any and
all other records and information required to be kept by the corporation under
Section 7-116-101 of the Colorado Business Corporation Act. The Secretary
shall have the responsibility for authenticating records of the corporation.
The Secretary shall be custodian of the records and of the seal of the
corporation and shall attest the affixing of the seal of the corporation when
so authorized. The Secretary or Assistant Secretary shall sign all stock
certificates, as described in Section 2.2 hereof. The Secretary shall perform
all duties commonly incident to his office and such other duties as may from
time to time be assigned to him by the President or the Board of Directors.
(d) An Assistant Secretary may, at the request of the Secretary, or
in the absence or disability of the Secretary, perform all of the duties of
the Secretary. He shall perform such other duties as may be assigned to him
by the President or by the Secretary.
(e) The Treasurer, subject to the order of the Board of Directors,
shall have the care and custody of the money, funds, valuable papers and
documents of the corporation. He shall keep accurate books of accounts of the
corporation's transactions, which shall be the property of the corporation,
and shall render financial reports and statements of condition of the
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corporation when so requested by the Board of Directors or President. The
Treasurer shall perform all duties commonly incident to his office and such
other duties as may from time to time be assigned to him by the President or
the Board of Directors. In the absence or disability of the President and
Vice-President or Vice-Presidents, the Treasurer shall perform the duties of
the President.
(f) An Assistant Treasurer may, at the request of the Treasurer, or
in the absence or disability of the Treasurer, perform all of the duties of
the Treasurer. He shall perform such other duties as may be assigned to him
by the President or by the Treasurer.
5.3 Compensation. All officers of the corporation may receive salaries
or other compensation if so ordered and fixed by the Board of Directors. The
Board of Directors shall have authority to fix salaries in advance for stated
periods or render the same retroactive as the Board may deem advisable.
5.4 Delegation of Duties. In the event of absence or inability of any
officer to act, the Board of Directors may delegate the powers or duties of
such officer to any other officer, director or person whom it may select.
5.5 Bonds. If the Board of Directors by resolution shall so require,
any officer or agent of the corporation shall give bond to the corporation in
such amount and with such surety as the Board of Directors may deem
sufficient, conditioned upon the faithful performance of their respective
duties and offices.
5.6 Removal. Any officer or agent may be removed by the Board of
Directors or by the executive committee, if any, whenever in its judgment the
best interest of the corporation will be served thereby, but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed. Election or appointment of an officer or agent shall not, of itself,
create contract rights.
ARTICLE VI
FINANCE
6.1 Reserve Funds. The Board of Directors, in its uncontrolled
discretion, may set aside from time to time, out of the net profits or earned
surplus of the corporation, such sum or sums as it deems expedient as a
reserve fund to meet contingencies, for equalizing dividends, for maintaining
any property of the corporation, and for any other purpose.
6.2 Banking. The moneys of the corporation shall be deposited in the
name of the corporation in such bank or banks or trust company or trust
companies, as the Board of Directors shall designate, and may be drawn out
only on checks signed in the name of the corporation by such person or persons
as the Board of Directors, by appropriate resolution, may direct. Notes and
commercial paper, when authorized by the Board, shall be signed in the name of
the corporation by such officer or officers or agent or agents as shall
thereunto be authorized from time to time.
ARTICLE VII
DIVIDENDS
Subject to the provisions of the Articles of Incorporation and the laws
of the State of Colorado, the Board of Directors may declare dividends
whenever, and in such amounts, as in the Board's opinion the condition of the
affairs of the corporation shall render such advisable.
9
<PAGE>
ARTICLE VIII
CONTRACTS, LOANS AND CHECKS
8.1 Execution of Contracts. Except as otherwise provided by statute or
by these Bylaws, the Board of Directors may authorize any officer or agent of
the corporation to enter into any contract, or execute and deliver any
instrument in the name of, and on behalf of the corporation. Such authority
may he general or confined to specific instances and, unless so authorized, no
officer, agent or employee shall have any power to bind the corporation for
any purpose, except as may be necessary to enable the corporation to carry on
its normal and ordinary course of business.
8.2 Loans. No loans shall be contracted on behalf of the corporation
and no negotiable paper shall be issued in its name unless authorized by the
Board of Directors. When so authorized, any officer or agent of the
corporation may effect loans and advances at any time for the corporation from
any bank, trust company or institution, firm, corporation or individual. An
agent so authorized may make and deliver promissory notes or other evidence of
indebtedness of the corporation and may mortgage, pledge, hypothecate or
transfer any real or personal property held by the corporation as security for
the payment of such loans. Such authority, in the Board of Directors'
discretion, may be general or confined to specific instances.
8.3 Checks. Checks, notes, drafts and demands for money or other
evidence of indebtedness issued in the name of the corporation shall be signed
by such person or persons as designated by the Board of Directors and in the
manner the Board of Directors prescribes.
8.4 Deposits. All funds of the corporation not otherwise employed shall
be deposited from time to time to the credit of the corporation in such banks,
trust companies or other depositories as the Board of Directors may select.
ARTICLE IX
FISCAL YEAR
The fiscal year of the corporation shall be the year adopted by
resolution of the Board of Directors.
ARTICLE X
CORPORATE SEAL
The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the corporation
and the state of incorporation and the words "CORPORATE SEAL".
ARTICLE XI
AMENDMENTS
These Bylaws may be altered, amended or repealed and new Bylaws may be
adopted by a majority of the Directors present at any meeting of the Board of
Directors of the corporation at which a quorum is present.
ARTICLE XII
EXECUTIVE COMMITTEE
12.1 Appointment. The Board of Directors by resolution adopted by a
majority of the full Board, may designate two or more of its members to
constitute an executive committee. The designation of such committee and the
delegation thereto of authority shall not operate to relieve the Board of
Directors, or any member thereof, of any responsibility imposed by law.
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<PAGE>
12.2 Authority. The executive committee, when the Board of Directors is
not in session shall have and may exercise all of the authority of the Board
of Directors except to the extent, if any, that such authority shall be
limited by the resolution appointing the executive committee and except also
that the executive committee shall not have the authority of the Board of
Directors in reference to amending the Articles of Incorporation, adopting a
plan of merger or consolidation, recommending to the shareholders the sale,
lease or other disposition of all or substantially all of the property and
assets of the corporation otherwise than in the usual and regular course of
its business, recommending to the shareholders a voluntary dissolution of the
corporation or a revocation thereof, or amending the Bylaws of the
corporation.
12.3 Tenure and Qualifications. Each member of the executive committee
shall hold office until the next regular annual meeting of the Board of
Directors following his designation.
12.4 Meetings. Regular meetings of the executive committee may be held
without notice at such time and places as the executive committee may fix from
time to time by resolution. Special meetings of the executive committee may
be called by any member thereof upon not less than one day's notice stating
the place, date and hour of the meeting, which notice may be written or oral,
and if mailed, shall be deemed to be delivered when deposited in the United
States mail addressed to the member of the executive committee at his business
address. Any member of the executive committee may waive notice of any
meeting and no notice of any meeting need be given to any member thereof who
attends in person. The notice of a meeting of the executive committee need
not state the business proposed to be transacted at the meeting.
12.5 Quorum. A majority of the members of the executive committee shall
constitute a quorum for the transaction of business at any meeting thereof,
and action of the executive committee must be authorized by the affirmative
vote of a majority of the members present at a meeting at which a quorum is
present.
12.6 Informal Action by Executive Committee. Any action required or
permitted to be taken by the executive committee at a meeting may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the members of the committee entitled to vote with
respect to the subject matter thereof.
12.7 Vacancies. Any vacancy in the executive committee may be filled by
a resolution adopted by a majority of the full Board of Directors.
12.8 Resignations and Removal. Any member of the executive committee may
be removed at any time with or without cause by resolution adopted by a
majority of the full Board of Directors. Any member of the executive
committee may resign from the executive committee at any time by giving
written notice to the President or Secretary of the corporation, and unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
12.9 Procedure. The executive committee shall elect a presiding officer
from its members and may fix its own rules of procedure which shall not be
inconsistent with these Bylaws. It shall keep regular minutes of its
proceedings and report the same to the Board of Directors for its information
at the meeting thereof held next after the proceedings shall have been taken.
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ARTICLE XIII
EMERGENCY BYLAWS
The Emergency Bylaws provided for in this Article shall be operative
during any emergency in the conduct of the business of the corporation
resulting from an attack on the United States or any nuclear or atomic
disaster, notwithstanding any different provision in the preceding articles of
the Bylaws or in the Articles of Incorporation of the corporation or in the
Colorado Business Corporation Act. To the extent not inconsistent with the
provisions of this Article, the Bylaws provided in the preceding articles
shall remain in effect during such emergency and upon its termination the
Emergency Bylaws shall cease to be operative.
During any such emergency:
(a) A meeting of the Board of Directors may be called by any
officer or director of the corporation. Notice of the time and place of the
meeting shall be given by the person calling the meeting to such of the
directors as it may be feasible to reach by any available means of
communication. Such notice shall be given at such time in advance of the
meeting as circumstances permit in the judgment of the person calling the
meeting.
(b) At any such meeting of the Board of Directors, a quorum shall
consist of the number of directors in attendance at such meeting.
(c) The Board of Directors, either before or during any such
emergency, may, effective in the emergency, change the principal office or
designate several alternative principal offices or regional offices, or
authorize the officers so to do.
(d) The Board of Directors, either before or during any such
emergency, may provide, and from time to time modify, lines of succession in
the event that during such an emergency any or all officers or agents of the
corporation shall for any reason be rendered incapable of discharging their
duties.
(e) No officer, director or employee acting in accordance with
these Emergency Bylaws shall be liable except for willful misconduct.
(f) These Emergency Bylaws shall be subject to repeal or change by
further action of the Board of Directors or by action of the shareholders, but
no such repeal or change shall modify the provisions of the next preceding
paragraph with regard to action taken prior to the time of such repeal or
change. Any amendment of these Emergency Bylaws may make any further or
different provision that may be practical and necessary for the circumstances
of the emergency.
CERTIFICATE
I hereby certify that the foregoing Bylaws constitute the Bylaws of SAN
Holdings, Inc., adopted by the Board of Directors of the Corporation as of
March 31, 2000.
/s/ Cory Coppage
Secretary
12
ARTICLES OF AMENDMENT TO
ARTICLES OF INCORPORATION
OF
CITADEL ENVIRONMENTAL GROUP, INC.
(SERIES AA CONVERTIBLE PREFERRED STOCK)
(INCREASING NUMBER OF DESIGNATED SHARES TO 2,700,000)
Pursuant to the requirements of Section 7-106-102 of the Colorado
Business Corporation Act, the undersigned Corporation submits the following
Articles of Amendment to Articles of Incorporation.
FIRST: The name of the Corporation is Citadel Environmental Group, Inc.
SECOND: The Articles of Incorporation of the Corporation are hereby
amended as follows:
"There is hereby established a series of Preferred Stock of the
Corporation designated "Series AA Convertible Preferred Stock." The number of
shares of this series of Preferred Stock shall be 2,700,000 shares. The
powers, designations, preferences and relative, participating, optional or
other special rights of the shares of this series of Preferred Stock and the
qualifications, limitations and restrictions of such preferences and rights
shall be as follows:
1. Dividend Provisions. No dividends shall be paid on any share of
Common Stock unless a dividend is paid with respect to all outstanding shares
of Series AA Convertible Preferred Stock in an amount for each such share of
Series AA Convertible Preferred aggregate amount of such dividends for all
shares of Common Stock into which each such share of Series AA Convertible
Preferred Stock could then be converted. Such dividends shall be payable only
when, as, and if declared payable to holders of Common Stock by the Board of
Directors and shall be noncumulative. In the event the Corporation shall
declare a distribution (other than any distribution described above) payable
in securities of other persons, evidences of indebtedness issued by the
Corporation or other persons, assets (excluding cash dividends) or options or
rights to purchase any such securities or evidences of indebtedness, then, in
each such case the holders of the Series AA Convertible Preferred Stock shall
be entitled to a proportionate share of any such distribution as though the
holders of the Series AA Convertible Preferred Stock were the holders of the
number of shares of Common Stock of the Corporation into which their
respective shares of Series AA Convertible Preferred Stock are convertible as
of the record date fixed for the determination of the holders of Common Stock
of the Corporation entitled to receive such distribution.
2. Liquidation Preference.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holder of
each share of Series AA Convertible Preferred Stock shall be entitled to
receive, out of the assets of the Corporation available for distribution to
its stockholders, before any payment or distribution shall be made on the
Common Stock, an amount per share equal to $1.50. If the assets and funds to
be distributed among the holders of the Series AA Convertible Preferred Stock
shall be insufficient to permit the payment of the full aforesaid preferential
amount to such holders, then the entire assets and funds of the Corporation
<PAGE>
legally available for the distribution shall be distributed among the holders
of the Series AA Convertible Preferred Stock in proportion to the aggregate
preferential amount of all shares of Series AA Convertible Preferred Stock
held by them. After payment has been made to the holders of the Series AA
Convertible Preferred Stock, the remaining assets of the Corporation available
for distribution to the holders of the Common Stock shall be distributed,
among the holders of the Series AA Convertible Preferred Stock and Common
Stock pro rata based on the number of shares of Common Stock held by each at
the time of such liquidation (assuming conversion of all such Series AA
Convertible Preferred Stock).
(b) For purposes of this Section 2, a merger or consolidation of
the Corporation with or into any other corporation or corporations, or the
merger of any other corporation or corporations into the Corporation, or the
sale or any other corporate reorganization, in which shareholders of the
Corporation receive distributions as a result of such consolidation, merger,
sale of assets or reorganization, shall be treated as a liquidation,
dissolution or winding up of the Corporation, unless the stockholders of the
Corporation hold more than fifty percent (50%) of the voting equity securities
of the successor or surviving corporation immediately following such
consolidation, merger, sale of assets or reorganization in which event such
consolidation, merger, sale of assets, or reorganization shall not be treated
as a liquidation, dissolution or winding up.
3. Conversion. The Series AA Convertible Preferred Stock may be
converted into shares of the Corporation's Common Stock on the following terms
and conditions (the "Conversion Rights"):
(a) Option to Convert. Commencing as soon as the Corporation has
sufficient authorized and unissued shares of its Common Stock available for
all outstanding shares of Series AA Convertible Preferred Stock to be
converted, holders of the Series AA Convertible Preferred Stock shall have the
right to convert all or a portion of their shares into shares of Common Stock
at any time or from time to time upon notice to the Corporation on the terms
and conditions set forth herein.
(b) Mechanics of Conversion. Upon the election of a holder of the
Series AA Convertible Preferred Stock to convert shares of such Preferred
Stock, the holder of the shares of Series AA Convertible Preferred Stock which
are converted shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or any authorized transfer agent
for such stock together with a written statement that he elects to convert his
preferred stock to common stock. The Corporation or the transfer agent shall
promptly issue and deliver at such office to such holder of Series AA
Convertible Preferred Stock a certificate or certificates for the number of
shares of Common Stock to which such holder is thereby entitled. The
effective date of such conversion shall be a date not later than 30 days after
the date upon which the holder provides written notice of his election to
convert to the Corporation or transfer agent.
(c) Conversion Ratio. Each share of Series AA Convertible
Preferred Stock may be converted into thirty-six (36) fully paid and
nonassessable shares of Common Stock (except as adjusted pursuant to paragraph
3(d) below). In the event that upon conversion of shares of Series AA
Convertible Preferred Stock a holder shall be entitled to a fraction of a
share of Common Stock, no fractional share shall be issued and in lieu thereof
the Corporation shall pay to the holder cash equal to the fair value of such
fraction of a share.
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<PAGE>
(d) Adjustment of Conversion Rate. If the Corporation shall at any
time, or from time to time, after the effective date hereof effect a reverse
stock split of the outstanding Common Stock, or if the Corporation at any time
or from time to time after the effective date hereof shall make or issue, or
fix a record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of
Common Stock, then and in each such event the number of shares of Common Stock
issuable upon conversion of the Series AA Convertible Preferred Stock shall be
proportionately adjusted as of the time of such issuance or, in the event such
a record date shall have been fixed, as of the close of business on such
record date.
(e) No Impairment. The Corporation will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed hereunder by the Corporation, but
will at all times in good faith assist in the carrying out of all of the
provisions of this Section 3 and in the taking of all such action as may be
necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series AA Convertible Preferred Stock against impairment.
(f) Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times use its best efforts to reserve and keep available out of
its authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of Series AA Convertible Preferred
Stock, such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of Series AA
Convertible Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the
conversion of all outstanding shares of Series AA Convertible Preferred Stock,
the Corporation will take such corporate action as is necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose.
4. Status of Converted or Reacquired Stock. In case any shares of
Series AA Convertible Preferred Stock shall be converted pursuant to Section 3
hereof, the shares so converted shall cease to be a part of the authorized
capital stock of the Corporation.
5. Voting Rights.
(a) Each share of Series AA Convertible Preferred Stock shall
entitles the holder to thirty-six (36) votes and with respect to each such
vote, a holder of shares of Series AA Convertible Preferred Stock shall have
full voting rights and powers equal to the voting rights and powers of a
holder of shares of Common Stock, share for share, and shall be entitled to
notice of any shareholders' meeting in accordance with the Bylaws of the
Corporation, and shall be entitled to vote with holders of Common Stock
together as a single class.
6. Notices. Any notice required to be given to holders of shares of
Series AA Convertible Preferred Stock shall be deemed given upon deposit in
the United States mail, postage prepaid, addressed to such holder of record at
his address appearing on the books of the Corporation, or upon personal
delivery of the aforementioned address.
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<PAGE>
THIRD: Such Amendment was duly adopted by the Board of Directors of the
Corporation on the 7th day of January 2000.
IN TESTIMONY WHEREOF, the undersigned Corporation has caused these
Articles of Amendment to the Articles of Incorporation to be signed by a duly
authorized officer and duly attested by another such officer, to be hereunto
affixed this 7th day of January 2000.
CITADEL ENVIRONMENTAL GROUP, INC.
By:/s/ Buck Buxton
Buck Buxton, President
ATTEST:
/s/ Cory J. Coppage
Cory J. Coppage, Secretary
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
I, Virginia M. Anglada, a Notary Public, hereby certify that on the 7th
day of January 2000, personally appeared before me Buck Buxton and Cory J.
Coppage, who being by me first duly sworn, declared that they signed the
foregoing document as President and Secretary, respectively, of the
corporation named therein and that they were above the age of eighteen years
and that the statements contained herein are true and correct to the best of
their knowledge and belief.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
/s/ Virginia M. Anglada
Notary Public
My Commission Expires: 4/21/2002
4
ARTICLES OF AMENDMENT TO
ARTICLES OF INCORPORATION
OF
CITADEL ENVIRONMENTAL GROUP, INC.
(SERIES BB CONVERTIBLE PREFERRED STOCK)
Pursuant to the requirements of Section 7-106-102 of the Colorado
Business Corporation Act, the undersigned Corporation submits the following
Articles of Amendment to Articles of Incorporation.
FIRST: The name of the Corporation is Citadel Environmental Group, Inc.
SECOND: The Articles of Incorporation of the Corporation are hereby
amended as follows:
"There is hereby established a series of Preferred Stock of the
Corporation designated "Series BB Convertible Preferred Stock." The number of
shares of this series of Preferred Stock shall be 4,000,000 shares. The
powers, designations, preferences and relative, participating, optional or
other special rights of the shares of this series of Preferred Stock and the
qualifications, limitations and restrictions of such preferences and rights
shall be as follows:
1. Dividend Provisions. No dividends shall be paid on any share of
Common Stock unless a dividend is paid with respect to all outstanding shares
of Series BB Convertible Preferred Stock in an amount for each such share of
Series BB Convertible Preferred Stock equal to the aggregate amount of such
dividends for all shares of Common Stock into which each such share of Series
BB Convertible Preferred Stock could then be converted. Such dividends shall
be payable only when, as, and if declared payable to holders of Common Stock
by the Board of Directors and shall be noncumulative. In the event the
Corporation shall declare a distribution (other than any distribution
described above) payable in securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, assets (excluding
cash dividends) or options or rights to purchase any such securities or
evidences of indebtedness, then, in each such case the holders of the Series
BB Convertible Preferred Stock shall be entitled to a proportionate share of
any such distribution as though the holders of the Series BB Convertible
Preferred Stock were the holders of the number of shares of Common Stock of
the Corporation into which their respective shares of Series BB Convertible
Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of the Corporation entitled to
receive such distribution.
2. Liquidation Preference.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holder of
each share of Series BB Convertible Preferred Stock shall be entitled to
receive, out of the assets of the Corporation available for distribution to
its stockholders, before any payment or distribution shall be made on the
Common Stock, an amount per share equal to $1.50. If the assets and funds to
be distributed among the holders of the Series BB Convertible Preferred Stock
shall be insufficient to permit the payment of the full aforesaid preferential
<PAGE>
amount to such holders, then the entire assets and funds of the Corporation
legally available for the distribution shall be distributed among the holders
of the Series BB Convertible Preferred Stock in proportion to the aggregate
preferential amount of all shares of Series BB Convertible Preferred Stock
held by them. After payment has been made to the holders of the Series BB
Convertible Preferred Stock, the remaining assets of the Corporation available
for distribution to the holders of the Common Stock shall be distributed,
among the holders of the Series BB Convertible Preferred Stock and Common
Stock pro rata based on the number of shares of Common Stock held by each at
the time of such liquidation (assuming conversion of all such Series BB
Convertible Preferred Stock).
(b) For purposes of this Section 2, a merger or consolidation of
the Corporation with or into any other corporation or corporations, or the
merger of any other corporation or corporations into the Corporation, or the
sale or any other corporate reorganization, in which shareholders of the
Corporation receive distributions as a result of such consolidation, merger,
sale of assets or reorganization, shall be treated as a liquidation,
dissolution or winding up of the Corporation, unless the stockholders of the
Corporation hold more than fifty percent (50%) of the voting equity securities
of the successor or surviving corporation immediately following such
consolidation, merger, sale of assets or reorganization in which event such
consolidation, merger, sale of assets, or reorganization shall not be treated
as a liquidation, dissolution or winding up.
3. Conversion. The Series BB Convertible Preferred Stock may be
converted into shares of the Corporation's Common Stock on the following terms
and conditions (the "Conversion Rights"):
(a) Option to Convert. Commencing as soon as the Corporation has
sufficient authorized and unissued shares of its Common Stock available for
all outstanding shares of Series BB Convertible Preferred Stock to be
converted, holders of the Series BB Convertible Preferred Stock shall have the
right to convert all or a portion of their shares into shares of Common Stock
at any time or from time to time upon notice to the Corporation on the terms
and conditions set forth herein.
(b) Mechanics of Conversion. Upon the election of a holder of the
Series BB Convertible Preferred Stock to convert shares of such Preferred
Stock, the holder of the shares of Series BB Convertible Preferred Stock which
are converted shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or any authorized transfer agent
for such stock together with a written statement that he elects to convert his
preferred stock to common stock. The Corporation or the transfer agent shall
promptly issue and deliver at such office to such holder of Series BB
Convertible Preferred Stock a certificate or certificates for the number of
shares of Common Stock to which such holder is thereby entitled. The
effective date of such conversion shall be a date not later than 30 days after
the date upon which the holder provides written notice of his election to
convert to the Corporation or transfer agent.
(c) Conversion Ratio. Each share of Series BB Convertible
Preferred Stock may be converted into thirty-six (36) fully paid and
nonassessable shares of Common Stock (except as adjusted pursuant to paragraph
3(d) below). In the event that upon conversion of shares of Series BB
Convertible Preferred Stock a holder shall be entitled to a fraction of a
share of Common Stock, no fractional share shall be issued and in lieu thereof
the Corporation shall pay to the holder cash equal to the fair value of such
fraction of a share.
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<PAGE>
(d) Adjustment of Conversion Rate. If the Corporation shall at any
time, or from time to time, after the effective date hereof effect a reverse
stock split of the outstanding Common Stock, or if the Corporation at any time
or from time to time after the effective date hereof shall make or issue, or
fix a record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of
Common Stock, then and in each such event the number of shares of Common Stock
issuable upon conversion of the Series BB Convertible Preferred Stock shall be
proportionately adjusted as of the time of such issuance or, in the event such
a record date shall have been fixed, as of the close of business on such
record date.
(e) No Impairment. The Corporation will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed hereunder by the Corporation, but
will at all times in good faith assist in the carrying out of all of the
provisions of this Section 3 and in the taking of all such action as may be
necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series BB Convertible Preferred Stock against impairment.
(f) Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times use its best efforts to reserve and keep available out of
its authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of Series BB Convertible Preferred
Stock, such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of Series BB
Convertible Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the
conversion of all outstanding shares of Series BB Convertible Preferred Stock,
the Corporation will take such corporate action as is necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose.
4. Status of Converted or Reacquired Stock. In case any shares of
Series BB Convertible Preferred Stock shall be converted pursuant to Section 3
hereof, the shares so converted shall cease to be a part of the authorized
capital stock of the Corporation.
5. Voting Rights.
(a) Each share of Series BB Convertible Preferred Stock shall
entitles the holder to thirty-six (36) votes and with respect to each such
vote, a holder of shares of Series BB Convertible Preferred Stock shall have
full voting rights and powers equal to the voting rights and powers of a
holder of shares of Common Stock, share for share, and shall be entitled to
notice of any shareholders' meeting in accordance with the Bylaws of the
Corporation, and shall be entitled to vote with holders of Common Stock
together as a single class.
6. Notices. Any notice required to be given to holders of shares of
Series BB Convertible Preferred Stock shall be deemed given upon deposit in
the United States mail, postage prepaid, addressed to such holder of record at
his address appearing on the books of the Corporation, or upon personal
delivery of the aforementioned address.
3
<PAGE>
<PAGE>
THIRD: Such Amendment was duly adopted by the Board of Directors of the
Corporation on the 22nd day of November 1999.
IN TESTIMONY WHEREOF, the undersigned Corporation has caused these
Articles of Amendment to the Articles of Incorporation to be signed by a duly
authorized officer and duly attested by another such officer, to be hereunto
affixed this 22nd day of November 1999.
CITADEL ENVIRONMENTAL GROUP, INC.
By:/s/ Louis F Coppage
Louis F. Coppage, President
ATTEST:
/s/ Cory J. Coppage
Cory J. Coppage, Secretary
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
I, Virginia M. Anglada, a Notary Public, hereby certify that on the 22nd
day of November 1999, personally appeared before me Louis J. Coppage and Cory
J. Coppage, who being by me first duly sworn, declared that they signed the
foregoing document as President and Secretary, respectively, of the
corporation named therein and that they were above the age of eighteen years
and that the statements contained herein are true and correct to the best of
their knowledge and belief.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
/s/ Virginia M. Anglada
Notary Public
My Commission Expires: 4/21/2002
4
ARTICLES OF AMENDMENT TO
ARTICLES OF INCORPORATION
OF
CITADEL ENVIRONMENTAL GROUP, INC.
(SERIES AAA CONVERTIBLE PREFERRED STOCK)
Pursuant to the requirements of Section 7-106-102 of the Colorado
Business Corporation Act, the undersigned Corporation submits the following
Articles of Amendment to Articles of Incorporation.
FIRST: The name of the Corporation is Citadel Environmental Group, Inc.
SECOND: The Articles of Incorporation of the Corporation are hereby
amended as follows:
"There is hereby established a series of Preferred Stock of the
Corporation designated "Series AAA Convertible Preferred Stock." The number
of shares of this series of Preferred Stock shall be 500,000 shares. The
powers, designations, preferences and relative, participating, optional or
other special rights of the shares of this series of Preferred Stock and the
qualifications, limitations and restrictions of such preferences and rights
shall be as follows:
1. Dividend Provisions. No dividends shall be paid on any share of
Common Stock unless a dividend is paid with respect to all outstanding shares
of Series AAA Convertible Preferred Stock in an amount for each such share of
Series AAA Convertible Preferred aggregate amount of such dividends for all
shares of Common Stock into which each such share of Series AAA Convertible
Preferred Stock could then be converted. Such dividends shall be payable only
when, as, and if declared payable to holders of Common Stock by the Board of
Directors and shall be noncumulative. In the event the Corporation shall
declare a distribution (other than any distribution described above) payable
in securities of other persons, evidences of indebtedness issued by the
Corporation or other persons, assets (excluding cash dividends) or options or
rights to purchase any such securities or evidences of indebtedness, then, in
each such case the holders of the Series AAA Convertible Preferred Stock shall
be entitled to a proportionate share of any such distribution as though the
holders of the Series AAA Convertible Preferred Stock were the holders of the
number of shares of Common Stock of the Corporation into which their
respective shares of Series AAA Convertible Preferred Stock are convertible as
of the record date fixed for the determination of the holders of Common Stock
of the Corporation entitled to receive such distribution.
2. Liquidation Preference.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holder of
each share of Series AAA Convertible Preferred Stock shall be entitled to
receive, out of the assets of the Corporation available for distribution to
its stockholders, before any payment or distribution shall be made on the
Common Stock, an amount per share equal to $3.00. If the assets and funds to
be distributed among the holders of the Series AAA Convertible Preferred Stock
shall be insufficient to permit the payment of the full aforesaid preferential
amount to such holders, then the entire assets and funds of the Corporation
legally available for the distribution shall be distributed among the holders
of the Series AAA Convertible Preferred Stock in proportion to the aggregate
<PAGE>
<PAGE>
preferential amount of all shares of Series AAA Convertible Preferred Stock
held by them. After payment has been made to the holders of the Series AAA
Convertible Preferred Stock, the remaining assets of the Corporation available
for distribution to the holders of the Common Stock shall be distributed,
among the holders of the Series AAA Convertible Preferred Stock and Common
Stock pro rata based on the number of shares of Common Stock held by each at
the time of such liquidation (assuming conversion of all such Series AAA
Convertible Preferred Stock).
(b) For purposes of this Section 2, a merger or consolidation of
the Corporation with or into any other corporation or corporations, or the
merger of any other corporation or corporations into the Corporation, or the
sale or any other corporate reorganization, in which shareholders of the
Corporation receive distributions as a result of such consolidation, merger,
sale of assets or reorganization, shall be treated as a liquidation,
dissolution or winding up of the Corporation, unless the stockholders of the
Corporation hold more than fifty percent (50%) of the voting equity securities
of the successor or surviving corporation immediately following such
consolidation, merger, sale of assets or reorganization in which event such
consolidation, merger, sale of assets, or reorganization shall not be treated
as a liquidation, dissolution or winding up.
3. Conversion. The Series AAA Convertible Preferred Stock may be
converted into shares of the Corporation's Common Stock on the following terms
and conditions (the "Conversion Rights"):
(a) Option to Convert. Commencing as soon as the Corporation has
sufficient authorized and unissued shares of its Common Stock available for
all outstanding shares of Series AAA Convertible Preferred Stock to be
converted, holders of the Series AAA Convertible Preferred Stock shall have
the right to convert all or a portion of their shares into shares of Common
Stock at any time or from time to time upon notice to the Corporation on the
terms and conditions set forth herein.
(b) Mechanics of Conversion. Upon the election of a holder of the
Series AAA Convertible Preferred Stock to convert shares of such Preferred
Stock, the holder of the shares of Series AAA Convertible Preferred Stock
which are converted shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the Corporation or any authorized transfer
agent for such stock together with a written statement that he elects to
convert his preferred stock to common stock. The Corporation or the transfer
agent shall promptly issue and deliver at such office to such holder of Series
AAA Convertible Preferred Stock a certificate or certificates for the number
of shares of Common Stock to which such holder is thereby entitled. The
effective date of such conversion shall be a date not later than 30 days after
the date upon which the holder provides written notice of his election to
convert to the Corporation or transfer agent.
(c) Conversion Ratio. Each share of Series AAA Convertible
Preferred Stock may be converted into thirty-six (36) fully paid and
nonassessable shares of Common Stock (except as adjusted pursuant to paragraph
3(d) below). In the event that upon conversion of shares of Series AAA
Convertible Preferred Stock a holder shall be entitled to a fraction of a
share of Common Stock, no fractional share shall be issued and in lieu thereof
the Corporation shall pay to the holder cash equal to the fair value of such
fraction of a share.
2
<PAGE>
<PAGE>
(d) Adjustment of Conversion Rate. If the Corporation shall at any
time, or from time to time, after the effective date hereof effect a reverse
stock split of the outstanding Common Stock, or if the Corporation at any time
or from time to time after the effective date hereof shall make or issue, or
fix a record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of
Common Stock, then and in each such event the number of shares of Common Stock
issuable upon conversion of the Series AAA Convertible Preferred Stock shall
be proportionately adjusted as of the time of such issuance or, in the event
such a record date shall have been fixed, as of the close of business on such
record date.
(e) No Impairment. The Corporation will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed hereunder by the Corporation, but
will at all times in good faith assist in the carrying out of all of the
provisions of this Section 3 and in the taking of all such action as may be
necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series AAA Convertible Preferred Stock against impairment.
(f) Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times use its best efforts to reserve and keep available out of
its authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of Series AAA Convertible Preferred
Stock, such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of Series AAA
Convertible Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the
conversion of all outstanding shares of Series AAA Convertible Preferred
Stock, the Corporation will take such corporate action as is necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
4. Status of Converted or Reacquired Stock. In case any shares of
Series AAA Convertible Preferred Stock shall be converted pursuant to Section
3 hereof, the shares so converted shall cease to be a part of the authorized
capital stock of the Corporation.
5. Voting Rights.
(a) Each share of Series AAA Convertible Preferred Stock shall
entitles the holder to thirty-six (36) votes and with respect to each such
vote, a holder of shares of Series AAA Convertible Preferred Stock shall have
full voting rights and powers equal to the voting rights and powers of a
holder of shares of Common Stock, share for share, and shall be entitled to
notice of any shareholders' meeting in accordance with the Bylaws of the
Corporation, and shall be entitled to vote with holders of Common Stock
together as a single class.
6. Notices. Any notice required to be given to holders of shares of
Series AAA Convertible Preferred Stock shall be deemed given upon deposit in
the United States mail, postage prepaid, addressed to such holder of record at
his address appearing on the books of the Corporation, or upon personal
delivery of the aforementioned address.
3
<PAGE>
<PAGE>
THIRD: Such Amendment was duly adopted by the Board of Directors of the
Corporation on the 10th day of January 2000.
IN TESTIMONY WHEREOF, the undersigned Corporation has caused these
Articles of Amendment to the Articles of Incorporation to be signed by a duly
authorized officer and duly attested by another such officer, to be hereunto
affixed this 10th day of January 2000.
CITADEL ENVIRONMENTAL GROUP, INC.
By:/s/ L. W. Buxton
L. W. Buxton, President
ATTEST:
/s/ Cory J. Coppage
Cory J. Coppage, Secretary
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
I, Virginia M. Anglada, a Notary Public, hereby certify that on the 10th
day of January 2000, personally appeared before me L. W. Buxton and Cory J.
Coppage, who being by me first duly sworn, declared that they signed the
foregoing document as President and Secretary, respectively, of the
corporation named therein and that they were above the age of eighteen years
and that the statements contained herein are true and correct to the best of
their knowledge and belief.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
/s/ Virginia M. Anglada
Notary Public
My Commission Expires: 4/21/2002
4
ARTICLES OF AMENDMENT TO THE
ARTICLES OF INCORPORATION OF
CITADEL ENVIRONMENTAL GROUP, INC.
CHANGING ITS NAME TO
SAN HOLDINGS, INC.
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned Corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the Corporation is CITADEL ENVIRONMENTAL GROUP, INC.
SECOND: The following amendment was adopted on February 1, 2000, by the
Board of Directors, and on March 1, 2000, by a vote of the Shareholders of the
Corporation, in the manner prescribed by the Colorado Business Corporation
Act. The number of shares voted for the amendment was sufficient for
approval.
The FIRST Article shall be amended to read as follows:
The name of the Corporation shall be SAN HOLDINGS, INC.
THIRD: The manner, if not set forth in such amendments, in which any
exchange, reclassification, or cancellation of issued shares provided for in
the amendments shall be effected, is as follows: Not applicable.
DATED: March 1, 2000.
CITADEL ENVIRONMENTAL GROUP, INC.
(Changing its name to
SAN HOLDINGS, INC.)
By:/s/ L. W. Buxton
L. W. Buxton, President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheets and statements of operations found on pages F-2 through F-4 of
the Company's Form 10-KSB for the fiscal year ended December 31, 1999, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,716
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,716
<PP&E> 27,671
<DEPRECIATION> 0
<TOTAL-ASSETS> 30,387
<CURRENT-LIABILITIES> 34,206
<BONDS> 0
0
873,250
<COMMON> 5,801,049
<OTHER-SE> (6,692,636)
<TOTAL-LIABILITY-AND-EQUITY> 30,387
<SALES> 0
<TOTAL-REVENUES> 60,327
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 391,967
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 104,309
<INCOME-PRETAX> (332,026)
<INCOME-TAX> 0
<INCOME-CONTINUING> (332,026)
<DISCONTINUED> 0
<EXTRAORDINARY> 544,410
<CHANGES> 0
<NET-INCOME> 212,384
<EPS-BASIC> .02
<EPS-DILUTED> 0
