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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED):
DECEMBER 24, 1997
QUEEN SAND RESOURCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
STATE OF DELAWARE 0-21179 75-2615565
(STATE OF INCORPORATION) (COMMISSION FILE NO.) (IRS EMPLOYER IDENTIFICATION NO.)
</TABLE>
3500 OAK LAWN
SUITE 380, LB #31
DALLAS, TEXAS 75219-4398
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (214) 521-9959
NO CHANGE
(FORMER NAME OR FORMER ADDRESS, IF CHANGE SINCE LAST REPORT)
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ITEM 5. OTHER EVENTS.
General. On December 24, 1997, the transaction (the "Transaction")
contemplated under the Securities Purchase Agreement, dated December 22, 1997
(the "Purchase Agreement") among Queen Sand Resources, Inc., a Delaware
corporation (the "Company"), and certain institutional investors named therein
(the "Purchasers") was consummated.
Pursuant to the Transaction, the Company has issued an aggregate of
10,000 shares of Series C Convertible Preferred Stock, par value $0.01 per
share (the "Series C Preferred Stock") to the Purchasers and warrants to
purchase an aggregate of 340,138 shares of common stock, par value $0.0015 per
share (the "Common Stock"), of the Company (the "Warrants") to the Purchasers
in exchange for aggregate cash consideration of $10,000,000. In addition, the
Company issued 400 shares of Series C Preferred Stock to Palisades Holdings,
Inc. in exchange for its services as the placement agent for the Transaction.
In connection with the purchase by the Purchasers of the Series C
Preferred Stock and the Warrants, the Company has agreed to file a registration
statement within ninety (90) days and the Company has granted to the Purchasers
certain registration rights with respect to the shares of Common Stock issuable
upon conversion of the Series C Preferred Stock and the shares of Common Stock
issuable upon exercise of the Warrants.
Description of the Purchase Agreement. The following summary of the
material provisions of the Purchase Agreement is not intended to be complete
and is subject to, and qualified in its entirety by reference to, all of the
provisions of such agreement, a copy of which is filed as an exhibit to this
Current Report on Form 8-K.
Purchase of Series C Preferred Stock and Warrants. Pursuant
to the Purchase Agreement, the Purchasers purchased 10,000 shares of Series C
Preferred Stock and the Warrants in exchange for the payment to the Company of
an aggregate of $10,000,000 cash.
Certain Representations and Warranties. Under the Purchase
Agreement, the Company has made certain representations and warranties to the
Purchasers regarding the Company and its business, including (i) due corporate
organization of the Company and its subsidiaries; (ii) the due authorization
and issuance of the Series C Preferred Stock and the Warrants and the shares of
Common Stock issuable upon conversion of the Series C Preferred Stock and the
exercise of the Warrants; (iii) the due authorization, execution, delivery and
performance by the Company of the Purchase Agreement and related agreements and
their enforceability; (iv) no conflict with or violation of the Company's
Certificate of Incorporation or bylaws, any of the Company's agreements and
applicable law; (v) the capital structure of the Company and its subsidiaries;
(vi) the accuracy of reports and other documents filed by the Company with the
Securities and Exchange Commission ("SEC"); (vii) disclosure of pending and
threatened litigation; (viii) payment of taxes; (ix) title to its real and
personal property; (x) adequacy of financial statements; (xi) accuracy of
permits and licenses; (xii) title of intellectual property; (xiii) no payments
owed to brokers and finders; (xiv) acknowledgment of dilution; (xv)
registration rights; (xvi) trading on NASDAQ; (xvii) no solicitation; (xviii)
no violation of the Foreign Corrupt Practices Act of 1977; (xix) no
integration; and (xx) eligibility to file registration statements on Form S-3.
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Under the Purchase Agreement, the Purchasers have made certain
representations and warranties to the Company, including (i) due organization;
(ii) the due authorization, execution, delivery and performance by the
Purchasers of the Purchase Agreement and its enforceability; and (iii) certain
investment representations.
Covenants. Pursuant to the Purchase Agreement, the Company
has covenanted to: (i) maintain its corporate existence; (ii) provide each
Purchaser copies of reports sent to the Company's stockholders; (iii) file a
Form D with respect to the Series C Preferred Stock and the Warrants and make
the necessary filings under state securities laws (iv) timely make filings
required under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and not terminate its status as an issuer required to file reports
under the Exchange Act; (v) reserve a sufficient number of shares of Common
Stock for issuance upon conversion of the Series C Preferred Stock and upon
exercise of the Warrants; (vi) use the proceeds from the sale of the Series C
Preferred Stock for general corporate purposes only in the ordinary course of
its business; (vii) take necessary acts to designate for quotation the shares
of Common Stock issued upon conversion of the Series C Preferred Stock and upon
exercise of the Warrants on the NASDAQ Small Cap Market and to maintain the
designation and quotation of such shares; (viii) not use any Purchaser's name
in any advertisement announcement or press release without the prior written
consent of such Purchaser; (ix) deliver irrevocable restrictions to the
Company's transfer agent regarding issuance of Common Stock upon conversion of
the Series C Preferred Stock or exercise of the Warrants; (x) abide by certain
limitations on the Company's ability to raise equity; (xi) provide each
Purchaser with an opportunity to purchase a proportionate share of securities
before the securities are offered or sold to third parties; and (xii) refrain
from entering into any arrangements that are adverse to the rights and
privileges of the holders of Series C Preferred Stock or the Warrants, while
any of the Series C Preferred Stock or Warrants are outstanding.
Description of Series C Preferred Stock. The Certificate of
Designation of the Series C Preferred Stock (the "Series C Certificate of
Designation") authorizes the issuance of up to 10,400 shares of Series C
Preferred Stock. The following description of the rights, preferences and
limitations of the Series C Preferred Stock is a summary only and is qualified
in its entirety by reference to the entire text of the Series C Certificate of
Designation which is an exhibit to this Current Report on Form 8-K.
Voting. The holders of shares of Series C Preferred Stock are
not entitled to vote with the holders of the Common Stock except as required by
law or as set forth below.
For so long as any shares of Series C Preferred Stock are outstanding,
the following matters will require the approval of the holders of at least
two-thirds of the then outstanding shares of Series C Preferred Stock, voting
together as a separate class:
(i) alter or change the rights, preferences or privileges
of the Series C Preferred Stock or any other capital stock of the
Company so as to affect adversely the Series C Preferred Stock;
(ii) create any new class or series of capital stock
having a preference over or ranking pari passu with the Series C
Preferred Stock as to redemption, the payment of dividends or
distribution of assets upon a Liquidation Event (as defined in the
Series C Certificate of Designation) or any other liquidation,
dissolution or winding up of the Company;
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(iii) increase the authorized number of shares of preferred
stock of the Company;
(iv) re-issue any shares of Series C Preferred Stock which
have been converted in accordance with the terms hereof;
(v) issue any Senior Securities (other than the Company's
Series B Participating Convertible Preferred Stock pursuant to the
terms of the Company's Series A Participating Convertible Preferred
Stock) or Pari Passu Securities (each, as defined in the Series C
Certificate of Designation); or
(vi) declare, pay or make any provision for any dividend
or distribution with respect to the Common Stock or any other capital
stock of the Company ranking junior to the Series C Preferred Stock as
to dividends or as to the distribution of assets upon liquidation,
dissolution or winding up of the Company.
In the event that the holders of at least two-thirds (2/3) of the then
outstanding shares of Series C Preferred Stock agree to allow the Company to
alter or change the rights, preferences or privileges of the shares of Series C
Preferred Stock pursuant to the terms hereof, or to waive any rights of the
holders hereunder, then the Company will deliver notice of such approved change
to the holders of the Series C Preferred Stock that did not agree to such
alteration or change (the "Dissenting Holders") and the Dissenting Holders
shall have the right for a period of thirty (30) days following such delivery
to convert their Series C Preferred Stock pursuant to the terms hereof as they
existed prior to such alteration or change, or to continue to hold such shares.
No such change shall be effective to the extent that, by its terms, it applies
to less than all of the holders of Series C Preferred Stock then outstanding.
Conversion. Subject to certain limitations set forth in the
Series C Certificate of Designation, a holder of shares of Series C Preferred
Stock has the right, at the holder's option, to convert all or a portion of its
shares into shares of Common Stock at any time. The number of shares of Common
Stock into which a share of Series C Preferred Stock may be converted will be
determined as of the conversion date according to a formula set forth in the
Series C Certificate of Designation. If the Company fails to deliver shares of
Common Stock to a holder following a conversion in accordance with the Series C
Certificate of Designation, then the Company will be liable to the holder for
certain cash default payments set forth in the Series C Certificate of
Designation.
On December 24, 2001, all shares of Series C Preferred Stock that are
then outstanding shall be automatically converted into the number of shares of
Common Stock determined in accordance with the formula set forth in the Series
C Certificate of Designation.
The Series C Certificate of Designation provides for customary
adjustments to the number of shares issuable upon conversion in the event of
certain dividends and distributions to holders of Common Stock, certain
reclassifications of the Common Stock, stock splits, combinations and mergers
and similar transactions and certain changes of control.
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Dividends. The holders of the shares of Series C Preferred
Stock are entitled to receive dividends, when, and as if declared by the Board
of Directors, out of funds legally available therefor, subject to the prior
payment of any accumulated and unpaid dividends to holders of Senior
Securities, but before payment of dividends to holders of Junior Securities (as
defined in the Series C Certificate of Designation), cumulative dividends on
each of the Series C Preferred Stock shares in an amount equal to the stated
value of such share multiplied by five percent (5%).
Liquidation. Upon the liquidation, dissolution or winding up
of the Company, the holders of the shares of Series C Preferred Stock, before
any distribution to the holders of Junior Securities, and after payment to
holders of Senior Securities, will be entitled to receive an amount equal to
the stated value of the Series C Preferred Stock (subject to ratable adjustment
in the event of reclassification of the Series C Preferred Stock or other
similar event) plus any accrued and unpaid dividends thereon ("Liquidation
Preference").
Optional Redemption. The Company has the right to redeem all
of the outstanding Series C Preferred Stock at a price equal to the Liquidation
Preference of the Series C Preferred Stock then held by the holder divided by
eighty percent (80%) ("Optional Redemption Price"), to the extent permitted by
law and so long as (i) the Company has sufficient cash available at the time;
(ii) the Company delivers prior written notice at least thirty trading days'
prior to the redemption, specifying both the date of the redemption and the
amount payable to the holder; and (iii) the Common Stock is actively traded on
the NASDAQ Stock Market, the New York Stock Exchange or the American Stock
Exchange.
Mandatory Redemption. The Series C Certificate of Designation
provides for mandatory redemption by the Company when a Mandatory Redemption
Event occurs (as defined in the Series C Preferred Stock Certificate of
Designation).
Upon the occurrence of a Mandatory Redemption Event, each holder of
Series C Preferred Stock will have the right to require the Company to redeem
its Series C Preferred Stock at a redemption price equal to the greater of (i)
the Liquidation Preference of the Series C Preferred Stock being redeemed
multiplied by one hundred and twenty five percent (125%) and (ii) an amount
determined by dividing the Liquidation Preference of the Series C Preferred
Stock being redeemed by the conversion price in effect on the mandatory
redemption dated and multiplying the resulting quotient by the average closing
bid price for the Common Stock on the five (5) trading days preceding the
mandatory redemption date ("Mandatory Redemption Price").
If the Mandatory Redemption Price is not paid within five business
days of the redemption date and the holder has tendered its Series C Preferred
Stock to the Company, the holder is entitled to interest thereon, from the
redemption date until the Mandatory Redemption Price has been paid in full.
If the Mandatory Redemption Price is not paid within ten business days
of the redemption date, each holder of shares of Series C Preferred Stock will
have the right, by written notice to the Company, to require the Company to
issue, in lieu of the Mandatory Redemption Price, the number of shares of
Common Stock of the Company equal to the Mandatory Redemption Price divided by
the conversion price in effect on such conversion date as specified by the
holder, with the conversion price to be reduced by one percent (1%) for each
day beyond the 10th business day in which the Company fails to pay the
Mandatory Redemption Price, but with the maximum reduction of the conversion
price to be fifty percent (50%).
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Description of the Warrants. Pursuant to the Purchase
Agreement, on December 24, 1997, the Company issued the Warrants to the
Purchasers. The Warrants are exercisable commencing on December 24, 1997 and
ending on December 24, 2001. The Warrants are exercisable for an aggregate of
340,138 shares of Common Stock as adjusted from time to time pursuant to the
Warrants. The Warrants may be exercised in full or in part by means of payment
of the exercise price which is equal to a fixed conversion price in effect on
the exercise date; provided, however, that if the ADTV (as defined in the
Series C Certificate of Designation) for the Common Stock during the period of
six (6) months following the closing date is less than five hundred and forty
thousand dollars ($540,000), the exercise price shall be the lesser of (i) the
fixed conversion price and (ii) the average of the closing bid prices (as
defined in the Certificate of Designation) for the Common Stock during the
twenty-two (22) trading days occurring prior to the last day of such six- month
period. The Warrants provide for customary adjustments to the exercise price
and number of shares to be issued in the event of certain dividends and
distributions to holders of Common Stock, stock splits, combinations and
mergers. The Warrants also include customary provisions with respect to, among
other things, transfer of the Warrants, mutilated or lost warrant certificates,
and notices to holder(s) of the Warrants.
Description of the Registration Rights Agreement. The Common
Stock issuable upon conversion of the Series C Preferred Stock or upon exercise
of the Warrants will not be registered with the SEC and therefore, will be,
when issued, restricted securities. Pursuant to the Purchase Agreement, on
December 24, 1997, the Company entered into a Registration Rights Agreement
with the Purchasers pursuant to which the Purchasers will be entitled to
certain rights with respect to the registration under the Securities Act of
1933, as amended (the "Securities Act"), of shares of Common Stock issuable
upon conversion of Series C Preferred Stock or upon exercise of the Warrants
(the "Registrable Securities").
The Company granted certain registration rights in the Registration
Rights Agreement. Pursuant to the Registration Rights Agreement, the Company
agreed to file a registration statement on Form S-3 on or before March 24,
1998, covering the resale of at least 200% of the number of shares of
registrable securities then issuable on conversion of the Series C Preferred
Stock and exercise of the Warrants. The Company is required to use its best
efforts to cause such registration statement to become effective as soon as
practicable following the filing thereof; but in no event later than April 23,
1998. If the registration statement does not become effective by this date,
then the Company is required to make certain payments to the holders of Series
C Preferred Stock as set forth in the Registration Rights Agreement. The
Registration Rights Agreement also provides for unlimited piggyback
registration rights. That is, in the event that the Company proposes to
register the sale for cash of any of its securities under the Securities Act
for its own account, or for the account of any other person, the holders will
be entitled to include Registrable Securities in any such registration, subject
to the limited right of the managing underwriter of any such offering under
certain circumstances to exclude some or all of such Registrable Securities
from such registration, and also subject to the prior right of holders of
registrable shares of Common Stock under the Registration Rights Agreement,
dated as of May 6, 1997, between the Company and Joint Energy Development
Investments Limited Partnership ("JEDI") to include any or all of JEDI's
Registrable Shares before any holder of Series C Preferred Stock includes any
or all of its registrable securities in a registration statement. The Company
generally bears the expense of any piggyback registration statement, while
selling holders
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generally bear selling expenses such as underwriting fees and discounts. The
Registration Rights Agreement also includes customary indemnification
provisions. The Company will no longer be obligated to register the
Registrable Securities upon disposition pursuant to Rule 144 under the
Securities Act, the eligibility of disposal under Rule 144(k) under the
Securities Act or a registration statement covering such Registrable Security
has been declared effective by the SEC and such Registrable Security has been
issued, sold or disposed of pursuant to such effective registration statement.
The Purchasers may transfer their registration rights to a third party upon
written notice to the Company.
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ITEM 7. EXHIBITS.
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1.1 Certificate of Designation of Series C Convertible Preferred Stock of Queen
Sand Resources, Inc., a Delaware corporation.
1.2 Securities Purchase Agreement among Queen Sand Resources, Inc., a Delaware
corporation, and certain institutional investors named therein, dated December
22, 1997.
1.3 Registration Rights Agreement among Queen Sand Resources, Inc., a Delaware
corporation, and certain institutional investors named therein, dated December
22, 1997.
1.4 Form of Common Stock Purchase Warrant Representing Right to Purchase
Shares of Common Stock of Queen Sand Resources, Inc., a Delaware
corporation, issued to certain institutional investors on December 24, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
QUEEN SAND RESOURCES, INC.
Date: December 31, 1997 By: /s/ Edward J. Munden
-----------------------------------------
Name: Edward J. Munden
Title: Chairman of the Board,
President and Chief
Executive Officer
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Index to Exhibits
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<CAPTION>
Exhibit No. Description
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<S> <C>
1.1 Certificate of Designation of Series C Convertible Preferred Stock of Queen
Sand Resources, Inc., a Delaware corporation.
1.2 Securities Purchase Agreement among Queen Sand Resources, Inc., a Delaware
corporation, and certain institutional investors named therein, dated December
22, 1997.
1.3 Registration Rights Agreement among Queen Sand Resources, Inc., a Delaware
corporation, and certain institutional investors named therein, dated December
22, 1997.
1.4 Form of Common Stock Purchase Warrant Representing Right to Purchase
Shares of Common Stock of Queen Sand Resources, Inc., a Delaware
corporation, issued to certain institutional investors on December 24, 1997.
</TABLE>
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EXHIBIT 1.1
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STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE PAGE 1
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I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE,
DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE
CERTIFICATE OF DESIGNATION OF "QUEEN SAND RESOURCES, INC.", FILED IN THIS
OFFICE ON THE TWENTY-THIRD DAY OF DECEMBER, A.D. 1997, AT 8:30 O'CLOCK A.M.
/s/ Edward J. Freel
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Edward J. Freel, Secretary of State
2196071 8100 AUTHENTICATION: 8831035
971443458 DATE: 12-23-97
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CERTIFICATE OF DESIGNATION
OF
SERIES C CONVERTIBLE PREFERRED STOCK
OF
QUEEN SAND RESOURCES, INC.
Pursuant to Section 151 of the
Delaware General Corporation Law
Queen Sand Resources, Inc., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies that
the following resolutions were adopted by the Board of Directors of the
Corporation pursuant to authority of the Board of Directors as required by
Section 151 of the Delaware General Corporation Law.
RESOLVED, that pursuant to the authority granted to the Board of
Directors in accordance with the provisions of the Corporation's Restated
Certificate of Incorporation, the Board of Directors hereby authorizes a series
of the Corporation's previously authorized Preferred Stock, par value $.01 per
share (the "Preferred Stock"), and hereby states the designation and number of
shares, and fixes the relative rights, preferences, privileges and restrictions
thereof as follows:
1. DESIGNATION AND AMOUNT.
The designation of this series, which consists of ten thousand four
hundred (10,400) shares (each such share being referred to herein as a
"Preferred Share" and all such shares being collectively referred to as the
"Preferred Shares") of Preferred Stock, is the Series C Convertible Preferred
Stock (the "Series C Preferred Stock") and the face amount shall be One
Thousand Dollars ($1,000) per share (the "Stated Value"). The Preferred Shares
will be issued pursuant to the provisions of a Securities Purchase Agreement by
and among the Corporation and the purchasers named therein (the "Securities
Purchase Agreement").
2. DIVIDENDS.
(a) Dividend Rate; Payments. The holders (each, a "Holder" and
collectively, the "Holders") of Preferred Shares shall be entitled to receive,
to the extent permitted by applicable law, subject to the prior, full payment
of any accumulated and unpaid dividends on any class or series of Senior
Securities (as defined below) and in preference to the payment of any dividend
on any class or series of Junior Securities (as defined below), cumulative
dividends ("Dividends") on each Preferred Share in an amount equal to, on an
annualized basis, the Stated Value of such Preferred Share times five percent
(5%). Dividends shall accrue, whether or not earned or declared, on each
Preferred Share from the date of the original issuance thereof (the "Purchase
Date") through the earlier to occur of (A) the Maturity Date (as defined below)
and (B) the redemption or conversion thereof in accordance with the terms
hereof. Accrued Dividends on each outstanding Preferred Share shall be
payable, whether or not earned or declared, on the earlier to occur of (i) the
Conversion Date
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(as defined below) for such Preferred Share, (ii) the Redemption Date (as
defined below) for such Preferred Share, or (iii) the Maturity Date (as defined
below) for such Preferred Share (each, a "Dividend Payment Date"). If, on any
date, Dividends on any outstanding Preferred Shares have not been paid or
declared by the Board of Directors in accordance with applicable law and set
aside for payment with respect to all Dividend Payment Dates preceding such
date, the aggregate amount of such Dividends shall be fully paid or declared
and set aside for payment before any distribution, whether by way of dividend
or otherwise, shall be declared, paid or set apart with respect to any Junior
Securities on or after such date. Dividends shall be paid in shares (the
"Dividend Payment Shares") of the Corporation's common stock, par value $.0015
per share (the "Common Stock").
(b) Delivery of Dividend Payment Shares. The Corporation shall
deliver to each Holder, on or before the later to occur of (i) the third (3rd)
Business Day (as defined below) following the applicable Dividend Payment Date
and (ii) with respect to Dividend Payment Shares which are disputed as
described in paragraph 4(b) below, and required to be delivered by the
Corporation pursuant to the accountant's calculations described therein, the
date for delivery thereof specified in such paragraph 4(b) (the "Dividend
Payment Share Delivery Date"), the aggregate number of whole Dividend Payment
Shares that is determined by dividing (x) the amount of the Dividend to which
such Holder is entitled as of such Dividend Payment Date with respect to all of
such Holder's Preferred Shares by (y) the applicable Conversion Price (as
defined below) on such Dividend Payment Date. The Corporation shall effect
delivery of Dividend Payment Shares to a Holder by, as long as the
Corporation's transfer agent is participating in the Depository Trust Company
("DTC") Fast Automated Securities Transfer program, crediting the account of
such Holder or its nominee at DTC with the number of Dividend Payment Shares
required to be delivered, no later than the close of business on such Dividend
Payment Share Delivery Date. In the event that the conditions specified above
are not satisfied as of the applicable Dividend Payment Share Delivery Date, or
if a Holder specifies in the applicable Conversion Notice (as defined below) or
otherwise notifies the Corporation in writing prior to the applicable Dividend
Payment Date that such Holder wishes to receive physical certificates, the
Corporation shall effect delivery of Dividend Payment Shares by delivering to
the Holder or its nominee physical certificates representing such Dividend
Payment Shares, no later than the close of business on such Dividend Payment
Share Delivery Date. No fractional Dividend Payment Shares shall be issued;
the Corporation shall, in lieu thereof, at its sole discretion, either issue a
number of Dividend Payment Shares which reflects a rounding up to the next
whole number of shares or pay cash in an amount calculated by multiplying the
amount of the fractional share times the Closing Bid Price (as defined below)
used to calculate the Conversion Price for such Conversion. Dividend Payment
Shares shall be fully paid and non-assessable, free and clear of any liens,
claims, preemptive rights or encumbrances imposed by or through the
Corporation.
(c) Failure to Deliver Dividend Payment Shares. In the event that
the Corporation fails for any reason to deliver to a Holder certificates
representing the appropriate number of Dividend Payment Shares on or before the
Dividend Payment Share Delivery Date therefor, and such failure continues for
three (3) Business Days following the Dividend Payment Share Delivery Date,
such Holder shall send a written notice thereof to the Corporation, and the
Corporation shall pay to such Holder cash payments in the amount of (i) (N/365)
multiplied by (ii) the amount of such Dividend multiplied by (iii) the lower of
twenty-four percent (24%) and the maximum rate permitted by applicable law,
where "N" equals the number of days elapsed between the original Dividend
Payment Share Delivery Date for such Dividend Payment Shares and the date on
which all of such Dividend Payment Shares are issued and delivered to such
Holder. Amounts payable under this subparagraph
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(c) shall be paid to the Holder in immediately available funds on or before the
fifth (5th) Business Day of the calendar month immediately following the
calendar month in which such amounts have accrued. Each Holder shall have the
right to pursue actual damages for the Corporation's failure to issue and
deliver Dividend Payment Shares on the Dividend Payment Share Delivery Date for
a Dividend, including, without limitation, damages relating to any purchase of
shares of Common Stock by such Holder to make delivery on a sale effected in
anticipation of receiving Dividend Payment Shares, such damages to be in an
amount equal to (aa) the aggregate amount paid by such Holder for the shares of
Common Stock so purchased minus (bb) the aggregate amount of net proceeds, if
any, received by such Holder from the sale of the Dividend Payment Shares
issued by the Corporation with respect to such Dividend, and such Holder shall
have the right to pursue all other remedies available to it at law or in equity
(including, without limitation, a decree of specific performance and/or
injunctive relief).
3. PRIORITY.
(a) Payment upon Dissolution.
(i) Upon the occurrence of (x) any insolvency or
bankruptcy proceedings, or any receivership, liquidation, reorganization or
other similar proceedings in connection therewith, commenced by the Corporation
or by its creditors, as such, or relating to its assets or (y) the dissolution
or other winding up of the Corporation whether total or partial, whether
voluntary or involuntary and whether or not involving insolvency or bankruptcy
proceedings, or (z) any assignment for the benefit of creditors or any
marshalling of the material assets or material liabilities of the Corporation
(each, a "Liquidation Event"), no distribution shall be made to the holders of
any shares of Junior Securities (as defined below) unless, following the
payment of preferential amounts on all Senior Securities (as defined below),
each Holder shall have received the Liquidation Preference (as defined below)
with respect to each Preferred Share then held by such Holder. In the event
that upon the occurrence of a Liquidation Event, and following the payment of
preferential amounts on all Senior Securities (as defined below), the assets
available for distribution to the Holders and the holders of Pari Passu
Securities (as defined below) are insufficient to pay the Liquidation
Preference (as defined below) with respect to all of the outstanding Preferred
Shares and the preferential amounts payable to such holders, the entire assets
of the Corporation shall be distributed ratably among the outstanding Preferred
Shares and the shares of Pari Passu Securities in proportion to the ratio that
the preferential amount payable on each such share (which shall be the
Liquidation Preference in the case of a Preferred Share) bears to the aggregate
preferential amount payable on all such shares.
(ii) The "Liquidation Preference" with respect to a
Preferred Share shall mean an amount equal to the Stated Value of such
Preferred Share (subject to ratable adjustment in the event of any stock split
or combination of the Series C Preferred Stock and to equitable adjustment in
the event of a reclassification of the Series C Preferred Stock or other
similar event) plus any accrued and unpaid Dividends thereon. "Junior
Securities" shall mean the Common Stock and all other capital stock of the
Corporation that are not Pari Passu Securities or do not have a preference over
the Series C Preferred Stock in respect of dividends, redemption or
distribution upon liquidation. "Pari Passu Securities" shall mean any capital
stock ranking pari passu with the Series C Preferred Stock in respect of
dividends, redemption or distribution upon liquidation. "Senior Securities"
shall mean any capital stock of the Corporation which by its terms have a
preference over the Series C Preferred Stock in respect of dividends,
redemption or distribution upon liquidation, which
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shall include the Corporation's Series A Participating Convertible Preferred
Stock and the Corporation's Series B Participating Convertible Preferred Stock.
4. CONVERSION.
(a) Right to Convert. Subject to the limitations contained in
Section 5 below, each Holder shall have the right to convert, at any time and
from time to time from and after the Purchase Date, all or any part of the
Preferred Shares held by such Holder into such number of fully paid and
non-assessable shares of Common Stock ("Conversion Shares") as is computed in
accordance with the terms hereof (a "Conversion").
(b) Conversion Notice. In order to convert Preferred Shares, a
Holder shall send by facsimile transmission, at any time prior to 11:59 p.m.,
eastern time, on the date on which such Holder wishes to effect such Conversion
(the "Conversion Date"), (i) a notice of conversion (a "Conversion Notice"), in
substantially the form of Exhibit A hereto, to the Corporation and to its
designated transfer agent for the Common Stock (the "Transfer Agent") stating
the number of Preferred Shares to be converted, the applicable Conversion Price
(as defined below) and a calculation of the number of shares of Common Stock
issuable upon such Conversion and (ii) a copy of the certificate or
certificates representing the Preferred Shares being converted. The Holder
shall thereafter send the original of the Conversion Notice and of such
certificate or certificates to the Transfer Agent. The Corporation shall issue
a new certificate for Preferred Shares in the event that less than all of the
Preferred Shares represented by a certificate delivered to the Corporation in
connection with a Conversion are converted. Except as otherwise provided
herein, upon delivery of a Conversion Notice by a Holder in accordance with the
terms hereof, such Holder shall, as of the applicable Conversion Date, be
deemed for all purposes to be record owner of the Common Stock to which such
Conversion Notice relates. In the case of a dispute between the Corporation and
a Holder as to the calculation of the Conversion Price or the number of
Conversion Shares or Dividend Payment Shares issuable upon a Conversion, the
Corporation shall promptly issue to such Holder the number of Conversion Shares
and Dividend Payment Shares that are not disputed and shall submit the disputed
calculations to the Corporation's independent accountant within three (3)
Business Days of receipt of such Holder's Conversion Notice. The Corporation
shall cause such accountant to calculate the Conversion Price as provided
herein and to notify the Corporation and such Holder of the results in writing
no later than three (3) Business Days following the day on which it received
the disputed calculations. The Corporation shall deliver the Conversion Shares
and Dividend Payment Shares, if any, owed to a Holder pursuant to such
accountant's calculations on or before the close of business on the third (3rd)
Business Day following the Corporation's receipt of notice from such accountant
of the results of its calculations. Such accountant's calculation shall be
deemed conclusive absent manifest error. The fees of any such accountant shall
be borne by the party whose calculations were most at variance with those of
such accountant.
(c) Number of Conversion Shares; Conversion Price. The number of
Conversion Shares to be delivered by the Corporation pursuant to a Conversion
shall be determined by dividing the aggregate Stated Value of the Preferred
Shares to be converted by the Conversion Price (as defined herein) in effect on
the applicable Conversion Date. Subject to adjustment as provided in Section 6
below and to any adjustment pursuant to paragraph 2(d) of the Registration
Rights Agreement (as defined below), "Conversion Price" shall mean (i) during
the one hundred and eighty (180) day period following the Purchase Date (the
"Initial Conversion Period"), and if each of the Fixed Conversion Price
Conditions (as defined below) are satisfied as of the applicable Conversion
Date, seven dollars and thirty five cents ($7.35)
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(the "Fixed Conversion Price") and (ii) following the expiration of the Initial
Conversion Period, or if the Fixed Price Conversion Conditions are not
satisfied as of a Conversion Date occurring during the Initial Conversion
Period, the lesser of (A) the Fixed Conversion Price and (B) the Floating
Conversion Price (as defined below). The "Fixed Conversion Price Conditions"
are as follows: (x) there has been no material adverse change to the
Corporation's consolidated business, operations, properties, financial
condition, prospects or results of operations (a "Material Adverse Effect")
since the date of the audited financial statements contained in the
Corporation's most recently-filed Form 10-K; (y) the Corporation's credit
facility with the Bank of Montreal has not been terminated or become
unavailable in any material respect; and (z) the Corporation has not breached
any covenant contained in any agreement or loan document to which it is a
party, which breach is continuing as of the applicable Conversion Date and
which would have a Material Adverse Effect. The Company shall give written
notice to each Holder promptly following the failure by the Company to satisfy
any Fixed Conversion Price Condition. The "Floating Conversion Price" shall
mean (i) for any Conversion with a Conversion Date occurring during a calendar
month where the average daily trading volume for the Common Stock on the Nasdaq
Small Cap Market or, if the Common Stock is not designated for quotation on the
Nasdaq Small Cap Market, on the principal securities exchange or market located
in the United States on which the Common Stock is then traded for the twenty
(20) Trading Days immediately preceding the first day of such calendar month
(such volume to be expressed in U.S. dollars and provided that in no case
shall such volume include any transactions effected by or at the direction of
the Corporation) (the "ADTV") is equal to or exceeds five hundred and forty
thousand dollars ($540,000), the average of the three (3) lowest Closing Bid
Prices for the Common Stock during the ten (10) Trading Days occurring
immediately prior to (but not including) the applicable Conversion Date, (ii)
for any Conversion with a Conversion Date occurring during a calendar month
where the ADTV is equal to or greater than three hundred and sixty thousand
dollars ($360,000) but less than five hundred and forty thousand dollars
($540,000), the average of the three (3) lowest Closing Bid Prices for the
Common Stock during the twenty (20) Trading Days occurring immediately prior to
(but not including) the applicable Conversion Date, and (iii) for any
Conversion with a Conversion Date occurring during a calendar month where the
ADTV is less than three hundred and sixty thousand dollars ($360,000), the
lowest Closing Bid Price for the Common Stock during the fifteen (15) Trading
Days occurring immediately prior to (but not including) the applicable
Conversion Date.
(d) Certain Definitions. "Trading Day" shall mean any day on
which the Common Stock is traded on the Nasdaq Small Cap Market or on the
principal securities exchange or market located in the United States on which
the Common Stock is then traded. "Closing Bid Price" means, with respect to a
security, the closing bid price of such security on the principal securities
exchange or trading market located in the United States where such security is
listed or traded as reported by Bloomberg Financial Markets or, if Bloomberg
Financial Markets ("Bloomberg") is not then reporting closing bid prices of
such security, as reported by Nasdaq, or if neither Bloomberg nor Nasdaq is
reporting such prices, as reported by a reporting service of national
reputation comparable to Bloomberg selected by the Corporation and reasonably
acceptable to holders of a majority of the then outstanding Preferred Shares
(an "Alternative Reporting Service"), or if none of the foregoing apply, the
last reported bid price of such security in the U.S. over-the-counter market
on the electronic bulletin board for such security as reported by Bloomberg or
an Alternative Reporting Service or, if no bid price is reported for such
security by Bloomberg or an Alternative Reporting Service, the average of the
bid prices of all market makers for such security as reported in the "pink
sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price cannot
be calculated for such
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security on any of the foregoing bases, the Closing Bid Price of such security
shall be the fair market value as reasonably determined by an investment
banking firm selected by the Holders of a majority of the then outstanding
Preferred Shares and reasonably acceptable to the Corporation, with the costs
of such appraisal to be borne by the Corporation. "Business Day" means any day
on which the New York Stock Exchange and commercial banks located in the City
of New York are open for business.
(e) Delivery of Common Stock Upon Conversion. Upon receipt of a
Conversion Notice from a Holder pursuant to paragraph 4(b) above, the
Corporation shall, no later than the close of business on (A) the later to
occur of (i) the third (3rd) Business Day following the Conversion Date set
forth in such Conversion Notice and (ii) the first Business Day following
delivery of the original certificates, duly endorsed, representing the
Preferred Shares being converted pursuant thereto and (B) with respect to
Conversion Shares which are disputed as described in paragraph 4(b) above, and
required to be delivered by the Corporation pursuant to the accountant's
calculations described therein, the date for delivery thereof specified in such
paragraph 4(b) (the "Delivery Date"), issue and deliver or cause to be
delivered to such Holder the number of Conversion Shares as shall be determined
as provided herein. The Corporation shall effect delivery of Conversion Shares
to a Holder by, as long as the Corporation's transfer agent is participating in
the DTC Fast Automated Securities Transfer program, crediting the account of
such Holder or its nominee at DTC with the number of Conversion Shares required
to be delivered, no later than the close of business on such Delivery Date. In
the event that the conditions specified above are not satisfied as of the
applicable Delivery Date, or if a Holder so specifies in a Conversion Notice or
otherwise in writing, the Corporation shall effect delivery of Conversion
Shares by delivering to the Holder or its nominee physical certificates
representing such Conversion Shares, no later than the close of business on
such Delivery Date. If any Conversion would create a fractional Conversion
Share, such fractional Conversion Share shall be disregarded and, at the
Corporation's sole discretion, either the number of Conversion Shares issuable
upon such Conversion, in the aggregate, shall be the next higher number of
Conversion Shares or the Corporation shall pay cash in an amount calculated by
multiplying the amount of the fractional share times the Closing Bid Price used
to calculate the Conversion Price for such Conversion. Conversion Shares
delivered to the Holder shall not contain any restrictive legend as long as (A)
the sale or transfer of such Conversion Shares is covered by an effective
Registration Statement and the Holder holding or entitled to receive such
Conversion Shares has represented to the Corporation, in the related Conversion
Notice or otherwise in writing, that such Holder has resold or transferred such
Conversion Shares in accordance with the terms of the Prospectus relating to
such Registration Statement, (B) such Conversion Shares can be sold pursuant to
Rule 144 ("Rule 144") under the Securities Act of 1933, as amended (the
"Securities Act") and a registered broker dealer provides to the Corporation a
customary broker's Rule 144 letter and such Holder delivers to the Corporation
a customary seller's representation letter and a copy of any Form 144 which may
have been required to be filed by such Holder pursuant to Rule 144, or (C) such
Conversion Shares are eligible for resale under Rule 144(k) or any successor
rule or provision.
(f) Failure to Deliver Conversion Shares.
(i) In the event that the Corporation fails for any
reason (other than by operation of Section 5 below) to deliver to a Holder the
number of Conversion Shares specified in the applicable Conversion Notice on or
before the Delivery Date therefor (a "Conversion Default"), such Holder shall
notify the Corporation by facsimile of such Conversion Default (a "Default
Notice"). If, after the Holder has sent a Default Notice to the
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<PAGE> 8
Corporation, the Corporation has not delivered such certificates, and such
failure continues for three (3) Business Days following the Delivery Date, the
Corporation shall pay to such Holder cash payments ("Conversion Default
Payments") in the amount of (i) (N/365) multiplied by (ii) the aggregate
Liquidation Preference of the Preferred Shares represented by the Conversion
Shares which remain the subject of such Conversion Default multiplied by (iii)
the lower of twenty-four percent (24%) and the maximum rate permitted by
applicable law, where "N" equals the number of days elapsed between the
original Delivery Date for such Conversion Shares and the earlier to occur of
(A) the date on which all of such Conversion Shares are issued and delivered to
such Holder, (B) the date on which such Preferred Shares are redeemed pursuant
to the terms hereof and (C) the date on which a Withdrawal Notice (as defined
below) is delivered to the Corporation. Amounts payable under this
subparagraph (f) shall be paid to the Holder in immediately available funds on
or before the fifth (5th) Business Day of the calendar month immediately
following the calendar month in which such amounts have accrued.
(ii) In the event that a Holder has not received
Conversion Shares by the tenth (10th) Business Day following a Conversion
Default, such Holder may, upon written notice (a "Withdrawal Notice") delivered
to the Corporation on such Business Day or on any Business Day thereafter
(unless, prior to the delivery of such notice, such Conversion Shares are
delivered to such Holder), withdraw its Conversion Notice with respect to such
Conversion Shares and regain its rights as a Holder of the Preferred Shares
that are the subject of such Conversion Default. In such event, the Conversion
Price that would otherwise be in effect when such Preferred Shares are
thereafter converted in accordance with the terms hereof shall be reduced by
one percent (1%) for each day occurring during the period immediately following
such 10th Business Day until the day on which the such Holder delivers a
Withdrawal Notice to the Corporation; provided, however, that the maximum
percentage by which such Conversion Price may be reduced hereunder shall be
fifty percent (50%). (For example, if such Conversion Default were to continue
for five days following such 10th Business Day, such Conversion Price would be
reduced by 5%; if for ten days, by 10%; and for fifty days or more, 50%, so
that the number of Conversion Shares deliverable upon conversion of such
Preferred Shares would be increased proportionately). Upon delivery by a
Holder of a Withdrawal Notice, such Holder shall retain all of such Holder's
rights and remedies with respect to the Corporation's failure to deliver such
Conversion Shares (including without limitation the right to receive the cash
payments specified in subparagraph 4(f)(i) above).
(iii) Nothing herein shall limit a Holder's right to pursue
actual damages for the Corporation's failure to issue and deliver Conversion
Shares on the applicable Delivery Date (including, without limitation, damages
relating to any purchase of shares of Common Stock by such Holder to make
delivery on a sale effected in anticipation of receiving Conversion Shares upon
Conversion, such damages to be in an amount equal to (A) the aggregate amount
paid by such Holder for the shares of Common Stock so purchased minus (B) the
aggregate amount of net proceeds, if any, received by such Holder from the sale
of the Conversion Shares issued by the Corporation pursuant to such
Conversion), and such Holder shall have the right to pursue all remedies
available to it at law or in equity (including, without limitation, a decree of
specific performance and/or injunctive relief).
(g) Conversion at Maturity. On the date which is four (4) years
following the Purchase Date (the "Maturity Date"), all Preferred Shares then
outstanding shall be automatically converted into the number of shares of
Common Stock equal to the Stated Value of such shares divided by the Conversion
Price then in effect (a "Mandatory
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Conversion"), such calculation to be made by the Corporation; provided,
however, that if, on the Maturity Date, (i) the number of shares of Common
Stock authorized, unissued and unreserved for all other purposes, or held in
the Corporation's treasury, is not sufficient to effect the issuance and
delivery of the aggregate of (x) the number of Conversion Shares into which all
outstanding Preferred Shares are then convertible, and (y) the number of
Warrant Shares (as defined in the Securities Purchase Agreement) into which all
outstanding Warrants (as defined in the Securities Purchase Agreement) are then
exercisable, (ii) the Common Stock is not designated for quotation on the
Nasdaq National Market or the Nasdaq Small Cap Market (together, the "Nasdaq
Stock Market") or listed on the New York Stock Exchange or American Stock
Exchange, or (iii) a Mandatory Redemption Event (as defined herein) has
occurred and is continuing, each Holder shall have the option, upon written
notice to the Corporation, to retain its rights as a holder of Preferred
Shares, including without limitation, the right to convert such Preferred
Shares in accordance with the terms of paragraphs 4(a) through 4(f) hereof and,
upon delivery of such notice, such Preferred Shares shall not be subject to a
Mandatory Conversion hereunder until the thirtieth (30th) day following the
later of (a) the date on which the event specified (i), (ii) or (iii) is no
longer continuing and (b) the date on which the Corporation delivers to each
Holder written notice to such effect, and in such event, such thirtieth day
shall be deemed to be the Maturity Date for purposes of this Certificate of
Designation. If a Mandatory Conversion occurs, the Corporation and each Holder
shall follow the procedures for Conversion set forth in this Section 4, with
the Maturity Date deemed to be the Conversion Date, except the Holder shall not
be required to send a Conversion Notice as contemplated by paragraph 4(b). In
the event that any Holder disputes the Corporation's calculation of the
applicable Conversion Price or the number of Conversion Shares or Dividend
Payment Shares issuable in connection with a Mandatory Conversion, such dispute
shall be resolved in accordance with the dispute resolution provisions
described in paragraph 4(b) above.
5. CONVERSION LIMITATIONS.
In no event shall a Holder be permitted to convert any Preferred
Shares in excess of the number of such shares, upon the Conversion of which:
(a) the number of Conversion Shares to be issued pursuant to such
Conversion, when added to the number of shares of Common Stock issued pursuant
to all prior Conversions of Preferred Shares and issuances of Dividend Payment
Shares would exceed 19.99% of the number of outstanding shares of Common Stock
on the Purchase Date (subject to equitable adjustments from time to time for
the events described in Section 6 below) (the "Cap Amount"), except that such
limitation shall not apply in the event that (i) the Corporation obtains the
approval of its stockholders for issuances of Common Stock in excess of such
amount (it being understood that any Holder which has converted Preferred
Shares into a number of Conversion Shares which equals or exceeds such Holder's
Allocation Amount (as defined below) shall have the right to require the
Corporation, upon written notice to such effect, to seek such approval as soon
as practicable following the Corporation's receipt of such notice) or (ii) the
Holders of a majority of the Preferred Shares then obtain an opinion of counsel
reasonably satisfactory to the Corporation that such approval is not required.
Until such approval or opinion is obtained, no purchaser of Preferred Shares
pursuant to the Securities Purchase Agreement (each, a "Purchaser" and,
collectively, the "Purchasers") shall be issued, upon Conversion of the
Preferred Shares, Conversion Shares in an amount greater than the product of
(A) the Cap Amount times (B) a fraction, the numerator of which is the number
of Preferred Shares issued to such Purchaser pursuant to the Securities
Purchase Agreement and the denominator of which is the aggregate amount of all
of the Preferred
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Shares issued to the Purchasers pursuant to the Securities Purchase Agreement
(the "Allocation Amount"). In the event that any Purchaser shall sell or
otherwise transfer any of such Purchaser's Preferred Shares, the transferee
shall be allocated a pro rata portion of such Purchaser's Allocation Amount.
In the event that any Holder shall convert all of such Holder's Preferred
Shares into a number of Conversion Shares which, in the aggregate, is less than
such Holder's Allocation Amount, then the difference between such Holder's
Allocation Amount and the number of Conversion Shares actually issued to such
Holder shall be allocated to the respective Allocation Amounts of the remaining
Holders of Preferred Shares on a pro rata basis in proportion to the number of
Preferred Shares then held by each such Holder; or
(b) (x) the number of shares of Common Stock beneficially owned by
such Holder (other than shares of Common Stock issuable upon conversion of such
Preferred Shares or which would otherwise be deemed beneficially owned except
for being subject to a limitation on conversion or exercise analogous to the
limitation contained in this paragraph 5(b)) plus (y) the number of shares of
Common Stock issuable upon the Conversion of such Preferred Shares, would be
equal to or exceed (z) 4.99% of the number of shares of Common Stock then
issued and outstanding. As used herein, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and the rules thereunder. To the extent that the limitation
contained in this paragraph 5(b) applies, the determination of whether
Preferred Shares are convertible (in relation to other securities owned by a
Holder) and of which Preferred Shares are convertible shall be in the sole
discretion of such Holder, and the submission of Preferred Shares for
Conversion shall be deemed to be such Holder's determination that such
Preferred Shares are convertible pursuant to the terms hereof, and the
Corporation shall have no obligation whatsoever to verify or confirm the
accuracy of such determination. This paragraph 5(b) may be amended (i) in
order to clarify an ambiguity or otherwise to give effect to such limitation,
by the Holders of two-thirds (2/3) of the Preferred Shares then outstanding and
(ii) for any other reason, with the further consent of the holders of a
majority of the shares of Common Stock then outstanding. Nothing contained
herein shall be deemed to restrict the right of a Holder to convert Preferred
Shares at such time as the Conversion thereof will not violate the provisions
of this paragraph 5(b). The restriction contained in this paragraph 5(b) shall
not apply in the event of a Mandatory Conversion.
6. ADJUSTMENTS TO CONVERSION PRICE.
(a) Adjustment to Fixed Conversion Price Due to Stock Split, Stock
Dividend, Etc. If, prior to the Conversion of all of the Preferred Shares, (A)
the number of outstanding shares of Common Stock is increased by a stock split,
a stock dividend on the Common Stock, a reclassification of the Common Stock,
the distribution to holders of Common Stock as a class of rights or warrants
entitling them to subscribe for or purchase Common Stock at less than the then
current market price thereof (based upon the subscription or exercise price of
such rights or warrants at the time of the issuance thereof) or other similar
event, the Fixed Conversion Price shall be proportionately reduced, or (B) the
number of outstanding shares of Common Stock is decreased by a reverse stock
split, combination or reclassification of shares or other similar event, the
Fixed Conversion Price shall be proportionately increased. In such event, the
Corporation shall notify the Transfer Agent of such change on or before the
effective date thereof. For purposes hereof, the market price per share of
Common Stock on any date shall be the average Closing Bid Price for the Common
Stock on the five (5) consecutive Trading Days occurring immediately prior to
but not including the earlier of such date and the Trading Day before the "ex"
date, if any, with respect to the issuance or
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distribution requiring such computation. The term "'ex' date", when used with
respect to any issuance or distribution, means the first Trading Day on which
the Common Stock trades regular way in the market from which such average
Closing Bid Price is then to be determined without the right to receive such
issuance or distribution.
(b) Adjustment to Conversion Price. If, prior to the Conversion
of all of the Preferred Shares, the number of outstanding shares of Common
Stock is increased or decreased by a stock split, a stock dividend on the
Common Stock, a combination, a reclassification of the Common Stock or other
similar event, and such event takes place during the reference period for the
determination of the Conversion Price for any Conversion thereof, the
Conversion Price shall be calculated giving appropriate effect to the stock
split, stock dividend, combination, reclassification or other similar event for
all Trading Days occurring during such reference period.
(c) Adjustment Due to Merger, Consolidation, Etc. If, prior to
the Conversion of all of the Preferred Shares, there shall be any merger,
consolidation, business combination, tender offer, exchange of shares,
recapitalization, reorganization, redemption or other similar event, as a
result of which shares of Common Stock shall be exchanged for or changed into
the same or a different number of shares of the same or another class or
classes of stock or securities of the Corporation or another entity (an
"Exchange Transaction"), then such Holder shall (A) upon the consummation of
such Exchange Transaction, have the right to receive, with respect to any
shares of Common Stock then held by such Holder, or which such Holder is then
entitled to receive pursuant to a Conversion Notice previously delivered by
such Holder, (and without regard to whether such shares contain a restrictive
legend or are freely-tradeable) the same amount and type of consideration
(including without limitation, stock, securities and/or other assets) and on
the same terms as a holder of shares of Common Stock would be entitled to
receive in connection with the consummation of such Exchange Transaction (the
"Exchange Consideration"), and (B) upon the Conversion of Preferred Shares
occurring subsequent to the consummation of such Exchange Transaction, the
Exchange Consideration which such Holder would have been entitled to receive in
connection with such Exchange Transaction had such shares been converted
immediately prior to such Exchange Transaction, and in any such case
appropriate provisions shall be made with respect to the rights and interests
of such Holder to the end that the provisions hereof (including, without
limitation, provisions for the adjustment of the Conversion Price and of the
number of shares issuable upon a Conversion) shall thereafter be applicable as
nearly as may be practicable in relation to any securities thereafter
deliverable upon the Conversion of such Preferred Shares. The Corporation shall
not effect any Exchange Transaction unless (i) it first gives to each Holder
twenty (20) days prior written notice of such Exchange Transaction (an
"Exchange Notice"), and makes a public announcement of such event at the same
time that it gives such notice and (ii) the resulting successor or acquiring
entity (if not the Corporation) assumes by written instrument the obligations
of the Corporation hereunder, including the terms of this subparagraph 6(c),
and under the Securities Purchase Agreement and the Registration Rights
Agreement described in the Securities Purchase Agreement (the "Registration
Rights Agreement").
(d) Distribution of Assets. If the Corporation shall declare or
make any distribution of cash, evidences of indebtedness or other securities or
assets (other than cash dividends or distributions payable out of earned
surplus or net profits for the current or the immediately preceding year), or
any rights to acquire any of the foregoing, to holders of Common Stock as a
partial liquidating dividend, by way of return of capital or otherwise,
including any dividend or distribution in shares of capital stock of a
subsidiary of the
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Corporation (collectively, a "Distribution"), then, upon a Conversion by a
Holder occurring after the record date for determining stockholders entitled to
such Distribution, the Fixed Conversion Price for Preferred Shares not
converted prior to the record date of a Distribution shall be reduced to a
price determined by decreasing the Fixed Conversion Price in effect immediately
prior to the record date of the Distribution by an amount equal to the fair
market value of the assets so distributed with respect to each share of Common
Stock, such fair market value to be determined by an investment banking firm
selected by the holders of at least two-thirds (2/3) of the Preferred Shares
then outstanding and reasonably acceptable to the Corporation.
(e) Adjustment Due to Major Announcement. If the Corporation (i)
makes a public announcement that it intends to enter into a Change of Control
Transaction (as defined below) or (ii) any person, group or entity (including
the Corporation) publicly announces a tender offer, exchange offer or other
transaction to purchase 50% or more of the Common Stock (such announcement
being referred to herein as a "Major Announcement" and the date on which a
Major Announcement is made, the "Announcement Date"), then, in the event that a
Holder seeks to convert Preferred Shares on or following the Announcement Date,
the Conversion Price shall, effective upon the Announcement Date and continuing
through the fifth (5th) Business Day following the earlier to occur of the
consummation of the proposed transaction or tender offer, exchange offer or
other transaction and the Abandonment Date (as defined below), be equal to the
lower of (x) the average Closing Bid Price for the Common Stock on the five (5)
Trading Days immediately preceding (but not including) the Announcement Date
and (y) the Conversion Price in effect on the Conversion Date for such
Preferred Shares. "Abandonment Date" means with respect to any proposed
transaction or tender offer, exchange offer or other transaction for which a
public announcement as contemplated by this paragraph 6(e) has been made, the
date upon which the Corporation (in the case of clause (i) above) or the
person, group or entity (in the case of clause (ii) above) publicly announces
the termination or abandonment of the proposed transaction or tender offer,
exchange offer or another transaction which caused this paragraph 6(e) to
become operative.
(f) No Fractional Shares. If any adjustment under this Section
would create a fractional share of Common Stock or a right to acquire a
fractional share of Common Stock, such fractional share shall be disregarded
and, at the Corporation's sole discretion, either the number of shares of
Common Stock issuable upon Conversion shall be the next higher number of shares
or the Corporation shall pay in cash an amount calculated by multiplying the
amount of the fractional share times the Closing Bid Price used to calculate
the Conversion Price for such Conversion.
7. OPTIONAL REDEMPTION BY CORPORATION.
(a) Optional Redemption. The Corporation shall have the right to
redeem all of the outstanding Preferred Shares at any time outstanding in same
day funds at the Optional Redemption Price (as defined below)(an "Optional
Redemption"), to the extent permitted by applicable law and so long as (A) the
Corporation shall have sufficient cash available on the Optional Redemption
Date to effect such Optional Redemption, (B) the Corporation shall have
delivered to each Holder at least thirty (30) Trading Days' prior written
notice (an "Optional Redemption Notice") specifying the date on which such
Optional Redemption is to be effected (the "Optional Redemption Date") and the
amount of the Optional Redemption Price payable to such Holder, and (C) the
Common Stock shall be actively traded on the Nasdaq Stock Market, the New York
Stock Exchange or the American Stock Exchange. Nothing contained
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herein shall limit a Holder's right to convert its Preferred Shares at any time
prior to the Optional Redemption Date.
(b) Optional Redemption Price. The "Optional Redemption Price" to
be paid by the Corporation to a Holder in the event of an Optional Redemption
shall be equal to the Liquidation Preference of the Preferred Shares then held
by such Holder divided by eighty percent (80%).
(c) Payment of Optional Redemption Price.
(i) The Corporation shall pay the Optional Redemption
Price to each Holder within five (5) Business Days following the Optional
Redemption Date. Upon the redemption of a Preferred Share, payment of the
Optional Redemption Price to the Holder thereof will be effected simultaneously
with the return of such share by such Holder to the Corporation.
(ii) If the Corporation fails to pay the Optional
Redemption Price to a Holder within five (5) Business Days of the Optional
Redemption Date and so long as such Holder has tendered its Preferred Shares to
the Corporation, such Holder shall be entitled to interest thereon, from and
after the Optional Redemption Date until the Optional Redemption Price has been
paid in full, at an annual rate equal to the lower of (x) the "prime" rate (as
published in the Wall Street Journal) on such fifth Business Day plus three
percent (3%) and (y) the highest rate permitted by applicable law, for the
number of days elapsed from such Dividend Payment Date until such amount is
paid in full (the "Default Interest Rate")
8. MANDATORY REDEMPTION BY HOLDER.
(a) Mandatory Redemption. In the event that a Mandatory
Redemption Event (as defined below) occurs, each Holder shall have the right,
to the extent permitted by applicable law and subject to the rights and
preferences of the Senior Securities, to have all or any portion of the
Preferred Shares held by such Holder redeemed by the Corporation (a "Mandatory
Redemption") at the Mandatory Redemption Price (as defined herein) in same day
funds. In order to exercise its right to effect a Mandatory Redemption, a
Holder must deliver a written notice (a "Mandatory Redemption Notice") to the
Corporation at any time on or before the Business Day following the day on
which such event is no longer continuing; provided, however, that, in the case
of subparagraph (b)(vi) below, the following procedure shall be followed in
lieu thereof: (a) no sooner than fifteen (15) days nor later than ten (10) days
prior to the Corporation's good faith estimate of the consummation of a Change
of Control Transaction (as defined below), but not prior to the public
announcement of such Change of Control Transaction, the Corporation shall
deliver a written notice (a "Notice of Change of Control Transaction") to each
Holder, and (b) within five (5) days of delivery by the Corporation of a Notice
of Change of Control Transaction, each Holder who wishes to exercise its right
to effect a Mandatory Redemption hereunder shall deliver a Mandatory Redemption
Notice to the Corporation. The Mandatory Redemption Notice shall specify the
effective date of such Mandatory Redemption (the "Mandatory Redemption Date")
and the number of such shares to be redeemed (an Optional Redemption Date and
the Mandatory Redemption Date are each sometimes referred to in this
Certificate as a "Redemption Date"). In the event that a Change of Control
Transaction occurs and the Corporation does not deliver to a Holder a Notice of
Change of Control Transaction, such Holder may exercise its right to a
Mandatory Redemption hereunder by delivering a Mandatory Redemption Notice
12
<PAGE> 14
to the Corporation (or to the surviving or successor entity) at any time on or
before the twentieth (20th) Business Day following such Change of Control
Transaction.
(b) Mandatory Redemption Event. Each of the following events
shall be deemed a "Mandatory Redemption Event":
(i) the Corporation fails for any reason (including
without limitation as a result of not having a sufficient number of shares of
Common Stock authorized and reserved for issuance, or as a result of the
limitation contained in Section 5(a) hereof) to issue shares of Common Stock to
a Holder and deliver certificates representing such shares to such Holder as
and when required by the provisions hereof upon Conversion of any Preferred
Shares, and such failure continues for ten (10) Business Days;
(ii) the Corporation breaches, in a material respect, any
covenant or other material term or condition of this Certificate, the
Securities Purchase Agreement, the Registration Rights Agreement, the Warrant
or any other agreement, document, certificate or other instrument delivered in
connection with the transactions contemplated thereby, and such breach (x) has
occurred as a result of voluntary action taken by the Company or its failure to
use its best efforts to take appropriate action and (y) continues for a period
of five (5) Business Days after written notice thereof to the Corporation from
a Holder;
(iii) any material representation or warranty made by the
Corporation in the Securities Purchase Agreement, the Registration Rights
Agreement, the Warrants or any other agreement, document, certificate or other
instrument delivered in connection with the transactions contemplated hereby or
thereby is inaccurate or misleading in any material respect as of the date such
representation or warranty was made;
(iv) the Registration Statement is not declared effective
by the one hundred and twentieth (120th) day following the Purchase Date or if
following the declaration of effectiveness of the Registration Statement and
while the effectiveness of the Registration Statement is required to be
maintained pursuant to the terms of the Registration Rights Agreement, the
effectiveness of the Registration Statement lapses for any reason (including
without limitation, the issuance of a stop order) or is unavailable to the
Holder for the sale of Conversion Shares in accordance with the terms of the
Registration Rights Agreement, and such lapse or unavailability continues for a
period of five (5) Business Days, provided that the cause of such failure to be
declared effective, lapse or unavailability results from voluntary action
undertaken by the Corporation or its failure to use its best efforts to take
appropriate action; and provided further that the Registration Statement shall
not be deemed to be unavailable to the Holder, for purposes of this
subparagraph (iv) only, during any Blackout Period (as defined in the
Registration Rights Agreement);
(v) the Common Stock is not quoted on the Nasdaq Stock
Market or listed on the New York Stock Exchange or the American Stock Exchange
and such failure to be so quoted or listed has occurred as a result of
voluntary action taken by the Company or its failure to use its best efforts to
take appropriate action; and
(vi) there occurs the sale, conveyance or disposition of
all or substantially all of the assets of the Corporation, or the effectuation
of a transaction or series of related transactions, in which more than 50% of
the voting power of the Corporation is disposed of, or the consolidation,
merger or other business combination of the Corporation with or into any other
entity, immediately following which the prior stockholders of the Corporation
fail
13
<PAGE> 15
to own, directly or indirectly, at least fifty percent (50%) of the surviving
entity (a "Change of Control Transaction") and the Corporation has agreed to
such Change of Control Transaction or its management has recommended to its
stockholders that such Change of Control Transaction be approved.
(c) Mandatory Redemption Price. The "Mandatory Redemption Price"
shall be equal to the greater of (i) Liquidation Preference of the Preferred
Shares being redeemed multiplied by one hundred and twenty five percent (125%)
and (ii) an amount determined by dividing the Liquidation Preference of the
Preferred Shares being redeemed by the Conversion Price in effect on the
Mandatory Redemption Date and multiplying the resulting quotient by the average
Closing Bid Price for the Common Stock on the five (5) Trading Days immediately
preceding (but not including) the Mandatory Redemption Date.
(d) Payment of Mandatory Redemption Price.
(i) The Corporation shall pay the Mandatory Redemption
Price to the Holder exercising its right to redemption within five (5) Business
Days following the Mandatory Redemption Date. Upon the redemption of a
Preferred Share, payment of the Mandatory Redemption Price to the Holder
thereof will be effected simultaneously with the return of such share by such
Holder to the Corporation.
(ii) If the Corporation fails to pay the Mandatory
Redemption Price to a Holder within five (5) Business Days of the Mandatory
Redemption Date and so long as such Holder has tendered its Preferred Shares to
the Corporation, such Holder shall be entitled to interest thereon, from and
after the Mandatory Redemption Date until the Mandatory Redemption Price has
been paid in full, at an annual rate equal to the Default Interest Rate.
(iii) If the Corporation fails to pay the Mandatory
Redemption Price within ten (10) Business Days of the Mandatory Redemption
Date, then the Holder shall have the right at any time, so long as the
Corporation remains in default, to require the Corporation, upon written
notice, to immediately issue, in lieu of the Mandatory Redemption Price, the
number of shares of Common Stock of the Corporation equal to the Mandatory
Redemption Price divided by the Conversion Price in effect on such Conversion
Date as is specified by the Holder in writing to the Corporation, such
Conversion Price to be reduced by one percent (1%) for each day beyond such
10th Business Day in which the failure to pay the Mandatory Redemption Price
continues; provided, however, that the maximum percentage by which such
Conversion Price may be reduced hereunder shall be fifty percent (50%).
9. MISCELLANEOUS.
(a) Transfer of Preferred Shares. A Holder may sell or transfer
all or any portion of the Preferred Shares to any person or entity as long as
such sale or transfer is the subject of an effective registration statement
under the Securities Act or is exempt from registration thereunder and
otherwise is made in accordance with the terms of the Securities Purchase
Agreement. From and after the date of such sale or transfer, the transferee
thereof shall be deemed to be a Holder. Upon any such sale or transfer, the
Corporation shall, promptly following the return of the certificate or
certificates representing the Preferred Shares that are the subject of such
sale or transfer, issue and deliver to such transferee a new certificate in the
name of such transferee.
14
<PAGE> 16
(b) Notices. Except as otherwise provided herein, any notice,
demand or request required or permitted to be given pursuant to the terms
hereof, the form or delivery of which notice, demand or request is not
otherwise specified herein, shall be in writing and shall be deemed given (i)
when delivered personally or by verifiable facsimile transmission on or before
5:00 p.m., eastern time, on a Business Day or, if such day is not a Business
Day, on the next succeeding Business Day, (ii) on the next Business Day after
timely delivery to an overnight courier and (iii) on the third Business Day
after deposit in the U.S. mail (certified or registered mail, return receipt
requested, postage prepaid), addressed to the parties as follows:
If to the Corporation:
Queen Sand Resources, Inc.
3500 Oak Lawn, Suite 380
Dallas, Texas 75219-4398
Attn.: Chief Executive Officer
Fax: 214-521-9960
and if to any Holder, to such address for such Holder as shall be designated by
such Holder in writing to the Corporation.
(c) Lost or Stolen Certificate. Upon receipt by the Corporation
of evidence of the loss, theft, destruction or mutilation of a certificate
representing Preferred Shares, and (in the case of loss, theft or destruction)
of indemnity or security reasonably satisfactory to the Corporation, and upon
surrender and cancellation of such certificate if mutilated, the Corporation
shall execute and deliver to the Holder a new certificate identical in all
respects to the original certificate.
(d) No Voting Rights. Except as provided by applicable law and
paragraph 8(g) below, the Holders of the Preferred Shares shall have no voting
rights with respect to the business, management or affairs of the Corporation.
The Corporation shall provide each Holder with prior notification of each
meeting of stockholders (and copies of proxy statements and other information
sent to such stockholders).
(e) Remedies, Characterization, Other Obligations, Breaches and
Injunctive Relief. The remedies provided to a Holder in this Certificate of
Designation shall be cumulative and in addition to all other remedies available
to such Holder under this Certificate of Designation, at law or in equity
(including without limitation a decree of specific performance and/or other
injunctive relief), no remedy contained herein shall be deemed a waiver of
compliance with the provisions giving rise to such remedy and nothing contained
herein shall limit such Holder's right to pursue actual damages for any failure
by the Corporation to comply with the terms of this Certificate of Designation.
The Corporation agrees with each Holder that there shall be no characterization
concerning this instrument other than as specifically provided herein. Amounts
set forth or provided for herein with respect to payments, conversion and the
like (and the computation thereof) shall be the amounts to be received by the
Holder hereof and shall not, except as expressly provided herein, be subject to
any other obligation of the Corporation (or the performance thereof). The
Corporation acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Holders and that the remedy at law for any such
breach may be inadequate. The Corporation agrees, in the event of any such
breach or threatened breach, each Holder shall be entitled, in addition to all
other available remedies, to an injunction restraining any
15
<PAGE> 17
breach, without the necessity of showing economic loss and without any bond or
other security being required.
(f) Failure or Delay not Waiver. No failure or delay on the part
of a Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege.
(g) Protective Provisions.
So long as shares of Series C Preferred Stock are outstanding,
the Corporation shall not, without first obtaining the approval of the Holders
of at least two-thirds (2/3) of the then outstanding shares of Series C
Preferred Stock:
(i) alter or change the rights, preferences or
privileges of the Series C Preferred Stock or any other capital stock of the
Corporation so as to affect adversely the Series C Preferred Stock;
(ii) create any new class or series of capital
stock having a preference over or ranking pari passu with the Series C
Preferred Stock as to redemption, the payment of dividends or distribution of
assets upon a Liquidation Event or any other liquidation, dissolution or
winding up of the Corporation;
(iii) increase the authorized number of shares of
Preferred Stock;
(iv) re-issue any shares of Series C Preferred
Stock which have been converted in accordance with the terms hereof;
(v) issue any Senior Securities (other than the
Company's Series B Participating Convertible Preferred Stock pursuant to the
terms of the Company's Series A Participating Convertible Preferred Stock) or
Pari Passu Securities; or
(vi) declare, pay or make any provision for any
dividend or distribution with respect to the Common Stock or any other capital
stock of the Corporation ranking junior to the Series C Preferred Stock as to
dividends or as to the distribution of assets upon liquidation, dissolution or
winding up of the Corporation.
In the event that Holders of at least two-thirds (2/3) of the then
outstanding shares of Series C Preferred Stock agree to allow the Corporation
to alter or change the rights, preferences or privileges of the shares of
Series C Preferred Stock pursuant to the terms hereof, or to waive any rights
of the Holders hereunder, then the Corporation will deliver notice of such
approved change to the holders of the Series C Preferred Stock that did not
agree to such alteration or change (the "Dissenting Holders") and the
Dissenting Holders shall have the right for a period of thirty (30) days
following such delivery to convert their Preferred Shares pursuant to the terms
hereof as they existed prior to such alteration or change, or to continue to
hold such Preferred Shares. No such change shall be effective to the extent
that, by its terms, it applies to less than all of the Holders of Preferred
Shares then outstanding.
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<PAGE> 18
IN WITNESS WHEREOF, the Corporation has executed this Certificate of
Designation as of the 22nd day of December, 1997.
QUEEN SAND RESOURCES, INC.
By: /s/ Robert P. Lindsay
-----------------------------------
Name: Robert P. Lindsay
Title: Executive Vice President
and Chief Operating Officer
17
<PAGE> 19
EXHIBIT A
NOTICE OF CONVERSION
The undersigned hereby elects to convert shares of Series C Convertible
Preferred Stock (the "Preferred Stock"), represented by stock certificate
No(s). _______________ (the "Preferred Stock Certificates"), into shares of
common stock ("Common Stock") of Queen Sand Resources, Inc. (the "Company")
according to the terms and conditions of the Certificate of Designation
relating to the Preferred Stock (the "Certificate of Designation"), as of the
date written below. Capitalized terms used herein and not otherwise defined
shall have the respective meanings set forth in the Certificate of Designation.
[ ] (check box if shares of Common Stock have been resold) The undersigned
represents that the shares of Common Stock to be issued by the Company hereby
have been resold or transferred by the undersigned in accordance with the
provisions of the prospectus included in the Registration Statement.
<TABLE>
<S> <C> <C>
Date of Conversion:
- ---------------------------------------- ----------------------------------------
Number of Shares of
Preferred Stock to be Converted:
- ---------------------------------------- ----------------------------------------
Applicable Conversion Price:
- ---------------------------------------- ----------------------------------------
Number of Shares of
Common Stock to be Issued:
- ---------------------------------------- ----------------------------------------
Amount of Dividend
Accrued through the
Conversion Date:
- ---------------------------------------- ----------------------------------------
Number of Shares of
Common Stock to be Issued
in Payment of Dividend:
- ---------------------------------------- ----------------------------------------
Name of Holder:
---------------------------------------------------------------
Address:
-------------------------------------------------------------
-------------------------------------------------------------
Signature:
-------------------------------------------------------------
Name:
Title:
</TABLE>
<PAGE> 20
Holder Requests Delivery to be made: (check one)
[ ] By Delivery of Physical Certificates to the Above Address
[ ] Through Depository Trust Corporation
(Account _______________________________________________________)
<PAGE> 1
EXHIBIT 1.2
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of December
22, 1997, by and among Queen Sand Resources, Inc., a Delaware corporation (the
"Company"), and each of the entities whose names appear on the signature pages
hereof. Such entities are each referred to herein as a "Purchaser" and,
collectively, as the "Purchasers".
The Company wishes to sell to each Purchaser, and each Purchaser
wishes to buy, on the terms and subject to the conditions set forth in this
Agreement, (i) shares (the "Preferred Shares") of the Company's Series C
Convertible Preferred Stock, par value $0.01 per share (the "Preferred Stock"),
and (ii) a warrant in the form of Exhibit A hereto (a "Warrant" and, when taken
together with all of the warrants issued or issuable hereunder, the "Warrants")
entitling the holder thereof to purchase shares (the "Warrant Shares") of the
Company's Common Stock, par value $0.0015 per share (the "Common Stock"). The
Preferred Shares are convertible pursuant to the terms of a Certificate of
Designation relating to the Preferred Stock, the form of which is attached
hereto as Exhibit B (the "Certificate of Designation") into shares (the
"Conversion Shares") of the Common Stock. Dividends on the Preferred Shares are
payable, subject to the terms and conditions of the Certificate of Designation,
in shares of Common Stock (the "Dividend Payment Shares"). The Preferred
Shares, the Warrants, the Conversion Shares, the Warrant Shares and the
Dividend Payment Shares are collectively referred to herein as the
"Securities".
The Company has agreed to effect the registration of the Conversion
Shares, the Warrant Shares and the Dividend Payment Shares under the Securities
Act of 1933, as amended (the "Securities Act"), pursuant to a Registration
Rights Agreement of even date herewith by and among the Company and the
Purchasers (the "Registration Rights Agreement"). The sale of the Preferred
Shares and the Warrants by the Company to the Purchasers will be effected in
reliance upon the exemption from securities registration afforded by the
provisions of Regulation D ("Regulation D"), as promulgated by the Securities
and Exchange Commission (the "Commission") under the Securities Act.
The Company and the Purchasers hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES.
1.1 Agreement to Purchase and Sell. Upon the terms and subject to
the satisfaction of the conditions set forth herein, the Company agrees to sell
at the Closing (as defined below), and each Purchaser agrees to purchase, (i)
the number of Preferred Shares set forth below such Purchaser's name on the
signature pages hereof and (ii) a Warrant entitling the holder thereof to
purchase the number of shares of Common Stock set forth below such Purchaser's
name on the signature pages hereof, at a purchase price equal to one thousand
dollars ($1,000) times the number of Preferred Shares purchased by such
Purchaser (the "Purchase Price").
<PAGE> 2
1.2 Closing. Subject to the satisfaction or waiver of the
conditions set forth herein, the closing of the purchase and sale of the
Preferred Shares and the Warrants (the "Closing") will be deemed to occur when
this Agreement and the other Transaction Documents (as defined below) have been
executed and delivered by the Company and each Purchaser (which delivery may be
effected by facsimile transmission), and full payment of the Purchase Price has
been made by each Purchaser by wire transfer of immediately available funds
against physical delivery by the Company of duly executed certificates
representing the Preferred Shares and the Warrant purchased by such Purchaser
hereunder. The date on which the Closing is deemed to occur is referred to
herein as the "Closing Date".
1.3 Certain Definitions. When used herein, (A) "business day"
shall mean any day on which the New York Stock Exchange and commercial banks in
the city of New York are open for business, (B) an "affiliate" of a party shall
mean any person or entity controlling, controlled by or under common control
with that party and (C) "control" shall mean, with respect to an entity, the
ability to direct the business, operations or management of such entity,
whether through an equity interest therein or otherwise.
2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Each Purchaser, solely with respect to it, hereby makes the following
representations and warranties to the Company and agrees with the Company that,
as of the date of this Agreement and as of the Closing Date:
2.1 Authorization; Enforceability. Such Purchaser is duly and
validly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization with full power and authority
to purchase the Preferred Shares and the Warrant and to execute and deliver
this Agreement. This Agreement constitutes such Purchaser's valid and legally
binding obligation, enforceable in accordance with its terms, except as such
enforcement may be limited by (i) applicable bankruptcy, insolvency,
reorganization or other laws of general application relating to or affecting
the enforcement of creditors' rights generally and (ii) general principles of
equity.
2.2 Accredited Investor; Investment Intent. Such Purchaser is an
accredited investor as that term is defined in Rule 501(a)(3) of Regulation D,
and is acquiring the Preferred Shares and the Warrant solely for its own
account for investment purposes as a principal and not with a present view to
the public resale or distribution of all or any part thereof, except pursuant
to sales that are exempt from the registration requirements of the Securities
Act and/or sales registered under the Securities Act; provided, however that in
making such representation, such Purchaser does not agree to hold the
Securities for any minimum or specific term and reserves the right to sell,
transfer or otherwise dispose of the Securities at any time in accordance with
the provisions of this Agreement and with Federal and state securities laws
applicable to such sale, transfer or disposition.
2.3 Information. The Company has provided such Purchaser with
information regarding the business, operations and financial condition of the
Company, and has granted to such Purchaser the opportunity to ask questions of
and receive answers from representatives of the Company, its officers,
directors, employees and agents concerning the Company and materials relating
to the terms and conditions of the purchase and sale of the Preferred Shares
and the Warrants hereunder. Neither such
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<PAGE> 3
information nor any other investigation conducted by such Purchaser or any of
its representatives shall modify, amend or otherwise affect such Purchaser's
right to rely on the Company's representations and warranties contained in this
Agreement.
2.4 Limitations on Disposition. Such Purchaser acknowledges that,
except as provided in the Registration Rights Agreement, the Securities have
not been and are not being registered under the Securities Act and may not be
transferred or resold without registration under the Securities Act or unless
pursuant to an exemption therefrom.
2.5 Legend. Such Purchaser understands that the certificates
representing the Securities may bear at issuance a restrictive legend in
substantially the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act"), or the securities laws of any state, and
may not be offered or sold unless a registration statement
under the Securities Act and applicable state securities laws
shall have become effective with regard thereto, or an
exemption from registration under the Securities Act and
applicable state securities laws is available in connection
with such offer or sale. Such securities are issued subject to
the provisions of (i) the Certificate of Designation relating
to the Series C Convertible Preferred Stock of Queen Sand
Resources, Inc. (the "Company"), as amended, (ii) a Securities
Purchase Agreement, dated December 22, 1997, by and among the
Company and the purchasers named therein, and (iii) a
Registration Rights Agreement, dated December 22, 1997, by and
among the Company and such purchasers."
Notwithstanding the foregoing, it is agreed that, as long as
(A) the resale or transfer (including without limitation a pledge) of any of
the Securities is registered pursuant to an effective registration statement,
(B) such Securities can be sold pursuant to Rule 144 under the Securities Act
("Rule 144") and a registered broker dealer provides to the Company a customary
broker's Rule 144 letter and such Purchaser delivers to the Company a customary
seller's representation letter and a copy of any Form 144 which may have been
required to be filed by such Holder pursuant to Rule 144, or (C) such
Securities are eligible for resale under Rule 144(k), such Securities shall be
issued without any legend or other restrictive language and, with respect to
Securities upon which such legend is stamped, the Company shall issue new
certificates without such legend to the holder upon request.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby makes the following representations and warranties
to each Purchaser and agrees with such Purchaser that, as of the date of this
Agreement and as of the Closing Date:
3.1 Organization, Good Standing and Qualification. Each of the
Company and its subsidiaries is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization and has all requisite corporate power and authority to carry on
its business as now conducted. Each of the Company and its subsidiaries is
duly qualified to transact business and is in good standing in each
jurisdiction in which the failure so to qualify would have a
-3-
<PAGE> 4
material adverse effect on the consolidated business or financial condition of
the Company and its subsidiaries taken as a whole. The term "subsidiaries"
shall mean entities in which the Company has an equity interest of 50% or
greater.
3.2 Authorization; Consents. The Company has the requisite
corporate power and authority to enter into and perform its obligations under
(i) this Agreement, (ii) the Registration Rights Agreement and (iii) all other
agreements, documents, certificates or other instruments delivered by the
Company at the Closing (the instruments described in (i), (ii) and (iii) being
collectively referred to herein as the "Transaction Documents"), to execute and
perform its obligations under the Certificate of Designation, to execute and
perform its obligations under the Warrants, to issue and sell the Preferred
Shares and the Warrants to such Purchaser in accordance with the terms hereof,
to issue the Conversion Shares upon conversion of the Preferred Shares in
accordance with the Certificate of Designation, to issue the Warrant Shares
upon exercise of the Warrants and to issue the Dividend Payment Shares in
accordance with the Certificate of Designation. All corporate action on the
part of the Company by its officers, directors and stockholders necessary for
(A) the authorization, execution and delivery of, and the performance by the
Company of its obligations under, the Transaction Documents, (B) the
authorization, execution and filing of, and the performance by the Company of
its obligations under, the Certificate of Designation, and (C) the
authorization and execution, and the performance by the Company of its
obligations under, the Warrants has been taken, and no further consent or
authorization of the Company, its Board of Directors, its stockholders, any
governmental agency or organization (other than such approval as may be
required under the Securities Act and applicable state securities laws in
respect of the Registration Rights Agreement), or any other person or entity is
required (pursuant to any rule of the National Association of Securities
Dealers, Inc., other than with respect to the listing of the Conversion Shares
on the Nasdaq Small Cap Market, or otherwise).
3.3 Enforcement. The Transaction Documents and the Certificate of
Designation constitute, and the Warrants upon issuance will constitute, valid
and legally binding obligations of the Company, enforceable in accordance with
their respective terms, except as such enforcement may be limited by (i)
applicable bankruptcy, insolvency, reorganization or other laws of general
application relating to or affecting the enforcement of creditors' rights
generally, (ii) general principles of equity and (iii) as to indemnification
under the Securities Act or Exchange Act, principles of public policy.
3.4 Disclosure Documents; Agreements; Financial Statements; Other
Information. The Company has filed with the Commission: (i) the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1996, (ii)
Quarterly Reports on Form 10-QSB for the quarters ended March 31, 1997, June
30, 1997 and September 30, 1997, (iii) all Current Reports on Form 8-K required
to be filed with the Commission since December 31, 1996 and (iv) the Company's
definitive Proxy Statement for its 1997 Annual Meeting of Stockholders
(collectively, the "Disclosure Documents"). The Company is not aware of any
event occurring on or prior to the Closing (other than the transactions
effected hereby) that would require the filing of, or with respect to which the
Company intends to file, a Form 8-K after the Closing. Each Disclosure
Document, as of the date of the filing thereof with the Commission, conformed
in all material respects to the requirements of the Exchange Act, and the rules
and regulations thereunder and, as of the date of such filing, such Disclosure
Document did not contain an untrue statement of material fact or omit to state
a material fact required to be stated therein or
-4-
<PAGE> 5
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. All material agreements required to be
filed as exhibits to the Disclosure Documents have been filed as required.
Neither the Company nor any of its subsidiaries is in breach of any agreement
to which it is a party or by which it is bound where such breach is reasonably
likely to have a material adverse effect on the consolidated business or
financial condition of the Company and its subsidiaries taken as a whole.
Except as set forth in the Disclosure Documents or any schedule or exhibit
attached hereto, the Company has no liabilities, contingent or otherwise, other
than liabilities incurred in the ordinary course of business which, under
generally accepted accounting principles, are not required to be reflected in
such financial statements and which, individually or in the aggregate, are not
material to the consolidated business or financial condition of the Company and
its subsidiaries taken as a whole. As of their respective dates, the financial
statements of the Company included in the Disclosure Documents complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the Commission with respect thereto. Such
financial statements have been prepared in accordance with generally accepted
accounting principles consistently applied at the times and during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto, or (ii) in the case of unaudited interim statements, to
the extent they may exclude footnotes or may be condensed or summary
statements) and fairly present in all material respects the financial position
of the Company as of the dates thereof and the results of its operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end adjustments). The written information described
in paragraph 2.3 above does not contain an untrue statement of material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading, and does not include any material, non-public
information.
3.5 Capitalization. The capitalization of the Company as of the
date hereof, including its authorized capital stock, the number of shares
issued and outstanding, the number of shares issuable and reserved for issuance
pursuant to the Company's stock option plans, the number of shares issuable and
reserved for issuance pursuant to securities (other than the Preferred Stock)
exercisable for, or convertible into or exchangeable for any shares of Common
Stock and the number of shares initially to be reserved for issuance upon
conversion of the Preferred Shares and exercise of the Warrants is set forth on
Schedule 3.5 hereto. All of such outstanding shares of capital stock have
been, or upon issuance will be, validly issued, fully paid and non-assessable.
No shares of the capital stock of the Company are subject to preemptive rights
or any other similar rights of the stockholders of the Company or any liens or
encumbrances created by or through the Company. Except as disclosed on
Schedule 3.5, or as contemplated herein, as of the date of this Agreement and
as of the Closing, there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into or exercisable or exchangeable for, any
shares of capital stock of the Company or any of its subsidiaries, or
arrangements by which the Company or any of its subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
subsidiaries.
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3.6 Valid Issuance.
3.6.1 The Preferred Shares are duly authorized and, when
issued, sold and delivered in accordance with the terms hereof, (i) will be
duly and validly issued, fully paid and nonassessable, free and clear of any
taxes, liens, claims, preemptive or similar rights or encumbrances imposed by
or through the Company, (ii) based in part upon the representations of such
Purchaser in this Agreement, will be issued, sold and delivered in compliance
with all applicable Federal and state securities laws and (iii) will be
entitled to all of the rights, preferences and privileges set forth in the
Certificate of Designation. The Conversion Shares are duly authorized and
reserved for issuance and, when issued upon conversion of the Preferred Shares
in accordance with the terms of the Certificate of Designation, will be duly
and validly issued, fully paid and nonassessable, free and clear of any taxes,
liens, claims, preemptive or similar rights or encumbrances imposed by or
through the Company. The Dividend Payment Shares are duly authorized and, upon
the issuance thereof in accordance with the terms of the Certificate of
Designation, will be duly and validly issued, fully paid and nonassessable,
free and clear of any taxes, liens, claims, preemptive or similar rights or
encumbrances imposed by or through the Company.
3.6.2 The Warrants are duly authorized and, when issued, sold
and delivered in accordance with the terms hereof, will be duly and validly
issued, fully paid and nonassessable, free and clear of any taxes, liens,
claims, preemptive or similar rights or encumbrances imposed by or through the
Company. The Warrant Shares are duly authorized and reserved for issuance and,
when issued upon exercise of the Warrants in accordance with the terms thereof,
will be duly and validly issued, fully paid and nonassessable, free and clear
of any taxes, liens, claims, preemptive or similar rights or encumbrances
imposed by or through the Company.
3.7 No Conflict with Other Instruments. Neither the Company nor
any of its subsidiaries is in violation of any provisions of its charter,
Bylaws or any other governing document as amended and in effect on and as of
the date hereof or in default (and no event has occurred which, with notice or
lapse of time or both, would constitute a default) under any provision of any
instrument or contract to which it is a party or by which it is bound, or of
any provision of any Federal or state judgment, writ, decree, order, statute,
rule or governmental regulation applicable to the Company, which would have a
material adverse effect on the consolidated business or financial condition of
the Company and its subsidiaries taken as a whole. Except as described on
Schedule 3.7, the (i) execution, delivery and performance of this Agreement and
the other Transaction Documents, (ii) execution and filing of the Certificate
of Designation, and (iii) consummation of the transactions contemplated hereby
and thereby (including without limitation, the issuance of the Preferred
Shares, the issuance of the Warrants and the reservation for issuance and
issuance of the Conversion Shares, the Warrant Shares and the Dividend Payment
Shares) will not result in any such violation or be in conflict with or
constitute, with or without the passage of time and giving of notice, either a
default under any such provision, instrument or contract or an event which
results in the creation of any lien, charge or encumbrance upon any assets of
the Company or of any of its subsidiaries or the triggering of any preemptive
or anti-dilution rights or rights of first refusal or first offer on the part
of holders of the Company's securities.
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3.8 Financial Condition; Taxes; Litigation.
3.8.1 The Company's financial condition is, in all material
respects, as described in the Disclosure Documents, except for changes in the
ordinary course of business and normal year-end adjustments that are not, in
the aggregate, materially adverse to the consolidated business or financial
condition of the Company and its subsidiaries taken as a whole. Except as
otherwise described in the Disclosure Documents, as of the date hereof and as
of the Closing there has been no material adverse change to the Company's
business, operations, properties, financial condition, prospects or results of
operations since the date of the Company's most recent audited financial
statements contained in the Disclosure Documents.
3.8.2 The Company has filed all tax returns required to be
filed by it and paid all taxes which are due, except for taxes which it
reasonably disputes or which could not reasonably be expected to have a
material adverse effect on the consolidated business or financial condition of
the Company and its subsidiaries taken as a whole.
3.8.3 Each of the Company and its subsidiaries is not the
subject of any pending or, to the Company's knowledge, threatened inquiry,
investigation or administrative or legal proceeding by the Internal Revenue
Service, the taxing authorities of any state or local jurisdiction, the
Commission or any state securities commission or other governmental or
regulatory entity which could reasonably be expected to have a material adverse
effect on the consolidated business or financial condition of the Company and
its subsidiaries taken as a whole.
3.8.4 There is no material claim, litigation or
administrative proceeding pending, or, to the Company's knowledge, threatened
or contemplated, against the Company or any of its subsidiaries, or against any
officer, director or employee of the Company or any such subsidiary in
connection with such person's employment therewith. Neither the Company nor
any of its subsidiaries is a party to or subject to the provisions of, any
order, writ, injunction, judgment or decree of any court or government agency
or instrumentality which could reasonably be expected to have a material
adverse effect on the consolidated business or financial condition of the
Company and its subsidiaries taken as a whole.
3.9 Reporting Company; Form S-3. The Company is subject to the
reporting requirements of the Exchange Act, has a class of securities
registered under Section 12 of the Exchange Act, and has filed all reports
required thereby. The Company is eligible to register for resale shares of its
Common Stock on a registration statement on Form S-3 under the Securities Act.
3.10 Acknowledgement of Dilution. The Company acknowledges that
the issuance of (i) the Conversion Shares upon conversion of the Preferred
Shares in accordance with the terms of the Certificate of Designation, (ii) the
Warrant Shares upon exercise of the Warrants, and (iii) the Dividend Payment
Shares in accordance with the terms of the Certificate of Designation may
result in dilution of the outstanding shares of Common Stock, which dilution
may be substantial under certain market conditions. The Company further
acknowledges that its obligation (x) to issue Conversion Shares upon conversion
of the Preferred Shares in accordance with the terms of the Certificate of
Designation, (y) to issue Warrant Shares upon exercise of the Warrants and (z)
to issue Dividend Payment Shares in accordance with the terms of the
Certificate of Designation is unconditional and absolute regardless of the
effect of any such dilution.
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3.11 Intellectual Property. The Company and its subsidiaries each
owns or possesses adequate trademarks, trade names and other rights to
inventions, know-how, patents, copyrights, confidential information and other
intellectual property rights necessary to conduct the business now operated by
it, and is not aware of any infringement by a third party with respect to such
rights or of any infringement by it or conflict with asserted rights of others
that, in any such case, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a material adverse
effect on the consolidated business or financial condition of the Company and
its subsidiaries taken as a whole.
3.12 Registration Rights; Rights of Participation. Except as
described on Schedule 3.12 hereto, (A) the Company has not granted or agreed to
grant to any person or entity any rights (including "piggy-back" registration
rights) to have any securities of the Company registered with the Commission or
any other governmental authority which has not been satisfied and (B) no person
or entity, including, but not limited to, current or former stockholders of the
Company, underwriters, brokers, agents or other third parties, has any right of
first refusal, preemptive right, right of participation, or any similar right
to participate in the transactions contemplated by this Agreement, the other
Transaction Documents or the Certificate of Designation which has not been
waived.
3.13 Trading on Nasdaq. The Common Stock is authorized for
quotation on the Nasdaq Small Cap Market, and trading in the Common Stock on
Nasdaq has not been suspended. The Company is in full compliance with the
designation criteria of the Nasdaq Small Cap Market, and does not reasonably
anticipate that the Common Stock will lose its designation as a Nasdaq Small
Cap Market Security, whether by reason of the transactions contemplated by this
Agreement, the other Transaction Documents or the Certificate of Designation.
3.14 Solicitation. Neither the Company nor any of its subsidiaries
or affiliates, nor any person acting on its or their behalf, (i) has engaged in
any form of general solicitation or general advertising (within the meaning of
Regulation D) in connection with the offer or sale of the Preferred Shares or
the Warrants or (ii) has, directly or indirectly, made any offers or sales of
any security or solicited any offers to buy any security, under any
circumstances that would require registration of the Preferred Shares or the
Warrants under the Securities Act.
3.15 Fees. Except as described on Schedule 3.15 hereto, the
Company is not obligated to pay any compensation or other fee, cost or related
expenditure to any underwriter, broker, agent or other representative in
connection with the transactions contemplated hereby.
3.16 Foreign Corrupt Practices. To the knowledge of the Company,
neither the Company, nor any of its subsidiaries nor any director, officer,
agent, employee or other person acting on behalf of the Company or any
subsidiary, has (i) used any corporate funds for any unlawful contribution,
gift, entertainment or other unlawful expenses relating to political activity,
(ii) made any direct or indirect unlawful payment to any foreign or domestic
government official or employee, (iii) violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended, or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.
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<PAGE> 9
3.17 Other Issuances of Securities. The Company has not issued
(and will not issue) any shares of Common Stock or shares of any series of
preferred stock or other securities or instruments convertible into,
exchangeable for or otherwise entitling the holder thereof to acquire shares of
Common Stock which would be integrated with the sale of the Preferred Shares to
such Purchaser, or the issuance of the Conversion Shares upon conversion
thereof, for purposes of determining whether stockholder approval is required
under the designation criteria of the Nasdaq Small Cap Market.
3.18 Title. The Company and its subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its subsidiaries, in each case free and clear of all liens,
encumbrances and defects, except for liens, claims or encumbrances as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company and its
subsidiaries. Any real property and facilities held under lease by the Company
and its subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with the
use made and proposed to be made of such property and buildings by the Company
and its subsidiaries.
3.19 Regulatory Permits. The Company and its subsidiaries possess
all certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any such subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit.
4. COVENANTS OF THE COMPANY.
4.1 Corporate Existence. The Company shall, so long as any
Purchaser or any affiliate of such Purchaser beneficially owns any Securities,
maintain its corporate existence in good standing and shall pay all taxes owed
by it when due except for taxes which the Company reasonably disputes or as to
which the failure to pay could not reasonably be expected to have a material
adverse effect on the consolidated business or financial condition of the
Company and its subsidiaries taken as a whole.
4.2 Provision of Information. The Company shall provide each
Purchaser with copies of its annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K and proxy statements and other materials
sent to stockholders, in each such case promptly after the filing thereof with
the Commission, until the conversion or redemption of all of the Preferred
Shares and exercise in full of all of the Warrants held by such Purchaser.
4.3 Form D; Blue-Sky Qualification. The Company agrees to file a
Form D with respect to the Securities as required under Regulation D and to
provide a copy thereof to each Purchaser promptly after such filing. The
Company shall, on or before the Closing, take such action as is necessary to
qualify the Preferred Shares and Warrants for sale under applicable state or
"blue-sky" laws or obtain an exemption therefrom, and shall provide evidence of
any such action to each Purchaser at or prior to the Closing.
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<PAGE> 10
4.4 Reporting Status. As long as any Purchaser or any affiliate
of such Purchaser beneficially owns any Securities and until the date on which
any of the foregoing may be sold to the public pursuant to Rule 144(k) (or any
successor rule or regulation), (i) the Company shall timely file with the
Commission all reports required to be so filed pursuant to the Exchange Act and
(ii) the Company shall not terminate its status as an issuer required by the
Exchange Act to file reports thereunder even if the Exchange Act or the rules
or regulations thereunder would permit such termination. The Company agrees to
file with the Commission a Form 8-K describing the terms of the transactions
contemplated by this Agreement and the other Transaction Documents, with the
Transaction Documents attached to such Form 8-K as an exhibit thereto, on or
before the tenth (10th) day following the Closing Date in the form required by
the Exchange Act.
4.5 Reservation of Common Stock. The Company shall at all times
have authorized and reserved for issuance, free from any preemptive rights,
solely for the purpose of effecting conversions of the Preferred Shares
hereunder and the exercise of the Warrants, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
of the Preferred Shares and the exercise of the Warrants in full (the "Reserved
Amount"). As of the Closing Date, the Reserved Amount shall be equal to no
less than 200% of the number of shares of Common Stock issuable upon (i)
conversion of all of the Preferred Shares to be issued at the Closing (assuming
for such purpose that such conversion were to occur as of the Closing Date) and
(ii) exercise of all of the Warrants to be issued at the Closing. If on any
date the Reserved Amount is less than 175% of the number of shares of Common
Stock then issuable upon conversion of all of the Preferred Shares then
outstanding (assuming for such purpose that such conversion were to occur as of
such date) and (ii) exercise of all of the Warrants then outstanding, the
Company shall take action (including without limitation seeking stockholder
authorization for the reservation of additional shares of Common Stock) as soon
as practicable (but in no event longer than thirty (30) days) to increase the
Reserved Amount to no less than 200% of the number of shares of Common Stock
into which such outstanding Preferred Shares are then convertible and such
outstanding Warrants are exercisable. The Company shall not reduce the number
of shares reserved for issuance hereunder without the written consent of the
holders of two-thirds of the Preferred Shares then outstanding. No Purchaser
shall be issued, upon conversion of Preferred Shares or exercise of the
Warrants, shares of Common Stock in an amount greater than the product of (A)
the Reserved Amount in effect on the date on which notice of such conversion or
exercise is delivered to the Company pursuant to the terms of the Certificate
of Designation times (B) a fraction, the numerator of which is the number of
Preferred Shares purchased by such Purchaser hereunder and the denominator of
which is the aggregate amount of all of the Preferred Shares purchased by the
Purchasers hereunder.
4.6 Use of Proceeds. The Company shall use the proceeds from the
sale of the Preferred Shares and the Warrants for general corporate purposes
only, in the ordinary course of its business and consistent with past practice
and shall not use such proceeds to make a loan to any employee, officer or
director of the Company or to repurchase or pay a dividend on shares of Common
Stock.
4.7 Quotation on Nasdaq. The Company shall (i) promptly following
the Closing, take such action as may be necessary to include the Conversion
Shares, the Warrant Shares and the Dividend Payment Shares on the Nasdaq Small
Cap Market, and (ii) use its best efforts to maintain the
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<PAGE> 11
designation and quotation, or listing, of the Common Stock on the Nasdaq Small
Cap Market, the Nasdaq National Market, the New York Stock Exchange or the
American Stock Exchange.
4.8 Use of Purchaser Name. Except as may be required by
applicable law, the Company shall not use, directly or indirectly, any
Purchaser's name in any advertisement, announcement, press release or other
similar communication unless it has received the prior written consent of such
Purchaser for the specific use contemplated or as otherwise required by
applicable law or regulation.
4.9 Company's Instructions to Transfer Agent. On or prior to the
Closing, the Company shall execute and deliver irrevocable instructions to its
transfer agent (the "Transfer Agent") (i) to issue certificates representing
Conversion Shares upon conversion of the Preferred Shares in accordance with
the terms of the Certificate of Designation and receipt of a valid Conversion
Notice (as defined in the Certificate of Designation) from a Purchaser, in the
amount specified in such Conversion Notice, in the name of such Purchaser or
its nominee, (ii) to issue certificates representing Warrant Shares upon
exercise of the Warrants in accordance with their terms and receipt of a valid
Exercise Notice (as defined in the Warrants) from a Purchaser, in the amount
specified in such Exercise Notice in the name of such Purchaser or its nominee,
(iii) to issue certificates representing the Dividend Payment Shares upon the
issuance thereof in accordance with the Certificate of Designation and (iv) to
deliver such certificates to such Purchaser no later than the close of business
on the later to occur of (A) the third (3rd) business day following the related
Conversion Date or the Dividend Payment Date (each as defined in the
Certificate of Designation) or Exercise Date (as defined in the Warrant), as
the case may be and (B) in the case of conversion of Preferred Shares or
exercise of the Warrant, the first business day following the date of delivery
of the original certificates, duly endorsed, representing the Preferred Shares
being converted or the Warrant being exercised, as the case may be. As long as
the Company shall instruct the transfer agent that, in lieu of delivering
physical certificates representing shares of Common Stock to a Purchaser upon
conversion of the Preferred Shares, exercise of the Warrant, or issuance of the
Dividend Payment Shares, and as long as the Transfer Agent is a participant in
the Depository Trust Company ("DTC") Fast Automated Securities Transfer
program, and such Purchaser has not informed the Company that it wishes to
receive physical certificates therefor, the transfer agent may effect delivery
of Conversion Shares, Warrant Shares or Dividend Payment Shares, as the case
may be, by crediting the account of such Purchaser or its nominee at DTC for
the number of shares for which delivery is required hereunder within the time
frame specified above for delivery of certificates. The Company represents to
and agrees with each Purchaser that it will not give any instruction to the
Transfer Agent that will conflict with the foregoing instruction or otherwise
restrict such Purchaser's right to convert the Preferred Shares or exercise the
Warrant or to receive Conversion Shares, Warrants or Dividend Payment Shares in
accordance with the terms of the Certificate of Designation or to receive
Warrant Shares in accordance with the terms of the Warrants. In the event that
the Company's relationship with the Transfer Agent should be terminated for any
reason, the Transfer Agent shall continue acting as transfer agent pursuant to
the terms hereof until such time that a successor transfer agent is appointed
by the Company and receives the instructions described above.
4.10 Capital Raising Limitation. The Company will not, during the
six (6) month period following the Closing Date (the "Limitation Period"),
offer for sale or sell any Common Stock (or any security convertible into, or
exercisable or exchangeable for, Common Stock) (the "Capital Raising
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<PAGE> 12
Limitation"). The Capital Raising Limitation shall not apply to any
transaction involving issuances of securities as consideration in a merger,
consolidation, acquisition or sale of assets (in each case, the primary purpose
of which is not to raise equity capital) or pursuant to a strategic partnership
or joint venture which is formed for a bona fide commercial purpose, or as
consideration for the acquisition of a business, product or license by the
Company or in connection with the exercise of options by employees, directors
or consultants. The Capital Raising Limitation also shall not apply to (i) the
issuance of Common Stock in a transaction pursuant to (x) a public offering, or
(y) an offering pursuant to Regulation D or Regulation S under the Securities
Act upon the following terms: (aa) such offering does not exceed, individually
or in the aggregate, ten million dollars ($10,000,000), (bb) the purchaser
thereof is required to hold such Common Stock for at least one (1) year from
the date of issuance before selling or otherwise disposing of such Common
Stock, (cc) such Common Stock is issued at a discount of no more than fifteen
percent (15%) from the Closing Bid Price (as defined in the Certificate) of the
Common Stock on the date of issuance thereof, and (dd) no warrants or other
instruments exercisable or convertible into Common Stock are issued by the
Corporation in connection with such offering, (ii) the issuance of warrants
exercisable into Common Stock at a price no less than the Closing Bid Price (as
defined in the Certificate) of the Common Stock on the date of the issuance of
such warrants as an incentive or compensation (upon customary terms applicable
to an arms' length transaction) for up to two (2) investment banking firms
located in North America and up to two (2) investment banking firms located in
Europe in connection with services rendered to the Corporation, (iii) the
issuance of warrants exercisable into Common Stock at a price no less than the
Closing Bid Price (as defined in the Certificate) of the Common Stock on the
date of the issuance of such warrants to a person or entity as compensation
(upon customary terms applicable to an arms' length transaction) for raising
debt or equity financing for the Corporation, (iv) the issuance of up to ten
million dollars ($10,000,000) of revolving subordinated debt, convertible into
Common Stock not less than one year from the issuance date thereof and only
with respect to principal thereof (and interest accrued thereon) which is
outstanding at least one hundred and eighty (180) days, to Joint Energy
Development Investments L.P. or any affiliate of Enron Corporation, (v) the
issuance of securities upon exercise or conversion of the Company's options,
warrants or other convertible securities outstanding as of the date hereof, or
(vi) the grant of additional options or warrants, or the issuance of additional
securities, under any Company stock option or restricted stock plan for the
benefit of the Company's employees, directors or consultants or under any
rights pursuant to Section 7.01 of the Securities Purchase Agreement between
the Company and Joint Energy Development Investments L.P.
4.11 Right of First Offer. Prior to any offer or sale by the
Company of Common Stock (or any securities convertible into or exchangeable for
Common Stock) during the one hundred and eighty (180) day period following the
last day of the Limitation Period, the Company must first deliver to each
Purchaser written notice describing the proposed issuance, including the terms
and conditions thereof, and provide such Purchaser with an option during the
five (5) business day period following delivery of such notice to purchase up
to its proportionate share (based on the number of Preferred Shares purchased
by such Purchaser hereunder relative to the number of Preferred Shares
purchased by the Purchasers hereunder) of the securities being offered on the
same terms as contemplated by such issuance ("Right of First Offer"); provided,
however, that the Right of First Offer shall not apply to (i) the issuance of
up to ten million dollars ($10,000,000) of revolving subordinated debt,
convertible into Common Stock not less than one year from the issuance date
thereof and only with respect to principal
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<PAGE> 13
thereof (and interest accrued thereon) which is outstanding at least one
hundred and eighty (180) days, to Joint Energy Development Investments L.P. or
any affiliate of Enron Corporation, (ii) the issuance of securities upon
exercise or conversion of the Company's options, warrants or other convertible
securities outstanding as of the date hereof, or (iii) the grant of additional
options or warrants, or the issuance of additional securities, under any
Company stock option or restricted stock plan for the benefit of the Company's
employees, directors or consultants or under any rights pursuant to Section
7.01 of the Securities Purchase Agreement between the Company and Joint Energy
Development Investments L.P.. In the event that such Purchaser exercises the
foregoing option to purchase such securities, the Company may, at its option,
either sell such securities to such Purchaser as part of the proposed issuance
or, in lieu thereof, sell such securities to such Purchaser pursuant to a
separate issuance which the Company will effect within thirty (30) days of the
closing of such proposed issuance. In the event that such Purchaser either
does not give notice within such five business day period that it intends to
exercise its option or informs the Company in writing that it does not intend
to participate in such issuance, the Company may offer to a third party the
option to purchase, in the aggregate, the amount of securities which were
declined by such Purchaser, on the same terms as were offered to such
Purchaser, without any further obligation to such Purchaser.
4.12 No Adverse Action. The Company shall refrain, while any
Preferred Shares or Warrants are outstanding, from taking any action or
entering into any arrangement which in any way adversely affects the rights,
privileges or benefits available to a holder thereof pursuant to the terms of
the Certificate of Designation or the Warrants, respectively.
5. CONDITIONS TO CLOSING.
5.1 Conditions to Purchaser's Obligations at Closing. Each
Purchaser's obligations at the Closing, including without limitation its
obligation to purchase the Preferred Shares and the Warrant, are conditioned
upon the fulfillment of each of the following events:
5.1.1 the representations and warranties of the
Company set forth in this Agreement shall be
true and correct in all material respects as
of the Closing Date as if made on such date;
5.1.2 the Company shall have complied with or
performed in all material respects all of the
agreements, obligations and conditions set
forth in this Agreement that are required to
be complied with or performed by the Company
on or before the Closing;
5.1.3 the Company shall have delivered to such
Purchaser a certificate, signed by an officer
of the Company, certifying that the
conditions specified in paragraphs 5.1.1 and
5.1.2 above have been fulfilled as of the
Closing;
5.1.4 the Company shall have filed the Certificate
of Designation with the Secretary of State of
the State of Delaware and shall have
furnished such Purchaser with a file- stamped
copy thereof;
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5.1.5 the Company shall have delivered to such
Purchaser an opinion of counsel for the
Company, dated as of the Closing Date, in
substantially the form set forth on Exhibit
5.1.5 hereto, and covering such additional
matters as may reasonably be requested by
such Purchaser;
5.1.6 the Company shall have delivered duly
executed certificates representing the
Preferred Shares being so purchased;
5.1.7 the Company shall have executed and delivered
the Registration Rights Agreement;
5.1.8 the Common Stock shall be designated for
quotation and actively traded on the Nasdaq
Small Cap Market;
5.1.9 there shall have been no material adverse
changes in the Company's consolidated
business or financial condition since the
date of the Company's most recent audited
financial statements contained in the
Disclosure Documents;
5.1.10 the Company shall have authorized and reserved for
issuance 200% of the aggregate number of shares of
Common Stock issuable upon conversion of all of the
Preferred Shares (such number to be determined using
the Conversion Price in effect on the Closing Date)
and exercise of all of the Warrants, to be issued at
the Closing;
5.1.11 each of Bruce Benn, Ed Munden and Robert Lindsay
shall have executed and delivered a letter agreement
addressed to the Purchasers regarding such person's
agreement to refrain from selling such person's
holdings of Common Stock until the Registration
Statement (as defined in the Registration Rights
Agreement) is declared effective;
5.1.12 the Company shall have delivered a letter to the
Purchasers from Joint Energy Development Investments
L.P. consenting to the transactions contemplated
hereby and by the Certificate and waiving any rights
it may otherwise have pursuant thereto; and
5.1.13 the other Purchasers shall have purchased at the
Closing the aggregate number of Preferred Shares and
Warrants such that, when added to the Preferred
Shares and Warrants to be purchased by such Purchaser
hereunder, the aggregate Purchase Price therefor
shall be equal to at least ten million dollars
($10,000,000); provided, that, if a Purchaser fails
to purchase all or any portion of the Preferred
Shares and Warrant to be purchased by it hereunder,
the other Purchasers shall have the option, but not
the obligation, to purchase such Preferred Shares and
Warrant.
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5.2 Conditions to Company's Obligations at Closing. The Company's
obligations at the Closing are conditioned upon the fulfillment of each of the
following events:
5.2.1 the representations and warranties of each
Purchaser shall be true and correct in all
material respects as of the Closing Date as
if made on such date;
5.2.2 each Purchaser shall have complied with or
performed all of the agreements, obligations
and conditions set forth in this Agreement
that are required to be complied with or
performed by such Purchaser on or before the
Closing; and
5.2.3 each Purchaser shall have executed and
delivered the Registration Rights Agreement.
6. MISCELLANEOUS.
6.1 Survival; Severability. The representations,
warranties, covenants and indemnities made by the parties herein shall survive
the Closing notwithstanding any due diligence investigation made by or on
behalf of the party seeking to rely thereon, provided that the representations
and warranties contained herein shall survive for two (2) years following the
Closing Date. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that in such case the parties shall negotiate in good faith
to replace such provision with a new provision which is not illegal,
unenforceable or void, as long as such new provision does not materially change
the economic benefits of this Agreement to the parties.
6.2 Successors and Assigns. The terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the respective
successors and permitted assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and permitted assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement. The Purchaser may assign its
rights and obligations hereunder, in connection with any private sale or
transfer of the Preferred Shares or the Warrants in accordance with the terms
hereof, as long as, as a condition precedent to such transfer, the transferee
executes an acknowledgment agreeing to be bound by the applicable provisions of
this Agreement, in which case the term "Purchaser" shall be deemed to refer to
such transferee as though such transferee were an original signatory hereto.
The Company may not assign it rights or obligations under this Agreement.
6.3 Independent Nature of Purchasers' Obligations and
Rights. The obligations of each Purchaser hereunder are several and not joint
with the obligations of the other Purchasers hereunder, and no Purchaser shall
be responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at the Closing, and no action taken by any Purchaser
pursuant hereto or thereto, shall be
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<PAGE> 16
deemed to constitute the Purchasers as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert with respect to such obligations or
the transactions contemplated by this Agreement. Each Purchaser shall be
entitled to protect and enforce its rights, including without limitation the
rights arising out of the Certificate of Designation, this Agreement or the
other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose.
6.4 No Reliance; Representations by Purchasers. Each
party acknowledges that (i) it has such knowledge in business and financial
matters as to be fully capable of evaluating this Agreement, the other
Transaction Documents and the transactions contemplated hereby and thereby,
(ii) it is not relying on any advice or representation of the other party in
connection with entering into this Agreement, the other Transaction Documents
or such transactions (other than the representations made in this Agreement or
the other Transaction Documents), (iii) it has not received from such party any
assurance or guarantee as to the merits (whether legal, regulatory, tax,
financial or otherwise) of entering into this Agreement or the other
Transaction Documents or the performance of its obligations hereunder and
thereunder, and (iv) it has consulted with its own legal, regulatory, tax,
business, investment, financial and accounting advisors to the extent that it
has deemed necessary, and has entered into this Agreement and the other
Transaction Documents based on its own independent judgment and on the advice
of its advisors as it has deemed necessary, and not on any view (whether
written or oral) expressed by such party.
6.5 Injunctive Relief. The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to each
Purchaser and that the remedy or remedies at law for any such breach will be
inadequate and agrees, in the event of any such breach, in addition to all
other available remedies, to an injunction restraining any breach and requiring
immediate and specific performance of such obligations without the necessity of
showing economic loss.
6.6 Governing Law; Jurisdiction. This Agreement shall be
governed by and construed under the laws of the State of New York without
regard to the conflict of laws provisions thereof. Each party hereby
irrevocably submits to the non-exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address in effect for notices to it under this Agreement and
agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit
in any way any right to serve process in any manner permitted by law.
6.7 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.
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<PAGE> 17
6.8 Headings. The headings used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.
6.9 Notices. Any notice, demand or request required or
permitted to be given by any party to any other party pursuant to the terms of
this Agreement shall be in writing and shall be deemed given (i) when delivered
personally or by verifiable facsimile transmission (with an original to follow)
on or before 5:00 p.m., eastern time, on a business day or, if such day is not
a business day, on the next succeeding business day, (ii) on the next business
day after timely delivery to a nationally-recognized overnight courier and
(iii) on the third business day after deposit in the U.S. mail (certified or
registered mail, return receipt requested, postage prepaid), addressed to the
parties as follows:
If to the Company:
Queen Sand Resources, Inc.
3500 Oak Lawn, Suite 380
Dallas, Texas 75219-4398
Attn.: Chief Executive Officer
Fax: 214-521-9960
with a copy to:
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
Attn: William L. Boeing
Tel: 214-651-5553
Fax: 214-651-5940
and if to any Purchaser, to such address for such Purchaser as shall appear on
the signature page hereof executed by such Purchaser, or as shall be designated
by such Purchaser in writing to the Company.
6.10 Expenses. The Company and each Purchaser shall pay
all costs and expenses that it incurs in connection with the negotiation,
execution, delivery and performance of this Agreement, provided, however, that
the Company shall reimburse Proprietary Convertible Investment Group, Inc. for
all out-of-pocket expenses (including without limitation legal fees and
expenses) incurred by it in connection the negotiation, preparation, execution,
delivery and performance of the Certificate of Designation, this Agreement, the
Warrant and the other Transaction Documents in an amount not to exceed thirty
thousand dollars ($30,000).
6.11 Entire Agreement; Amendments. This Agreement and the
other Transaction Documents constitute the entire agreement between the parties
with regard to the subject matter hereof and thereof, superseding all prior
agreements or understandings, whether written or oral, between or among the
parties. Except as expressly provided herein, neither this Agreement nor any
term hereof may be amended except pursuant to a written instrument executed by
the Company and the holders of
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<PAGE> 18
at least two-thirds (2/3) of the Preferred Shares then outstanding, and no
provision hereof may be waived other than by a written instrument signed by the
party against whom enforcement of any such waiver is sought.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 19
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first-above written.
QUEEN SAND RESOURCES, INC.
By: /s/ Duly Authorized Officer
-----------------------------------
Name:
Title:
PURCHASER NAME:
By: /s/ Duly Authorized Officer
-----------------------------------
Name:
Title:
ADDRESS:
Tel:
Fax:
Number of Shares of Series C Preferred Stock to be Purchased:
Number of Shares of Common Stock
into which the Warrant is Exercisable:
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<PAGE> 1
EXHIBIT 1.3
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of December
22, 1997, by and among Queen Sand Resources, Inc., a Delaware corporation (the
"Company"), and each of the entities whose names appear on the signature pages
hereof. Such entities are each referred to herein as a "Purchaser" and,
collectively, as the "Purchasers".
The Company has agreed, on the terms and subject to the conditions set
forth in the Securities Purchase Agreement of even date herewith (the
"Securities Purchase Agreement"), to issue and sell to each Purchaser shares
(the "Preferred Shares") of the Company's Series C Convertible Preferred Stock,
par value $0.01 per share (the "Preferred Stock"), and a Warrant (each, a
"Warrant" and, when taken together with all of the warrants issued pursuant to
the Securities Purchase Agreement, the "Warrants") entitling the holder thereof
to purchase shares (the "Warrant Shares") of Common Stock. The Preferred Shares
are convertible pursuant to the Company's Certificate of Designation (the
"Certificate of Designation") into shares (the "Conversion Shares") of the
Company's Common Stock, par value $0.0015 per share (the "Common Stock"). In
order to induce the Purchasers to enter into the Securities Purchase Agreement,
the Company has agreed to provide certain registration rights under the
Securities Act of 1933, as amended (the "Securities Act"), and under applicable
state securities laws. Capitalized terms used herein and not otherwise defined
shall have the respective meanings set forth in the Securities Purchase
Agreement.
In consideration of each Purchaser entering into the Securities
Purchase Agreement, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the
meanings specified:
(a) "Closing" shall have the meaning specified in the
Securities Purchase Agreement;
(b) "Registration Deadline" means the one hundred and
twentieth (120th) day following Closing;
(c) "Holder" means any person owning or having the right
to acquire, through conversion of Preferred Shares or exercise
of the Warrant, Registrable Securities, including initially
each Purchaser and thereafter any permitted assignee thereof;
(d) "Register", "registered" and "registration" refer to
a registration effected by preparing and filing a registration
statement or statements in compliance with the
<PAGE> 2
Securities Act and pursuant to Rule 415 under the Securities
Act ("Rule 415") or any successor rule providing for the
offering of securities on a continuous or delayed basis
("Registration Statement"), and the declaration or ordering of
effectiveness of the Registration Statement by the Securities
and Exchange Commission (the "Commission"); and
(e) "Registrable Securities" means the Conversion Shares,
the Warrant Shares and the Dividend Payment Shares (as defined
in the Certificate of Designation), and any other shares of
Common Stock issuable pursuant to the terms of the Preferred
Stock, whether as a dividend, payment of a redemption price or
otherwise, and any shares of capital stock issued or issuable
from time to time (with any adjustments) in replacement of, in
exchange for or otherwise in respect of the Conversion Shares,
the Warrant Shares or such Dividend Payment Shares, including
without limitation any securities received by a Holder in
connection with an Exchange Transaction (as defined in the
Certificate of Designation).
2. MANDATORY REGISTRATION.
(a) On or before the ninetieth (90th) day following
Closing, the Company shall prepare and file with the Commission a Registration
Statement on Form S-3 as a "shelf" registration statement under Rule 415
covering the resale of at least 200% of the number of shares of Registrable
Securities then issuable on conversion of the Preferred Shares and exercise of
the Warrants. In addition, the Company may elect to register for resale shares
of Common Stock held by other holders. The Registration Statement shall state,
to the extent permitted by Rule 416 under the Securities Act, that it also
covers such indeterminate number of shares of Common Stock as may be required
to effect (i) conversion of the Preferred Shares to prevent dilution resulting
from stock splits, stock dividends or similar events, or by reason of changes
in the Conversion Price in accordance with the terms of the Certificate of
Designation and (ii) exercise of the Warrants in full to prevent dilution
resulting from stock splits, stock dividends or similar events.
(b) The Company shall use its best efforts to cause the
Registration Statement to become effective as soon as practicable following the
filing thereof, but in no event later than the Registration Deadline, and shall
submit to the Commission, within five (5) business days after the Company
learns that no review of the Registration Statement will be made by the staff
of the Commission or that the staff of the Commission has no further comments
on the Registration Statement, as the case may be, a request for acceleration
of the effectiveness of the Registration Statement to a time and date not later
than forty-eight (48) hours after the submission of such request, and maintain
the effectiveness of the Registration Statement until the earlier to occur of
(i) the date on which all of the Registrable Securities have been sold pursuant
to the Registration Statement and (ii) the date on which all of the remaining
Registrable Securities (in the reasonable opinion of counsel to the Purchaser)
may be immediately sold to the public without registration and without regard
to the amount of Registrable Securities which may be sold by a Holder thereof
at a given time (the "Registration Period").
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<PAGE> 3
(c) If (A) the Registration Statement is not filed on or
before the Filing Deadline or declared effective by the Commission on or before
the Registration Deadline, (B) after the Registration Statement has been
declared effective by the Commission, sales of Registrable Securities cannot be
made by a Holder under the Registration Statement for any reason not within the
exclusive control of such Holder (other than such Registrable Securities as are
then freely saleable pursuant to Rule 144(k) under the Securities Act and
except during a Blackout Period (as defined below)), (C) the Common Stock is
not included for quotation on the Nasdaq National Market or Nasdaq Small Cap
Market (together, the "Nasdaq Stock Market") or listed on the New York Stock
Exchange or American Stock Exchange, the Company shall pay to each Holder an
amount equal to the lesser of (x) one percent (1%) per month and (y) the
highest rate permitted by applicable law, times the aggregate Liquidation
Preference (as defined in the Certificate of Designation) of the Preferred
Shares held by such Holder, accruing daily and compounded monthly, from the
Filing Deadline until the date on which the Registration Statement is filed
with the Commission, or from the Registration Deadline until the date on which
the Registration Statement is declared effective, or from the date on which the
Registration Statement lapses or is otherwise unavailable until the date on
which the Registration Statement becomes available for sales of Registrable
Securities, or from the date on which the Common Stock is not quoted on the
Nasdaq Stock Market or listed on the New York Stock Exchange or the American
Stock Exchange until the date on which the Common Stock is so included for
quotation or listed, as the case may be. The amounts paid or payable by the
Company hereunder shall be in addition to any other remedies available to the
Purchaser at law or in equity or pursuant to the terms of any other Transaction
Document. Payments of cash pursuant hereto shall be made within five (5) days
after the end of each period that gives rise to such obligation, provided that,
if any such period extends for more than thirty (30) days, payments shall be
made at the end of each thirty-day period. For purposes hereof, "Blackout
Period" means such day or days, not to exceed an aggregate of thirty (30) days
during any period of twelve (12) consecutive months, with respect to which the
Board of Directors of the Company determines in good faith (A) that an
amendment or supplement to the Registration Statement or prospectus contained
therein is necessary, in light of subsequent events, in order to correct a
material misstatement made therein or to include information the absence of
which would render the Registration Statement or such prospectus materially
misleading and (B) that the filing of such amendment or supplement would result
in the disclosure of information which the Company has a bona fide business
purpose for preserving as confidential; provided that the Company shall be
entitled to impose no more than three (3) Blackout Periods during any period of
twelve (12) consecutive months. In the event that the Company imposes a
Blackout Period hereunder, each Holder shall be entitled, upon written notice
to the Company, to use as a Conversion Price (as defined in the Certificate of
Designation) for any conversion of Preferred Shares occurring after the
termination of such Blackout Period the lower of (a) the Conversion Price in
effect pursuant to the terms of the Certificate of Designation and (b) the
lowest Conversion Price that would have applied had such conversion occurred
during such Blackout Period. The Company agrees that it will not disclose any
material, non-public information to any Holder regarding the reasons for
imposing a Blackout Period, except to a Holder who specifically requests in
writing such information.
(d) In the event that (A) the Registration Statement is
not declared effective by the twentieth (20th) Business Day following the
Registration Deadline, (B) after the Registration Statement has been declared
effective by the Commission, sales of Registrable Securities cannot be made by
a
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<PAGE> 4
Holder under the Registration Statement for any reason not within the exclusive
control of such Holder (other than such Registrable Securities as are then
freely saleable pursuant to Rule 144(k) under the Securities Act and except
during a Blackout Period (as defined below)), (C) the Common Stock is not
included for quotation on the Nasdaq Stock Market or listed on the New York
Stock Exchange or the American Stock Exchange, or (D) the Company breaches, in
any material respect, any material covenant or other material term or condition
of the Certificate of Designation, Securities Purchase Agreement, Registration
Rights Agreement, the Warrants or any other agreement, document, certificate or
other instrument delivered in connection with the transactions contemplated
hereby or thereby, and such breach continues for a period of ten (10) Business
Days after written notice thereof to the Company from a Holder (each event
described in clause (A), (B), (C) or (D) being hereinafter referred to as a
"Repricing Event"), in addition to the amounts which may be payable pursuant to
paragraph 2(c) above, the Fixed Conversion Price (as defined in the Certificate
of Designation) for any conversion of Preferred Shares occurring during the
twenty two (22) Trading Days following the Cure Date (as defined below) with
respect to such event shall be deemed to be equal to the lesser of (i) the
lowest Conversion Price (as defined in the Certificate of Designation) that
would have applied had such conversion occurred during the period between the
date on which a Repricing Event occurs and the date on which such Repricing
Event is no longer continuing (the "Cure Date") and (ii) the Fixed Conversion
Price that would otherwise be in effect on the relevant Conversion Date (as
defined in the Certificate of Designation).
3. PIGGYBACK REGISTRATION.
If at any time prior to the expiration of the Registration
Period, (i) the Company proposes to register shares of Common Stock under the
Securities Act in connection with the public offering of such shares for cash
(other than a registration relating solely to the sale of securities to
participants in a Company stock plan or employee stock award or a registration
on Form S-4 under the Securities Act or any successor or similar form
registering stock issuable upon a reclassification, a business combination
involving an exchange of securities or an exchange offer for securities of the
issuer or another entity) (a "Proposed Registration") and (ii) a registration
statement covering the sale of all of the Registrable Securities is not then
effective and available for sales thereof by the Holders, the Company shall, at
such time, promptly give each Holder written notice of such Proposed
Registration. Each Holder shall have thirty (30) days from its receipt of such
notice to deliver to the Company a written request specifying the amount of
Registrable Securities that such Holder intends to sell and such Holder's
intended method of distribution. Upon receipt of such request, the Company
shall use its best efforts to cause all Registrable Securities which the
Company has been requested to register to be registered under the Securities
Act to the extent necessary to permit their sale or other disposition in
accordance with the intended methods of distribution specified in the request
of such Holder; provided, however, that the Company shall have the right to
postpone or withdraw any registration effected pursuant to this Section 3
without obligation to the Holder. If, in connection with any underwritten
public offering for the account of the Company, the managing underwriter(s)
thereof shall impose a limitation on the number of shares of Common Stock which
may be included in the Registration Statement because, in such underwriter(s)'
judgment, marketing or other factors dictate such limitation is necessary to
facilitate public distributions, then the Company shall be obligated to include
in such Registration Statement only such limited portion of the Registrable
Securities with respect to which
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<PAGE> 5
each Holder has requested inclusion hereunder as such underwriter(s) shall
permit. Any exclusion of Registrable Securities shall be made pro rata among
the Holders seeking to include Registrable Securities in the Registration
Statement, in proportion to the number of Registrable Securities sought to be
included by such Holders; provided, however, that the Company shall not exclude
any Registrable Securities unless the Company has first excluded all
outstanding securities, the holders of which are not entitled to inclusion of
such securities in such Registration Statement or are not entitled to pro rata
inclusion with the Registrable Securities; and provided, further, however,
that, after giving effect to the immediately preceding proviso, any exclusion
of Registrable Securities shall be made pro rata with holders of other
securities having the right to include such securities in the Registration
Statement, but subject in all events to the prior right of holders (the "JEDI
Holders") of registrable shares of Common Stock under that certain Registration
Rights Agreement (the "JEDI Rights Agreement"), dated as of May 6, 1997,
between the Company and Joint Energy Development Investments Limited
Partnership to include any or all of the JEDI Holders' Registrable Shares (as
defined in the JEDI Rights Agreement) before any Holder includes any or all of
its Registrable Securities in any registration statement relating to an
underwritten public offering with respect to which, in the good faith opinion
of the managing underwriter, the inclusion in the offering of all shares
requested to be registered by all persons holding registration rights would
materially jeopardize the successful marketing of the securities (including the
JEDI Holders' Registrable Shares) to be sold.
4. OBLIGATIONS OF THE COMPANY.
In addition to performing its obligations hereunder, including those
pursuant to paragraphs 2(a) and 2(b) above, the Company shall:
(a) prepare and file with the Commission such amendments
and supplements to the Registration Statement and the prospectus used in
connection with the Registration Statement as may be necessary to comply with
the provisions of the Securities Act or to maintain the effectiveness of the
Registration Statement during the Registration Period, or as may be reasonably
requested by a Holder in order to incorporate information concerning such
Holder or such Holder's intended method of distribution;
(b) in the event that the number of shares available
under the Registration Statement filed by the Company hereunder is insufficient
during any period of three consecutive trading days to cover 150% of the
Registrable Securities then issued or issuable, the Company shall promptly
amend the Registration Statement, or file a new Registration Statement, or
both, so as to cover 200% of such Registrable Securities, in any event as soon
as practicable, but not later than the tenth business day following the last
day of such three day period. Any Registration Statement filed pursuant to
this Section 4 shall state that, to the extent permitted by Rule 416 under the
Securities Act, such Registration Statement also covers such indeterminate
number of additional shares of Common Stock as may become issuable upon
conversion of the Preferred Shares or exercise of the Warrants in full. Unless
and until such amendment or new Registration Statement becomes effective, each
Holder shall have the rights described in Section 2 above;
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<PAGE> 6
(c) secure the designation and quotation of the
Registrable Securities on the Nasdaq Stock Market or the listing thereof on the
New York Stock Exchange or the American Stock Exchange;
(d) furnish to each Holder such number of copies of the
prospectus included in such Registration Statement, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as such Holder may reasonably request in order to facilitate
the disposition of such Holder's Registrable Securities;
(e) use all commercially reasonable efforts to register
or qualify the Registrable Securities under the securities or "blue sky" laws
of such jurisdictions within the United States as shall be reasonably requested
from time to time by a Holder, and do any and all other acts or things which
may be necessary or advisable to enable such Holder to consummate the public
sale or other disposition of the Registrable Securities in such jurisdictions;
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such jurisdiction;
(f) in the event of an underwritten public offering of
the Registrable Securities, enter into and perform its obligations under an
underwriting agreement, in usual and customary form reasonably acceptable to
the Company, with the managing underwriter of such offering;
(g) notify each Holder immediately upon the occurrence of
any event as a result of which the prospectus included in such Registration
Statement, as then in effect, contains an untrue statement of material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing, and (except during a Blackout Period) as promptly as practicable,
prepare, file and furnish to each Holder a reasonable number of copies of a
supplement or an amendment to such prospectus as may be necessary so that such
prospectus does not contain an untrue statement of material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing;
(h) use all commercially reasonable efforts to prevent
the issuance of any stop order or other order suspending the effectiveness of
such Registration Statement and, if such an order is issued, to obtain the
withdrawal thereof at the earliest possible time and to notify each Holder of
the issuance of such order and the resolution thereof;
(i) furnish to each Holder, on the date that such
Registration Statement becomes effective, (x) a letter, dated such date, of
outside counsel representing the Company (and reasonably acceptable to such
Holder) addressed to such Holder, confirming the effectiveness of the
Registration Statement and, to the knowledge of such counsel, the absence of
any stop order, and (y) in the case of an underwriting, (A) an opinion, dated
such date, of such outside counsel, in form and substance as is customarily
given to underwriters in an underwritten public offering, and (B) a letter,
dated such date, from the Company's independent certified public accountants,
in form and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed to
the underwriters and to each Holder;
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<PAGE> 7
(j) provide each Holder and its representatives the
opportunity to conduct a reasonable inquiry of the Company's financial and
other records during normal business hours and make available its officers,
directors and employees for questions regarding information which such Holder
may reasonably request in order to fulfill any due diligence obligation on its
part; and
(k) permit counsel for each Holder (at such Holder's
expense) to review such Registration Statement and all amendments and
supplements thereto a reasonable period of time prior to the filing thereof
with the Commission.
5. OBLIGATIONS OF EACH HOLDER.
In connection with the registration of the Registrable Securities
pursuant to the Registration Statement, each Holder shall:
(a) furnish to the Company such information regarding itself
and the intended method of disposition of Registrable Securities as the Company
shall reasonably request in order to effect the registration thereof;
(b) upon receipt of any notice from the Company of the
happening of any event of the kind described in paragraphs 4(g) or 4(h),
immediately discontinue disposition of Registrable Securities pursuant to the
Registration Statement until the filing of an amendment or supplement as
described in paragraph 4(g) or withdrawal of the stop order referred to in
paragraph 4(h);
(c) in the event of an underwritten offering of the
Registrable Securities, enter into a customary and reasonable underwriting
agreement and execute such other documents as the managing underwriter for such
offering may reasonably request;
(d) to the extent required by applicable law, deliver a
prospectus to each purchaser of Registrable Securities; and
(e) notify the Company when it has sold all of the
Registrable Securities theretofore held by it.
6. INDEMNIFICATION.
In the event that any Registrable Securities are included in a
Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company shall
indemnify and hold harmless each Holder, the officers, directors, employees,
agents and representatives of such Holder, and each person, if any, who
controls such Holder within the meaning of the Securities Act or the Securities
Exchange Act of 1934, as amended (the "1934 Act"), against any losses, claims,
damages, liabilities or reasonable out-of-pocket expenses (whether joint or
several) (collectively, including legal or other expenses reasonably incurred
in connection with investigating or defending same, "Losses"), insofar
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<PAGE> 8
as any such Losses arise out of or are based upon (i) any untrue statement or
alleged untrue statement of a material fact contained in such Registration
Statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, or (ii) the omission or
alleged omission to state therein a material fact required to be stated
therein, or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company will
reimburse such Holder, and each such officer, director, employee, agent,
representative or controlling person for any legal or other expenses as
reasonably incurred by any such entity or person in connection with
investigating or defending any Loss; provided, however, that the foregoing
indemnity shall not apply to amounts paid in settlement of any Loss if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be obligated to indemnify
any person for any Loss to the extent that such Loss arises out of or is based
upon and in conformity with written information furnished by such person
expressly for use in such Registration Statement; and provided, further, that
the Company shall not be required to indemnify any person to the extent that
any Loss results from such person selling Registrable Securities (i) to a
person to whom there was not sent or given, at or prior to the written
confirmation of the sale of such shares, a copy of the prospectus, as most
recently amended or supplemented, if the Company has previously furnished or
made available copies thereof or (ii) during any period following written
notice by the Company to such Holder of an event described in Section 4(g) or
4(h).
(b) To the extent permitted by law, each Holder, acting
severally and not jointly, shall indemnify and hold harmless the Company, the
officers, directors, employees, agents and representatives of the Company, and
each person, if any, who controls the Company within the meaning of the
Securities Act or the 1934 Act, against any Losses to the extent (and only to
the extent) that any such Losses arise out of or are based upon and in
conformity with written information furnished by such Holder expressly for use
in such Registration Statement; and such Holder will reimburse any legal or
other expenses as reasonably incurred by the Company and any such officer,
director, employee, agent, representative, or controlling person, in connection
with investigating or defending any such Loss; provided, however, that the
foregoing indemnity shall not apply to amounts paid in settlement of any such
Loss if such settlement is effected without the consent of such Holder, which
consent shall not be unreasonably withheld; provided, that, in no event shall
any indemnity under this subsection 6(b) exceed the net purchase price of
securities sold by such Holder under the Registration Statement.
(c) Promptly after receipt by an indemnified party under
this Section 6 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in and to assume
the defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party shall have the right to retain its
own counsel, with the reasonably incurred fees and expenses of one such counsel
to be paid by the indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would be inappropriate
under applicable standards of professional conduct due to actual or potential
conflicting interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement
of any such action, to the extent prejudicial to its ability to defend such
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<PAGE> 9
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 6 with respect to such action, but the
omission so to deliver written notice to the indemnifying party will not
relieve it of any liability that it may have to any indemnified party otherwise
than under this Section 6 or with respect to any other action.
(d) In the event that the indemnity provided in paragraph
(a) or (b) of this Section 6 is unavailable or insufficient to hold harmless an
indemnified party for any reason, the Company and each Holder agree, severally
and not jointly, to contribute to the aggregate Losses to which the Company or
such Holder may be subject in such proportion as is appropriate to reflect the
relative fault of the Company and such Holder in connection with the statements
or omissions which resulted in such Losses; provided, however, that in no case
shall such Holder be responsible for any amount in excess of the net purchase
price of securities sold by it under the Registration Statement. Relative
fault shall be determined by reference to whether any alleged untrue statement
or omission relates to information provided by the Company or by such Holder.
The Company and each Holder agree that it would not be just and equitable if
contribution were determined by pro rata allocation or any other method of
allocation which does not take account of the equitable considerations referred
to above. Notwithstanding the provisions of this paragraph (d), no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who is
not guilty of such fraudulent misrepresentation. For purposes of this Section
6, each person who controls a Holder within the meaning of either the
Securities Act or the Exchange Act and each officer, director, employee, agent
or representative of such Holder shall have the same rights to contribution as
such Holder, and each person who controls the Company within the meaning of
either the Securities Act or the Exchange Act and each officer, director,
employee, agent or representative of the Company shall have the same rights to
contribution as the Company, subject in each case to the applicable terms and
conditions of this paragraph (d).
(e) The obligations of the Company and each Holder under
this Section 6 shall survive the conversion or redemption, if any, of the
Preferred Shares, the exercise of the Warrant, the completion of any offering
of Registrable Securities pursuant to a Registration Statement under this
Agreement, or otherwise.
7. REPORTS.
With a view to making available to each Holder the benefits of
Rule 144 under the Securities Act ("Rule 144") and any other similar rule or
regulation of the Commission that may at any time permit such Holder to sell
securities of the Company to the public without registration, the Company
agrees to:
(a) make and keep public information available, as those
terms are understood and defined in Rule 144;
(b) file with the Commission in a timely manner all
reports and other documents required of the Company under the Securities Act
and the 1934 Act; and
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<PAGE> 10
(c) furnish to such Holder, so long as such Holder owns
any Registrable Securities, forthwith upon request (i) a written statement by
the Company, if true, that it has complied with the reporting requirements of
Rule 144, the Securities Act and the 1934 Act, (ii) a copy of the most recent
annual or quarterly report of the Company and such other reports and documents
so filed by the Company, and (iii) such other information as may be reasonably
requested in availing such Holder of any rule or regulation of the Commission
which permits the selling of any such securities without registration.
8. MISCELLANEOUS.
(a) Expenses of Registration. All expenses, other than
underwriting discounts and commissions and fees and expenses of counsel to each
Holder, incurred in connection with the registrations, filings or
qualifications described herein, including (without limitation) all
registration, filing and qualification fees, printers' and accounting fees, the
fees and disbursements of counsel for the Company, and the fees and
disbursements incurred in connection with the opinion and letter described in
paragraph 4(i) hereof, shall be borne by the Company.
(b) Amendment; Waiver. Any provision of this Agreement
may be amended only pursuant to a written instrument executed by the Company
and Holders of at least two thirds (2/3) of the Registrable Securities then
issued or issuable. Any waiver of the provisions of this Agreement may be made
only pursuant to a written instrument executed by the party against whom
enforcement is sought. Any amendment or waiver effected in accordance with
this paragraph shall be binding upon each Holder, each future Holder, and the
Company. The failure of any party to exercise any right or remedy under this
Agreement or otherwise, or the delay by any party in exercising such right or
remedy, shall not operate as a waiver thereof.
(c) Notices. Any notice, demand or request required or
permitted to be given by any party to any other party pursuant to the terms of
this Agreement shall be in writing and shall be deemed given (i) when delivered
personally or by verifiable facsimile transmission (with an original to follow)
on or before 5:00 p.m., eastern time, on a business day or, if such day is not
a business day, on the next succeeding business day, (ii) on the next business
day after timely delivery to a nationally-recognized overnight courier and
(iii) on the third business day after deposit in the U.S. mail (certified or
registered mail, return receipt requested, postage prepaid), addressed to the
parties as follows:
If to the Company:
Queen Sand Resources, Inc.
3500 Oak Lawn, Suite 380
Dallas, Texas 75219-4398
Attn.: Chief Executive Officer
Fax: 214-521-9960
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<PAGE> 11
with a copy to:
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
Attn: William L. Boeing
Tel: 214-651-5553
Fax: 214-651-5940
and if to any Holder, to such address as shall be designated by such Holder in
writing to the Company.
(d) Termination. This Agreement shall terminate on the
earlier to occur of (a) the end of the Registration Period and (b) the date on
which all of the Registrable Securities have been publicly distributed; but any
such termination shall be without prejudice to (i) the parties' rights and
obligations arising from breaches of this Agreement occurring prior to such
termination and (ii) the indemnification and contribution obligations under
this Agreement.
(e) Assignment. The rights of a Holder hereunder shall
be assigned automatically to any transferee of the Preferred Shares, the
Warrant or Registrable Securities from such Holder as long as: (i) the Company
is, within a reasonable period of time following such transfer, furnished with
written notice of the name and address of such transferee, (ii) the transferee
agrees in writing with the Company to be bound by all of the provisions hereof
and (iii) such transfer is made in accordance with the applicable requirements
of the Securities Purchase Agreement or the Warrant, as the case may be.
(f) Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, and all of
which together shall be deemed one and the same instrument. This Agreement,
once executed by a party, may be delivered to any other party hereto by
facsimile transmission.
(g) Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York without
regard to the conflict of laws provisions thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 12
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first-above written.
Queen Sand Resources, Inc.
By: /s/ Duly Authorized Officer
------------------------------
Name:
Title:
PURCHASER NAME:
By: /s/ Duly Authorized Officer
------------------------------
Name:
Title:
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<PAGE> 1
EXHIBIT 1.4
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAW, AND MAY NOT BE OFFERED FOR SALE, SOLD OR
TRANSFERRED UNLESS A REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS SHALL BE EFFECTIVE WITH RESPECT THERETO, OR AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER. THIS WARRANT (THIS
"WARRANT") AND THE WARRANTS OF EVEN DATE HEREWITH (TOGETHER WITH THIS WARRANT,
THE "WARRANTS") ARE ISSUED SUBJECT TO THE TERMS OF (A) A SECURITIES PURCHASE
AGREEMENT, DATED DECEMBER 24, 1997 ("SECURITIES PURCHASE AGREEMENT"), BY AND
BETWEEN QUEEN SAND RESOURCES, INC. AND THE HOLDER OF THIS WARRANT AND (B) A
REGISTRATION RIGHTS AGREEMENT, DATED DECEMBER 24, 1997 ("REGISTRATION RIGHTS
AGREEMENT"), BY AND BETWEEN QUEEN SAND RESOURCES, INC. AND THE HOLDER OF THIS
WARRANT.
WARRANT TO PURCHASE
______ SHARES
WARRANT TO PURCHASE COMMON STOCK
OF
QUEEN SAND RESOURCES, INC.
THIS CERTIFIES that __________ or any subsequent holder hereof (the
"Holder"), has the right to purchase from Queen Sand Resources, Inc., a
Delaware corporation (the "Company"), up to _____ fully paid and nonassessable
shares of the Company's Common Stock, par value $0.0015 per share (the "Common
Stock"), subject to adjustment as provided herein, at a price equal to the
Exercise Price (as defined below), at any time beginning on the date on which
this Warrant is issued and ending at 5:00 p.m., eastern time, on December 24,
2001 (the "Expiration Date"). This Warrant is issued, and all rights hereunder
shall be, subject to all of the conditions, limitations and provisions set
forth herein and in the Securities Purchase Agreement.
1. Exercise.
(a) Right to Exercise; Exercise Price. The Holder shall have the
right to exercise this Warrant at any time and from time to time up to and
including the Expiration Date as to all or any part of the shares of Common
Stock covered hereby (the "Warrant Shares"). The "Exercise Price" payable by
the Holder in connection with the exercise of this Warrant shall be equal to
the Fixed Conversion Price (as defined in the Certificate of Designation
described in the Securities Purchase Agreement) in effect on the Exercise Date
(as defined below);
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<PAGE> 2
provided, however, that if the ADTV (as defined in the Certificate of
Designation) for the Common Stock during the period of six (6) months following
the Closing Date (as defined in the Securities Purchase Agreement) is less than
five hundred and forty thousand dollars ($540,000), the Exercise Price shall be
the lesser of (A) the Fixed Conversion Price and (B) the average of the Closing
Bid Prices (as defined in the Certificate of Designation) for the Common Stock
during the twenty-two (22) Trading Days (as defined in the Certificate of
Designation) occurring immediately prior to (but not including) the last day of
such six-month period.
(b) Exercise Notice. In order to exercise this Warrant, the
Holder shall send by facsimile transmission, at any time prior to 11:59 p.m.,
eastern time, on the date on which the Holder wishes to effect such exercise
(the "Exercise Date"), to the Company and to its designated transfer agent for
the Common Stock (the "Transfer Agent") a copy of the notice of exercise in the
form attached hereto as Exhibit A (the "Exercise Notice") stating the number of
Warrant Shares as to which such exercise applies and the calculation therefor.
The Holder shall thereafter deliver to the Company the original Exercise
Notice, the original Warrant and the Exercise Price. In the case of a dispute
as to the calculation of the Exercise Price or the number of Warrant Shares
issuable hereunder, the Company shall promptly issue to the Holder the number
of Warrant Shares that are not disputed and shall submit the disputed
calculations to the Company's independent accountant within three (3) business
days following the Exercise Date. The Company shall cause such accountant to
calculate the Exercise Price and/or the number of Warrant Shares issuable
hereunder and to notify the Company and the Holder of the results in writing no
later than three (3) business days following the day on which it received the
disputed calculations. Such accountant's calculation shall be deemed
conclusive absent manifest error. The fees of any such accountant shall be
borne by the party whose calculations were most at variance with those of such
accountant.
(c) Cancellation of Warrant. This Warrant shall be canceled upon
its exercise and the Holder shall be entitled to receive, as soon as
practicable after the Exercise Date, a new Warrant or Warrants (containing
terms identical to this Warrant) representing any unexercised portion of this
Warrant.
2. Delivery of Warrant Shares Upon Exercise.
Upon receipt of a Exercise Notice pursuant to paragraph 1
above, the Company shall, (A) in the case of a Cashless Exercise (as defined
below), no later than the close of business on the third (3rd) business day
following the Exercise Date set forth in such Exercise Notice, (B) in the case
of a Cash Exercise (as defined below) no later than the close of business on
the earlier to occur of (i) the third (3rd) business day following the Exercise
Date set forth in such Exercise Notice and (ii) such later date on which the
Company shall have received payment of the Exercise Price, and (C) with respect
to Warrant Shares which are disputed as described in paragraph 1(b) above, and
required to be delivered by the Company pursuant to the accountant's
calculations described therein, the date for delivery thereof specified in such
paragraph 1(b) (the "Delivery Date"), issue and deliver or caused to be
delivered to the Holder the number of Warrant Shares as shall be determined as
provided herein. Warrant Shares delivered to the Holder shall not contain any
restrictive legend as long as (A) the sale or transfer of such Warrant Shares
is covered by an effective Registration Statement and the Holder holding or
entitled to receive such Warrant Shares has represented to the Corporation, in
the related Exercise Notice or otherwise in writing, that such Holder has
resold or transferred such Warrant Shares in accordance with the terms of the
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<PAGE> 3
Prospectus relating to such Registration Statement, (B) such Warrant Shares can
be sold pursuant to Rule 144 ("Rule 144") under the Securities Act of 1933, as
amended (the "Securities Act") and a registered broker dealer provides to the
Corporation a customary broker's Rule 144 letter and such Holder delivers to
the Corporation a customary seller's representation letter and a copy of any
Form 144 which may have been required to be filed by such Holder pursuant to
Rule 144, or (C) such Warrant Shares are eligible for resale under Rule 144(k)
or any successor rule or provision.
3. Failure to Deliver Warrant Shares.
(a) Exercise Default. In the event that the Company
fails for any reason (other than by operation of paragraph 4 below) to deliver
to a Holder certificates representing the number of Warrant Shares specified in
the applicable Exercise Notice on or before the Delivery Date therefor (an
"Exercise Default"), the Company shall pay to such Holder payments ("Exercise
Default Payments") in the amount of (i) (N/365) multiplied by (ii) the
aggregate Exercise Price for the Warrant Shares which are the subject of such
Exercise Default on the five (5) Trading Days occurring immediately prior to
(but not including) the applicable Exercise Date multiplied by (iii) the lower
of twenty- four percent (24%) and the maximum rate permitted by applicable law,
where "N" equals the number of days elapsed between the original Delivery Date
for such Warrant Shares and the date on which all of such Warrant Shares are
issued and delivered to such Holder. Amounts payable under this subparagraph
3(a) shall be paid to the Holder in immediately available funds on or before
the fifth (5th) business day of the calendar month immediately following the
calendar month in which such amount has accrued.
(b) Buy-in. Nothing herein shall limit a Holder's right
to pursue actual damages for the Company's failure to issue and deliver Warrant
Shares in connection with an exercise on the applicable Delivery Date
(including, without limitation, damages relating to any purchase of shares of
Common Stock by such Holder to make delivery on a sale effected in anticipation
of receiving Warrant Shares upon exercise, such damages to be in an amount
equal to (A) the aggregate amount paid by such Holder for the shares of Common
Stock so purchased minus (B) the aggregate amount of net proceeds, if any,
received by such Holder from the sale of the Warrant Shares issued by the
Company pursuant to such exercise), and such Holder shall have the right to
pursue all remedies available to it at law or in equity (including, without
limitation, a decree of specific performance and/or injunctive relief).
(c) Reduction of Exercise Price. In the event that a
Holder has not received certificates representing the Warrant Shares by the
tenth (10th) business day following an Exercise Default, such Holder may, upon
written notice to the Company, regain on such business day the rights of a
Holder of this Warrant, or part thereof, with respect to the Warrant Shares
that are the subject of such Exercise Default, and the Exercise Price for such
Warrant Shares shall be reduced by one percent (1%) for each day beyond such
10th business day in which the Exercise Default continues. In such event, such
Holder shall retain all of such Holder's rights and remedies with respect to
the Company's failure to deliver such Warrant Shares (including without
limitation the right to receive the cash payments specified in subparagraph
3(a) above).
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<PAGE> 4
(d) Holder of Record. Each Holder shall, for all
purposes, be deemed to have become the holder of record of Warrant Shares on
the Exercise Date of this Warrant, irrespective of the date of delivery of such
Warrant Shares. Nothing in this Warrant shall be construed as conferring upon
the Holder hereof any rights as a stockholder of the Company.
4. Exercise Limitations.
In no event shall a Holder be permitted to exercise this
Warrant, or part thereof, with respect to Warrant Shares in excess of the
number of such shares, upon the issuance of which, (x) the number of shares of
Common Stock beneficially owned by such Holder and its affiliates plus (y) the
number of shares of Common Stock issuable upon such exercise, would be equal to
or exceed (z) 4.99% of the number of shares of Common Stock then issued and
outstanding. To the extent that the limitation contained in this paragraph 4
applies, the determination of whether this Warrant is exercisable (in relation
to other securities owned by a Holder) shall be in the sole discretion of such
Holder, and the submission of an Exercise Notice shall be deemed to be such
Holder's determination that this Warrant is exercisable pursuant to the terms
hereof, and the Company shall have no obligation whatsoever to verify or
confirm the accuracy of such determination. Nothing contained herein shall be
deemed to restrict the right of a Holder to exercise this Warrant, or part
thereof, at such time as such exercise will not violate the provisions of this
Section 4.
5. Payment of the Exercise Price.
The Holder may pay the Exercise Price in either of the
following forms or, at the election of Holder, a combination thereof:
(a) Cash Exercise: by delivery of immediately available funds.
(b) Cashless Exercise: by surrender of this Warrant to the Company
together with a notice of cashless exercise, in which event the Company shall
issue to the Holder the number of Warrant Shares determined as follows:
X = Y x (A-B)/A
where: X = the number of Warrant Shares to be issued to the
Holder.
Y = the number of Warrant Shares with respect to
which this Warrant is being exercised.
A = the average of the Closing Bid Prices of the
Common Stock for the five (5) Trading Days
immediately prior to (but not including) the
Exercise Date.
B = the Exercise Price.
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<PAGE> 5
For purposes of Rule 144 under the Securities Act of 1933, as amended, it is
intended, understood and acknowledged that the Warrant Shares issued in a
cashless exercise transaction shall be deemed to have been acquired by the
Holder, and the holding period for the Warrant Shares shall be deemed to have
been commenced, on the Closing Date (as defined in the Securities Purchase
Agreement).
6. Anti-Dilution Adjustments.
(a) Stock Dividend. If the Company shall at any time declare a
dividend payable in shares of Common Stock, declare a stock split or distribute
to holders of Common Stock as a class rights or warrants entitling them to
subscribe for or purchase Common Stock at less than the then current market
price thereof (based upon the subscription or exercise price of such rights or
warrants at the time of the issuance thereof), then the Holder hereof, upon
exercise of this Warrant after the record date for the determination of Holders
of Common Stock entitled to receive such dividend, shall be entitled to
receive, in addition to the number of shares of Common Stock as to which this
Warrant is exercised, such additional shares of Common Stock as such Holder
would have received had this Warrant been exercised immediately prior to such
record date and the Exercise Price will be proportionately adjusted.
(b) Recapitalization or Reclassification. If the Company shall at
any time effect a recapitalization, reclassification or other similar
transaction of such character that the shares of Common Stock shall be changed
into or become exchangeable for a larger or smaller number of shares, then upon
the effective date thereof, the number of shares of Common Stock which the
Holder hereof shall be entitled to purchase upon exercise of this Warrant shall
be increased or decreased, as the case may be, in direct proportion to the
increase or decrease in the number of shares of Common Stock by reason of such
recapitalization, reclassification or similar transaction, and the Exercise
Price shall be, in the case of an increase in the number of shares,
proportionally decreased and, in the case of decrease in the number of shares,
proportionally increased. The Company shall give the Warrant Holder the same
notice at the same time it provides such notice to holders of Common Stock of
any transaction described in this Section 6(b).
(c) Distributions. If the Company shall declare or make any
distribution of cash, evidences of indebtedness or other securities or assets
(other than cash dividends or distributions payable out of earned surplus or
net profits for the current or the immediately preceding year), or any rights
to acquire any of the foregoing, to holders of Common Stock as a partial
liquidating dividend, by way of return of capital or otherwise, including any
dividend or distribution in shares of capital stock of a subsidiary of the
Company (collectively, a "Distribution"), then, upon an exercise by the Holder
occurring after the record date for determining stockholders entitled to such
Distribution, the Exercise Price shall be reduced to a price determined by
decreasing the Exercise Price in effect immediately prior to the record date of
the Distribution by an amount equal to the fair market value of the assets so
distributed with respect to each share of Common Stock, such fair market value
to be determined by an investment banking firm selected by the Holder and
reasonably acceptable to the Company.
(d) Notice of Consolidation or Merger. If, prior to the exercise
of this Warrant in full, there shall be any merger, consolidation, business
combination, tender offer, exchange of shares, recapitalization,
reorganization, redemption or other similar event, as a result of which shares
of Common Stock shall be exchanged for or changed into the same or a different
number of shares of the same or another class or classes of stock or securities
of the Company
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<PAGE> 6
or another entity (an "Exchange Transaction"), then the Holder shall (A) upon
the consummation of such Exchange Transaction, have the right to receive, with
respect to any shares of Common Stock then held by such Holder, or which such
Holder is then entitled to receive pursuant to an Exercise Notice previously
delivered by the Holder, (and without regard to whether such shares contain a
restrictive legend or are freely-tradeable) the same amount and type of
consideration (including without limitation, stock, securities and/or other
assets) and on the same terms as a holder of shares of Common Stock would be
entitled to receive in connection with the consummation of such Exchange
Transaction (the "Exchange Consideration"), and (B) upon the exercise of any
part of this Warrant occurring subsequent to the consummation of such Exchange
Transaction, the Exchange Consideration which such Holder would have been
entitled to receive in connection with such Exchange Transaction had such
exercise occurred immediately prior to such Exchange Transaction, and in any
such case appropriate provisions shall be made with respect to the rights and
interests of the Holder to the end that the provisions hereof (including,
without limitation, provisions for the adjustment of the Exercise Price and of
the number of shares issuable upon an exercise hereof) shall thereafter be
applicable as nearly as may be practicable in relation to any securities
thereafter deliverable upon the exercise of all or any part hereof. The Company
shall not effect any Exchange Transaction unless (i) it first gives to the
Holder twenty (20) days prior written notice of such Exchange Transaction (an
"Exchange Notice"), and makes a public announcement of such event at the same
time that it gives such notice and (ii) the resulting successor or acquiring
entity (if not the Company) assumes by written instrument the obligations of
the Company hereunder, including the terms of this subparagraph 6(d), and under
the Securities Purchase Agreement and the Registration Rights Agreement (as
defined in the Securities Purchase Agreement).
(e) Exercise Price as Adjusted. As used in this Warrant, the term
"Exercise Price" shall mean the purchase price per share specified in paragraph
1 of this Warrant, until the occurrence of an event stated in subsection (a),
(b) or (c) of this paragraph 6, and thereafter shall mean said price as
adjusted from time to time in accordance with the provisions of each such
subsection. No such adjustment under this paragraph 6 shall be made unless
such adjustment would change the Exercise Price at the time by two percent (2%)
or more; provided, however, that all adjustments not so made shall be deferred
and made when the aggregate thereof would change the Exercise Price at the time
by $.01 or more. No adjustment made pursuant to any provision of this
paragraph 6 shall have the effect of increasing the total consideration payable
upon exercise of this Warrant in respect of all the Common Stock as to which
this Warrant may be exercised.
(f) Adjustments: Additional Shares, Securities or Assets. In the
event that at any time, as a result of an adjustment made pursuant to this
Section 6, the Holder of this Warrant shall, upon exercise of this Warrant,
become entitled to receive shares and/or other securities or assets (other than
Common Stock) then, wherever appropriate, all references herein to shares of
Common Stock shall be deemed to refer to and include such shares and/or other
securities or assets; and thereafter the number of such shares and/or other
securities or assets shall be subject to adjustment from time to time in a
manner and upon terms as nearly equivalent as practicable to the provisions of
this paragraph 6.
7. Fractional Interests.
No fractional shares or scrip representing fractional shares
shall be issuable upon the exercise of this Warrant, but on exercise of this
Warrant, the Holder hereof may purchase only a whole number of shares of Common
Stock. If, on exercise of this Warrant,
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<PAGE> 7
the Holder hereof would be entitled to a fractional share of Common Stock or a
right to acquire a fractional share of Common Stock, such fractional share
shall be disregarded and the number of shares of Common Stock issuable upon
exercise shall be rounded up or down to the nearest whole number of shares of
Common Stock.
8. Transfer of this Warrant.
The Holder may sell, transfer, assign, pledge or otherwise
dispose of this Warrant, in whole or in part, as long as (A) such sale or other
disposition is made pursuant to pursuant to an effective registration statement
or an exemption to the registration requirements of the Securities Act of 1933,
as amended, and applicable state laws and (B) such sale or other disposition is
made to an accredited investor (as such term is defined in Regulation D under
the Securities Act). Upon such transfer or other disposition, the Holder shall
deliver a written notice to Company, substantially in the form of the Transfer
Notice attached hereto as Exhibit B (the "Transfer Notice"), indicating the
person or persons to whom this Warrant shall be transferred and, if less than
all of this Warrant is transferred or this Warrant is transferred in parts, the
number of Warrant Shares to be covered by the part of this Warrant to be
transferred to each such person. Within three (3) business days of receiving a
Transfer Notice and the original of this Warrant, the Company shall deliver to
the each transferee designated by the Holder a Warrant or Warrants of like
tenor and terms for the appropriate number of Warrant Shares.
9. Benefits of this Warrant.
Nothing in this Warrant shall be construed to confer upon any
person other than the Holder of this Warrant any legal or equitable right,
remedy or claim under this Warrant and this Warrant shall be for the sole and
exclusive benefit of the Holder of this Warrant.
10. Loss, theft, destruction or mutilation of Warrant.
Upon receipt by the Company of evidence of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of indemnity or security reasonably satisfactory to the Company,
and upon surrender of this Warrant, if mutilated, the Company shall execute and
deliver a new Warrant of like tenor and date.
11. Notice or Demands.
Except as otherwise provided herein, any notice, demand or
request required or permitted to be given pursuant to the terms of this Warrant
shall be in writing and shall be deemed given (i) when delivered personally or
by verifiable facsimile transmission (with an original to follow) on or before
5:00 p.m., eastern time, on a business day or, if such day is not a business
day, on the next succeeding business day, (ii) on the next business day after
timely delivery to a nationally-recognized overnight courier and (iii) on the
third business day after deposit in the U.S. mail (certified or registered
mail, return receipt requested, postage prepaid), addressed as follows:
7
<PAGE> 8
If to the Company:
Queen Sand Resources, Inc.
3500 Oak Lawn, Suite 380
Dallas, Texas 75219-4398
Attn.: Chief Executive Officer
Fax: 214-521-9960
and if to the Holder, to such address as shall be designated by the Holder in
writing to the Company.
12. Applicable Law.
This Warrant is issued under and shall for all purposes be
governed by and construed in accordance with the laws of the state of New York,
without giving effect to conflict of law provisions thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
8
<PAGE> 9
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of
the 24th day of December, 1997.
Queen Sand Resources, Inc.
By:
-------------------------------------
Name: Robert P. Lindsay
Title: Chief Operating Officer and
Executive Vice President
9
<PAGE> 10
EXHIBIT A to WARRANT
EXERCISE NOTICE
The undersigned Holder hereby irrevocably exercises the right to
purchase ________________ of the shares of Common Stock ("Warrant Shares") of
Queen Sand Resources, Inc., a Delaware corporation (the "Company"), evidenced
by the attached Warrant (the "Warrant"). Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.
[ ] (check box if shares of Common Stock have been resold) The undersigned
represents that the shares of Common Stock to be issued by the Company hereby
have been resold or transferred by the undersigned in accordance with the
provisions of the prospectus included in the Registration Statement.
1. Form of Exercise Price. The Holder intends that payment of
the Exercise Price shall be made as:
a Cash Exercise with respect to Warrant Shares; and/or
- ------- ---------------
a Cashless Exercise with respect to Warrant Shares.
- ------- ---------------
2. Payment of Exercise Price. In the event that the Holder has
elected a Cash Exercise with respect to some or all of the Warrant Shares to be
issued pursuant hereto, the Holder shall pay the sum of $________________ to
the Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the
Holder _____________ Warrant Shares in accordance with the terms of the
Warrant.
Date:
------------------------------
- ------------------------------------
Name of Registered Holder
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE> 11
EXHIBIT B to WARRANT
TRANSFER NOTICE
FOR VALUE RECEIVED, the undersigned Holder of the attached Warrant hereby
sells, assigns and transfers unto the person or persons named below the right
to purchase ___________shares of the Common Stock of Queen Sand Resources, Inc.
evidenced by the attached Warrant.
Date:
------------------------------
- ------------------------------------
Name of Registered Holder
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Transferee Name and Address
- ------------------------------------
- ------------------------------------
- ------------------------------------
<PAGE> 12
[LETTERHEAD OF HAYNES AND BOONE, LLP]
December 31, 1997
VIA EDGAR TRANSMISSION
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Queen Sand Resources, Inc. / Current Report on Form 8-K
Ladies and Gentlemen:
Enclosed for filing, pursuant to the Securities Exchange Act of 1934, as
amended, is a Current Report on Form 8-K.
Please contact William L. Boeing at (214) 651-5553 with any questions or
comments regarding this filing.
Very truly yours,
/s/ William L. Boeing
- ---------------------
William L. Boeing
H&B:jmc/enclosures
cc: Working Group
