U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________to_____________.
Commission file number 0-21998
K.L.S. ENVIRO RESOURCES, INC.
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(Exact name of small business issuer as specified in its charter)
Nevada 75-2460365
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State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3220 North Freeway, Fort Worth, Texas 76111
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(Address of principal executive offices) (Zip Code)
(817) 624-4844
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(Issuer's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) has 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 [ ]
Applicable only to corporate issuers:
As of February 13, 1997, the Registrant had outstanding 16,824,244 shares of
its common stock, par value $.0001.
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
K.L.S. ENVIRO RESOURCES, INC.
INDEX TO FINANCIAL INFORMATION
December 31, 1996
Page No.
--------
Consolidated Balance Sheet as of December 31, 1996
(unaudited) and September 30, 1996 (audited) 3
Consolidated Statements of Operations (unaudited)
for the Three Months Ended December 31, 1996 and 1995 4
Consolidated Statements of Cash Flows (unaudited) for
the Three Months Ended December 31, 1996 and 1995 5
Notes To Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
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K.L.S. Enviro Resources, Inc. and Subsidiarie
Consolidated Balance Sheets
December 31, 1996 (unaudited) and September 30, 1996 (audited)
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
-------------- --------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 2,800,590 $ 300,767
Accounts receivable-trade, net of allowance for
doubtful accounts of $123,402 831,203 1,050,371
Other receivables 13,908 13,274
Inventory 678,011 483,938
Prepaid expenses 288,144 5,975
-------------- --------------
Total current assets 4,611,856 1,854,325
Property, plant and equipment, net 3,050,763 2,604,510
Other assets
Intangible assets, net of accumulated amortization
$72,601 and $70,014, respectively 46,478 49,065
Deposits and other 20,694 20,777
-------------- --------------
Total other assets 67,172 69,842
Total assets $ 7,729,791 $ 4,528,677
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable-related parties $ 1,769,241 $ 1,988,622
Current maturities of long-term debt 71,777 114,219
Accounts payable 775,374 412,487
Accrued expenses and other current liabilities 148,412 188,628
Deferred revenues 29,036 -
-------------- --------------
Total current liabilities 2,793,840 2,703,956
Long-term Debt 258,308 270,995
-------------- --------------
Total liabilities 3,052,148 2,974,951
Shareholders' equity
Cumulative convertible preferred stock, Series A and B,
$.0001 par value: 1,000,000 shares authorized: 167,500
issued and outstanding, respectively: $5.00 stated value 10 10
Common stock, $.0001 par value; 50,000,000 shares authorized;
15,761,497 and 10,931,497 issued and outstanding, respectively 1,576 1,093
Additional paid-in capital 9,181,539 6,101,057
Accumulated deficit (4,462,769) (4,505,721)
Foreign currency translation adjustments (4,213) (4,213)
-------------- --------------
4,716,143 1,592,226
Treasury stock-common shares held in the treasury, at cost (38,500) (38,500)
-------------- --------------
Total shareholders' equity 4,677,643 1,553,726
-------------- --------------
Total liabilities and shareholders' equity $ 7,729,791 $ 4,528,677
============== ==============
The notes to Consolidated Financial Statements are an integral part of these statements
</TABLE>
3
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K.L.S. Enviro Resources, Inc. and Subsidiaries
Consolidated Statements of Operations
for the Three Months ended December 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Net sales and revenues
Drilling and repair services revenues $ 1,573,318 $ 780,368
Cost of drilling and repair services 727,126 428,303
-------------- --------------
Gross profit 846,192 352,065
Cost and expenses
Salaries, wages and related costs 135,874 116,188
Legal and professional fees 97,132 54,166
Rents 12,737 22,500
Repairs and maintenance 15,001 11,605
Taxes, licenses and permits 7,612 13,208
Advertising 1,816 4,384
Travel and lodging 46,630 15,953
Consulting 33,889 35,500
Exploration costs 40,740 30,906
Other operating expenses 229,279 72,227
Depreciation and amortization 95,549 68,705
-------------- --------------
Total cost and expenses 716,259 445,342
Income (loss) from operations 129,933 (93,277)
Other income (expenses)
Interest expense (77,953) (35,930)
Interest and other income, net 2,534 3,436
Gain on sale of investment securities - 51,515
Loss from foreign currency translation (4,063) (837)
-------------- --------------
Income (Loss) before income taxes 50,451 (75,093)
Income taxes - -
-------------- --------------
Income (Loss) from continuing operations 50,451 (75,093)
Discontinued operations - 6,115
-------------- --------------
Net income (loss) $ 50,451 $ (68,978)
============== ==============
Loss per weighted-average common share outstanding
Income (loss) from continuing operations $ 0.005 $ (0.008)
Loss from operations of discontinued segment - -
-------------- --------------
Net income (loss) $ 0.005 $ (0.008)
============== ==============
Weighted-average number of common shares outstanding 10,933,040 8,958,494
============== ==============
The Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
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K.L.S. Enviro Resources, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
for the Three Months ended December 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 50,453 $ (68,978)
Adjustments to reconcile net income (loss) to cash
used in operating activities:
Common stock for services 487 9,200
Depreciation and amortization 95,548 75,253
Gain on sale of marketable securities - (51,515)
Translation loss 4,213 837
Changes in:
Accounts and other receivables 215,819 (18,306)
Inventory (194,073) 49,486
Prepaid expenses (282,169) (6,635)
Others assets 65 (1,728)
Accounts payable 363,927 11,733
Accrued expenses (43,864) 2,475
Deferred revenue 22,623 22,163
-------------- --------------
Net cash provided by operating activities 233,029 23,985
Cash flows from investing activities:
Proceeds from sales of marketable securities - 197,911
Purchases of equipment (539,214) (85,416)
-------------- --------------
Net cash (used in) provided by investing activities (539,214) 112,495
-------------- --------------
Cash flows from financing activities:
Net change in bank notes - (97,085)
Principal payments on long-term debt (55,129) (30,280)
Net change in loans from related parties 50,619 (1,144)
Cash received from stock subscriptions and sales of common stock 2,810,478 -
-------------- --------------
Net cash provided by (used in) financing activities 2,805,968 (128,509)
-------------- --------------
Effect of exchange rate changes on cash 40 3
-------------- --------------
Increase in cash 2,499,823 7,974
Cash at beginning of period 300,767 174,479
-------------- --------------
Cash at end of period $ 2,800,590 $ 182,453
============== ==============
The Notes to Consolidated Financial Statements are an integral part of these Statements
</TABLE>
5
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K.L.S. ENVIRO RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
The accompanying unaudited consolidated financial statements of K.L.S. Enviro
Resources, Inc. and Subsidiaries (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, such unaudited financial statements do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. It is suggested that
these financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's September 30, 1996
audited financial statements.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments and elimination of material intercompany sales and
purchases necessary to present fairly the financial condition, results of
operations and cash flows for the Company for the interim periods presented,
have been included. Operating results for the three months ended December 31,
1996, are not necessarily indicative of the results that may be expected for
the year ending September 30, 1997.
Principles of Consolidation
The accompanying unaudited consolidated financial statements include all the
accounts K.L.S. Enviro Resources, Inc. and its six wholly-owned subsidiaries,
Dateline Drilling, Inc., K.L.S. Co., Inc., Kel-Lite Industries, Inc., Dateline
Internacional, S.A. de C. V., K.L.S. International, Inc., and Beloro, S.A. de
C.V. The operations of Kel-Lite Industries, Inc. were discontinued during
1996.
Note Payable
As of the fiscal year ended September 30, 1996 the Company had a note payable
to fonix Corporation ("fonix"), bearing interest at 12 percent, due on demand,
collateralized by all assets, except real estate, in the amount of $271,944.
On October 21, 1996 fonix loaned an additional $200,000 to the Company under
similar terms. On December 31, 1996 a shareholder of the Company purchased
$270,000 of the note and converted it to 900,000 shares of common stock at a
conversion rate of $.30 per share (see Capital Stock below). The balance of
the note to fonix was paid December 31, 1996 from the proceeds of the sale of
stock (see Capital Stock below).
Note Payable - Related Party
As of the fiscal year ended September 30, 1996 the Company had a note payable
to a shareholder, bearing interest at 12 percent, due on demand,
collateralized by all assets, except real estate, in the amount of $1,673,730.
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On October 16, 1996 the shareholder loaned an additional $100,000 to the
Company under similar terms. A payment was made by the Company to the
shareholder from the proceeds of the sale of stock (see Capital Stock below)
on December 31, 1996 reducing the balance to $1,727,591. This note was
substantially reduced by a payment on January 2, 1997 (see Subsequent Events
below).
Capital Stock
In December 1996, the Company sold 4,990,500 shares of common stock for
consideration of $0.80 per share pursuant to Regulation D of the Securities
Act of 1993.
On December 31, 1996 a shareholder purchased $270,000 of a demand note of the
Company from fonix. Also on December 31, 1996, the shareholder exercised the
conversion rights associated with such note, at an exchange rate of $0.30 per
share, to acquire 900,000 shares of common stock.
Subsequent Events
As of December 31, 1996, the Company was obligated to a shareholder in the
amount of $1,727,591 under the terms of a demand note, interest at 12 percent,
collateralized by all assets, except real estate. A payment was made on
January 2, 1997, reducing principal by $1,541,248 and paying then-accrued
interest of $1,152. The balance due the shareholder following this payment of
principal and interest was $185,191. The funds for such payment were obtained
from the sale of common stock (see Capital Stock above).
Income Per Common Share
Income per share of common stock is based on the weighted average number of
shares outstanding during the periods ended December 31, 1996 and 1995.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results Of Operations.
Results Of Operations
Three Months Ended December 31, 1996 Compared With Three Months Ended December
31, 1995
The Company's net income for the three months ended December 31, 1996
was approximately $50,500 as compared to a loss of approximately $69,000 for
the three months ended December 31, 1995. The profit is attributable to
increased revenues over the comparable period of the prior year, and a
reduction in the direct costs of drilling and repair services as a percentage
of revenue. Selling, general and administrative expenses have decreased over
the same comparable period of the prior year as a percentage of revenues.
Total revenues from continuing operations for the three months ended
December 31, 1996 were $1,573,318, an increase of $792,950 or approximately
102 percent, over the three months ended December 31, 1995. The increase in
revenues is primarily due to an increase in drilling services of $321,045 in
the U.S. and $437,458 in Mexico. The Company increased its drilling fleet
from five rigs to nine and added a machine shop division to its hydraulic
repair and fabrication operations during fiscal 1996. This contributed to the
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increased revenues during the first quarter of fiscal 1997, and the Company
anticipates increased drilling and repair service revenues for the remainder
of fiscal 1997. Four additional rigs are expected to be added in the second
quarter of fiscal 1997.
Total operating expenses from continuing operations increased by
approximately $570,000, or approximately 65 percent, to $1,443,385 for the
three months ended December 31, 1996, as compared to the three months ended
December 31, 1995. Revenues increased approximately 102 percent over the
comparable period. Direct costs of drilling and repair services were
$727,126, an increase of $298,823 over the comparable period of the prior
year. Selling, general and administrative expenses were $716,259, an increase
of $270,917 over the comparable period of the prior year. These expenses
decreased approximately 20 percent, when compared as a percentage of revenue
over the comparable period of fiscal 1996.
Mineral exploration expenditures are expensed as incurred. Expenditures
incurred on properties identified as having development potential are deferred
on a project basis until the viability of the project is determined. If a
project is abandoned, the accumulated costs are charged to operations in the
year in which the determination is made. Costs associated with economically
viable projects are capitalized and amortized over the estimated useful life.
There are no costs capitalized as of December 31, 1996 and 1995. Exploration
expenses were $40,740 and $30,906 for the three month periods ending December
31, 1996 and 1995, respectively.
Other net expenses increased $103,780 for the three months ended
December 31, 1996 over the comparable period of the prior year. Of this
amount, interest expense increased by $42,023 and gains from the sale of
marketable securities decreased $51,515.
Financial Condition
At December 31, 1996, the Company's current assets exceeded its current
liabilities by $1,818,016 as compared with current liabilities exceeding
current assets by $849,631 at September 30, 1996. The current ratio of assets
to liabilities was 1.65 at December 31, 1996 as compared with .69 at September
30, 1996. Current assets increased by $2,757,531 to $4,611,856 from September
30, 1996 to December 31, 1996. Current liabilities increased by $89,884
during the same period. The significant increase in working capital over this
period is primarily attributable to the sale of common stock in December 1996.
Total assets were $7,729,791 at December 31, 1996 as compared to
$4,528,677 at September 30, 1996. The increase of $3,201,114 is due to the
sale of stock described above and additions to fixed assets of $446,253,
primarily additions to the drill rig fleet and supporting equipment.
For the three-month period ended December 31, 1996, the Company
continued to have positive cash flow from operations. The Company anticipates
continual increases in revenues and cash flow from operations as it expands
its drill rig fleet for the balance of fiscal 1997. Four additional rigs with
support equipment are being acquired by purchase and in-house construction and
are expected to be available for operation by March 31, 1997. This will
increase the Company's fleet of drill rigs to thirteen. As the Company
continues to expand, it endeavors to maintain its positive cash flow from
8
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operations, although there can be no assurance of this. The Company is also
increasing its efforts to acquire mining properties, and it will continue to
need additional sources of funds in order to pursue gold exploration and
development and expand its drilling and repair services.
Forward-looking Statements and Certain Risk Factors
Statements which are not historical facts contained in this report are
forward-looking statements. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements. In order to
comply with the terms of the safe harbor, the Company cautions that a variety
of factors could cause the Company's actual results to differ materially from
anticipated results or other expectations expressed in this report. The
forward-looking statements contained in this Management's Discussion and
Analysis of Financial Condition and Results of Operations involve a number of
risks and uncertainties that could cause actual results to differ from
projected or anticipated results. Some of the risks and uncertainties are set
forth below. In addition, the risk factors discussed in Part I, Item 1
("Business") and in the "Management's Discussion and Analysis of Operations"
(Item 6) of the Company's recently filed annual report on Form 10-KSB for the
fiscal year ending September 30, 1996 may also affect actual operating
results, as could the following:
General Operations Risks
The Company has experienced and expects to continue to experience
significant fluctuations in its results of operations. Factors that affect
the Company's results of operations or that could cause actual results to
differ materially include, among others, the Company's ability to successfully
bid on new contracts, its ability to perform under contracts on a timely
basis, its access to suitable used or new equipment to fulfill contract
obligations, the ability to hire and retain skilled and properly trained
employees, industry conditions and world demand for precious metals, as well
as prices for such metals, the results of financing efforts and financial
market conditions and other factors discussed in the Form 10-KSB mentioned
above and the additional factors discussed below.
Foreign Operations Risks
The Company has recently expanded much of its operations to meet
increased demand for its services both inside and outside the United States.
There are numerous risks associated with conducting business in foreign
countries. The distance from corporate headquarters and the often remote
locations of drilling and mining sites in these foreign countries exacerbates
the difficulties discussed above. In addition, problems associated with
possible political risks, instability of local governments, safety of
personnel and equipment, the lack of spare parts or adequate service
assistance, the need for skilled labor and supervision, lack of infrastructure
and accessability to sources of power and other supplies necessary for
operations, high inflation and currency fluctuations which may erode
profitability levels, and the difficulty of obtaining and enforcing judgments
in foreign courts and under foreign legal systems that differ substantially
from the U.S., all add to the risk of foreign operations.
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Dependence on Precious Metals Mining Industry
The Company's operations are largely dependent upon the levels of
activity in precious metals exploration and development drilling. Such
activity levels are affected by trends in the precious metals industry and
precious metals prices. Historically, prices for precious metals have been
volatile and are subject to wide fluctuations in response to changes in the
supply of and demand for precious metals, market uncertainty and a variety of
political, economic and other factors beyond the control of the Company. The
Company cannot predict future price movements with any certainty. Any
prolonged reduction in precious metals prices, however, will depress the level
of exploration, development and production activity and result in a
corresponding decline in the demand for the Company's services and, therefore,
have a material adverse effect on the Company's revenues and profitability.
Competition
The contract drilling industry is a highly competitive and cyclical
business characterized by high capital and maintenance costs. Although
conditions in recent years in the precious metals mining industry have
precipitated consolidation of drilling industry participants, the Company
believes the competition for drilling contracts will continue to be intense
for the foreseeable future because of contractors' ability to move rigs from
areas of low activity and day rates to areas of greater activity and
relatively higher rates. In addition, there are a number of inactive rigs
that are being reactivated and upgraded, and additional rigs that could be
reactivated and upgraded, and new rigs that could be constructed, to meet an
increase in demand for drilling rigs in any given market. Such movement,
reactivation, new construction or a decrease in drilling activity in any major
market could depress rates and could adversely affect utilization of the
Company's rigs even in an environment of stronger precious metals prices.
Many of the Company's principal competitors are substantially larger, have
substantially greater resources and have spent considerably larger sums of
capital than the Company for equipment, including drill rigs, development and
operations. These factors may enable those competitors to better withstand
industry downturns, compete on the basis of price, build new rigs or acquire
existing rigs that become available for purchase.
Risk of Upgrade and Refurbishment of Drill Rigs
In connection with its plans to increase its fleet of drill rigs and the
upgrade and refurbishment of existing drill rigs and other rigs that the
Company may acquire in the future, the Company expects to make substantial
completion, upgrade and refurbishment capital expenditures. Such projects are
subject to the risks of delay or cost overruns inherent in any large
reconstruction project, including shortages of materials or skilled labor,
unforeseen engineering problems, latent damage to current equipment, work
stoppages and unanticipated cost increases. Significant cost overruns or
delays would adversely affect the Company's financial condition and results of
operation.
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As a result of the foregoing and other factors, there can be no
assurance that the Company will not experience material fluctuations in future
operating results on a quarterly or annual basis which would materially and
adversely affect the Company's business, financial condition and results of
operation.
Risk of Potential Conflicts of Interest
Three of the nine members of the Company's board of directors are also
indirect owners of and control a significant shareholder of the Company and a
corporation providing management and strategic planning services to the
Company. In addition, these three persons and two other members of the board
of directors sit on the board of directors of another public company in an
unrelated industry. The acting CFO of the Company is also the CFO of the other
public company.
Such associations and relationships may give rise to conflicts of
interest from time to time. If any such conflict does arise, the policy
of the Company, consistent with Section 78.140 of the Nevada Revised Statutes,
requires that the director who has a conflict will disclose the same to a
meeting of the directors of the Company and will abstain from voting for or
against approval of any matter in which such director may have a conflict.
Notwithstanding the adoption of such a policy, there can be no assurance that
all possible conflicts of interest will be identified and appropriately
resolved.
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PART II - OTHER INFORMATION
Item 2. Changes In Securities
(c) Recent Sales of Unregistered Securities.
In November and December 1996, the Company undertook a private placement
of its common stock to accredited investors as that term is defined in Item
501 of Regulation D under the Securities Act of 1933, as amended (the
"Securities Act"). The shares were sold pursuant to exemptions from the
registration requirements of the Securities Act afforded to such offers and
sales under Sections 3(b) and 4(2) of the Securities Act and Regulation D,
promulgated under the Securities Act. A total of 4,990,500 shares were sold
to approximately 19 accredited investors at $.80 per share. Gross proceeds of
the offering were $3,992,400. The Company paid a commission fee in stock and
cash totaling 10 percent of $3,142,000 of the proceeds to an unrelated
consulting firm, in connection with its efforts in assisting the Company in
placing some of the securities in the private offering. The Company also
agreed to pay Studdert Companies Corp., a Utah corporation ("SCC") owned and
controlled by Messrs. Studdert, Murdock and Dudley, each of whom is a director
of the Company, a fee of $250,000 for its services in structuring the offering.
The shares sold in the offering are "restricted" shares as defined by
the Securities Act, meaning that they cannot be resold by the original
purchasers unless they are first the subject of a registration statement filed
by the Company or an exemption from registration is available for the
transaction in which they are sold. The Company has agreed to register the
shares issued in the private placement under certain circumstances at its own
expense. At the time of the offering, the average bid price for the Company's
common stock in the public market was $1.00 per share. The proceeds of this
offering were used to acquire additional drill rigs and parts and inventory
relating to new and existing drill rigs, for operating capital and to pay a
portion of the loan balance due SMD as described above.
Item 5. Other Information.
In December 1996, after the end of the period that is the subject of
this report, the Company entered into a management services agreement with SCC.
Under this agreement, which was made effective as of October 1, 1996, SCC
will receive a monthly management fee of $50,000 and will provide investment
banking, investor relations, financial management and strategic planning
services for the Company for a term of five years. Fees payable to SCC for
the quarter ended December 31, 1996 totaled $150,000. The management services
agreement also provides for reimbursement of expenses incurred by SCC since
June 1996 in connection with services rendered to the Company and for similar
treatment of expenses incurred during the term of the agreement. The
management services agreement further provides that amounts payable by the
Company to SCC may be paid in cash, in stock of the Company or by a combination
of stock and cash, subject to the agreement of SCC and the Executive Committee
of the Company's Board of Directors. In the event such amounts are paid in
common stock, the conversion rate of such fees payable into shares of common
stock shall be the average closing bid price as quoted by the OTC Electronic
Bulletin Board for the month in which the fee is earned. To the extent the
Company issues to SCC restricted stock under the management agreement, such
shares will be subject to piggyback registration rights in favor of SCC.
12
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Item 6. Exhibits And Reports On Form 8-K.
(a) Exhibits.
The following materials are filed as exhibits to this report:
Exhibit No. Description
------------- -------------------------
10 Management Services Agreement by and between the
Company and Studdert Companies Corp., a Utah
corporation, effective as of October 1, 1996,
with exhibit
(b) Reports on Form 8-K.
During the quarter for which this report is filed, the Company
filed no report on Form 8-K.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act Of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
K.L.S. ENVIRO RESOURCES, INC.
Date: February 14, 1997 By: /s/ Raymond H. Kurzon
---------------------------------
Raymond H. Kurzon, President/CEO
Date: February 14, 1997 By: /s/ Roger D. Dudley
---------------------------------
Roger D. Dudley, Acting Chief
Financial Officer
14
AGREEMENT
THIS AGREEMENT effective October 1, 1996 is made by and between Studdert
Companies Corp., a Utah Corporation ("SCC") and K.L.S Enviro Resources, Inc., a
Nevada Corporation, ("KLSE"). Individually SCC or KLSE may be referred to
hereafter as Party and collectively as Parties.
RECITALS:
A. KLSE has received important and valuable investment banking, investor
relations, management, business and strategy development and marketing services
from SCC, commencing May 1996; and
B. The parent of SCC, SMD, L.L.C., a Utah limited liability company, and
the principals of SCC are shareholders of KLSE, and the SCC principals have
agreed to serve as officers and/or directors of KLSE; and
C. SCC has substantial experience advising development stage companies
concerning financial management, capital raising, investor relations, business
and strategy development and is willing to continue to devote its expertise to
assist KLSE; and
D. KLSE desires to engage SCC on an exclusive basis to continue to
provide its services on the terms and conditions set forth herein.
AGREEMENT:
Accordingly, the Parties agree as follows:
1. Duties of SCC. SCC will make available investment banking, investor
relations, financial management and business and strategy development services
to KLSE on an exclusive basis as follows:
a. Investment Banking Services. The investment banking
services to be made available by SCC to KLSE shall consist of the following:
i. Consultation and advice regarding corporate mergers,
acquisitions and dispositions and the purchase, lease or other form
of transaction whereby KLSE proposes to acquire an interest in or
other rights to precious mineral mining properties, leases or
concessions.
ii. Consultation, advice and investment banking services in
connection with any debt or equity offering of the securities of
KLSE; and
iii. The restructuring, workout or reorganization of any
debt or obligation of a similar character of KLSE to any third
person.
b. Investor Relations. The investor relations services to be made
available to KLSE by SCC hereunder shall consist of the following:
i. Strategic public relations counseling, including
periodic planning meetings;
ii. Formulating a public relations plan tailored to
fulfill KLSE's business and marketing objectives, and to
compliment marketing strategies and tactics;
iii. Preparing and managing for KLSE national trade
media communications including, but not limited to, press
kits, news releases, feature articles, and other relevant
information;
iv. Negotiating news, editorial and product case study
placements with trade and business media;
v. Coordinating ongoing analyst communications;
vi. Coordinating ongoing investor media
communications;
vii. Ghostwriting bylined articles for local business
and trade publications;
viii. Managing a press clipping file;
ix. Scheduling and managing press and analyst tours;
x. Staging and conducting meetings and special events,
such as press conferences;
xi. Traveling on KLSE's behalf to attend trade shows
and scheduling editor meetings with KLSE or staff members of
KLSE; and
xii. Other public relations services as defined by SCC
and KLSE at regular planning meetings.
c. Financial Management Services. The financial management
services to be made available to KLSE by SCC hereunder shall
consist of the following:
i. Assistance with the preparation and filing of all
reports required under federal securities laws;
ii. Assistance with cash managment and budgeting
procedures; and
iii. Provision of functions normally associated with
the office of chief financial officer.
d. Business Strategy and Development Services. The Business
strategy and development services provided by SCC shall
consist of the following:
i. Consultation, analysis, advice and concerning
long term corporate business strategies and
business development; and
ii. Facilitation of KLSE's development of potential
exploratory mineral drilling clients, with
particular emphasis in Africa; and
iii. Facilitation of KLSE's attainment of
concessions for precious mineral exploration,
with particular emphasis in Africa.
2. SCC Compensation. SCC shall receive a monthly fee of $50,000 to be
paid in cash or shares of the common stock of KLSE, par value $.0001 per share
(the "Compensation Shares") or a combination of both, as is mutually agreed by
the Executive Committee of the Board of Directors of KLSE and SCC. If
Compensation Shares are paid to SCC as compensation, they shall be valued at
the average closing bid price as reported by the OTC Electronic Bulletin Board
or such other exchange on which the shares of KLSE common stock are then listed
for the month in which the fee is earned. If KLSE shall have available to it
shares of its common stock which have been registered on a currently effective
Registration Statement under the Securities Act of 1933, as amended (the
"Securities Act"), such shares shall be issued to SCC as Compensation Shares.
If KLSE does not have shares registered under the Securities Act available for
issuance to SCC as compensation shares, KLSE shall issue Compensation Shares to
SCC as restricted common stock, subject to the terms and condition of a
Registrations Rights Agreement between the Parties, a copy of which is attached
as Exhibit A. A condition precedent to KLSE's obligation to issue the
Compensation Shares under this Agreement shall be the completion and return to
KLSE of a Subscription Agreement substantially in the form attached hereto as
Exhibit B and the acceptance by KLSE of that Subscription Agreement after KLSE
and its securities counsel have reviewed the completed Subscription Agreement
and have concluded that the issuance of the Compensation Shares will not result
in the violation of applicable federal and state securities laws. All costs of
registration of KLSE shares shall be borne by KLSE.
3. SCC Expenses. KLSE will pay all direct costs and expenses of SCC
incurred in connection with any services provided under this Agreement,
including, but not limited to salary and direct overhead of SCC employees
and/or independent contractors providing investment banking, investor
relations, financial management and business and strategy development, approved
business travel, meals and lodging and related expenses, postage, express mail
and delivery charges, telephone, computer and fax expenses, and entertainment
of editors, analysts and other parties whom SCC may entertain. When SCC
utilizes the services of an outside supplier, SCC will negotiate a contract
between said supplier and KLSE, such that KLSE will be invoiced directly by the
supplier without markup. SCC will not be held liable for costs incurred by
KLSE with such supplier.
4. Other Engagements. KLSE understands and acknowledges that SCC
provides similar services to other entities as part of SCC's business
operations. SCC shall only be required to devote the time and resources to the
business and affairs of KLSE that it, in its sole discretion, deems necessary
to discharge SCC's duties under this Agreement.
5. Provision of Information Concerning KLSE. KLSE shall make all of its
books and records available to the SCC and shall provide SCC with access to any
and all officers, directors, employees, agents and representatives of KLSE as
SCC may request for the purpose of providing the services under this Agreement.
KLSE hereby represents, warrants and covenants that it will keep SCC fully
informed of all material KLSE plans developments and business opportunities,
and that all such information will be true, and will not omit any information
necessary, in light of the information provided, to render such information not
misleading.
6. Confidentiality. SCC acknowledges that, in and as result of its
entry into this Agreement, it will be provided access to confidential
information of a special and unique nature and value relating to such matters
as KLSE's trade secrets, systems, procedures, manuals, confidential reports and
lists of customers, clients and lenders. Consequently, as a material
inducement to KLSE to enter into this Agreement, SCC hereby covenants and
agrees that it shall not, at any time during or following the term of this
Agreement, directly or indirectly, personally use, divulge or disclose, for any
purpose whatsoever, any of such confidential information which has been
obtained by or is disclosed to it as a result of its relationship with the
KLSE, or KLSE's affiliates, for any reason or purpose outside of SCC's usual
business activities as defined hereunder. In the event of a breach or
threatened breach by SCC of this Section 6, and in addition to and not in
limitation of any other rights, remedies or damages available to KLSE, whether
at law or in equity, KLSE shall be entitled to a permanent injunction in order
to prevent or restrain any such breach by SCC or by SCC's shareholders
officers, agents, representatives, servants, employees, affiliates and/or any
and all persons directly or indirectly acting for or with it. Nothing here in
shall be construed as prohibiting KLSE from pursuing any other remedies
available to KLSE for actual breach of this section, including the recovery of
damage from SCC. The covenants made by SCC in this section shall survive the
expiration or termination of this Agreement.
7. Indemnification. By KLSE. KLSE agrees to indemnify and hold
harmless SCC and each person who controls SCC within the meaning of Section 15
of the Securities Act against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them may become subject
under the Securities Act or any other statute or at common law and to reimburse
such persons indemnified above for any legal or other expense (including the
cost of any investigation and preparation) incurred by them in connection with
any litigation, whether or not resulting in any liability, but only insofar as
such losses, claims, damages, liabilities and litigation arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
contained in any document or filing made by KLSE in connection with state or
federal securities laws or any amendment thereto or any application or other
document provided by KLSE to SCC or otherwise used for the purpose of
soliciting an investment in KLSE or used to perform any of the services
provided by SCC under this Agreement, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that this indemnity agreement
contained in this section shall not apply to amounts paid in settlement of any
such litigation if such settlements are effected without the consent of KLSE,
nor shall it apply to SCC, or any person controlling SCC in respect of any such
losses, claims, damages, liabilities or actions arising out of or based upon
any such untrue statement or alleged untrue statement, or any such omission or
alleged omission, if such statement or omission was made in reliance upon
information peculiarly within the knowledge of SCC and furnished in writing to
KLSE by SCC, specifically for use in connection with the preparation of any
filing or document created to comply in whole or in part with state or federal
securities laws or any amendment or supplement thereto. This indemnity
agreement is in addition to any other liability which KLSE may otherwise have
to SCC. SCC agrees, promptly after the receipt by it of written notice of the
commencement of any action against it or against any person controlling it as
aforesaid, in respect of which indemnity may be sought from KLSE on account of
this indemnity agreement contained in this Section, to notify KLSE in writing
of the commencement thereof. The omission of SCC so to promptly notify KLSE of
any such action shall relieve KLSE from any liability which it may have to SCC
or any person controlling them as aforesaid on account of the indemnity
agreement contained in this Section, but only if and to the extent that KLSE
did not otherwise have knowledge of the commencement of the action and KLSE's
ability to defend against the action was prejudiced by such failure; provided,
however, that no failure to give notice shall relieve KLSE from any other
liability which it may have to SCC, or such controlling person. In case any
such action shall be brought against SCC, or any such controlling person and
SCC shall notify KLSE of the commencement thereof, KLSE shall be entitled to
participate in (and to the extent that it shall wish, to direct) the defense
thereof at its own expense, but such defense shall be conducted by counsel
satisfactory to SCC or such controlling person or persons, defendant or
defendants in such litigation. KLSE agrees to notify SCC promptly of
commencement of any litigation or proceeding against it or any of its officers
or directors, of which it may be advised, in connection with the issue and sale
of any of its securities, and to furnish to SCC, at its request, copies of all
pleadings therein and permit SCC to be an observer therein and apprise SCC of
all developments therein, all at KLSE's expense.
B. By SCC. SCC agrees in the same manner and to the extent as set
forth in above, to indemnify and hold harmless KLSE, the directors of KLSE and
each person, if any, who controls KLSE within the meaning of Section 15 of the
Securities Act with respect to any statement in or omission from any filing or
document created to comply in full or in part with any state or federal
securities law or any amendment therein, if such statement or omission was made
in reliance upon information peculiarly within SCC's knowledge and furnished in
writing to KLSE by SCC on its behalf specifically for use in connection with
the preparation thereof or supplement thereto with respect to any untrue
statement or alleged untrue statement of a material fact made by SCC, or any
agent or employee of SCC resulting from the omission of material facts which
misleading statement is not based upon information furnished in writing by
KLSE. This indemnity agreement is in addition to any other liability which SCC
may otherwise have to KLSE. SCC shall not be liable for amounts paid in
settlement of any such litigation if such settlement was effected without its
consent. In case of commencement of any action in respect of which indemnity
may be sought from SCC on account of the indemnity agreement contained in this
Section, each person agreed to be indemnified by SCC shall have the same
obligation to notify SCC as SCC has toward KLSE in this Section, subject to the
same loss of indemnity in the event such notice is not given, and SCC shall
have the same right to participate in (and, to the extent that it shall wish,
to direct) the defense of such action at its own expense, but such defense
shall be conducted by counsel satisfactory to KLSE. SCC agrees to notify KLSE
promptly of the commencement of any litigation or proceeding against it or
against any such controlling person, of which it may be advised, in connection
with the issue and sale of any of the securities of KLSE, and to furnish to
KLSE at its request copies of all pleadings therein and permit KLSE to be an
observer therein and apprise it of all the developments therein, all at SCC's
expense.
8. Term. The initial term of this Agreement shall be five years from
the effective date hereof.
9. Termination for Market Conditions. This Agreement may be terminated
by SCC by thirty (30) days advance written notice to KLSE at any time if, in
the judgment of SCC, the conditions of the market (either generally or with
reference to the sale of securities offered by KLSE) or the condition of any
matter affecting KLSE or any other circumstances is such that it would be
undesirable, impracticable or inadvisable in the sole judgment of SCC to
proceed with this Agreement.
Any termination of this Agreement pursuant to this Section 9 shall (i)
not relieve or discharge KLSE of its obligations under Sections 2 and 3 hereof
through the actual date of termination of this Agreement pursuant to any notice
given under this Section 9 and (ii) be without liability of any character
(including, but not limited to, loss of anticipated profits or consequential
damages) on the part of any party thereto, except KLSE and SCC shall remain
obligated to pay, respectively any losses, claims, damages or liabilities,
joint or several, under Section 7.
10. Representations and Warranties of SCC. As an inducement to, and
with the intent that KLSE rely on the accuracy thereof, SCC represents and
warrants as follows:
a. Organization. SCC is a corporation organized, existing and in good
standing under the laws of the State of Utah.
b. Governmental Authorizations. SCC is not required to obtain
authorization, approval, consent or order of, or make a registration or filing,
with any court or governmental body in connection with the execution and
delivery by SCC of this Agreement and the consumption by SCC of the
transactions contemplated by this Agreement.
c. Restrictions; Limitations. SCC is under no obligation or
restriction which would in any way interfere or be inconsistent with, or
present a conflict of interest concerning, the services to be furnished to KLSE
under this agreement. SCC will not enter into such obligation or restriction
prior to the termination of this Agreement.
d. Broker-Dealer Licensing. SCC is not licensed or registered as a
broker-dealer.
11. Representations and Warranties of KLSE. As an inducement to, and with
the intent that KLSE rely on the accuracy thereof, SCC represents and warrants
as follows:
a. Governmental Authorizations. KLSE is not required to obtain
authorization, approval, consent or order of, or make a registration or filing,
with any court or governmental body in connection with the execution and
delivery by KLSE of this Agreement and the consummation by KLSE of the
transactions contemplated by this Agreement.
b. Organization. KLSE is a corporation organized, existing and in
good standing under the laws of the State of Nevada.
c. Financial Statements. The financial statements of KLSE, previously
provided to SCC and to be provided in the future, together with related noted
as set forth therein, have and will present fairly the financial condition of
KLSE and have been prepared by an independent certified public accountant
within the meaning of the Securities Act and in accordance with generally
accepted accounting principles consistently applied throughout the period
concerned except as otherwise stated therein.
12. Ownership.All slogans and publicity materials developed by SCC for KLSE
during the term of this Agreement shall be KLSE's sole and exclusive property.
13. KLSE Covenants Regarding Investment Banking Matters. KLSE covenants and
agrees with SCC that:
a. Use of Offering Materials. Following the date of this Agreement,
KLSE will not use any offering materials or supplement or amend any such
materials unless and until a copy of such materials, as amended or
supplemented, shall first be furnished to SCC within a reasonable time period
prior to the proposed use thereof, or of which SCC or counsel for SCC has
reasonably objected, in writing, on the ground that such materials are not in
compliance with the Act or the Rules and Regulations thereunder;
b. Public Filings. KLSE, at its own expense, will timely prepare and
give and will continue to give such financial statements and other information
to and as may be required by the Securities and Exchange Commission ( the
"Commission" the proper public bodies of the states in which the common stock of
KLSE may be qualified; and
c. Delivery of Reports and Filings. During the three (3) years
following the offer and sale of any KLSE common stock, KLSE will deliver to SCC
copies of all reports, other communications and financial statements furnished
to its stockholders and delivery to SCC, as soon as available all reports and
financial statements furnished to or filed with the Commission and, as soon as
practicable and to the extent KLSE has Knowlwdge of such inforamation, every
press release and every material news item and article in respect of KLSE or
their affairs nad such additional information concerning the buisness and
financial of KLSE as SCC may from time to time reasonably request.
14. General Conditions. The following provisions are also a material
part of this Agreement:
a. Notices. All notices, demands or other written communications
hereunder shall be in writing and unless otherwise provided, shall be
deemed to be duly given on the first business day after mailing by the
United States registered via certified mail return receipt requested,
postage pre-paid, addressed as follows:
If to SCC, to
Thomas A. Murdock, President
Studdert Companies, Corp.
60 East South Temple Street, Suite 1225
Salt Lake City, Utah 84111
If to KLSE, to
Raymond H. Kurzon, President
K.L.S. Enviro Resources, Inc.
3220 North Freeway, Suite 105
Ft Worth, Texas 76111
In each case with copies to such other address or to such other persons as
either parties shall designate for such purposes in the matter herein above set
forth. Either party may designate another address for such notice by written
notice to the other.
b. Amendment. No modification, waiver, amendment, discharge or change
of this Agreement shall be valid unless the same is in writing and signed by
both parties hereto.
c. Entire Agreement. This instrument together with the instruments
referred to herein, contains all of the understandings and agreements of the
Parties with respect to the subject matter discussed herein. All prior
agreements, whether written or oral, are merged herein and shall be of no force
or effect whatsoever.
c. Survival. Several representations, warrants and covenants of the
Parties contained herein shall survive the execution hereof and shall be
effective regardless of any investigation that may have been made or may be
made by or on behalf of any party.
d. Severability. If any provision or any portion of any provision of
this Agreement, other than a conditioned precedent, if any, or the application
of such provision or any portion thereof to any person or circumstance shall be
held invalid or unenforceable, the remaining provision of this Agreement or the
application of such provisional portion of such provision as is held invalid or
unenforceable to persons or circumstances other than those two which it is held
invalid or unenforceable shall not be affected thereby.
e. Governing Law. This agreement shall be construed in accordance with
the laws of the State of Utah and any proceeding arising between the Parties in
any manner pertaining to this agreement shall, to the extent permitted by law,
be held in Salt Lake County, Utah.
f. Attorneys Fees. In the event that any party prevails in any action
or suit brought to enforce any of the terms of this agreement or to obtain
relief for any default under any of the term hereof, the non-prevailing party
shall be reliable to the prevailing party for all costs, including reasonable
attorney's fees, incurred in connection with such suit.
g. Binding Agreement. The terms and provisions of this agreement shall
be binding upon and inure to benefit of the Parties, their heirs, successors,
assigns, and personal representatives.
f. Captions. The captions in the Agreement are for convenience and
reference purposes only, in no way defined, described, extend or limit the
scope of this Agreement or the intent of any of the provisions hereof.
g. Number and Gender. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine, neuter, singular or pleural, as the
identity of the party or parties or their personal representatives, successors
and assigns may require.
h. Further Assurances. The parties hereby agree to do, execute,
acknowledge and deliver or cause to be done, executed or acknowledged and
deliver and to perform all such acts and deliver all such deeds, assignments,
transfers, conveyances, powers of attorney, assurances, stock transfers, stock
certificates and other documents as may, from time to time be required to
affect the intent and purpose of this Agreement.
i. Status. Nothing in this Agreement shall be construed to establish a
partnership, joint venture, employer-employee relationship, or lesser-lessee
relationship, but rather, the relationship established pursuant hereto is that
of principal and independent contractors/agent.
j. Counterparts. This agreement may be executed in any number of
counterparts, all of which together shall constitute one original
notwithstanding that all signatories are not signatories to the original or the
same counterpart.
k. Recitals. The recitals are incorporated by reference.
IN WITNESS WHEREOF, the parties have executed this agreement effective as of
the day and date first above written.
SCC:
STUDDERT COMPANIES CORP
By: /s/ Thomas A. Murdock
---------------------------------
Its: President
----------------------
KLSE:
K.L.S ENVIRO RESOURCES, INC.
By: /s/ Raymond H. Kurzon
----------------------------------
Its: President and CEO
-----------------------
<PAGE>
Exhibit A
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT ("Agreement") between K.L.S. Enviro
Resources, Inc., a Nevada corporation (the "Company"), and Studdert Companies
Corp., a Utah corporation ("Holder").
Recitals
A. The Company and Holder have entered into an Agreement (the "January
1997 Agreement") of even date whereby the Company may issue to Holder shares of
its common stock.
B. Upon the issuance of shares of the Company's common stock upon to
SCC, such shares may be unregistered and restricted.
C. Holder would not have agreed to enter into the January 1997
Agreement unless the Company had agreed to enter into this Agreement.
Agreement
In consideration of the promises contained in this Agreement and in the
Notes, and for other good and valuable consideration, the receipt and
sufficiency of which the parties acknowledge by their signatures below, the
Company and Holder agree as follows:
1. Piggyback Registrations. If the Company at any time proposes to
file a registration statement covering proposed sales by it or any of its
shareholders of shares of its capital stock in a manner which would permit
registration of shares of common stock for sale to the public (other than a
registration statement (i) covering only shares issuable upon the exercise of
employee stock options or pursuant to an employee stock purchase, dividend
reinvestment or similar plan, (ii) on Form S-4 or S-8 or any similar form) under
the U.S. Securities Act of 1933, as amended (the "Act"), (iii) in connection
with a registered public offering of the Company's capital stock, or (iv)
pursuant to Section 2 hereof, the Company will give prompt notice to Holder of
such proposed registration (which notice shall describe the proposed filing date
and the date by which the registration rights granted pursuant to this Section
1 must be exercised, the nature and method of any such sale or disposition of
securities and shall include a listing of the jurisdictions, if any, in which
the Company proposes to register or qualify the securities under the applicable
state securities or "Blue Sky" laws of such jurisdictions). At the request of
Holder given within thirty (30) calendar days after the receipt of such notice
by Holder (which request shall specify the number of shares Holder requests to
be included in such registration), the Company will use its best efforts to
cause all shares as to which registration has been requested by Holder to be
included in such registration statement for sale or disposition in accordance
with the method described in the initial notice given to Holder and subject to
the same terms and conditions as the other shares of capital stock being sold,
and thereafter shall cause such registration statement to be filed and become
effective; provided, however, that the Company shall be permitted to (A)
withdraw the registration statement for any reason in its sole and exclusive
discretion and upon the written notice of such decision to Holder shall be
relieved of all of its obligations under this Section 1 with respect to that
particular registration; or (B) exclude all or any portion of the shares sought
to be registered by Holder from such registration statement if the offering of
the shares is an underwritten offering and to the extent that, in the judgment
of the managing underwriter of the offering, the inclusion of such shares would
be materially detrimental to the offering of the remaining shares of capital
stock, or such delay is necessary in light of market conditions. Any shares
sought to be registered by Holder so excluded from a registration statement
shall be excluded pro rata based on the total number of shares of capital stock
being sold by all selling Holders (other than the Company).
2. Demand Registration. If at any time from and after the date of this
Agreement, the Company shall be requested in writing by Holder to effect the
registration under the Act of shares of the Company's common stock then owned
by Holder (which request shall specify the aggregate number of shares intended
to be offered and sold by Holder, shall describe the nature or method of the
proposed offer and sale thereof and shall contain an undertaking by Holder to
cooperate fully with the Company in order to permit the Company to comply with
all applicable requirements of the Act and the rules and regulations thereunder
and to obtain acceleration of the effective date of the registration statement
contemplated thereby), the Company shall effect the registration of such
securities on an appropriate form under the Act, provided that (i) Holder may
exercise the right to request registration pursuant to this Section 2 only with
respect to those shares that, at the time such request for registration is
delivered to the Company, may not be sold to the public pursuant to Rule 144
under the Act or any similar or successor rule; (ii) Holder's rights under this
Section 2 shall be exercisable only if the shares as to which Holder requests
registration have an aggregate value of at least $250,000 based on the average
of the closing bid price for the Company's common stock as listed on any
exchange on which the Company's common stock then may be traded for the thirty
(30) trading-day period immediately preceding the date of such request for
registration; (iii) the Company shall be entitled to postpone the filing of any
registration statement otherwise required to be prepared and filed by it
pursuant to this Section 2, if at the time it receives a request for such
registration, the Company's underwriter determines that such registration and
offering would materially interfere with any existing or then presently
contemplated financing, acquisition, corporate reorganization or other material
transaction involving the Company, and the Company promptly gives the Holder
written notice of such determination, provided, however, that such postponement
shall not extend beyond the time that such material interference continues to
exist; and (iv) Holder shall have no right to demand registration with respect
to any shares within ninety (90) calendar days after the effective date of any
registration statement filed by the Company.
3. Registration Procedures. If and whenever this Agreement
contemplates that the Company will effect the registration under the Act of any
shares held by the Holder, the Company shall:
3.1 prepare and file with the Securities and Exchange Commission
(the "SEC") a registration statement on the appropriate form with respect to
such shares and use its best efforts to cause such registration statement to
become effective;
3.2 prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection therewith
and to take such other action as may be necessary to keep such registration
statement effective until the earlier of (i) the completion of the distribution
of shares so registered, or (ii) expiration of the ninety (90) day period
following immediately the effective date of such registration statement (at
which time unsold shares may be deregistered), and otherwise comply with
applicable provisions of the Act and the rules and regulations promulgated under
the Act;
3.3 furnish to Holder and its counsel, and to each underwriter of
the shares to be sold by the Holder, without charge, such number of copies of
one or more preliminary prospectuses, any supplements thereto and a final
prospectus and any supplements thereto in conformity with the requirements of
the Act, and such other documents as the Holder or such underwriter may
reasonably request, in order to facilitate the public sale or other disposition
of such shares;
3.4 if, during any period in which, in the opinion of the
Company's counsel, a prospectus relating to the shares is required to be
delivered under the Act in connection with any offer or sale contemplated by any
registration statement, any event known to the Company occurs as a result of
which the prospectus would include an untrue statement of material fact or omit
to state any material fact necessary to make the statements made therein, in
light of the circumstances under which they were made, not misleading, or if it
is necessary at any time to amend or supplement the related prospectus to comply
with the Act, the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or the respective rules and regulations thereunder, to notify the Holder
promptly and to prepare and file with the SEC an amendment or supplement,
whether by filing such documents pursuant to the Act or the Exchange Act as may
be necessary to correct such untrue statement or omission or to make any
registration statement or the related prospectus comply with such requirements
and to furnish to Holder and its counsel such amendment or supplement to such
registration statement or prospectus;
3.5 timely to file with the SEC (i) any amendment or supplement
to any registration statement or to any related prospectus that is required by
the Act or the Exchange Act or requested by the SEC, and (ii) all documents (and
any amendments to previously filed documents) required to be filed by the
Company pursuant to Section 13(a), 13(c), 14 and 15(d) of the Exchange Act;
3.6 within five days of filing with the SEC of (i) any amendment
or supplement to any registration statement, (ii) any amendment or supplement
to the related prospectus, or (iii) any document incorporated by reference in
any of the foregoing or any amendment of or supplement to any such incorporated
document, to furnish a copy thereof to Holder;
3.7 to advise Holder and its counsel promptly (i) when any post-
effective amendment to any registration statement becomes effective and when any
further amendment of or supplement to the prospectus shall be filed with the
SEC, (ii) of any request or proposed request by the SEC for an amendment or
supplement to any registration statement, to the related prospectus, to any
document incorporated by reference in any of the foregoing or for any additional
information, (iii) of the issuance by the SEC of any stop order suspending the
effectiveness of any registration statement or any order directed to the related
prospectus or any document incorporated therein by reference or the initiation
or threat of any stop order proceeding or of any challenge to the accuracy or
adequacy of any document incorporated by reference in such prospectus, (iv) of
receipt by the Company of any notification with respect to the suspension of the
qualification of the shares for sale in any jurisdiction or the initiation or
threat of any proceeding for such purpose, and (v) of the happening of any event
which makes untrue any statement of a material fact made in any registration
statement or the related prospectus as amended or supplemented or which requires
the making of a change in such registration statement or such prospectus as
amended or supplemented in order to make any material statement therein not
misleading;
3.8 use its reasonable best efforts to register or qualify the
shares covered by such registration statement under the securities or blue sky
laws of such jurisdictions as the Holder shall reasonably request considering
the nature and size of the offering and do such other acts and things as may be
reasonably necessary to enable the Holder to consummate the public sale or other
disposition in each such jurisdiction of such shares; provided, however, that
the Company shall not be obligated to qualify as a foreign corporation to do
business under the laws of any jurisdiction in which it has not been qualified
or to file any general consent to service of process; and
3.9 use its best efforts to cause all shares sold pursuant to any
registration statement to be listed on each national securities exchange, if
any, on which such shares are then listed.
4. Agreements of Holder. Holder (i) upon receipt of a notice from the
Company of the occurrence of any event of the kind described in Subsection 3.4
shall forthwith discontinue Holder's disposition of securities included in the
registration statement until Holder receives copies of the supplemented or
amended prospectus, and (ii) if so directed by the Company, shall deliver to the
Company, at the Company's expense, all copies (other than permanent file copies)
then in Holder's possession of the prospectus covering such securities that was
in effect at the time of receipt of such notice.
5. Withdrawal. If Holder disapproves of the terms of any offering, the
sole remedy of Holder shall be to withdraw Holder's securities therefrom by
giving written notice to the Company and any managing underwriter (if any).
Holder's securities of the Company so withdrawn from the offering also shall be
withdrawn from registration.
6. Participation in Underwritten Registrations. In the case of any
registration under Section 2, if Holder or the Company determines to enter into
an underwriting agreement in connection therewith, or in the case of a
registration under Section 1, if the Company determines to enter into an
underwriting agreement in connection therewith, (i) all shares of Holder's
securities to be included in such registration shall be subject to an
underwriting agreement, which shall be in customary form and contain such terms
as are customarily contained in such agreements, and (ii) no person may
participate in any such registration unless such person (A) agrees to sell such
person's securities on the basis provided in such underwriting arrangement, and
(B) completes and executes all questionnaires, powers-of-attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements.
7. Registration Expenses. With respect to each registration effected
pursuant to Section 1 and Section 2 of this Agreement, the Company shall pay the
following fees, disbursements and expenses: all registration and filing fees,
printing expenses, auditors' fees, listing fees, registrar and transfer agent's
fees, fees and disbursements of counsel to the Company, expenses (including
reasonable fees and disbursements of counsel) of complying with applicable
securities or "Blue Sky" laws and the fees of any securities exchange in
connection with the review of such offering. The underwriting discounts and
commissions allocable to the shares included in any offering shall be borne by
the holders thereof.
8. Rule 144 Sales.
8.1 The Company covenants that it will file the reports required
to be filed by the Company under the Securities Act and the Exchange Act so as
to enable any Holder to sell Shares pursuant to Rule 144 under the Securities
Act.
8.2 In connection with any sale, transfer or other disposition by
any Holder of any shares pursuant to Section 4(1) of the Securities Act or Rule
144 thereunder, the company shall cooperate with such Holder to facilitate the
timely preparation and delivery of certificates representing shares to be sold
and not bearing any Securities Act legend, and enable certificates for such
shares to be for such number of shares and registered in such names as the
selling Holders may reasonably request at least two business days prior to any
sale of shares.
9. Indemnification.
9.1 In each case of a registration of shares under the Securities
Act pursuant to this Agreement, the Company will indemnify and hold harmless the
Holder, its officers and directors, each underwriter (as defined in the Act) and
each other person, if any, who controls any of the Holder or any such
underwriter within the meaning of the Act or the Exchange Act from and against
any and all losses, claims, damages and liabilities (including the fees and
expenses of counsel in connection therewith in connection with any governmental
or regulatory investigation or proceeding), arising out of any untrue statement
or alleged untrue statement of a material fact contained in any registration
statement under which such shares were registered under the Act, any prospectus
or preliminary prospectus contained therein or any amendment or supplement
thereto (including, in each case, documents incorporated by reference therein),
or arising out of any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements made
therein not misleading, except insofar as such losses, claims, damages or
liabilities arise out of any such untrue statement or omission or alleged untrue
statement or omission based upon information relating to any of the Holder,
Holder's counsel or any underwriter and furnished to the Company in writing by
any of the Holder or such counsel or underwriter; provided that the foregoing
indemnification with respect to a preliminary prospectus shall not inure to the
benefit of any underwriter (or the benefit of any person controlling such
underwriter) from whom the person asserting any such losses, claims, damages or
liabilities purchased shares to the extent such losses, claims, damages or
liabilities result from the fact that a copy of the final prospectus had not
been sent or given to such person at or prior to written confirmation of the
sale of such shares to such person.
9.2 In each case of a registration of shares under the Act
pursuant to this Agreement, Holder will indemnify and hold harmless the Company,
its directors, its officers who sign the registration statement, its attorneys,
each underwriter and each person, if any, who controls the Company or such
underwriter within the meaning of the Act or the Exchange Act, to the same
extent as the foregoing indemnity from the Company to the Holder, but only with
reference to information provided to the Company in writing by the Holder and
furnished to the Company by the Holder expressly for use in the registration
statement, any publicly available report of the Holder published within the time
frame of the registration statement, any prospectus or preliminary prospectus
contained therein or any amendment or supplement thereto.
9.3 In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to this Section 9, such person (the
"Indemnified Party") shall promptly notify the person against whom such
indemnity may be sought (the "Indemnifying Party") in writing and the
Indemnifying Party, upon request of the Indemnified Party, shall retain counsel
reasonably satisfactory to the Indemnified Party to represent the Indemnified
Party and any others the Indemnifying Party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any Indemnified Party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such Indemnified Party unless (i) the Indemnifying Party has agreed to the
retention of such counsel at its expense, or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the Indemnifying Party
and the Indemnified Party, the Indemnifying Party proposes that the same counsel
represent both the Indemnified Party and the Indemnifying Party and
representation of both parties by the counsel would be inappropriate due to
actual or potential differing interests between them. It is understood, where
the expense of separate counsel shall be borne by the Indemnifying Party
pursuant to the foregoing sentence, that the Indemnifying Party shall not, in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the fees and expenses of more than one separate firm qualified in
such jurisdiction to act as counsel for such Indemnified Party. The
Indemnifying Party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the Indemnifying Party agrees to
indemnify the Indemnified Party from and against any loss or liability by reason
of such settlement or judgment.
9.4 The indemnification pursuant to this Section 8 shall be on
such other terms and conditions as are at the time customary and reasonably
required by underwriters in public offerings, including providing for
contribution in the event indemnification provided in this Section 9 is
unavailable or insufficient.
10. Selection of Underwriters. The Company will have the right to
select the investment banking firm(s) acting as managing underwriter in
connection with any underwritten public offering.
11. Termination. This Agreement and all rights and obligations of the
parties to this Agreement shall terminate four (4) years after the date of this
Agreement; provided, however, that the indemnification provisions of Section 9
shall not terminate and shall survive forever.
12. General.
12.1 Assignment. Holder's rights under this Agreement shall not
be transferable without the written consent of the Company, which consent shall
not be unreasonably withheld.
12.2 Counterparts. This Agreement may be executed in one or more
counterparts, each of which when so signed shall be deemed to be an original,
and such counterparts together shall constitute one and the same instrument.
12.3 Entire Agreement. This Agreement sets forth the entire
agreement between the parties as to the subject matter hereof, supersedes any
and all prior or contemporaneous agreements or understandings of the parties
relating to the subject matter of this Agreement, and may not be amended except
by an instrument in writing signed by all of the parties to this Agreement.
12.4 Governing Law. The laws of the State of Utah (without giving
effect to the choice of law provisions thereof) shall govern the interpretation
and enforcement of this Agreement.
12.5 Headings. The headings of the sections and paragraphs of this
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
12.6 Notices. All notices or other communications provided for
under this Agreement shall be in writing, and mailed, telecopied or delivered
by hand delivery or by overnight courier service, to the parties at their
respective addresses as indicated below or at such other address as the parties
may designate in writing:
If to the Company, to it at:
K.L.S. Enviro Resources, Inc.
3220 North Freeway
Fort Worth, TX 76111
Attn: Raymond H. Kurzon
If to Holder, to it at:
Studdert Companies Corp.
1225 Eagle Gate Tower
60 East South Temple
Salt Lake City, Utah 84111
Attn: Thomas A. Murdock
All notices and communications shall be effective as follows: When mailed, upon
three (3) business days after deposit in the mail (postage prepaid); when
telecopied, upon confirmed transmission of the telecopied notice; when hand
delivered, upon delivery; and when sent by overnight courier, the next business
day after deposit of the notice with the overnight courier.
12.7 Remedies. Any person having rights under any provision of
this Agreement will be entitled to enforce such rights specifically, to recover
damages caused by reason of any breach of any provision of this Agreement and
to exercise all other rights granted by law.
DATED: January ___, 1997.
K.L.S. ENVIRO RESOURCES, INC.,
a Nevada corporation
By /s/ Raymond H. Kurzon
---------------------------------------
Raymond H. Kurzon, President
STUDDERT COMPANIES COPR., a Utah corporation
By /s/ Thomas A. Murdock
--------------------------------------
Thomas A. Murdock, President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF K.L.S. ENVIRO RESOURCES, INC. AND
SUBSIDIARIES FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> $2,800,590
<SECURITIES> 0
<RECEIVABLES> $968,513
<ALLOWANCES> $123,402
<INVENTORY> $678,011
<CURRENT-ASSETS> $4,611,856
<PP&E> $4,519,404
<DEPRECIATION> $1,468,641
<TOTAL-ASSETS> $7,729,791
<CURRENT-LIABILITIES> $2,793,840
<BONDS> 0
$1,576
0
<COMMON> $10
<OTHER-SE> $4,714,557
<TOTAL-LIABILITY-AND-EQUITY> $7,729,791
<SALES> 0
<TOTAL-REVENUES> $1,573,318
<CGS> 0
<TOTAL-COSTS> $727,126
<OTHER-EXPENSES> $716,259
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> $77,953
<INCOME-PRETAX> $50,451
<INCOME-TAX> 0
<INCOME-CONTINUING> $50,451
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $50,451
<EPS-PRIMARY> $0.005
<EPS-DILUTED> $0.003
</TABLE>
