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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):
MARCH 27, 1997
QUEEN SAND RESOURCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<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.
THE PROPOSED TRANSACTIONS
General. Queen Sand Resources, Inc., a Delaware corporation (the
"Company"), has entered into a Securities Purchase Agreement, dated March 27,
1997 (the "JEDI Purchase Agreement") with Joint Energy Development Investments
Limited Partnership, a Delaware limited partnership ("JEDI") and an affiliate
of Enron Finance Corp., a Delaware corporation ("EFC"), and has entered into a
Securities Purchase Agreement, dated March 27, 1997 (the "Forseti Purchase
Agreement") with Forseti Investments Ltd., a company organized under the laws
of Barbados ("Forseti") (the two transactions are herein referred to as the
"Proposed Transactions"). The Forseti Purchase Agreement will be closed
immediately after the closing of the JEDI Purchase Agreement.
In addition, EIBOC Investments Ltd., a company organized under the
laws of Barbados ("EIBOC"), and Forseti (Forseti and EIBOC are together
referred to herein as the "Stockholders"), who collectively own approximately
54% of the common stock, par value $0.0015 per share, of the Company (the
"Common Stock"), and the Board of Directors of the Company have approved an
amendment to the Certificate of Incorporation of the Company (the "Charter
Amendment") to facilitate the consummation of the Proposed Transactions and to
provide for additional authorized but unissued capital stock to be available to
the Company for the purpose of raising capital, issuances in connection with
acquisition transactions, employee compensation plans and other corporate
purposes.
JEDI Transaction. JEDI has determined to make a substantial
investment in the Company, on the terms described herein, to provide the
Company with the capital to repurchase the Common Stock owned by Forseti.
Pursuant to the JEDI Purchase Agreement, JEDI has agreed to acquire at
the closing under the JEDI Purchase Agreement 9,600,000 shares of Series A
Participating Convertible Preferred Stock, par value $0.01 per share, of the
Company (the "Series A Preferred Stock"), certain warrants to purchase Common
Stock (the "JEDI Warrants") and warrants to purchase 409,839 shares of Common
Stock (the "Robertson Warrants"). The Robertson Warrants are being granted to
JEDI as a form of maintenance right on the part of JEDI to acquire Common Stock
in the future and maintain JEDI's proportionate ownership in the Company in
relation to shares of Common Stock issued in late February and late March 1997
to fund the Robertson acquisition. See "JEDI Transaction Agreements --
Maintenance Rights" and the Company's Current Report on Form 8-K dated
February 20, 1997 for a more complete description of the acquisition. The
aggregate consideration (excluding the exercise price in respect of the JEDI
Warrants and the Robertson Warrants) cannot exceed $14,400,000 and consists of
(i) $5,000,000 ($0.521 per share) cash at closing of the JEDI Purchase
Agreement plus (ii) contingent cash payment obligations (up to an aggregate of
$9,400,000) to the Company under the JEDI Earn Up Agreement, as described
below. All of such funds would be used by the Company to fund the Forseti
transaction agreements. See "Forseti Transaction Agreements." Based upon
(i) a total number of 20,624,500 shares of Common Stock assumed to be issued
and outstanding immediately following the closing of the Proposed Transactions,
(ii) 3,000,000 shares of Common Stock issuable upon exercise of the Forseti
Warrants (defined below) and (iii) 409,839 shares of Common Stock issuable
upon exercise of the Robertson Warrants, JEDI would own approximately 30% of
the voting capital stock of the Company upon the closing of the Proposed
Transactions.
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In connection with the purchase by JEDI of the Series A Preferred
Stock, the JEDI Warrants and the Robertson Warrants, the Company has agreed to
grant JEDI certain maintenance rights and certain demand and piggyback
registration rights with respect to the shares of Common Stock issuable upon
conversion of the Series A Preferred Stock and the shares of Common Stock
issuable upon exercise of the JEDI Warrants and the Robertson Warrants. Upon
purchasing the Series A Preferred Stock at the closing, JEDI may designate a
number of directors to the Company's Board of Directors, such that the
percentage of the number of directors that JEDI may designate approximates the
percentage voting power JEDI will have with respect to the Company's Common
Stock. In addition, upon certain events of default (as defined in the Series A
Certificate of Designation described below), JEDI will have the right to elect
a majority of the directors of the Company and a put option to sell the Series
A Preferred Stock to the Company. See "JEDI Transaction Agreements."
Forseti Transaction. Pursuant to the Forseti Purchase Agreement, the
Company has agreed to repurchase at the closing under the Forseti Purchase
Agreement, 9,600,000 shares of Common Stock owned by Forseti in exchange for
(i) $5,000,000 ($0.521 per share) cash, (ii) the issuance by the Company of
Class A Common Stock Purchase Warrants to purchase 1,000,000 shares of Common
Stock at an initial exercise price of $2.50 per share (the "Class A Warrants")
and Class B Common Stock Purchase Warrants to purchase 2,000,000 shares of
Common Stock at an initial exercise price of $2.50 per share (the "Class B
Warrants," and together with the Class A Warrants, the "Forseti Warrants"), and
(iii) contingent obligations (up to an aggregate of $9,400,000) to Forseti
under the Forseti Earn Up Agreement, as described below. However, pursuant to
the terms of the Forseti Earn Up Agreement, Forseti will not be able to both
sell or exercise the Forseti Warrants and receive full payment under the
Forseti Earn Up. Instead, Forseti will have the option of either selling or
exercising the Forseti Warrants or receiving any payments due under the
Forseti Earn Up Agreement. The aggregate consideration paid or payable by the
Company to Forseti in respect of the repurchase of the Common Stock owned by
Forseti cannot exceed $14,400,000. This consideration will be funded only
through the JEDI Purchase Agreement and the JEDI Earn Up Agreement. See
"Forseti Transaction Agreements."
The Company anticipates that the closings under the JEDI Purchase
Agreement and the Forseti Purchase Agreement will occur contemporaneously, with
the JEDI transaction closing first. Each agreement is dependent on
consummation of the other.
EIBOC. EIBOC holds of record 6,600,000 shares of Common Stock.
Edward J. Munden, Bruce I. Benn and Ronald I. Benn have the sole beneficial
interest in such shares. Edward J. Munden and Bruce I. Benn are officers and
directors of the Company, and Ronald I. Benn is an officer of the Company.
EIBOC received its shares of Common Stock from Norden Investments, Ltd.
("Norden") on March 27, 1997. Messrs. Munden, Benn and Benn had a beneficial
interest in such shares when they were held by Norden. Norden retained
3,000,000 shares of Common Stock and a 45% stock ownership interest in Capital
House International Ltd., a company organized under the laws of Barbados
("CHIL"). Prior to October 1996, the 9,600,000 shares of Common Stock held by
Norden and the 9,600,000 shares of Common Stock owned by Forseti were held of
record by CHIL.
The Charter Amendment. The Certificate of Incorporation does not
currently authorize the issuance of preferred stock. To consummate the
Proposed Transactions, the Company must amend the Certificate of Incorporation
to authorize a class of preferred stock. The Company has also determined to
authorize additional shares of Common Stock.
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The Charter Amendment will (i) authorize the issuance of an aggregate
of 50,000,000 shares of preferred stock of the Company (the "Preferred Stock"),
of which, following closing of the JEDI Purchase Agreement, 9,600,000 shares
will be issued and outstanding shares of Series A Preferred Stock, 9,600,000
shares will be authorized but unissued shares of Series B Preferred Stock, par
value $0.01 per share (the "Series B Preferred Stock") and 30,800,000 shares
will be undesignated preferred stock (the "Undesignated Preferred Stock")
available for issuance by the Company in the future and (ii) authorize an
additional 60,000,000 shares of Common Stock (in addition to the 40,000,000
shares currently authorized under the Certificate of Incorporation). See "JEDI
Transaction Agreements -- Description of Series A Preferred Stock and
Description of Series B Preferred Stock." As of April 1, 1997, there were
30,224,500 issued and outstanding shares of Common Stock and no shares of
Common Stock held in treasury, leaving 9,775,500 shares of Common Stock
authorized for issuance. Following completion of the Proposed Transactions,
there would be an aggregate of 9,600,000 shares held in treasury and 69,775,500
shares of authorized and unissued shares of Common Stock. Any authorized but
unissued or unreserved Common Stock and Undesignated Preferred Stock would be
available for issuance at any time, on such terms and for such purposes as the
Board of Directors may deem advisable in the future without further action by
stockholders of the Company, except as may be required by law or the Series A
Certificate of Designation. The Board of Directors of the Company will have
the authority to fix the rights, powers, designations, and preferences of the
Undesignated Preferred Stock and to provide for one or more series of
Undesignated Preferred Stock. The authority will include, but not be limited
to, determination of the number of shares to be included in the series,
dividend rates and rights, voting rights, if any, conversion privileges and
terms, redemption conditions, redemption values, sinking funds and rights upon
involuntary or voluntary liquidation. Except as described herein, the Company
currently has no plans to issue shares of Undesignated Preferred Stock.
The Board of Directors will file with the Secretary of State of the
State of Delaware a Certificate of Designation to establish the rights, powers,
designations and preferences of the Series A Preferred Stock (the "Series A
Certificate of Designation"). In addition, the Board of Directors will file a
Certificate of Designation to establish the rights, powers, designations and
preferences of the Series B Preferred Stock (the "Series B Certificate of
Designation"). The Charter Amendment will authorize the Board of Directors,
without further stockholder approval, to approve the Series A Certificate of
Designation and the Series B Certificate of Designation.
Dissenters' Rights and Preemptive Rights. The current stockholders of
the Company have no dissenters' rights or preemptive rights in connection with
the issuance of the Series A Preferred Stock or any of the JEDI Warrants,
Robertson Warrants, Maintenance Warrants (as described below) or Forseti
Warrants (or the Common Stock issuable upon exercise of such warrants).
JEDI TRANSACTION AGREEMENTS
Description of the JEDI Purchase Agreement. The following summary of
the material provisions of the JEDI 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 Report on Form 8-K.
Purchase of Series A Preferred Stock, JEDI Warrants and
Robertson Warrants. Pursuant to the JEDI Purchase Agreement, JEDI will
purchase 9,600,000 shares of Series A Preferred Stock, the JEDI Warrants and
the Robertson Warrants in exchange for (i) the
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payment by JEDI to the Company of $5,000,000 cash; and (ii) the execution and
delivery by JEDI of the JEDI Earn Up Agreement. See "JEDI Transaction
Agreements -- Description of the Series A Preferred Stock, Description of the
JEDI Warrants, Description of the Robertson Warrants and Description of the
JEDI Earn Up Agreement."
Certain Representations and Warranties. Under the JEDI
Purchase Agreement, the Company has made certain representations and warranties
to JEDI 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 A Preferred Stock, the JEDI Warrants and the
Robertson Warrants and the shares of Common Stock issuable upon conversion of
the Series A Preferred Stock and the exercise of the JEDI Warrants and the
Robertson Warrants; (iii) the due authorization, execution, delivery and
performance by the Company of the JEDI 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) required consents from governmental
authorities or other third parties; (vi) the capital structure of the Company
and its subsidiaries; (vii) employee benefit matters; (viii) the accuracy of
reports and other documents filed by the Company with the SEC; (ix) the absence
of certain changes to the Company's or its subsidiaries' business, financial
condition, properties, liabilities, assets, results of operations or future
business prospects; (x) compliance with laws; (xi) disclosure of pending and
threatened litigation; (xii) payment of taxes; (xiii) environmental matters;
(xiv) adequacy of insurance; (xv) title to assets; (xvi) accuracy of books and
records; (xvii) certain regulatory matters; (xviii) accuracy of financial
statements and certain reserve reports; (xix) adequacy of permits and licenses;
(xx) title to intellectual property; (xxi) title to properties; (xxii) no
undisclosed interested director transaction; (xxiii) no payments owed to
brokers and finders; and (xxiv) no material misstatements in any disclosures to
JEDI.
Under the JEDI Purchase Agreement, JEDI has made certain
representations and warranties to the Company, including (i) due organization;
(ii) the due authorization, execution, delivery and performance by JEDI of the
JEDI Purchase Agreement and related agreements and their enforceability; (v) no
conflict with or violation of the JEDI's organizational documents, any of
JEDI's agreements and applicable law; (vi) required consents from governmental
authorities or other third parties; (vii) pending and threatened litigation;
and (viii) certain investment representations.
Conditions Precedent. The JEDI Purchase Agreement provides
that the obligations of the Company to consummate the transactions contemplated
by the JEDI Purchase Agreement are subject to the fulfillment prior to or on
the closing of certain conditions precedent, or the waiver thereof by the
Company, including the following: (i) the representations and warranties of
JEDI shall be true and correct in all material respects as of the closing date;
(ii) the issuance and purchase of the Series A Preferred Stock, the JEDI
Warrants and the Robertson Warrants shall not be prohibited or enjoined by law
nor shall any action seeking such prohibition or enjoinment be pending; (iii)
the delivery of a legal opinion of JEDI's counsel; (iv) the Company shall have
received a certificate of an officer of JEDI as to certain matters; (v) the
Series A Certificate of Designation and the Series B Certificate of Designation
shall have become effective under the General Corporation Law of the State of
Delaware; (vi) JEDI shall have paid for the Series A Preferred Stock, the JEDI
Warrants and the Robertson Warrants; (vii) JEDI shall have executed and
delivered each of the JEDI Earn Up Agreement, the Registration Rights Agreement
(as described below), the Stockholders Agreement, and the Letter Agreement (as
described below); and (viii) the
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Company shall have received the consent of Comerica Bank-Texas to the
transactions contemplated by the agreements.
The JEDI Purchase Agreement provides that the obligations of JEDI to
consummate the transactions contemplated by the JEDI Purchase Agreement are
subject to the fulfilment prior to or on the closing of certain conditions
precedent, or the waiver thereof by JEDI, including the following: (i) the
representations and warranties of the Company shall be true and correct in all
material respects as of the date of the closing; (ii) the Company shall have
performed and complied in all material respects with all agreements contained
in the JEDI Purchase Agreement required to be performed by the Company prior to
or at the closing; (iii) delivery of a legal opinion of the Company's counsel;
(iv) the issuance and purchase of the Series A Preferred Stock, the JEDI
Warrants and the Robertson Warrants shall not be prohibited or enjoined by law;
(v) JEDI shall have received an officer's certificate from the Company as to
certain matters; (vi) the Company shall have executed and delivered each of the
JEDI Earn Up Agreement, the Registration Rights Agreement, the Stockholders
Agreement, the JEDI Warrants, the Robertson Warrants, and the Letter Agreement;
(vii) the Company shall have amended its Certificate of Incorporation and
bylaws as set forth in the JEDI Purchase Agreement; (viii) the Company shall
have filed the Series A Certificate of Designation and the Series B Certificate
of Designation with the Secretary of State of the State of Delaware; (ix) the
Management Services Agreement between the Company and Capital House A Finance
and Investment Corporation, a corporation organized under the laws of Canada
("CHC"), shall have been terminated and the Agency Agreement dated as of June
15, 1996 among Forseti and certain parties named therein shall have been
terminated; (x) the Company shall have entered into certain employment
agreements with each of Messrs. Munden, Benn and Benn; (xi) all of the
conditions to the obligations of the Company and Forseti to consummate the
transactions contemplated under the Forseti Purchase Agreement (other than
conditions that are dependent on the closing under the JEDI Purchase Agreement)
shall have occurred; (xii) the Company shall have paid certain of JEDI's
expenses and paid ECT Securities Corp. amounts due and owing under the Letter
Agreement; (xiii) JEDI's counsel shall be satisfied with proceedings taken in
connection with certain matters; (xiv) the consummation of the transactions
shall have occurred on or before June 15, 1997; (xv) EIBOC shall be the record
owner of 6,600,000 shares of Common Stock and shall have entered into trust or
similar arrangements related to the beneficial ownership of such shares, which
arrangements are satisfactory to JEDI, and EIBOC shall have deposited such
shares in escrow pursuant to an escrow agreement acceptable to JEDI; (xvi) JEDI
shall have received certain letters from the legal owner of the stock of EIBOC
and from the beneficial owners of stock of Forseti and (xvii) the Company shall
have received the consent of Comerica Bank-Texas to the transactions
contemplated by the agreements.
Covenants. Pursuant to the JEDI Purchase Agreement, the
Company will covenant to: (i) use the entire cash proceeds received under the
JEDI Purchase Agreement to repurchase the Common Stock owned by Forseti under
the Forseti Purchase Agreement; (ii) maintain its corporate existence and cause
its subsidiaries to maintain their corporate existence; (iii) comply with
applicable laws and cause its subsidiaries to do the same; (iv) maintain its
properties and cause its subsidiaries to maintain their properties; (v) not
materially change its accounting methods or permit its subsidiaries to change
their accounting methods; (vi) allow JEDI the right to have notice of, and
attendees at, the Company's Board of Directors' meetings; (vii) furnish to JEDI
certain reports and accounts furnished to the Company's Board of Directors;
(viii) effect the placement of Common Stock with net proceeds to the Company of
at least $5,400,000 commencing March 15, 1997 through December 31, 1997; (ix)
deliver an officer's certificate to JEDI annually regarding compliance
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with the covenants; (x) provide JEDI with certain financial statements and
reserve reports; (xi) use its best efforts to cause the Common Stock to be
listed on THE NASDAQ Small Cap Market; (xii) use reasonable commercial efforts
to cause the Common Stock, including the Common Stock issuable upon conversion
of the Series A Preferred Stock and upon exercise of the JEDI Warrants and the
Robertson Warrants, to be listed on THE NASDAQ National Market no later than
March 15, 2003; (xiii) approve customary stock option and other benefit plans;
(xiv) no later than June 30, 1997, enter into an employment agreement with V.
Ed Butler or a person with comparable qualifications reasonably acceptable to
JEDI; (xv) not to amend the Forseti Purchase Agreement or related documents
without the prior written consent of JEDI; and (xvi) use its best efforts to
obtain the consent of Comerica Bank-Texas to the transactions contemplated by
the agreement.
In addition, the Company will covenant not, and not permit any of its
subsidiaries, to engage in asset sales not in the ordinary course of business
unless the asset sale is for not less than the fair market value of the assets
sold and the consideration received by the Company or its subsidiary is at
least 85% cash; provided, that the following are deemed to be cash for purposes
of the covenant: (i) the amount of liabilities of the Company or a subsidiary
assumed by the transferee; (ii) the amount of any notes or other obligations
received by the Company or a subsidiary from such transferee converted into
cash within 90 days of the closing of the sale and (iii) the fair market value
of certain oil and gas properties and permitted business investments received
by the Company or its subsidiaries from such transferee. Further, if the
Company engages in an asset sale that is not in the ordinary course of
business, then the Company shall repay indebtedness, if required, and if not so
required, then within 60 days after the receipt of proceeds from such sale, the
Company may apply the proceeds to reduce indebtedness, acquire a controlling
interest in another oil and gas business or permitted business investment, make
certain capital expenditures, purchase assets useful to the oil and gas
business or retain cash for working capital.
The Company will covenant not, and not permit any of its subsidiaries,
to directly or indirectly enter into any transaction or series of related
transactions involving aggregate consideration equal to or greater than $60,000
with any affiliate of the Company unless (i) the terms of the transaction are
no less favorable to the Company than those that could have been obtained in a
transaction with an unaffiliated party or an arms-length basis and (ii) the
transaction is approved by a majority of disinterested directors of the
Company; provided, that this covenant will not apply to customary compensation
to officers, directors, and employees in the ordinary course of business,
intercompany transactions, dividend payments, or the transactions contemplated
by the Letter Agreement. See "JEDI Transaction Agreements -- Description of
the Letter Agreement."
The Company will also covenant to comply with substantially all of the
provisions of Rule 4460 of the National Association of Securities Dealers,
Inc.'s Bylaws. Pursuant to this covenant, the Company will be required to (i)
distribute to its stockholders annual reports containing audited financial
statements and quarterly reports containing statements of operating results,
(ii) maintain a minimum of two independent directors of the Company's Board of
Directors, (iii) maintain an audit committee, a majority of the members of
which are independent directors, (iv) hold an annual meeting of stockholders,
(v) solicit proxies and provide proxy statements for all meetings of
stockholders, (vi) conduct an appropriate review of related party transactions
on an ongoing basis, (vii) require stockholder approval prior to the adoption
of certain stock option plans and prior to the issuance of designated
securities that will result in a change of control of the Company or certain
other issuances in connection with the acquisition of the stock or assets of
another company or in connection with a
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transaction other than a public offering involving a significant amount of the
Company's securities and (viii) not take any action that will have the effect
of nullifying, restricting or disparately reducing the voting rights of the
holders of the Company's Common Stock; provided, that the Company is not
required to appoint two outside directors to the Company's Board of Directors
until June 30, 1997 and is not required to establish an Audit Committee until
June 30, 1997.
Maintenance Rights. Pursuant to the JEDI Purchase Agreement,
the Company has granted JEDI the right to purchase its proportionate share of
capital stock of the Company at the same price and on the same terms as the
capital stock to be sold by the Company. From the date of the JEDI Purchase
Agreement until December 31, 1998, if JEDI is entitled to exercise its
maintenance rights, the Company shall issue to JEDI a warrant for the purchase
of the capital stock that JEDI is entitled, but does not elect, to purchase (a
"Maintenance Warrant"). The exercise price of the Maintenance Warrant will be
the value of the capital stock as of the date of the issuance of the Maintenance
Warrant, and any Maintenance Warrant will be exercisable for a period of one
year. JEDI will not have maintenance rights with respect to capital stock
issued by the Company (i) pursuant to certain employee and director stock plans;
(ii) in connection with a stock split or dividend on the Common Stock to all
holders of Common Stock or (iii) pursuant to an offering pursuant to a
registration statement filed with, and declared effective by, the Securities and
Exchange Commission (the "SEC"). Subject to certain exceptions, JEDI will not
have maintenance rights with respect to the issuance of any rights, warrants or
options to purchase shares of the Company's capital stock or other securities
convertible into or exercisable or exchangeable for shares of the Company's
capital stock but will have maintenance rights if and when capital stock is
issued upon the conversion, exercise or exchange of such securities. JEDI's
maintenance rights will terminate upon the earlier to occur of: (i) the date on
which JEDI and its affiliates beneficially own less than 10 percent of the
voting power of the outstanding voting capital stock of the Company; (ii) the
date on which the Company completes an underwritten public offering of Common
Stock that generates net proceeds to the Company of at least $25,000,000; and
(iii) the date on which all shares of Series A Preferred Stock have been
converted to Common Stock or otherwise are no longer outstanding.
Termination. The JEDI Purchase Agreement may be terminated
(i) by the Company if the conditions to the Company's obligations under the
JEDI Purchase Agreement have not been fulfilled by the earlier of the fifth
business day after the twentieth day after the date the Information Statement of
the Company is first sent or given to the Company's stockholders or June 15,
1997; or (ii) by JEDI if the conditions to JEDI's obligations under the JEDI
Purchase Agreement have not been fulfilled by the earlier of the fifth
business day after the twentieth day after the date the Information Statement of
the Company is first sent or given to the Company's stockholders or June 15,
1997.
Indemnification. The JEDI Purchase Agreement provides that
the Company will indemnify, defend and hold harmless JEDI to the fullest extent
lawful from and against all losses, expenses, damages, deficiencies,
liabilities, payments, penalties, litigation, demands, defenses, judgments,
proceedings, costs, obligations, settlement costs, and attorneys', accountants'
and other professional advisors' fees (including costs of investigation or
preparation) ("Losses") arising out of or resulting from the breach of any
representation, warranty, convent or agreement of the Company contained in the
JEDI Purchase Agreement.
The JEDI Purchase Agreement provides that JEDI will indemnify,
defend and hold harmless the Company to the fullest extent lawful from and
against all Losses arising out of or resulting from the breach of any
representation, warranty, covenant, obligation or agreement of JEDI contained
in the JEDI Purchase Agreement.
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Dispute Resolution. The JEDI Purchase Agreement provides that
all disputes shall be submitted to non- binding mediation upon the request of
the Company or JEDI. If the non-binding mediation does not resolve the
disputes in question within 30 days after appointment of a mediator, the
dispute shall be resolved by arbitration governed by the Commercial Arbitration
Rules of the American Arbitration Association.
Expenses. The Company will pay its own expenses and the
out-of-pocket third party expenses reasonably incurred by JEDI in connection
with the transactions contemplated by the JEDI Purchase Agreement.
Description of Series A Preferred Stock. The Series A Certificate of
Designation will authorize the issuance of up to 9,600,000 shares of Series A
Preferred Stock. The following description of the rights, preferences and
limitations of the Series A Preferred Stock is a summary only and is qualified
in its entirety by reference to the entire text of the Series A Certificate of
Designation which is an exhibit to the JEDI Purchase Agreement.
Voting. The holders of shares of Series A Preferred Stock
will generally be entitled to vote (on an as-converted basis) as a single class
with the holders of the Common Stock, together with all other classes and
series of stock of the Company that are entitled to vote as a single class with
the Common Stock, on all matters coming before the Company's stockholders. In
any vote with respect to which the Series A Preferred Stock shall vote with the
holders of Common Stock as a single class, each share of Series A Preferred
Stock shall entitle the holder thereof to cast the number of votes equal to the
number which could be cast in such vote by a holder of the number of shares of
Common Stock into which such shares of Series A Preferred Stock is convertible
on the date of such vote.
With respect to any matter for which class voting is required by law
or the Company's Certificate of Incorporation, except as otherwise described
herein, the holders of the Series A Preferred Stock will vote as a class and
each holder shall be entitled to one vote for each share held.
For so long as 960,000 shares of Series A Preferred Stock are
outstanding, the following matters will require the approval of the holders of
shares of Series A Preferred Stock, voting together as a separate class:
(i) the amendment of any provision of the Company's
Certificate of Incorporation or the bylaws;
(ii) the creation, authorization or issuance, or the
increase in the authorized amount of, any class or series of shares
ranking on a parity with or prior to the Series A Preferred Stock
either as to dividends or upon liquidation, dissolution or winding up;
(iii) the merger or consolidation of the Company with or
into any other corporation or other entity or the sale of all or
substantially all of the Company's assets; or
(iv) the reorganization, recapitalization, or
restructuring or similar transaction that requires the approval of the
stockholders of the Company.
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Election of Directors. The holders of shares of Series A
Preferred Stock shall have the right, acting separately as a class, to elect a
number of members to the Company's Board of Directors. The number shall be a
number such that the quotient obtained by dividing such number by the maximum
authorized number of directors is as close as possible to being equal to the
percentage of the outstanding voting power of the Company entitled to vote
generally in the election of directors represented by the outstanding shares of
Series A Preferred Stock at the relevant time.
Conversion. A holder of shares of Series A Preferred Stock
shall have the right, at the holder's option, to convert all or a portion of
its shares into shares of Common Stock at any time at an initial rate of one
share of Series A Preferred Stock for one share of Common Stock.
The Series A 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, and combinations and
mergers and similar transactions.
Immediately following such conversion, the rights of the holders of
Series A Preferred Stock shall cease and the persons entitled to receive Common
Stock upon the conversion of Series A Preferred Stock shall be treated as the
owners of such Common Stock. The Company is required to maintain a reserve of
authorized but unissued shares of Common Stock to permit the conversion of the
Series A Preferred Stock in full.
Concurrently with the transfer of any shares of Series A Preferred
Stock to any person (other than a direct or indirect affiliate of JEDI or other
entity managed by Enron Corp. or any of its affiliates), the shares of Series A
Preferred Stock so transferred will automatically convert into a like number of
shares of Series B Preferred Stock. See "JEDI Transaction Agreements --
Description of Series B Preferred Stock."
Dividends. The holders of the shares of Series A Preferred
Stock will be entitled to receive dividends, when, and as if declared by the
Board of Directors, out of funds legally available therefor, any dividend
(other than a dividend or distribution paid in shares of, or warrants, rights
or options exercisable for or convertible into or exchangeable for, Common
Stock) payable on the Common Stock, as and when paid, in an amount equal to the
amount each such holder would have received if such holder's shares of Series A
Preferred Stock had been converted into Common Stock immediately prior to the
record date, or if there is no record date, the date of payment thereof. The
holders of Series A Preferred Stock will also have the right to certain
dividends upon and during the continuance of an event of default. See "JEDI
Transaction Agreements -- Description of Series A Preferred Stock -- Events of
Default; Remedies."
Liquidation. Upon the liquidation, dissolution or winding up
of the Company, the holders of the shares of Series A Preferred Stock, before
any distribution to the holders of Common Stock, will be entitled to receive
(i) an amount per share equal to the lesser of (A) $1.50 and (B) the sum of (x)
$0.521 and (v) the quotient obtained by dividing (1) the aggregate amount of
all payments made, as of the date of the liquidation, dissolution or winding
up, to the Company by JEDI pursuant to the JEDI Earn Up Agreement by (2)
9,600,000, plus (ii) all accrued and unpaid dividends thereon ("Liquidation
Preference"). The holders of the shares of Series A Preferred Stock will not
be entitled to participate further in the distribution of the assets of the
Company.
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<PAGE> 11
Events of Default; Remedies. The Series A Certificate of
Designation will provide that an Event of Default will be deemed to have
occurred if the Company fails to comply with any of its covenants in the JEDI
Purchase Agreement; provided, that the Company will have a 30-day cure period
with respect to the non-compliance with certain covenants. See "JEDI
Transaction Agreements -- Description of JEDI Purchase Agreement -- Covenants."
JEDI may waive any Event of Default.
Upon the occurrence but only during the continuance of an Event of
Default, the holders of Series A Preferred Stock will be entitled to receive,
in addition to other dividends payable to holders of Series A Preferred Stock,
when, as, and if declared by the Board of Directors, out of funds legally
available therefor, cumulative preferential cash dividends accruing from the
date of the Event of Default in an amount per share per annum equal to 6% of
the Liquidation Preference in effect at the time of accrual of such dividends,
payable quarterly in arrears on or before the 15th day after the last day of
each calendar quarter during which such dividends are payable. Unless full
cumulative dividends accrued on shares of Series A Preferred Stock have been or
contemporaneously are declared and paid, no dividend may be declared or paid or
set aside for payment on the Common Stock or any other junior securities (other
than a dividend or distribution paid in shares of, or warrants, rights or
options exercisable for or convertible into or exchangeable for, Common Stock
or any other junior securities), nor shall any Common Stock nor any other
junior securities be redeemed, purchased or otherwise acquired for any
consideration nor may any monies be paid to or made available for a sinking
fund for the redemption of any shares of any such securities.
Upon the occurrence and during the continuance of an Event of Default
resulting from the failure to comply with certain covenants, the holders of
shares of Series A Preferred Stock will have the right, acting separately as a
class, to elect a number of persons to the Board of Directors of the Company,
that along with any members of the Board of Directors who are serving at the
time of such action, will constitute a majority of the Board of Directors.
Upon the occurrence of an Event of Default resulting from the failure
to comply with certain covenants, each holder of shares of Series A Preferred
Stock will have the right, by written notice to the Company, to require the
Company to repurchase, out of funds legally available therefor, such holder's
shares of Series A Preferred Stock for an amount in cash equal to the
Liquidation Preference in effect at the time of the Event of Default.
Description of Series B Preferred Stock. The Series B Certificate
of Designation will authorize the issuance of up to 9,600,000 shares of Series
B Preferred Stock. The following description of the rights, preferences and
limitations of the Series B Preferred Stock is a summary only and is qualified
in its entirety by reference to the entire text of the Series B Certificate of
Designation which is an exhibit to the JEDI Purchase Agreement. The terms of
the Series B Preferred Stock are substantially similar to those of the Series A
Preferred Stock except that the holders of Series B Preferred Stock will not
(i) have class voting rights except as required under Delaware corporate law,
(ii) be entitled to any remedies upon an event of default or (iii) be entitled
to elect any directors of the Company, voting separately as a class.
Description of the JEDI Warrants. Pursuant to the JEDI Purchase
Agreement, at the closing under such agreement, the Company shall issue the
JEDI Warrants for the purchase of Common Stock of the Company. The JEDI
Warrants will be exercisable commencing on October 1, 1998 and ending on
December 31, 1998. At the time of exercisability, the JEDI
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<PAGE> 12
Warrants shall be exercisable for the number of shares of Common Stock (or
amount of other property) equal to the number of shares of Common Stock (or
amount of other property), as adjusted from time to time pursuant to the JEDI
Warrants, which would have been received upon the exercise on the Election Date
(as defined in the Forseti Earn Up Agreement) of the Forseti Warrants that are
deliverable by Forseti to the Company pursuant to the Forseti Earn Up
Agreement. The JEDI Warrants may be exercised in full or in part by means of
payment of the exercise price (initially $2.50 per share of Common Stock in
cash). The JEDI 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 JEDI Warrants also include customary provisions with respect to,
among other things, reservation of shares of Common Stock for issuance upon
exercise of the JEDI Warrants, mutilated or lost warrant certificates, and
notices to holder(s) of the JEDI Warrants.
Description of the Robertson Warrants. Pursuant to the JEDI Purchase
Agreement, at the closing under such agreement, the Company shall issue the
Robertson Warrants for the purchase of 409,839 shares of Common Stock. The
Robertson Warrants will be exercisable for a period of one year, commencing on
the date of issuance. The Robertson Warrants may be exercised in full or in
part by means of payment of the exercise price (initially $1.85 per share of
Common Stock in cash). The Robertson 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 Robertson Warrants also include
customary provisions with respect to, among other things, reservation of shares
of Common Stock for issuance upon exercise of the Robertson Warrants, mutilated
or lost warrant certificates, and notices to holder(s) of the Robertson
Warrants.
Description of the Stockholders Agreement. Pursuant to the JEDI
Purchase Agreement, at the closing under such agreement, EIBOC, Bruce I. Benn,
Ronald I. Benn, Edward J. Munden, Robert P. Lindsay and JEDI will enter into the
Stockholders Agreement. Pursuant to the Stockholders Agreement, each of EIBOC,
Bruce I. Benn, Ronald I. Benn, Edward J. Munden and Robert P. Lindsay will
agree to certain restrictions on the transfer of shares of the 6,600,000 shares
of Common Stock held by EIBOC, and JEDI will agree to certain restrictions on
the transfer of shares of Common Stock or securities convertible into or
exercisable or exchangeable for shares of Common Stock (including the Series A
Preferred Stock, the JEDI Warrants and the Robertson Warrants) held by JEDI.
Pursuant to the Stockholders Agreement, each of EIBOC and Bruce I.
Benn, Ronald I. Benn, Edward J. Munden and Robert P. Lindsay (collectively, the
"Management Stockholders") will covenant not to transfer, nor to authorize
transfer of, any of the 6,600,000 shares of Common Stock in which they have or
may acquire a beneficial interest except by will or the laws of descent and
distribution or otherwise by operation of law or judicial decree or as
permitted by the Stockholders Agreement.
The Stockholders Agreement will permit EIBOC and the Management
Stockholders to make the following transfers of shares of Common Stock after
October 1, 1997: (i) EIBOC and the Management Stockholders in the aggregate
may transfer shares of Common Stock provided that the number of shares of
Common Stock to be transferred together with all shares of Common Stock
transferred by EIBOC and the Management Stockholders during the preceding 12
months does not exceed the lesser of (x) four percent of the outstanding shares
of Common Stock, (y) four times the average weekly reported volume of trading,
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<PAGE> 13
excluding any trades made by EIBOC or a Management Stockholder on all national
securities exchanges and/or reported through the automated quotation system of
a registered securities association during the four calendar weeks preceding
the date of transfer or (z) four times the average weekly volume of trading,
excluding any trades made by EIBOC or a Management Stockholder, in Common Stock
reported through the consolidated transaction reporting system, contemplated by
Rule 11Aa3-1 under the Securities Exchange Act of 1934, as amended, during the
four week period specified in clause (y); and (ii) EIBOC and the Management
Stockholders may transfer shares of Common Stock in a registered underwritten
public offering of Common Stock; provided, that neither EIBOC nor any Management
Stockholder may transfer shares of Common Stock if after the transfer EIBOC and
the Management Stockholders would beneficially own less than 4,950,000 shares of
Common Stock in the aggregate, subject to certain adjustments for stock splits,
combinations, and stock dividends. In addition, the Stockholders Agreement will
permit EIBOC and the Management Stockholders to transfer Common Stock to certain
family members and related entities and to make certain transfers of Common
Stock upon the death or disability of a Management Stockholder.
Pursuant to the Stockholders Agreement, JEDI will agree that until the
second anniversary of the date of the Stockholders Agreement, and except
pursuant to its registration rights under the Registration Rights Agreement,
JEDI will not transfer any shares of Common Stock or securities convertible
into or exercisable or exchangeable for shares of Common Stock (a "Common Stock
Equivalent") to any person that is not an affiliate of JEDI except in blocks of
at least 600,000 shares of Common Stock or blocks of Common Stock Equivalents
that are convertible into or exchangeable or exercisable for at least 600,000
shares of Common Stock.
Pursuant to the Stockholders Agreement, JEDI will agree that until the
second anniversary of the date of the Stockholders Agreement and except
pursuant to its registration rights under the Registration Rights Agreement,
JEDI will not transfer any shares of Common Stock or Common Stock Equivalents
to a person that is not an affiliate of JEDI without first giving the Company
and the Management Stockholders a right of first refusal to purchase the shares
of Common Stock or Common Stock Equivalents at the proposed sale price.
Pursuant to the right of first refusal, the Company will have the first right,
which must be exercised within 30 days after receipt of notice of the proposed
transfer, to purchase the shares of Common Stock or Common Stock Equivalents to
be transferred. If the Company does not elect to acquire the shares of Common
Stock or Common Stock Equivalents to be transferred, the Management
Stockholders (if the Management Stockholders own in the aggregate more than 10%
of the voting power of the Company's capital stock) will have the right to
purchase such securities if the Management Stockholders notify JEDI of such
election within 30 days after the Company's receipt of notice of the proposed
transfer.
Pursuant to the Stockholders Agreement, EIBOC and the Management
Stockholders will make certain representations and warranties to JEDI, and
EIBOC will covenant not to issue any capital stock, permit its capital stock to
be transferred or enter into any agreement relating to the issuance of its
capital stock or engage in any business or activity other than the ownership of
6,600,000 shares of Common Stock.
Pursuant to the Stockholders Agreement, the 6,600,000 shares of Common
Stock owned by EIBOC and all of the outstanding shares of capital stock of
EIBOC (i) will be deposited in escrow pursuant to escrow agreements mutually
acceptable to EIBOC, the Management Stockholders and JEDI, and (ii) will be
held in escrow until the earlier of the
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<PAGE> 14
transfer of the 6,600,000 shares of Common Stock owned by EIBOC in accordance
with the Stockholders Agreement to a person other than a Management Stockholder
or related party and the termination of the Stockholders Agreement.
Pursuant to the Stockholders Agreement, EIBOC will grant to the
Management Stockholders an irrevocable proxy to vote the 6,600,000 shares of
Common Stock owned by EIBOC.
The Stockholders Agreement will terminate on the earlier of (i) the
fifth anniversary of the date of the Stockholders Agreement or (ii) the date on
which JEDI and its affiliates beneficially own in the aggregate less than 10%
of the voting power of the Company's capital stock.
Description of the Registration Rights Agreement. The Common Stock
issuable upon conversion of the Series A Preferred Stock or upon exercise of
the JEDI Warrants or the Robertson Warrants will not be registered with the SEC
and therefore, will be, when issued, restricted securities. The JEDI Purchase
Agreement provides that at the closing under the agreement the Company shall
enter into a Registration Rights Agreement with JEDI pursuant to which JEDI
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 A Preferred Stock or upon exercise of
the JEDI Warrants, the Robertson Warrants or the Maintenance Warrants (the
"Registrable Securities").
The Registration Rights Agreement provides for demand and piggyback
registration rights. A holder of Registrable Securities (a "Holder") or
Holders who hold at least a majority of the Registrable Securities may demand
registration up to 3 times; provided that the proposed aggregate offering
proceeds from the sale of such Holder or Holders portion of Registrable
Securities is at least $1,000,000. Generally, the Company bears the expense of
the demand registration statements, while the selling Holders bear selling
expenses such as underwriting fees and discounts. The Registration Rights
Agreement also provides for unlimited priority 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. The
Company generally bears the expense of any piggyback registration statement,
while selling holders generally bear selling expenses such as underwriting fees
and discounts. The Registration Rights Agreement also includes customary
indemnification and contribution provisions, and with regard to demand
registration rights, a provision allowing the Company to postpone filing or the
declaration of effectiveness of an applicable registration statement for up to
an aggregate of 90 days if at the relevant time the Company is engaged in a
firm commitment underwritten public offering in which Registrable Securities
may be included or for up to an aggregate of 60 days if there exists
information the disclosure of which would be materially harmful to the Company.
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. JEDI may
transfer its
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<PAGE> 15
registration rights (including demand registration rights that JEDI has not
exercised) to a third party but may not transfer more than one demand
registration right.
Description of the JEDI Earn Up Agreement. Pursuant to the JEDI
Purchase Agreement, the Company and JEDI will enter into, at the closing of the
transactions under the JEDI Purchase Agreement, an Earn Up Agreement (the "JEDI
Earn Up Agreement"). On or prior to October 15, 1998, subject to the
limitations in the JEDI Earn Up Agreement and against delivery by Forseti to
the Company of the Forseti Warrants and a statutory declaration as to certain
matters, JEDI shall pay the Company the Earn Up Amount. The Earn Up Amount
cannot exceed the amount defined as the "Earn Up Amount" under the Forseti Earn
Up Agreement.
The "Earn Up Amount" is a dollar amount equal to the amount, if any,
by which (i) the sum of the Class A Amount and the Class B Amount exceeds (ii)
the Warrant Transfer Amount; provided, that in no event shall the Earn Up
Amount exceed $9,400,000.
The "Class A Amount" is a dollar amount equal to the product of (i)
the Value (not to exceed $1.50) less $1.25, multiplied by (ii) 9,600,000;
provided, that in no event shall the Class A Amount be greater than $2,400,000;
and if the Class A Amount is zero or a negative number, the Class A Amount
shall be deemed to be zero.
The "Class B Amount" is a dollar amount equal to the product of (i)
the Value (not to exceed $1.25) less $0.521, multiplied by (ii) 9,600,000;
provided, that in no event shall the Class B Amount be greater than $7,000,000;
and if the Class B Amount is zero or a negative number, the Class B Amount
shall be deemed to be zero.
The "Warrant Transfer Amount" is a dollar amount equal to the greatest
of (i) the product of (x) $3.50 multiplied by (y) the aggregate number of
Forseti Warrants transferred by Forseti before October 15, 1998; (ii) the
aggregate gross proceeds that Forseti has received or is entitled to receive
from the transfer of all of the Forseti Warrants transferred by Forseti before
October 15, 1998; and (iii) the difference between the average bid price of the
Company's shares of Common Stock for the 21-day period ending on September 30,
1998 less $2.50, multiplied by the number of Forseti Warrants transferred by
Forseti before October 15, 1998.
"Value" means the product of the Price, multiplied by 0.60; provided,
that if (i) the Common Stock is quoted on The Nasdaq National Market at the
Election Date and (ii) the average daily trading volume of the Common Stock for
the 21-day period ending on September 30, 1998 is at least 50,000 shares per
day (excluding trading of shares in any accounts controlled by the Company or
Forseti or their respective affiliates, and provided, that if on any of the 21
days the trading volume is greater than 300,000 shares, then only 300,000
shares on such days may be used in calculating the average), then Value means
the product of the Price, multiplied by 0.75.
<TABLE>
<S> <C> <C>
"Price" means, if:
-----
|Price(1) - Price(2)|
---------------------- Less than or greater than 0.1, then (Price(1) + Price(2))/2;
Greater of Price(1) or Price(2)
</TABLE>
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<PAGE> 16
<TABLE>
<S> <C> <C>
provided, that if: |Price(1) - Price(2)|
---------------------- Greater than 0.1, then the Company and JEDI
Greater of Price(1) or Price(2)
</TABLE>
shall negotiate the Price; provided, further, that if the Price has not been
negotiated within 5 business days after the determination of Price1 and Price2,
then the determination of the Price shall be submitted to nonbinding mediation
and arbitration in accordance with the JEDI Earn Up Agreement. Notwithstanding
anything to the contrary in the JEDI Earn Up Agreement, under no circumstances
can the Price be higher than the higher of Price(1) and Price(2) or be less than
the lower of Price(1) and Price(2).
<TABLE>
<S> <C>
"Price(1)" = (1.1 * SEC PV(10)) - Indebtedness + Consolidated Working Capital
----- -------------------------------------------------------------------------------------------
Outstanding Shares
"Price(2)" = (6.0 * EBITDA) - Indebtedness + Consolidated Working Capital
----- -----------------------------------------------------------------------------------------
Outstanding Shares
</TABLE>
Terms used but not defined in the above definitions of Price(1) and
Price(2) are defined in the JEDI Earn Up Agreement.
The parties must first attempt to resolve disputes under the JEDI Earn
Up Agreement pursuant to non-binding mediation. Disputes that are not resolved
pursuant to non-binding mediation shall be settled by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association.
The JEDI Earn Up Agreement will terminate upon the earlier of (i) in
the event the "Election Date" under the Forseti Earn Up Agreement is after
September 30, 1998 or the "Payment Date" under the Forseti Earn Up Agreement is
after October 15, 1998, (ii) a transfer of any Forseti Warrants in violation
of the restrictions on transfer in the Forseti Purchase Agreement, (iii) the
election by Forseti to retain the Forseti Warrants pursuant to the Forseti Earn
Up Agreement, (iv) the transfer of all of the Forseti Warrants, (v) upon the
transfer of any ownership interest in Forseti or any entity controlling Forseti
where the purpose of the transfer is to realize or receive cash, securities or
any other property as consideration for the Forseti Warrants without
transferring the Forseti Warrants or (vi) as of September 30, 1998 or October
15, 1998, the individual, who as of the date of the Forseti Earn Up Agreement
owned directly or indirectly all of the ownership interests of Forseti and each
entity controlling Forseti does not own, directly or indirectly, all of the
ownership interests of Forseti and each entity controlling Forseti.
Description of the Letter Agreement. Pursuant to the JEDI Purchase
Agreement, at the closing under such agreement, the Company and ECT Securities
Corp., a Delaware corporation and an affiliate of the general partner of JEDI
("ECT Securities Corp."), shall enter into a letter agreement (the "Letter
Agreement"). Pursuant to the Letter Agreement, the Company will retain ECT
Securities Corp. to act as the Company's advisor and provide consultation,
assistance and advice to the Company with respect to certain of its operations
and properties. In consideration for such services, the Company will pay ECT
Securities Corp. $100,000 at the closing of the transactions under the JEDI
Purchase Agreement and an annual fee, payable quarterly in arrears, of $100,000
during the term of the Letter Agreement. The term of the Letter Agreement will
be five years, subject to earlier termination if JEDI's ownership of voting
capital stock of the Company should decrease to less than 10% of the Company's
voting capital stock. ECT Securities Corp. may terminate the Letter Agreement
effective as of the end of any calendar quarter of the Company upon written
notice not less than 30 days before the date on which such termination is to be
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<PAGE> 17
effective. The Letter Agreement includes customary provisions for
indemnification of ECT Securities Corp.
Employment Agreements. Pursuant to the JEDI Purchase Agreement, at
the closing under such agreement, the Company shall enter into an employment
agreement (the "Employment Agreement") with each of Bruce I. Benn, Ronald I.
Benn and Edward J. Munden as a condition to the closing under the JEDI Purchase
Agreement. The term of each Employment Agreement will be six months. Pursuant
to the Employment Agreement, each of Messrs. Benn, Benn and Munden will be
employed in his current position with the Company and will be entitled to a
base salary equal to $10,000 per month plus such other compensation and
employee benefit plans and programs implemented by the Company after the date
of the Employment Agreement. The Company will have the right to terminate
employment under the Employment Agreement for cause (as defined) or upon the
death or disability of the employee. Each of Messrs. Benn, Benn and Munden
will be entitled to terminate the Employment Agreement at any time for any
reason; provided, that none of Messrs. Benn, Benn or Munden will be entitled to
any compensation or benefits following such termination. The Employment
Agreement will include customary confidentiality and noncompetition provisions.
FORSETI TRANSACTION AGREEMENTS
Description of the Forseti Purchase Agreement. The following summary
of the material provisions of the Forseti 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 Report on Form 8-K.
Repurchase of Common Stock; Issuance of Forseti Warrants.
Pursuant to the Forseti Purchase Agreement, the Company will repurchase from
Forseti 9,600,000 shares of the Company's Common Stock owned by Forseti in
exchange for (i) the payment by the Company to Forseti of $5,000,000 cash; (ii)
the issuance by the Company to Forseti of the Forseti Warrants; and (iii) the
execution and delivery by the Company of the Forseti Earn Up Agreement. See
"Forseti Transaction Agreements -- Description of the Forseti Warrants and
Description of the Forseti Earn Up Agreement."
Certain Representations and Warranties. Under the Forseti
Purchase Agreement, the Company has made certain representations and warranties
to Forseti, including (i) due corporate organization; (ii) the due
authorization, issuance and enforceability of the Forseti Warrants and the
shares of Common Stock issuable upon exercise of the Forseti Warrants; (iii)
the due authorization, execution, delivery and performance by the Company of
the Forseti 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 or applicable law; and
(v) required consents from governmental authorities or other third parties.
Under the Forseti Purchase Agreement, Forseti has made certain
representations and warranties to the Company, including (i) due corporate
organization; (ii) title to the 9,600,000 shares of Common Stock; (iii) the due
authorization, execution, delivery and performance by Forseti of the Forseti
Purchase Agreement and related agreements and their enforceability; (iv) no
conflict with or violation of Forseti's organizational documents, any of
Forseti's agreements or applicable law or alternative dispute resolution; (v)
required consents from governmental authorities or other third parties;
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<PAGE> 18
(vi) no litigation; (vii) absence of brokers or finders; (viii) no interested
director transactions; and (ix) certain investment representations, including
that Forseti is not a U.S. person within the meaning of Regulation S,
promulgated under the Securities Act.
Restrictions on Transfer of the Forseti Warrants and Warrant
Shares. The Forseti Purchase Agreement provides that the holder of the Forseti
Warrants or the shares of Common Stock issuable upon the exercise of the
Forseti Warrants (the "Warrant Shares") may not transfer or exercise the
Forseti Warrants or Warrant Shares except in accordance with the Forseti
Purchase Agreement and the Forseti Warrants.
The agreement permits a transfer of the Forseti Warrants or
Warrant Shares (i) with the Company's prior written consent or (ii) the
transfer occurs after the first anniversary of the closing under the Forseti
Purchase Agreement, provided, that, in either case certain conditions are met,
including, without limitation, that (a) the transfer is in compliance with
Regulation S promulgated under the Securities Act, (b) Forseti delivers certain
notices to the Company, and (c) any transfer of the Forseti Warrants must
involve at least 100,000 warrants. To ensure compliance with the transfer
restrictions, at the closing under the Forseti Purchase Agreement, the Forseti
Warrants will be deposited in escrow pursuant to the Escrow Agreement among the
Company, Forseti, and an escrow agent acceptable to the Company and Forseti
(the "Escrow Agreement"). See "Forseti Transaction Agreements -- Description
of the Escrow Agreement." The Company and Forseti shall send a notice to the
escrow agent to release the Forseti Warrants if the Company and Forseti
determine that the proposed transfer is in compliance with the Forseti Purchase
Agreement.
If at any time on or before September 30, 1998 the Company
identifies a proposed transferee of the Forseti Warrants who is willing to
purchase for cash at least 100,000 of the Forseti Warrants at a price of at
least $2.40 per Class A Warrant and $3.50 per Class B Warrant and the Company
determines that the proposed transfer would be in compliance with the transfer
restrictions in the Forseti Purchase Agreement, then Forseti will be required
to transfer the Forseti Warrants to the transferee identified by the Company
upon notice by the Company.
Conditions Precedent. The Forseti Purchase Agreement provides
that the obligations of the Company to consummate the transactions contemplated
by the Forseti Purchase Agreement are subject to the fulfillment prior to or on
the closing of certain conditions precedent, or the waiver thereof by the
Company, including the following: (i) the representations and warranties of
Forseti shall be true and correct in all material respects as of the closing;
(ii) Forseti shall have performed and complied in all material respects with
all agreements contained in the Forseti Purchase Agreement required to be
performed by Forseti prior to or at the closing; (iii) the closing under the
JEDI Purchase Agreement shall have occurred; (iv) the Company shall have
adequate surplus for the repurchase; and (v) Forseti shall have executed and
delivered a release and certain other documents to the Company.
The Forseti Purchase Agreement provides that the obligations
of Forseti to consummate the transactions contemplated by the Forseti Purchase
Agreement are subject to the fulfilment prior to or on the closing of certain
conditions precedent, or the waiver thereof by Forseti, including the
following: (i) the representations and warranties of the Company shall be true
and correct in all material respects as of the closing; (ii) the Company shall
have performed and complied in all material respects with all agreements
contained in the Forseti Purchase Agreement required to be performed by the
Company prior to or at the
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<PAGE> 19
closing; (iii) the Company shall have delivered the Forseti Earn Up Agreement,
the Escrow Agreement and the Forseti Warrants to Forseti; (iv) the Company
shall have delivered an opinion of its counsel to Forseti; and (v) Forseti
shall have received or obtained all required consents, approvals, permits and
waivers from governmental entities and other third parties required to
consummate the transactions contemplated by the Forseti Purchase Agreement.
Termination. The Forseti Purchase Agreement may be terminated
(i) at any time before closing under the JEDI Purchase Agreement by the mutual
written consent of the Company and Forseti; (ii) at any time before the closing
under the JEDI Purchase Agreement by the Company or Forseti if the transactions
contemplated by the Forseti Purchase Agreement have not been consummated and
such failure to consummate is not caused by breach of the Forseti Purchase
Agreement; or (iii) at any time following termination of the JEDI Purchase
Agreement.
If the Forseti Purchase Agreement is terminated as provided
above, then the fees and expense provision will remain in effect and the
termination shall be without liability or further obligation of either the
Company or Forseti to the other party to the Forseti Purchase Agreement, except
that no such termination shall relieve any party from liability or a prior
breach of the Forseti Purchase Agreement.
Indemnification. The Forseti Purchase Agreement provides that
the Company will indemnify, defend and hold harmless Forseti and certain
related parties to the fullest extent lawful from and against all Losses
arising out of or resulting from the breach of any representation, warranty,
covenant or agreement of the Company contained in the Forseti Purchase
Agreement or related documents.
The Forseti Purchase Agreement provides that Forseti will
indemnify, defend and hold harmless the Company and certain related parties to
the fullest extent lawful from and against all Losses arising out of or
resulting from the breach of any representation, warranty, covenant or
agreement of Forseti contained in the Forseti Purchase Agreement or related
documents.
Dispute Resolution. The Forseti Purchase Agreement provides
that all disputes shall first be subject to non-binding mediation, and if such
disputes are not resolved by non-binding mediation, such disputes shall be
governed by arbitration governed by the Commercial Arbitration Rules of the
American Arbitration Association.
Expenses. Forseti will pay its own expenses and the
reasonable expenses of the Company in connection with the transactions
contemplated by the Forseti Purchase Agreement.
Description of the Forseti Warrants. Pursuant to the Forseti Purchase
Agreement, at the closing under such agreement, the Company shall issue the
Forseti Warrants to Forseti. The Class A Warrants will be exercisable for an
aggregate of 1,000,000 shares of Common Stock. The Class A Warrants will be
exercisable from their date of issuance (subject to Regulation S and the
Forseti Purchase Agreement) and shall expire December 31, 1998; provided, that
any of the Class A Warrants held by Forseti on the Election Date will expire on
the Election Date (as defined in the Forseti Earn Up Agreement) unless Forseti
elects to retain the Class A Warrants under the Forseti Earn Up Agreement. The
Class A Warrants may be exercised in full or in part by means of payment of the
exercise price (initially $2.50 per share of Common Stock) in cash (the "Class
A Warrant Shares"). If the Class A Warrants
19
<PAGE> 20
are exercised only in part, they must be exercised for the purchase of at least
100,000 shares of Common Stock. The Class A Warrants provide for customary
adjustments to the exercise price and/or number of shares to be issued in the
event of certain dividends and distributions to holders of Common Stock, stock
splits or combinations and reclassifications. The Class A Warrants also make
provision for warrant holders to receive certain items in exchange for the
Class A Warrants in the event of certain combinations, mergers, consolidations,
substantial asset sales and similar transactions. The Class A Warrants also
include customary provisions with respect to, among other things, reservation
of Class A Warrant Shares, mutilated or lost warrant certificates, and notices
to holder(s) of the Class A Warrants. The Class A Warrants will be subject to
transfer restrictions as described above under "Forseti Transaction Agreements
- -- Forseti Purchase Agreement -- Restrictions on Transfer."
The Class B Warrants will be exercisable for an aggregate of 2,000,000
shares of Common Stock. The Class B Warrants will be exercisable from their
date of issuance (subject to Regulation S and the Forseti Purchase Agreement)
and shall expire on December 31, 1998; provided, that any Class B Warrants held
by Forseti on the Election Date (as defined in the Forseti Earn Up Agreement)
will expire on the Election Date unless Forseti elects to retain the Class B
Warrants under the Forseti Earn Up Agreement. The Class B Warrants may be
exercised in full or in part by means of payment of the exercise price
(initially $2.50 per share of Common Stock) in cash (the "Class B Warrant
Shares"). If the Class B Warrants are exercised only in part, they must be
exercised for the purchase of at least 100,000 shares of Common Stock. The
Class B Warrants provide for customary adjustments to the exercise price and/or
number of shares to be issued in the event of certain dividends and
distributions to holders of Common Stock, stock splits or combinations and
reclassifications. The Class B Warrants also make provision for warrant
holders to receive certain items in exchange for their Class B Warrants in the
event of certain combinations, mergers, consolidations, substantial asset sales
and similar transactions. The Class B Warrants also includes customary
provisions with respect to, among other things, reservation of Class B Warrant
Shares, mutilated or lost warrant certificates, and notices to holder(s) of the
Class B Warrants. The Class B Warrants will be subject to transfer
restrictions as described above under "Forseti Transaction Agreements --
Forseti Purchase Agreement -- Restrictions on Transfer."
Description of the Forseti Earn Up Agreement. Pursuant to the Forseti
Purchase Agreement, the Company and Forseti will enter into, at the closing of
the transactions under the Forseti Purchase Agreement, the Forseti Earn Up
Agreement. Pursuant to the Forseti Earn Up Agreement, on the later of
September 30, 1998 or the date that is 14 days after the date that the Company
notifies Forseti to request his election (the "Election Date"), Forseti will
elect whether to (i) accept payment of the Earn Up Amount (in which event
Forseti may not exercise or transfer the Forseti Warrants that have not been
previously exercised or transferred) or (ii) retain the Forseti Warrants that
have not been previously exercised or transferred (in which event the Company
is not obligated to pay Forseti the Earn Up Amount and the Company's
obligations under the Forseti Earn Up Agreement terminate). If Forseti elects
to accept payment of the Earn Up Amount, then subject to limitations in the
Forseti Earn Up Agreement and against delivery by Forseti of the Forseti
Warrants and a statutory declaration as to certain matters, the Company shall
pay Forseti the Earn Up Amount on or before the later of October 15, 1998 or
the date that is 15 days after the date Forseti makes its election (the
"Payment Date").
20
<PAGE> 21
The Company shall be obligated to pay Forseti under the Forseti Earn
Up Agreement only to the extent that the Company has received a like amount in
cash from JEDI under the JEDI Earn Up Agreement.
If the sum of (i) $5,000,000 and (ii) the aggregate amount received by
Forseti from the transfer of Warrants, exceeds the sum of (x) $14,400,000 plus
(y) a dollar amount equal to the sum of the expenses of the Company paid by
Forseti pursuant to the Forseti Purchase Agreement, the reasonable
out-of-pocket expenses up to a maximum of $50,000 incurred by Forseti in
connection with the Forseti Purchase Agreement, and the escrow agent fees
incurred by Forseti under the Escrow Agreement (the sum of subclauses (x) and
(y) being referred to as the "Net Proceeds"), then within 10 days of the date
(the "Excess Determination Date") the aggregate amount received by Forseti
exceeds the Net Proceeds, (x) Forseti shall deliver to the Company an amount in
cash or by wire transfer of immediately available funds equal to 75% of such
amount received by Forseti in excess of the Net Proceeds, and (y) Forseti shall
spend the remaining 25% of such excess amount to purchase from the Company,
subject to applicable securities laws, Common Stock at a price equal to the
average of the Nasdaq bid price over 21 trading days ending on the Excess
Determination Date.
Pursuant to the Forseti Earn Up Agreement, the Company will grant to
Forseti an option to purchase from the Company a number of shares of Common
Stock equal to the quotient of (x) the amount by which the Earn Up Amount
exceeds $7,000,000 and (y) $2.50, at a price equal to $2.50. The option will
be exercisable in full or in part only from the date that the Earn Up Amount is
paid by the Company to Forseti through the fifth business day after the date of
payment of the Earn Up Amount. The Forseti Earn Up Agreement will provide for
customary adjustments to the exercise price and the number of shares to be
issued in the event of certain dividends and distributions to holders of Common
Stock, stock splits or combinations or reclassifications.
The parties must first attempt to resolve disputes under the Forseti
Earn Up Agreement pursuant to non-binding mediation. Disputes that are not
resolved pursuant to non-binding mediation shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association.
The Forseti Earn Up Agreement will terminate upon the earlier of (i) a
transfer of any Forseti Warrants in violation of the restrictions on transfer
in the Forseti Purchase Agreement, (ii) the election by Forseti to retain the
Forseti Warrants pursuant to the Forseti Earn Up Agreement, (iii) the transfer
of all of the Forseti Warrants, (iv) upon the transfer of any ownership
interest in Forseti or any entity controlling Forseti where the purpose of the
transfer is to realize or receive cash, securities or any other property as
consideration for the Forseti Warrants without transferring the Forseti
Warrants and (v) as of the Election Date or the Payment Date, the individual,
who as of the date of the Forseti Earn Up Agreement owned, directly or
indirectly, all of the ownership interests of Forseti and each
21
<PAGE> 22
entity controlling Forseti does not own, directly or indirectly, all of the
ownership interests of Forseti and each entity controlling Forseti.
Description of the Escrow Agreement. Pursuant to the Forseti Purchase
Agreement, at the closing under such agreement, the Company, Forseti and an
escrow agent mutually acceptable to the Company and Forseti shall enter into
the Escrow Agreement. The Escrow Agreement will govern the deposit into escrow
of the Forseti Warrants and the consideration for the transfer of Warrants.
The escrow agent may deliver the Forseti Warrants and the consideration for the
transfer of the Forseti Warrants to Forseti only upon receipt of notice from
the Company and Forseti to release the Forseti Warrants and the consideration
for the transfer of the Forseti Warrants. The Escrow Agreement contains
customary provisions regarding indemnification of the escrow agent. Forseti
will pay the fees of the escrow agent for its services under the Escrow
Agreement.
22
<PAGE> 23
ITEM 7. EXHIBITS.
The following documents are attached hereto as exhibits:
(a) Exhibits:
1.1 Securities Purchase Agreement dated as of March 27,
1997 between Queen Sand Resources, Inc. and Joint
Energy Development Investments Limited Partnership.
1.2 Securities Purchase Agreement dated as of March 27,
1997 between Queen Sand Resources, Inc. and Forseti
Investments Ltd.
23
<PAGE> 24
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: April 14, 1997 By:/s/ Edward J. Munden
---------------------------------
Name: Edward J. Munden
----------------------------
Title: President and Chief
Executive Officer
---------------------------
24
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<S> <C>
1.1 Securities Purchase Agreement dated as of March 27, 1997
between Queen Sand Resources, Inc. and Joint Energy
Development Investments Limited Partnership.
1.2 Securities Purchase Agreement dated as of March 27, 1997
between Queen Sand Resources, Inc. and Forseti Investments
Ltd.
</TABLE>
25
<PAGE> 1
EXHIBIT 1.1
================================================================================
SECURITIES PURCHASE AGREEMENT
BETWEEN
QUEEN SAND RESOURCES, INC.
AND
JOINT ENERGY DEVELOPMENT INVESTMENTS
LIMITED PARTNERSHIP
DATED AS OF MARCH 27, 1997
9,600,000 SHARES OF SERIES A PARTICIPATING
CONVERTIBLE PREFERRED STOCK AND
CERTAIN WARRANTS TO PURCHASE COMMON STOCK
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.01 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE II
ISSUANCE OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.01 Issuance of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.02 The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.03 Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.04 Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.01 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.02 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.03 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.04 Subsidiary Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.05 Conversion Shares and Warrant Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.06 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.07 Conflicting Agreements and Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.08 Due Authorization, Execution, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.09 Litigation, Proceedings, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.10 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.11 Consents and Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.12 Employee Benefit Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.13 Investment Company Act; Governmental Regulation . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.14 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.15 Certain Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.16 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.17 Financial Statements; Reserve Report . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.18 Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 3.19 Patents and Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 3.20 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 3.21 Filings with the Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 3.22 No Interested Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.23 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.24 No Material Misstatements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 4.01 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.02 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.03 Conflicting Agreements and Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.04 Due Authorization, Execution, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.05 Litigation, Proceedings, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.06 Consents and Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.07 Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.08 Nature of Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.09 Receipt of Information; Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 5.01 Conditions Precedent to Obligations of the Purchaser . . . . . . . . . . . . . . . . . . . 22
Section 5.02 Conditions Precedent to Obligations of the Company . . . . . . . . . . . . . . . . . . . . 24
ARTICLE VI
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 6.01 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 6.02 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 6.03 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 6.04 Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 6.05 Accounting Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 6.06 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 6.07 Additional Equity Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 6.08 Disposition of Proceeds of Asset Sales . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 6.09 Limitation on Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 6.10 Statement by Officers as to Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 6.11 Provision of Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 6.12 Nasdaq SmallCap Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 6.13 Nasdaq National Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 6.14 Incentive Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 6.15 Additional Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 6.16 No Amendment of Forseti Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 6.17 Consent of Comerica . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE VII
ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 7.01 Maintenance Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE VIII
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 8.01 Survival of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 8.02 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 8.03 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 8.04 Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 8.05 No Waiver; Modifications in Writing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 8.06 Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 8.07 Costs, Expenses and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 8.08 Determinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 8.09 Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 8.10 Binding Effect; Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 8.11 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 8.12 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 8.13 Severability of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 8.14 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 8.15 Replacement Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
Exhibits
Exhibit A - Form of Certificate of Designation
Exhibit B - Certificate of Designation (Series B)
Exhibit C - Form of Letter Agreement
Exhibit D - Form of Purchaser Earn Up Agreement
Exhibit E - Form of Purchaser Warrants
Exhibit F - Form of Registration Rights Agreement
Exhibit G - Form of Robertson Warrants
Exhibit H - Form of Stockholders' Agreement
Exhibit I - Form of Legal Opinion of Haynes and Boone, LLP
Exhibit J - Form of Affidavit with respect to the matters
addressed in Section 3.22.
Exhibit K - Form of Certificate of Incorporation of the
Company
Exhibit L - Amended and Restated Bylaws of the Company
Exhibit M - Form of Employment Agreement
Exhibit N - Form of Legal Opinion of Bracewell &
Patterson, L.L.P.
Exhibit O - Form of Maintenance Warrant
Schedules
Schedule 3.03(A) Commitments to Issue Capital Stock
Schedule 3.03(B) Registration Rights
Schedule 3.04 Subsidiaries; Liens on Subsidiary Stock
Schedule 3.06 Certain Events Since December 31, 1996
Schedule 3.11 Required Consents, Etc.
Schedule 3.12 Employee Benefit Plans
Schedule 3.18 Licenses
Schedule 3.20 Properties
iii
<PAGE> 5
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT, dated as of March 27, 1997 (the
"Agreement"), between QUEEN SAND RESOURCES, INC., a Delaware corporation (the
"Company"), and JOINT ENERGY DEVELOPMENT INVESTMENTS LIMITED PARTNERSHIP, a
Delaware limited partnership (the "Purchaser").
In consideration of the mutual covenants and agreements set forth
herein and for good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 Definitions. As used in this Agreement, and unless
the context requires a different meaning, the following terms have the meanings
indicated:
"AAA" has the meaning specified therefor in Section 8.04 of this
Agreement.
"Action" against a Person means any lawsuit, action, proceeding,
investigation or complaint before any Governmental Authority, mediator or
arbitrator.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise, and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Agreement" means this Agreement, as the same may be amended,
supplemented or modified in accordance with the terms hereof.
"Asset Sale" means any conveyance, transfer, lease or other
disposition (including, without limitation, by way of merger or consolidation)
(collectively, for purposes of this definition, a "transfer"), directly or
indirectly, in one transaction or a series of related transactions, of (A) any
Capital Stock of any Subsidiary of the Company; or (B) any properties or assets
of the Company or any Subsidiary of the Company, other than in the ordinary
course of business. For purposes of this definition, the term "Asset Sale"
shall not include any transfer of properties, assets or Capital Stock of the
Company or any Subsidiary of the Company to the Company or to any wholly owned
Subsidiary of the Company. For purposes of this definition, a transfer shall
be in the ordinary course of business if and only if the aggregate fair market
value (as determined in good faith by the Board of Directors) of the Capital
Stock, property or assets being transferred does not exceed $1,500,000;
provided, however, that such amount may be redetermined semi-annually in good
faith by the Board of Directors to reflect a reasonable and appropriate
standard for determining whether a transaction is in the ordinary course of
business in light of the Company's total assets and other relevant factors.
<PAGE> 6
"Basic Documents" means, collectively, the Registration Rights
Agreement, the Purchaser Earn Up Agreement, the Purchaser Warrants, the
Robertson Warrants, Maintenance Warrants, the Stockholders' Agreement and the
Letter Agreement.
"Board of Directors" means the Board of Directors of the Company or
any committee thereof duly authorized to act on behalf of the Board of
Directors.
"Business Day" means a day that is not a Legal Holiday.
"Capital Stock" of any Corporation means any and all shares,
interests, participations or other equivalents (however designated) of, or
rights, warrants or options to purchase, corporate stock or any other equity
interest (however designated) of or in such Corporation.
"Certificate of Designation" means the Certificate of Designation with
respect to the Series A Convertible Preferred Stock, the form of which is
annexed hereto as Exhibit A.
"Certificate of Designation (Series B)" means the Certificate of
Designation with respect to the Series B Convertible Preferred Stock, the form
of which is amended hereto as Exhibit B.
"Class A Warrants" means the warrants to purchase up to 1,000,000
shares of Common Stock to be issued pursuant to the Forseti Documents.
"Class B Warrants" means the warrants to purchase up to 2,000,000
shares of Common Stock to be issued pursuant to the Forseti Documents.
"Closing" has the meaning provided therefor in Section 2.02 of this
Agreement.
"Closing Date" means the date on which the Closing occurs.
"Commission" means the United States Securities and Exchange
Commission.
"Common Stock" has the meaning specified therefor in Section 3.03 of
this Agreement.
"Common Stock Equivalent" has the meaning specified therefor in
Section 7.01 of this Agreement.
"Company" means Queen Sand Resources, Inc., a Delaware corporation.
"Consequential Damages" has the meaning specified therefor in Section
8.02(c) of this Agreement.
"Convertible Notes" means that certain Promissory Note dated February
5, 1997 by Corrida Resources, Inc., as Maker, to Robertson's Oil & Gas, Inc.,
Pelican Resources, Inc. and Allen K. Robertson, as Payee, in the principal
amount of $375,000.00 and that certain Promissory Note dated February 5, 1997
by Corrida Resources, Inc., as Maker, and D&R Petroleum, Inc., Black Gold
Productions Services, Inc. and David Robertson, as Payee, in the principal
amount of $1,625,000.00.
"Conversion Shares" has the meaning specified therefor in Section
3.05.
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<PAGE> 7
"Corporation" means any corporation, limited liability company,
limited or general partnership, joint venture, association, joint-stock
company, business trust, trust or unincorporated organization.
"Credit Agreement" means the Credit Agreement among the Company, Queen
Sand Resources, Inc., a Nevada corporation, and Comerica Bank-Texas dated
December 1, 1995, as amended.
"Defensible Title" shall mean, subject to and except for the Permitted
Liens, (i) the title of the Company and its Subsidiaries to such assets is free
and clear of all Liens, of any kind whatsoever and (ii) as to those wells for
which a "working interest" and a "net revenue interest" are set forth in
Schedule 3.20, the Company or its Subsidiaries are entitled to receive the
percentage of all Hydrocarbons produced, saved and marketed from such wells in
an amount not less than the net revenue interest set forth therein, without
reduction, suspension or termination throughout the duration of the productive
life of such wells (except as set forth in such Schedule), and such party is
obligated to bear the percentage of costs and expenses related to the
maintenance, development and operation of such wells in an amount not greater
than the working interest set forth in such Schedule, without increase
throughout the productive life of such wells, except increases that also result
in a proportionate increase in net revenue interest and as set forth in such
Schedule.
"Disinterested Member" means, with respect to any transaction or
series of related transactions, a member of the Board of Directors who does not
have any direct or indirect financial interest in or with respect to such
transaction or series of related transactions (other than as a stockholder of
the Company).
"Dispute" has the meaning specified therefor in Section 8.04 of this
Agreement.
"EIBOC" means EIBOC Investments, Ltd., a Barbados corporation.
"Environmental Laws" means any and all laws, statutes, ordinances,
rules, regulations, orders, or determinations of any Governmental Authority
pertaining to health or the environment in effect in any and all jurisdictions
in which the Company or its Subsidiaries are conducting or at any time have
conducted business, or where any property of the Company or its Subsidiaries is
located, or where any hazardous substances generated by or disposed of by the
Company or its Subsidiaries are located, including but not limited to the Oil
Pollution Act of 1990, as amended ("OPA"), the Clean Air Act, as amended, the
Comprehensive Environmental, Response, Compensation, and Liability Act of 1980,
as amended ("CERCLA"), the Federal Water Pollution Control Act, as amended, the
Occupational Safety and Health Act of 1970, as amended, the Resource
Conservation and Recovery Act of 1976, as amended ("RCRA"), the Safe Drinking
Water Act, as amended, the Toxic Substances Control Act, as amended, the
Superfund Amendments and Reauthorization Act of 1986, as amended, and other
environmental conservation or protection laws. The term "oil" has the meaning
specified in OPA; the terms "hazardous substance," "release" and "threatened
release" have the meanings specified in CERCLA, and the terms "solid waste,"
"disposal" and "disposed" have the meanings specified in RCRA; provided,
however, if either CERCLA, RCRA or OPA is amended so as to broaden the meaning
of any term defined thereby, such broader meaning shall apply subsequent to the
effective date of such amendment, and provided, further, that, to the extent
the laws of the state in which any property of the Company or its Subsidiaries
is located establish a meaning for "oil," "hazardous substance," "release,"
"solid waste"
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<PAGE> 8
or "disposal" which is broader than that specified in either OPA, CERCLA or
RCRA, such broader meaning shall apply with respect to such property.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
the same may from time to time be amended and supplemented, including any rules
or regulations issued in connection therewith.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Forseti Documents" means the Forseti Purchase Agreement, the Forseti
Earn Up Agreement, the Forseti Escrow Agreement, the Class A Warrants and the
Class B Warrants.
"Forseti Earn Up Agreement" means the Earn Up Agreement to be entered
into between the Company and Forseti Investments Ltd. pursuant to the Forseti
Purchase Agreement.
"Forseti Escrow Agreement" means the Escrow Agreement to be entered
into among the Company, Forseti Investments Ltd. and an Escrow Agent to be
selected, pursuant to the Forseti Purchase Agreement.
"Forseti Purchase Agreement" means the Securities Purchase Agreement
dated the date hereof, between the Company and Forseti Investments Ltd.
"generally accepted accounting principles" or "GAAP" means generally
accepted accounting principles in the United States, as applied on a consistent
basis.
"Governmental Authority" means any (domestic or foreign) federal,
native American Indian, state, province, county, city, municipal or other
political subdivision or government, department, commission, board, bureau,
court, agency or any other instrumentality of any of them, which exercises
jurisdiction over the Company, any of its Subsidiaries, or any of their
respective property.
"Hydrocarbon Interests" means all rights, titles, leasehold and other
interests and estates in and to oil and gas leases, oil, gas and mineral
leases, or other liquid or gaseous hydrocarbon leases, mineral fee interests,
overriding royalty and royalty interests, net profit interests and production
payment interests, including any reserve or residual interest of whatever
nature.
"Hydrocarbons" means oil, gas, casinghead gas, condensate, distillate,
liquid hydrocarbons, gaseous hydrocarbons and all products refined therefrom.
"Information Statement" has the meaning specified therefor in Section
3.21.
"Investment Company Act" means the Investment Company Act of 1940, as
amended from time to time, and the rules and regulations of the Commission
thereunder.
"Issuance Date" has the meaning specified therefor in Section 7.01.
"Issuance Notice" has the meaning specified therefor in Section 7.01
of this Agreement.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in Houston, Texas are not required to be open for business.
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<PAGE> 9
"Letter Agreement" means the letter agreement to be dated the Closing
Date between the Company and ECT Securities Corp., the form of which is annexed
hereto as Exhibit C.
"Licenses" has the meaning specified therefor in Section 3.18 of this
Agreement.
"Lien" means any mortgage, charge, pledge, lien, security interest or
encumbrance of any kind.
"Maintenance Warrants" has the meaning specified therefor in Section
7.01 of this Agreement.
"Maintenance Warrant Shares" means the shares of Common Stock (and
other securities and property) issuable upon exercise of any Maintenance
Warrants.
"Material Adverse Change" has the meaning specified therefor in
Section 3.06 of this Agreement.
"Material Adverse Effect" means any material adverse effect on the
assets or properties, liabilities, financial condition, business, operations or
future business prospects of a Person, or any material impairment of the
ability of a Person to carry on its business as it exists on the date of this
Agreement or proposed at the date of this Agreement to be conducted or to
perform on a timely basis its obligations under this Agreement or any Basic
Document to which it is a party.
"Material Company Assets" has the meaning specified therefor in
Section 3.20 of this Agreement.
"Oil and Gas Business" means (i) the acquisition, exploration,
development, operation and disposition of interests in Oil and Gas Properties,
(ii) the gathering, marketing, treating, processing, storage, selling and
transporting of any production from Oil and Gas Properties, (iii) any business
relating to exploration for or development, production, treatment, processing,
storage, transportation or marketing of Hydrocarbons and (iv) any activity that
is ancillary to or necessary or appropriate for the activities described in
clauses (i) through (iii) of this definition.
"Oil and Gas Properties" means Hydrocarbon Interests; the properties
now or hereafter pooled or unitized with Hydrocarbon Interests; all presently
existing or future unitization, pooling agreements and declarations of pooled
units and the units created thereby (including, but not limited to, units
created under orders, regulations and rules of any Governmental Authority
having jurisdiction) which may affect all or any portion of the Hydrocarbon
Interests; all operating agreements, contracts and other agreements which
relate to any of the Hydrocarbon Interests or the production, sale, purchase,
exchange or processing of Hydrocarbons from or attributable to such Hydrocarbon
Interests; all Hydrocarbons in and under and which may be produced and saved or
attributable to the profits, proceeds, products, revenues and other incomes
from or attributable to the Hydrocarbon Interests; all tenements,
hereditaments, appurtenances and properties in anywise appertaining, belonging,
affixed or incidental to the Hydrocarbon Interests, and all property, real or
personal, now owned or hereafter acquired and situated upon, used, held for use
or useful in connection with the operating, working or development of any of
such Hydrocarbon Interests or property (excluding drilling rigs, automotive
equipment or other personal property which may be on such premises for the
purpose of drilling a well or for other similar temporary uses) and including
any and all oil wells, buildings, structures, fuel separators, liquid
extraction plants, plant
5
<PAGE> 10
compressors, pumps, pumping units, field gathering systems, tanks and tank
batteries, fixtures, valves, fittings, machinery and parts, engines, boilers,
meters, apparatus, equipment, appliances, tools, implements, cables, wires,
towers, casing, tubing and rods, surface leases, rights-of-way, easements and
servitudes together with all additions, substitutions, replacements, accessions
and attachments to any and all of the foregoing.
"Permitted Business Investments" means investments made in the
ordinary course of, and of a nature that is or shall have become customary in,
the Oil and Gas Business as a means of actively exploiting, exploring for,
acquiring, developing, processing, gathering, marketing or transporting
Hydrocarbons through agreements, transactions, interests or arrangements which
permit one to share risks or costs, comply with regulatory requirements
regarding local ownership or satisfy other objectives customarily achieved
through the conduct of Oil and Gas Business jointly with third parties,
including, without limitation, (i) ownership interests in Oil and Gas
Properties and (ii) investments in the form of or pursuant to operating
agreements, processing agreements, farm-in agreements, farm-out agreements,
development agreements, area of mutual interest agreements, utilization
agreements, pooling agreements, joint bidding agreements, service contracts,
joint venture agreements, partnership agreements (whether general or limited)
and other similar agreements with third parties.
"Permitted Liens" means any of the following: (i) any liens for taxes
and assessments not yet delinquent or, if delinquent, that are being contested
in good faith in the ordinary course of business; (ii) any obligations or
duties to any municipality or public authority with respect to any franchise,
grant, certificate, license or permit, and all applicable laws; (iii) any
easements, rights-of-way, servitudes, permits and other rights in respect of
surface operations, pipelines or the like, and easements for pipelines, power
lines and other similar rights-of-way, and encroachments, on, over or in
respect of any property or lands of the Company and its Subsidiaries or over
which such party owns rights-of-way, easements, permits or licenses, that do
not interfere in any material respect with the operation of any property or
lands for exploration and production of hydrocarbon or related operations; (iv)
all royalties, overriding royalties, net profits interests, production
payments, carried interests, reversionary interests, calls on production and
other burdens on or deductions from the proceeds of production that do not
operate to (A) reduce the net revenue interest below that set forth in Schedule
3.20, or (B) increase the working interest of the Company and its Subsidiaries
above that set forth in Schedule 3.20, without a proportionate increase in the
net revenue interest of such party; (v) the terms and conditions of all leases,
servitudes, production sales contracts, division orders, contracts for sale,
purchase, exchange, refining or processing of hydrocarbons, unitization and
pooling designations, declarations, orders and agreements, operating
agreements, agreements of development, area of mutual interest agreements,
farmout agreements, gas balancing or deferred production agreements, processing
agreements, plant agreements, pipeline, gathering and transportation
agreements, injection, repressuring and recycling agreements, carbon dioxide
purchase or sale agreements, salt water or other disposal agreements, seismic
or geophysical permits or agreements, and other agreements to the extent that
such contracts and agreements do not (A) reduce the net revenue interest below
that set forth in Schedule 3.20, or (B) increase the working interest above
that set forth in Schedule 3.20, as applicable, without a proportionate
increase in the net revenue interest of the applicable party; (vi) conventional
rights of reassignment prior to abandonment; (vii) materialmen's, mechanics',
repairmen's, employees', contractors', operators', tax and other similar liens
or charges arising in the ordinary course of business incidental to
construction, maintenance or operation of any of the assets (A) if they have
not been filed pursuant to law, (B) if filed, they have not yet become due and
payable or payment is being withheld as provided by law or (C) if their
validity is being contested in good faith in the ordinary course of
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<PAGE> 11
business by appropriate action; (viii) Liens securing borrowings under the
Credit Agreement; and (ix) any other encumbrances that (A) do not secure an
obligation in respect of borrowed money or (B) do not interfere materially with
the operation, value or use of the Company or its Subsidiaries.
"Person" means any individual, Corporation or Governmental Authority.
"Plans" has the meaning specified therefor in Section 6.14 of this
Agreement.
"Preferred Stock" has the meaning provided therefor in Section 3.03 of
this Agreement.
"Price" has the meaning provided therefor in Section 7.01 of this
Agreement.
"Purchaser" has the meaning provided therefor in the Preamble to this
Agreement.
"Purchaser Earn Up Agreement" means the Purchaser Earn Up Agreement
between the Company and the Purchaser, the form of which is annexed hereto as
Exhibit D, as the same may be amended, supplemented or otherwise modified in
accordance with the terms thereof.
"Purchaser Warrants" means the Warrants to purchase Common Stock to be
issued to the Purchaser, the form of which is annexed hereto as Exhibit E.
"Purchaser Warrant Shares" means the shares of Common Stock (and other
securities and property, if any) issuable upon exercise of the Purchaser
Warrants.
"Registration Rights Agreement" means the Registration Rights
Agreement relating to the Conversion Shares, the form of which is annexed
hereto as Exhibit F, as the same may be amended, supplemented or otherwise
modified in accordance with the terms thereof.
"Report" means any annual report, quarterly report, proxy statement or
other report or document required to be filed with the Commission pursuant to
the Exchange Act.
"Robertson Warrants" means the Warrants to purchase Common Stock to be
issued to the Purchaser, the form of which is attached hereto as Exhibit G.
"Robertson Warrant Shares" means the shares of Common Stock (and other
securities and property, if any) issuable upon exercise of the Robertson
Warrants.
"Securities" means the Shares, the Purchaser Warrants and the
Robertson Warrants.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, and the rules and regulations of the Commission promulgated
thereunder.
"Series A Convertible Preferred Stock" means the Company's Series A
Participating Convertible Preferred Stock, par value $.01 per share, with the
designations, preferences and relative, participating, optional or other
special rights and qualifications, limitations or restrictions thereof set
forth in the Certificate of Designation.
"Series B Convertible Preferred Stock" means the Company's Series B
Participating Convertible Preferred Stock, $.01 par value per share, with the
designations, preferences and
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<PAGE> 12
relative, participating, options or other special rights and qualifications,
limitations or restrictions thereof set forth in the Certificate of Designation
(Series B).
"Shares" has the meaning specified therefor in Section 2.01 of this
Agreement.
"State" means each of the states of the United States, the District of
Columbia and the Commonwealth of Puerto Rico.
"Stockholders' Agreement" means the Stockholders' Agreement by and
among the Company, the Purchaser, EIBOC, Edward J. Munden, Robert P. Lindsay,
Ronald I. Benn and Bruce I. Benn, the form of which is annexed hereto as
Exhibit H.
"Subsidiary" of any Person means any Corporation of which at the time
of determination such Person, directly and/or indirectly through one or more
other Persons, owns more than 50% of the voting interests.
"Time of Purchase" has the meaning provided therefor in Section 2.02
of this Agreement.
"Voting Securities" of any Person means Capital Stock of such Person
which ordinarily is entitled (without regard to the occurrence of any
additional event or contingency) to vote for the election of directors (or
persons performing similar functions) of such Person.
Section 1.02 Accounting Terms. All accounting terms used herein
not expressly defined in this Agreement shall have the respective meanings
given to them in accordance with GAAP.
ARTICLE II
ISSUANCE OF SECURITIES
Section 2.01 Issuance of Securities. Subject to the terms and
conditions herein set forth, the Company agrees that it will issue and sell to
the Purchaser and the Purchaser agrees that it will purchase from the Company
at the Time of Purchase (a) 9,600,000 shares of Series A Convertible Preferred
Stock (the "Shares"), (b) the Purchaser Warrants and (c) the Robertson
Warrants, in exchange for consideration payable to the Company consisting of
(i) cash in the amount of $5,000,000 and (ii) the Purchaser Earn Up Agreement.
Section 2.02 The Closing. The purchase and sale of the Securities
will take place at a closing (the "Closing") to be held at the offices of
Bracewell & Patterson, L.L.P., 2900 South Tower Pennzoil Place, 711 Louisiana
Street, Houston, Texas at 9:00 A.M. Houston, Texas time, on a date to which the
Company and the Purchaser shall agree, which shall be on or before the earlier
of the day that is the fifth Business Day after the twentieth day after the day
on which the Information Statement is first sent or given to the stockholders
of the Company or June 15, 1997. The date and time at which the Closing is to
be concluded is the "Time of Purchase."
Section 2.03 Delivery. Delivery of the Securities pursuant to
this Agreement shall be made at the Closing by the Company delivering to the
Purchaser, against payment therefor as provided below, (a) one certificate
representing the Shares, (b) one certificate representing the Purchaser
Warrants and (c) one certificate representing the Robertson Warrants, each
registered in the name
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of the Purchaser (or, subject to the limitations set forth in Section 8.10,
such other Person as the Purchaser may have designated in writing to the
Company at least two Business Days prior to the Time of Purchase).
Section 2.04 Payment. Payment of the cash consideration for the
Securities shall be made by wire or intrabank transfer of immediately available
funds to an account of the Company at a bank in Houston, Texas, which account
shall have been designated by the Company at least two Business Days prior to
the Time of Purchase. At the Closing, the Purchaser and the Company shall
execute and deliver each of the Basic Documents to which it is a party.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
Section 3.01 Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Each of the Company's Subsidiaries that is a corporation is a
corporation duly organized, validly existing and in good standing under the
laws of the State or other jurisdiction of its incorporation. Each of the
Company and each of its Subsidiaries that is a corporation is duly qualified or
licensed and in good standing as a foreign corporation, and is authorized to do
business, in each jurisdiction in which the ownership or leasing of its
respective properties or the character of its respective operations makes such
qualification necessary, except where the failure to obtain such qualification,
license, authorization or good standing would not have a Material Adverse
Effect on the Company and its Subsidiaries, taken as a whole. Each Subsidiary
of the Company that is not a corporation is duly qualified or licensed and
authorized to do business in each jurisdiction in which the ownership or
leasing of its respective properties or the character of its respective
operations makes such qualification necessary, except where the failure to
obtain such qualification, license or authorization would not have a Material
Adverse Effect on the Company and its Subsidiaries, taken as a whole.
Section 3.02 Authority. Each of the Company and each of its
Subsidiaries that is a corporation has all requisite corporate power and
authority to own its respective properties and assets and to carry on its
respective businesses as currently conducted and as currently proposed to be
conducted. The Company has all requisite corporate power and authority to (i)
execute, deliver and perform its obligations under this Agreement, each of the
Basic Documents and the Forseti Documents, and (ii) execute, deliver and
perform its obligations under all other agreements and instruments executed and
delivered by the Company pursuant to or in connection with this Agreement, each
of the Basic Documents and the Forseti Documents.
Section 3.03 Capitalization.
(a) As of the date of this Agreement, the authorized capital stock
of the Company consists of : 40,000,000 shares of Common Stock, par value
$.0015 per share (the "Common Stock"). As of the date hereof, the issued and
outstanding Capital Stock of the Company consisted of 30,224,500 outstanding
shares of Common Stock; no shares of Common Stock held in the treasury of the
Company; and the Convertible Notes. All outstanding shares of Capital Stock
are validly issued, fully paid and nonassessable and were issued free of
preemptive rights and in compliance with the Securities Act and applicable
State securities laws. The Company is not a party to any voting trust or other
agreement or understanding with respect to the voting of its Capital
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<PAGE> 14
Stock. Except as set forth in Schedule 3.03(A), there are no (1) outstanding
Common Stock Equivalents or (2) contracts, commitments, agreements,
understandings or arrangements of any kind to which the Company is a party
relating to the issuance of any Capital Stock of the Company, other than this
Agreement. Except as set forth on Schedule 3.03(B), the Company is not a party
to or bound by any agreement with respect to any of its securities which grants
registration rights to any Person.
(b) As of the Time of Purchase, the authorized capital stock of
the Company shall consist of (x) 100,000,000 shares of Common Stock; and (y)
50,000,000 shares of Preferred Stock, par value $.01 per share (the "Preferred
Stock"), of which 9,600,000 shares shall have been designated as Series A
Convertible Preferred Stock pursuant to the Certificate of Designation and
9,600,000 shares shall have been designated as Series B Convertible Preferred
Stock pursuant to the Certificate of Designation (Series B). As of the Time of
Purchase, after giving effect to consummation of the transactions contemplated
by the Forseti Documents and this Agreement, the issued and outstanding Capital
Stock of the Company shall be as set forth in the bringdown certificate of the
Company referred to in Section 5.01(a). Upon issuance at the Time of Purchase,
the Shares will be duly authorized, validly issued, fully paid and
nonassessable and shall have been issued free of any preemptive right and free
from all Liens (except any Liens created or suffered to be created by the
Purchaser), and the Purchaser Warrants and the Robertson Warrants shall have
been duly authorized and executed and constitute legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms. As of the Time of Purchase, the Conversion Shares, the
Robertson Warrant Shares and the Maintenance Warrant Shares (assuming
conversion of all Shares and the exercise of all Robertson Warrants and all
Maintenance Warrants) would represent 33.12% of the shares of Common Stock
outstanding.
Section 3.04 Subsidiary Capital Stock. There are no Subsidiaries
of the Company other than as set forth on Schedule 3.04. All of the issued and
outstanding shares of Capital Stock of the Subsidiaries of the Company have
been duly and validly authorized and issued and are fully paid and
nonassessable, and such shares were not issued in violation of any preemptive
right and are owned by the Company or one of its Subsidiaries free and clear of
any Lien, other than Liens identified on Schedule 3.04. There are no
outstanding warrants, options or other rights to purchase or acquire any of the
shares of Capital Stock of any Subsidiary of the Company, nor any outstanding
securities convertible into such shares or outstanding warrants, options or
other rights to acquire any such convertible securities.
Section 3.05 Conversion Shares and Warrant Shares. The shares of
Common Stock issuable upon conversion of the Shares (the "Conversion Shares"),
and the Purchaser Warrant Shares, the Robertson Warrant Shares, and the
Maintenance Warrant Shares, when issued and delivered in accordance with the
terms of the Certificate of Designation, the Purchaser Warrants, the Robertson
Warrants, or the Maintenance Warrants, respectively, will be duly and validly
issued, fully paid, nonassessable, free of preemptive rights and free from all
Liens (except any Liens created or suffered to be created by the Purchaser) and
will not be subject to any restriction on the voting or transfer thereof
created by the Company other than pursuant to the Stockholders' Agreement and
applicable provisions of federal and state securities laws. The Company (a)
has duly and validly reserved 9,600,000 shares of Common Stock initially
issuable on conversion of the Shares and 409,839 shares of Common Stock
initially issuable on exercise of the Robertson Warrants and (b) shall,
concurrently with the commencement of exercisability of the Purchaser Warrants
or any Maintenance Warrants, duly and validly reserve for issuance the
Purchaser Warrant Shares and the Maintenance Warrant Shares.
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Section 3.06 No Material Adverse Change. Except as set forth on
Schedule 3.06, subsequent to December 31, 1996, there has been (a) (i) no
material adverse change and (ii) no development which the Company reasonably
believes will result in (individually or in the aggregate) a material adverse
change, in either case, in the financial condition, properties, assets,
business or results of operations or future business prospects (a "Material
Adverse Change") of the Company and its Subsidiaries, taken as a whole, (b) no
material obligation or other material liability (contingent or other) incurred
by the Company or any of its Subsidiaries other than obligations and other
liabilities incurred in the ordinary course of business, (c) no Lien (other
than Permitted Liens) placed on any of the properties of the Company or any of
its Subsidiaries which remains in existence on the date hereof and (d) no
acquisition or disposition of any material asset by the Company or any of its
Subsidiaries or any contract or arrangement therefor, otherwise than for fair
value in the ordinary course of business.
Section 3.07 Conflicting Agreements and Other Matters. The
execution, delivery and performance by the Company of this Agreement, the Basic
Documents, the Forseti Documents and all other agreements and instruments to be
executed and delivered by the Company pursuant hereto or thereto or in
connection herewith or therewith, compliance by the Company with the terms and
provisions hereof and thereof, the issuance of the Securities by the Company
and the application or use of the proceeds of the sale of the Securities do not
and will not (a) violate any provision of any law, statute, rule or regulation,
order, writ, judgment, injunction, decree, governmental permit, determination
or award having applicability to the Company or any of its Subsidiaries or any
of their respective properties or assets, (b) conflict with or result in a
violation of any provision of the Certificate of Incorporation or Bylaws of the
Company, (c) as of the Time of Purchase, require any consent, approval or
notice under or result in a violation or breach of or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under (i) any note, bond,
mortgage, license, agreement or loan or credit agreement to which the Company
or any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries or any of their respective properties may be bound or affected or
(ii) any other such agreement, instrument or obligation except for any such
violation, breach or default as could not reasonably be expected (individually
or in the aggregate) to have a Material Adverse Effect on the Company and its
Subsidiaries, taken as a whole or (d) result in or require the creation or
imposition of any Lien upon or with respect to any of the properties now owned
or hereafter acquired by the Company or any of its Subsidiaries.
Section 3.08 Due Authorization, Execution, etc. This Agreement,
each of the Basic Documents and each other agreement or instrument executed and
delivered by the Company pursuant hereto or thereto or in connection herewith
or therewith at or prior to the Closing shall have been duly authorized,
executed and delivered by the Company and constitute legal, valid and binding
obligations of the Company enforceable against the Company in accordance with
its respective terms, subject to applicable bankruptcy, insolvency, moratorium
and other similar laws affecting generally the enforcement of creditors rights.
Section 3.09 Litigation, Proceedings, etc. There is no Action
pending or, to the knowledge of the Company, contemplated or threatened against
or affecting the Company, any of its Subsidiaries or any of their respective
officers, directors, properties or assets, which relates to or challenges the
legality, validity or enforceability of this Agreement, any of the Basic
Documents, any of the Forseti Documents or any other documents or agreements
executed or to be executed by the Company pursuant hereto or thereto or in
connection herewith or therewith, or which (individually or in the aggregate)
reasonably could be expected to (a) have a Material Adverse Effect
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<PAGE> 16
on the Company or any Subsidiary or (b) impair the ability or obligation of the
Company to perform fully on a timely basis any obligations which it has or will
have under this Agreement, any of the Basic Documents or any of the Forseti
Documents.
Section 3.10 No Violation. Neither the Company nor any of its
Subsidiaries is (a) in violation of its charter or bylaws, (b) in default (nor
has an event occurred which with notice or passage of time or both would
constitute such a default) under or in violation of any agreement or loan or
credit agreement or any other agreement or instrument to which it is a party or
by which it or any of its properties may be bound or (c) is party to any order
of any Governmental Authority arising out of any Action. Neither the Company
nor any of its Subsidiaries is in violation of any statute, rule or regulation
of any Governmental Authority or any governmental permit, which violation the
Company reasonably expects to (individually or in the aggregate) (A) affect the
legality, validity or enforceability by the Purchaser of this Agreement or any
of the Basic Documents, (B) have a Material Adverse Effect on the Company and
its Subsidiaries, taken as a whole or (C) impair the Company's ability or the
obligation of the Company to perform fully on a timely basis any obligation
which it has under this Agreement, any of the Basic Documents or the Forseti
Documents.
Section 3.11 Consents and Waivers. Except as set forth on
Schedule 3.11, no authorization, consent, approval, waiver, license,
qualification or formal exemption from, nor any filing, declaration,
qualification or registration with, any Governmental Authority or any other
Person is required in connection with the execution, delivery or performance by
the Company of this Agreement, any of the Basic Documents or the Forseti
Documents or the issuance by the Company of the Securities or the Conversion
Shares. Except as set forth on Schedule 3.11, all such authorizations,
consents, approvals, waivers, licenses, exemptions, filings, declarations,
qualifications and registrations have been obtained or made, as the case may
be, and are in full force and effect and not the subject of any pending or, to
the knowledge of the Company, threatened attack by appeal or direct proceeding
or otherwise.
Section 3.12 Employee Benefit Matters. Schedule 3.12 sets forth a
complete and accurate list of all employee benefit plans (including any stock
option, stock purchase or ownership plan) with respect to which the Company or
any Subsidiary is a sponsor. The Company and its Affiliates are in compliance
in all material respects with all applicable provisions of ERISA and published
interpretations thereunder with respect to all employee benefit plans which are
subject to ERISA.
Section 3.13 Investment Company Act; Governmental Regulation.
None of the Company or its Subsidiaries is, and immediately after the Time of
Purchase none will be, an "investment company" within the meaning of the
Investment Company Act. None of the Company or its Subsidiaries is subject to
regulation under the Public Utility Holding Company Act of 1935.
Section 3.14 Environmental Matters.
(a) Environmental Laws, etc. Neither any property of the Company
or its Subsidiaries nor the operations conducted thereon violate any applicable
order of any court or Governmental Authority or Environmental Laws, which
violation could reasonably be expected to have a Material Adverse Effect on the
Company and its Subsidiaries, taken as a whole or which could reasonably be
expected to result in remedial obligations having a Material Adverse Effect on
the Company and its Subsidiaries, taken as a whole, assuming disclosure to the
applicable Governmental Authority of all relevant facts, conditions and
circumstances, if any, pertaining to the relevant property.
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<PAGE> 17
(b) No Litigation. Without limitation of Section 3.14(a) above, no
property of the Company or its Subsidiaries nor the operations currently
conducted thereon or by any prior owner or operator of such property or
operation, are in violation of or subject to any existing, pending or, to the
knowledge of the Company, threatened Action by or before any Governmental
Authority or to any remedial obligations under Environmental Laws, except for
such as, individually and in the aggregate, have not resulted and will not
result in the incurrence by the Company of fines, penalties or other cost or
expenses in excess of $20,000.
(c) Notices, Permits, etc. All material notices, permits,
licenses or similar authorizations, if any, required to be obtained or filed by
the Company or its Subsidiaries in connection with the operation or use of any
and all property of the Company and its Subsidiaries, including but not limited
to past or present treatment, storage, disposal or release of a hazardous
substance or solid waste into the environment, have been duly obtained or
filed.
(d) Hazardous Substances Carriers. All hazardous substances or
solid waste generated at any and all property of the Company or its
Subsidiaries have in the past been transported, treated and disposed of only by
carriers maintaining valid permits under any Environmental Law, except to the
extent the failure to have such substances or waste transported, treated or
disposed by such carriers could not reasonably be expected to have a Material
Adverse Effect on the Company and its Subsidiaries, taken as a whole, and only
at treatment, storage and disposal facilities maintaining valid permits under
any Environmental Law, which carriers and facilities have been and are
operating in compliance with such permits, except to the extent the failure to
have such substances or waste treated, stored or disposed at such facilities,
or the failure of such carriers or facilities to so operate, could not
reasonably be expected to have a Material Adverse Effect on the Company and its
Subsidiaries, taken as whole or which could reasonably be expected to result in
remedial obligations having a Material Adverse Effect on the Company and its
Subsidiaries, taken as a whole, assuming disclosure to the applicable
Governmental Authority of all relevant facts, conditions and circumstances, if
any, pertaining to the relevant property.
(e) Hazardous Substances Disposal. The Company and its
Subsidiaries have taken all commercially reasonable steps necessary to
determine and have determined that no hazardous substances or solid waste have
been disposed of or otherwise released and there has been no threatened release
of any hazardous substances on or to any property of the Company or its
Subsidiaries except in compliance with Environmental Laws, except to the extent
the failure to do so could not reasonably be expected to have a Material
Adverse Effect on the Company and its Subsidiaries, taken as a whole, or which
could reasonably be expected to result in remedial obligations having a
Material Adverse Effect on the Company and its Subsidiaries, taken as a whole,
assuming disclosure to the applicable Governmental Authority of all relevant
facts, conditions and circumstances, if any, pertaining to the relevant
property.
(f) OPA Requirements. The Company and its Subsidiaries have
complied with all applicable design, operation and equipment requirements
imposed by OPA or scheduled to be imposed by OPA, and the Company does not have
reason to believe that either it or its Subsidiaries will not be able to
maintain such compliance with OPA requirements in the future, other than
violations that have not had and could not reasonably be expected to have a
Material Adverse Effect on the Company and its Subsidiaries, taken as a whole.
(g) No Contingent Liability. The Company and its Subsidiaries
have no material contingent liability in connection with any release or
threatened release of any hazardous substance
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<PAGE> 18
or solid waste into the environment, other than (i) contingent liabilities
that, individually and in the aggregate, could not reasonably be expected to
exceed applicable insurance coverage or (ii) contingent liabilities for which
adequate reserves for the payment thereof as required by GAAP have been
provided.
Section 3.15 Certain Fees. Except for customary fees payable
pursuant to the escrow agent under the Forseti Escrow Agreement and customary
fees to banks, which fees do not exceed $5,000 in the aggregate, no fees or
commissions are or will be payable by the Company or any of its Subsidiaries
(or to its knowledge by any Affiliate of the Company) to brokers, finders,
investment bankers or banks with respect to the issuance and sale or the
conversion or exercise of any of the Securities or the consummation of the
transactions contemplated by this Agreement, the Basic Documents or the Forseti
Documents.
Section 3.16 Taxes. The Company and each of its Subsidiaries have
timely and properly prepared and filed all necessary federal, State, local and
foreign tax returns with respect to the Company and its Subsidiaries which are
required to be filed (taking into consideration any extension periods) and have
paid all taxes shown to be due thereon and have paid, or made adequate
provision (in accordance with GAAP) for the payment of, all other taxes and
assessments with respect to the Company and its Subsidiaries to the extent that
the same shall have become due (taking into consideration any extension
periods), except where the failure to file such returns or to pay, or make
provision for the payment of, such taxes and assessments would not have a
Material Adverse Effect on the Company and its Subsidiaries, taken as a whole.
The Company has no knowledge of any tax deficiency which has been asserted
against the Company or any Subsidiary which the Company reasonably expects to
have a Material Adverse Effect on the Company and its Subsidiaries, taken as a
whole.
Section 3.17 Financial Statements; Reserve Report.
(a) The audited consolidated financial statements and the related
notes of the Company and its Subsidiaries as of and for the year ended June 30,
1996 and the unaudited consolidated financial statements and the related notes
of the Company and its Subsidiaries as of and for the three and six month
periods ended December 31, 1996, copies of which have been delivered to the
Purchaser, have been prepared in conformity with GAAP applied on a consistent
basis throughout the periods involved and fairly present in all material
respects the consolidated financial position, results of operations and cash
flows of the Company and its Subsidiaries as of the dates and throughout the
periods therein specified.
(b) The Company has delivered to the Purchaser a copy of the
reserve report dated as of June 30, 1996 prepared by Harper & Associates,
independent petroleum engineers (the "Harper Report"), relating to the oil and
gas reserves attributable to properties owned by the Company. The estimates of
reserves in the Harper Report were prepared in accordance with standard
geological and engineering methods generally accepted in the oil and gas
industry. The estimates of the lease operating expenses in the Harper Report
are reasonable and the historical factual information supplied by the Company
to the independent engineering firm in connection with the preparation of the
Harper Report was accurate and complete in all material respects.
(c) The Company has delivered to the Purchaser copies of the
following reserve reports relating to properties purchased by the Company after
the dates of such reports: reserve report dated October 21, 1996, prepared by
Netherland Sewell & Associates, Inc., independent petroleum
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<PAGE> 19
engineers; reserve report dated June 17, 1996, prepared by Mohajir &
Associates, Inc., independent petroleum engineers; and reserve report dated
July 25, 1990, prepared by Veazey & Associates, Inc., independent petroleum
engineers (collectively, the "Other Reports"). Nothing has come to the
attention of the Company that has led it to believe that any of the Other
Reports were not prepared in accordance with standard geological and
engineering methods generally accepted in the oil and gas industry or that the
information on which such reports were based was not accurate and complete.
Section 3.18 Licenses. Except as set forth on Schedule 3.18, each
of the Company and its Subsidiaries holds all licenses, franchises, permits,
consents, registrations, certificates and other approvals (including, without
limitation, those relating to environmental matters and worker health and
safety) (individually, a "License" and, collectively, "Licenses") required for
the conduct of its business as now being conducted, except where the failure to
hold any such License would not have a Material Adverse Effect on the Company
and its Subsidiaries, taken as a whole.
Section 3.19 Patents and Trademarks. Each of the Company and its
Subsidiaries owns or has the right to use all patents, trademarks, service
marks, trade names, copyrights and other rights required to conduct its
business as presently conducted without any conflicts with the rights of
others, except where the absence of such rights could not reasonably be
expected to have a Material Adverse Effect on the Company and its Subsidiaries,
taken as a whole.
Section 3.20 Properties. The Company or one of its Subsidiaries
has Defensible Title to all of the material assets reflected on the
consolidated financial statements included in the Reports as being owned by the
Company or its Subsidiaries (including Oil and Gas Properties of the Company
and its Subsidiaries set forth on Schedule 3.20) and all of the material assets
thereafter acquired by the Company or its Subsidiaries (except to the extent
that such assets have thereafter been disposed of in the ordinary course of
business consistent with past practice) (collectively, the "Material Company
Assets"). All material payments of any kind required to be made by the Company
and its Subsidiaries to third parties under any contract or agreement relating
to the Material Company Assets have been or will be properly and timely paid or
provided for.
Section 3.21 Filings with the Commission. The Company's
Registration Statement on Form 10-SB, as amended, at the time of its
effectiveness, and its Quarterly Report on Form 10-QSB for the period ended
December 31, 1996, as of its filing date, complied in all material respects,
both as to form and content, with all applicable requirements of the Exchange
Act and the rules and regulations thereunder and did not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. The Information Statement filed
with the Commission and delivered to the holders of Common Stock in connection
with the amendment of the Company's Certificate of Incorporation to conform the
Certificate of Incorporation to Exhibit K hereto (the "Information Statement")
will, at the time of its filing with the Commission and delivery to the holders
of Common Stock, comply in all material respects, both as to form and content,
with all applicable requirements of the Exchange Act and the rules and
regulations thereunder, and will not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements therein,
in the light of the circumstances under which it is made, not misleading. The
Company has made all filings required to be made by it with the Commission
pursuant to Sections 12, 13, 14 and 15 of the Exchange Act. All of such
filings, and all filings made by the Company with the Commission pursuant to
such sections, rules and regulations although not required to be made, complied
in all material respects, as to both form and
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<PAGE> 20
content, with all applicable requirements of the Exchange Act and the rules and
regulations thereunder, and, at the time of filing, did not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading.
Section 3.22 No Interested Transaction. To the knowledge of the
Company after due inquiry, (a) neither this Agreement, the Basic Documents or
the Forseti Documents nor the transactions contemplated hereby or thereby,
constitutes a contract or transaction between a corporation and one or more of
its directors or officers or between a corporation and any other Corporation in
which one or more of directors or officers are directors or officers or have a
financial interest and (b) each member of the Board of Directors of the Company
is a Disinterested Member with respect to this Agreement, the Basic Documents,
the Forseti Documents, and the transactions contemplated hereby and thereby.
Section 3.23 Insurance. The Company and its Subsidiaries maintain
property, casualty, general liability and other insurance policies with
coverage limits in amounts and with carriers as in each case are customary in
accordance with sound business practices and which the Company believes are
adequate in the circumstances.
Section 3.24 No Material Misstatements. The representations and
warranties contained in, the schedules attached to and the financial statements
and other related financial data (excluding all projections and pro forma
financial data) and reserve reports furnished to the Purchaser by or at the
direction of the Company or any of its Subsidiaries in connection with the
negotiation of this Agreement do not contain any material misstatement of fact
and, when considered with all other written statements furnished to the
Purchaser in that connection, such financial statements, related financial data
(excluding all projections and pro forma financial data) and reserve reports do
not omit to state a material fact or any fact necessary to make the statement
contained therein not misleading. The circumstances and events that are not
required to be identified on schedules to this Agreement by reason of the
materiality qualifications contained in the representations and warranties in
this Article III, or which are otherwise within such qualifications, in the
aggregate do not have, and could not reasonably be expected to have, a Material
Adverse Effect on the Company and its Subsidiaries, taken as a whole.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Section 4.01 Organization. The Purchaser is a limited partnership
duly formed, validly existing and in good standing under the laws of the State
of Delaware.
Section 4.02 Authority. The Purchaser has all requisite power and
authority under its Partnership Agreement to own its properties and assets and
to carry on its respective businesses as currently conducted. The Purchaser
has all requisite partnership power and authority to (i) execute, deliver and
perform its obligations under this Agreement and each of the Basic Documents to
which it is a party and (ii) execute, deliver and perform its obligations under
all other agreements and instruments executed and delivered by the Purchaser
pursuant to or in connection with this Agreement and each of the Basic
Documents.
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Section 4.03 Conflicting Agreements and Other Matters. The
execution, delivery and performance by the Purchaser of this Agreement, the
Basic Documents to which it is a party and all other agreements and instruments
to be executed and delivered by the Purchaser pursuant hereto or thereto or in
connection herewith or therewith, compliance by the Purchaser with the terms
and provisions hereof and thereof, do not and will not (a) violate any
provision of any law, statute, rule or regulation, order, writ, judgment,
injunction, decree, governmental permit, determination or award having
applicability to the Purchaser or any of its properties or assets, (b) conflict
with or result in a violation of any provision of its partnership agreement, or
(c) as of the Time of Purchase, require any consent, approval or notice under
or result in a violation or breach of or constitute (with or without due notice
or lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under (i) any note, bond, mortgage, license,
agreement or loan or credit agreement to which the Purchaser is a party or by
which the Purchaser or any of its properties may be bound or (ii) any other
such agreement, instrument or obligation to which the Purchaser is a party,
except for any such violation, breach or default as could not reasonably be
expected to have a Material Adverse Effect on the Purchaser.
Section 4.04 Due Authorization, Execution, etc. This Agreement,
each of the Basic Documents to which the Purchaser is a party and each other
agreement or instrument executed and delivered by the Purchaser pursuant hereto
or thereto or in connection herewith or therewith at or prior to the Closing
shall have been duly authorized, executed and delivered by the Purchaser and
constitute legal, valid and binding obligations of the Purchaser enforceable
against the Purchaser in accordance with its respective terms, subject to
applicable bankruptcy, insolvency, moratorium and other similar laws affecting
generally the enforcement of creditors rights.
Section 4.05 Litigation, Proceedings, etc. There is no Action
pending or, to the knowledge of the Purchaser, contemplated or threatened
against or affecting the Purchaser, its partners or its properties or assets,
which relates to or challenges the legality, validity or enforceability of this
Agreement, or any of the Basic Documents, or any other documents or agreements
executed or to be executed by the Purchaser pursuant hereto or thereto or in
connection herewith or therewith, or which (individually or in the aggregate)
reasonably could be expected to (a) have a Material Adverse Effect on the
Purchaser or (b) impair the ability or obligation of the Purchaser to perform
fully on a timely basis any obligations which it has or will have under this
Agreement or any of the Basic Documents.
Section 4.06 Consents and Waivers. No authorization, consent,
approval, waiver, license, qualification or formal exemption from, nor any
filing, declaration, qualification or registration with, any Governmental
Authority or any other Person is required in connection with the execution,
delivery or performance by the Purchaser of this Agreement or any of the Basic
Documents.
Section 4.07 Investment. The Purchaser represents and warrants
to, and covenants and agrees with, the Company that the Securities are being
acquired for its own account and with no intention of distributing or reselling
the Securities or the Conversion Shares in any transaction in violation of the
securities laws of the United States of America or any State, without
prejudice, however, to Purchaser's right, subject to the restrictions set forth
in the Stockholders' Agreement, at all times to sell or otherwise dispose of
all or any part of the Securities or the Conversion Shares under a registration
statement under the Securities Act and applicable State securities laws or
under an exemption from such registration available thereunder (including,
without limitation, if available, Rule 144A promulgated thereunder). If the
Purchaser should in the future decide to dispose of any of the Securities or
the Conversion Shares, the Purchaser understands and agrees that it may do so
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only (a) in compliance with the Securities Act and applicable State securities
law, as then in effect, and (b) in the manner contemplated by any registration
statement pursuant to which such securities are being offered. The Purchaser
agrees to the imprinting, so long as appropriate, of a legend on each
certificate representing Securities or the Conversion Shares and to the entry
of stop-transfer instructions to the effect set forth above and, with respect
to the Shares, to the imprinting on each certificate of a legend with respect
to the limitations on transfers set forth in the Stockholders' Agreement.
Section 4.08 Nature of Purchaser. The Purchaser represents and
warrants to, and covenants and agrees with, the Company that, (a) it is an
"accredited investor" within the meaning of paragraph (a)(3) of Rule 501 under
the Securities Act and (b) by reason of its business and financial experience
it has such knowledge, sophistication and experience in business and financial
matters so as to be capable of evaluating the merits and risks of the
prospective investment in the Securities, is able to bear the economic risk of
such investment and, at the present time, would be able to afford a complete
loss of such investment.
Section 4.09 Receipt of Information; Authorization. The Purchaser
represents and warrants to the Company that (a) it has received and reviewed
sufficient information to enable the Purchaser to make an informed decision
with respect to its investment in the Securities; and (b) the purchase of the
Securities by it has been duly and properly authorized and this Agreement has
been duly executed and delivered by it or on its behalf.
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
Section 5.01 Conditions Precedent to Obligations of the Purchaser.
The obligation of Purchaser to acquire the Securities is subject, at the Time
of Purchase, to the prior or simultaneous satisfaction or waiver of the
following conditions:
(a) The representations and warranties made by the
Company herein shall be true and correct in all material respects
(except for changes expressly provided for by this Agreement) at and
as of the Time of Purchase with the same effect as though such
representations and warranties had been made at and as of the Time of
Purchase, the Company shall have performed and complied in all
material respects with all agreements and conditions set forth in or
contemplated hereunder or in the Basic Documents required to be
performed or complied with by it at or prior to the Time of Purchase,
and the Purchaser shall have received a certificate certifying as to
the foregoing executed by a executive officer of the Company and dated
as of the Closing Date.
(b) The Purchaser shall have received an opinion,
addressed to it and dated the Closing Date, of Haynes and Boone, LLP,
counsel for the Company, substantially in the form of Exhibit I
hereto.
(c) The purchase of and payment for the Securities and
the application of proceeds thereof by the Company in accordance with
the terms of this Agreement (i) shall not be prohibited or enjoined
(temporarily or permanently) by any applicable law or governmental
regulation nor shall any Action seeking such prohibition or injunction
be
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pending and (ii) shall not subject the Purchaser to any material
penalty or, in its reasonable judgment, other onerous condition under
or pursuant to any applicable law or governmental regulation.
(d) The Purchaser shall have received a certificate,
dated the Closing Date, of the Secretary or an Assistant Secretary of
the Company, (i) certifying as true, complete and correct the charter
and bylaws of the Company and resolutions relating to the transactions
contemplated by this Agreement, the Basic Documents and the Forseti
Documents, adopted by the Board of Directors attached thereto (which
shall be satisfactory to the Purchaser), (ii) as to the absence of
proceedings or other action for dissolution, liquidation or
reorganization of the Company, (iii) as to the incumbency of the
officers of the Company who shall have executed instruments,
agreements and other documents in connection with the transactions
contemplated hereby or by the Basic Documents or the Forseti
Documents, and (iv) covering such other matters, and with such other
attachments thereto, as the Purchaser may reasonably request, and such
certificate and the attachments thereto shall be satisfactory in form
and substance to the Purchaser. The Purchaser also shall have
received affidavits, in the form annexed hereto as Exhibit J, from
each of Edward J. Munden, Robert P. Lindsay, Ronald I. Benn and Bruce
I. Benn with respect to the matters addressed in Section 3.22.
(e) Each of the Basic Documents shall have been executed
and delivered by all of the respective parties thereto (other than the
Purchaser) and shall be in full force and effect.
(f) EIBOC shall be the record owner of 6,600,000 shares
of Common Stock and shall have entered into trust or similar
arrangements related to the beneficial ownership of such shares in
form and substance satisfactory to the Purchaser, and (i) such
6,600,000 shares of Common Stock and (ii) all the Capital Stock of
EIBOC shall have been deposited with an escrow agent located in
Houston, Texas pursuant to an escrow agreement, the terms of which (x)
shall permit the release of such securities only with the concurrence
of the Purchaser and (y) shall otherwise be acceptable to the
Purchaser.
(g) The Purchaser shall have received from ATC (Cayman)
Limited and from the beneficial owners of all of the Capital Stock of
Forseti, letters dated the Closing Date, which shall include,
representations and covenants relating to the Capital Stock of EIBOC,
the Capital Stock of Forseti and the owners thereof, each of such
letters to be in form and substance satisfactory to the Purchaser.
(h) The Company's Certificate of Incorporation and
By-laws shall be in the forms annexed hereto as Exhibits K and L,
respectively.
(i) The Company shall have filed the Certificate of
Designation and the Certificate of Designation (Series B) with the
Secretary of State of the State of Delaware.
(j) The Management Services Agreement dated July 1, 1996
between the Company and Capital House A Finance and Investment
Corporation and the Agency Agreement dated as of June 15, 1996, among
Forseti Investments, Ltd. et al. shall have been terminated.
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<PAGE> 24
(k) The Company shall have entered into Employment
Agreements substantially in the form annexed hereto as Exhibit M with
each of Edward J. Munden, Ronald I. Benn and Bruce I. Benn.
(l) All of the conditions to the obligations of the
Company and Forseti Investments Ltd. to consummate the transactions
contemplated by the Forseti Purchase Agreement shall have been
satisfied except for any condition the satisfaction of which is
dependent on the Time of Purchase having occurred.
(m) The Time of Purchase shall not be later than 5:00
P.M., Houston, Texas time, on June 15, 1997.
(n) All proceedings taken or to be taken in connection
with the issuance of the Securities and the transactions contemplated
by this Agreement, the Basic Documents and the Forseti Documents and
all documents and papers relating thereto shall be reasonably
satisfactory to the Purchaser and its counsel. The Purchaser shall
have received copies of such papers and documents as it may reasonably
request in connection therewith.
(o) The Company shall have paid to or on behalf of the
Purchaser all amounts payable pursuant to Section 8.07 of this
Agreement and shall have paid to ECT Securities Corp. all amounts
payable at the Time of Purchase pursuant to the Letter Agreement.
(p) The Company shall have received the consent of
Comerica Bank-Texas to the transactions contemplated hereby and by
each of the Basic Documents and each of the Forseti Documents.
Section 5.02 Conditions Precedent to Obligations of the Company.
The obligations of the Company to issue and sell Securities hereunder is
subject, at the Time of Purchase, to the prior or simultaneous satisfaction or
waiver of the following conditions:
(a) The representations and warranties made by the
Purchaser herein shall be true and correct in all material respects on
and as of the Time of Purchase with the same effect as though such
representations and warranties had been made on and as of the Time of
Purchase and the Company shall have received a certificate certifying
as to the foregoing executed by a duly authorized representative of
the Purchaser and dated as of the Closing Date.
(b) The issuance of the Securities by the Company shall
not at the Time of Purchase be prohibited or enjoined (temporarily or
permanently) under the laws of any jurisdiction to which the Company
is subject nor shall any Action seeking such prohibition or injunction
be pending.
(c) The Company shall have received an opinion, addressed
to it and dated the Closing Date of Bracewell & Patterson, L.L.P.,
counsel for the Purchaser, substantially in the form of Exhibit N
hereto.
(d) The Company shall have received a certificate, dated
the Closing Date, of a duly authorized officer of the Purchaser, (i)
certifying as true, complete and correct, resolutions of the Board of
Directors of its general partner relating to the transactions
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contemplated by this Agreement (which shall be satisfactory to the
Company), (ii) as to the absence of proceedings or other action for
dissolution, liquidation or reorganization of the Purchaser, (iii) as
to the authorization of the Persons who shall have executed
instruments, agreements and other documents in connection with the
transactions contemplated hereby or by the Basic Documents and (iv)
covering such other matters, with such other attachments thereto, as
the Company may reasonably request, and such certificate and
attachments thereto shall be satisfactory in form and substance to the
Company.
(e) The Certificate of Designation and the Certificate of
Designation (Series B) shall have become effective under the General
Corporation Law of the State of Delaware; provided, however that the
effectiveness of the Certificate of Designation and the Certificate of
Designation (Series B) shall not be a condition of the obligation of
the Company if the Company fails to submit the Certificate of
Designation for filing.
(f) The Purchaser shall have made payment for the
Securities.
(g) Each of the Basic Documents shall have been executed
and delivered by all the respective parties thereto (other than the
Company) and shall be in full force and effect.
(h) The Company shall have received the consent of
Comerica Bank-Texas to the transactions contemplated hereby and by
each of the Basic Documents and each of the Forseti Documents.
ARTICLE VI
COVENANTS
Section 6.01 Use of Proceeds. The entire amount of the cash
proceeds from the issuance of the Securities shall be used by the Company on
the Closing Date immediately following the Time of Purchase to repurchase
9,600,000 shares of Common Stock from Forseti Investments Ltd. pursuant to the
Forseti Purchase Agreement.
Section 6.02 Corporate Existence. The Company will do or cause to
be done all things necessary to preserve and keep in full force and effect the
corporate existence, rights (charter and statutory) and franchises of the
Company and each of its Subsidiaries; provided, however, that the Company shall
not be required to preserve any such right or franchise if the Board of
Directors shall determine that the preservation thereof is no longer desirable
in the conduct of the business of the Company and its Subsidiaries as a whole
and that the loss thereof is not disadvantageous in any material respect to the
Purchaser.
Section 6.03 Compliance with Laws. The Company shall and shall
cause each of its Subsidiaries to comply with all applicable federal, state and
local laws, rules and regulations, including, without limitation, Environmental
Laws, except where failure to comply will not have a Material Adverse Effect on
the Company and its Subsidiaries, taken as a whole.
Section 6.04 Maintenance of Properties. The Company will cause
all properties (except as to properties not operated by the Company or a
Subsidiary, as to which the Company shall use commercially reasonably efforts)
owned by the Company or any Subsidiary or used or held for use in the conduct
of its business or the business of any Subsidiary to be maintained and kept in
good
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<PAGE> 26
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that
nothing in this Section shall prevent the Company from discontinuing the
maintenance of any of such properties if such discontinuance is, in the
judgment of the Company, desirable in the conduct of its business or the
business of the Company or any such Subsidiary and not disadvantageous in any
material respect to the Purchaser.
Section 6.05 Accounting Practices. The Company shall not, and
shall not permit any of its Subsidiaries to, materially change any method of
accounting employed in the preparation of their financial statements from the
methods employed in the preparation of the audited consolidated financial
statements of the Company for the year ended June 30, 1996, unless required to
conform to GAAP, recommended by the Company's independent auditors or approved
in writing by the Purchaser, which approval will not be unreasonably withheld
or delayed.
Section 6.06 Access to Information. The Purchaser shall be
entitled to (a) receive prior notice of any action proposed to be taken by the
Board of Directors (or any committee thereof), (b) receive such notices as
required to be given to directors of the Company of any meeting of the Board of
Directors (or any committee thereof), (c) designate persons to attend any
meeting of the Board of Directors, other than any portion of any such meeting
held prior to the Closing at which the transactions contemplated by this
Agreement are discussed, as observers, and (d) receive, promptly upon
completion, all written management reports and written management accounts
relating to the Company, to the extent such reports and accounts are provided
to the Board of Directors (or any committee thereof).
Section 6.07 Additional Equity Capital. The Company shall effect
the placement or other sale of Common Stock generating net proceeds to the
Company of at least $5,400,000 during the period beginning on March 15, 1997
and ending on December 31, 1997.
Section 6.08 Disposition of Proceeds of Asset Sales.
(a) The Company will not, and will not permit any of its
Subsidiaries to, engage in any Asset Sale unless such Asset Sale is for not
less than the fair market value of the shares of Capital Stock or assets sold
(as determined by the Board of Directors) and the consideration received by the
Company or the relevant Subsidiary in respect of such Asset Sale consists of at
least 85% cash; provided, however, that (i) the amount of any liabilities of
the Company (as shown on the Company's most recent balance sheet or in the
notes thereto), or any Subsidiary of the Company (as shown on such Subsidiary's
most recent balance sheet or in the notes thereto) that is expressly assumed by
the transferee of any such assets, (ii) the amount of any notes or other
obligations received by the Company or any such Subsidiary from such transferee
that, within 90 days following the closing of such sale or disposition, are
converted by the Company or such Subsidiary into cash (to the extent of the
cash received), (iii) the fair market value of Oil and Gas Properties or
Permitted Business Investments received by the Company or any such Subsidiary
from such transferee shall be deemed to be cash for purposes of this provision.
(b) If the Company or any of its Subsidiaries engages in an Asset
Sale, the Company shall use the net cash proceeds thereof to repay or
repurchase any outstanding indebtedness as required by the terms thereof. If
all or a portion of such net cash proceeds is not required to be so
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<PAGE> 27
applied, then within 60 days after the receipt of any proceeds from an Asset
Sale, the Company may apply such proceeds, at its option, (a) to reduce
indebtedness of the Company, or (b) to acquire a controlling interest in
another Oil and Gas Business, to make a Permitted Business Investment, to make
capital expenditures in respect of the Company's or its Subsidiaries' Oil and
Gas Business, to purchase long-term assets that are used or useful in the Oil
and Gas Business or to retain cash for working capital.
Section 6.09 Limitation on Transactions with Affiliates. The
Company will not, and will not permit any of its Subsidiaries to, directly or
indirectly, enter into any transaction or series of related transactions
involving aggregate consideration equal to or greater than $60,000 (including,
without limitation, the purchase, sale, lease or exchange of any property or
the rendering of any service) with any Affiliate of the Company unless (a) such
transaction is on terms that are no less favorable to the Company than those
that could have been obtained in a transaction between the Company (or its
Subsidiary) and unaffiliated party in an arm's-length transaction and (b) such
transaction is approved by a majority of the Disinterested Members of the Board
of Directors; provided that the foregoing restriction shall not apply to (1)
the payment of reasonable and customary regular fees to directors of the
Company who are not employees of the Company or any of its Subsidiaries, (2)
indebtedness of or monies owed for customary compensation to, officers,
directors and employees of the Company or its Subsidiaries, made in the
ordinary course of business, (3) transactions between or among the Company or
any of its wholly owned Subsidiaries, (4) the payment of dividends in respect
of the Capital Stock of the Company or any of its Subsidiaries, (5) the payment
of indebtedness of or monies owed by the Company or any of its Subsidiaries for
goods or materials purchased, or services received, in the ordinary course of
business or (6) the payment of indebtedness of or monies owed by the Company or
any of its Subsidiaries for fees to be paid to the Purchaser or any Affiliate
of the Purchaser pursuant to the Letter Agreement or any other written
agreement in existence on the Closing Date.
Section 6.10 Statement by Officers as to Default. The Company
will deliver to the Purchaser, within 60 days after the end of each fiscal
year, a certificate signed by the principal executive officer, principal
financial officer or principal accounting officer of the Company as to such
officer's knowledge of the Company's compliance with all conditions and
covenants set forth in this Agreement. For purposes of this Section 6.10, such
compliance will be determined without regard to any period of grace or
requirement of notice under this Agreement.
Section 6.11 Provision of Financial Statements. The Company will,
no later than one day after the earlier of (a) the date on which each Report is
due or (b) the date of filing of such Report with the Commission, transmit to
the Purchaser a copy of each Report. If the Company is not required to file
Reports pursuant to Section 13 or 15(d) of the Exchange Act, then the Company
shall transmit to the Purchaser as promptly as practicable, but in no event
later than 60 days after the end of each fiscal quarter, unaudited consolidated
and consolidating balance sheets as of the end of such fiscal quarter, and the
related statements of income and cash flows for such quarter and as promptly as
practicable, but in no event later than 90 days after the close of each fiscal
year, audited consolidated and unaudited consolidating balance sheets of the
Company as of the end of such fiscal year and the related audited statements of
income and audited cash flows for such year; all such financial statements
shall be prepared in conformity with GAAP. The Company shall transmit to the
Purchaser consolidated lease operating statements for all of its properties
during each fiscal year no later than (a) if the Company is required to file
reports pursuant to Section 13 or 15(d) of the Exchange Act, one day after the
earlier of (i) the date on which the Company's Annual Report on Form 10-K for
such fiscal year is due or (ii) the date of filing of such Annual Report on
Form 10-K
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or (b) if the Company is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act, no later than 90 days after the end of such fiscal
year (or shall include such information in the Reports or financial statements
supplied pursuant to this Section 6.11). The Company shall (a) within three
days after receipt by the Company and in any event on or before September 30 of
each year, transmit to the Purchaser, a reserve report dated as of June 30 of
such year covering all of the Company's Oil and Gas Properties as of such date,
which report shall be prepared by Netherland Sewell & Associates, Ryder Scott
Company, DeGolyer & McNaughton or another independent engineering firm
acceptable to the Purchaser and (b) on or before February 28 of each year,
transmit to the Purchaser a reserve report dated December 31 of the previous
year covering all of the Company's Oil and Gas Properties as of such date,
which report shall be prepared by the Company in form and substance reasonably
satisfactory to the Purchaser. The dates as of which reserve reports referred
to in the preceding sentence shall be made and transmitted shall be
appropriately adjusted in the event the Company changes its fiscal year.
Section 6.12 Nasdaq SmallCap Market. The Company shall use its
best efforts to cause the Common Stock to be included in The Nasdaq SmallCap
Market as soon as practicable and shall file any listing applications or
additional listing applications that may be required to include the Conversion
Shares, the Purchaser Warrant Shares, the Robertson Warrant Shares and the
Maintenance Warrant Shares.
Section 6.13 Nasdaq National Market. The Company shall (a) use
reasonable commercial efforts to cause the Common Stock to be listed on The
Nasdaq National Market as soon as practicable and shall obtain such listing no
later than March 31, 2003 and (b) comply with the corporate governance
regulations (other than the regulations requiring independent directors and the
establishment of an Audit Committee of the Board of Directors), set forth in
Rule 4460 of the Bylaws of the National Association of Securities Dealers, Inc.
("NASD"), as in effect from time to time (or any successor regulations), other
than, unless otherwise required of the Company, any provisions relating to the
filing of reports and other information with the NASD or the execution of a
listing agreement. Notwithstanding the foregoing, the appointment of two
Disinterested Members of the Board of Directors and establishment of an Audit
Committee and a Compensation Committee of the Board of Directors (the
membership of each such committee to consist of Disinterested Members), may
take place at any time after the Closing Date and prior to June 30, 1997.
Section 6.14 Incentive Plans. The Company shall approve and
implement customary thrift, stock purchase, stock bonus, stock option, employee
stock ownership or other incentive or profit sharing arrangements, insurance
and other benefit plans, in forms reasonably acceptable to the Purchaser
(collectively, "Plans"), for the benefit of employees of the Company and its
Subsidiaries, no later than June 30, 1997, subject to stockholder approval of
the Plans, if required, which unless earlier obtained shall be proposed by the
Company for consideration and approval by its stockholders at the Company's
annual meeting of stockholders to be held no later than November 30, 1997.
Section 6.15 Additional Employment Agreements. No later than June
30, 1997, the Company shall have entered into an Employment Agreement in form
and substance reasonably acceptable to the Purchaser with V. Ed Butler (or a
person of comparable qualifications reasonably acceptable to the Purchaser).
Section 6.16 No Amendment of Forseti Documents. Without the prior
written consent of the Purchaser, the Company shall not agree or consent to any
amendment, modification, supplement,
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<PAGE> 29
termination (except in accordance with the terms thereof) or waiver of any
provision of any of the Forseti Documents.
Section 6.17 Consent of Comerica. The Company shall use its best
efforts to obtain the consent of Comerica Bank-Texas described in Section
5.02(h) of this Agreement.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.01 Maintenance Rights.
(a) From and after the date of this Agreement, the Purchaser shall
have the right (which may be exercised in whole or in part) to purchase its
proportionate share of any additional Capital Stock issued by the Company, at
the same Price (as defined herein) and on the same terms as the Capital Stock
to be sold by the Company. The number of shares or other units of Capital
Stock the Purchaser shall have a right to acquire pursuant to this Section 7.01
shall be based upon the proportion of the total outstanding shares of Common
Stock which is owned by Purchaser. The number of shares of Common Stock held
by the Purchaser shall consist of all Conversion Shares, Purchaser Warrant
Shares, Robertson Warrant Shares and Maintenance Warrant Shares owned by the
Purchaser, plus the number of Conversion Shares, Robertson Warrant Shares and
Maintenance Warrant Shares issuable on conversion or exercise of all
outstanding Shares and all Maintenance Warrants and Robertson Warrants that are
held by the Purchaser. The total number of shares of Common Stock outstanding
shall include all shares of Common Stock issued and outstanding, plus the
number of additional shares issuable on conversion of the Shares and on
exercise of the Maintenance Warrants and Robertson Warrants held by the
Purchaser. Except as set forth in (e) below, the Company shall notify the
Purchaser in writing (an "Issuance Notice") at least 10 Business Days prior to
the issuance of any Capital Stock. Each Issuance Notice shall set forth the
Capital Stock proposed to be issued and sold, the Price to be paid for such
Capital Stock and the proposed date of issuance (the "Issuance Date"). The
Purchaser shall notify the Company prior to the Issuance Date if it elects to
exercise its right to purchase Capital Stock and if it makes such an election,
shall make payment in cash for the Capital Stock by certified check or wire
transfer prior to the Issuance Date. Upon receipt of such payment by the
Company, the Purchaser shall be deemed for all purposes to be the owner of such
shares of Capital Stock, and the Company shall cause certificates representing
such Capital Stock to be issued to the Purchaser as soon as practicable. The
Company may sell Capital Stock described in an Issuance Notice, during a period
not to exceed 90 days after the receipt of the Purchaser of the Issuance
Notice. Thereafter, any issuance by the Company must again be preceded by an
offer to the Purchaser hereunder.
(b) If the Purchaser does not exercise its right to purchase
Capital Stock in response to any Issuance Notice delivered on or prior to
December 31, 1998, the Company shall, within 15 Business Days following
delivery of such Issuance Notice, issue to the Purchaser transferable warrants
(the "Maintenance Warrants") to purchase the Capital Stock that the Purchaser
was entitled to purchase pursuant to such right, such warrants to be
exercisable by the holder thereof at the Price any time prior to one year from
the date of issuance of such Maintenance Warrants, which shall be in the form
attached hereto as Exhibit O; provided, however, that no Maintenance Warrants
shall be issued if the issuance of Capital Stock described in the Issuance
Notice is an issuance pursuant to the exercise of the Class A Warrants or Class
B Warrants.
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(c) As used herein, the "Price" at which Capital Stock is to be
issued by the Company shall be (i) in the case of cash consideration paid for
such Capital Stock, the amount of such cash consideration and (ii) in the case
of noncash consideration, the fair market value of such consideration, as
determined in good faith by the Disinterested Members of the Board of Directors
of the Company. In the event Capital Stock is to be issued in respect of any
rights, warrants or options to purchase shares of Capital Stock of the Company,
or any other security convertible into or exchangeable for shares of Capital
Stock of the Company (each a "Common Stock Equivalent"), the consideration paid
upon the acquisition of such Common Stock Equivalent shall be taken into
account as well as any consideration paid upon conversion, exchange, or
exercise.
(d) Notwithstanding the foregoing, the rights created by this
Section 7.01 shall not apply to any issuance of shares of Preferred Stock
(unless such shares constitute Voting Securities) or to any issuance of Capital
Stock (i) pursuant to any thrift plan, stock purchase plan, stock bonus plan,
stock option plan, employee stock ownership plan or other incentive or profit
sharing arrangement for the benefit of employees or non-employee directors of
the Company or its Subsidiaries, provided such plan or arrangement has been
approved by a majority of the Disinterested Members of the Board of Directors
or the stockholders of the Company, (ii) in connection with any stock split or
a dividend or distribution of shares of Common Stock to all of the holders
thereof, or (iii) pursuant to any transaction registered under the Securities
Act.
(e) Notwithstanding the foregoing, the Purchaser shall have no
right under this Section 7.01 with respect to the issuance of any Common Stock
Equivalent, unless such Common Stock Equivalent entitles the holder thereof to
vote or receive dividends. Subject to the limitations set forth in clause (d)
above, the Purchaser shall have the right to purchase its proportionate share
of any Capital Stock issued on conversion, exercise or exchange of any Common
Stock Equivalent upon the exercise, conversion or exchange thereof. Any
Issuance Notice relating to rights under this Section 7.01 arising in
connection with the issuance of Capital Stock upon the exercise, conversion or
exchange of any Common Stock Equivalent shall be given within three Business
Days after receipt by the Company of notice of such exercise, conversion or
exchange. The Purchaser shall notify the Company if it elects to exercise its
right to purchase Capital Stock and, if it makes such election, shall make
payment in cash for the Capital Stock by certified check or wire transfer
within 10 Business Days after receipt of notice from the Company.
(f) The provisions of this Section 7.01 and the rights granted
hereunder shall terminate upon the earliest to occur of the following: (i) the
date on which the Purchaser and its Affiliates beneficially own in the
aggregate Capital Stock of the Company which represents less than 10% of the
voting power of all then outstanding Voting Securities of the Company, such
beneficial ownership to be determined in accordance with Rule 13d-3 under the
Exchange Act as in effect as of the date hereof; (ii) the date on which the
Company completes an underwritten public offering of its Common Stock under the
Securities Act that generates net proceeds received by the Company of at least
$25,000,000; and (iii) the date on which all Shares have been converted into
Common Stock or otherwise are no longer outstanding.
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ARTICLE VIII
MISCELLANEOUS
Section 8.01 Survival of Provisions. The representations,
warranties and covenants made herein and in any certificates delivered by the
Company pursuant to this Agreement shall remain operative and in full force and
effect regardless of (a) any investigation made by or on behalf of the Company
or the Purchaser or (b) acceptance of any of the Securities and payment
therefor and repayment or repurchase thereof. The provisions of Sections 8.04
and 8.07 shall remain operative and in full force and effect regardless of any
termination of this Agreement.
Section 8.02 Indemnification.
(a) Subject to Section 8.02(c), the Purchaser, from and after the
Effective Date, shall indemnify and hold the Company harmless from and against
any and all damages losses, deficiencies, costs, expenses, obligations, fines,
expenditures, claims and liabilities, including reasonable counsel fees and
reasonable expenses of investigation, defending and prosecuting litigation
(collectively, the "Damages"), suffered by the Company as a result of, caused
by, arising out of, or in any way relating to any misrepresentation, breach of
warranty, or nonfulfillment of any agreement or covenant on the part of the
Purchaser under this Agreement or any misrepresentation in or omission from any
list, schedule, certificate, or other instrument furnished or to be furnished
to the Company by the Purchaser pursuant to the terms of this Agreement.
(b) Subject to Section 8.02(c), the Company shall indemnify and
hold the Purchaser harmless from and against any and all Damages suffered by
the Purchaser as a result of, caused by, arising out of, or in any way relating
to any misrepresentation, breach of warranty, or nonfulfillment of any
agreement or covenant on the part of the Company under this Agreement or any
misrepresentation in or omission from any list, schedule, certificate, or other
instrument furnished or to be furnished to the Purchaser by the Company
pursuant to the terms of this Agreement.
(c) Without affecting the rights of the parties hereto to recovery
of actual, direct Damages, under no circumstances shall either party to this
Agreement be liable to the other or their Affiliates for consequential,
incidental, indirect, punitive, exemplary or special damages (collectively,
"Consequential Damages") resulting from any cause whatsoever, whether arising
in contract, warranty, tort (including negligence), strict liability, indemnity
or otherwise. It is expressly agreed that no failure by either party to this
Agreement to fulfill any condition hereof shall constitute a failure of
essential purpose entitling any party to seek Consequential Damages. Nothing
in this Section 8.02(c) shall affect in any way the rights and remedies
available to any party under the terms of any Basic Document.
Section 8.03 Termination.
(a) This Agreement may be terminated (as to the party electing so
to terminate it) at any time prior to the Time of Purchase:
(i) by the Company if any of the conditions specified in
Section 5.02 of this Agreement has not been met or waived by it
pursuant to the terms of this Agreement by 12:00 noon, Houston, Texas
time on the earlier of (i) the day that is the fifth Business Day
after the twentieth day after the day on which the Information
Statement is first sent or given
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<PAGE> 32
to the stockholders of the Company or (ii) June 15, 1997, or at such
earlier date on which the Company believes in good faith that any such
condition can no longer be satisfied; or
(ii) by the Purchaser if any of the conditions specified
in Section 5.01 of this Agreement has not been met or waived pursuant
to the terms of this Agreement by 12:00 noon, Houston, Texas time on
the earlier of (i) the day that is the fifth Business Day after the
twentieth day after the day on which the Information Statement is
first sent or given to the stockholders of the Company or (ii) June
15, 1997, or at such earlier date on which the Purchaser believes in
good faith that any such condition can no longer be satisfied.
(b) If (i) the Purchaser and its Affiliates shall, at any time
after the Time of Purchase, beneficially own in the aggregate Capital Stock of
the Company which represents less than 10% of the voting power of all then
outstanding Voting Securities of the Company or (ii) all Shares have been
converted into Common Stock or otherwise are no longer outstanding, all
covenants, agreements, obligations and rights contained in Article VI of this
Agreement shall terminate and shall be of no further force and effect.
Section 8.04 Dispute Resolution.
(a) Any controversy, dispute or claim arising out of or relating
to this Agreement or any of the Basic Documents or the transactions
contemplated hereby or thereby (a "Dispute") shall be submitted to non-binding
mediation upon the request of the Company or the Purchaser on the following
terms. Upon the request of either party, a neutral mediator acceptable to both
parties (the "Mediator") shall be appointed within 15 days. The Mediator shall
attempt through negotiations in any manner deemed reasonably appropriate by the
Mediator, in which the parties shall participate, to resolve the Dispute. The
Mediator shall be compensated at a rate agreeable to the Company, the Purchaser
and the Mediator, and each of the Company and the Purchaser shall pay its pro
rata share of such compensation and other expenses of the mediation.
(b) In the event that the Dispute has not been resolved within 30
days after the appointment of the Mediator, the Dispute shall be resolved by
arbitration administered by the American Arbitration Association (the "AAA") in
accordance with the terms of this Section 8.04, the Commercial Arbitration
Rules of the AAA, and, to the maximum extent applicable, the United Stated
Arbitration Act. Judgment on any matter rendered by arbitrators may be entered
in any court having jurisdiction. Any arbitration shall be conducted before
three arbitrators. The arbitrators shall be individuals knowledgeable in the
subject matter of the Dispute. Each party shall select one arbitrator and the
two arbitrators so selected shall select the third arbitrator. If the third
arbitrator is not selected within 30 days after the request for an arbitration,
then any party may request the AAA to select the third arbitrator. The
arbitrators may engage engineers, accountants or other consultants they deem
necessary to render a conclusion in the arbitration proceeding. To the maximum
extent practicable, an arbitration proceeding hereunder shall be concluded
within 180 days of the filing of the Dispute with the AAA. Arbitration
proceedings shall be conducted in Houston, Texas. Arbitrators shall be
empowered to impose sanctions and to take such other actions as the arbitrators
deem necessary to the same extent a judge could impose sanctions or take such
other actions pursuant to the Federal Rules of Civil Procedure and applicable
law. At the conclusion of any arbitration proceeding, the arbitrators shall
make specific written findings of fact and conclusions of law. The arbitrators
shall have the power to award recovery of all costs and fees to the prevailing
party. All fees of the arbitrators and any engineer, accountant or other
consultant engaged by the arbitrators, shall be shared equally unless otherwise
awarded by the arbitrators.
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(c) Nothing in this Section 8.04 shall limit or delay the right of
the Purchaser to exercise the remedies available to it upon the occurrence of
an Event of Default as defined in the Certificate of Designation.
Section 8.05 No Waiver; Modifications in Writing. No failure or
delay on the part of the Company or the Purchaser in exercising any right,
power or remedy hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any right, power or
remedy. The remedies provided for herein are cumulative and are not exclusive
of any remedies that may be available to the Company or the Purchaser at law or
in equity or otherwise. Except as otherwise provided herein, no amendment,
waiver, consent, modification or termination of any provision of this Agreement
shall be effective unless signed by the Company and by or on behalf of the
Purchaser. Any amendment, supplement or modification of or to any provision of
this Agreement, any waiver of any provision of this Agreement, and any consent
to any departure by the Company from the terms of any provision of this
Agreement, shall be effective only in the specific instance and for the
specific purpose for which made or given. Except where notice is specifically
required by this Agreement, no notice to or demand on the Company in any case
shall entitle the Company to any other or further notice or demand in similar
or other circumstances.
Section 8.06 Communications. All notices and demands provided for
hereunder shall be in writing, and if to the Purchaser, shall be given by
telecopy (confirmed by overnight courier), air courier guaranteeing overnight
delivery or personal delivery, to the Purchaser, to the following address:
Joint Energy Development Investments Limited Partnership
c/o Enron Corp.
1400 Smith Street
Houston, Texas 77002
Attention: Donna Lowry - Director, 28th Floor
Telecopier: (713) 646-3602
and, if to the Company:
Queen Sand Resources, Inc.
3500 Oak Lawn
Suite 380, L.B. #31
Dallas, Texas 75219-4398
Attention: Robert P. Lindsay
Telecopier: (214) 521-9960
and
Queen Sand Resources, Inc.
60 Queen Street
Suite 1400
Ottawa, Canada
K1P 5Y7
Attention: Edward J. Munden
Telecopier: (613) 230-6055
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with a copy to:
Haynes and Boone, L.L.P.
901 Main Street
Suite 3100
Dallas, Texas 75202
Attention: William L. Boeing
Telecopier: (214) 651-5940
or to such other address as the Company or Purchaser may designate in writing.
All such notices and communications and all notices and communications shall be
deemed to have been duly given: at the time delivered by hand, if personally
delivered; when receipt acknowledged, if telecopied; and on the next Business
Day if timely delivered to an air courier guaranteeing overnight delivery.
Section 8.07 Costs, Expenses and Taxes. The Company agrees to pay
all out-of-pocket, third-party costs and expenses (including reasonable,
properly documented fees and expenses of counsel to the Purchaser) reasonably
incurred by the Purchaser in connection with negotiation, preparation,
printing, execution and delivery of this Agreement and the Basic Documents and
the transactions contemplated hereby and thereby. The Company shall pay or
reimburse such expenses incurred by the Purchaser on the earlier of the Time of
Purchase or the date on which this Agreement is terminated pursuant to Section
8.03(a). The Company shall also pay any expenses of the Purchaser reasonably
incurred in connection with any amendment or supplement to or modification of
any of the foregoing and any and all other documents furnished pursuant hereto
or thereto or in connection herewith or therewith unless such amendment,
supplement or modification is requested by the Purchaser. In addition, the
Company shall pay any and all stamp, transfer and other similar taxes payable
or determined to be payable in connection with the execution and delivery of
this Agreement or the original issuance of the Securities and shall save and
hold the Purchaser harmless from and against any and all liabilities with
respect to or resulting from any delay in paying, or omission to pay, such
taxes.
Section 8.08 Determinations. Except as otherwise provided herein,
all determinations to be made by the Company or the Purchaser hereunder in its
opinion or judgment or with its approval or otherwise shall be made by it in
its sole discretion.
Section 8.09 Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which counterparts, when so executed and
delivered, shall be deemed to be an original and all of which counterparts,
taken together, shall constitute but one and the same Agreement.
Section 8.10 Binding Effect; Assignment. This Agreement shall be
binding upon the Company and the Purchaser, and their respective successors and
permitted assigns. Except as expressly provided in this Agreement, this
Agreement shall not be construed so as to confer any right or benefit upon any
Person other than the parties to this Agreement, and their respective
successors and permitted assigns. Except as set forth herein, neither party to
this Agreement may assign its rights and obligations under this Agreement to
any other Person without the prior written consent of the other party. The
Purchaser, with the consent of the Company (which consent shall not be
unreasonably withheld), may assign any or all of its rights, privileges and
obligations hereunder to (i) any direct or indirect affiliate organized under
the laws of the United States or (ii)
30
<PAGE> 35
any other entity managed by Enron Corp. or any of its Affiliates or for which
Enron Corp. or one of its Affiliates acts as administrative agent.
Section 8.11 Public Announcements. The parties to this Agreement
shall consult with each other regarding any public announcement or statement
with respect to this Agreement or the transactions contemplated hereby and no
party shall issue any public announcement or other statement with respect to
the existence of this Agreement or the transactions contemplated hereby without
the prior consent, which shall not be withheld unreasonably, of the other
party, unless required by applicable law or regulation or order of a court of
competent jurisdiction.
Section 8.12 Governing Law. The laws of the State of Texas will
govern this Agreement without regard to principles of conflicts of laws.
Section 8.13 Severability of Provisions. Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting or impairing the validity or enforceability of such provision in any
other jurisdiction.
Section 8.14 Headings. The Article and Section headings and Table
of Contents used or contained in this Agreement are for convenience of
reference only and shall not affect the construction of this Agreement.
Section 8.15 Replacement Securities. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
any Certificate representing Securities or Conversion Shares and, in the case
of any such loss, theft or destruction, upon delivery of any unsecured letter
of indemnity to the Company (or if required by the Company, a customary
indemnity bond) or, in the case of any such mutilation, upon surrender or
cancellation thereof, the Company will issue a new Certificate representing
Securities or Conversion Shares.
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<PAGE> 36
IN WITNESS WHEREOF, the parties hereto execute this Agreement,
effective as of the date first above written.
QUEEN SAND RESOURCES, INC.
By: /s/ Edward J. Munden
-------------------------------------------
Name: Edward J. Munden
Title: President and Chief Executive Officer
and
By: /s/ Robert P. Lindsay
-------------------------------------------
Name: Robert P. Lindsay
Title: Chief Operating Officer
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP
By: Enron Capital Management Limited
Partnership, its General Partner
By: Enron Capital Corp., its General Partner
By: /s/ Steven M. Emshoff
-------------------------------------------
Steven M. Emshoff
Agent and Attorney-in-Fact
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<PAGE> 37
Queen Sand Resources, Inc. undertakes to file with the Securities and
Exchange Commission upon its request the Schedules to this Securities Purchase
Agreement.
<PAGE> 38
EXHIBIT A
CERTIFICATE OF DESIGNATION
OF
SERIES A PARTICIPATING CONVERTIBLE PREFERRED STOCK
OF
QUEEN SAND RESOURCES, INC.
Queen Sand Resources, Inc., a Delaware corporation (the
"Corporation"), does hereby certify that the following resolution was duly
adopted by the Board of Directors of the Corporation (the "Board of Directors")
at a meeting duly convened and held on ____________, 1997 pursuant to
authority conferred upon the Board of Directors by the provisions of the
Certificate of Incorporation of the Corporation that authorize the issuance of
up to 50,000,000 shares of Preferred Stock, par value $.01 per share:
BE IT RESOLVED, that the issuance of a series of Preferred Stock of
Queen Sand Resources, Inc. (the "Corporation") is hereby authorized, and the
designation, powers, preferences and relative, participating, optional and
other special rights, and qualifications, limitations and restrictions thereof,
of the shares of said series, in addition to those set forth in the Certificate
of Incorporation of the Corporation, are hereby fixed as follows:
SECTION 1. DESIGNATION. The distinctive serial designation of
said series shall be "Series A Participating Convertible Preferred Stock"
(hereinafter called "Series A Preferred Stock"). Each share of Series A
Preferred Stock shall be identical in all respects with all other shares of
Series A Preferred Stock.
SECTION 2. NUMBER OF SHARES. The number of shares of Series A
Preferred Stock shall be 9,600,000. Shares of Series A Preferred Stock that
are redeemed, purchased or otherwise acquired by the Corporation or converted
into Common Stock shall be canceled, and the Company shall take all such
actions as are necessary to cause such shares to revert to the status of
authorized but unissued shares of Preferred Stock undesignated as to series.
SECTION 3. DEFINITIONS. As used herein with respect to Series A
Preferred Stock, the following terms shall have the following meanings:
(a) The term "Junior Securities" shall mean the Common
Stock, par value $.0015 per share (the "Common Stock"), of the Corporation and
any other class or series of stock of the Corporation hereafter authorized over
which the Series A Preferred Stock has preference or priority in the payment of
dividends, when used with respect to the payment of dividends, or in the
<PAGE> 39
distribution of assets on any liquidation, dissolution or winding up of the
Corporation, when used with respect to the distribution of assets on any
liquidation, dissolution or winding up of the Corporation.
(b) The term "Parity Securities" shall mean any other
class or series of stock of the Corporation hereafter authorized which ranks on
a parity with the Series A Preferred Stock in the payment of dividends, when
used with respect to the payment of dividends, or the distribution of assets on
any liquidation, dissolution or winding up of the Corporation, when used with
respect to the distribution of assets on any liquidation, dissolution or
winding up of the Corporation.
(c) The term "Business Day" shall mean a day that is not
a Saturday, a Sunday or a day on which banking institutions in Houston, Texas
are not required to be open for business.
SECTION 4. DIVIDENDS. The holders of record, as of the record
date therefor or, if there is no such record date, as of the date of payment
thereof, of shares of Series A Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors, out of funds legally
available therefor, any dividends (other than a dividend or distribution paid
in shares of, or warrants, rights or options exercisable for or convertible
into or exchangeable for, Common Stock) payable on the Common Stock, as and
when paid, in an amount equal to the amount each such holder would have
received if such holder's shares of Series A Preferred Stock had been converted
into Common Stock immediately prior to the record date or, if there is no such
record date, on the date of payment thereof. Such right to receive dividends
shall be in addition to the right to receive any dividends payable pursuant to
paragraph (b) of Section 9.
SECTION 5. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or
winding up of the Corporation, either voluntary or involuntary, before any of
the assets of the Corporation shall be distributed among or paid over to the
holders of any Junior Securities, the holders of shares of Series A Preferred
Stock shall be entitled to receive (i) an amount per share (the "Liquidation
Preference") equal to the lesser of (A) $1.50 and (B) the sum of (x) $0.521 and
(y) the quotient obtained by dividing (I) the aggregate amount of all payments
made, as of the date of such liquidation, dissolution or winding up, to the
Corporation by Joint Energy Development Investments Limited Partnership
("JEDI") or its assignee pursuant to the Earn Up Agreement dated as of
____________, 1997 between the Corporation and JEDI by (II) 9,600,000 and (ii)
any and all accrued but unpaid dividends thereon, and shall not be entitled to
any other or additional distribution.
(b) If upon such liquidation, dissolution or winding up,
whether voluntary or involuntary, the assets available for distribution among
the holders of shares of Series A Preferred Stock and holders of Parity
Securities shall be insufficient to permit the payment to such holders of the
full preferential amounts to which they are entitled, then the assets of the
Corporation available for distribution among the holders of Series A Preferred
Stock and holders of Parity Securities shall be distributed ratably among such
holders so that the amounts distributed in respect of the Series A Preferred
Stock and the Parity Securities shall bear to each other the same ratio that
the full amounts payable on liquidation, dissolution or winding up of the
Corporation to the holders of shares of Series A Preferred Stock and the Parity
Securities bear to each other.
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<PAGE> 40
(c) A consolidation or merger of the Corporation with or
into any other corporation or other entity, or a sale of all or substantially
all of the assets of the Corporation that does not involve a distribution by
the Corporation of cash or other property to the holders of shares of the
Common Stock, shall not be deemed to be a liquidation, dissolution or winding
up within the meaning of this Section 5.
SECTION 6. CONVERSION RIGHTS. Each holder of shares of Series A
Preferred Stock shall have the right, at such holder's option, to convert such
shares into shares of Common Stock of the Corporation at any time and from time
to time on and subject to the following terms and conditions:
(a) The shares of Series A Preferred Stock shall be
convertible at the principal office of the Corporation and at such other office
or offices, if any, as the Board of Directors may designate, into fully paid
and non-assessable shares (calculated as to each conversion to the nearest
1/100th of a share) of Common Stock, at the Conversion Rate, as hereinafter
defined, subject to adjustment as provided herein. The "Conversion Rate,"
which represents the number of shares of Common Stock into which each share of
Series A Preferred Stock is convertible, shall initially be one.
(b) In order to convert shares of Series A Preferred
Stock into Common Stock the holder thereof shall surrender at the office or
offices hereinabove mentioned the certificate or certificates therefor, duly
endorsed or assigned to the Corporation or in blank, and give written notice to
the Corporation at said office or offices that such holder elects to convert
such shares. Shares of Series A Preferred Stock shall be deemed to have been
converted immediately prior to the close of business on the day of the
surrender of the certificates for such shares for conversion in accordance with
the foregoing provisions, and the person or persons entitled to receive the
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such Common Stock at such time. As promptly as
practicable on or after the conversion date, the Corporation shall issue and
shall deliver at such office a certificate or certificates for the number of
full shares of Common Stock issuable upon such conversion, together with
payment in lieu of any fraction of a share, as hereinafter provided, to the
person or persons entitled to receive the same. Preferential dividends pursuant
to Section 4(a) on converted shares of Series A Preferred Stock shall cease to
accrue on the date of conversion, and all such dividends that have accrued as
of the date of conversion but have not been paid shall be payable on the date
such dividends would have been payable if such conversion had not occurred.
(c) No fractional shares of Common Stock shall be issued
upon conversion of shares of Series A Preferred Stock, but, instead of any
fraction of a share which would otherwise be issuable, the Corporation shall
pay cash in respect of such fraction in an amount equal to such fraction of the
fair market value (as determined by the Board of Directors of the Corporation)
of a share of Common Stock on the date on which the certificate or certificates
for such shares were duly surrendered for conversion.
(d) The number and kind of securities issuable upon the
conversion of the Series A Preferred Stock shall be subject to adjustment from
time to time upon the happening of certain events occurring on or after the
Issuance Date of the shares of the Series A Preferred Stock as follows:
3
<PAGE> 41
(i) In case of any reclassification or change of
outstanding securities issuable upon exercise of the conversion rights
(other than a change in par value, or from par value to no par value,
or from no par value to par value or as a result of a subdivision or
combination), or in case of any consolidation or merger of the
Corporation with or into another corporation or other entity (other
than a merger with another corporation or other entity in which the
Corporation is the surviving corporation and which does not result in
any reclassification or change -- other than a change in par value, or
from par value to no par value, or from no par value to par value, or
as a result of a subdivision or combination -- of outstanding
securities issuable upon conversion of the Series A Preferred Stock),
the holders of the Series A Preferred Stock shall have, and the
Corporation, or such successor corporation or other entity, shall
covenant in the constituent documents effecting any of the foregoing
transactions that the holders of the Series A Preferred Stock do have,
the right to obtain upon conversion of the Series A Preferred Stock,
in lieu of each share of Common Stock theretofore issuable upon
conversion of the Series A Preferred Stock, the kind and amount of
shares of stock, other securities, money and property receivable upon
such reclassification, change, consolidation or merger by a holder of
one share of Common Stock issuable upon conversion of the Series A
Preferred Stock as if the conversion had occurred immediately prior to
such reclassification, change, consolidation or merger. The
constituent documents effecting any reclassification, change,
consolidation or merger shall provide for any adjustments which shall
be as nearly equivalent as may be practicable to the adjustments
provided in this subparagraph (d)(i). The provisions of this
subparagraph (d)(i) shall similarly apply to successive
reclassifications, changes, consolidations or mergers.
(ii) If the Corporation at any time while any of
the Series A Preferred Stock is outstanding, shall subdivide or
combine its Common Stock, the Conversion Rate shall be proportionately
adjusted at the effective date of such subdivision or combination, or
if the Corporation shall take a record of its Common Stock for the
purpose of so subdividing or combining, at such record date, whichever
is earlier.
(iii) If the Corporation at any time while any of
the Series A Preferred Stock is outstanding shall pay a dividend
payable in, or make any other distribution of, Common Stock, the
Conversion Rate shall be adjusted, at the date the Corporation shall
take a record of the holders of its Common Stock for the purpose of
receiving such dividend or other distribution (or if no such record is
taken, at the date of such payment or other distribution), to that
rate determined by multiplying the Conversion Rate in effect
immediately prior to such record date (or if no such record is taken,
then immediately prior to such payment or other distribution) by a
fraction (1) the numerator of which shall be the total number of
shares of Common Stock outstanding immediately after such dividend or
distribution plus, in the event that the Corporation paid cash for
fractional shares, the number of additional shares which would have
been outstanding had the Corporation issued fractional shares in
connection with said dividend and (2) the denominator of which shall
be the total number of shares of Common Stock outstanding immediately
prior to such dividend or distribution. For purposes hereof, the
number of shares of Common Stock at any time outstanding shall not
include any shares thereof then directly or indirectly owned or held
by or for the account of the Corporation or its subsidiaries.
4
<PAGE> 42
(e) Whenever the Conversion Rate is adjusted as herein
provided, the Corporation shall compute the adjusted Conversion Rate in
accordance with this Section 6 and shall cause to be prepared a certificate
signed by the Corporation's treasurer setting forth the adjusted Conversion
Rate and showing in reasonable detail the facts upon which such adjustment is
based, and such certificate shall forthwith be mailed to the holders of record
of outstanding shares of the Series A Preferred Stock.
(f) The Corporation shall at all times reserve and keep
available, free from preemptive rights, out of its authorized but unissued
Common Stock, for the purpose of issuance upon conversion of shares of Series A
Preferred Stock, the full number of shares of Common Stock then deliverable
upon the conversion of all shares of Series A Preferred Stock then outstanding.
(g) The Corporation will pay any and all taxes that may
be payable in respect of the issuance or delivery of shares of Common Stock on
conversion of shares of Series A Preferred Stock pursuant hereto. The
Corporation shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issuance and delivery of shares of
Common Stock in a name other than that in which the shares of Series A
Preferred Stock so converted were registered, and no such issuance or delivery
shall be made unless and until the person requesting such issuance has paid to
the Corporation the amount of any such tax or has established to the
satisfaction of the Corporation that such tax has been paid.
(h) Concurrently with the transfer of any shares of
Series A Preferred Stock to any person (other than any direct or indirect
affiliate of JEDI or any other entity managed by Enron Corp. or any of its
affiliates or for which Enron Corp. or one of its affiliates acts as
administrative agent) (each a "Designated Holder"), the shares of Series A
Preferred Stock so transferred shall automatically be converted into a like
number of shares of Series B Participating Convertible Preferred Stock of the
Corporation, $.01 par value per share (the "Series B Preferred Stock"). Upon
registration of any transfer of shares of Series A Preferred Stock to any
person other than a Designated Holder, the Corporation or its transfer agent
shall issue to the transferee a certificate representing number of Series B
Preferred Stock which is equal to the number of shares of Series A Preferred
Stock surrendered for transfer.
SECTION 7. VOTING RIGHTS.
(a) Except as provided in paragraph (b) of this Section
7, the holders of Series A Preferred Stock shall vote together with the holders
of Common Stock (and of any other class or series which may similarly be
entitled to vote with the holders of Common Stock) as a single class on all
matters on which holders of Common Stock are entitled to vote, and the number
of votes that each share of Series A Preferred Stock shall entitle to the
holder thereof to cast shall be the number of shares of Common Stock into which
such share of Series A Preferred Stock is convertible as of the record date for
such vote or, if there is no record date for the vote, at the time of the vote.
(b) So long as at least 960,000 shares of Series A
Preferred Stock are outstanding, in addition to any other vote or consent of
stockholders required by law or by the certificate of incorporation, the
approval of the holders of the shares of Series A Preferred Stock, acting as a
single class, shall be necessary for effecting or validating:
5
<PAGE> 43
(i) Any amendment, alteration or repeal of any of
the provisions of the certificate of incorporation or the bylaws of
the Corporation;
(ii) The authorization, creation or issuance of,
or the increase in the authorized amount of, any Parity Securities or
any shares of any class or series or any security convertible into
shares of any class or series of any security ranking prior to the
shares of Series A Preferred Stock in the payment of dividends or in
the distribution of assets on any liquidation, dissolution, or winding
up of the Corporation;
(iii) The merger or consolidation of the
Corporation with or into any other corporation or other entity or the
sale of all or substantially all of the Corporation's assets; or
(iv) Any reorganization, restructuring,
recapitalization or other similar transaction that requires the
approval of the stockholders of the Corporation.
(c) With respect to any matter that requires the approval
of holders of Series A Preferred Stock acting separately as a class or any
action that may be taken by the holders of Series A Preferred Stock, such
approval shall be deemed to be given or such action taken by the affirmative
vote of the holders of a majority of the outstanding shares of Series A
Preferred Stock, given in person or by proxy, by written consent or at the
annual meeting of the Corporation's stockholders, or a special meeting in lieu
thereof, or at a special meeting of the holders of shares of Series A Preferred
Stock called for the purpose of voting on such matter or action. Upon receipt
of the written request of the holders of 25% or more of the outstanding shares
of Series A Preferred Stock, the Secretary of the Corporation shall call and
give notice of a special meeting of the holders of the Series A Preferred Stock
for the purpose specified in such request, which meeting shall be held within
30 days after delivery of such request to the Corporation; provided that the
Secretary shall not be required to call such a special meeting in the case of
any such request received less than 30 days before the date fixed for an annual
meeting of the Company's stockholders.
SECTION 8. ELECTION OF DIRECTORS. The holders of shares of
Series A Preferred Stock shall have the right, exercisable at any time and
acting separately as a class, to elect a number of members of the board of
directors such that the quotient obtained by dividing such number by the
maximum authorized number of directors (as increased to include such additional
directors elected pursuant to this Section 8) is as close as possible to being
equal to the percentage of the outstanding voting power of the Corporation
entitled to vote generally in the election of directors that is represented by
the outstanding shares of Series A Preferred Stock at such time. Upon the
taking of any such action by the holders of Series A Preferred Stock to elect
directors of the Corporation, the maximum authorized number of members of the
Board of Directors shall automatically be increased by one or two, as
appropriate. A director elected by the holders of Series A Preferred Stock
pursuant to this Section 8 shall serve until his successor is duly elected and
qualified or until his removal. Such a director may be removed without cause
at any time by action, and only by such action, of the holders of shares of
Series A Preferred Stock. If the office of a director elected pursuant to this
Section 8 becomes vacant by reason of death, resignation, retirement,
disqualification, removal from office or otherwise, such vacancy may be filled
by the action, and only by such action, of the holders of shares of Series A
Preferred Stock.
6
<PAGE> 44
SECTION 9. EVENT OF DEFAULT.
(a) For purposes hereof, an "Event of Default" shall be
deemed to have occurred if the Corporation shall fail to comply with any of the
covenants contained in Article VI of the Securities Purchase Agreement dated
March 27, 1997 between the Corporation and JEDI (the "Securities Purchase
Agreement"), provided that, in the case of the covenants contained in Sections
6.02, 6.03, 6.04, 6.10. 6.11 or 6.13(b) of the Securities Purchase Agreement,
failure to comply shall not be considered an Event of Default if such failure
is cured or compliance is waived in writing by JEDI within 30 days after the
date on which the failure to comply first occurs.
Upon the failure of the Corporation to comply with any of the
covenants contained in Article VI of the Securities Purchase Agreement, the
Corporation shall provide written notice of such event, including the date on
which such event first occurred, to all of the holders of record of shares of
Series A Preferred Stock within 10 days after the occurrence of such event.
Failure to provide such notice shall be deemed an Event of Default. Any Event
of Default may be waived in writing by JEDI at any time, in which case
paragraphs (b) - (d) of this Section 9 shall not apply with respect to such
Event of Default; provided, however, that no such waiver of an Event of Default
shall be deemed to be a waiver of any other Event of Default.
(b) Upon the occurrence and during the continuance of an
Event of Default, the holders of outstanding shares of Series A Preferred Stock
shall be entitled to receive, in addition to all other dividends payable
hereunder to holders of shares of Series A Preferred Stock and when, as and if
declared by the Board of Directors, out of funds legally available for the
payment of dividends, cumulative preferential cash dividends accruing from the
date of the Event of Default (the "Default Date") in an amount per share per
annum equal to 6% of the Liquidation Preference in effect at the time of
accrual of such dividends, payable quarterly in arrears on or before the 15th
day (the "Dividend Payment Date") after the last day of each calendar quarter
during which such dividends are payable (each a "Dividend Period"). If any
Dividend Payment Date occurs on a day that is not a Business Day, the dividend
shall be payable on the next succeeding Business Day. Each such dividend will
be payable to holders of record as they appear on the stock transfer records of
the Corporation on such record dates, not less than 10 nor more than 60 days
preceding the payment dates thereof, as shall be fixed by the Board of
Directors. Dividends on the Series A Preferred Stock shall accrue (whether or
not declared) on a daily basis and shall be cumulative (whether or not in any
Dividend Period there shall be funds of the Corporation legally available for
the payment of such dividends). The first dividend shall accrue from the
Default Date through the end of the first calendar quarter to end after the
Default Date, and subsequent dividends shall accrue on a daily basis during the
Dividend Period for which they are payable. Accrued and unpaid dividends on
the Series A Preferred Stock shall not bear interest. Unless full cumulative
dividends accrued on all outstanding shares of the Series A Preferred Stock
have been or contemporaneously are declared and paid for all Dividend Periods
ending on or prior to the date of payment thereof, no dividend shall be
declared or paid or set aside for payment or other distribution declared or
made on the Common Stock or on any other Junior Securities (other than a
dividend or distribution paid in shares of, or warrants, rights or options
exercisable for or convertible into or exchangeable for, Common Stock or any
other Junior Securities), nor shall any Common Stock nor any other Junior
Securities be redeemed, purchased or otherwise acquired for any consideration
(other than by conversion into or exchange or exercise for other Junior
Securities), nor may any moneys be paid to or made available
7
<PAGE> 45
for a sinking fund for the redemption of any shares of any such securities, by
the Corporation or any of its subsidiaries, except by conversion into or
exchange for Junior Securities.
(c) Upon the occurrence and during the continuance of an
Event of Default resulting from the failure of the Corporation to comply with
any of the covenants contained in Sections 6.01, 6.06, 6.07, 6.08, 6.09, 6.10,
6.12, 6.13, 6.14, or 6.16 of the Securities Purchase Agreement, the holders of
shares of Series A Preferred Stock shall have the right, acting separately as a
class, to elect a number of persons to the Board of Directors of the
Corporation that, along with any members of the Board of Directors who are
serving at the time of such action and were elected pursuant to Section 8, will
constitute a majority of the Board of Directors. Upon the taking of such
action, the maximum authorized number of members of the Board of Directors
shall automatically increase by the number of directors so elected, and the
vacancies so created shall be filled by the persons elected pursuant to this
subparagraph (ii). In the event that upon the election of directors under this
paragraph (c), the Corporation is required under Rule 14f-1 under the
Securities Exchange Act of 1934, as amended, to file with the Securities and
Exchange Commission and transmit to its stockholders certain information, the
Corporation shall take such action as promptly as practicable, and the term of
office of the directors so elected shall begin upon the termination of the 10
day period prescribed by such Rule. A director elected by the holders of
Series A Preferred Stock pursuant to this Section 9(c) shall serve until his
successor is duly elected and qualified, until his removal or until his term
terminates as provided below. Such a director may be removed without cause at
any time by action, and only by such action, of the holders of shares of Series
A Preferred Stock. If the office of a director elected pursuant to this
Section 9(c) becomes vacant by reason of death, resignation, retirement,
disqualification, removal from office or otherwise, such vacancy may be filled
by the action, and only by such action, of the holders of shares of Series A
Preferred Stock. At such time as the Event of Default giving rise to this
right to elect directors has been cured, such right shall terminate, the terms
of any directors elected pursuant to this subparagraph (ii) shall terminate and
the maximum number of authorized members of the Board of Directors shall
decrease automatically to the maximum number of authorized members of the Board
of Directors in effect immediately before any action was taken pursuant hereto.
(d) Upon the occurrence of an Event of Default resulting
from the failure of the Company to comply with any of the covenants contained
in Sections 6.01, 6.08, 6.09, 6.10, 6.13(b), 6.14, or 6.16 of the Securities
Purchase Agreement, each holder of shares of Series A Preferred Stock shall
have the right, by written notice to the Corporation (the "Repurchase Notice")
within 90 days after the occurrence of the Event of Default, to require that
the Corporation repurchase, out of funds legally available therefor, such
holder's shares of Series A Preferred Stock for an amount in cash equal to the
amount such holder would receive in respect of the shares to be repurchased if
the Corporation were liquidated, dissolved or wound up on the date of the
holder's Repurchase Notice. Any Repurchase Notice shall be accompanied by duly
endorsed certificates representing the shares of Series A Preferred Stock to be
repurchased. Upon receipt of a Repurchase Notice, the Corporation shall make
payment in cash of the appropriate amount to the holder requiring repurchase
with five Business Days of the date such Repurchase Notice is received, unless
the Corporation receives within 90 days after the occurrence of the Event of
Default written notice from such holder prior to such payment that such holder
is withdrawing its requirement of the repurchase of its shares of Series A
Preferred Stock.
8
<PAGE> 46
IN WITNESS WHEREOF, the undersigned, a duly authorized officer of the
Corporation, has executed this Certificate of Designation on behalf of the
Corporation this ___ day of ___________, 1997.
QUEEN SAND RESOURCES, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
9
<PAGE> 47
EXHIBIT B
CERTIFICATE OF DESIGNATION
OF
SERIES B PARTICIPATING CONVERTIBLE PREFERRED STOCK
OF
QUEEN SAND RESOURCES, INC.
Queen Sand Resources, Inc., a Delaware corporation (the
"Corporation"), does hereby certify that the following resolution was duly
adopted by the Board of Directors of the Corporation (the "Board of Directors")
at a meeting duly convened and held on _____________, 1997 pursuant to
authority conferred upon the Board of Directors by the provisions of the
Certificate of Incorporation of the Corporation that authorize the issuance of
up to 50,000,000 shares of Preferred Stock, par value $.01 per share:
BE IT RESOLVED, that the issuance of a series of Preferred Stock of
Queen Sand Resources, Inc. (the "Corporation") is hereby authorized, and the
designation, powers, preferences and relative, participating, optional and
other special rights, and qualifications, limitations and restrictions thereof,
of the shares of said series, in addition to those set forth in the Certificate
of Incorporation of the Corporation, are hereby fixed as follows:
SECTION 1. DESIGNATION. The distinctive serial designation of
said series shall be "Series B Participating Convertible Preferred Stock"
(hereinafter called "Series B Preferred Stock"). Each share of Series B
Preferred Stock shall be identical in all respects with all other shares of
Series B Preferred Stock. Shares of Series B Preferred Stock shall not be
issuable except upon the conversion of shares of the Corporation's Series A
Participating Convertible Preferred Stock in accordance with the terms of the
Certificate of Designation relating to such stock.
SECTION 2. NUMBER OF SHARES. The number of shares of Series B
Preferred Stock shall be 9,600,000. Shares of Series B Preferred Stock that
are redeemed, purchased or otherwise acquired by the Corporation or converted
into Common Stock shall be canceled, and the Corporation shall take all such
actions as are necessary to cause such shares to revert to the status of
authorized but unissued shares of Preferred Stock undesignated as to series.
SECTION 3. DEFINITIONS. As used herein with respect to Series B
Preferred Stock, the following terms shall have the following meanings:
<PAGE> 48
(a) The term "Junior Securities" shall mean the Common
Stock, par value $.0015 per share (the "Common Stock"), of the Corporation and
any other class or series of stock of the Corporation hereafter authorized over
which the Series B Preferred Stock has preference or priority in the payment of
dividends, when used with respect to the payment of dividends, or in the
distribution of assets on any liquidation, dissolution or winding up of the
Corporation, when used with respect to the distribution of assets on any
liquidation, dissolution or winding up of the Corporation.
(b) The term "Parity Securities" shall mean any other
class or series of stock of the Corporation hereafter authorized which ranks on
a parity with the Series B Preferred Stock in the payment of dividends, when
used with respect to the payment of dividends, or the distribution of assets on
any liquidation, dissolution or winding up of the Corporation, when used with
respect to the distribution of assets on any liquidation, dissolution or
winding up of the Corporation.
(c) The term "Business Day" shall mean a day that is not
a Saturday, a Sunday or a day on which banking institutions in Houston, Texas
are not required to be open for business.
SECTION 4. DIVIDENDS. The holders of record, as of the record
date therefor or, if there is no such record date, as of the date of payment
thereof, of shares of Series B Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors, out of funds legally
available therefor, any dividends (other than a dividend or distribution paid
in shares of, or warrants, rights or options exercisable for or convertible
into or exchangeable for, Common Stock) payable on the Common Stock, as and
when paid, in an amount equal to the amount each such holder would have
received if such holder's shares of Series B Preferred Stock had been converted
into Common Stock immediately prior to the record date or, if there is no such
record date, on the date of payment thereof.
SECTION 5. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or
winding up of the Corporation, either voluntary or involuntary, before any of
the assets of the Corporation shall be distributed among or paid over to the
holders of any Junior Securities, the holders of shares of Series B Preferred
Stock shall be entitled to receive (i) an amount per share equal to the lesser
of (A) $1.50 and (B) the sum of (x) $0.521 and (y) the quotient obtained by
dividing (I) the aggregate amount of all payments made, as of the date of such
liquidation, dissolution or winding up, to the Corporation by Joint Energy
Development Investments Limited Partnership ("JEDI") or its assignee pursuant
to the Earn Up Agreement dated as of __________________, 1997 between the
Corporation and JEDI by (II) 9,600,000 and (ii) any and all accrued but unpaid
dividends thereon, and shall not be entitled to any other or additional
distribution.
(b) If upon such liquidation, dissolution or winding up,
whether voluntary or involuntary, the assets available for distribution among
the holders of shares of Series B Preferred Stock and holders of Parity
Securities shall be insufficient to permit the payment to such holders of the
full preferential amounts to which they are entitled, then the assets of the
Corporation available for distribution among the holders of Series B Preferred
Stock and holders of Parity Securities shall be distributed ratably among such
holders so that the amounts distributed in respect of the Series B Preferred
Stock and the Parity Securities shall bear to each other the same ratio that
the full amounts
2
<PAGE> 49
payable on liquidation, dissolution or winding up of the Corporation to the
holders of shares of Series B Preferred Stock and the Parity Securities bear to
each other.
(c) A consolidation or merger of the Corporation with or
into any other corporation or other entity, or a sale of all or substantially
all of the assets of the Corporation that does not involve a distribution by
the Corporation of cash or other property to the holders of shares of the
Common Stock, shall not be deemed to be a liquidation, dissolution or winding
up within the meaning of this Section 5.
SECTION 6. CONVERSION RIGHTS. Each holder of shares of Series B
Preferred Stock shall have the right, at such holder's option, to convert such
shares into shares of Common Stock of the Corporation at any time and from time
to time on and subject to the following terms and conditions:
(a) The shares of Series B Preferred Stock shall be
convertible at the principal office of the Corporation and at such other office
or offices, if any, as the Board of Directors may designate, into fully paid
and non-assessable shares (calculated as to each conversion to the nearest
1/100th of a share) of Common Stock, at the Conversion Rate, as hereinafter
defined, subject to adjustment as provided herein. The "Conversion Rate,"
which represents the number of shares of Common Stock into which each share of
Series B Preferred Stock is convertible, shall initially be one.
(b) In order to convert shares of Series B Preferred
Stock into Common Stock the holder thereof shall surrender at the office or
offices hereinabove mentioned the certificate or certificates therefor, duly
endorsed or assigned to the Corporation or in blank, and give written notice to
the Corporation at said office or offices that such holder elects to convert
such shares. Shares of Series B Preferred Stock shall be deemed to have been
converted immediately prior to the close of business on the day of the
surrender of the certificates for such shares for conversion in accordance with
the foregoing provisions, and the person or persons entitled to receive the
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such Common Stock at such time. As promptly as
practicable on or after the conversion date, the Corporation shall issue and
shall deliver at such office a certificate or certificates for the number of
full shares of Common Stock issuable upon such conversion, together with
payment in lieu of any fraction of a share, as hereinafter provided, to the
person or persons entitled to receive the same. Preferential dividends pursuant
to Section 4(a) on converted shares of Series B Preferred Stock shall cease to
accrue on the date of conversion, and all such dividends that have accrued as
of the date of conversion but have not been paid shall be payable on the date
such dividends would have been payable if such conversion had not occurred.
(c) No fractional shares of Common Stock shall be issued
upon conversion of shares of Series B Preferred Stock, but, instead of any
fraction of a share which would otherwise be issuable, the Corporation shall
pay cash in respect of such fraction in an amount equal to such fraction of the
fair market value (as determined by the Board of Directors of the Corporation)
of a share of Common Stock on the date on which the certificate or certificates
for such shares were duly surrendered for conversion.
3
<PAGE> 50
(d) The number and kind of securities issuable upon the
conversion of the Series B Preferred Stock shall be subject to adjustment from
time to time upon the happening of certain events occurring on or after the
Issuance Date of the shares of the Series B Preferred Stock as follows:
(i) In case of any reclassification or change of
outstanding securities issuable upon exercise of the conversion rights
(other than a change in par value, or from par value to no par value,
or from no par value to par value or as a result of a subdivision or
combination), or in case of any consolidation or merger of the
Corporation with or into another corporation or other entity (other
than a merger with another corporation or other entity in which the
Corporation is the surviving corporation and which does not result in
any reclassification or change -- other than a change in par value, or
from par value to no par value, or from no par value to par value, or
as a result of a subdivision or combination -- of outstanding
securities issuable upon conversion of the Series B Preferred Stock),
the holders of the Series B Preferred Stock shall have, and the
Corporation, or such successor corporation or other entity, shall
covenant in the constituent documents effecting any of the foregoing
transactions that the holders of the Series B Preferred Stock do have,
the right to obtain upon conversion of the Series B Preferred Stock,
in lieu of each share of Common Stock theretofore issuable upon
conversion of the Series B Preferred Stock, the kind and amount of
shares of stock, other securities, money and property receivable upon
such reclassification, change, consolidation or merger by a holder of
one share of Common Stock issuable upon conversion of the Series B
Preferred Stock as if the conversion had occurred immediately prior to
such reclassification, change, consolidation or merger. The
constituent documents effecting any reclassification, change,
consolidation or merger shall provide for any adjustments which shall
be as nearly equivalent as may be practicable to the adjustments
provided in this subparagraph (d)(i). The provisions of this
subparagraph (d)(i) shall similarly apply to successive
reclassifications, changes, consolidations or mergers.
(ii) If the Corporation at any time while any of
the Series B Preferred Stock is outstanding, shall subdivide or
combine its Common Stock, the Conversion Rate shall be proportionately
adjusted at the effective date of such subdivision or combination, or
if the Corporation shall take a record of its Common Stock for the
purpose of so subdividing or combining, at such record date, whichever
is earlier.
(iii) If the Corporation at any time while any of
the Series B Preferred Stock is outstanding shall pay a dividend
payable in, or make any other distribution of, Common Stock, the
Conversion Rate shall be adjusted, at the date the Corporation shall
take a record of the holders of its Common Stock for the purpose of
receiving such dividend or other distribution (or if no such record is
taken, at the date of such payment or other distribution), to that
rate determined by multiplying the Conversion Rate in effect
immediately prior to such record date (or if no such record is taken,
then immediately prior to such payment or other distribution) by a
fraction (1) the numerator of which shall be the total number of
shares of Common Stock outstanding immediately after such dividend
or distribution plus, in the event that the Corporation paid cash for
fractional shares, the number of additional shares which would have
been outstanding had the Corporation issued fractional shares in
connection with said dividend and (2) the denominator of which shall
be the total number of shares of Common Stock outstanding immediately
prior to such dividend
4
<PAGE> 51
or distribution. For purposes hereof, the number of shares of Common
Stock at any time outstanding shall not include any shares thereof then
directly or indirectly owned or held by or for the account of the
Corporation or its subsidiaries.
(e) Whenever the Conversion Rate is adjusted as herein
provided, the Corporation shall compute the adjusted Conversion Rate in
accordance with this Section 6 and shall cause to be prepared a certificate
signed by the Corporation's treasurer setting forth the adjusted Conversion
Rate and showing in reasonable detail the facts upon which such adjustment is
based, and such certificate shall forthwith be mailed to the holders of record
of outstanding shares of the Series B Preferred Stock.
(f) The Corporation shall at all times reserve and keep
available, free from preemptive rights, out of its authorized but unissued
Common Stock, for the purpose of issuance upon conversion of shares of Series B
Preferred Stock, the full number of shares of Common Stock then deliverable
upon the conversion of all shares of Series B Preferred Stock then outstanding.
(g) The Corporation will pay any and all taxes that may
be payable in respect of the issuance or delivery of shares of Common Stock on
conversion of shares of Series B Preferred Stock pursuant hereto. The
Corporation shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issuance and delivery of shares of
Common Stock in a name other than that in which the shares of Series B
Preferred Stock so converted were registered, and no such issuance or delivery
shall be made unless and until the person requesting such issuance has paid to
the Corporation the amount of any such tax or has established to the
satisfaction of the Corporation that such tax has been paid.
SECTION 7. VOTING RIGHTS.
In addition to any other voting rights required by applicable
law, the holders of Series B Preferred Stock shall vote together with the
holders of Common Stock (and of any other class or series which may similarly
be entitled to vote with the holders of Common Stock) as a single class on all
matters on which holders of Common Stock are entitled to vote, and the number
of votes that each share of Series B Preferred Stock shall entitle to the
holder thereof to cast shall be the number of shares of Common Stock into which
such share of Series B Preferred Stock is convertible as of the record date for
such vote or, if there is no record date for the vote, at the time of the vote.
IN WITNESS WHEREOF, the undersigned, a duly authorized officer of the
Corporation, has executed this Certificate of Designation on behalf of the
Corporation this ___ day of _____________, 1997.
QUEEN SAND RESOURCES, INC.
By:
--------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
5
<PAGE> 52
EXHIBIT C
[Closing Date]
Queen Sand Resources, Inc.
3500 Oak Lawn, Suite 380, L.B. #31
Dallas, Texas 75219-4398
Attention: Edward J. Munden
Gentlemen:
This letter agreement (the "Agreement") sets forth the terms and conditions
pursuant to which Queen Sand Resources, Inc., a Delaware corporation (the
"Company"), will retain ECT Securities Corp., a Delaware corporation ("ECT") to
act as the Company's advisor.
The Company and ECT agree as follows:
1. Retention of Advisor; Scope of Services.
a. Subject to the terms and conditions set forth herein, the
Company hereby retains ECT to act as an advisor to the Company during
the Agreement Period (as defined in paragraph 3 below).
b. As advisor to the Company, ECT will, from time to time, as
requested by the Company, provide consultation, assistance and advice
to the Company with respect to its operations and properties.
c. The parties hereto acknowledge that (i) ECT is not regularly
engaged in the business of providing advisory services and personnel
and that the services to be performed by ECT hereunder are provided as
an incident to ECT's relationship with Enron Capital Management
Limited Partnership, the General Partner of Joint Development
Investments Limited Partnership ("JEDI") and JEDI's activities as an
owner of equity securities of the Company, (ii) the fees to be paid to
ECT hereunder were established at an amount which is believed to be
approximately equal to the amount of indirect costs and expenses ECT
will incur in providing such services, (iii) ECT is not an "investment
advisor," within the meaning of the Investment Advisors Act of 1940,
as amended, or applicable state laws, or a "broker" or "dealer" under
the Securities Exchange Act of 1934, as amended, or subject to
regulation under the Commodity Futures Trading Act or comparable state
laws, (iv) the nature of the services to be provided by ECT under this
Agreement do not include those
<PAGE> 53
Queen Sand Resources, Inc.
[Closing Date]
Page 2
of an "investment advisor" (i.e. providing advice as to the value of
securities or the advisability of investing in, purchasing or selling
securities), or those of a "broker" or "dealer" (i.e. effecting
transaction in securities for the account of the Company or others),
and (v) it is specifically intended by the parties hereto that ECT's
activities hereunder not subject ECT to any regulation or registration
under federal or state laws.
d. The parties hereto acknowledge and agree that upon reasonable
request by the Company, ECT will, subject to the availability of such
personnel, make available such of its employees, as ECT may determine
may reasonably be necessary for ECT's performance of its services
hereunder. The parties further acknowledge that unless and until ECT
provides notice to the contrary, all decisions with respect to
staffing, scheduling and allocating ECT's resources for purposes of
this Agreement will be coordinated on behalf of ECT by and any request
by the Company for the performance of services hereunder shall be
directed to W. Craig Childers.
2. Agreement Period and Termination.
a. Unless earlier terminated under subparagraph (b), ECT shall
act as the Company's advisor under this Agreement, effective as of the
date hereof (the "Effective Date") and continuing until the earlier of
(a) the fifth anniversary of the date hereof and (b) such time as
Joint Energy Development Investments Limited Partnership or its
affiliates own less than 10% of the capital stock of the Company
entitled to vote generally in the election of directors. This
Agreement may be terminated effective as of the end of any calendar
quarter of the Company if ECT provides written notice of its election
to terminate the Agreement to the Company not less than 30 days before
the date on which such termination is to be effective.
b. Upon termination of this Agreement, neither party will have
any further obligation under this Agreement, except for (i) the
Company's obligation to pay to ECT the fees then due pursuant to
Paragraph 3, which shall continue after such termination until such
amounts are paid in full, and (ii) the Company's or ECT's obligation
to provide the indemnities contained in Paragraph 4.
3. Advisement Fee. The Company shall pay to ECT a fee of
$100,000 concurrently with the execution of this Agreement. In addition, ECT
shall be entitled to receive quarterly fees for its services provided during
the period from the Effective Date of this Agreement until the date of its
termination pursuant to Section 2 (the "Agreement Period"), payable as follows:
$25,000 on each March 31, June 30, September 30 and December 31 of each year
during the term of this Agreement in arrears, beginning on September 30, 1997.
<PAGE> 54
Queen Sand Resources, Inc.
[Closing Date]
Page 3
4. Indemnification. In consideration of the services performed
and to be performed by ECT for the Company, and for other good and valuable
consideration, the Company and ECT hereby agree as follows:
a. The Company shall indemnify and hold harmless ECT its
affiliates and affiliated entities, each of its partners, officers,
employees, agents and each person, if any, who "controls" ECT (within
the meaning of the federal securities laws) (collectively the
"Indemnified Parties" and individually, an "Indemnified Party") from
and against any and all actions or claims and any and all losses,
claims, damages, liabilities, costs or expenses (including, without
limitation, reasonable attorneys' fees and any legal or other expenses
in giving testimony or furnishing documents in response to a subpoena
or otherwise or the costs of investigating, preparing or defending any
action or claim, whether or not in connection with any action or
litigation in which any Indemnified Party is a party), joint or
several, to which any Indemnified Party may become subject, including
but not limited to, any liability under the Securities Act of 1933 or
any other federal or state securities law or otherwise as and when
incurred, directly or indirectly, caused by, relating to, based upon
or arising out of any matter related to this Agreement, including,
without limitation, any act or omission by ECT in connection with its
role as advisor and its acceptance of or the performance or
non-performance of its obligations under this Agreement.
b. The indemnity provided for in subparagraph (a) above shall
cover any loss, claim, damage, liability, cost or expense incurred by
an Indemnified Person REGARDLESS OF THE ORDINARY NEGLIGENCE OF SUCH
INDEMNIFIED PERSON, but shall not cover any loss, claim, damage,
liability, cost or expense to the extent it is found in a final
judgment by a court of competent jurisdiction (not subject to further
appeal) to have resulted from an Indemnified Party's gross negligence
or willful misconduct.
c. The indemnity provided for in subparagraph (a) shall be in
addition to any liability that the Company may otherwise have to the
Indemnified Parties and shall be subject to the following:
(i) Promptly after receipt by an Indemnified Party under
subparagraph (a) above of notice of the commencement of any
action, proceeding, investigation or other event with respect
to which any Indemnified Party demands indemnification
hereunder, such Indemnified Party shall, if a claim in respect
thereof is to be made against the Company, notify the Company
in writing of the commencement thereof, provided that the
failure to so notify the Company shall not relieve it from any
liability that it may have to any Indemnified Party, except to
the extent the Company is prejudiced by such failure.
<PAGE> 55
Queen Sand Resources, Inc.
[Closing Date]
Page 4
(ii) Notwithstanding anything expressed or implied herein
to the contrary, the indemnity provided for herein shall cover
the amount of any settlements entered into in connection with
any claim for which an Indemnified Party may be indemnified
hereunder, if and only if such settlement is consented to by
the Company, which consent will not be unreasonably withheld.
(iii) No settlement binding on an Indemnified Party may be
made without the consent of such Indemnified Party (which
consent shall not be unreasonably withheld).
(iv) If the claim for indemnification arises out of a
claim for damages by a person other than an Indemnified Party,
the Company, after giving notice to the Indemnified Party, may
undertake to defend or settle such claim for damages and may
employ counsel for such purpose. The Indemnified Party, at
its own expense, shall have the right to employ separate
counsel with respect to such claim and to participate in, but
not control, such settlement or defense; provided that, if the
Company is also a defendant in respect of any such claim and a
potential conflict exists between the interests of the Company
and those of an Indemnified Party or if the Company does not
elect to undertake the settlement or defense of such claim,
the Indemnified Parties shall, at the expense of the Company,
have the right to employ not more than one counsel to
represent the Indemnified Parties with respect to such claim
and the Indemnified Parties may control any settlement or
defense applicable to the claims brought against such
Indemnified Parties.
(v) Expenses and other costs incurred by an Indemnified
Party in connection with any suit, action or other proceeding
relating to this Agreement shall be advanced by the Company to
such Indemnified Party prior to any final determination of
whether an Indemnified Party is entitled to be indemnified for
such costs and expenses hereunder, if the Indemnified Party
provides to the Company an undertaking to return any amounts
so received to the extent that it is ultimately determined
that he was not entitled to be indemnified for such costs and
expenses hereunder.
(vii) The Company agrees that the Indemnified Parties shall
not have any liability (whether direct or indirect, in
contract, tort or otherwise) to the Company for or in
connection with any matter related to this Agreement, except
for liabilities or expenses that are found in a final judgment
by a court of competent jurisdiction (not subject to further
appeal) to have resulted primarily and directly from ECT or
such other Indemnified Party's gross negligence or willful
misconduct.
<PAGE> 56
Queen Sand Resources, Inc.
[Closing Date]
Page 5
d. If it is found in a final judgment by a court of competent
jurisdiction (not subject to further appeal) in a proceeding in which
a claim for indemnification has been made by an Indemnified Party,
that the Company has sustained any loss, claim, damage, liability,
cost or expense resulting directly and exclusively from ECT's gross
negligence or willful misconduct in connection with the performance or
non-performance by ECT of its obligations under this Agreement, then
ECT shall indemnify and hold harmless the Company for the amount of
any such loss, claim, damage, liability, costs or expense so
determined to have been sustained by the Company. Notwithstanding any
provision of this Agreement to the contrary, in no event will the
liability of ECT exceed the amount of fees paid to ECT by the Company
pursuant to the terms hereof.
4. GOVERNING LAW. THE VALIDITY AND INTERPRETATION OF THIS
AGREEMENT SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF TEXAS
APPLICABLE TO CONTRACTS MADE AND TO BE FULLY PERFORMED THEREIN.
5. Successors and Assigns. The benefits of this Agreement shall
inure to the parties hereto, their respective successors and permitted assigns,
and to the indemnified parties hereunder and their successors and
representatives, and the obligations and liabilities assumed in this Agreement
by the parties hereto shall be binding upon their respective successors and
assigns. This Agreement may not be assigned by any party to an unaffiliated
party without the express written consent of the other party hereto.
6. Notices. All communications under this Agreement shall be in
writing and shall be delivered personally or sent by personal delivery,
overnight courier service or telecopy (confirmed by overnight courier service)
as follows:
If to ECT:
ECT Securities Corp.
1400 Smith Street
Houston, Texas 77002
Telecopy Number: (713) 646-3750
Attention: W. Craig Childers
<PAGE> 57
Queen Sand Resources, Inc.
[Closing Date]
Page 6
If to the Company:
Queen Sand Resources, Inc.
3500 Oak Lawn
Suite 380, L.B. #31
Dallas, Texas 75219-4398
Attention: Robert P. Lindsay
Telecopier: (214) 521-9960
and
Queen Sand Resources, Inc.
60 Queen Street
Suite 1400
Ottawa, Canada
K1P 5Y7
Attention: Edward J. Munden
Telecopier: (613) 230-6055
with a copy to:
Haynes and Boone, L.L.P.
901 Main Street
Suite 3100
Dallas, Texas 75202
Attention: William L. Boeing
Telecopier: (214) 651-5940
Either party may change its address or telecopy number set forth above
by giving the other party notice of such change in accordance with the
provisions of this Paragraph 7. A notice shall be deemed given, if by personal
delivery, on the date of such delivery to such address, if by overnight courier
service, when delivered, or if by telecopy, on the date of receipt of the
transmission of such notice at such telecopy number.
7. Nature of Relationship. The parties hereto intend that ECT's
relationship to the Company and the relationship of each employee or agent of
ECT to the Company shall be that of an independent contractor. Nothing
contained in this Agreement shall constitute or be construed to be or create a
partnership or joint venture between ECT and the Company or their respective
successors or assigns. Neither ECT nor any partner, employee or agent of ECT
shall ever be considered to be an employee of the Company.
<PAGE> 58
Queen Sand Resources, Inc.
[Closing Date]
Page 7
8. Captions. The Paragraph titles herein are for reference
purposes only and do not control or affect the meaning or interpretation of any
term or provision hereof.
9. Amendments. No alteration, amendment, change or addition
hereto shall be binding or effective unless the same is set forth in writing
signed by a duly authorized representative of each party.
10. Partial Invalidity. If the final determination of a court of
competent jurisdiction declares, after the expiration of the time within which
judicial review (if permitted) of such determination may be perfected, that any
term or provision hereof is invalid or unenforceable, (i) the remaining terms
and provisions hereof shall be unimpaired and (ii) the invalid or unenforceable
term or provision shall be replaced by a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid
or unenforceable term or provision.
11. Survival. All representations, warranties and agreements
contained herein, or contained in certificates submitted pursuant to this
Agreement, shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, and shall survive
the execution and delivery hereof.
12. Entire Agreement. This Agreement embodies the entire
agreement and understanding of the parties and supersedes any and all prior
agreements, arrangements and understandings relating to matters provided for
herein.
13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be an original, but all of which together
shall be considered one and the same agreement.
If this Agreement accurately reflects our understanding, please sign
and return a counterpart to the undersigned.
Very truly yours,
ECT SECURITIES CORP.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
<PAGE> 59
Queen Sand Resources, Inc.
[Closing Date]
Page 8
ACCEPTED AND AGREED TO this day of , 1997:
QUEEN SAND RESOURCES, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
and
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
<PAGE> 60
EXHIBIT D
EARN UP AGREEMENT
THIS EARN UP AGREEMENT (this "Agreement") is executed as of the _____
day of __________, 1997 between Queen Sand Resources, Inc., a Delaware
corporation (the "Company"), and Joint Energy Development Investments Limited
Partnership, a Delaware limited partnership ("JEDI").
WHEREAS, the Company has entered into the Purchase Agreement (defined
below) with JEDI pursuant to which JEDI is purchasing shares of the Company's
Series A Participating Convertible Preferred Stock, par value $0.01 per share
(the "Convertible Preferred Stock"), and certain warrants to purchase Common
Stock of the Company, in exchange for (i) $5,000,000 cash; and (ii) this
Agreement; and
WHEREAS, the Company is repurchasing 9,600,000 shares of Common Stock
(defined below) from Forseti Investments, ltd., a Barbados corporation
("Forseti"), pursuant to the terms of the Forseti Purchase Agreement (defined
below);
NOW, THEREFORE, in consideration of these premises, the agreements
herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, JEDI and the Company agree as follows:
1.0 DEFINITIONS
"AAA" means the American Arbitration Association, or any successor
organization.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of, or rights,
warrants or options to purchase, corporate stock or any other equity interest
(however designated) of or in such Person.
"Capitalized Lease Obligation" means the amount of the liability under
any capital lease that, in accordance with GAAP, is required to be capitalized
and reflected as a liability on the consolidated balance sheet of the Company
and its Subsidiaries.
"Class A Amount" is defined in Section 2(b).
"Class B Amount" is defined in Section 2(c).
<PAGE> 61
"Class A Warrants" means the Class A Common Stock Purchase Warrants to
purchase 1,000,000 shares of Common Stock issued to Forseti pursuant to the
Forseti Purchase Agreement.
"Class B Warrants" means the Class B Common Stock Purchase Warrants to
purchase 2,000,000 shares of Common Stock issued to Forseti pursuant to the
Forseti Purchase Agreement.
"Common Stock" means the common stock, par value $.0015 per share, of
the Company.
"Consolidated Adjusted Net Income" means the consolidated net income
(or loss) of the Company and its Subsidiaries for the fiscal year ending June
30, 1998 as determined in accordance with GAAP, adjusted by excluding, to the
extent included in consolidated net income, (a) net after-tax extraordinary
gains or losses (less all fees and expenses relating thereto), (b) net
after-tax gains or losses (less all fees and expenses relating thereto)
attributable to asset dispositions, (c) the net income (or net loss) of any
Person (other than the Company or any of its Subsidiaries) in which the Company
or any of its Subsidiaries has an ownership interest, except to the extent of
the amount of dividends or other distributions actually paid to the Company or
its Subsidiaries in cash by such other Person during such period, and (d) net
income (or net loss) of any Person combined with the Company or any of its
Subsidiaries on a "pooling of interests" basis attributable to any period prior
to the date of combination.
"Consolidated Interest Expense" means the amount which, in conformity
with GAAP, is set forth opposite the caption "interest expense" (or any like
caption) on the audited consolidated statement of operations of the Company and
its Subsidiaries for the fiscal year ended June 30, 1998.
"Consolidated Net Working Capital" means (i) the amount which, in
conformity with GAAP, is set forth opposite the caption "total current assets"
(or any like caption) on the audited consolidated balance sheet of the Company
and its Subsidiaries as of June 30, 1998 less (ii) the amount which, in
conformity with GAAP, is set forth opposite the caption "total current
liabilities" (or any like caption) on the audited consolidated balance sheet of
the Company and its Subsidiaries as of June 30, 1998.
"Consolidated Non-cash Charges" means the amount which, in conformity
with GAAP, is set forth opposite the caption "depreciation, depletion and
amortization" (or any like caption) on the audited consolidated statement of
operations of the Company and its Subsidiaries for the fiscal year ended June
30, 1998.
"Consolidated Tax Expense" means the amount which, in conformity with
GAAP, is set forth opposite the caption "income tax expense" (or any like
caption) on the audited consolidated statement of operations of the Company and
its Subsidiaries for the fiscal year ended June 30, 1998.
"Dispute" is defined in Section 4.
"EBITDA" means, without duplication, for the fiscal year ended June
30, 1998, the sum of (i) Consolidated Adjusted Net Income and (ii) to the
extent deducted in computing Consolidated Adjusted Net Income, Consolidated
Interest Expense, Consolidated Tax Expense and Consolidated Non-cash Charges.
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<PAGE> 62
"Earn Up Amount" is defined in Section 2(a).
"Election Date" means September 30, 1998.
"Exercise Price" means $2.50.
"Forseti Earn Up Agreement" means the Earn Up Agreement entered into
between the Company and Forseti substantially in the form of Exhibit A to this
Agreement.
"Forseti Interests" means all of the outstanding ownership interests
in Forseti and each entity that controls or owns an ownership interests in
Forseti.
"Forseti Purchase Agreement" means the Securities Purchase Agreement
dated March 27, 1997 between the Company and Forseti.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, in effect from time to
time.
"Guaranteed Debt" means, without duplication, all Indebtedness of any
other Person guaranteed directly or indirectly in any manner by the Company or
any of its Subsidiaries, or in effect guaranteed directly or indirectly by the
Company or any of its Subsidiaries through an agreement (i) to pay or purchase
such Indebtedness or to advance or supply funds for the payment or purchase of
such Indebtedness, (ii) to purchase, sell or lease (as lessee or lessor)
property, or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such Indebtedness or to assure the
holder of such Indebtedness against loss, (iii) to supply funds to, or in any
other manner invest in, the debtor (including any agreement to pay for property
or services to be acquired by such debtor irrespective of whether such property
is received or such services are rendered), (iv) to maintain working capital or
equity capital of the debtor, or otherwise to maintain the net worth, solvency
or other financial condition of the debtor or (v) otherwise to assure a
creditor against loss; provided that the term "guarantee" shall not include
endorsements for collection or deposit.
"Indebtedness" means, as of June 30, 1998, without duplication, (i)
all indebtedness of the Company or any of its Subsidiaries for borrowed money
or for the deferred purchase price of property or services, excluding any trade
accounts payable and other accrued current liabilities incurred in the ordinary
course of business, (ii) all obligations of the Company or any of its
Subsidiaries evidenced by bonds, notes, debentures or other similar
instruments, (iii) all indebtedness created or arising under any conditional
sale or other title retention agreement with respect to property acquired by
the Company or any of its Subsidiaries (even if the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), but excluding trade accounts payable
arising in the ordinary course of business, (iv) all Capitalized Lease
Obligations, (v) all indebtedness referred to in (but not excluded from) clause
(i), (ii), (iii) or (iv) above of other Persons, the payment of which is
secured by (or for which the holder of such indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon or in property
(including, without limitation, accounts and contract rights) owned by the
Company or any of its Subsidiaries, even though such Person has not assumed
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<PAGE> 63
or become liable for the payment of such indebtedness, (vi) all Guaranteed
Debt, (vii) all Redeemable Capital Stock valued at its maximum fixed repurchase
price plus accrued and unpaid dividends, and (viii) any amendment, supplement,
modification, deferral, renewal, extension or refunding of any liability of the
types referred to in clauses (i) through (vii) above. For purposes hereof, the
"maximum fixed repurchase price" of any Redeemable Capital Stock that does not
have a fixed repurchase price shall be calculated in accordance with the terms
of such Redeemable Capital Stock as if such Redeemable Capital Stock were
purchased on any date on which Indebtedness shall be required to be determined
pursuant to this Agreement, and if such price is based upon, or measured by,
the fair market value of such Redeemable Capital Stock, such fair market value
to be determined in good faith by the Board of Directors of the issuer of such
Redeemable Capital Stock.
"Mediator" is defined in Section 6.
"Outstanding Shares" means, as of June 30, 1998, the issued and
outstanding shares of Common Stock, assuming the conversion of all shares of
preferred stock of the Company that are convertible into shares of Common
Stock, and excluding any shares of Common Stock held in treasury by the Company
or held by any wholly-owned Subsidiary of the Company.
"Payment Date" means October 15, 1998.
"Person" means any individual, corporation, limited or general
partnership, joint venture, association, joint- stock company, trust, limited
liability company, unincorporated organization or government or any agency or
political subdivision thereof.
"Price" means, if:
|Price(1) - Price(2)|
less than 0.1, then (Price(1)
+ Price(2))/2;
----------------------
Greater of Price(1) or Price(2)
provided, that if:
|Price(1) - Price(2)|
greater than 0.1, then the
Company and JEDI
----------------------
Greater of Price(1) or Price(2)
shall negotiate the Price; provided, further, that if the Price has not been
agreed upon within 5 business days after the determination of Price(1) and
Price(2), then the determination of the Price shall be submitted to nonbinding
mediation and arbitration in accordance with this Agreement. Notwithstanding
anything to the contrary in this Agreement, under no circumstances shall the
Price exceed the higher of Price(1) and Price(2) or be less than the lower of
Price(1) and Price(2).
(1.1 * SEC PV(10)) - Indebtedness + Consolidated
"Price(1)" = Net Working Capital
-----------------------------------------------------
Outstanding Shares
(6.0 * EBITDA) - Indebtedness + Consolidated Net
"Price(2)" = Working Capital
-----------------------------------------------------
Outstanding Shares
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<PAGE> 64
"Purchase Agreement" means the Securities Purchase Agreement dated
March 27, 1997 between the Company and JEDI.
"Redeemable Capital Stock" means any Capital Stock of the Company or
any of its Subsidiaries that, either by its terms, by the terms of any security
into which it is convertible or exchangeable or otherwise, (i) is, or upon the
happening of an event or passage of time would be, required to be redeemed, or
(ii) is, or upon the happening of an event or passage of time would be,
redeemable at the option of the holder thereof, or (iii) is, or upon the
happening of an event or passage of time would be, convertible into or
exchangeable for debt securities.
"SEC PV(10)" means the pre tax future net cash flows from proved oil
and gas reserves of the Company and its Subsidiaries at June 30, 1998, computed
using a discount factor of ten percent, as determined in accordance with the
rules, regulations and guidelines of the United States Securities and Exchange
Commission and reported in the reserve report dated as of such date prepared in
accordance with Section 6.11 of the Purchase Agreement.
"Statutory Declaration" means a statutory declaration by Forseti that
as of the Election Date and the Payment Date (i) the individual who, as of the
date hereof, owned all of the Forseti Interests owns all of the Forseti
Interests (ii) there are no encumbrances, pledges or other liens on any equity
interests in Forseti, and (iii) no other event under Section 6(h) has occurred.
"Subsidiary" of a Person means any corporation, limited liability
company, limited or general partnership, joint venture, association,
joint-stock company or business trust of which at the time of determination
such Person, directly and/or indirectly through one or more other Persons, owns
more than 50% of the voting interests.
"Transfer" of any property means any exercise, or any direct or
indirect sale, transfer, encumbrance, gift, donation, assignment, grant of any
interest, pledge, hypothecation or other disposition of such property or any
interest therein, whether voluntary or involuntary, including, but not limited
to, any transfer by operation of law, by court order, by judicial process, or
by foreclosure, levy, or attachment.
"Value" is defined in Section 2(e).
"Warrant Transfer Amount" is defined in Section 2(d).
"Warrants" means, collectively, the Class A Warrants and the Class B
Warrants.
2.0 PAYMENT OF EARN UP AMOUNT
(a) On the Payment Date, subject to the limitations in Section 3,
and only against delivery by the Company to JEDI of evidence
satisfactory to JEDI that Forseti has delivered to the Company (x) the
Warrants and (y) the Statutory Declaration, JEDI shall pay the Company
an amount (the "Earn Up Amount") equal to the amount, if any, by which
(i) the sum of the Class A Amount and the Class B Amount exceeds (ii)
the Warrant Transfer Amount; provided, that in no event shall the Earn
Up Amount exceed $9,400,000.
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<PAGE> 65
(b) The "Class A Amount" means a dollar amount equal to the
product of (i) the Value (not to exceed $1.50) less $1.25, multiplied
by (ii) 9,600,000; provided, that in no event shall the Class A Amount
be greater than $2,400,000; and if the Class A Amount is zero or a
negative number, the Class A Amount shall be deemed to be zero.
(c) The "Class B Amount" means a dollar amount equal to the
product of (i) the Value (not to exceed $1.25) less $0.521, multiplied
by (ii) 9,600,000; provided, that in no event shall the Class B Amount
be greater than $7,000,000; and if the Class B Amount is zero or a
negative number, the Class B Amount shall be deemed to be zero.
(d) The "Warrant Transfer Amount" means a dollar amount equal to
the greatest of (i) the product of (x) $3.50 multiplied by (y) the
aggregate number of Class A Warrants and Class B Warrants Transferred
by Forseti before the Payment Date; (ii) the aggregate gross proceeds
that Forseti has received or is entitled to receive from the Transfer
of all of the Class A Warrants and Class B Warrants Transferred by
Forseti before the Payment Date; and (iii) the difference between the
average daily bid price of the Company's Common Stock for the 21-day
period ending on the Election Date less the Exercise Price, multiplied
by the number of Class A Warrants and the Class B Warrants Transferred
by Forseti before the Payment Date.
(e) The "Value" means the product of the Price, multiplied by
0.60; provided, that if (i) the Common Stock is quoted on The Nasdaq
National Market at the Election Date and (ii) the average daily
trading volume of the Company's shares of Common Stock for the 21-day
period ending on the Election Date is at least 50,000 shares per day
(excluding trading of shares in any accounts controlled by the Company
or Forseti or their respective Affiliates, and provided, that if on
any of the 21 days the trading volume is greater than 300,000 shares,
then only 300,000 shares on such days may be used in calculating the
average), then Value means the product of the Price, multiplied by
0.75.
(f) The Company represents and warrants to JEDI that the
definitions of the terms "Price" and "Value" in the Forseti Earn Up
Agreement are identical to the definitions of such terms in this
Agreement.
3.0 LIMITATION ON EARN UP AMOUNT
The Earn Up Amount shall in no event exceed the amount defined in the
Forseti Purchase Agreement as the "Earn Up Amount."
4.0 MEDIATION.
Any controversy, dispute or claim arising out of or relating to this
Agreement (a "Dispute") shall be submitted to non-binding mediation upon the
request of the Company or Forseti on the following terms. Upon the request of
either party, a neutral mediator acceptable to both parties (the "Mediator")
shall be appointed within 15 days. The Mediator shall attempt through
negotiations in any manner deemed reasonably appropriate by the Mediator, in
which the parties shall participate,
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<PAGE> 66
to resolve the Dispute. The Mediator shall be compensated at a rate agreeable
to the Company, Forseti and the Mediator, and each of the Company and Forseti
shall pay its pro rata share of such compensation and other expenses of the
mediation.
5.0 ARBITRATION.
In the event that mediation of a Dispute has not commenced within 15
days after a request for mediation is submitted or is terminated without
resolution under Section 5.0, any controversy or claim arising out of or
relating to this Agreement, including the right to or amount of indemnity,
shall be settled by arbitration in accordance with the Commercial Arbitration
Rules of the AAA by three (3) arbitrators. Each of Forseti and the Company
shall appoint one arbitrator, who shall be an impartial person. If a party
fails to appoint an arbitrator within thirty (30) days from the date a Demand
to Arbitrate was made under Rule 6, the AAA shall make the appointment of the
arbitrator. The two (2) arbitrators thus appointed shall appoint the third
arbitrator, who shall be an impartial person. If said two (2) arbitrators fail
to appoint the third arbitrator within sixty (60) days from the date a Demand
to Arbitrate was made under Rule 6, the AAA shall make the appointment of the
third arbitrator, who shall be an impartial person. Should any of the
arbitrators appointed die, resign, refuse or become unable to act before a
decision is given, the vacancy shall be filled by the method set forth in this
clause for the original appointment. The arbitration shall be held in Dallas,
Texas and shall be conducted in the English language. A decision by the
arbitrators shall be final and binding on all the parties. The arbitrators
shall execute and deliver to the respective parties the arbitration panel's
decision in writing. Judgment upon the award, if any, rendered by the
arbitrators (which must be expressed in United States Dollars) may be entered
in any court having jurisdiction thereof. In any award, the arbitrators shall
assess the arbitration costs and expenses, including, without limitation,
attorneys fees of the parties, in a manner deemed equitable by the arbitrators,
taking into account the arbitration decision. Notwithstanding anything to the
contrary in this Agreement, if a Dispute involves the determination of Price,
the Price, as determined by arbitration under this Section 5, shall not (i) (a)
exceed the higher or Price(1) and Price(2), or (b) be lower than the lower of
Price(1) and Price(2), or (ii) exceed the Price as determined under the Forseti
Earn Up Agreement, including a Price as determined by arbitration under the
provisions of the Forseti Earn Up Agreement.
6.0 MISCELLANEOUS
(a) Governing Law. This Agreement shall be governed by the
substantive laws of the State of Texas.
(b) Invalid Provisions. If any provision of this Agreement is
held to be illegal, invalid or unenforceable, such provision shall be
fully severable.
(c) Entirety and Amendments. This Agreement embodies the entire
agreement and understanding relating to the subject matter hereof,
supersedes all prior understandings between the parties relating to
the subject matter hereof, and may be amended only by an instrument in
writing executed by the Company and JEDI.
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<PAGE> 67
(d) Parties Bound. This Agreement shall be binding upon and inure
to the benefit of the Company and JEDI, and their respective
successors and permitted assigns. Neither the Company nor JEDI may
assign its rights or delegate its obligations hereunder (whether
voluntarily, involuntarily, or by operation of law) without the prior
written consent of the other party.
(e) Notices. Unless otherwise specified, whenever this Agreement
requires or permits any consent, approval, notice, request, or demand
from one party to another, that communication must be in writing
(which may be by telecopy) to be effective and is deemed to have been
given (a) if by telecopy, when transmitted to the appropriate telecopy
number (and all communications sent by telecopy must be confirmed
promptly by telephone; but any requirement in this parenthetical does
not affect the date when the telecopy is deemed to have been
delivered), or (b) if by any other means, including by internationally
acceptable courier or hand delivery, when actually delivered. Until
changed by notice pursuant to this Agreement, the address (and
telecopy number) for the Company and JEDI are:
If to JEDI: Joint Energy Development Investments
Limited Partnership
c/o Enron Corp.
1400 Smith Street
Houston, Texas 77002
Attention: Donna Lowry - Director,
28th Floor
Telecopier: (713) 646-3602
If to Company: Queen Sand Resources, Inc.
3500 Oak Lawn, Suite 380, L.B.#31
Dallas, Texas 75219-4398
Attn: Robert P. Lindsay
Facsimile: (214) 521-9960
With copies to: Queen Sand Resources, Inc.
60 Queen Street, Suite 1400
Ottawa, Canada K1P 5Y7
Attn: Edward J. Munden
Facsimile: (613) 230-6055
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
Attn: William L. Boeing
Facsimile: (214) 651-5940
(f) Section and Other Headings. The headings contained in this
Agreement are for reference purposes only and will not affect in any
way the meaning or interpretation of this Agreement.
-8-
<PAGE> 68
(g) Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original and all of
which together will constitute one instrument.
(h) Termination. This Agreement shall terminate automatically,
and JEDI shall have no obligation to pay any Earn Up Amount, (a) in
the event the "Election Date" under the Forseti Earn Up Agreement is
after September 30, 1998 or the "Payment Date" under the Forseti Earn
Up Agreement is after October 15, 1998, (b) upon the Transfer of any
Warrants in violation of the restrictions on Transfer of Warrants
under the Forseti Purchase Agreement, (c) upon the election by Forseti
to retain the Warrants under Section 2(a)(ii) of the Forseti Earn Up
Agreement, (d) upon the Transfer by Forseti of all of the Warrants,
(e) upon the Transfer of any ownership interest in Forseti or any
entity controlling Forseti where the purpose of the transfer is to
realize or receive cash, securities or any other property as
consideration for the Warrants without transferring the Warrants, (f)
in the event that, on the Election Date or the Payment Date, the
individual who, as of the date hereof owned, directly or indirectly,
all of the Forseti Interests does not own, directly or indirectly, all
of the Forseti Interests, or (g) the termination of the Forseti Earn
Up Agreement for any reason.
(i) Currency. All dollar amounts in this Agreement shall mean
United States dollars.
* * * * *
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<PAGE> 69
IN WITNESS WHEREOF, JEDI and the Company have executed this Agreement
as of the day and year first stated above.
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP
By: Enron Capital Management Limited
Partnership, its General Partner
By: Enron Capital Corp., its General
Partner
By:
-----------------------------------------
Steven M. Emshoff
Agent and Attorney-in-Fact
QUEEN SAND RESOURCES, INC.
By:
-----------------------------------------
Edward J. Munden
President and Chief Executive Officer
and
By:
-----------------------------------------
Robert P. Lindsay
Chief Operating Officer
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<PAGE> 70
EXHIBIT A
EARN UP AGREEMENT
THIS EARN UP AGREEMENT (this "Agreement") is executed as of the _____
day of __________, 1997 between Queen Sand Resources, Inc., a Delaware
corporation (the "Company"), and Forseti Investments Ltd., a Barbados
corporation ("Forseti").
WHEREAS, the Company has entered into a Securities Purchase Agreement
(defined below) with Forseti pursuant to which the Company is purchasing
9,600,000 shares of Common Stock (defined below) from Forseti for (i)
$5,000,000 cash; (ii) the Class A Warrants (defined below); (iii) the Class B
Warrants (defined below); and (iv) this Agreement;
WHEREAS, the Company has entered into the JEDI Purchase Agreement
(defined below) with JEDI (defined below) pursuant to which the Company has
issued shares of the Company's Series A Participating Convertible Preferred
Stock, par value $0.01 per share, for (i) $5 million cash; and (ii) the JEDI
Earn Up Agreement (defined below);
NOW, THEREFORE, in consideration of these premises, the agreements
herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Forseti and the Company agree as follows:
1.0 DEFINITIONS
"AAA" means the American Arbitration Association, or any successor
organization.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of, or rights,
warrants or options to purchase, corporate stock or any other equity interest
(however designated) of or in such Person.
"Capitalized Lease Obligation" means the amount of the liability under
any capital lease that, in accordance with GAAP, is required to be capitalized
and reflected as a liability on the consolidated balance sheet of the Company
and its Subsidiaries.
"Class A Amount" is defined in Section 2(c).
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<PAGE> 71
"Class B Amount" is defined in Section 2(d).
"Class A Warrants" means the Class A Common Stock Purchase Warrants to
purchase 1,000,000 shares of Common Stock, substantially in the form of Exhibit
A to this Agreement.
"Class B Warrants" means the Class B Common Stock Purchase Warrants to
purchase 2,000,000 shares of Common Stock, substantially in the form of Exhibit
B to this Agreement.
"Common Stock" means the common stock, par value $.0015 per share, of
the Company.
"Consolidated Adjusted Net Income" means the consolidated net income
(or loss) of the Company and its Subsidiaries for the fiscal year ending June
30, 1998 as determined in accordance with GAAP, adjusted by excluding, to the
extent included in consolidated net income, (a) net after-tax extraordinary
gains or losses (less all fees and expenses relating thereto), (b) net
after-tax gains or losses (less all fees and expenses relating thereto)
attributable to asset dispositions, (c) the net income (or net loss) of any
Person (other than the Company or any of its Subsidiaries) in which the Company
or any of its Subsidiaries has an ownership interest, except to the extent of
the amount of dividends or other distributions actually paid to the Company or
its Subsidiaries in cash by such other Person during such period, and (d) net
income (or net loss) of any Person combined with the Company or any of its
Subsidiaries on a "pooling of interests" basis attributable to any period prior
to the date of combination.
"Consolidated Interest Expense" means the amount which, in conformity
with GAAP, is set forth opposite the caption "interest expense" (or any like
caption) on the audited consolidated statement of operations of the Company and
its Subsidiaries for the fiscal year ended June 30, 1998.
"Consolidated Net Working Capital" means (i) the amount which, in
conformity with GAAP, is set forth opposite the caption "total current assets"
(or any like caption) on the audited consolidated balance sheet of the Company
and its Subsidiaries as of June 30, 1998 less (ii) the amount which, in
conformity with GAAP, is set forth opposite the caption "total current
liabilities" (or any like caption) on the audited consolidated balance sheet of
the Company and its Subsidiaries as of June 30, 1998.
"Consolidated Non-cash Charges" means the amount which, in conformity
with GAAP, is set forth opposite the caption "depreciation, depletion and
amortization" (or any like caption) on the audited consolidated statement of
operations of the Company and its Subsidiaries for the fiscal year ended June
30, 1998.
"Consolidated Tax Expense" means the amount which, in conformity with
GAAP, is set forth opposite the caption "income tax expense" (or any like
caption) on
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<PAGE> 72
the audited consolidated statement of operations of the Company and its
Subsidiaries for the fiscal year ended June 30, 1998.
"Dispute" is defined in Section 6.
"EBITDA" means, without duplication, for the fiscal year ended June
30, 1998, the sum of (i) Consolidated Adjusted Net Income and (ii) to the
extent deducted in computing Consolidated Adjusted Net Income, Consolidated
Interest Expense, Consolidated Tax Expense and Consolidated Non-cash Charges.
"Earn Up Amount" is defined in Section 2(b).
"Election Date" means the later of (i) September 30, 1998 and (ii) the
date that is 14 days after the date that the Company notifies Forseti to
request Forseti's election under Section 2.
"Exercise Price" means $2.50.
"Forseti Interests" means all of the outstanding ownership interests
in Forseti and each entity that controls or owns an ownership interest in
Forseti.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, in effect from time to
time.
"Guaranteed Debt" means, without duplication, all Indebtedness of any
other Person guaranteed directly or indirectly in any manner by the Company or
any of its Subsidiaries, or in effect guaranteed directly or indirectly by the
Company or any of its Subsidiaries through an agreement (i) to pay or purchase
such Indebtedness or to advance or supply funds for the payment or purchase of
such Indebtedness, (ii) to purchase, sell or lease (as lessee or lessor)
property, or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such Indebtedness or to assure the
holder of such Indebtedness against loss, (iii) to supply funds to, or in any
other manner invest in, the debtor (including any agreement to pay for property
or services to be acquired by such debtor irrespective of whether such property
is received or such services are rendered), (iv) to maintain working capital or
equity capital of the debtor, or otherwise to maintain the net worth, solvency
or other financial condition of the debtor or (v) otherwise to assure a
creditor against loss; provided that the term "guarantee" shall not include
endorsements for collection or deposit.
"Indebtedness" means, as of June 30, 1998, without duplication, (i)
all indebtedness of the Company or any of its Subsidiaries for borrowed money
or for the deferred purchase price of property or services, excluding any trade
accounts payable and other accrued current liabilities incurred in the ordinary
course of business, (ii) all obligations of the Company or any of its
Subsidiaries evidenced by bonds, notes, debentures or other similar
instruments, (iii) all indebtedness created or arising under any conditional
sale or other title retention agreement with respect to
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<PAGE> 73
property acquired by the Company or any of its Subsidiaries (even if the rights
and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), but excluding
trade accounts payable arising in the ordinary course of business, (iv) all
Capitalized Lease Obligations, (v) all indebtedness referred to in (but not
excluded from) clause (i), (ii), (iii) or (iv) above of other Persons, the
payment of which is secured by (or for which the holder of such indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien upon
or in property (including, without limitation, accounts and contract rights)
owned by the Company or any of its Subsidiaries, even though such Person has
not assumed or become liable for the payment of such indebtedness, (vi) all
Guaranteed Debt, (vii) all Redeemable Capital Stock valued at its maximum fixed
repurchase price plus accrued and unpaid dividends, and (viii) any amendment,
supplement, modification, deferral, renewal, extension or refunding of any
liability of the types referred to in clauses (i) through (vii) above. For
purposes hereof, the "maximum fixed repurchase price" of any Redeemable Capital
Stock that does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Redeemable Capital Stock as if such
Redeemable Capital Stock were purchased on any date on which Indebtedness shall
be required to be determined pursuant to this Agreement, and if such price is
based upon, or measured by, the fair market value of such Redeemable Capital
Stock, such fair market value to be determined in good faith by the Board of
Directors of the issuer of such Redeemable Capital Stock.
"JEDI" means Joint Energy Development Investments Limited Partnership,
a Delaware limited partnership.
"JEDI Earn Up Agreement" means the Earn Up Agreement entered into
between the Company and JEDI substantially in the form of Exhibit C to this
Agreement.
"JEDI Purchase Agreement" means the Securities Purchase Agreement
dated March _____, 1997 between the Company and JEDI.
"Mediator" is defined in Section 6.
"Outstanding Shares" means, as of June 30, 1998, the issued and
outstanding shares of Common Stock, assuming the conversion of all shares of
preferred stock of the Company, that are convertible into shares of Common
Stock, and excluding any shares of Common Stock held in treasury by the Company
or held by any wholly-owned Subsidiary of the Company.
"Payment Date" means the later of (i) October 15, 1998 or (ii) the
date that is 15 days after the Election Date.
"Person" means any individual, corporation, limited or general
partnership, joint venture, association, joint- stock company, trust, limited
liability company,
4
<PAGE> 74
unincorporated organization or government or any agency or political
subdivision thereof.
<TABLE>
<S> <C>
"Price" means, if:
(Price(1) - Price(2))
--------------------- less than or equal to 0.1, then (Price(1) + Price(2))/2;
Greater of Price(1) or Price(2)
provided, that if: (Price(1) - Price(2))
---------------------- greater than 0.1, then the Company and Forseti
Greater of Price(1) or Price(2)
</TABLE>
shall negotiate the Price; provided, further, that if the Price has not been
agreed upon within 5 business days after the determination of Price1 and
Price2, then the determination of the Price shall be submitted to nonbinding
mediation and arbitration in accordance with this Agreement. Notwithstanding
anything to the contrary in this Agreement, under no circumstances shall the
Price exceed the higher of Price1 and Price2 or be less than the lower of
Price1 and Price2.
<TABLE>
<S> <C>
(1.1 * SEC PV(10)) - Indebtedness + Consolidated Net Working Capital
"Price(1)" = ------------------------------------------------------------------------------
Outstanding Shares
(6.0 * EBITDA) - Indebtedness + Consolidated Net Working Capital
"Price(2)" = ------------------------------------------------------------------------------
Outstanding Shares
</TABLE>
"Redeemable Capital Stock" means any Capital Stock of the Company or
any of its Subsidiaries that, either by its terms, by the terms of any security
into which it is convertible or exchangeable or otherwise, (i) is, or upon the
happening of an event or passage of time would be, required to be redeemed, or
(ii) is, or upon the happening of an event or passage of time would be,
redeemable at the option of the holder thereof, or (iii) is, or upon the
happening of an event or passage of time would be, convertible into or
exchangeable for debt securities.
"SEC PV(10)" means the pre tax future net cash flows from proved oil
and gas reserves of the Company and its Subsidiaries at June 30, 1998, computed
using a discount factor of ten percent, as determined in accordance with the
rules, regulations and guidelines of the United States Securities and Exchange
Commission and reported in the reserve report dated as of such date prepared in
accordance with Section 6.11 of the JEDI Purchase Agreement.
"Securities Purchase Agreement" means the Securities Purchase
Agreement dated March 27, 1997 between the Company and Forseti.
5
<PAGE> 75
"Statutory Declaration" means a statutory declaration by Forseti that
as of the Election Date and the Payment Date (i) the individual who, as of the
date hereof, owned all the Forseti Interests owns all of the Forseti Interests,
(ii) there are no encumbrances, pledges or other liens on any equity interests
in Forseti, and (iii) no other event under Section 8(h) has occurred.
"Subsidiary" of a Person means any corporation, limited liability
company, limited or general partnership, joint venture, association,
joint-stock company or business trust of which at the time of determination
such Person, directly and/or indirectly through one or more other Persons, owns
more than 50% of the voting interests.
"Transfer" of any property means any exercise, or any direct or
indirect sale, transfer, encumbrance, gift, donation, assignment, grant of any
interest, pledge, hypothecation or other disposition of such property or any
interest therein, whether voluntary or involuntary, including, but not limited
to, any transfer by operation of law, by court order, by judicial process, or
by foreclosure, levy, or attachment.
"Value" is defined in Section 2(f).
"Warrant Transfer Amount" is defined in Section 2(e).
"Warrants" means, collectively, the Class A Warrants and the Class B
Warrants.
2.0 FORSETI ELECTION; PAYMENT OF EARN UP AMOUNT
(a) On or before the Election Date, Forseti shall deliver notice
to the Company of its election to either (i) accept the payment of the
Earn Up Amount in accordance with the terms and conditions of this
Agreement (in which event the Warrants that have not been Transferred
by Forseti shall be delivered to the Company pursuant to Section
2(b)); or (ii) retain the Warrants that have not been Transferred by
Forseti (in which event the Company shall have no obligation to pay
Forseti the Earn Up Amount and the Company's obligations under this
Agreement shall terminate immediately). If Forseti fails to deliver
notice to the Company on or before the Election Date specifying the
election in (i) or (ii), then Forseti shall be deemed to have elected
(i) above.
(b) In the event that Forseti elects, or is deemed to elect, (i)
above, then on or before the Payment Date, subject to the limitations
in Section 3 and only against delivery by Forseti to the Company of
(x) the Warrants and (y) the Statutory Declaration, the Company shall
pay Forseti an amount (the "Earn Up Amount") equal to the amount, if
any, by which (i) the sum of the Class A Amount and the Class B Amount
exceeds (ii) the Warrant Transfer Amount; provided, that in no event
shall the Earn Up Amount exceed $9,400,000.
6
<PAGE> 76
(c) The "Class A Amount" means a dollar amount equal to the
product of (i) the Value (not to exceed $1.50) less $1.25, multiplied
by (ii) 9,600,000; provided, that in no event shall the Class A Amount
be greater than $2,400,000; and if the Class A Amount is zero or a
negative number, the Class A Amount shall be deemed to be zero.
(d) The "Class B Amount" means a dollar amount equal to the
product of (i) the Value (not to exceed $1.25) less $0.521, multiplied
by (ii) 9,600,000; provided, that in no event shall the Class B Amount
be greater than $7,000,000; and if the Class B Amount is zero or a
negative number, the Class B Amount shall be deemed to be zero.
(e) The "Warrant Transfer Amount" means a dollar amount equal to
the greatest of (i) the product of (x) $3.50 multiplied by (y) the
aggregate number of Class A Warrants and Class B Warrants Transferred
by Forseti before the Payment Date; (ii) the aggregate gross proceeds
that Forseti has received or is entitled to receive from the Transfer
of all of the Class A Warrants and Class B Warrants Transferred by
Forseti before the Payment Date; and (iii) the difference between the
average daily bid price of the Company's shares of Common Stock for
the 21-day period ending on the Election Date less the Exercise Price,
multiplied by the number of Class A Warrants and the Class B Warrants
Transferred by Forseti before the Payment Date.
(f) The "Value" means the product of the Price, multiplied by
0.60; provided, that if (i) the Common Stock is quoted on The Nasdaq
National Market at the Election Date and (ii) the average daily
trading volume of the Company's shares of Common Stock for the 21-day
period ending on the Election Date is at least 50,000 shares per day
(excluding trading of shares in any accounts controlled by the Company
or Forseti or their respective Affiliates, and provided, that if on
any of the 21 days the trading volume is greater than 300,000 shares,
then only 300,000 shares on such days may be used in calculating the
average), then Value means the product of the Price, multiplied by
0.75.
(g) The Company represents and warrants to Forseti that the
definitions of the terms "Price" and "Value" in the JEDI Earn Up
Agreement are identical to the definitions of such terms in this
Agreement.
3.0 LIMITATION ON PAYMENT
The Company shall be obligated to pay Forseti under this Agreement
only to the extent that the Company has received a like amount as payment from
JEDI under the JEDI Earn Up Agreement. If JEDI shall fail to make payments due
under the JEDI Earn Up Agreement on the Election Date, then Company shall have
no obligation to pay Forseti under this Agreement until such time that JEDI
makes
7
<PAGE> 77
payment to the Company under the JEDI Earn Up Agreement, and then only to the
extent of payments made by JEDI under the JEDI Earn Up Agreement.
4.0 SHARING OF EXCESS PROCEEDS
If the sum of (i) $5,000,000 and (ii) the aggregate amount received by
Forseti from the Transfer of Warrants, exceeds the sum of (x) $14,400,000 plus
(y) a dollar amount equal to the sum of the expenses of the Company paid by
Forseti pursuant to the Securities Purchase Agreement, the reasonable
out-of-pocket expenses up to a maximum of $50,000 incurred by Forseti in
connection with the Securities Purchase Agreement, and the escrow agent fees
incurred by Forseti under the Escrow Agreement among the Company, Forseti and
____________________ the sum of subclauses (x) and (y) being referred to as
"Net Proceeds," then within 10 days of the date (the "Excess Determination
Date") the aggregate amount received by Forseti exceeds the Net Proceeds, (x)
Forseti shall deliver to the Company an amount in cash or by wire transfer of
immediately available funds equal to 75% of such amount received by Forseti in
excess of the Net Proceeds, and (y) Forseti shall spend the remaining 25% of
such excess amount to purchase from the Company, subject to applicable
securities laws, Common Stock at a price equal to the average of the Nasdaq bid
price over 21 trading days ending on the Excess Determination Date.
5.0 OPTION
Subject to this Section 5, the Company hereby grants to Forseti an
option to purchase from the Company a number of shares of Common Stock equal to
the quotient of (x) the amount by which the Earn Up Amount exceeds $7,000,000
and (y) $2.50 (as such number of shares may be adjusted pursuant to this
Section 5, the "Shares"), at a price per share equal to $2.50 (as such price
may be adjusted pursuant to this Section 5). The option granted in this
Section 5 is exerciseable in full or in part (i) only from the date that the
Earn Up Amount is paid by the Company to Forseti through the fifth business day
after the date of payment of the Earn Up Amount and (ii) by written notice to
the Company of such exercise, which notice shall be accompanied by proper
payment in cash or certified or bank check. The option in this Section 5.0 is
not transferable. The number of Shares for which the option in this Section 5
may be exercised, and the price at which such option may be exercised, are
subject to appropriate adjustment in the event that the Company (i) pays a
dividend of shares of Common Stock or makes a distribution in shares of Common
Stock), (ii) subdivides its outstanding shares of Common Stock into a larger
number of shares of Common Stock, (iii) combines its outstanding shares of
Common Stock into a smaller number of shares of Common Stock or (iv) issues any
shares of its capital stock or other assets in a reclassification or
reorganization of the Common Stock (including any such reclassification in
connection with a consolidation or merger in which the Company is the
continuing entity). THE OPTION IN THIS SECTION 5 AND THE SHARES OF COMMON
STOCK ISSUABLE UPON EXERCISE OF THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR ANY OTHER
8
<PAGE> 78
UNITED STATES FEDERAL OR STATE SECURITIES OR BLUE SKY LAWS OR APPLICABLE
NON-UNITED STATES SECURITIES LAWS.
6.0 MEDIATION.
Any controversy, dispute or claim arising out of or relating to this
Agreement (a "Dispute") shall be submitted to non-binding mediation upon the
request of the Company or Forseti on the following terms. Upon the request of
either party, a neutral mediator acceptable to both parties (the "Mediator")
shall be appointed within 15 days. The Mediator shall attempt through
negotiations in any manner deemed reasonably appropriate by the Mediator, in
which the parties shall participate, to resolve the Dispute. The Mediator
shall be compensated at a rate agreeable to the Company, Forseti and the
Mediator, and each of the Company and Forseti shall pay its pro rata share of
such compensation and other expenses of the mediation.
7.0 ARBITRATION.
In the event that mediation of a Dispute has not commenced within 15
days after a request for mediation is submitted or is terminated without
resolution under Section 6.0, any controversy or claim arising out of or
relating to this Agreement, including the right to or amount of indemnity,
shall be settled by arbitration in accordance with the Commercial Arbitration
Rules of the AAA by three (3) arbitrators. Each of Forseti and the Company
shall appoint one arbitrator, who shall be an impartial person. If a party
fails to appoint an arbitrator within thirty (30) days from the date a Demand
to Arbitrate was made under Rule 6, the AAA shall make the appointment of the
arbitrator. The two (2) arbitrators thus appointed shall appoint the third
arbitrator, who shall be an impartial person. If said two (2) arbitrators fail
to appoint the third arbitrator within sixty (60) days from the date a Demand
to Arbitrate was made under Rule 6, the AAA shall make the appointment of the
third arbitrator, who shall be an impartial person. Should any of the
arbitrators appointed die, resign, refuse or become unable to act before a
decision is given, the vacancy shall be filled by the method set forth in this
clause for the original appointment. The arbitration shall be held in Dallas,
Texas and shall be conducted in the English language. A decision by the
arbitrators shall be final and binding on all the parties. The arbitrators
shall execute and deliver to the respective parties the arbitration panel's
decision in writing. Judgment upon the award, if any, rendered by the
arbitrators (which must be expressed in United States Dollars) may be entered
in any court having jurisdiction thereof. In any award, the arbitrators shall
assess the arbitration costs and expenses, including, without limitation,
attorneys fees of the parties, in a manner deemed equitable by the arbitrators,
taking into account the arbitration decision. Notwithstanding anything to the
contrary in this Agreement, if a Dispute involves the determination of Price,
the Price, as determined by arbitration under this Section 7, shall not (i) (a)
exceed the higher or Price1 and Price2, or (b) be lower than the lower of
Price1 and Price2, (ii) exceed the Price as determined under the JEDI Earn Up
Agreement, including a Price as determined by arbitration under the provisions
of the JEDI Earn Up Agreement, or
9
<PAGE> 79
(iii) exceed the amount received by the Company from JEDI pursuant to the JEDI
Earn Up Agreement.
8.0 MISCELLANEOUS
(a) Governing Law; Choice of Forum; Consent to Service of Process.
This Agreement shall be governed by the substantive laws of the State
of Texas. Except as provided in Sections 6 and 7, the parties hereto
agree that any suit, action or proceeding arising out of or relating
to this Agreement or any agreement or obligation delivered in
connection with this Agreement or any judgment entered by any court in
respect thereof shall be brought in the Courts of the State of Texas,
County of Dallas or in the United States District Court for the
Northern District of Texas and each such party hereby submits to the
exclusive jurisdiction of such courts for the purpose of any such
suit, action or proceeding relating to this Agreement or any related
agreement or obligation. Forseti hereby submits to the jurisdiction
of the State of Texas and agrees that service of all writs, process
and summonses in any such suit, action or proceeding brought in the
United States against Forseti may be made upon CT Corporation System
at its offices located at 350 North St. Paul Street, Dallas, Texas
75201 (or any subsequent address of CT Corporation System), and
Forseti hereby irrevocably appoints CT Corporation System at its
offices located at 350 North St. Paul Street, Dallas, Texas 75201 (or
any subsequent address of CT Corporation System) its true and lawful
attorney-in-fact in their name, place and stead to accept such service
of any and all such writs, process and summonses, and agree that the
failure of CT Corporation System to give to Forseti any notice of any
such service of process shall not impair or affect the validity of
such service or of any judgment based thereon. The Company shall
send, within 5 days after service of process under this subsection
(a), notice to Forseti in accordance with subsection (e) of any
service of process on CT Corporation System under this subsection (a).
Service of process on the Company may be made to the Company's
registered agent in Delaware, Corporation Trust Centre, 1209 Orange
Street, in the City of Wilmington, County of New Castle.
Each party hereto hereby irrevocably waives any objection that
it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement or
any agreement or obligation delivered in connection with this
Agreement, brought in the Courts of the State of Texas, County of
Dallas or the United States District Court for the Northern District
of Texas, and hereby further irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been
brought in an inconvenient forum.
(b) Invalid Provisions. If any provision of this Agreement is
held to be illegal, invalid or unenforceable, such provision shall be
fully severable.
10
<PAGE> 80
(c) Entirety and Amendments. This Agreement and that certain
Letter Agreement dated as of the date hereof between the Company and
the individual who owns directly or indirectly all of the Forseti
Interests embody the entire agreement and understanding relating to
the subject matter hereof and supersede all prior understandings
between the parties relating to the subject matter hereof. This
Agreement may be amended only by an instrument in writing executed by
the Company and Forseti.
(d) Parties Bound. This Agreement shall be binding upon and inure
to the benefit of the Company and Forseti, and their respective
successors and permitted assigns. Neither the Company nor Forseti may
assign its rights or delegate its obligations hereunder (whether
voluntarily, involuntarily, or by operation of law) without the prior
written consent of the other party.
(e) Notices. Unless otherwise specified, whenever this Agreement
requires or permits any consent, approval, notice, request, or demand
from one party to another, that communication must be in writing
(which may be by telecopy) to be effective and is deemed to have been
given (a) if by telecopy, when transmitted to the appropriate telecopy
number (and all communications sent by telecopy must be confirmed
promptly by telephone; but any requirement in this parenthetical does
not affect the date when the telecopy is deemed to have been
delivered), or (b) if by any other means, including by internationally
acceptable courier or hand delivery, when actually delivered. Until
changed by notice pursuant to this Agreement, the address (and
telecopy number) for the Company and Forseti are:
If to Forseti: Forseti Investments Ltd.
5-206 Dowell House
Bridgetown, Barbados
West Indies
Attn: Dennis Chandler
Facsimile: (246) 427-5667
With copies to: Faust Fresenius Heyne Scherzberg,
attorneys
Paul-Ehrlich-Strasse 37-39
60596 Frankfurt-Am-Main
Attn: Christoph Heyne
Facsimile: (49) 6963009090
If to Company: Queen Sand Resources, Inc.
3500 Oak Lawn, Suite 380, L.B.#31
Dallas, Texas 75219-4398
Attn: Robert P. Lindsay
Facsimile: (214) 521-9960
11
<PAGE> 81
With copies to: Queen Sand Resources, Inc.
60 Queen Street, Suite 1400
Ottawa, Canada K1P 5Y7
Attn: Edward J. Munden
Facsimile: (613) 230-6055
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
Attn: William L. Boeing
Facsimile: (214) 651-5940
(f) Section and Other Headings. The headings contained in this
Agreement are for reference purposes only and will not affect in any
way the meaning or interpretation of this Agreement.
(g) Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original and all of
which together will constitute one instrument.
(h) Termination. This Agreement shall terminate upon the earlier
of (i) the Transfer of any Warrants in violation of the restrictions
on Transfer of Warrants under the Securities Purchase Agreement, (ii)
the election by Forseti to retain the Warrants under Section 2(a)(ii),
(iii) the Transfer of all of the Warrants, (iv) upon the Transfer of
any ownership interest in Forseti or any entity controlling Forseti
where the purpose of the transfer is to realize or receive cash,
securities or any other property as consideration for the Warrants
without transferring the Warrants; and (v) as of the Election Date or
the Payment Date, the individual who, as of the date hereof owned,
directly or indirectly, all of the Forseti Interests does not own,
directly or indirectly, all of the Forseti Interests. No termination
of this Agreement shall affect the validity of the Warrants.
(i) Currency. All dollar amounts in this Agreement shall mean
United States dollars.
12
<PAGE> 82
IN WITNESS WHEREOF, Forseti and the Company have executed this
Agreement as of the day and year first stated above.
FORSETI:
FORSETI INVESTMENTS LTD.
By:
----------------------------------
Name:
-------------------------------
Title:
------------------------------
[with notary attached]
COMPANY:
QUEEN SAND RESOURCES, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
[with notary attached]
and
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
[with notary attached]
13
<PAGE> 83
EXHIBIT A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE THEREOF (THE "SECURITIES") HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
OTHER UNITED STATES FEDERAL OR STATE SECURITIES OR BLUE SKY LAWS OR APPLICABLE
NON-UNITED STATES SECURITIES LAWS, AND HAVE BEEN ISSUED IN A MANNER INTENDED TO
COMPLY WITH THE CONDITIONS CONTAINED IN REGULATION S UNDER THE ACT. PRIOR TO
_______________, 1998, NO OFFER, SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION
(COLLECTIVELY, A "DISPOSAL") OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE
MAY BE MADE (A) IN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF,
ANY "U.S. PERSON" (AS DEFINED IN REGULATION S) UNLESS (i) REGISTERED UNDER THE
ACT AND ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR (ii) QUEEN SAND
RESOURCES, INC. (THE "COMPANY") RECEIVES A WRITTEN OPINION OF UNITED STATES
LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO IT TO THE EFFECT THAT SUCH
DISPOSAL IS EXEMPT FROM SUCH REGISTRATION REQUIREMENTS OR (B) OUTSIDE THE
UNITED STATES TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY PERSON WHO IS NOT A
"U.S. PERSON" UNLESS PRIOR TO SUCH DISPOSAL (i) THE BENEFICIAL OWNER OF SUCH
SECURITIES AND THE PROPOSED TRANSFEREE SUBMIT CERTAIN CERTIFICATIONS TO THE
COMPANY (FORMS OF WHICH ARE AVAILABLE FROM THE COMPANY AT ITS PRINCIPAL
EXECUTIVE OFFICES) AND (ii) THE COMPANY RECEIVES THE LEGAL OPINION DESCRIBED IN
(A)(ii) ABOVE. THE SECURITIES ARE ALSO SUBJECT TO CERTAIN RESTRICTIONS UPON
TRANSFER AS SET FORTH IN THIS WARRANT AND THE SECURITIES PURCHASE AGREEMENT
DATED AS OF _______________, 1997, A COPY OF WHICH IS AVAILABLE FOR INSPECTION
AT ITS PRINCIPAL PLACE OF BUSINESS.
- --------------------------------------------------------------------------------
QUEEN SAND RESOURCES, INC.
Class A Common Stock Purchase Warrant
Representing Right To Purchase Shares of
Common Stock
of
Queen Sand Resources, Inc.
------------
No. A-1
------------
FOR VALUE RECEIVED, QUEEN SAND RESOURCES, INC., a Delaware corporation
(the "Company"), hereby certifies that Forseti Investments Ltd., a Barbados
corporation (the "Holder"), is entitled, subject to the provisions of this
Warrant, to purchase from the
<PAGE> 84
Company, at any time or from time to time during the Exercise Period (as
hereinafter defined), a total of 1,000,000 shares (as such number of shares may
be adjusted pursuant to the terms hereof, the "Warrant Shares") of Common
Stock, par value $.0015 per share, of the Company, at a price per share equal
to the Exercise Price (as defined below). This Warrant is issued to the Holder
(together with such other warrants as may be issued in exchange, transfer or
replacement of this Warrant, the "Warrants") pursuant to the Securities
Purchase Agreement (as defined below) and entitles the Holder to purchase the
Warrant Shares and to exercise the other rights, powers and privileges
hereinafter provided, all on the terms and conditions and pursuant to the
provisions set forth herein and in the Securities Purchase Agreement.
Section 1. Definitions. The following terms, as used
herein, have the following respective meanings:
"Common Stock" means the Company's common stock, $0.0015 par value.
"Company" is defined in the introductory paragraph of this Warrant.
"Date of Issuance" means __________ _____, 1997.
"Earn Up Agreement" means the Earn Up Agreement, dated as of the date
hereof, between the Company and the Holder.
"Exercise Period" means the period of time between the Date of
Issuance and 5:00 p.m. (New York City time) on December 31, 1998, provided,
however, that any Warrants held by Forseti Investments Ltd. on the Election
Date (as defined in the Earn Up Agreement) shall expire on the Election Date
unless Forseti Investments Ltd. elects to retain the Warrants pursuant to
Section 2(a)(ii) of the Earn Up Agreement.
"Exercise Price" means an amount, per share, equal to $2.50 (U.S.
dollars). The Exercise Price shall be subject to adjustment, as set forth in
Section 4.
"Holder" means Forseti Investments Ltd. and its permitted assignees.
"Person" means any individual, corporation, limited or general
partnership, joint venture, association, joint- stock company, trust, limited
liability company, unincorporated organization or government or any agency or
political subdivision thereof.
"Required Holders" means the Holders of more than 50% of all Warrant
Shares then outstanding (assuming the full exercise of all Warrants).
"Securities Purchase Agreement" means the Securities Purchase
Agreement, dated as of March ___, 1997, between the Company and Forseti, as
such agreement shall be modified, amended and supplemented and in effect from
time to time.
"Value" means, as of any date of determination, with respect to the
Common Stock, $3.50 per share of Common Stock.
"Warrants" is defined in the introductory paragraph of this Warrant.
"Warrant Shares" is defined in the introductory paragraph of this
Warrant.
- 2 -
<PAGE> 85
Section 2. Exercise of Warrant; Cancellations of
Warrant. Subject to the Securities Purchase Agreement and the provisions of
Regulation S promulgated under the Securities Act of 1933, as amended, this
Warrant may be exercised in whole or in part, at any time or from time to time,
during the Exercise Period, by presentation and surrender hereof to the Company
at its principal office at the address set forth in Section 11 (or at such
other reasonable address as the Company may after the date hereof notify the
Holder in writing, coming into effect not before 14 days after receipt of such
notice by the Holder), with the Purchase Form annexed hereto as Exhibit A duly
executed and accompanied by either (at the option of the Holder) proper payment
in cash or certified or bank check equal to the Exercise Price for the Warrant
Shares for which this Warrant is being exercised; provided, that if this
Warrant is exercised in part, the Warrant must be exercised for the purchase of
at least 100,000 shares of Common Stock. Upon exercise of this Warrant as
aforesaid, the Company shall as promptly as practicable, and in any event
within 20 days thereafter, execute and deliver to the Holder a certificate or
certificates for the total number of Warrant Shares for which this Warrant is
being exercised, in such names and denominations as requested in writing by the
Holder. The Company shall pay any and all documentary stamp or similar issue
taxes payable in respect of the issue of the Warrant Shares. If this Warrant
is exercised in part only, the Company shall, upon surrender of this Warrant,
execute and deliver a new Warrant evidencing the rights of the Holder thereof
to purchase the balance of the Warrant Shares issuable hereunder.
Section 3. Exchange, Transfer, Assignment or Loss of
Warrant. This Warrant is exchangeable, without expense, at the option of the
Holder, upon presentation and surrender hereof to the Company for other
Warrants of different denominations, entitling the Holder to purchase in the
aggregate the same number of Warrant Shares. The Holder of this Warrant shall
be entitled, without obtaining the consent of the Company, to transfer or
assign its interest in (and rights under) this Warrant in whole or in part to
any Person or Persons, subject to the provisions of Section 7 of this Warrant
and Article 8 of the Securities Purchase Agreement. Upon surrender of this
Warrant to the Company, with the Assignment Form annexed hereto as Exhibit B
duly executed and funds sufficient to pay any transfer tax, the Company shall,
without charge, execute and deliver a new Warrant or Warrants in the name of
the assignee or assignees named in such Assignment Form and, if the Holder's
entire interest is not being assigned, in the name of the Holder, and this
Warrant shall promptly be canceled. This Warrant may be divided or combined
with other Warrants that carry the same rights upon presentation hereof at the
office of the Company, together with a written notice specifying the names and
denominations in which new Warrants are to be issued and signed by the Holder
hereof. Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification
(including, if required in the reasonable judgment of the Company, a statement
of net worth of such Holder that is at a level reasonably satisfactory to the
Company), and upon surrender and cancellation of this Warrant, if mutilated,
the Company shall execute and deliver a new Warrant of like tenor and date.
Section 4. Antidilution Provisions.
(a) Adjustment of Number of Warrant Shares and Exercise Price.
The number of Warrant Shares purchasable pursuant hereto and the Exercise
Price, each shall be subject to adjustment from time to time on and after the
Date of Issuance as provided in this Section 4(a). In case the Company shall
at any time after the Date of Issuance (i) pay a dividend of shares of Common
Stock or make a distribution of shares of Common Stock, (ii) subdivide its
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<PAGE> 86
outstanding shares of Common Stock into a larger number of shares of Common
Stock, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (iv) issue any shares of its capital stock
or other assets in a reclassification or reorganization of the Common Stock
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing entity), then (x) the securities
purchasable pursuant hereto shall be adjusted to the number of Warrant Shares
and amount of any other securities, cash or other property of the Company which
the Holder would have owned or have been entitled to receive after the
happening of any of the events described above, had this Warrant been exercised
immediately prior to the happening of such event or any record date with
respect thereto, and (y) the Exercise Price shall be adjusted to equal the
Exercise Price immediately prior to the adjustment multiplied by a fraction,
(A) the numerator of which is the number of Warrant Shares for which this
Warrant is exercisable immediately prior to the adjustment, and (B) the
denominator of which is the number of shares for which this Warrant is
exercisable immediately after such adjustment. The adjustments made pursuant
to this Section 4(a) shall become effective immediately after the effective
date of the event creating such right of adjustment, retroactive to the record
date, if any, for such event. Any Warrant Shares purchasable as a result of
such adjustment shall not be issued prior to the effective date of such event.
For the purpose of this Section 4(a) and (b), the term "shares of
Common Stock" means (i) the classes of stock designated as the Common Stock of
the Company as of the date hereof, or (ii) any other class of stock resulting
from successive changes or reclassifications of such shares consisting solely
of changes in par value, or from par value to no par value, or from no par
value to par value. In the event that at any time, as a result of an
adjustment made pursuant to this Section 4(a), the Holder shall become entitled
to receive any securities of the Company other than shares of Common Stock,
thereafter the number of such other securities so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with respect to
the Warrant Shares contained in this Section 4.
(b) Reorganization, Merger, etc. If any capital
reorganization, reclassification or similar transaction involving the capital
stock of the Company (other than as specified in Section 4(a)), any
consolidation, merger or business combination of the Company with another
corporation or the sale or conveyance of all or any substantial part of its
assets to another corporation, shall be effected in such a way that holders of
the shares of Common Stock shall be entitled to receive stock, securities or
assets (including, without limitation, cash) with respect to or in exchange for
shares of the Common Stock, then, prior to and as a condition of such
reorganization, reclassification, similar transaction, consolidation, merger,
business combination, sale or conveyance, lawful and adequate provision shall
be made whereby the Holder shall thereafter have the right to purchase and
receive upon the basis and upon the terms and conditions specified in this
Warrant and in lieu of the Warrant Shares immediately theretofore purchasable
and receivable upon the exercise of this Warrant, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding Warrant Shares equal to the number of Warrant
Shares immediately theretofore purchasable and receivable upon the exercise of
this Warrant had such reorganization, reclassification, similar transaction,
consolidation, merger, business combination, sale or conveyance not taken
place. The Company shall not effect any such consolidation, merger, business
combination, sale or conveyance unless prior to or simultaneously with the
consummation thereof the survivor or successor corporation (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument executed and sent to
the Holder, the
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<PAGE> 87
obligation to deliver to the Holder such shares of stock, securities or assets
as, in accordance with the foregoing provisions, the Holder may be entitled to
receive.
(c) Statement on Warrant Certificates. Irrespective of
any adjustments in the Exercise Price or the number or kind of Warrant Shares,
this Warrant may continue to express the same price and number and kind of
shares as are stated on the front page hereof.
(d) Exception to Adjustment. Anything herein to the
contrary notwithstanding, the Company shall not be required to make any
adjustment of the number of Warrant Shares issuable hereunder or to the
Exercise Price in the case of the issuance of the Warrants or the issuance of
shares of the Common Stock (or other securities) upon exercise of the Warrants.
(e) Treasury Shares. The number of shares of the Common
Stock outstanding at any time shall not include treasury shares or shares owned
or held by or for the account of the Company or any of its subsidiaries, and
the disposition of any such shares shall be considered an issue or sale of the
Common Stock for the purposes of this Section 4.
(f) Adjustment Notices to Holder. Upon any increase or
decrease in the number of Warrant Shares purchasable upon the exercise of this
Warrant or the Exercise Price the Company shall, within 30 days thereafter,
deliver written notice thereof to all Holders, which notice shall state the
increased or decreased number of Warrant Shares purchasable upon the exercise
of this Warrant and the adjusted Exercise Price, setting forth in reasonable
detail the method of calculation and the facts upon which such calculations are
based.
Section 5. Notification by the Company. In case at any
time while this Warrant remains outstanding:
(a) the Company shall declare any dividend or make any
distribution upon its Common Stock or any other class of its capital stock; or
(b) the Company shall offer for subscription pro rata to
the holders of its Common Stock or any other class of its capital stock any
additional shares of stock of any class or any other securities convertible
into or exchangeable for shares of stock or any rights or options to subscribe
thereto; or
(c) the Board of Directors of the Company shall authorize
any capital reorganization, reclassification or similar transaction involving
the capital stock of the Company, or a sale or conveyance of all or a
substantial part of the assets of the Company, or a consolidation, merger or
business combination of the Company with another Person; or
(d) actions or proceedings shall be authorized or
commenced for a voluntary or involuntary dissolution, liquidation or winding-up
of the Company;
then, in any one or more of such cases, the Company shall give written notice
to the Holder, at the earliest time legally practicable (and not less than 20
days before any record date or other date set for definitive action) of the
date on which (i) the books of the Company shall close or a record shall be
taken for such dividend, distribution or subscription rights or options or (ii)
such reorganization, reclassification, sale, conveyance, consolidation, merger,
dissolution, liquidation or winding-up shall take place or be voted on by
shareholders of the Company, as the case may be. Such notice shall also
specify the date as of which the holders of the Common Stock of record shall
participate in said dividend, distribution, subscription
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<PAGE> 88
rights or options or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, sale, conveyance, consolidation, merger, dissolution,
liquidation or winding-up, as the case may be. If the action in question or
the record date is subject to the effectiveness of a registration statement
under the Securities Act or to a favorable vote of shareholders, the notice
required by this Section 5 shall so state.
Section 6. No Voting Rights: Limitations of Liability.
Prior to exercise, this Warrant will not entitle the Holder to any voting
rights or other rights as a stockholder of the Company. No provision hereof,
in the absence of affirmative action by the Holder to exercise this Warrant,
and no enumeration herein of the rights or privileges of the Holder, shall give
rise to any liability of the Holder for the purchase price of the Warrant
Shares pursuant to the exercise hereof.
Section 7. Restrictions on Transfer. The Warrants and
the Warrant Shares shall not be transferable except upon the conditions in this
Warrant and specified in the Securities Purchase Agreement. The Warrants may
not be transferred, sold or otherwise disposed of except in blocks of Warrants
for the purchase of at least 100,000 shares of Common Stock; provided, that if
at the time of such transfer, sale or other disposition, the Warrants owned by
the Holder are for the purchase of less than 100,000 shares of Common Stock,
the Holder may sell, transfer or otherwise dispose of all, but not less than
all, of the Warrants. This Warrant bears and the certificates for Warrant
Shares will bear a legend as specified in the Securities Purchase Agreement.
The Holder by its acceptance of this Warrant agrees to comply with and to be
bound by all of the provisions of the Securities Purchase Agreement.
Section 8. Amendment and Waiver.
(a) No failure or delay of the Holder in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The
rights and remedies of the Holder are cumulative and not exclusive of any
rights or remedies which it would otherwise have. The provisions of this
Warrant may be amended, modified or waived with (and only with) the written
consent of the Company and the Required Holders.
(b) No notice or demand on the Company in any case shall
entitle the Company to any other or further notice or demand in similar or
other circumstances.
Section 9. No Fractional Warrant Shares. The Company
shall not be required to issue stock certificates representing fractions of
Warrant Shares, but shall in respect of any fraction of a Warrant Share make a
payment in cash based on the Value of the Common Stock after giving effect to
the full exercise or conversion of the Warrants.
Section 10. Reservation of Warrant Shares. The Company
shall authorize, reserve and keep available at all times, free from preemptive
rights, a sufficient number of Warrant Shares to satisfy the requirements of
this Warrant.
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<PAGE> 89
Section 11. Notices. Unless otherwise specified, whenever
this Warrant requires or permits any consent, approval, notice, request, or
demand from one party to another, that communication must be in writing (which
may be by telecopy) to be effective and is deemed to have been given (a) if by
telecopy, when transmitted to the appropriate telecopy number (and all
communications sent by telecopy must be confirmed promptly by telephone; but
any requirement in this parenthetical does not affect the date when the
telecopy is deemed to have been delivered), or (b) if by any other means,
including by internationally acceptable courier or hand delivery, when actually
delivered. Until changed by notice pursuant to this Warrant, the address (and
telecopy number) for the Holder and the Company are:
If to Holder: Forseti Investments Ltd.
5-206 Dowell House
Bridgetown, Barados
West Indies
Attn: Dennis Chandler
Facsimile: (246) 427-5667
With copies to: Faust Fresenius Heyne Scherzberg,
attorneys
Paul-Ehrlich-Strasse 37-39
60596 Frankfurt-Am-Main
Attn: Christoph Heyne
Facsimile: (49) 6963009090
If to Company: Queen Sand Resources, Inc.
3500 Oak Lawn, Suite 380, L.B.#31
Dallas, Texas 75219-4398
Attn: Robert P. Lindsay
Facsimile: (214) 521-9960
With copies to: Queen Sand Resources, Inc.
60 Queen Street, Suite 1400
Ottawa, Canada K1P 5Y7
Attn: Edward J. Munden
Facsimile: (613) 230-6055
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
Attn: William L. Boeing, Esq.
Facsimile: (214) 651-5940
Section 12. Section and Other Headings. The headings
contained in this Warrant are for reference purposes only and will not affect
in any way the meaning or interpretation of this Warrant.
Section 13. Governing Law; Choice of Forum; Consent to
Service of Process. THIS WARRANT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE. The parties hereto agree
that any suit, action or proceeding arising out of or relating to this Warrant
or any agreement or obligation delivered in connection with this Warrant or any
judgment entered by any court in respect thereof shall be brought in the Courts
of the State of Texas, County of Dallas or in the United
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<PAGE> 90
States District Court for the Northern District of Texas and each such party
hereby submits to the exclusive jurisdiction of such courts for the purpose of
any such suit, action or proceeding relating to this Warrant or any related
agreement or obligation. The Holder hereby submits to the jurisdiction of the
State of Texas and agrees that service of all writs, process and summonses in
any such suit, action or proceeding brought in the United States against the
Holder may be made upon CT Corporation System at its offices located at 350
North St. Paul Street, Dallas, Texas 75201 (or any subsequent address of CT
Corporation System), and the Holder hereby irrevocably appoints CT Corporation
System at its offices located at 350 North St. Paul Street, Dallas, Texas
75201 (or any subsequent address of CT Corporation System) its true and lawful
attorney-in-fact in their name, place and stead to accept such service of any
and all such writs, process and summonses, and agree that the failure of CT
Corporation System to give to the Holder any notice of any such service of
process shall not impair or affect the validity of such service or of any
judgment based thereon. The Company shall send, within 5 days after any
service of process under this Section 13, notice to the Holder in accordance
with Section 11 of any service of process on CT Corporation System under this
Section 13. Service of process on the Company may be made to the Company's
registered agent in Delaware, Corporation Trust Centre, 1209 Orange Street, in
the City of Wilmington, County of New Castle.
Each party hereto hereby irrevocably waives any objection that it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Warrant or any agreement or obligation
delivered in connection with this Warrant, brought in the Courts of the State
of Texas, County of Dallas or the United States District Court for the Northern
District of Texas, and hereby further irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in
an inconvenient forum.
Section 14. Binding Effect. The terms and provisions of
this Warrant shall inure to the benefit of the Holder and its successors and
assigns and shall be binding upon the Company and its successors and assigns,
including, without limitation, any Person succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets.
* * * * *
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<PAGE> 91
IN WITNESS WHEREOF, the seal of the Company and the signature of its
duly authorized officer have been affixed hereto as of __________ _____, 1997.
[SEAL] QUEEN SAND RESOURCES, INC.
Attest: By:
-------------------------- ---------------------------------
Name:
-------------------------------
Title:
------------------------------
and
Attest: By:
-------------------------- ---------------------------------
Name:
-------------------------------
Title:
------------------------------
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<PAGE> 92
EXHIBIT A
TO
WARRANT
PURCHASE FORM
To Be Executed by the Holder
Desiring to Exercise a Warrant of
Queen Sand Resources, Inc.
The undersigned holder hereby exercises the right to purchase ______
shares of Common Stock covered by the within Warrant, according to the
conditions thereof, and herewith makes payment in full of the Exercise Price of
such shares, in the amount of $____________.
Name of Holder:
--------------------------------------
Signature:
----------------------------
Title:
--------------------------------
Address:
------------------------------
--------------------------------------
--------------------------------------
Dated: , .
--------------------- -------
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<PAGE> 93
EXHIBIT B
TO
WARRANT
ASSIGNMENT FORM
To Be Executed by the Holder
Desiring to Transfer a Warrant of
Queen Sand Resources, Inc.
FOR VALUE RECEIVED, the undersigned holder hereby sells, assigns and
transfers unto __________________________ the right to purchase ____________
shares of Common Stock covered by the within Warrant, and does hereby
irrevocably constitute and appoint _________________ Attorney to transfer the
said Warrant on the books of the Company (as defined in such Warrant), with
full power of substitution.
Name of Holder:
--------------------------------------
Signature:
----------------------------
Title:
--------------------------------
Address:
------------------------------
--------------------------------------
--------------------------------------
Dated: , .
--------------------- -------
In the presence of
- ---------------------------------
NOTICE:
The signature to the foregoing Assignment Form must correspond to the name as
written upon the face of the within Warrant in every detail, without alteration
or enlargement or any change whatsoever.
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<PAGE> 94
EXHIBIT B
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE THEREOF (THE "SECURITIES") HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
OTHER UNITED STATES FEDERAL OR STATE SECURITIES OR BLUE SKY LAWS OR APPLICABLE
NON-UNITED STATES SECURITIES LAWS, AND HAVE BEEN ISSUED IN A MANNER INTENDED TO
COMPLY WITH THE CONDITIONS CONTAINED IN REGULATION S UNDER THE ACT. PRIOR TO
_______________, 1998, NO OFFER, SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION
(COLLECTIVELY, A "DISPOSAL") OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE
MAY BE MADE (A) IN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF,
ANY "U.S. PERSON" (AS DEFINED IN REGULATION S) UNLESS (i) REGISTERED UNDER THE
ACT AND ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR (ii) QUEEN SAND
RESOURCES, INC. (THE "COMPANY") RECEIVES A WRITTEN OPINION OF UNITED STATES
LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO IT TO THE EFFECT THAT SUCH
DISPOSAL IS EXEMPT FROM SUCH REGISTRATION REQUIREMENTS OR (B) OUTSIDE THE
UNITED STATES TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY PERSON WHO IS NOT A
"U.S. PERSON" UNLESS PRIOR TO SUCH DISPOSAL (i) THE BENEFICIAL OWNER OF SUCH
SECURITIES AND THE PROPOSED TRANSFEREE SUBMIT CERTAIN CERTIFICATIONS TO THE
COMPANY (FORMS OF WHICH ARE AVAILABLE FROM THE COMPANY AT ITS PRINCIPAL
EXECUTIVE OFFICES) AND (ii) THE COMPANY RECEIVES THE LEGAL OPINION DESCRIBED IN
(A)(ii) ABOVE. THE SECURITIES ARE ALSO SUBJECT TO CERTAIN RESTRICTIONS UPON
TRANSFER AS SET FORTH IN THIS WARRANT AND THE SECURITIES PURCHASE AGREEMENT
DATED AS OF _______________, 1997, A COPY OF WHICH IS AVAILABLE FOR INSPECTION
AT ITS PRINCIPAL PLACE OF BUSINESS.
- --------------------------------------------------------------------------------
QUEEN SAND RESOURCES, INC.
Class B Common Stock Purchase Warrant
Representing Right To Purchase Shares of
Common Stock
of
Queen Sand Resources, Inc.
-------------
No. B-1
-------------
FOR VALUE RECEIVED, QUEEN SAND RESOURCES, INC., a Delaware corporation
(the "Company"), hereby certifies that Forseti Investments Ltd., a Barbados
corporation (the "Holder"), is entitled, subject to the provisions of this
Warrant, to purchase from the
<PAGE> 95
Company, at any time or from time to time during the Exercise Period (as
hereinafter defined), a total of 2,000,000 shares (as such number of shares may
be adjusted pursuant to the terms hereof, the "Warrant Shares") of Common
Stock, par value $.0015 per share, of the Company, at a price per share equal
to the Exercise Price (as defined below). This Warrant is issued to the Holder
(together with such other warrants as may be issued in exchange, transfer or
replacement of this Warrant, the "Warrants") pursuant to the Securities
Purchase Agreement (as defined below) and entitles the Holder to purchase the
Warrant Shares and to exercise the other rights, powers and privileges
hereinafter provided, all on the terms and conditions and pursuant to the
provisions set forth herein and in the Securities Purchase Agreement.
Section 1. Definitions. The following terms, as used
herein, have the following respective meanings:
"Common Stock" means the Company's common stock, $0.0015 par value.
"Company" is defined in the introductory paragraph of this Warrant.
"Date of Issuance" means __________ _____, 1997.
"Earn Up Agreement" means the Earn Up Agreement, dated as of the date
hereof, between the Company and the Holder.
"Exercise Period" means the period of time between the Date of
Issuance and 5:00 p.m. (New York City time) on December 31, 1998, provided,
however, that any Warrants held by Forseti Investments Ltd. on the Election
Date (as defined in the Earn Up Agreement) shall expire on the Election Date
unless Forseti Investments Ltd. elects to retain the Warrants pursuant to
Section 2(a)(ii) of the Earn Up Agreement.
"Exercise Price" means an amount, per share, equal to $2.50 (U.S.
dollars). The Exercise Price shall be subject to adjustment, as set forth in
Section 4.
"Holder" means Forseti Investments Ltd. and its permitted assignees.
"Person" means any individual, corporation, limited or general
partnership, joint venture, association, joint- stock company, trust, limited
liability company, unincorporated organization or government or any agency or
political subdivision thereof.
"Required Holders" means the Holders of more than 50% of all Warrant
Shares then outstanding (assuming the full exercise of all Warrants).
"Securities Purchase Agreement" means the Securities Purchase
Agreement, dated as of March ___, 1997, between the Company and Forseti, as
such agreement shall be modified, amended and supplemented and in effect from
time to time.
"Value" means, as of any date of determination, with respect to the
Common Stock, $3.50 per share of Common Stock.
"Warrants" is defined in the introductory paragraph of this Warrant.
"Warrant Shares" is defined in the introductory paragraph of this
Warrant.
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<PAGE> 96
Section 2. Exercise of Warrant; Cancellations of
Warrant. Subject to the Securities Purchase Agreement and the provisions of
Regulation S promulgated under the Securities Act of 1933, as amended, this
Warrant may be exercised in whole or in part, at any time or from time to time,
during the Exercise Period, by presentation and surrender hereof to the Company
at its principal office at the address set forth in Section 11 (or at such
other reasonable address as the Company may after the date hereof notify the
Holder in writing, coming into effect not before 14 days after receipt of such
notice by the Holder), with the Purchase Form annexed hereto as Exhibit A duly
executed and accompanied by either (at the option of the Holder) proper payment
in cash or certified or bank check equal to the Exercise Price for the Warrant
Shares for which this Warrant is being exercised; provided, that if this
Warrant is exercised in part, the Warrant must be exercised for the purchase of
at least 100,000 shares of Common Stock. Upon exercise of this Warrant as
aforesaid, the Company shall as promptly as practicable, and in any event
within 20 days thereafter, execute and deliver to the Holder a certificate or
certificates for the total number of Warrant Shares for which this Warrant is
being exercised, in such names and denominations as requested in writing by the
Holder. The Company shall pay any and all documentary stamp or similar issue
taxes payable in respect of the issue of the Warrant Shares. If this Warrant
is exercised in part only, the Company shall, upon surrender of this Warrant,
execute and deliver a new Warrant evidencing the rights of the Holder thereof
to purchase the balance of the Warrant Shares issuable hereunder.
Section 3. Exchange, Transfer, Assignment or Loss of
Warrant. This Warrant is exchangeable, without expense, at the option of the
Holder, upon presentation and surrender hereof to the Company for other
Warrants of different denominations, entitling the Holder to purchase in the
aggregate the same number of Warrant Shares. The Holder of this Warrant shall
be entitled, without obtaining the consent of the Company, to transfer or
assign its interest in (and rights under) this Warrant in whole or in part to
any Person or Persons, subject to the provisions of Section 7 of this Warrant
and Article 8 of the Securities Purchase Agreement. Upon surrender of this
Warrant to the Company, with the Assignment Form annexed hereto as Exhibit B
duly executed and funds sufficient to pay any transfer tax, the Company shall,
without charge, execute and deliver a new Warrant or Warrants in the name of
the assignee or assignees named in such Assignment Form and, if the Holder's
entire interest is not being assigned, in the name of the Holder, and this
Warrant shall promptly be canceled. This Warrant may be divided or combined
with other Warrants that carry the same rights upon presentation hereof at the
office of the Company, together with a written notice specifying the names and
denominations in which new Warrants are to be issued and signed by the Holder
hereof. Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification
(including, if required in the reasonable judgment of the Company, a statement
of net worth of such Holder that is at a level reasonably satisfactory to the
Company), and upon surrender and cancellation of this Warrant, if mutilated,
the Company shall execute and deliver a new Warrant of like tenor and date.
Section 4. Antidilution Provisions.
(a) Adjustment of Number of Warrant Shares and
Exercise Price. The number of Warrant Shares purchasable pursuant hereto and
the Exercise Price, each shall be subject to adjustment from time to time on
and after the Date of Issuance as provided in this Section 4(a). In case the
Company shall at any time after the Date of Issuance (i) pay a dividend of
shares of Common Stock or make a distribution of shares of Common Stock, (ii)
subdivide its
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<PAGE> 97
outstanding shares of Common Stock into a larger number of shares of Common
Stock, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (iv) issue any shares of its capital stock
or other assets in a reclassification or reorganization of the Common Stock
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing entity), then (x) the securities
purchasable pursuant hereto shall be adjusted to the number of Warrant Shares
and amount of any other securities, cash or other property of the Company which
the Holder would have owned or have been entitled to receive after the
happening of any of the events described above, had this Warrant been exercised
immediately prior to the happening of such event or any record date with
respect thereto, and (y) the Exercise Price shall be adjusted to equal the
Exercise Price immediately prior to the adjustment multiplied by a fraction,
(A) the numerator of which is the number of Warrant Shares for which this
Warrant is exercisable immediately prior to the adjustment, and (B) the
denominator of which is the number of shares for which this Warrant is
exercisable immediately after such adjustment. The adjustments made pursuant
to this Section 4(a) shall become effective immediately after the effective
date of the event creating such right of adjustment, retroactive to the record
date, if any, for such event. Any Warrant Shares purchasable as a result of
such adjustment shall not be issued prior to the effective date of such event.
For the purpose of this Section 4(a) and (b), the term "shares of
Common Stock" means (i) the classes of stock designated as the Common Stock of
the Company as of the date hereof, or (ii) any other class of stock resulting
from successive changes or reclassifications of such shares consisting solely
of changes in par value, or from par value to no par value, or from no par
value to par value. In the event that at any time, as a result of an
adjustment made pursuant to this Section 4(a), the Holder shall become entitled
to receive any securities of the Company other than shares of Common Stock,
thereafter the number of such other securities so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with respect to
the Warrant Shares contained in this Section 4.
(b) Reorganization, Merger, etc. If any capital
reorganization, reclassification or similar transaction involving the capital
stock of the Company (other than as specified in Section 4(a)), any
consolidation, merger or business combination of the Company with another
corporation or the sale or conveyance of all or any substantial part of its
assets to another corporation, shall be effected in such a way that holders of
the shares of Common Stock shall be entitled to receive stock, securities or
assets (including, without limitation, cash) with respect to or in exchange for
shares of the Common Stock, then, prior to and as a condition of such
reorganization, reclassification, similar transaction, consolidation, merger,
business combination, sale or conveyance, lawful and adequate provision shall
be made whereby the Holder shall thereafter have the right to purchase and
receive upon the basis and upon the terms and conditions specified in this
Warrant and in lieu of the Warrant Shares immediately theretofore purchasable
and receivable upon the exercise of this Warrant, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding Warrant Shares equal to the number of Warrant
Shares immediately theretofore purchasable and receivable upon the exercise of
this Warrant had such reorganization, reclassification, similar transaction,
consolidation, merger, business combination, sale or conveyance not taken
place. The Company shall not effect any such consolidation, merger, business
combination, sale or conveyance unless prior to or simultaneously with the
consummation thereof the survivor or successor corporation (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument executed and sent to
the Holder, the
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<PAGE> 98
obligation to deliver to the Holder such shares of stock, securities or assets
as, in accordance with the foregoing provisions, the Holder may be entitled to
receive.
(c) Statement on Warrant Certificates. Irrespective of
any adjustments in the Exercise Price or the number or kind of Warrant Shares,
this Warrant may continue to express the same price and number and kind of
shares as are stated on the front page hereof.
(d) Exception to Adjustment. Anything herein to the
contrary notwithstanding, the Company shall not be required to make any
adjustment of the number of Warrant Shares issuable hereunder or to the
Exercise Price in the case of the issuance of the Warrants or the issuance of
shares of the Common Stock (or other securities) upon exercise of the Warrants.
(e) Treasury Shares. The number of shares of the Common
Stock outstanding at any time shall not include treasury shares or shares owned
or held by or for the account of the Company or any of its subsidiaries, and
the disposition of any such shares shall be considered an issue or sale of the
Common Stock for the purposes of this Section 4.
(f) Adjustment Notices to Holder. Upon any increase or
decrease in the number of Warrant Shares purchasable upon the exercise of this
Warrant or the Exercise Price the Company shall, within 30 days thereafter,
deliver written notice thereof to all Holders, which notice shall state the
increased or decreased number of Warrant Shares purchasable upon the exercise
of this Warrant and the adjusted Exercise Price, setting forth in reasonable
detail the method of calculation and the facts upon which such calculations are
based.
Section 5. Notification by the Company. In case at any
time while this Warrant remains outstanding:
(a) the Company shall declare any dividend or make any
distribution upon its Common Stock or any other class of its capital stock; or
(b) the Company shall offer for subscription pro rata to
the holders of its Common Stock or any other class of its capital stock any
additional shares of stock of any class or any other securities convertible
into or exchangeable for shares of stock or any rights or options to subscribe
thereto; or
(c) the Board of Directors of the Company shall authorize
any capital reorganization, reclassification or similar transaction involving
the capital stock of the Company, or a sale or conveyance of all or a
substantial part of the assets of the Company, or a consolidation, merger or
business combination of the Company with another Person; or
(d) actions or proceedings shall be authorized or
commenced for a voluntary or involuntary dissolution, liquidation or winding-up
of the Company;
then, in any one or more of such cases, the Company shall give written notice
to the Holder, at the earliest time legally practicable (and not less than 20
days before any record date or other date set for definitive action) of the
date on which (i) the books of the Company shall close or a record shall be
taken for such dividend, distribution or subscription rights or options or (ii)
such reorganization, reclassification, sale, conveyance, consolidation, merger,
dissolution, liquidation or winding-up shall take place or be voted on by
shareholders of the Company, as the case may be. Such notice shall also
specify the date as of which the holders of the Common Stock of record shall
participate in said dividend, distribution, subscription
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<PAGE> 99
rights or options or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, sale, conveyance, consolidation, merger, dissolution,
liquidation or winding-up, as the case may be. If the action in question or
the record date is subject to the effectiveness of a registration statement
under the Securities Act or to a favorable vote of shareholders, the notice
required by this Section 5 shall so state.
Section 6. No Voting Rights: Limitations of Liability.
Prior to exercise, this Warrant will not entitle the Holder to any voting
rights or other rights as a stockholder of the Company. No provision hereof,
in the absence of affirmative action by the Holder to exercise this Warrant,
and no enumeration herein of the rights or privileges of the Holder, shall give
rise to any liability of the Holder for the purchase price of the Warrant
Shares pursuant to the exercise hereof.
Section 7. Restrictions on Transfer. The Warrants and
the Warrant Shares shall not be transferable except upon the conditions
specified in this Warrant and in the Securities Purchase Agreement. The
Warrants may not be transferred, sold or otherwise disposed of except in blocks
of Warrants for the purchase of at least 100,000 shares of Common Stock;
provided, that if at the time of such transfer, sale or other disposition, the
Warrants owned by the Holder are for the purchase of less than 100,000 shares
of Common Stock, the Holder may sell, transfer or otherwise dispose of all, but
not less than all, of the Warrants. This Warrant bears and the certificates
for Warrant Shares will bear a legend as specified in the Securities Purchase
Agreement. The Holder by its acceptance of this Warrant agrees to comply with
and to be bound by all of the provisions of the Securities Purchase Agreement.
Section 8. Amendment and Waiver.
(a) No failure or delay of the Holder in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The
rights and remedies of the Holder are cumulative and not exclusive of any
rights or remedies which it would otherwise have. The provisions of this
Warrant may be amended, modified or waived with (and only with) the written
consent of the Company and the Required Holders.
(b) No notice or demand on the Company in any case shall
entitle the Company to any other or further notice or demand in similar or
other circumstances.
Section 9. No Fractional Warrant Shares. The Company
shall not be required to issue stock certificates representing fractions of
Warrant Shares, but shall in respect of any fraction of a Warrant Share make a
payment in cash based on the Value of the Common Stock after giving effect to
the full exercise or conversion of the Warrants.
Section 10. Reservation of Warrant Shares. The Company
shall authorize, reserve and keep available at all times, free from preemptive
rights, a sufficient number of Warrant Shares to satisfy the requirements of
this Warrant.
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<PAGE> 100
Section 11. Notices. Unless otherwise specified, whenever
this Warrant requires or permits any consent, approval, notice, request, or
demand from one party to another, that communication must be in writing (which
may be by telecopy) to be effective and is deemed to have been given (a) if by
telecopy, when transmitted to the appropriate telecopy number (and all
communications sent by telecopy must be confirmed promptly by telephone; but
any requirement in this parenthetical does not affect the date when the
telecopy is deemed to have been delivered), or (b) if by any other means,
including by internationally acceptable courier or hand delivery, when actually
delivered. Until changed by notice pursuant to this Warrant, the address (and
telecopy number) for the Holder and the Company are:
If to Holder: Forseti Investments Ltd.
5-206 Dowell House
Bridgetown, Barbados
West Indies
Attn: Dennis Chandler
Facsimile: (246) 427-5667
With copies to: Faust Fresenius Heyne Scherzberg,
attorneys
Paul-Ehrlich-Strasse 37-39
60596 Frankfurt-Am-Main
Attn: Christoph Heyne
Facsimile: (49) 6963009090
If to Company: Queen Sand Resources, Inc.
3500 Oak Lawn, Suite 380, L.B.#31
Dallas, Texas 75219-4398
Attn: Robert P. Lindsay
Facsimile: (214) 521-9960
With copies to: Queen Sand Resources, Inc.
60 Queen Street, Suite 1400
Ottawa, Canada K1P 5Y7
Attn: Edward J. Munden
Facsimile: (613) 230-6055
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
Attn: William L. Boeing, Esq.
Facsimile: (214) 651-5940
Section 12. Section and Other Headings. The headings
contained in this Warrant are for reference purposes only and will not affect
in any way the meaning or interpretation of this Warrant.
Section 13. Governing Law; Choice of Forum; Consent to
Service of Process. THIS WARRANT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE. The parties hereto agree
that any suit, action or proceeding arising out of or relating to this Warrant
or any agreement or obligation delivered in connection with this Warrant or any
judgment entered by any court in respect thereof shall be brought in the Courts
of the State of Texas, County of Dallas or in the United
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<PAGE> 101
States District Court for the Northern District of Texas and each such party
hereby submits to the exclusive jurisdiction of such courts for the purpose of
any such suit, action or proceeding relating to this Warrant or any related
agreement or obligation. The Holder hereby submits to the jurisdiction of the
State of Texas and agrees that service of all writs, process and summonses in
any such suit, action or proceeding brought in the United States against the
Holder may be made upon CT Corporation System at its offices located at 350
North St. Paul Street, Dallas, Texas 75201 (or any subsequent address of CT
Corporation System), and the Holder hereby irrevocably appoints CT Corporation
System at its offices located at 350 North St. Paul Street, Dallas, Texas
75201 (or any subsequent address of CT Corporation System) its true and lawful
attorney-in-fact in their name, place and stead to accept such service of any
and all such writs, process and summonses, and agree that the failure of CT
Corporation System to give to the Holder any notice of any such service of
process shall not impair or affect the validity of such service or of any
judgment based thereon. The Company shall send, within 5 days after any
service of process under this Section 13, notice to the Holder in accordance
with Section 11 of any service of process on CT Corporation System under this
Section 13. Service of process on the Company may be made to the Company's
registered agent in Delaware, Corporation Trust Centre, 1209 Orange Street, in
the City of Wilmington, County of New Castle.
Each party hereto hereby irrevocably waives any objection that it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Warrant or any agreement or obligation
delivered in connection with this Warrant, brought in the Courts of the State
of Texas, County of Dallas or the United States District Court for the Northern
District of Texas, and hereby further irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in
an inconvenient forum.
Section 14. Binding Effect. The terms and provisions of
this Warrant shall inure to the benefit of the Holder and its successors and
assigns and shall be binding upon the Company and its successors and assigns,
including, without limitation, any Person succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets.
* * * * *
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<PAGE> 102
IN WITNESS WHEREOF, the seal of the Company and the signature of its
duly authorized officer have been affixed hereto as of __________ _____, 1997.
[SEAL] QUEEN SAND RESOURCES, INC.
Attest: By:
-------------------------- ---------------------------------
Name:
-------------------------------
Title:
------------------------------
and
Attest: By:
-------------------------- ---------------------------------
Name:
-------------------------------
Title:
------------------------------
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<PAGE> 103
EXHIBIT A
TO
WARRANT
PURCHASE FORM
To Be Executed by the Holder
Desiring to Exercise a Warrant of
Queen Sand Resources, Inc.
The undersigned holder hereby exercises the right to purchase ______
shares of Common Stock covered by the within Warrant, according to the
conditions thereof, and herewith makes payment in full of the Exercise Price of
such shares, in the amount of $____________.
Name of Holder:
--------------------------------------
Signature:
----------------------------
Title:
--------------------------------
Address:
------------------------------
--------------------------------------
--------------------------------------
Dated: , .
--------------------- -------
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<PAGE> 104
EXHIBIT B
TO
WARRANT
ASSIGNMENT FORM
To Be Executed by the Holder
Desiring to Transfer a Warrant of
Queen Sand Resources, Inc.
FOR VALUE RECEIVED, the undersigned holder hereby sells, assigns and
transfers unto __________________________ the right to purchase ____________
shares of Common Stock covered by the within Warrant, and does hereby
irrevocably constitute and appoint _________________ Attorney to transfer the
said Warrant on the books of the Company (as defined in such Warrant), with
full power of substitution.
Name of Holder:
--------------------------------------
Signature:
----------------------------
Title:
--------------------------------
Address:
------------------------------
--------------------------------------
--------------------------------------
Dated: , .
--------------------- -------
In the presence of
- --------------------------------------
NOTICE:
The signature to the foregoing Assignment Form must correspond to the name as
written upon the face of the within Warrant in every detail, without alteration
or enlargement or any change whatsoever.
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<PAGE> 105
EXHIBIT C
EARN UP AGREEMENT
THIS EARN UP AGREEMENT (this "Agreement") is executed as of the _____
day of __________, 1997 between Queen Sand Resources, Inc., a Delaware
corporation (the "Company"), and Joint Energy Development Investments Limited
Partnership, a Delaware limited partnership ("JEDI").
WHEREAS, the Company has entered into the Purchase Agreement (defined
below) with JEDI pursuant to which JEDI is purchasing shares of the Company's
Series A Participating Convertible Preferred Stock, par value $0.01 per share
(the "Convertible Preferred Stock"), and certain warrants to purchase Common
Stock of the Company, in exchange for (i) $5,000,000 cash; and (ii) this
Agreement; and
WHEREAS, the Company is repurchasing 9,600,000 shares of Common Stock
(defined below) from Forseti Investments, ltd., a Barbados corporation
("Forseti"), pursuant to the terms of the Forseti Purchase Agreement (defined
below);
NOW, THEREFORE, in consideration of these premises, the agreements
herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, JEDI and the Company agree as follows:
1.0 DEFINITIONS
"AAA" means the American Arbitration Association, or any successor
organization.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of, or rights,
warrants or options to purchase, corporate stock or any other equity interest
(however designated) of or in such Person.
"Capitalized Lease Obligation" means the amount of the liability under
any capital lease that, in accordance with GAAP, is required to be capitalized
and reflected as a liability on the consolidated balance sheet of the Company
and its Subsidiaries.
"Class A Amount" is defined in Section 2(b).
<PAGE> 106
"Class B Amount" is defined in Section 2(c).
"Class A Warrants" means the Class A Common Stock Purchase Warrants to
purchase 1,000,000 shares of Common Stock issued to Forseti pursuant to the
Forseti Purchase Agreement.
"Class B Warrants" means the Class B Common Stock Purchase Warrants to
purchase 2,000,000 shares of Common Stock issued to Forseti pursuant to the
Forseti Purchase Agreement.
"Common Stock" means the common stock, par value $.0015 per share, of
the Company.
"Consolidated Adjusted Net Income" means the consolidated net income
(or loss) of the Company and its Subsidiaries for the fiscal year ending June
30, 1998 as determined in accordance with GAAP, adjusted by excluding, to the
extent included in consolidated net income, (a) net after-tax extraordinary
gains or losses (less all fees and expenses relating thereto), (b) net
after-tax gains or losses (less all fees and expenses relating thereto)
attributable to asset dispositions, (c) the net income (or net loss) of any
Person (other than the Company or any of its Subsidiaries) in which the Company
or any of its Subsidiaries has an ownership interest, except to the extent of
the amount of dividends or other distributions actually paid to the Company or
its Subsidiaries in cash by such other Person during such period, and (d) net
income (or net loss) of any Person combined with the Company or any of its
Subsidiaries on a "pooling of interests" basis attributable to any period prior
to the date of combination.
"Consolidated Interest Expense" means the amount which, in conformity
with GAAP, is set forth opposite the caption "interest expense" (or any like
caption) on the audited consolidated statement of operations of the Company and
its Subsidiaries for the fiscal year ended June 30, 1998.
"Consolidated Net Working Capital" means (i) the amount which, in
conformity with GAAP, is set forth opposite the caption "total current assets"
(or any like caption) on the audited consolidated balance sheet of the Company
and its Subsidiaries as of June 30, 1998 less (ii) the amount which, in
conformity with GAAP, is set forth opposite the caption "total current
liabilities" (or any like caption) on the audited consolidated balance sheet of
the Company and its Subsidiaries as of June 30, 1998.
"Consolidated Non-cash Charges" means the amount which, in conformity
with GAAP, is set forth opposite the caption "depreciation, depletion and
amortization" (or any like caption) on the audited consolidated statement of
operations of the Company and its Subsidiaries for the fiscal year ended June
30, 1998.
"Consolidated Tax Expense" means the amount which, in conformity with
GAAP, is set forth opposite the caption "income tax expense" (or any like
caption) on the audited consolidated statement of operations of the Company and
its Subsidiaries for the fiscal year ended June 30, 1998.
"Dispute" is defined in Section 4.
<PAGE> 107
"EBITDA" means, without duplication, for the fiscal year ended June
30, 1998, the sum of (i) Consolidated Adjusted Net Income and (ii) to the
extent deducted in computing Consolidated Adjusted Net Income, Consolidated
Interest Expense, Consolidated Tax Expense and Consolidated Non-cash Charges.
"Earn Up Amount" is defined in Section 2(a).
"Election Date" means September 30, 1998.
"Exercise Price" means $2.50.
"Forseti Earn Up Agreement" means the Earn Up Agreement entered into
between the Company and Forseti substantially in the form of Exhibit A to this
Agreement.
"Forseti Interests" means all of the outstanding ownership interests
in Forseti and each entity that controls or owns an ownership interests in
Forseti.
"Forseti Purchase Agreement" means the Securities Purchase Agreement
dated March 27, 1997 between the Company and Forseti.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, in effect from time to
time.
"Guaranteed Debt" means, without duplication, all Indebtedness of any
other Person guaranteed directly or indirectly in any manner by the Company or
any of its Subsidiaries, or in effect guaranteed directly or indirectly by the
Company or any of its Subsidiaries through an agreement (i) to pay or purchase
such Indebtedness or to advance or supply funds for the payment or purchase of
such Indebtedness, (ii) to purchase, sell or lease (as lessee or lessor)
property, or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such Indebtedness or to assure the
holder of such Indebtedness against loss, (iii) to supply funds to, or in any
other manner invest in, the debtor (including any agreement to pay for property
or services to be acquired by such debtor irrespective of whether such property
is received or such services are rendered), (iv) to maintain working capital or
equity capital of the debtor, or otherwise to maintain the net worth, solvency
or other financial condition of the debtor or (v) otherwise to assure a
creditor against loss; provided that the term "guarantee" shall not include
endorsements for collection or deposit.
"Indebtedness" means, as of June 30, 1998, without duplication, (i)
all indebtedness of the Company or any of its Subsidiaries for borrowed money
or for the deferred purchase price of property or services, excluding any trade
accounts payable and other accrued current liabilities incurred in the ordinary
course of business, (ii) all obligations of the Company or any of its
Subsidiaries evidenced by bonds, notes, debentures or other similar
instruments, (iii) all indebtedness created or arising under any conditional
sale or other title retention agreement with respect to property acquired by
the Company or any of its Subsidiaries (even if the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of
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<PAGE> 108
such property), but excluding trade accounts payable arising in the ordinary
course of business, (iv) all Capitalized Lease Obligations, (v) all
indebtedness referred to in (but not excluded from) clause (i), (ii), (iii) or
(iv) above of other Persons, the payment of which is secured by (or for which
the holder of such indebtedness has an existing right, contingent or otherwise,
to be secured by) any Lien upon or in property (including, without limitation,
accounts and contract rights) owned by the Company or any of its Subsidiaries,
even though such Person has not assumed or become liable for the payment of
such indebtedness, (vi) all Guaranteed Debt, (vii) all Redeemable Capital Stock
valued at its maximum fixed repurchase price plus accrued and unpaid dividends,
and (viii) any amendment, supplement, modification, deferral, renewal,
extension or refunding of any liability of the types referred to in clauses (i)
through (vii) above. For purposes hereof, the "maximum fixed repurchase price"
of any Redeemable Capital Stock that does not have a fixed repurchase price
shall be calculated in accordance with the terms of such Redeemable Capital
Stock as if such Redeemable Capital Stock were purchased on any date on which
Indebtedness shall be required to be determined pursuant to this Agreement, and
if such price is based upon, or measured by, the fair market value of such
Redeemable Capital Stock, such fair market value to be determined in good faith
by the Board of Directors of the issuer of such Redeemable Capital Stock.
"Mediator" is defined in Section 6.
"Outstanding Shares" means, as of June 30, 1998, the issued and
outstanding shares of Common Stock, assuming the conversion of all shares of
preferred stock of the Company that are convertible into shares of Common
Stock, and excluding any shares of Common Stock held in treasury by the Company
or held by any wholly-owned Subsidiary of the Company.
"Payment Date" means October 15, 1998.
"Person" means any individual, corporation, limited or general
partnership, joint venture, association, joint-stock company, trust, limited
liability company, unincorporated organization or government or any agency or
political subdivision thereof.
<TABLE>
<S> <C>
"Price" means, if:
(Price(1) - Price(2))
---------------------- less than or equal to 0.1, then (Price(1) + Price(2))/2;
Greater of Price(1) or Price(2)
provided, that if: (Price(1) - Price(2))
---------------------- greater than 0.1, then the Company and JEDI
Greater of Price(1) or Price(2)
</TABLE>
shall negotiate the Price; provided, further, that if the Price has not been
agreed upon within 5 business days after the determination of Price(1) and
Price(2), then the determination of the Price shall be submitted to nonbinding
mediation and arbitration in accordance with this Agreement. Notwithstanding
anything to the contrary in this Agreement, under no circumstances shall the
Price exceed the higher of Price(1) and Price(2) or be less than the lower of
Price(1) and Price(2).
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<PAGE> 109
<TABLE>
<S> <C>
(1.1 * SEC PV(10)) - Indebtedness + Consolidated Net Working Capital
"Price(1)" = ------------------------------------------------------------------------------
Outstanding Shares
(6.0 * EBITDA) - Indebtedness + Consolidated Net Working Capital
"Price(2)" = ------------------------------------------------------------------------------
Outstanding Shares
</TABLE>
"Purchase Agreement" means the Securities Purchase Agreement dated
March 27, 1997 between the Company and JEDI.
"Redeemable Capital Stock" means any Capital Stock of the Company or
any of its Subsidiaries that, either by its terms, by the terms of any security
into which it is convertible or exchangeable or otherwise, (i) is, or upon the
happening of an event or passage of time would be, required to be redeemed, or
(ii) is, or upon the happening of an event or passage of time would be,
redeemable at the option of the holder thereof, or (iii) is, or upon the
happening of an event or passage of time would be, convertible into or
exchangeable for debt securities.
"SEC PV10" means the pre tax future net cash flows from proved oil and
gas reserves of the Company and its Subsidiaries at June 30, 1998, computed
using a discount factor of ten percent, as determined in accordance with the
rules, regulations and guidelines of the United States Securities and Exchange
Commission and reported in the reserve report dated as of such date prepared in
accordance with Section 6.11 of the Purchase Agreement.
"Statutory Declaration" means a statutory declaration by Forseti that
as of the Election Date and the Payment Date (i) the individual who, as of the
date hereof, owned all of the Forseti Interests owns all of the Forseti
Interests (ii) there are no encumbrances, pledges or other liens on any equity
interests in Forseti, and (iii) no other event under Section 6(h) has occurred.
"Subsidiary" of a Person means any corporation, limited liability
company, limited or general partnership, joint venture, association,
joint-stock company or business trust of which at the time of determination
such Person, directly and/or indirectly through one or more other Persons, owns
more than 50% of the voting interests.
"Transfer" of any property means any exercise, or any direct or
indirect sale, transfer, encumbrance, gift, donation, assignment, grant of any
interest, pledge, hypothecation or other disposition of such property or any
interest therein, whether voluntary or involuntary, including, but not limited
to, any transfer by operation of law, by court order, by judicial process, or
by foreclosure, levy, or attachment.
"Value" is defined in Section 2(e).
"Warrant Transfer Amount" is defined in Section 2(d).
"Warrants" means, collectively, the Class A Warrants and the Class B
Warrants.
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<PAGE> 110
2.0 PAYMENT OF EARN UP AMOUNT
(a) On the Payment Date, subject to the limitations in Section 3,
and only against delivery by the Company to JEDI of evidence
satisfactory to JEDI that Forseti has delivered to the Company (x) the
Warrants and (y) the Statutory Declaration, JEDI shall pay the Company
an amount (the "Earn Up Amount") equal to the amount, if any, by which
(i) the sum of the Class A Amount and the Class B Amount exceeds (ii)
the Warrant Transfer Amount; provided, that in no event shall the Earn
Up Amount exceed $9,400,000.
(b) The "Class A Amount" means a dollar amount equal to the
product of (i) the Value (not to exceed $1.50) less $1.25, multiplied
by (ii) 9,600,000; provided, that in no event shall the Class A Amount
be greater than $2,400,000; and if the Class A Amount is zero or a
negative number, the Class A Amount shall be deemed to be zero.
(c) The "Class B Amount" means a dollar amount equal to the
product of (i) the Value (not to exceed $1.25) less $0.521, multiplied
by (ii) 9,600,000; provided, that in no event shall the Class B Amount
be greater than $7,000,000; and if the Class B Amount is zero or a
negative number, the Class B Amount shall be deemed to be zero.
(d) The "Warrant Transfer Amount" means a dollar amount equal to
the greatest of (i) the product of (x) $3.50 multiplied by (y) the
aggregate number of Class A Warrants and Class B Warrants Transferred
by Forseti before the Payment Date; (ii) the aggregate gross proceeds
that Forseti has received or is entitled to receive from the Transfer
of all of the Class A Warrants and Class B Warrants Transferred by
Forseti before the Payment Date; and (iii) the difference between the
average daily bid price of the Company's Common Stock for the 21-day
period ending on the Election Date less the Exercise Price, multiplied
by the number of Class A Warrants and the Class B Warrants Transferred
by Forseti before the Payment Date.
(e) The "Value" means the product of the Price, multiplied by
0.60; provided, that if (i) the Common Stock is quoted on The Nasdaq
National Market at the Election Date and (ii) the average daily
trading volume of the Company's shares of Common Stock for the 21-day
period ending on the Election Date is at least 50,000 shares per day
(excluding trading of shares in any accounts controlled by the Company
or Forseti or their respective Affiliates, and provided, that if on
any of the 21 days the trading volume is greater than 300,000 shares,
then only 300,000 shares on such days may be used in calculating the
average), then Value means the product of the Price, multiplied by
0.75.
(f) The Company represents and warrants to JEDI that the
definitions of the terms "Price" and "Value" in the Forseti Earn Up
Agreement are identical to the definitions of such terms in this
Agreement.
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<PAGE> 111
3.0 LIMITATION ON EARN UP AMOUNT
The Earn Up Amount shall in no event exceed the amount defined in the
Forseti Purchase Agreement as the "Earn Up Amount."
4.0 MEDIATION.
Any controversy, dispute or claim arising out of or relating to this
Agreement (a "Dispute") shall be submitted to non-binding mediation upon the
request of the Company or Forseti on the following terms. Upon the request of
either party, a neutral mediator acceptable to both parties (the "Mediator")
shall be appointed within 15 days. The Mediator shall attempt through
negotiations in any manner deemed reasonably appropriate by the Mediator, in
which the parties shall participate, to resolve the Dispute. The Mediator
shall be compensated at a rate agreeable to the Company, Forseti and the
Mediator, and each of the Company and Forseti shall pay its pro rata share of
such compensation and other expenses of the mediation.
5.0 ARBITRATION.
In the event that mediation of a Dispute has not commenced within 15
days after a request for mediation is submitted or is terminated without
resolution under Section 5.0, any controversy or claim arising out of or
relating to this Agreement, including the right to or amount of indemnity,
shall be settled by arbitration in accordance with the Commercial Arbitration
Rules of the AAA by three (3) arbitrators. Each of Forseti and the Company
shall appoint one arbitrator, who shall be an impartial person. If a party
fails to appoint an arbitrator within thirty (30) days from the date a Demand
to Arbitrate was made under Rule 6, the AAA shall make the appointment of the
arbitrator. The two (2) arbitrators thus appointed shall appoint the third
arbitrator, who shall be an impartial person. If said two (2) arbitrators fail
to appoint the third arbitrator within sixty (60) days from the date a Demand
to Arbitrate was made under Rule 6, the AAA shall make the appointment of the
third arbitrator, who shall be an impartial person. Should any of the
arbitrators appointed die, resign, refuse or become unable to act before a
decision is given, the vacancy shall be filled by the method set forth in this
clause for the original appointment. The arbitration shall be held in Dallas,
Texas and shall be conducted in the English language. A decision by the
arbitrators shall be final and binding on all the parties. The arbitrators
shall execute and deliver to the respective parties the arbitration panel's
decision in writing. Judgment upon the award, if any, rendered by the
arbitrators (which must be expressed in United States Dollars) may be entered
in any court having jurisdiction thereof. In any award, the arbitrators shall
assess the arbitration costs and expenses, including, without limitation,
attorneys fees of the parties, in a manner deemed equitable by the arbitrators,
taking into account the arbitration decision. Notwithstanding anything to the
contrary in this Agreement, if a Dispute involves the determination of Price,
the Price, as determined by arbitration under this Section 5, shall not (i) (a)
exceed the higher or Price1 and Price2, or (b) be lower than the lower of
Price1 and Price2, or (ii) exceed the Price as determined under the Forseti
Earn Up Agreement, including a Price as determined by arbitration under the
provisions of the Forseti Earn Up Agreement.
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<PAGE> 112
6.0 MISCELLANEOUS
(a) Governing Law. This Agreement shall be governed by the
substantive laws of the State of Texas.
(b) Invalid Provisions. If any provision of this Agreement is
held to be illegal, invalid or unenforceable, such provision shall be
fully severable.
(c) Entirety and Amendments. This Agreement embodies the entire
agreement and understanding relating to the subject matter hereof,
supersedes all prior understandings between the parties relating to
the subject matter hereof, and may be amended only by an instrument in
writing executed by the Company and JEDI.
(d) Parties Bound. This Agreement shall be binding upon and inure
to the benefit of the Company and JEDI, and their respective
successors and permitted assigns. Neither the Company nor JEDI may
assign its rights or delegate its obligations hereunder (whether
voluntarily, involuntarily, or by operation of law) without the prior
written consent of the other party.
(e) Notices. Unless otherwise specified, whenever this Agreement
requires or permits any consent, approval, notice, request, or demand
from one party to another, that communication must be in writing
(which may be by telecopy) to be effective and is deemed to have been
given (a) if by telecopy, when transmitted to the appropriate telecopy
number (and all communications sent by telecopy must be confirmed
promptly by telephone; but any requirement in this parenthetical does
not affect the date when the telecopy is deemed to have been
delivered), or (b) if by any other means, including by internationally
acceptable courier or hand delivery, when actually delivered. Until
changed by notice pursuant to this Agreement, the address (and
telecopy number) for the Company and JEDI are:
If to JEDI: Joint Energy Development Investments
Limited Partnership
c/o Enron Corp.
1400 Smith Street
Houston, Texas 77002
Attention: Donna Lowry - Director,
28th Floor
Telecopier: (713) 646-3602
If to Company: Queen Sand Resources, Inc.
3500 Oak Lawn, Suite 380, L.B.#31
Dallas, Texas 75219-4398
Attn: Robert P. Lindsay
Facsimile: (214) 521-9960
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<PAGE> 113
With copies to: Queen Sand Resources, Inc.
60 Queen Street, Suite 1400
Ottawa, Canada K1P 5Y7
Attn: Edward J. Munden
Facsimile: (613) 230-6055
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
Attn: William L. Boeing
Facsimile: (214) 651-5940
(f) Section and Other Headings. The headings contained in this
Agreement are for reference purposes only and will not affect in any
way the meaning or interpretation of this Agreement.
(g) Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original and all of
which together will constitute one instrument.
(h) Termination. This Agreement shall terminate automatically,
and JEDI shall have no obligation to pay any Earn Up Amount, (a) in
the event the "Election Date" under the Forseti Earn Up Agreement is
after September 30, 1998 or the "Payment Date" under the Forseti Earn
Up Agreement is after October 15, 1998, (b) upon the Transfer of any
Warrants in violation of the restrictions on Transfer of Warrants
under the Forseti Purchase Agreement, (c) upon the election by Forseti
to retain the Warrants under Section 2(a)(ii) of the Forseti Earn Up
Agreement, (d) upon the Transfer by Forseti of all of the Warrants,
(e) upon the Transfer of any ownership interest in Forseti or any
entity controlling Forseti where the purpose of the transfer is to
realize or receive cash, securities or any other property as
consideration for the Warrants without transferring the Warrants, (f)
in the event that, on the Election Date or the Payment Date, the
individual who, as of the date hereof owned, directly or indirectly,
all of the Forseti Interests does not own, directly or indirectly, all
of the Forseti Interests, or (g) the termination of the Forseti Earn
Up Agreement for any reason.
(i) Currency. All dollar amounts in this Agreement shall mean
United States dollars.
* * * * *
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<PAGE> 114
IN WITNESS WHEREOF, JEDI and the Company have executed this Agreement
as of the day and year first stated above.
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP
By: Enron Capital Management Limited
Partnership, its General Partner
By: Enron Capital Corp., its General
Partner
By:
-----------------------------------
Steven M. Emshoff
Agent and Attorney-in-Fact
QUEEN SAND RESOURCES, INC.
By:
-----------------------------------
Edward J. Munden
President and Chief Executive
Officer
and
By:
----------------------------------
Robert P. Lindsay
Chief Operating Officer
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<PAGE> 115
[PURCHASER WARRANTS] EXHIBIT E
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES OR BLUE SKY LAWS
AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR IN RELIANCE ON AN OPINION,
REASONABLY SATISFACTORY TO QUEEN SAND RESOURCES, INC. IN FORM AND SUBSTANCE, OF
COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY, THAT SUCH SALE, PLEDGE OR OTHER
TRANSFER IS BEING MADE IN RELIANCE ON AN EXEMPTION FROM THE ACT AND ANY
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
QUEEN SAND RESOURCES, INC.
Common Stock Purchase Warrant
Representing Right To Purchase Shares of
Common Stock
of
Queen Sand Resources, Inc.
No. 1
FOR VALUE RECEIVED, QUEEN SAND RESOURCES, INC., a Delaware corporation
(the "Company"), hereby certifies that Joint Energy Development Investments
Limited Partnership, a Delaware limited partnership, is entitled, subject to
the provisions of this Warrant, to purchase from the Company, at any time or
from time to time during the Exercise Period (as hereinafter defined), the
Warrant Shares (as hereinafter defined) at a price per share equal to the
Exercise Price (as defined below). This Warrant (together with such other
warrants as may be issued in exchange, transfer or replacement of this Warrant,
the "Warrants") is issued to the Holder (as hereinafter defined) pursuant to
the Securities Purchase Agreement (as defined below) and entitles the Holder to
purchase the Warrant Shares and to exercise the other rights, powers and
privileges hereinafter provided.
<PAGE> 116
Section 1. Definitions. The following terms, as used herein,
have the following respective meanings:
"Class A Warrants" has the meaning ascribed to such term in the Earn
Up Agreement.
"Class B Warrants" has the meaning ascribed to such terms in the Earn
Up Agreement.
"Common Stock" means the Company's common stock, $0.0015 par value.
"Company" is defined in the introductory paragraph of this Warrant.
"Date of Issuance" means , 1997.
"Earn Up Agreement" means the Earn Up Agreement dated as of
, 1997 between the Company and Forseti Investments Ltd.
"Election Date" has the meaning specified therefor in the Earn Up
Agreement.
"Exercise Period" means the period of time between 12:01 a.m. (New
York City Time) on October 1, 1998 and 5:00 p.m. (New York City time) on
December 31, 1998.
"Exercise Price" means an amount, per share, equal to $2.50. The
Exercise Price shall be subject to adjustment, as set forth in Section 4.
"Holder" means Joint Energy Development Investments Limited
Partnership and its permitted assignees.
"Person" means any individual, corporation, limited or general
partnership, joint venture, association, joint-stock company, trust, limited
liability company, unincorporated organization or government or any agency or
political subdivision thereof.
"Required Holders" means the Holders of more than 50% of all Warrant
Shares then outstanding (assuming the full exercise of all Warrants).
"Securities Purchase Agreement" means the Securities Purchase
Agreement, dated as of March , 1997, between the Company the Holder, as such
agreement shall be modified, amended and supplemented and in effect from time
to time.
"Value" means $3.50 per share of Common Stock.
"Warrants" is defined in the introductory paragraph of this Warrant.
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<PAGE> 117
"Warrant Shares" means the number of shares of Common Stock (or amount
of other property) equal to the number of shares of Common Stock (or amount of
other property), as adjusted from time pursuant to the terms hereof, which
would have been received upon the exercise on the Election Date of all Class A
Warrants and Class B Warrants, if any, that are deliverable to the Company by
Forseti Investments Ltd. pursuant to Section 2.0(b) of the Earn Up Agreement.
Section 2. Exercise of Warrant; Cancellations of Warrant. This
Warrant may be exercised in whole or in part, at any time or from time to time,
during the Exercise Period, by presentation and surrender hereof to the Company
at its principal office at the address set forth in Section 10 (or at such
other reasonable address as the Company may after the date hereof notify the
Holder in writing, coming into effect not before 14 days after receipt of such
notice by the Holder), with the Purchase Form annexed hereto as Exhibit A duly
executed and accompanied by either (at the option of the Holder) proper payment
in cash or certified or bank check equal to the Exercise Price for the Warrant
Shares for which this Warrant is being exercised; provided, that if this
Warrant is exercised in part, the Warrant must be exercised. Upon exercise of
this Warrant as aforesaid, the Company shall as promptly as practicable, and in
any event within 20 days thereafter, execute and deliver to the Holder a
certificate or certificates for the total number of Warrant Shares for which
this Warrant is being exercised, in such names and denominations as requested
in writing by the Holder. The Company shall pay any and all documentary stamp
or similar issue taxes payable in respect of the issue of the Warrant Shares.
If this Warrant is exercised in part only, the Company shall, upon surrender of
this Warrant, execute and deliver a new Warrant evidencing the rights of the
Holder thereof to purchase the balance of the Warrant Shares issuable hereunder.
Section 3. Exchange, Transfer, Assignment or Loss of Warrant.
(a) This Warrant is exchangeable, without expense, at the
option of the Holder, upon presentation and surrender hereof
to the Company for other Warrants of different denominations,
entitling the Holder to purchase in the aggregate the same
number of Warrant Shares. The Holder of this Warrant shall be
entitled, without obtaining the consent of the Company, to
transfer or assign its interest in (and rights under) this
Warrant in whole or in part to any Person or Persons. Upon
surrender of this Warrant to the Company, with the Assignment
Form annexed hereto as Exhibit B duly executed and funds
sufficient to pay any transfer tax, the Company shall, without
charge, execute and deliver a new Warrant or Warrants in the
name of the assignee or assignees named in such Assignment
Form and, if the Holder's entire interest is not being
assigned, in the name of the Holder, and this Warrant shall
promptly be canceled. This Warrant may be divided or combined
with other Warrants that carry the same rights upon
presentation hereof at the office of the Company, together
with a written notice specifying the names and denominations
in which new Warrants are to be issued and signed by the
Holder hereof. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or
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<PAGE> 118
mutilation of this Warrant, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification
(including, if required in the reasonable judgment of the
Company, a statement of net worth of such Holder that is at a
level reasonably satisfactory to the Company), and upon
surrender and cancellation of this Warrant, if mutilated, the
Company shall execute and deliver a new Warrant of like tenor
and date.
(b) At any time after the Election Date the Holder shall
be entitled, upon presentation and surrender of this Warrant
to the Company, to receive a new Warrant that is indentical in
all respects to this Warrant except that (i) the definition of
"Warrant Shares" in Section 1 of such new Warrant shall
indicate that such term means a specified number of shares of
Common Stock (as adjusted from time to time pursuant to the
terms hereof), which number shall be the number of shares of
Common Stock receivable upon the exercise of this Warrant as
of the date of issuance of such new Warrant and (ii) such new
Warrant shall not contain this paragraph (b).
Section 4. Antidilution Provisions.
(a) Adjustment of Number of Warrant Shares and Exercise
Price. The number of Warrant Shares purchasable
pursuant hereto and the Exercise Price, each shall be
subject to adjustment from time to time on and after
the Election Date as provided in this Section 4(a).
In case the Company shall at any time after the
Election Date (i) pay a dividend of shares of Common
Stock or make a distribution of shares of Common
Stock, (ii) subdivide its outstanding shares of
Common Stock into a larger number of shares of Common
Stock, (iii) combine its outstanding shares of Common
Stock into a smaller number of shares of Common Stock
or (iv) issue any shares of its capital stock or
other assets in a reclassification or reorganization
of the Common Stock (including any such
reclassification in connection with a consolidation
or merger in which the Company is the continuing
entity), then (x) the securities purchasable pursuant
hereto shall be adjusted to the number of Warrant
Shares and amount of any other securities, cash or
other property of the Company which the Holder would
have owned or have been entitled to receive after the
happening of any of the events described above, had
this Warrant been exercised immediately prior to the
happening of such event or any record date with
respect thereto, and (y) the Exercise Price shall be
adjusted to equal the Exercise Price immediately
prior to the adjustment multiplied by a fraction, (A)
the numerator of which is the number of Warrant
Shares for which this Warrant is exercisable
immediately prior to the adjustment, and (B) the
denominator of which is the number of shares for
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<PAGE> 119
which this Warrant is exercisable immediately after
such adjustment. The adjustments made pursuant to
this Section 4(a) shall become effective immediately
after the effective date of the event creating such
right of adjustment, retroactive to the record date,
if any, for such event. Any Warrant Shares
purchasable as a result of such adjustment shall not
be issued prior to the effective date of such event.
For the purpose of this Section 4(a) and (b), the
term "shares of Common Stock" means (i) the classes of stock
designated as the Common Stock of the Company as of the date
hereof, or (ii) any other class of stock resulting from
successive changes or reclassifications of such shares
consisting solely of changes in par value, or from par value
to no par value, or from no par value to par value. In the
event that at any time, as a result of an adjustment made
pursuant to this Section 4(a), the Holder shall become
entitled to receive any securities of the Company other than
shares of Common Stock, thereafter the number of such other
securities so receivable upon exercise of this Warrant shall
be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions
with respect to the Warrant Shares contained in this Section
4.
(b) Reorganization, Merger, etc. If any capital
reorganization, reclassification or similar
transaction involving the capital stock of the
Company (other than as specified in Section 4(a)),
any consolidation, merger or business combination of
the Company with another corporation or the sale or
conveyance of all or any substantial part of its
assets to another corporation, shall be effected in
such a way that holders of the shares of Common Stock
shall be entitled to receive stock, securities or
assets (including, without limitation, cash) with
respect to or in exchange for shares of the Common
Stock, then, prior to and as a condition of such
reorganization, reclassification, similar
transaction, consolidation, merger, business
combination, sale or conveyance, lawful and adequate
provision shall be made whereby the Holder shall
thereafter have the right to purchase and receive
upon the basis and upon the terms and conditions
specified in this Warrant and in lieu of the Warrant
Shares immediately theretofore purchasable and
receivable upon the exercise of this Warrant, such
shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for
a number of outstanding Warrant Shares equal to the
number of Warrant Shares immediately theretofore
purchasable and receivable upon the exercise of this
Warrant had such reorganization, reclassification,
similar transaction, consolidation, merger, business
combination, sale or conveyance not taken place. The
Company shall not effect any such consolidation,
merger, business combination, sale or conveyance
unless prior to or
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<PAGE> 120
simultaneously with the consummation thereof the
survivor or successor corporation (if other than the
Company) resulting from such consolidation or merger
or the corporation purchasing such assets shall
assume by written instrument executed and sent to the
Holder, the obligation to deliver to the Holder such
shares of stock, securities or assets as, in
accordance with the foregoing provisions, the Holder
may be entitled to receive.
(c) Statement on Warrant Certificates. Irrespective of
any adjustments in the Exercise Price or the number
or kind of Warrant Shares, this Warrant may continue
to express the same price and number and kind of
shares as are stated on the front page hereof.
(d) Exception to Adjustment. Anything herein to the
contrary notwithstanding, the Company shall not be
required to make any adjustment of the number of
Warrant Shares issuable hereunder or to the Exercise
Price in the case of the issuance of the Warrants or
the issuance of shares of the Common Stock (or other
securities) upon exercise of the Warrants.
(e) Treasury Shares. The number of shares of the Common
Stock outstanding at any time shall not include
treasury shares or shares owned or held by or for the
account of the Company or any of its subsidiaries,
and the disposition of any such shares shall be
considered an issue or sale of the Common Stock for
the purposes of this Section 4.
(f) Adjustment Notices to Holder. Upon any increase or
decrease in the number of Warrant Shares purchasable
upon the exercise of this Warrant or the Exercise
Price the Company shall, within 30 days thereafter,
deliver written notice thereof to all Holders, which
notice shall state the increased or decreased number
of Warrant Shares purchasable upon the exercise of
this Warrant and the adjusted Exercise Price, setting
forth in reasonable detail the method of calculation
and the facts upon which such calculations are based.
Section 5. Notification by the Company. In case at any time
while this Warrant remains outstanding:
(a) the Company shall declare any dividend or make any
distribution upon its Common Stock or any other class
of its capital stock; or
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<PAGE> 121
(b) the Company shall offer for subscription pro rata to
the holders of its Common Stock or any other class of
its capital stock any additional shares of stock of
any class or any other securities convertible into or
exchangeable for shares of stock or any rights or
options to subscribe thereto; or
(c) the Board of Directors of the Company shall authorize
any capital reorganization, reclassification or
similar transaction involving the capital stock of
the Company, or a sale or conveyance of all or a
substantial part of the assets of the Company, or a
consolidation, merger or business combination of the
Company with another Person; or
(d) actions or proceedings shall be authorized or
commenced for a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in any one or more of such cases, the Company shall give written notice
to the Holder, at the earliest time legally practicable (and not less than 20
days before any record date or other date set for definitive action) of the
date on which (i) the books of the Company shall close or a record shall be
taken for such dividend, distribution or subscription rights or options or (ii)
such reorganization, reclassification, sale, conveyance, consolidation, merger,
dissolution, liquidation or winding-up shall take place or be voted on by
shareholders of the Company, as the case may be. Such notice shall also
specify the date as of which the holders of the Common Stock of record shall
participate in said dividend, distribution, subscription rights or options or
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, sale,
conveyance, consolidation, merger, dissolution, liquidation or winding-up, as
the case may be. If the action in question or the record date is subject to
the effectiveness of a registration statement under the Securities Act or to a
favorable vote of shareholders, the notice required by this Section 5 shall so
state.
Section 6. No Voting Rights: Limitations of Liability. Prior to
exercise, this Warrant will not entitle the Holder to any voting rights or
other rights as a stockholder of the Company. No provision hereof, in the
absence of affirmative action by the Holder to exercise this Warrant, and no
enumeration herein of the rights or privileges of the Holder, shall give rise
to any liability of the Holder for the purchase price of the Warrant Shares
pursuant to the exercise hereof.
Section 7. Amendment and Waiver.
(a) No failure or delay of the Holder in exercising any
power or right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of
such right or power, or any abandonment or
discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof
or the exercise of any other right or power. The
rights and remedies of the
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<PAGE> 122
Holder are cumulative and not exclusive of any rights
or remedies which it would otherwise have. The
provisions of this Warrant may be amended, modified
or waived with (and only with) the written consent of
the Company and the Required Holders.
(b) No notice or demand on the Company in any case shall
entitle the Company to any other or further notice or
demand in similar or other circumstances.
Section 8. No Fractional Warrant Shares. The Company shall not
be required to issue stock certificates representing fractions of Warrant
Shares, but shall in respect of any fraction of a Warrant Share make a payment
in cash based on the Value of the Common Stock after giving effect to the full
exercise or conversion of the Warrants.
Section 9. Reservation of Warrant Shares. The Company shall
authorize, reserve and keep available at all times, free from preemptive
rights, a sufficient number of Warrant Shares to satisfy the requirements of
this Warrant.
Section 10. Notices. Unless otherwise specified, whenever this
Warrant requires or permits any consent, approval, notice, request, or demand
from one party to another, that communication must be in writing (which may be
by telecopy) to be effective and is deemed to have been given (a) if by
telecopy, when transmitted to the appropriate telecopy number (and all
communications sent by telecopy must be confirmed promptly by telephone; but
any requirement in this parenthetical does not affect the date when the
telecopy is deemed to have been delivered), or (b) if by any other means,
including by internationally acceptable courier or hand delivery, when actually
delivered. Until changed by notice pursuant to this Warrant, the address (and
telecopy number) for the Holder and the Company are:
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<PAGE> 123
If to Holder: Joint Energy Development Investments Limited
Partnership
c/o Enron Corp.
1400 Smith Street
Houston, Texas 77002
Attn: Donna Lowry - Director, 28th Floor
Facsimile: (713) 646-3602
If to Company: Queen Sand Resources, Inc.
3500 Oak Lawn, Suite 380, L.B.#31
Dallas, Texas 75219-4398
Attn: Robert P. Lindsay
Facsimile: (214) 521-9960
With copies to: Queen Sand Resources, Inc.
60 Queen Street, Suite 1400
Ottawa, Canada K1P 5Y7
Attn: Edward J. Munden
Facsimile: (613) 230-6055
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
Attn: William L. Boeing, Esq.
Facsimile: (214) 651-5940
Section 11. Section and Other Headings. The headings contained
in this Warrant are for reference purposes only and will not affect in any way
the meaning or interpretation of this Warrant.
Section 12. Governing Law. THIS WARRANT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE.
Section 13. Binding Effect. The terms and provisions of this
Warrant shall inure to the benefit of the Holder and its successors and assigns
and shall be binding upon the Company and its successors and assigns,
including, without limitation, any Person succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets.
* * * * *
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<PAGE> 124
IN WITNESS WHEREOF, the seal of the Company and the signature of its
duly authorized officer have been affixed hereto as of , 1997.
[SEAL] QUEEN SAND RESOURCES, INC.
Attest: By:
-------------------------- -------------------------------
Name:
------------------------------
Title:
-----------------------------
and
Attest: By:
-------------------------- --------------------------------
Name:
------------------------------
Title:
-----------------------------
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<PAGE> 125
EXHIBIT A
TO
WARRANT
PURCHASE FORM
To Be Executed by the Holder
Desiring to Exercise a Warrant of
Queen Sand Resources, Inc.
The undersigned holder hereby exercises the right to purchase
___________ shares of Common Stock covered by the within Warrant, according to
the conditions thereof, and herewith makes payment in full of the Exercise
Price of such shares, in the amount of $ .
Name of Holder:
----------------------------------------
Signature:
----------------------------
Title:
--------------------------------
Address:
------------------------------
----------------------------------------
----------------------------------------
Dated: , .
-------------------------- -------
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<PAGE> 126
EXHIBIT B
TO
WARRANT
ASSIGNMENT FORM
To Be Executed by the Holder
Desiring to Transfer a Warrant of
Queen Sand Resources, Inc.
FOR VALUE RECEIVED, the undersigned holder hereby sells, assigns and
transfers unto __________________________ the right to purchase ____________
shares of Common Stock covered by the within Warrant, and does hereby
irrevocably constitute and appoint Attorney to transfer the
said Warrant on the books of the Company (as defined in such Warrant), with
full power of substitution.
Name of Holder:
----------------------------------------
Signature:
----------------------------
Title:
--------------------------------
Address:
------------------------------
----------------------------------------
----------------------------------------
Dated: , .
-------------------------- -------
In the presence of
- --------------------------------------------
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<PAGE> 127
NOTICE:
The signature to the foregoing Assignment Form must correspond to the name as
written upon the face of the within Warrant in every detail, without alteration
or enlargement or any change whatsoever.
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<PAGE> 128
EXHIBIT F
================================================================================
REGISTRATION RIGHTS AGREEMENT
DATED AS OF _____________, 1997
BY AND BETWEEN
QUEEN SAND RESOURCES, INC.
AND
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED
PARTNERSHIP
================================================================================
<PAGE> 129
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.01. Demand Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.02. Piggy-Back Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.03. Registration Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.04. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.05. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.01. Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.02. Successor and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.03. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.04. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.05. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.06. Severability of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.07. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.08. Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.09. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.10. Registrable Securities Held by the Company or Its Affiliates . . . . . . . . . . 12
Section 3.11. Assignment of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
<PAGE> 130
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement ("Agreement") is made and
entered into as of _______________, 1997, by and between Queen Sand Resources,
Inc., a Delaware corporation (the "Company"), and Joint Energy Development
Investments Limited Partnership, a Delaware limited partnership (the
"Purchaser").
This Agreement is made pursuant to the Securities Purchase
Agreement (the "Purchase Agreement") dated as of March 27, 1997 between the
Company and the Purchaser. In order to induce the Purchaser to enter into the
Purchase Agreement, the Company has agreed to provide the registration and
other rights set forth in this Agreement. The execution and delivery of this
Agreement is a condition to the Closing (as defined in the Purchase Agreement)
under the Purchase Agreement.
The parties agree as follows:
ARTICLE I
Section 1.01. Definitions. Capitalized terms used and not
otherwise defined herein which are defined in the Purchase Agreement are used
herein as so defined. The terms set forth below are used herein as so defined:
"Holder" means the record holder of any shares of Convertible
Preferred Stock, Robertson Warrants, Purchaser Warrants, Maintenance Warrants
or Registrable Securities.
"Registrable Securities" means the Conversion Shares, the
Robertson Warrant Shares, the Purchaser Warrant Shares and the Maintenance
Warrant Shares and all other securities receivable upon the conversion of
Convertible Preferred Stock or the exercise of Robertson Warrants, the
Purchaser Warrants or the Maintenance Warrants and, if held by a Person who is
the record holder of shares of Convertible Preferred Stock or other Registrable
Securities, any other shares of Common Stock or other securities of the same
class as those receivable upon conversion of Convertible Preferred Stock or
exercise of Robertson Warrants, the Purchaser Warrants or the Maintenance
Warrants, until such time as such securities cease to be Registrable Securities
pursuant to Section 1.02 hereof.
"Selling Holder" means a Holder who is selling Registrable
Securities pursuant to a Registration Statement (as defined herein).
Section 1.02. Registrable Securities. Any Registrable
Security will cease to be a Registrable Security when (i) a Registration
Statement covering such Registrable Security has been declared effective by the
Commission and such Registrable Security has been issued, sold or disposed of
pursuant to such effective Registration Statement or (ii) such Registrable
Security is disposed of pursuant to Rule 144 (or any similar provision then in
force) under the Securities Act, (iii) such Registrable Security is eligible to
be disposed of pursuant to paragraph (k) of Rule 144 (or any similar provision
then in force) under the Securities Act or (iv) such Registrable Security is
held by the Company or one of its Subsidiaries.
<PAGE> 131
ARTICLE II
Section 2.01. Demand Registration. (a) Any time after the
date of this Agreement, any Holder or Holders who collectively beneficially own
at least a majority of the Registrable Securities outstanding at such time may
request (a "Request Notice") the Company to register under the Securities Act
all or any portion (provided that such portion will have an aggregate offering
price of at least $1,000,000) of the Registrable Securities that are held or
will be held upon the conversion of shares of Convertible Preferred Stock or
the exercise of Warrants by such Holder or Holders (collectively, the
"Requesting Holder") for sale in the manner specified in the Request Notice.
(b) Promptly following receipt of a Request Notice, the
Company shall immediately notify any Person who is a Holder of Registrable
Securities (except the Requesting Holder) of the receipt of a Request Notice
and shall use its best efforts to file a registration statement under the
Securities Act (each such registration statement is hereinafter referred to as
a "Registration Statement") effecting the registration under the Securities
Act, for public sale in accordance with the method of disposition specified in
such Request Notice, the Registrable Securities specified in the Request Notice
(and in any notices received from other Holders no later than the 10th Business
Day after receipt of the notice sent by the Company) (such other Holders and
the Requesting Holder are hereinafter referred to as the "Requesting Holders").
If such method of disposition shall be an underwritten public offering, the
Company may designate the managing underwriter of such offering, subject to the
approval of the Requesting Holders holding a majority of the Registrable
Securities to be registered, which approval shall not be withheld unreasonably.
The Company shall be obligated to register Registrable Securities pursuant to
this Section 2.01 on three occasions only. A request pursuant to this Section
2.01 shall be counted only when (i) all the Registrable Securities requested to
be included in any such registration have been so included, (ii) the
corresponding Registration Statement has become effective under the Securities
Act, and (iii) the public offering has been consummated and the Registrable
Securities have been sold on the terms and conditions specified therein.
Notwithstanding anything to the contrary contained herein, the Company may
delay the filing or effectiveness of a Registration Statement after receipt of
a Request Notice (i) for up to 90 days if at the time of such request, the
Company is engaged in a firm commitment underwritten public offering of its
securities in which Holders may include Registrable Securities and for which
the Company has delivered the notice to Holders required by the first sentence
of Section 2.02 or (ii) for up to 60 days if at the time of such request, the
Board of Directors of the Company determines in its reasonable judgment and in
good faith that the filing of such a Registration Statement or the making of
any required disclosure in connection therewith would have a material adverse
effect on the Company or substantially interfere with a significant transaction
in which the Company is then engaged; provided that the Company may not delay
the filing of a Registration Statement in reliance on this clause (ii) more
than once during any period of twelve consecutive calendar months.
(c) The Company shall be entitled to include in any
Registration Statement filed pursuant to this Section 2.01, for sale in
accordance with the method of disposition specified by the Requesting Holders,
Voting Securities to be sold by the Company for its own account, except as and
to the extent that, in the opinion of the managing underwriter (if such method
of disposition shall be an underwritten public offering), such inclusion would
materially jeopardize the successful marketing of the Registrable Securities to
be sold. Any Person other than a Holder entitled to piggy-back registration
rights with respect to a Registration Statement filed pursuant to this Section
2.01
<PAGE> 132
may include Voting Securities of the Company with respect to which such rights
apply in such Registration Statement for sale in accordance with the method of
disposition specified by the Requesting Holder, except and to the extent that,
in the opinion of the managing underwriter (if such method of disposition shall
be an underwritten public offering) such inclusion would materially jeopardize
the successful marketing of the Registrable Securities to be sold. Except as
provided in this subsection (c), the Company will not effect any other
registration of its Voting Securities (except with respect to Registration
Statements on Form S-4 or S-8 for purposes permissible under such forms as of
the date hereof, or any successor forms for comparable purposes that may be
adopted by the Commission), whether for its own account or that of any other
security holder, from the date of receipt of a Request Notice requesting the
registration of an underwritten public offering until the completion of the
distribution by the underwriters of all securities thereunder.
(d) From and after the date of this Agreement and until
no Registrable Securities remain outstanding, the Company shall not issue any
demand registration rights to any Person without the prior written consent of
the Purchaser.
Section 2.02. Piggy-Back Registration. If the Company
proposes to register any equity securities under the Securities Act for sale to
the public for cash, whether for its own account or for the account of other
security holders or both (except with respect to Registration Statements on
Forms S-4 or S-8 for purposes permissible under such forms as of the date
hereof, or any successor forms for comparable purposes that may be adopted by
the Commission) each such time it will give written notice to all Holders of
its intention to do so no less than 15 Business Days prior to the anticipated
filing date. Upon the written request of any Holder, received by the Company
no later than the 10th Business Day after receipt by such Holder of the notice
sent by the Company, to register, on the same terms and conditions as the
securities otherwise being sold pursuant to such registration, any of its
Registrable Securities (which request shall state the intended method of
disposition thereof), the Company will use its best efforts to cause the
Registrable Securities as to which registration shall have been so requested to
be included in the securities to be covered by the Registration Statement
proposed to be filed by the Company, on the same terms and conditions as any
similar securities included therein, all to the extent requisite to permit the
sale or other disposition by each Holder (in accordance with its written
request) of such Registrable Securities so registered; provided, however, that
the Company may at any time prior to the effectiveness of any such Registration
Statement, in its sole discretion and without the consent of any Holder,
abandon the proposed offering in which any Holder had requested to participate.
The number of Registrable Securities to be included in such a registration may
be reduced or eliminated if and to the extent, in the case of an underwritten
offering, the managing underwriter shall render to the Company its opinion that
such inclusion would materially jeopardize the successful marketing of the
securities (including the Registrable Securities) proposed to be sold therein;
provided, however, that such number of shares of Registrable Securities shall
not be reduced (i) if any securities included in such registration are included
other than for the account of (x) the Company or (y) the persons listed on
Schedule I hereto and (ii) unless the shares included in the registration
pursuant to piggy-back registration rights that have been granted to the
persons listed on Schedule I as of the date of this Agreement are also reduced
on a pro rata basis. From and after the date of this Agreement and until no
Registrable Securities remain outstanding, the Company shall not grant any
piggy-back registration rights to any Person unless such rights are expressly
made subject to the prior right of Holders to include any or all of their
Registrable Shares before such other Person includes any shares in any
registration relating to an underwritten public offering with respect to which,
in the
<PAGE> 133
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 Registrable Securities) to be sold. In the event that the
number of Registrable Securities to be included in a registration is to be
reduced as provided above, within 10 Business Days after receipt by each Holder
proposing to sell Registrable Securities pursuant to the registered offering of
the opinion of such managing underwriter, all such Selling Holders may allocate
among themselves the number of shares of such Registrable Securities which such
opinion states may be distributed without adversely affecting the distribution
of the securities covered by the Registration Statement, and if such Holders
are unable to agree among themselves with respect to such allocation, such
allocation shall be made in proportion to the respective numbers of shares
specified in their respective written requests. Notwithstanding anything to
the contrary contained in this Section 2.02, in the event that there is a firm
underwriting commitment offer of securities of the Company pursuant to a
Registration Statement covering Registrable Securities and a Person does not
elect to sell its Registrable Securities to the underwriters of the Company's
securities in connection with such offering, such Person shall not offer for
sale, sell, grant any option for the sale of, or otherwise dispose of, directly
or indirectly, any shares of Common Stock, or any securities convertible into
or exchangeable into or exercisable for any shares of Common Stock during the
period of distribution of the Company's securities by such underwriters, which
shall be specified in writing by the underwriters, shall not exceed any period
during which management of the Company and others are similarly prohibited from
disposing of shares of Common Stock and shall not exceed 180 days following the
date of effectiveness under the Securities Act of the Registration Statement
relating thereto if the net proceeds to the Company from such offering will be
$25,000,000 or greater and shall not exceed 60 days following the date of
effectiveness under the Securities Act of the Registration Statement relating
thereto if the net proceeds to the Company from such offering will be less than
$25,000,000.
Section 2.03. Registration Procedures. If and whenever the Company
is required pursuant to this Agreement to effect the registration of any of the
Registrable Securities under the Securities Act, the Company will, as
expeditiously as possible:
(a) prepare and file as promptly as possible with the
Commission a Registration Statement, on a form available to the
Company, with respect to such securities (which filing shall be made
within 45 days after the receipt by the Company of a Request Notice)
and use its best efforts to cause such Registration Statement to
become and remain effective for the period of the distribution
contemplated thereby (determined pursuant to subparagraph (g) below);
(b) prepare and file with the Commission such amendments
and supplements to such Registration Statement and the prospectus used
in connection therewith as may be necessary to keep such Registration
Statement effective for the period specified in subsection (g) below
and as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities
covered by such Registration Statement in accordance with the sellers'
intended method of disposition set forth in such Registration
Statement for such period;
<PAGE> 134
(c) furnish to each Selling Holder and to each
underwriter such number of copies of the Registration Statement and
the prospectus included therein (including each preliminary prospectus
and each document incorporated by reference therein to the extent then
required by the rules and regulations of the Commission) as such
Persons may reasonably request in order to facilitate the public sale
or other disposition of the Registrable Securities covered by such
Registration Statement;
(d) use its best efforts to register or qualify the
Registrable Securities covered by such Registration Statement under
the securities or blue sky laws of such jurisdictions as the Selling
Holders or, in the case of an underwritten public offering, the
managing underwriter, shall reasonably request, provided, however,
that the Company will not be required to subject itself to taxation in
any such jurisdiction or to consent to general service of process in
any such jurisdiction;
(e) immediately notify each Selling Holder and each
underwriter, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of
any event as a result of which the prospectus contained in such
Registration Statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing
and as promptly as practicable amend the Registration Statement or
supplement the prospectus or take other appropriate action so that the
prospectus does not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light
of the circumstances then existing; provided, however, that, in the
case of a shelf registration, the Company, on one occasion during each
such registration, may delay taking such action for a period of 45
days, during which time the Selling Holders shall not sell any
Registrable Securities, if the Board of Directors determines in its
reasonable judgment and in good faith that the making of any required
disclosure in connection therewith would have a material adverse
effect on the Company or substantially interfere with a significant
transaction in which the Company is then engaged;
(f) in the case of an underwritten public offering,
furnish, (i) on the date that Registrable Securities are delivered to
the underwriters for sale pursuant to such Registration Statement, an
opinion of counsel for the Company dated as of such date and addressed
to the underwriters and to the Selling Holders, stating that such
Registration Statement has become effective under the Securities Act
and that (A) to the best knowledge of such counsel, no stop order
suspending the effectiveness thereof has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Securities Act, (B) the Registration Statement,
the related prospectus, and each amendment or supplement thereof,
comply as to form in all material respects with the requirements of
the Securities Act and the applicable rules and regulations thereunder
of the Commission (except that such counsel need express no opinion as
to the financial statements or any engineering report contained or
incorporated therein) and (C) to such other effects as may reasonably
be requested by counsel for the underwriters, and (ii) on the
effective date of the Registration Statement and on the date that
Registrable Securities are delivered to the underwriters for sale
pursuant to such Registration Statement, a letter dated such dates
from the independent accountants retained by the Company, addressed to
the underwriters and to the Selling
<PAGE> 135
Holders, stating that they are independent public accountants within
the meaning of the Securities Act and that, in the opinion of such
accountants, the financial statements of the Company and the schedules
thereto that are included or incorporated by reference in the
Registration Statement or the prospectus, or any amendment or
supplement thereof, comply as to form in all material respects with
the applicable requirements of the Securities Act and the published
rules and regulations thereunder, and such letter shall additionally
address such other financial matters (including information as to the
period ending no more than five Business Days prior to the date of
such letter) included in the Registration Statement in respect of
which such letter is being given as the underwriters may reasonably
request;
(g) make available for inspection by one representative
of the Selling Holders designated by a majority thereof, any
underwriter participating in any distribution pursuant to such
Registration Statement, and any attorney, accountant or other agent
retained by such representative of the Selling Holders or underwriter
(the "Inspectors"), all financial and other records, pertinent
corporate documents and properties of the Company, and cause the
Company's officers, directors and employees to supply all information
reasonably requested by any such Inspector in connection with such
Registration Statement. For purposes of subsections (a) and (b) above
and of Section 2.01(c) of this Agreement, the period of distribution
of Registrable Securities in a firm commitment underwritten public
offering shall be deemed to extend until each underwriter has
completed the distribution of all securities purchased by it, and the
period of distribution of Registrable Securities in any other
registration shall be deemed to extend until the earlier of the sale
of all Registrable Securities covered thereby or one year, excluding
any period of time during which Selling Holders are prohibited from
selling Registrable Securities pursuant to Section 2.02 or Section
2.03(e);
(h) use its best efforts to keep effective and maintain
for the period specified in subparagraph (g) a registration,
qualification, approval or listing obtained to cover the Registrable
Securities as may be necessary for the Selling Holders to dispose
thereof and shall from time to time amend or supplement any prospectus
used in connection therewith to the extent necessary in order to
comply with applicable law;
(i) use its best efforts to cause the Registrable
Securities to be registered with or approved by such other
governmental agencies or authorities as may be necessary by virtue of
the business and operations of the Company to enable the Selling
Holders to consummate the disposition of such Registrable Securities;
and
(j) enter into customary agreements (including, if
requested, an underwriting agreement in customary form) and take such
other actions as are reasonably requested by the Selling Holders or
the underwriters, if any, in order to expedite or facilitate the
disposition of such Registrable Securities.
In connection with each registration hereunder, each Selling Holder
will furnish promptly to the Company in writing such information with respect
to itself and the proposed distribution by it as shall be reasonably necessary
in order to ensure compliance with federal and applicable state securities
laws.
<PAGE> 136
In connection with each registration hereunder with respect to an
underwritten public offering, the Company and each Selling Holder agrees to
enter into a written agreement with the managing underwriter or underwriters
selected in the manner herein provided in such form and containing such
provisions as are customary in the securities business for such an arrangement
between underwriters and companies of the Company's size and investment
stature, provided that such agreement shall not contain any such provision
applicable to the Company or the Selling Holders that is inconsistent with the
provisions hereof; and further provided, that the time and place of the closing
under said agreement shall be as mutually agreed upon among the Company, the
Selling Holders and such managing underwriter.
Section 2.04. Expenses. (a) All expenses incident to the
Company's performance under or compliance with this Agreement, including
without limitation, all registration and filing fees, blue sky fees and
expenses, printing expenses, listing fees, fees and disbursements of counsel
and independent public accountants for the Company, fees of the National
Association of Securities Dealers, Inc., transfer taxes, fees of transfer
agents and registrars and costs of insurance and reasonable out-of-pocket
expenses (including, without limitation, legal fees of one counsel for all
Selling Holders) of the Selling Holders, but excluding any Selling Expenses (as
defined below), are herein called "Registration Expenses." All underwriting
fees, discounts and selling commissions allocable to the sale of the
Registrable Securities are herein called "Selling Expenses."
(b) The Company will pay all Registration Expenses in
connection with each Registration Statement filed pursuant to this Agreement,
whether or not the Registration Statement becomes effective, and the Selling
Holders shall pay Selling Expenses in connection with any Registrable
Securities registered pursuant to this Agreement.
Section 2.05. Indemnification. (a) In the event of a
registration of any Registrable Securities under the Securities Act pursuant to
this Agreement, the Company will indemnify and hold harmless each Selling
Holder thereunder and each underwriter of Registrable Securities thereunder and
each Person, if any, who controls such Selling Holder or underwriter within the
meaning of the Securities Act and the Exchange Act, against any losses, claims,
damages or liabilities (including reasonable attorneys' fees) ("Losses"), joint
or several, to which such Selling Holder or underwriter or controlling Person
may become subject under the Securities Act, the Exchange Act or otherwise,
insofar as such Losses, (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained in any Registration Statement under which such Registrable
Securities were registered under the Securities Act pursuant to this Agreement,
any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse each such Selling Holder, each such underwriter and each such
controlling Person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such Loss or actions;
provided, however, that the Company will not be liable in any such case if and
to the extent that any such loss, claim, damage or liability arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished by such
Selling Holder, such underwriter or such controlling Person in writing
specifically for use in such Registration Statement or prospectus.
<PAGE> 137
(b) Each Selling Holder agrees to indemnify and hold
harmless the Company, its directors, officers, employees and agents and each
Person, if any, who controls the Company within the meaning of the Securities
Act or of the Exchange Act to the same extent as the foregoing indemnity from
the Company to such Selling Holder, but only with respect to information
regarding such Selling Holder furnished in writing by or on behalf of such
Selling Holder expressly for inclusion in any Registration Statement or
prospectus relating to the Registrable Securities, or any amendment or
supplement thereto; provided, however, that the liability of such Selling
Holder shall not be greater in amount than the dollar amount of the proceeds
(net of any Selling Expenses) received by such Selling Holder from the sale of
the Registrable Securities giving rise to such indemnification.
(c) Promptly after receipt by an indemnified party
hereunder of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party hereunder, notify the indemnifying party in writing thereof, but the
omission so to notify the indemnifying party shall not relieve it from any
liability which it may have to any indemnified party other than under this
Section 2.05. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in and, to the extent
it shall wish, to assume and undertake the defense thereof with counsel
reasonably satisfactory to such indemnified party and, after notice from the
indemnifying party to such indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 2.05 for any legal expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with
counsel so selected; provided, however, that, (i) if the indemnifying party has
failed to assume the defense and employ counsel or (ii) if the defendants in
any such action include both the indemnified party and the indemnifying party
and counsel to the indemnified party shall have concluded that there may be
reasonable defenses available to the indemnified party that are different from
or additional to those available to the indemnifying party or if the interests
of the indemnified party reasonably may be deemed to conflict with the
interests of the indemnifying party, then the indemnified party shall have the
right to select a separate counsel and to assume such legal defense and
otherwise to participate in the defense of such action, with the expenses and
fees of such separate counsel and other expenses related to such participation
to be reimbursed by the indemnifying party as incurred, provided that such fees
and expenses shall be reimbursed for only one counsel for all indemnified
parties.
(d) If the indemnification provided for in this Section
2.05 is available to the Company or the Selling Holders or is insufficient to
hold them harmless in respect of any losses, claims, damages, liabilities or
expenses referred to herein, then each such indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
liabilities and expenses as between the Company on the one hand and each
Selling Holder on the other, in such proportion as is appropriate to reflect
the relative fault of the Company on the one hand and of each Selling Holder on
the other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of the Company on the one hand and each
Selling Holder on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statements of a material fact or
the omission or alleged omission to state a material fact has been made by, or
relates to, information
<PAGE> 138
supplied by such party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
No person 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.
ARTICLE III
Section 3.01. Communications. All notices and other
communications provided for or permitted hereunder shall be made in writing by
telecopy, courier service or personal delivery:
(i) if to a Holder of Registrable Securities, at
the most current address given by such Holder of the Company
in accordance with the provisions of this Section 3.01, which
address initially is, with respect to the Purchaser, the
address set forth in the Purchase Agreement, and
(ii) if to the Company, initially at its address
set forth in the Purchase Agreement and thereafter at such
other address, notice of which is given in accordance with the
provisions of this Section 3.01.
All such notices and communications shall be deemed to have
been received at the time delivered by hand, if personally delivered; when
receipt acknowledged, if telecopied; and on the next Business Day if timely
delivered to an air courier guaranteeing overnight delivery.
Section 3.02. Successor and Assigns. This Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties, including without limitation and without the need for an
express assignment, subsequent holders of Registrable Securities.
Section 3.03. Counterparts. This Agreement may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original and all of which counterparts, taken together,
shall constitute but one and the same Agreement.
Section 3.04. Headings. The headings in this Agreement are
for convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
Section 3.05. Governing Law. The laws of the State of
Texas shall govern this Agreement without regard to principles of conflict of
laws.
Section 3.06. Severability of Provisions. Any provision of
this Agreement which is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting or impairing the validity or enforceability of such provision in any
other jurisdiction.
<PAGE> 139
Section 3.07. Entire Agreement. This Agreement, together
with the Purchase Agreement and the other Basic Documents is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties
hereto in respect of the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein with respect to the registration rights granted by the
Company with respect to the securities sold pursuant to the Purchase Agreement.
This Agreement, the Purchase Agreement and the other Basic Documents supersede
all prior agreements and understandings between the parties with respect to
such subject matter.
Section 3.08. Attorneys' Fees. In any action or proceeding
brought to enforce any provision of this Agreement, the successful party shall
be entitled to recover reasonable attorneys' fees in addition to its costs and
expenses and any other available remedy.
Section 3.09. Amendment. This Agreement may be amended
only by means of a written amendment signed by the Company and by the Holders
of a majority of the Registrable Securities.
Section 3.10. Registrable Securities Held by the Company or
Its Affiliates. In determining whether the Holders of the required amount of
Registrable Securities have concurred in any direction, amendment, supplement,
waiver or consent, Registrable Securities owned by the Company or one of its
Affiliates shall be disregarded.
Section 3.11. Assignment of Rights. (a) The rights of any
Holder under this Agreement may be assigned to any Person who acquires
Convertible Preferred Stock, Warrants or the Registrable Securities issuable on
conversion or exercise thereof. Any assignment of registration rights
pursuant to this Section 3.11(a) shall be effective only upon receipt by the
Company of written notice from such assigning Holder stating the name and
address of any assignee.
(b) The rights of an assignee under Section 3.11(a) shall
be the same rights granted to the assigning Holder under this Agreement, except
that the assignee shall be entitled to initiate only one demand registration
pursuant to Section 2.01, unless demands for three registrations have been
previously counted in accordance with Section 2.01(b), in which case such
assignee shall not have any demand registration rights. In the event that an
assignee Holder is not entitled to initiate a demand registration, such
Holder's Registrable Securities shall not be counted as outstanding for
purposes of calculating the majority of Registrable Securities required to
initiate a demand registration. In connection with any such assignment, the
term "Holder" as used herein shall, where appropriate to assign the rights and
obligations of the assigning Holder hereunder to such assignee, be deemed to
refer to the assignee.
<PAGE> 140
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
QUEEN SAND RESOURCES, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
and
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP
By: Enron Capital Management
Limited Partnership, its
General Partner
By: Enron Capital Corp., its General
Partner
By:
--------------------------------
Steven M. Emshoff
Agent and Attorney-in-Fact
<PAGE> 141
[ROBERTSON WARRANTS] EXHIBIT G
================================================================================
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES OR BLUE SKY LAWS
AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR IN RELIANCE ON AN OPINION,
REASONABLY SATISFACTORY TO QUEEN SAND RESOURCES, INC. IN FORM AND SUBSTANCE, OF
COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY, THAT SUCH SALE, PLEDGE OR OTHER
TRANSFER IS BEING MADE IN RELIANCE ON AN EXEMPTION FROM THE ACT AND ANY
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
================================================================================
QUEEN SAND RESOURCES, INC.
Common Stock Purchase Warrant
Representing Right To Purchase Shares of
Common Stock
of
Queen Sand Resources, Inc.
No. 1
FOR VALUE RECEIVED, QUEEN SAND RESOURCES, INC., a Delaware corporation
(the "Company"), hereby certifies that Joint Energy Development Investments
Limited Partnership, a Delaware limited partnership (the "Holder"), is
entitled, subject to the provisions of this Warrant, to purchase from the
Company, at any time or from time to time during the Exercise Period (as
hereinafter defined), a total of 409,839 shares (as such number of shares may
be adjusted pursuant to the terms hereof, the "Warrant Shares") of Common
Stock, par value $.0015 per share, of the Company, at a price per share equal
to the Exercise Price (as defined below). This Warrant is issued to the Holder
(together with such other warrants as may be issued in exchange, transfer or
replacement of this Warrant, the "Warrants") pursuant to the Securities
Purchase Agreement (as
<PAGE> 142
defined below) and entitles the Holder to purchase the Warrant Shares and to
exercise the other rights, powers and privileges hereinafter provided.
Section 1. Definitions. The following terms, as used herein, have the
following respective meanings:
"Common Stock" means the Company's common stock, $0.0015 par value.
"Company" is defined in the introductory paragraph of this Warrant.
"Date of Issuance" means _______________, 1997.
"Exercise Period" means the period of time between the Date of
Issuance and 5:00 p.m. (New York City time) on the Expiration Date.
"Exercise Price" means an amount, per share, equal to $ $1.85. The
Exercise Price shall be subject to adjustment, as set forth in
Section 4.
"Expiration Date" means _______________, 1998 [to be the date one year
from the Date of Issuance].
"Holder" means Joint Energy Development Investments Limited
Partnership and its permitted assignees.
"Person" means any individual, corporation, limited or general
partnership, joint venture, association, joint-stock company, trust, limited
liability company, unincorporated organization or government or any agency or
political subdivision thereof.
"Required Holders" means the Holders of more than 50% of all Warrant
Shares then outstanding (assuming the full exercise of all Warrants).
"Securities Purchase Agreement" means the Securities Purchase
Agreement, dated as of March 27, 1997, between the Company and the Holder, as
such agreement shall be modified, amended and supplemented and in effect from
time to time.
"Value" means, as of any date of determination, with respect to the
Common Stock, $3.50 per share of Common Stock.
"Warrants" is defined in the introductory paragraph of this Warrant.
"Warrant Shares" is defined in the introductory paragraph of this
Warrant.
Section 2. Exercise of Warrant; Cancellations of Warrant. This Warrant
may be exercised in whole or in part, at any time or from time to time, during
the Exercise Period, by presentation and surrender hereof to the Company at its
principal office at the address set forth in Section 10 (or at such other
reasonable address as the Company may after the date hereof notify the
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<PAGE> 143
Holder in writing, coming into effect not before 14 days after receipt of such
notice by the Holder), with the Purchase Form annexed hereto as Exhibit A duly
executed and accompanied by either (at the option of the Holder) proper payment
in cash or certified or bank check equal to the Exercise Price for the Warrant
Shares for which this Warrant is being exercised. Upon exercise of this Warrant
as aforesaid, the Company shall as promptly as practicable, and in any event
within 20 days thereafter, execute and deliver to the Holder a certificate or
certificates for the total number of Warrant Shares for which this Warrant is
being exercised, in such names and denominations as requested in writing by the
Holder. The Company shall pay any and all documentary stamp or similar issue
taxes payable in respect of the issue of the Warrant Shares. If this Warrant is
exercised in part only, the Company shall, upon surrender of this Warrant,
execute and deliver a new Warrant evidencing the rights of the Holder thereof
to purchase the balance of the Warrant Shares issuable hereunder.
Section 3. Exchange, Transfer, Assignment or Loss of Warrant. This
Warrant is exchangeable, without expense, at the option of the Holder, upon
presentation and surrender hereof to the Company for other Warrants of
different denominations, entitling the Holder to purchase in the aggregate the
same number of Warrant Shares. The Holder of this Warrant shall be entitled,
without obtaining the consent of the Company, to transfer or assign its
interest in (and rights under) this Warrant in whole or in part to any Person
or Persons. Upon surrender of this Warrant to the Company, with the Assignment
Form annexed hereto as Exhibit B duly executed and funds sufficient to pay any
transfer tax, the Company shall, without charge, execute and deliver a new
Warrant or Warrants in the name of the assignee or assignees named in such
Assignment Form and, if the Holder's entire interest is not being assigned, in
the name of the Holder, and this Warrant shall promptly be canceled. This
Warrant may be divided or combined with other Warrants that carry the same
rights upon presentation hereof at the office of the Company, together with a
written notice specifying the names and denominations in which new Warrants are
to be issued and signed by the Holder hereof. Upon receipt by the Company of
evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification (including, if required in the reasonable judgment
of the Company, a statement of net worth of such Holder that is at a level
reasonably satisfactory to the Company), and upon surrender and cancellation of
this Warrant, if mutilated, the Company shall execute and deliver a new Warrant
of like tenor and date.
Section 4. Antidilution Provisions.
(a) Adjustment of Number of Warrant Shares and Exercise
Price. The number of Warrant Shares purchasable
pursuant hereto and the Exercise Price, each shall
be subject to adjustment from time to time on and
after the Date of Issuance as provided in this
Section 4(a). In case the Company shall at any time
after the Date of Issuance (i) pay a dividend of
shares of Common Stock or make a distribution of
shares of Common Stock, (ii) subdivide its
outstanding shares of Common Stock into a larger
number of shares of Common Stock, (iii) combine its
outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (iv) issue any
shares of its capital stock or other assets in a
reclassification or reorganization of the Common
Stock (including any such reclassification in
connection with a
- 3 -
<PAGE> 144
consolidation or merger in which the Company is the
continuing entity), then (x) the securities
purchasable pursuant hereto shall be adjusted to the
number of Warrant Shares and amount of any other
securities, cash or other property of the Company
which the Holder would have owned or have been
entitled to receive after the happening of any of
the events described above, had this Warrant been
exercised immediately prior to the happening of such
event or any record date with respect thereto, and
(y) the Exercise Price shall be adjusted to equal
the Exercise Price immediately prior to the
adjustment multiplied by a fraction, (A) the
numerator of which is the number of Warrant Shares
for which this Warrant is exercisable immediately
prior to the adjustment, and (B) the denominator of
which is the number of shares for which this Warrant
is exercisable immediately after such adjustment.
The adjustments made pursuant to this Section 4(a)
shall become effective immediately after the
effective date of the event creating such right of
adjustment, retroactive to the record date, if any,
for such event. Any Warrant Shares purchasable as a
result of such adjustment shall not be issued prior
to the effective date of such event.
For the purpose of this Section 4(a) and (b), the
term "shares of Common Stock" means (i) the classes of stock
designated as the Common Stock of the Company as of the date
hereof, or (ii) any other class of stock resulting from
successive changes or reclassifications of such shares
consisting solely of changes in par value, or from par value
to no par value, or from no par value to par value. In the
event that at any time, as a result of an adjustment made
pursuant to this Section 4(a), the Holder shall become
entitled to receive any securities of the Company other than
shares of Common Stock, thereafter the number of such other
securities so receivable upon exercise of this Warrant shall
be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions
with respect to the Warrant Shares contained in this Section
4.
(b) Reorganization, Merger, etc. If any capital
reorganization, reclassification or similar
transaction involving the capital stock of the
Company (other than as specified in Section 4(a)),
any consolidation, merger or business combination of
the Company with another corporation or the sale or
conveyance of all or any substantial part of its
assets to another corporation, shall be effected in
such a way that holders of the shares of Common
Stock shall be entitled to receive stock, securities
or assets (including, without limitation, cash) with
respect to or in exchange for shares of the Common
Stock, then, prior to and as a condition of such
reorganization, reclassification, similar
transaction, consolidation, merger, business
combination, sale or conveyance, lawful and adequate
provision shall be made whereby the Holder shall
thereafter have the right to purchase and receive
upon the basis and upon the terms and conditions
specified in this Warrant and in lieu of the Warrant
Shares immediately theretofore purchasable and
receivable upon the exercise of this Warrant, such
shares of stock, securities or assets as may be
issued or payable with respect to or in
- 4 -
<PAGE> 145
exchange for a number of outstanding Warrant Shares
equal to the number of Warrant Shares immediately
theretofore purchasable and receivable upon the
exercise of this Warrant had such reorganization,
reclassification, similar transaction,
consolidation, merger, business combination, sale or
conveyance not taken place. The Company shall not
effect any such consolidation, merger, business
combination, sale or conveyance unless prior to or
simultaneously with the consummation thereof the
survivor or successor corporation (if other than the
Company) resulting from such consolidation or merger
or the corporation purchasing such assets shall
assume by written instrument executed and sent to
the Holder, the obligation to deliver to the Holder
such shares of stock, securities or assets as, in
accordance with the foregoing provisions, the Holder
may be entitled to receive.
(c) Statement on Warrant Certificates. Irrespective of
any adjustments in the Exercise Price or the number
or kind of Warrant Shares, this Warrant may continue
to express the same price and number and kind of
shares as are stated on the front page hereof.
(d) Exception to Adjustment. Anything herein to the
contrary notwithstanding, the Company shall not be
required to make any adjustment of the number of
Warrant Shares issuable hereunder or to the Exercise
Price in the case of the issuance of the Warrants or
the issuance of shares of the Common Stock (or other
securities) upon exercise of the Warrants.
(e) Treasury Shares. The number of shares of the Common
Stock outstanding at any time shall not include
treasury shares or shares owned or held by or for
the account of the Company or any of its
subsidiaries, and the disposition of any such shares
shall be considered an issue or sale of the Common
Stock for the purposes of this Section 4.
(f) Adjustment Notices to Holder. Upon any increase or
decrease in the number of Warrant Shares purchasable
upon the exercise of this Warrant or the Exercise
Price the Company shall, within 30 days thereafter,
deliver written notice thereof to all Holders, which
notice shall state the increased or decreased number
of Warrant Shares purchasable upon the exercise of
this Warrant and the adjusted Exercise Price,
setting forth in reasonable detail the method of
calculation and the facts upon which such
calculations are based.
Section 5. Notification by the Company. In case at any time
while this Warrant remains outstanding:
(a) the Company shall declare any dividend or make any
distribution upon its Common Stock or any other
class of its capital stock; or
- 5 -
<PAGE> 146
(b) the Company shall offer for subscription pro rata to
the holders of its Common Stock or any other class
of its capital stock any additional shares of stock
of any class or any other securities convertible
into or exchangeable for shares of stock or any
rights or options to subscribe thereto; or
(c) the Board of Directors of the Company shall
authorize any capital reorganization,
reclassification or similar transaction involving
the capital stock of the Company, or a sale or
conveyance of all or a substantial part of the
assets of the Company, or a consolidation, merger or
business combination of the Company with another
Person; or
(d) actions or proceedings shall be authorized or
commenced for a voluntary or involuntary
dissolution, liquidation or winding-up of the
Company;
then, in any one or more of such cases, the Company shall give written notice
to the Holder, at the earliest time legally practicable (and not less than 20
days before any record date or other date set for definitive action) of the
date on which (i) the books of the Company shall close or a record shall be
taken for such dividend, distribution or subscription rights or options or (ii)
such reorganization, reclassification, sale, conveyance, consolidation, merger,
dissolution, liquidation or winding-up shall take place or be voted on by
shareholders of the Company, as the case may be. Such notice shall also specify
the date as of which the holders of the Common Stock of record shall
participate in said dividend, distribution, subscription rights or options or
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, sale,
conveyance, consolidation, merger, dissolution, liquidation or winding-up, as
the case may be. If the action in question or the record date is subject to the
effectiveness of a registration statement under the Securities Act or to a
favorable vote of shareholders, the notice required by this Section 5 shall so
state.
Section 6. No Voting Rights: Limitations of Liability. Prior to
exercise, this Warrant will not entitle the Holder to any voting rights or
other rights as a stockholder of the Company. No provision hereof, in the
absence of affirmative action by the Holder to exercise this Warrant, and no
enumeration herein of the rights or privileges of the Holder, shall give rise
to any liability of the Holder for the purchase price of the Warrant Shares
pursuant to the exercise hereof.
Section 7. Amendment and Waiver.
(a) No failure or delay of the Holder in exercising any
power or right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of
such right or power, or any abandonment or
discontinuance of steps to enforce such a right or
power, preclude any other or further exercise
thereof or the exercise of any other right or power.
The rights and remedies of the Holder are cumulative
and not exclusive of any rights or remedies which it
would otherwise have. The provisions of this Warrant
may be amended, modified or waived with (and only
with) the written consent of the Company and the
Required Holders.
- 6 -
<PAGE> 147
(b) No notice or demand on the Company in any case shall
entitle the Company to any other or further notice
or demand in similar or other circumstances.
Section 8. No Fractional Warrant Shares. The Company shall not be
required to issue stock certificates representing fractions of Warrant Shares,
but shall in respect of any fraction of a Warrant Share make a payment in cash
based on the Value of the Common Stock after giving effect to the full exercise
or conversion of the Warrants.
Section 9. Reservation of Warrant Shares. The Company shall authorize,
reserve and keep available at all times, free from preemptive rights, a
sufficient number of Warrant Shares to satisfy the requirements of this
Warrant.
Section 10. Notices. Unless otherwise specified, whenever this Warrant
requires or permits any consent, approval, notice, request, or demand from one
party to another, that com munication must be in writing (which may be by
telecopy) to be effective and is deemed to have been given (a) if by telecopy,
when transmitted to the appropriate telecopy number (and all communications
sent by telecopy must be confirmed promptly by telephone; but any requirement
in this parenthetical does not affect the date when the telecopy is deemed to
have been delivered), or (b) if by any other means, including by
internationally acceptable courier or hand delivery, when actually delivered.
Until changed by notice pursuant to this Warrant, the address (and telecopy
number) for the Holder and the Company are:
If to Holder: Joint Energy Development Investments
Limited Partnership
c/o Enron Corp.
1400 Smith Street
Houston, Texas 77002
Attn: Donna Lowry - Director, 28th Floor
Facsimile: (713) 646-3602
If to Company: Queen Sand Resources, Inc.
3500 Oak Lawn, Suite 380, L.B.#31
Dallas, Texas 75219-4398
Attn: Robert P. Lindsay
Facsimile: (214) 521-9960
With copies to: Queen Sand Resources, Inc.
60 Queen Street, Suite 1400
Ottawa, Canada K1P 5Y7
Attn: Edward J. Munden
Facsimile: (613) 230-6055
- 7 -
<PAGE> 148
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
Attn: William L. Boeing, Esq.
Facsimile: (214) 651-5940
Section 11. Section and Other Headings. The headings contained in this
Warrant are for reference purposes only and will not affect in any way the
meaning or interpretation of this Warrant.
Section 12. Governing Law. THIS WARRANT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE.
Section 13. Binding Effect. The terms and provisions of this Warrant
shall inure to the benefit of the Holder and its successors and assigns and
shall be binding upon the Company and its successors and assigns, including,
without limitation, any Person succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets.
* * * * *
- 8 -
<PAGE> 149
IN WITNESS WHEREOF, the seal of the Company and the signature of its
duly authorized officer have been affixed hereto as of __________ _____, 1997.
[SEAL] QUEEN SAND RESOURCES, INC.
Attest: By:
---------------------- -------------------------------
Name:
-----------------------------
Title:
----------------------------
and
Attest: By:
---------------------- -------------------------------
Name:
-----------------------------
Title:
----------------------------
- 9 -
<PAGE> 150
EXHIBIT A
TO
WARRANT
PURCHASE FORM
To Be Executed by the Holder
Desiring to Exercise a Warrant of
Queen Sand Resources, Inc.
The undersigned holder hereby exercises the right to purchase _______
shares of Common Stock covered by the within Warrant, according to the
conditions thereof, and herewith makes payment in full of the Exercise Price of
such shares, in the amount of $____________.
Name of Holder:
-----------------------------------
Signature:
-------------------------
Title:
-----------------------------
Address:
---------------------------
-----------------------------------
-----------------------------------
Dated: , .
---------------- --------
- 10 -
<PAGE> 151
EXHIBIT B
TO
WARRANT
ASSIGNMENT FORM
To Be Executed by the Holder
Desiring to Transfer a Warrant of
Queen Sand Resources, Inc.
FOR VALUE RECEIVED, the undersigned holder hereby sells, assigns and
transfers unto ____________ the right to purchase ____________ shares of
Common Stock covered by the within Warrant, and does hereby irrevocably
constitute and appoint _________________ Attorney to transfer the said Warrant
on the books of the Company (as defined in such Warrant), with full power of
substitution.
Name of Holder:
-----------------------------------
Signature:
-------------------------
Title:
-----------------------------
Address:
---------------------------
-----------------------------------
-----------------------------------
Dated: , .
---------------- --------
In the presence of
- -------------------------------
NOTICE:
The signature to the foregoing Assignment Form must correspond to the name as
written upon the face of the within Warrant in every detail, without alteration
or enlargement or any change whatsoever.
- 11 -
<PAGE> 152
EXHIBIT H
STOCKHOLDERS' AGREEMENT
This Stockholders' Agreement ("Agreement") dated April ___, 1997 is by
and among Edward J. Munden, Ronald I. Benn, Bruce I. Benn, Robert P. Lindsay
(each, a "Management Stockholder" and collectively, the "Management
Stockholders"), EIBOC Investments Ltd., a corporation organized under the laws
of Barbados ("EIBOC"), Queen Sand Resources, Inc., a Delaware corporation (the
"Company"), and Joint Energy Development Investments Limited Partnership, a
Delaware limited partnership ("JEDI"). Initially capitalized terms used but not
otherwise defined herein have the meanings ascribed to such terms in the
Securities Purchase Agreement dated February _____, 1997 between the Company
and JEDI (the "Purchase Agreement").
WHEREAS, JEDI and the Company have entered into the Purchase Agreement
pursuant to which JEDI will purchase certain securities of the Company; and
WHEREAS, EIBOC is the legal owner of 6,600,000 shares of Common Stock
which are represented by certificate no. __________________ (the "Shares"); and
WHEREAS, the execution and delivery of this Agreement by the parties
hereto is a condition to the obligations of JEDI and the Company to consummate
the transactions contemplated by the Purchase Agreement.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. RESTRICTIONS ON TRANSFERS OF SHARES.
(a) No Stockholder shall, without the prior written
consent of JEDI, Transfer any of the Shares or any
interest therein except as specifically permitted by
Section 1(b) or (c) of this Agreement. For purposes
of this Agreement, the term "Stockholder" means
EIBOC, the Management Stockholder and any Person who
is required by the terms of this Agreement to
execute an Adoption Agreement, as described in the
following sentence and the term "Transfer" means any
direct or indirect sale, assignment, donation,
transfer, devise, pledge, hypothecation, encumbrance
or other disposition of any shares or any interest
therein. Any Person who is required by the terms of
this Agreement to become a party to this Agreement
shall do so by executing an Adoption Agreement in
the form attached as Exhibit A or in any other form
satisfactory to the Company and JEDI, whereupon such
person or entity shall be deemed a "Stockholder" and
shall have all of the rights and obligations of a
Stockholder under this Agreement and the Shares or
any interest therein held by any such Person shall
be subject to the provisions hereof.
(b) Notwithstanding the restrictions contained in
paragraph (a) of this Section 1, after October 1,
1997 (i) any Stockholder may Transfer Shares,
provided that the number of Shares to be Transferred
together
1
<PAGE> 153
with the number of all Shares Transferred by all
Stockholders during the preceding twelve months does
not exceed the lesser of (x) four percent of the
shares of Common Stock outstanding as shown by the
most recent report or statement published by the
Company and filed with the Commission, (y) four
times the average weekly reported volume of trading,
excluding any trades made by Stockholders, in Common
Stock on all national securities exchanges and/or
reported through the automated quotation system of a
registered securities association during the four
calendar weeks preceding the date of Transfer and
(z) four times the average weekly volume of trading,
excluding any trades made by Stockholders, in Common
Stock reported through the consolidated transaction
reporting system, contemplated by Rule 11Aa3-1 under
the Exchange Act during the four-week period
specified in clause (y) of this paragraph (b); and
(ii) Stockholders may Transfer Shares in a
registered underwritten public offering of Common
Stock; provided, however, that no Stockholder may
transfer Shares pursuant to this paragraph (b) if
after such transfer the Management Stockholders
would beneficially own less than 4,950,000 Shares in
the aggregate, subject (1) to a proportionate
adjustment in the event of a stock split, reverse
stock split, combination of shares, stock dividend
or distribution or other similar change in the
outstanding shares of Common Stock and (2) reduction
by the number of Shares Transferred in accordance
with paragraph (d) of this Section 1 to the estate
of a deceased Management Stockholder or to a
Disabled Management Stockholder. As used herein, the
term "beneficial owner" shall have the meaning set
forth in paragraph (a)(2) of Rule 16a-1 under the
Exchange Act.
(c) Nothing in this Section 1: (i) shall prevent any
Stockholder from (x) voting their Shares or other
Voting Securities in any vote of stockholders of the
Company on a merger or consolidation of the Company
with or into any other Person, (y) Transferring
their Shares in exchange for consideration payable
in respect of such Shares in connection with a
merger or consolidation of the Company with or into
any other Person or (z) Transferring their Shares
pursuant to a tender or exchange offer that the
Board of Directors of the Company endorses or does
not oppose, (ii) shall prevent EIBOC from
Transferring Shares to the Management Stockholders
in proportion to their percentage beneficial
interests in the EIBOC Shares, (iii) shall prevent a
Management Stockholder from Transferring Shares to
his Family Group; provided, that no Transfer may be
made to a Management Stockholder's Family Group
until the transferee has executed an Adoption
Agreement agreeing in be bound by the terms of this
Agreement. "Family Group" means, with respect to a
Management Stockholder, (x) the spouse of the
Management Stockholder, (y) any entity of which the
Management Stockholder or his spouse legally and
beneficially owns 100% of the equity interests,
provided such interests are not transferrable and
provided further that concurrently with such
Transfer, such entity agrees in writing with JEDI
that it will not issue any equity interest to any
Person other than the Management
2
<PAGE> 154
Stockholder and his spouse, or (z) any trust solely
for the benefit of the Management Stockholder, the
Management Stockholder's spouse, and/or their
respective ancestors and/or descendants, including
any descendants by adoption; provided, however, that
the trustee or trustees (including any substitute or
replacement trustee or trustees) shall have been
approved by JEDI, which approval may not be
unreasonably withheld, or (iv) shall prevent EIBOC
from transferring or otherwise allocating any Shares
to Robert P. Lindsay.
(d) Notwithstanding the restrictions contained in
paragraph (a) or (b) of this Section 1, upon the
death or Disability of a Management Stockholder,
EIBOC may Transfer Shares to the estate of the
Management Stockholder or a Disabled Management
Stockholder, or the Disabled Management
Stockholder's personal representative, in proportion
to his percentage beneficial interest in the Shares
owned by EIBOC. "Disability" shall exist, and a
Management Stockholder shall be "Disabled," if such
Management Stockholder becomes incapacitated by
accident, sickness or other circumstance which
renders him mentally or physically incapable of, or
would have been incapable of, had he been an
employee of the Company at the time he became
disabled, performing the duties and services
required of the Management Stockholder under the
Employment Agreement between the Company and such
Management Stockholder for a period of 120
consecutive days, or if, in any 12-month period, for
a period of 180 days, regardless of whether or not
such days are consecutive, as determined in good
faith by the Company's Board of Directors.
2. RESTRICTIONS ON TRANSFER BY JEDI.
(a) JEDI agrees that until the second anniversary of the
date of this Agreement and except pursuant to its
registration rights contained in the Registration
Rights Agreement, it will not Transfer any shares of
Common Stock or other securities that are
convertible into or exchangeable or exercisable for
Common Stock ("Common Stock Equivalents") to any
Person that is not an Affiliate of JEDI except in
blocks of at least 600,000 shares of Common Stock or
blocks of Common Stock Equivalents that are
convertible into or exchangeable or exercisable for
at least 600,000 shares of Common Stock.
(b) JEDI agrees that, until the second anniversary of
the date of this Agreement and except pursuant to
its registration rights contained in the
Registration Rights Agreement, it will not Transfer
any shares of Common Stock or Common Stock
Equivalents to any Person that is not an Affiliate
of JEDI without first providing the Company and the
Management Stockholders the right to purchase the
shares to be Transferred in accordance with the
following provisions:
3
<PAGE> 155
(i) If JEDI desires to Transfer shares of Common
Stock or Common Stock Equivalents to a Person that is not an Affiliate
of JEDI, JEDI shall deliver to the Company and, provided the
Management Stockholders beneficially own more than 10% of the voting
power of all the voting power of all the outstanding Voting Securities
of the Company, to each of the Management Stockholders a written
notice (a "Transfer Notice"), which shall specify the proposed
transferee, the number of shares of Common Stock or Common Stock
Equivalents to be Transferred (the "Subject Shares"), the proposed
consideration to be paid therefor (the "Proposed Sale Price"), and
other material terms of the proposed Transfer, and which notice shall
include a copy of any agreement with respect to the proposed Transfer.
(ii) The Company shall have the right, for a period
of thirty days following its receipt of a Transfer Notice to elect to
acquire all, but not less than all, of the Shares specified in the
Transfer Notice at a cash price equal to the Proposed Sale Price or,
at the Company's election if the Proposed Sale Price consists of
noncash consideration, for substantially identical consideration The
Company may exercise the foregoing right by delivering to JEDI, within
thirty days after receipt of the Transfer Notice, written notice (an
"Acceptance Notice") of its intention to purchase the Subject Shares.
The closing of any acquisition of Subject Shares by the Company shall
be consummated within five Business Days following delivery of the
Acceptance Notice, at the principal offices of JEDI (unless otherwise
mutually agreed), at which time the purchase price (in the form of a
wire transfer to an account designated by JEDI or, if other than cash,
in a form reasonably acceptable to JEDI) shall be delivered to JEDI or
its representative and JEDI shall deliver to the Company certificates
representing the Subject Shares, duly endorsed for transfer or
accompanied by duly executed stock powers.
(iii) If the Company elects not to acquire the
Subject Shares, so long as the Management Stockholders beneficially
own, in the aggregate, Capital Stock of the Company representing more
than 10% of the voting power of all the outstanding Voting Securities
of the Company, the Management Stockholders shall have the right to
acquire all, but not less than all, of the Subject Shares on the same
terms as the Company could acquire the Subject Shares, as provided in
paragraph (b), by delivering an Acceptance Notice, signed by each
Management Stockholder and specifying the number of Subject Shares to
be purchased by each Management Stockholder, to JEDI within thirty
days following receipt by the Company of a Transfer Notice. The right
to purchase Subject Shares shall be allocated among the Management
Stockholders in a manner determined by the Management Stockholders.
(iv) If neither the Company nor the Management
Stockholders deliver an Acceptance Notice within thirty days after
delivery of the Transfer Notice or complete the purchase of the
Subject Shares within five Business Days of delivery of the Acceptance
Notice, JEDI shall be free to consummate the proposed Transfer on the
terms set forth in the Transfer Notice, provided the proposed Transfer
of the Subject Shares on the terms set forth in the Transfer Notice is
consummated within 90 days after the date of receipt of the Transfer
Notice.
4
<PAGE> 156
3. REPRESENTATIONS OF MANAGEMENT STOCKHOLDERS. Edward J. Munden,
Bruce I. Benn and Ronald I. Benn jointly and severally represent to JEDI that
EIBOC is the sole legal owner of the Shares.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF EIBOC. EIBOC
hereby represents, warrants and agrees with JEDI as follows:
(a) EIBOC is a corporation duly organized, validly
existing and in good standing under the laws of
Barbados. EIBOC (i) has conducted no business since
its formation other than ownership of the Shares,
(ii) owns the Shares free and clear of all Liens,
and (iii) has all requisite corporate power and
authority to execute, deliver and perform its
obligations under this Agreement.
(b) This Agreement has been duly executed on behalf of
EIBOC and constitutes the legal, valid and binding
obligation of EIBOC, enforceable against it in
accordance with its terms.
(c) ATC is the sole holder of Capital Stock of EIBOC and
managing director of EIBOC, with sole power and
authority to act on its behalf.
(d) The authorized Capital Stock of EIBOC consists of
____________ [ordinary shares], __________ of which
are outstanding and represented by certificate no.
____, registered in the name of ATC. There are no
outstanding securities convertible into or
exchangeable for any shares of Capital Stock of
EIBOC or any contract, commitment, agreement,
understanding or arrangement of any kind to which
EIBOC is a party relating to the issuance of any
Capital Stock of EIBOC. EIBOC owns the Shares, free
and clear of all Liens.
(e) EIBOC will not (i) issue any Capital Stock or permit
any of its Capital Stock to be Transferred, (ii)
enter into any contract, agreement, commitment,
understanding or arrangement of any kind relating to
any issuance of Capital Stock of EIBOC or (iii)
engage in any trade or business or engage in any
other activity other than ownership of the Shares,
provided, however, that this subsection 4(e) shall
not prohibit any Transfer to any successor trustee
of the Capital Stock of EIBOC; provided, that
written consent is obtained from JEDI, which consent
shall not be unreasonably withheld.
5. LEGEND ON CERTIFICATES; STOP TRANSFER ORDERS. The parties hereto
agree to the placement on certificates representing securities covered by
Section 1 or Section 2 of a legend, in the form of Exhibit B attached hereto,
indicating that such securities may not be transferred except in accordance
with this Agreement and to the entry of a stop transfer order with the transfer
agent for such securities against the transfer of such securities except in
accordance with this Agreement.
6. ESCROW OF THE SHARES. On the date of this Agreement, the Shares
shall be deposited in escrow with an escrow agent pursuant to an escrow
agreement mutually acceptable to EIBOC, the Management Stockholders and JEDI,
and the Shares shall be held
5
<PAGE> 157
in such escrow until the earlier of (i) the Transfer of all the Shares in
accordance with this Agreement to a Person other than a Management Stockholder
or his Family Group, or (ii) the termination of this Agreement pursuant to
Section 11(a). Upon termination of this Agreement or if EIBOC, the Management
Stockholders and JEDI determine that a proposed Transfer of Shares may be
effected in compliance with this Agreement, then EIBOC, the Management
Stockholders and JEDI shall promptly send a notice to such escrow agent to
release the Shares to EIBOC or the Management Stockholders at the place
requested by EIBOC and the Management Stockholders.
7. ESCROW OF THE EIBOC SHARES. On the date of this Agreement, all of
the shares of issued and outstanding Capital Stock of EIBOC (the "EIBOC
Shares") shall be deposited in escrow with an escrow agent pursuant to an
escrow agreement mutually acceptable to EIBOC, the Management Stockholders and
JEDI, and the EIBOC Shares shall be held in such escrow until the earlier of
(i) the Transfer of all of the Shares in accordance with this Agreement to a
Person other than a Management Stockholder or his Family Group, or (ii) the
termination of this Agreement pursuant to Section 11(a). Upon termination of
this Agreement or if EIBOC, the Management Stockholders and JEDI agree that the
EIBOC Shares may be Transferred, then EIBOC, the Management Stockholders and
JEDI shall promptly send a notice to such escrow agent to release the EIBOC
Shares to the Management Stockholders at the place requested by the Management
Stockholders.
8. PROXY. EIBOC hereby irrevocably appoints Bruce I. Benn, Ronald I.
Benn, Edward J. Munden and Robert P. Lindsay, collectively, as its
attorney-in-fact and proxy, with full power and substitution, to vote and
otherwise act (by written consent or otherwise) with respect to the Shares
which EIBOC is entitled to vote at any meeting of stockholders (whether annual
or special and whether or not an adjourned or postponed meeting) or consent in
lieu of any such meeting or otherwise, on all matters. EIBOC ACKNOWLEDGES THAT
THIS PROXY IS COUPLED WITH AN INTEREST AND IS IRREVOCABLE AND SHALL NOT BE
TERMINATED BY OPERATION OF LAW UPON THE OCCURRENCE OF ANY EVENT.
9. TRANSFERS IN VIOLATION OF AGREEMENT DEEMED FRAUDULENT. Any Transfer
of EIBOC Shares or any Shares contrary to the provisions of this Agreement and
any Transfer of any interest of any Stockholder intended to circumvent the
restrictions set forth herein or in violation of this Agreement shall be deemed
fraudulent and such Transfer shall be void ab initio and of no force and
effect.
10. MISCELLANEOUS.
(a) Except as to provisions that, by their terms,
terminate earlier, this Agreement shall terminate at
the earlier of (i) the fifth anniversary of the date
of this Agreement or (ii) such time as JEDI and its
Affiliates beneficially own, in the aggregate,
Capital Stock of the Company representing less than
10% of the voting power of all then outstanding
Voting Securities of the Company.
(b) This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the
parties hereto. Notwithstanding the foregoing, the
rights and obligations of the parties hereunder
shall not be assignable, except that JEDI's rights
and obligations hereunder shall
6
<PAGE> 158
be assigned to an Affiliate of JEDI if and to the
extent that such Affiliate becomes the owner of
shares of Common Stock or Common Stock Equivalents.
(c) This Agreement may be executed in any number of
counterparts and by different parties hereto in
separate counterparts, each of which counterparts,
when so executed and delivered, shall be deemed to
be an original and all of which counterparts, taken
together, shall constitute but one and the same
Agreement.
(d) The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise
affect the meaning hereof.
(e) The laws of the State of Texas shall govern this
Agreement without regard to principles of conflict
of laws.
(f) Any provision of this Agreement that is prohibited
or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without
invalidating the remaining provisions hereof or
affecting or impairing the validity or
enforceability of such provision in any other
jurisdiction.
(g) This Agreement, together with the Purchase
Agreement, and the other Basic Documents, is
intended by the parties as a final expression of
their agreement and intended to be a complete and
exclusive statement of the agreement and
understanding of the parties hereto in respect of
the subject matter contained herein This Agreement,
the Purchase Agreement and the other Basic Documents
supersede all prior agreements and understandings
between the parties with respect to such subject
matter.
(h) This Agreement may be amended only by means of a
written amendment signed by all of the parties
hereto.
(i) All notices provided for hereunder shall be given by
telecopy (confirmed by overnight delivery), air
courier guaranteeing overnight delivery or personal
delivery at the following addresses:
If to a Management Stockholder, to such Management Stockholder
at:
Queen Sand Resources, Inc.
3500 Oak Lawn, Suite 280, L.B. #31
Dallas, Texas 75219-1398
Telecopier: (214) 521-9960
7
<PAGE> 159
and
Queen Sand Resources, Inc.
60 Queen Street, Suite 1400
Ottawa, Ontario, Canada K1P 5Y7
Telecopier: (613) 230-6055
If to JEDI:
Joint Energy Development Investments Limited Partnership
1400 Smith Street
Houston, Texas 77002-7361
Attention: Donna Lowry, Director - 28th Floor
Telecopier: (713) 646-3602
If to EIBOC:
----------------------
----------------------
----------------------
----------------------
Telecopier:
-----------
or to such other address as any such party may designate by notice in the
manner provided above. All such notices shall be deemed to have been delivered
and received at the time delivered by hand, if personally delivered, when
receipt acknowledged, if telecopied, and on the next Business Day, if timely
delivered to an air courier guaranteeing overnight delivery.
8
<PAGE> 160
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
THE MANAGEMENT STOCKHOLDERS
----------------------------------------------
Edward J. Munden
----------------------------------------------
Ronald I. Benn
----------------------------------------------
Bruce I. Benn
----------------------------------------------
Robert P. Lindsay
EIBOC INVESTMENTS LTD.
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
QUEEN SAND RESOURCES, INC.
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
and
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP
By: Enron Capital Management Limited
Partnership, its general partner
By: Enron Capital Corp., its general partner
By:
------------------------------------------
W. Craig Childers
Attorney-in-Fact
9
<PAGE> 161
QUEEN SAND RESOURCES, INC.
SPOUSAL CONSENT
The undersigned spouse of __________________________ executes this
Consent and Agreement to acknowledge her joining the Stockholders Agreement (a
copy of which is annexed hereto) with respect to her community property
interest in the Shares, as such term is defined in the Stockholders Agreement.
WITNESS: SPOUSE:
- -------------------------------- -----------------------------
10
<PAGE> 162
EXHIBIT A
ADOPTION AGREEMENT
This Adoption Agreement ("Agreement") is executed by the person or
entity named as "Transferee" below pursuant to the terms of the Stockholders'
Agreement dated as of March __, 1997 ("Stockholders' Agreement"), relating to
Shares of Common Stock, $.0015 per share, of Queen Sand Resources, Inc., a
Delaware corporation. Initially capitalized terms used but not otherwise
defined herein, shall have the meanings ascribed to them in the Stockholders'
Agreement.
1. Acknowledgment. Transferee acknowledges that Transferee is
acquiring certain Shares, or interest therein subject to the terms and
conditions of the Stockholders' Agreement.
2. Agreement. Transferee (a) agrees that Transferee and the Shares
acquired by Transferee shall be bound by and subject to the terms of the
Stockholders' Agreement and (b) adopts the Stockholders' Agreement with the
same force and effect as if Transferee were a "Stockholder" thereunder.
3. Notice. Any notice required or permitted by the Stockholders'
Agreement shall be given to Transferee at the address listed below Transferee's
signature.
4. Joinder. The spouse of Transferee, if applicable, executes this
Agreement to acknowledge that it is fair and in such spouse's best interests
and to bind such spouse's community interest, if any, in the Shares to the
terms of the Stockholders' Agreement.
This Agreement is executed by Transferee on ____________.
TRANSFEREE: SPOUSE (if applicable):
- ----------------------------------- ----------------------------------
Signature Signature
- ----------------------------------- ----------------------------------
Print Name Print Name
- -----------------------------------
- -----------------------------------
Address
QUEEN SAND RESOURCES, INC.
By:
-------------------------------
President
11
<PAGE> 163
EXHIBIT B
Legend for Stock Certificates:
"THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE
PROVISIONS OF A STOCKHOLDERS' AGREEMENT DATED APRIL _____,
1997 BY AND AMONG EDWARD J. MUNDEN, RONALD I. BENN, BRUCE
I. BENN, ROBERT P. LINDSAY, EIBOC INVESTMENTS LTD., QUEEN
SAND RESOURCES, INC. AND JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP AND MAY NOT BE SOLD,
TRANSFERRED PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED
OF EXCEPT IN ACCORDANCE THEREWITH."
12
<PAGE> 164
EXHIBIT I
OPINIONS
[Note: We would deliver Accord opinion.]
Based upon the foregoing and subject to the limitations and
qualifications in this opinion letter, we are of the opinion that:
1. The Company is a corporation incorporated, validly existing,
and in good standing under the laws of the State of Delaware. Each of the
Company's Subsidiaries is a corporation incorporated, validly existing and in
good standing under the laws of the state of its incorporation.
2. The Company is qualified to do business as a foreign
corporation and is in good standing in the States of _________________, which
are the only jurisdictions in which the Company has certified to us that it is
required to be so qualified (other than any jurisdiction with respect to which
the failure to be so qualified would not have a material adverse effect on the
assets, liabilities, financial condition, operations or prospects of the
Company and its subsidiaries taken as a whole). [duplicate for Subsidiaries]
[Note: Will be based solely on state good standing certificates.]
3. Each of the Company and each of the Company's Subsidiaries has
the corporate power and authority to own its properties and to conduct its
business as currently conducted.
4. All of the issued and outstanding shares of common stock and
preferred stock of the Company's Subsidiaries have been duly authorized and
issued and are fully paid, nonassessable and are (i) free of preemptive rights,
and (ii) owned of record by the Company or one of its Subsidiaries, and free of
any adverse claim other than the Liens set forth on Schedule ___. There are no
(i) outstanding securities convertible into or exercisable or exchangeable for
Capital Stock of any Subsidiary of the Company or (ii) any contract,
commitment, agreement, understanding or arrangement of any kind to which the
Company or any Subsidiary of the Company is a party relating to the transfer by
the Company or by any Subsidiary of any Capital Stock of any Subsidiary, or to
the issuance by any Subsidiary of any Capital Stock.
5. All of the issued and outstanding shares of Company's Common
Stock have been duly authorized and issued and are fully paid, nonassessable
and are free of preemptive rights. Immediately after giving effect to the
consummation of the transactions contemplated by the JEDI Purchase Agreement
and the Forseti Purchase Agreement, the authorized capital stock of the Company
will consist of (a) 100,000,000 shares of Common Stock and (b) [50,000,000]
shares of Preferred Stock, of which 9,600,000 shares have been designated as
Series A Participating Convertible Preferred Stock (the "Series A Preferred
Stock") and 9,600,000 shares have been designated as Series B Participating
Convertible Preferred Stock (the "Series B Preferred Stock"). Immediately
after giving effect to the consummation of the transactions contemplated by the
JEDI Purchase Agreement and the Forseti Purchase Agreement, the issued and
outstanding capital stock of the Company consists of the following (a) ______
shares of Common Stock and (b) 9,600,000 shares of Series A Preferred Stock.
There are issued and held in treasury ____ shares of Common Stock. The Series
A Preferred Stock shares have been duly authorized and validly issued and are
fully paid and
<PAGE> 165
nonassessable and the Series A Preferred Stock has not been issued in violation
of any preemptive rights. The Conversion Shares, the Purchaser Warrant Shares
and the Robertson Warrant Shares have been duly authorized and reserved for
issuance upon exercise or conversion of the Series A Preferred Stock on the
Purchaser Warrants and the Robertson Warrants, as the case may be, and upon
such exercise or conversion in accordance with the Certificate of Designation,
the Purchaser Warrants and the Robertson Warrants, respectively, will be
validly issued, fully paid, nonassessable free of preemptive rights. Except
for the Series A Preferred Stock, the Class A Warrants, the Class B Warrants,
the Purchaser Warrants, the Robertson Warrants, the JEDI Purchase Agreement,
and the Convertible Notes, there are no (i) outstanding securities convertible
into or exercisable or exchangeable for Capital Stock of the Company or (ii)
contracts, commitments, agreements, understandings or arrangements of any kind
to which the Company is a party relating to the issuance by the Company of any
Capital Stock. The Company is not a party to any voting trust or other
agreement with respect to the voting of its Capital Stock and, except for the
Registration Rights Agreement and the other agreements set forth on Schedule
3.03(B) to the JEDI Purchase Agreement, the Company is not a party to or bound
by any agreement granting to any Person registration rights with respect to any
Capital Stock of the Company.
6. The Company has all corporate power and authority (i) to
execute, deliver and perform its obligations under the JEDI Purchase Agreement,
each of the Basic Documents and each of the Forseti Documents, (ii) to issue
the Securities in the manner contemplated by the JEDI Purchase Agreement, and
(iii) to issue the Conversion Shares, the Purchaser Warrant Shares and the
Robertson Warrant Shares in the manner contemplated by the Certificate of
Designation, the Purchaser Warrants and the Robertson Warrants, respectively.
7. The JEDI Purchase Agreement, each of the Basic Documents and
each of the Forseti documents have been duly authorized, executed and delivered
by the Company and constitute legal, valid, and binding obligations of the
Company enforceable against it in accordance with their respective terms.
8. No consent, approval, waiver or authorization of, or
designation, declaration, or filing with, any Governmental Authority or other
Person on the part of the Company or any of its Subsidiaries which has not been
accomplished is required in connection with (i) the execution, delivery and
performance by the Company of the JEDI Purchase Agreement, the Basic Documents
or the Forseti Documents, (ii) the issuance of the Securities, or (iii) the
issuance by the Company of the Conversion Shares, the Purchaser Warrant Shares
and the Robertson Warrants.
9. There is no action, suit, notice of violation, proceeding or
investigation pending or contemplated or threatened against or affecting the
Company or any of its Subsidiaries or their respective properties or assets
before or by any Governmental Authority, which (i) relates to or challenges the
legality, validity or enforceability of the JEDI Purchase Agreement, any of the
Basic Documents or any of the Forseti Documents, or (ii) is otherwise pending
against the Company or any Subsidiary.
10. The execution, delivery, and performance of, and compliance
with, the JEDI Purchase Agreement, the Basic Documents and the Forseti
Documents by the Company, do not and will not, with or without the giving of
notice or lapse of time or both, violate or result in any breach of or default
under, or result in or require the creation or imposition of any Lien on or
with respect to any of the Company's or its Subsidiaries' property under, (i)
the
2
<PAGE> 166
Certificate of Incorporation, as amended, or Bylaws, as amended, of the Company
or the charter or bylaws of any Subsidiary, (ii) any Reviewed Agreements, or
(iii) any judgment, decree, writ, injunction, order, law, statute, rule, or
regulation of any court or any public, governmental, or regulatory agency or
body having jurisdiction over the Company, any Subsidiary or any of their
respective properties or assets.
Although we do not assume any responsibility for, and cannot guarantee
the accuracy, completeness or fairness of, the statements contained in the
Information Statement dated _________, 1997, of the Company (the "Information
Statement") on the basis of the information we developed during the course of
preparing the Information Statement, which involved attending conferences with
officers of the Company and other parties and a review of the documents
specifically referred to or incorporated by reference in the Information
Statement (although such documents, including the documents incorporated by
reference, were prepared and filed by the Company, in certain cases, without
our participation), and as a result of our participation in such conferences
and review of such documents, but otherwise without independent check or
verification except as specified, we have no reason to believe that the
Information Statement, at the time the Information Statement was first mailed
to the Company's stockholders contained an untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading or that the Information Statement
or any further amendment or supplement thereto contained or contains an untrue
statement of a material fact or omitted or omits to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading. The
Information Statement complies as to form in all material respects with
applicable provisions of the Exchange Act and the rules and regulations of the
Commission thereunder.
3
<PAGE> 167
EXHIBIT J
AFFIDAVIT
Before me, the undersigned authority, on this day personally appeared
______________ who, after being placed by me upon his oath, stated as follows:
1. I, ____________________, a member of the Board of Directors of
Queen Sand Resources, Inc. (the "Company"), have no direct or indirect
financial interest in any of the transactions contemplated by the Securities
Purchase Agreement dated March ___, 1997 between the Company and Joint Energy
Development Investments Limited Partnership (the "Purchase Agreement") or by
any of the Basic Documents (as defined in the Purchase Agreement) or any of the
Forseti Documents (as defined in the Purchase Agreement), other than (i) any
such interest resulting solely from my ownership of an interest in shares of
the Company's Common Stock and (ii) to the extent that such matters could be
considered to involve such an interest (A) the execution and delivery by the
undersigned affiant of an Employment Agreement with the Company and (B) the
Company's covenant contained in Section 6.14 of the Purchase Agreement.
2. I have no knowledge that any other member of the Board of Directors
or officer of the Company has any direct or indirect financial interest in the
transactions contemplated by the Purchase Agreement, any of the Basic Documents
or any of the Forseti Documents, other than (i) any such interest resulting
solely from any such person's ownership of an interest in shares of the
Company's Common Stock and (ii) to the extent that such matters could be
considered to involve such an interest (A) the execution and delivery by any
such person of an Employment Agreement with the Company and (B) the Company's
covenant in Section 6.14 of the Purchase Agreement.
Date: , 1997
----------
--------------------------------------
--------------------------------------
SUBSCRIBED AND SWORN TO BEFORE ME, a notary public, on this the
day of , 1997.
- ---------- --------------------
--------------------------------------
Notary Public in and for
the State of Texas
Name:
---------------------------------
My Commission Expires:
----------------
<PAGE> 168
EXHIBIT K
STATE OF DELAWARE PAGE 1
OFFICE OF THE SECRETARY OF STATE
----------------------------------------------
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
AMENDMENT OF "PARK AVENUE CAPITAL, INC.", FILED IN THIS OFFICE ON THE SIXTH DAY
OF JUNE, A.D. 1989, AT 9 O'CLOCK A.M.
{SEAL} /s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8307782
DATE: 01-29-97
<PAGE> 169
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION
BEFORE PAYMENT OF ANY PART
OF THE CAPITAL
OF
PARK AVENUE CAPITAL, INC.
THE UNDERSIGNED, pursuant to the General Corporation Law of the State
of Delaware, does hereby certify as follows:
1. The name of the corporation (hereinafter called the "corporation")
is Park Avenue Capital, Inc.
2. The corporation has not received any payment for any of its stock.
3. The certificate of incorporation of the corporation is hereby
amended by striking out Article FIFTH thereof and by substituting in lieu of
said Article the following new Article FIFTH:
"FIFTH: CAPITAL STOCK. The total number of shares
of Capital Stock which the corporation is authorized to issue
is fifteen million (15,000,000) shares of common stock with a
par value of one mill ($.001) per share."
4. The amendment of the certificate of incorporation of the
corporation herein certified was duly adopted, pursuant to the provisions of
Section 241 of the General Corporation Law of the State of Delaware, by the
sole incorporator, no directors having been named in the certificate of
incorporation and no directors having been elected.
THE UNDERSIGNED, being the sole incorporator, for the purpose of
amending the certificate of incorporation pursuant to the General Corporation
Law of the State of Delaware, does make this certificate, hereby declaring that
the facts herein stated are true and accordingly has hereunto set my hand as of
this 15th day of May, 1989.
/s/ Carl R. Hollander
--------------------------
Carl R. Hollander
<PAGE> 170
STATE OF DELAWARE PAGE 1
OFFICE OF THE SECRETARY OF STATE
----------------------------------------------
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
RENEWAL OF "PARK AVENUE CAPITAL, INC.", FILED IN THIS OFFICE ON THE
TWENTY-FIFTH DAY OF APRIL, A.D. 1991, AT 9 O'CLOCK A.M.
{SEAL} /s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8307783
DATE: 01-29-97
<PAGE> 171
CERTIFICATE FOR RENEWAL AND REVIVAL OF CHARTER
PARK AVENUE CAPITAL, INC., a corporation organized under the laws of
Delaware, the certificate of incorporation of which was filed in the office of
the Secretary of State on the 11th day of May, 1989, and recorded in the Record
__________ Vol __________ Page __________ on the _____ day of __________,
19___, the charter of which was voided for non-payment of taxes, now desires to
procure a restoration, renewal and revival of charter, and hereby certifies as
follows:
1. The name of this corporation is PARK AVENUE CAPITAL, INC.
2. Its registered office in the State of Delaware is located at 725
Market Street, City of Wilmington, County of New Castle, and the name and
address of its registered agent is THE COMPANY CORPORATION, address same as
above.
3. The date when the restoration, renewal and revival of the charter
of this company is to commence is the 28 day of February, same being prior to
the date of the expiration of the charter. This renewal and revival of the
charter of this corporation is to be perpetual.
4. This corporation was duly organized and carried on the business
authorized by its charter until the 1 day of March A.D. 1991, at which time its
charter became inoperative and void for non-payment of taxes and this
certificate for renewal and revival is filed by authority of the duly elected
directors of the corporation in accordance with the laws of the State of
Delaware.
IN TESTIMONY WHEREOF, and in compliance with the provisions of Section
312 of the General Corporation Law of the State of Delaware, as amended,
providing for the renewal, extension and restoration of charters, Peter Rosen,
the last and acting President and Peter Rosen, the last and acting Secretary of
PARK AVENUE CAPITAL, INC., have hereunto set their hands to this certificate
this 8th day of April, 1991.
/s/ Peter Rosen
---------------------------------
LAST AND ACTING PRESIDENT
ATTEST:
/s/ Peter Rosen
---------------------------------
LAST AND ACTING SECRETARY
<PAGE> 172
STATE OF DELAWARE PAGE 1
OFFICE OF THE SECRETARY OF STATE
----------------------------------------------
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
AMENDMENT OF "PARK AVENUE CAPITAL, INC.", FILED IN THIS OFFICE ON THE NINTH DAY
OF AUGUST, A.D. 1991, AT 9 O'CLOCK A.M.
{SEAL} /s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8307784
DATE: 01-29-97
<PAGE> 173
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 08/09/1991
912215077 - 2196071
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
PARK AVENUE CAPITAL, INC.
Under Section 242 of the Corporation Law of the State of Delaware
PARK AVENUE CAPITAL, INC. (the "Corporation"), a corporation organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, by written unanimous
consent filed with the minutes of the board, adopted the following resolutions
proposing and declaring advisable the following amendments to the Certificate
of Incorporation of said corporation:
"1. That Article 'FIFTH' of the Certificate of Incorporation be
amended and, as amended, reads as follows:
'FIFTH. The Corporation shall be authorized to issue the following
shares:
<TABLE>
<CAPTION>
Class Number of Shares Par Value
----- ---------------- ---------
<S> <C> <C>
Common 5,000,000 $.003'"
</TABLE>
SECOND: That the aforesaid amendments were duly adopted in accordance with the
applicable provisions of section 242 of the General Corporation Law of the
State of Delaware.
THIRD: Prompt notice of the taking of this corporate action is being given to
all stockholders who did not consent in writing, in accordance with Section 228
of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the corporation has caused the certificate to be
signed by Peter Rosen, its President, and attested by Nuran Matoesian, its
Secretary, this 15th day of July, 1991.
PARK AVENUE CAPITAL, INC.
By: /s/ Peter Rosen
--------------------------------
Peter Rosen, President
ATTEST:
By: /s/ Nuran Matoesian
-------------------------------
Nuran Matoesian, Secretary
FORM
<PAGE> 174
STATE OF DELAWARE PAGE 1
OFFICE OF THE SECRETARY OF STATE
----------------------------------------------
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
AMENDMENT OF "PARK AVENUE CAPITAL, INC.", CHANGING ITS NAME FROM "PARK AVENUE
CAPITAL, INC." TO "NOTEBOOK CENTER, INC.", FILED IN THIS OFFICE ON THE
TWENTY-SEVENTH DAY OF AUGUST, A.D. 1993, AT 9 O'CLOCK A.M.
{SEAL} /s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8307785
DATE: 01-29-97
<PAGE> 175
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 08/27/1993
932395068 - 2196071
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
PARK AVENUE CAPITAL, INC.
Under Section 242 of the
Corporation Law of the State of Delaware
PARK AVENUE CAPITAL, INC. (the "Corporation"), a corporation organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, by written consent
filed with the minutes of the Board, adopted the following resolutions
proposing and declaring advisable the following amendments to the Certificate
of Incorporation of said corporation:
"1. That Article FIRST of the Certificate of Incorporation be amended,
and as amended, read as follows:
'FIRST: The name of the corporation is NOTEBOOK CENTER, INC.'"
"2. That Article FOURTH of the Certificate of Incorporation be amended
and, as amended, read as follows:
'FOURTH. The Corporation is authorized to issue 10,000,000 shares of
voting Common Stock, with a par value of $.0015 per share.'"
SECOND: That the aforesaid amendments were duly adopted in accordance with the
applicable provisions of section 242 of the General Corporation Law of the
State of Delaware.
THIRD: Prompt notice of the taking of this corporate action is being to all
stockholders who did not consent in writing, in accordance with Section 228 of
the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the corporation has caused this certificate to be
signed by Peter Rosen, its President, and attested by Nuran Matoesian, its
Secretary, this 18th day of August, 1993.
PARK AVENUE CAPITAL, INC.
By: /s/ Peter Rosen
--------------------------------
Peter Rosen, President
ATTEST:
By: /s/ Nuran Matoesian
-------------------------------
Nuran Matoesian, Secretary
<PAGE> 176
STATE OF DELAWARE PAGE 1
OFFICE OF THE SECRETARY OF STATE
----------------------------------------------
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
AMENDMENT OF "NOTEBOOK CENTER, INC.", CHANGING ITS NAME FROM "NOTEBOOK CENTER,
INC." TO "UNIVERSAL BIOTECHNOLOGIES, INC.", FILED IN THIS OFFICE ON THE
TWENTY-EIGHTH DAY OF JANUARY, A.D. 1994, AT 9 O'CLOCK A.M.
{SEAL} /s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8307786
DATE: 01-29-97
<PAGE> 177
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 01/28/1994
944009554 - 2196071
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
NOTEBOOK CENTER, INC.
Under Section 242 of the
Corporation Law of the State of Delaware
NOTEBOOK CENTER, INC. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, by written consent
filed with the minutes of the Board, adopted the following resolution proposing
and declaring advisable the following amendment to the Certificate of
Incorporation of said corporation:
"1. That Article FIRST of the Certificate of Incorporation be amended
and, as amended, read as follows:
'FIRST: The name of the corporation is UNIVERSAL BIOTECHNOLOGIES,
INC.'"
SECOND: That the aforesaid amendments were duly adopted in accordance with the
applicable provisions of section 242 of the General Corporation Law of the State
of Delaware.
THIRD: Prompt notice of the taking of this corporate action is being given to
all stockholders who did not consent in writing, in accordance with Section 228
of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the corporation has caused this certificate to be
signed by Stephen Forem, its President, and attested by Stephen Forem, its
Secretary, this 24 day of January, 1994.
NOTEBOOK CENTER, INC.
By: /s/ Stephen Forem
-----------------------------
Stephen Forem, President
ATTEST:
By: /s/ Stephen Forem 1/21/94
-------------------------------
Stephen Forem, Secretary
<PAGE> 178
STATE OF DELAWARE PAGE 1
OFFICE OF THE SECRETARY OF STATE
----------------------------------------------
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
RENEWAL OF "UNIVERSAL BIOTECHNOLOGIES, INC.", FILED IN THIS OFFICE ON THE
EIGHTH DAY OF MARCH, A.D. 1995, AT 9 O'CLOCK A.M.
{SEAL} /s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8307787
DATE: 01-29-97
<PAGE> 179
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 03/08/1995
950051421 - 2196071
CERTIFICATE FOR
RENEWAL AND REVIVAL OF CHARTER
UNIVERSAL BIOTECHNOLOGIES, INC., a corporation organized under the
laws of the State of Delaware, the charter of which was voided for non-payment
of taxes, now desires a restoration, renewal and revival of its charter, and
hereby certifies as follows:
1. The name of the corporation is UNIVERSAL BIOTECHNOLOGIES, INC.
2. Its registered office in the State of Delaware is located at Three
Christina Centre, 201 N. Walnut Street, Wilmington, DE 19801, County of New
Castle. The name and address of its registered agent is The Company
Corporation, address 'same as above'.
3. The date of filing of the original Certificate of Incorporation in
Delaware was 05-11-89.
4. The date when restoration, renewal, and revival of the charter of
this company is to commence is the 28th day of FEBRUARY, 1994, same being prior
to the date of the expiration of the charter. This renewal and revival of the
charter of this corporation is to be perpetual.
5. This corporation was duly organized and carried out the business
authorized by its charter until the 1st day of March, 1994 at which time its
charter became inoperative and void for non-payment of taxes and this
certificate for renewal and revival is filed by authority of the duly elected
directors of the corporation in accordance with the laws of the State of
Delaware.
IN TESTIMONY WHEREOF, and in compliance with the provisions of Section
312 of the General Corporation Law of the State of Delaware, as amended,
providing for the renewal, extension and restoration of Charters, NURAN
MATOESIAN, its authorized officer has hereunto set his hand to this certificate
this 8th day of MARCH 1995.
/s/ Nuran Matoesian
-----------------------------
Authorized Officer, Title
<PAGE> 180
STATE OF DELAWARE PAGE 1
OFFICE OF THE SECRETARY OF STATE
----------------------------------------------
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
AMENDMENT OF "UNIVERSAL BIOTECHNOLOGIES, INC.", CHANGING ITS NAME FROM
"UNIVERSAL BIOTECHNOLOGIES, INC." TO "QUEEN SAND RESOURCES, INC.", FILED IN
THIS OFFICE ON THE NINTH DAY OF MARCH, A.D. 1995, AT 9 O'CLOCK A.M.
{SEAL} /s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8307788
DATE: 01-29-97
<PAGE> 181
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 03/08/1995
950053019 - 2196071
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
UNIVERSAL BIOTECHNOLOGIES, INC.
Under Section 242 of the
Corporation Law of the State of Delaware
UNIVERSAL BIOTECHNOLOGIES, INC. (the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of
the State of Delaware:
FIRST: That the Board of Directors of the Corporation, by written consent filed
with the minutes of the Board, adopted the following resolutions proposing and
declaring advisable the following amendments to the Certificate opf
Incorporation of the Corporation:
1. That Article FIRST of the Certificate of Incorporation be amended
and, as amended, read as follows:
'FIRST: The name of the Corporation is QUEEN SAND RESOURCES, INC.'
2. That Article FOURTH of the Certificate opf Incorporation be amended
and, as amended, read as follows:
"FOURTH: The Corporation is authorized to issue 20,000,000 shares of
voting common stock, with a par value of $0.0015 per share."
SECOND: That the aforesaid amendments were duly adopted in accordance with the
applicable provisions of Section 242 of the General Corporation Law of the
State of Delaware.
THIRD: Prompt notice of the taking of this corporate action is being given to
all stockholders who did not consent in writing, in accordance with Section 228
of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by Nuran Matoesian, its President, and attested by Peter Rosen, its
Secretary, this 6th day of March, 1995.
UNIVERSAL BIOTECHNOLOGIES, INC.
By: /s/ Nuran Matoesian
-----------------------------
Nuran Matoesian, President
ATTEST:
By: /s/ Peter Rosen
----------------------------
Peter Rosen, Secretary
<PAGE> 182
STATE OF DELAWARE PAGE 1
OFFICE OF THE SECRETARY OF STATE
----------------------------------------------
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
CHANGE OF REGISTERED AGENT OF "QUEEN SAND RESOURCES, INC.", FILED IN THIS
OFFICE ON THE FIFTEENTH DAY OF MAY, A.D. 1995, AT 9:30 O'CLOCK A.M.
{SEAL} /s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8307789
DATE: 01-29-97
<PAGE> 183
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 05/15/1995
950106321 - 2196071
QUEEN SAND RESOURCES, INC.
CERTIFICATE OF CHANGE OF REGISTERED OFFICE
AND
REGISTERED OFFICE
Queen Sand Resources, Inc. a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
The present registered agent of the corporation is The Company Corporation and
the present registered office of the corporation is in the county of New
Castle, Delaware.
The Board of Directors of Queen Sand Resources, Inc. adopted the following
resolution on the 10th day of May 1995:
RESOLVED that the registered office of Queen Sand Resources, Inc. in
the State of Delaware be and it is hereby changed to Corporation Trust
Centre, 1209 Orange Street, in the City of Wilmington County of New
Castle and the authorization of the present registered agent is hereby
withdrawn, and THE CORPORATION TRUST COMPANY shall be and is hereby
constituted and appointed the registered office of the corporation at
the address of its registered office.
IN WITNESS WHEREOF, Queen Sand Resources, Inc. has caused this statement to be
signed by Edward J. Munden, President, this 11th day of May, 1995
/s/ Edward J. Munden
---------------------------------------
Edward J. Munden,
President of Queen Sand Resources, Inc.
<PAGE> 184
STATE OF DELAWARE PAGE 1
OFFICE OF THE SECRETARY OF STATE
----------------------------------------------
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
AMENDMENT OF "QUEEN SAND RESOURCES, INC.", FILED IN THIS OFFICE ON THE TWELFTH
DAY OF JUNE, A.D. 1995, AT 4:30 O'CLOCK P.M.
{SEAL} /s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8307790
DATE: 01-29-97
<PAGE> 185
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 04:30 PM 06/12/1995
950130209 - 2196071
CERTIFICATE OF AMENDMENT OF THE
CERTIFICATE OF INCORPORATION OF
QUEEN SAND RESOURCES, INC.
Under Section 242 of the Corporations Law of the State of Delaware
Queen Sand Resources, Inc. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware:
FIRST: that the Board of Directors of the Corporation, by written consent filed
with the minutes of the Board, adopted the following resolutions proposing and
declaring advisable the following amendments to the Certificate of
Incorporation of the Corporation:
RESOLVED, The article FIFTH of the Certificate of Incorporation be
amended and, as amended, read as follows:
"FIFTH: Capital Stock. The Corporation is authorized to issue
40,000,000 shares of voting common stock, with a par value of
$0.0015 per share."
SECOND: That the aforesaid amendment was duly adopted by a majority of the
Corporation's shareholders in accordance with the applicable provisions of
Section 242 of the General Corporation Law of the state of Delaware.
THIRD: Prompt notice of the taking of this corporate action is being given to
all stockholders who did not consent in writing in accordance with Section 228
of the General Corporation Law of the state of Delaware.
IN WITNESS WHEREOF the Corporation has caused this certificate to be signed by
Edward J. Munden, its President and Bruce I. Benn, its Secretary this 11th day
of May, 1995.
QUEEN SAND RESOURCES, INC.
ATTEST:
/s/ Bruce I. Benn /s/ Edward J. Munden
- --------------------------------- ------------------------------
Bruce I. Benn, Secretary Edward J. Munden, President
<PAGE> 186
STATE OF DELAWARE PAGE 1
OFFICE OF THE SECRETARY OF STATE
----------------------------------------------
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
INCORPORATION OF "PARK AVENUE CAPITAL, INC.", FILED IN THIS OFFICE ON THE
ELEVENTH DAY OF MAY, A.D. 1989, AT 9:00 O'CLOCK A.M.
{SEAL} /s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8307781
DATE: 01-29-97
<PAGE> 187
CERTIFICATE OF INCORPORATION
OF
PARK AVENUE CAPITAL, INC.
THE UNDERSIGNED, in order to form a corporation for the purposes
hereinafter stated, and pursuant to the General Corporation Law of the State of
Delaware, does hereby certify as follows:
FIRST: Name. The name of the corporation is PARK AVENUE CAPITAL, INC.
SECOND: Registered Office. The registered office of the corporation is
to be located at 229 South State Street, County of Kent, Dover, Delaware,
19901. The name of the corporation's registered agent at such address is The
Prentice-Hall Corporation System, Inc.
THIRD: Purpose. The purpose of the corporation is to purchase, own and
sell the stock, securities and/or assets of various businesses, and to engage
in any lawful act or activity for which corporations may be organized under the
General Corporation Law of Delaware.
<PAGE> 188
FOURTH: Power. The corporation shall have every power which a
corporation now or hereafter organized under the General Corporation Law or
successor statutes of Delaware may have.
FIFTH: Capital Stock. The total number of shares of capital stock
which the corporation is authorized to issue is five hundred million
(500,000,000) shares of common stock with a par value of one tenth of a mill
($.0001) per share.
SIXTH: Incorporator. The name and mailing address of the incorporator
is as follows:
NAME ADDRESS
---- -------
c/o Murray & Hollander
400 Park Avenue
Carl R. Hollander New York, New York 10022
SEVENTH: By-laws.
(a) Adoption and Amendent of By-Laws. The board of directors
and stockholders of the corporation shall have the authority to adopt, amend,
or repeal the by-laws of the corporation. The by-laws of the corporation may
contain provisions relating to the adoption, amendment, and repeal of the
by-laws.
(b) Ballot in Elections. Election of directors need not be by
ballot unless the by-laws so provide.
-2-
<PAGE> 189
EIGHTH: Compromise. Whenever a compromise or arrangement is proposed
between this corporation and its creditors or any class of them and/or between
this corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in
a summary way of this corporation or of any creditor or stockholder thereof or
on the application of any receiver or receivers appointed for this corporation
under the provisions of section 291 of Title 8 of the Delaware Code or on the
application or trustees in dissolution or of any receiver or receivers
appointed for this corporation under the provisions of Section 279 of Title 8
of the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders
-3-
<PAGE> 190
or class of stockholders, of this corporation, as the case may be, and also on
this corporation.
NINTH: Limitation of Director Liability. No director of the
corporation shall have any personal liability to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director
except for acts or omissions for which such liability may not be eliminated
under subsection (7) of Section 102 of Title 8 of the Delaware Code.
TENTH: Advancement of Litigation Expenses. The corporation shall pay
in advance of final disposition all expenses incurred by any officer or
director in defending any civil or criminal action suit or proceeding, to the
full extent permitted by and subject to the conditions specified in subsection
(e) of Section 145 of Title 8 of the Delaware Code.
ELEVENTH: Amendment of Certificate. The corporation reserves the right
to amend, alter, change or repeal any provision contained in this Certificate
of Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
-4-
<PAGE> 191
THE UNDERSIGNED, being the sole incorporator, for the purpose of
forming a corporation pursuant to the General Corporation Law of the State of
Delaware, does make this certificate, hereby declaring that the facts herein
stated are true and accordingly have hereunto set my hand this 9th day of May,
1989
/s/ Carl R. Hollander
---------------------------
Carl R. Hollander
-5-
<PAGE> 192
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
QUEEN SAND RESOURCES, INC.
Queen Sand Resources, Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify that the amendment set forth below to the Corporation's
Certificate of Incorporation was duly adopted in accordance with Section 242 of
the Delaware General Corporation Law:
Article Fifth of the Certificate of Incorporation of the Corporation
is hereby amended to read in its entirety as follows:
"FIFTH. Description and Authorization of Stock.
(a) Stock Authorization. The total number of shares of capital stock
that the Corporation shall have the authority to issue is one hundred fifty
million (150,000,000) shares, which shall consist of (i) one hundred million
(100,000,000) shares of Common Stock, par value ($0.0015) per share (the
"Common Stock") and (ii) fifty million (50,000,000) shares of Preferred Stock,
par value ($0.01) per share (the "Preferred Stock").
(b) Common Stock.
(i) Voting Rights. The holders of Common Stock
will be entitled to one vote per share on all matters to be voted on by the
stockholders of the Corporation, including the election of directors. The
holders of Common Stock shall not have cumulative voting rights.
(ii) Dividends. Subject to the prior rights of any
Preferred Stock issued by the Corporation, as and if dividends are declared
thereon by the Board of Directors of the Corporation out of funds legally
available therefor, whether payable in cash, property or securities of the
Corporation, the holders of Common Stock will be entitled to share equally, on
a share-for-share basis, in all such dividends.
(iii) Liquidation. Upon any liquidation,
dissolution or winding up of the Corporation, after all amounts due and owing
to the holders of any Preferred Stock of the Corporation have been paid or the
payment has been fully provided for, the holders of Common Stock shall be
entitled to receive all of the remaining assets of the Corporation available
for distribution to holders of Common Stock and will be entitled to share
equally, on a share-for-share basis, in such distribution. Neither the merger
or consolidation of the Corporation with or into another corporation or
corporations, nor the sale or transfer by the Corporation of all or part of its
assets, nor the reduction of its capital stock, will be deemed to be a
liquidation, dissolution or winding up of the Corporation within the meaning of
this paragraph.
(c) Preferred Stock.
(i) Issuance. The Preferred Stock may be issued
from time to time in one or more series, the shares of each series to have such
voting powers, full or limited, or no voting powers, and such designations,
preferences and relative, participating, optional, dividend or other special
rights, and qualifications, limitations, restrictions or other characteristics
thereof as are stated and expressed herein and in the resolution or resolutions
providing for the issuance of such series adopted by the Board of Directors of
the Corporation as hereafter prescribed. The shares of each series of the
Preferred Stock may vary from the shares of any other class or series in any
respect.
<PAGE> 193
The resolution or resolutions providing for the issuance of any such
series may provide, without limitation:
(A) whether or not shares of a series shall have voting
rights, full, special or limited, or shall have no voting rights, and whether
or not the holders of such shares are to be entitled to vote as a separate
class or series either alone or together with the holders of one or more other
classes or series of stock; provided, however, that if the resolutions
authorize the holders of Preferred Stock to elect Directors upon certain
events, [those Directors elected by the holders of Preferred Stock shall be in
addition to those directors authorized from time to time pursuant to the Bylaws
of the Corporation];
(B) the number of shares to constitute the series and the
designations thereof;
(C) the preferences and relative, participating, optional or
other special rights, if any, and the qualifications, limitations or
restrictions thereof, if any, with respect to any series;
(D) whether or not the shares of any series shall be
redeemable at the option of the Corporation or the holders thereof or upon the
happening of any specified event, and, if redeemable, the redemption price or
prices (which may be payable in the form of cash, notes, securities, or other
property), and the time or times at which, and the terms and conditions upon
which, such shares shall be redeemable and the manner of redemption;
(E) whether or not the shares of a series shall be subject to
the operation of retirement or sinking funds to be applied to the purchase or
redemption of such shares for retirement, and, if such retirement or sinking
fund or funds are to be established, the annual amount thereof, and the terms
and provisions relative to the operation thereof;
(F) the dividend rate, if any, whether dividend rates are
payable in cash, stock of the Corporation, or other property, the conditions
upon which and the times when such dividends are payable, the preference to or
the relation to the payment of dividends payable on any other class or classes
or series of stock, whether or not such dividends shall be cumulative or
noncumulative, and the date or dates from which such dividends shall
accumulate;
(G) the preferences, if any, and the amounts thereof which
the holders of shares of any series shall be entitled to receive upon the
voluntary or involuntary dissolution of, or upon any distribution of the assets
of, the Corporation;
(H) whether or not the shares of any series shall be entitled
to the benefit of conditions and restrictions upon the creation of indebtedness
of the Corporation or any subsidiary of the Corporation, upon the issue of any
additional stock (including, without limitation, additional shares of such
series or of any other class or series) and upon the payment of dividends or
the making of other distributions on, and the purchase, redemption or other
acquisition by the Corporation or any subsidiary of the Corporation of, any
outstanding stock of the Corporation;
(I) whether or not the shares of any series, at the option of
the Corporation or the holders thereof or upon the happening of any specified
event, shall be convertible into or exchangeable for the shares of any other
class or classes or of any other series of the same or any other class or
classes of stock, securities, or other property of the Corporation and the
conversion price or prices or ratio or ratios or the rate or rates at which
such exchange may be made, with such adjustments, if any, as shall be stated
and expressed or provided for in such resolution or resolutions; and
2
<PAGE> 194
(J) such other voting powers, designations, preferences,
rights, qualifications, limitations or restrictions with respect to any series
as the Board of Directors of the Corporation may deem advisable.
(ii) Increases and Decreases in Series. The Board of Directors of
the Corporation may increase the number of shares (but not above the total
number of authorized shares of the class) of the Preferred Stock designated for
any existing series by a resolution adding to such series authorized and
unissued shares of the Preferred Stock not designated for any other series. The
Board of Directors of the Corporation may decrease the number of shares of the
Preferred Stock (but not below the number of shares thereof then outstanding)
designated for any existing series by a resolution, subtracting from such
series unissued shares of the Preferred Stock designated for such series, and
the shares so subtracted shall become authorized, unissued, and undesignated
shares of the Preferred Stock."
IN WITNESS WHEREOF, the undersigned, being a duly authorized officer
of the Corporation does execute this Certificate of Amendment, hereby declaring
and certifying that this is my act and deed and the facts herein stated are
true, and accordingly have hereunto set my hand this __ day of ______________,
1997
QUEEN SAND RESOURCES, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
3
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EXHIBIT L
AMENDED AND RESTATED BYLAWS OF
QUEEN SAND RESOURCES, INC.
A DELAWARE CORPORATION
<PAGE> 196
BYLAWS OF
QUEEN SAND RESOURCES, INC.
TABLE OF CONTENTS
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ARTICLE I OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. Registered Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Other Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II MEETINGS OF STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 3. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 4. Notice of Meetings and Adjourned Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 5. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 6. Certain Rules of Procedure Relating to Stockholder Meetings . . . . . . . . . . . . . . . . . 3
Section 7. Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 8. Action of Stockholders by Written Consent Without Meetings . . . . . . . . . . . . . . . . . 5
Section 9. Requests for Stockholder List and Corporation Records . . . . . . . . . . . . . . . . . . . . 6
ARTICLE III DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 1. Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2. Number of Directors; Term; Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3. Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 5. Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 6. Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 7. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 8. Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 9. Quorum and Manner of Acting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 10. Action by Consent; Participation by Telephone
or Similar Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 11. Resignation; Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 12. Compensation of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE IV COMMITTEES OF THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 1. Designation, Powers and Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2. Meetings; Minutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4. Action by Consent; Participation by Telephone
or Similar Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5. Changes in Committees; Resignations; Removals . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE V OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 1. Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2. Election and Term of Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
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Section 3. Removal and Resignation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5. Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 6. Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 7. President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 8. Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 9. Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 10. Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 11. Assistant Secretary or Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE VI CONTRACTS, CHECKS, LOANS, DEPOSITS, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 1. Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2. Checks, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 3. Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4. Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE VII CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 1. Stock Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2. List of Stockholders Entitled to Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3. Stock Ledger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4. Transfers of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 5. Lost Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 6. Fixing of Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 7. Beneficial Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE VIII DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 1. Declaration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2. Reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE IX INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 1. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 2. Advancement of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 3. Non-Exclusivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5. Continuity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE X SEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE XI WAIVER OF NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE XII AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
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BYLAWS
OF
QUEEN SAND RESOURCES, INC.
A DELAWARE CORPORATION
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of Queen
Sand Resources, Inc. (hereinafter called the "Corporation") within the State of
Delaware shall be located at the location specified in the Corporation's
Certificate of Incorporation, as amended.
SECTION 2. OTHER OFFICES. The Corporation may also have an
office or offices and keep the books and records of the Corporation, except as
may otherwise be required by law, in such other place or places, within or
without the State of Delaware, as the Board of Directors of the Corporation
(hereinafter sometimes called the "Board") may from time to time determine or
the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. All meetings of stockholders
of the Corporation shall be held at the office of the Corporation in the State
of Delaware or at such other place, within or without the State of Delaware, as
may from time to time be fixed by the Board or specified or fixed in the
respective notices or waivers of notice thereof.
SECTION 2. ANNUAL MEETINGS. The annual meeting of stockholders
of the Corporation for the election of Directors and for the transaction of
such other business as may properly come before the meeting shall be held
annually on such date and at such time as may be fixed by the Board.
<PAGE> 199
SECTION 3. SPECIAL MEETINGS. Special meetings of stockholders,
unless otherwise provided by law, may be called at any time only by the Board
pursuant to a resolution adopted by a majority of the then authorized number of
Directors (as determined in accordance with Section 2 of Article III of these
Bylaws), the Chairman of the Board or the President. Any such call must
specify the matter or matters to be acted upon at such meeting and only such
matter or matters shall be acted upon thereat.
SECTION 4. NOTICE OF MEETINGS AND ADJOURNED MEETINGS. Except as
may otherwise be required by law, notice of each meeting of stockholders,
annual or special, shall be in writing, shall state the purpose or purposes of
the meeting, the place, date and hour of the meeting and, unless it is the
annual meeting, shall indicate that the notice is being issued by or at the
direction of the person or persons calling the meeting, and a copy thereof
shall be given, not less than ten (10) or more than sixty (60) days before the
date of said meeting, to each stockholder entitled to vote at such meeting. If
mailed, such notice shall be directed to the stockholder at his address as it
appears on the stock record of the Corporation, unless he shall have filed with
the Secretary a written request that notices to him be mailed to some other
address, in which case it shall be directed to him at such other address.
Notice of any adjourned meeting need not be given if the time and place to
which the meeting shall be adjourned were announced at the meeting at which the
adjournment was taken unless (i) the adjournment is for more than thirty (30)
days, (ii) the Board shall fix a new record date for any adjourned meeting
after the adjournment or (iii) these Bylaws otherwise require.
SECTION 5. QUORUM. At each meeting of stockholders of the
Corporation, the holders of a majority of the shares of capital stock of the
Corporation issued and outstanding and entitled to vote shall be present or
represented by proxy to constitute a quorum for the transaction of business,
except as may otherwise be provided by law or the Certificate of Incorporation.
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If a quorum is present at a meeting of stockholders, the stockholders
represented in person or by proxy at the meeting may conduct such business as
may be properly brought before the meeting until it is finally adjourned, and
the subsequent withdrawal from the meeting of any stockholder or the refusal of
any stockholder represented in person or by proxy to vote shall not affect the
presence of a quorum at the meeting, except as may otherwise be provided by law
or the Certificate of Incorporation.
If, however, a quorum shall not be present or represented at any
meeting of the stockholders, the chairman of the meeting or holders of a
majority of the shares represented in person or by proxy shall have the power
to adjourn the meeting to another time, or to another time and place, without
notice (subject, however, to the requirements of Section 4 of Article II of
these Bylaws) other than announcement of adjournment at the meeting, and there
may be successive adjournments for like cause and in like manner until the
requisite amount of shares entitled to vote at such meeting shall be
represented. At such adjourned meeting at which the requisite amount of shares
entitled to vote thereat shall be represented, any business may be transacted
that might have been transacted at the original meeting so adjourned.
SECTION 6. CERTAIN RULES OF PROCEDURE RELATING TO STOCKHOLDER
MEETINGS. All stockholder meetings, annual or special, shall be governed in
accordance with the following rules:
(i) Only stockholders of record will be permitted to
present motions from the floor at any meeting of
stockholders.
(ii) The chairman of the meeting shall preside over and
conduct the meeting in a fair and reasonable manner,
and all questions of procedure or conduct of the
meeting shall be decided solely by the chairman of
the meeting. The chairman of the meeting shall have
all power and
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authority vested in a presiding officer by law or
practice to conduct an orderly meeting. Among other
things, the chairman of the meeting shall have the
power to adjourn or recess the meeting, to silence or
expel persons to insure the orderly conduct of the
meeting, to declare motions or persons out of order,
to prescribe rules of conduct and an agenda for the
meeting, to impose reasonable time limits on
questions and remarks by any stockholder, to limit
the number of questions a stockholder may ask, to
limit the nature of questions and comments to one
subject matter at a time as dictated by any agenda
for the meeting, to limit the number of speakers or
persons addressing the chairman of the meeting or the
meeting, to determine and announce when the polls
shall be closed, to limit the attendance at the
meeting to stockholders of record, beneficial owners
of stock who present letters from the record holders
confirming their status as beneficial owners, and the
proxies of such record and beneficial holders, and to
limit the number of proxies a stockholder may name.
SECTION 7. VOTING. Except as otherwise provided in the
Certificate of Incorporation, at each meeting of stockholders, every
stockholder of the Corporation shall be entitled to one (1) vote for every
share of capital stock standing in his name on the stock records of the
Corporation (i) at the time fixed pursuant to Section 6 of Article VII of these
Bylaws as the record date for the determination of stockholders entitled to
vote at such meeting, or (ii) if no such record date shall have been fixed,
then at the close of business on the date next preceding the day on which
notice thereof shall be given, or, if notice is waived, at the close of
business on the day next preceding the day on which the meeting is held. At
each such meeting, every stockholder shall be entitled to vote in person, or by
proxy
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appointed by an instrument in writing executed by such stockholder or by his
duly authorized agent and bearing a date not more than three (3) years prior to
the meeting in question, unless said instrument provides for a longer period
during which it is to remain in force.
At all meetings of stockholders at which a quorum is present, all
matters (except as otherwise provided in Section 3 of Article III of these
Bylaws and except in cases where a larger vote is required by law, the
Certificate of Incorporation or these Bylaws or where a class vote is required
by law or the Certificate of Incorporation) shall be decided by a majority of
the votes cast at such meeting by the holders of shares present or represented
by proxy and entitled to vote thereon.
SECTION 8. ACTION OF STOCKHOLDERS BY WRITTEN CONSENT WITHOUT
MEETINGS. Unless otherwise provided in the Certificate of Incorporation, any
action required or permitted to be taken by stockholders for or in connection
with any corporate action may be taken without a meeting, without prior notice
and without a vote, if a consent or consents in writing setting forth the
action so taken shall be (i) signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted and (ii) delivered to the Corporation by delivery to its
registered office in Delaware, its principal place of business or an officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. Every written consent shall bear the date of signature of
each stockholder who signs the consent.
If action is taken by less than unanimous consent of stockholders and
in accordance with the foregoing, there shall be filed with the records of the
meetings of stockholders the writing or writings comprising such less than
unanimous consent. Prompt notice of the
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<PAGE> 203
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those who have not consented in writing, and a
certificate signed and attested to by the Secretary that such notice was given
shall be filed with the records of the meetings of the stockholders.
If action is taken by unanimous consent of stockholders, the writing
or writings comprising such unanimous consent shall be filed with the records
of the meetings of stockholders.
SECTION 9. REQUESTS FOR STOCKHOLDER LIST AND CORPORATION
RECORDS. Stockholders shall have those rights afforded under the DGCL to
inspect for any proper purpose the Corporation's stock ledger, list of
stockholders and other books and records, and make copies or extracts
therefrom. Such request shall be in writing in compliance with Section 220 of
the DGCL. Information so requested shall be made available for inspecting,
copying or extracting during usual business hours at the principal executive
offices of the Corporation. Each stockholder desiring photostatic or other
duplicate copies of any of such information requested shall make arrangements
to provide the duplicating or other equipment necessary in the city where the
Corporation's principal executive offices are located. Alternative
arrangements with respect to this Section 12 may be permitted in the discretion
of the President of the Corporation or by vote of the Board of Directors.
ARTICLE III
DIRECTORS
SECTION 1. POWERS. The business of the Corporation shall be
managed by or under the direction of the Board. The Board may exercise all
such authority and powers of the Corporation and do all such lawful acts and
things as are not by law or otherwise directed or required to be exercised or
done by the stockholders.
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<PAGE> 204
SECTION 2. NUMBER OF DIRECTORS; TERM; QUALIFICATION. Except
as required in the Certificate of Incorporation, the number of Directors which
shall constitute the whole Board of Directors shall from time to time be fixed
and determined by resolution of the Board of Directors. Except as required in
the Certificate of Incorporation, no decrease in the number of Directors
constituting the Board shall shorten the term of any incumbent Director.
Except as otherwise provided by law, the Certificate of Incorporation
or these Bylaws, each Director shall hold office until the next annual meeting
and until his successor is elected and qualified, or until his earlier death,
resignation, disqualification or removal. Directors need not be residents of
the State of Delaware or stockholders of the Corporation.
SECTION 3. ELECTION. Except as required in the Certificate of
Incorporation, at each meeting of stockholders for the election of Directors at
which a quorum is present, the persons receiving a plurality of the votes of
the shares represented in person or by proxy and entitled to vote on the
election of Directors shall be elected Directors. All elections of Directors
shall be by written ballot, unless otherwise provided in the Certificate of
Incorporation.
SECTION 4. VACANCIES. Except as required in the Certificate of
Incorporation, in the case of any increase in the number of Directors or any
vacancy in the Board of Directors, such newly created directorship or vacancy
may be filled by vote of the stockholders at a meeting called for such purpose
or, unless the Certificate of Incorporation or these Bylaws provide otherwise,
by the affirmative vote of the majority of the remaining Directors then in
office, although less than a quorum, or by a sole remaining Director. Unless
the Certificate of Incorporation or these Bylaws provide otherwise, when one or
more Directors shall resign from the Board of Directors, effective at a future
date, the majority of Directors then in office, including those who have so
resigned, shall have the power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective.
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<PAGE> 205
Any Director elected or chosen as provided herein shall serve for the remaining
term of the directorship to which appointed or until his successor is elected
and qualified or until his earlier death, resignation or removal.
SECTION 5. PLACE OF MEETINGS. Meetings of the Board shall be
held at the Corporation's office in the State of Delaware or at such other
place, within or without such State, as the Board may from time to time
determine or as shall be specified or fixed in the notice or waiver of notice
of any such meeting.
SECTION 6. REGULAR MEETINGS. Regular meetings of the Board
shall be held on such days and at such times as the Board may from time to time
determine and is publicized among the directors. Notice of regular meetings of
the Board need not be given except as otherwise required by law or these
Bylaws.
SECTION 7. SPECIAL MEETINGS. Special meetings of the Board may
be called by the Chairman of the Board or the President and shall be called by
the Secretary at the request of any two of the other Directors.
SECTION 8. NOTICE OF MEETINGS. Notice of each special meeting
of the Board (and of each regular meeting for which notice shall be required),
stating the time, place and purposes thereof, shall be mailed to each Director,
addressed to him at his residence or usual place of business, or shall be sent
to him by facsimile or overnight courier so addressed, or shall be given
personally or by telephone, on twenty-four (24) hours notice, or such shorter
notice as the person or persons calling such meeting may deem necessary or
appropriate in the circumstances. Notice of any such meeting need not be given
to any Director, however, if waived by him in writing or by facsimile, or if he
shall be present at the meeting, except when he is present for the express
purpose of objecting at the beginning of such meeting to the transaction of any
business because the meeting is not lawfully called or convened.
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SECTION 9. QUORUM AND MANNER OF ACTING. The presence of a
majority of the authorized number of Directors shall be necessary and
sufficient to constitute a quorum for the transaction of business at any
meeting of the Board. If a quorum shall not be present at any meeting of the
Board, a majority of the Directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present. Except where a different vote is required by law, the
act of a majority of the Directors present at any meeting at which a quorum
shall be present shall be the act of the Board.
SECTION 10. ACTION BY CONSENT; PARTICIPATION BY TELEPHONE OR
SIMILAR EQUIPMENT. Any action required or permitted to be taken by the Board
may be taken without a meeting if all the Directors consent in writing to the
adoption of a resolution authorizing the action, unless otherwise restricted by
the Certificate of Incorporation or these Bylaws. The resolution and the
written consents thereto by the Directors shall be filed with the minutes of
the proceedings of the Board. Unless otherwise restricted by the Certificate
of Incorporation or these Bylaws, any one or more Directors may participate in
any meeting of the Board by means of a conference telephone or similar
communications equipment allowing all persons participating in the meeting to
hear each other at the same time. Participation by such means shall constitute
presence in person at a meeting of the Board.
SECTION 11. RESIGNATION; REMOVAL. Any Director may resign at any
time by giving written notice to the Corporation, provided, however, that
written notice to the Board, the Chairman of the Board, the President or the
Secretary shall be deemed to constitute notice to the Corporation. Such
resignation shall take effect upon receipt of such notice or at any later time
specified therein, and, unless otherwise specified therein, acceptance of such
resignation shall not be necessary to make it effective.
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Any Director or the entire Board of Directors may be removed, with or
without cause, by the holders of a majority of the shares then entitled to vote
at an election of Directors; provided, however, that when the holders of any
class or series are entitled by the Certificate of Incorporation to elect one
(1) or more Directors, then, in respect to the removal without cause of a
Director or Directors so elected, the required majority vote shall be of the
holders of the outstanding shares of such class or series and not of the
outstanding shares as a whole.
SECTION 12. COMPENSATION OF DIRECTORS. [The Board may, unless
otherwise restricted by the Certificate of Incorporation or these Bylaws,
provide for the payment to any of the Directors, other than officers or
employees of the Corporation, of a specified amount for services as a Director
and/or member of a committee of the Board, or of a specified amount for
attendance at each regular or special Board meeting or committee meeting, or of
both, and all Directors shall be reimbursed for expenses of attendance at any
such meeting; provided, however, that nothing herein contained shall be
construed to preclude any Director from serving the Corporation in any other
capacity and receiving compensation therefor.]
ARTICLE IV
COMMITTEES OF THE BOARD
SECTION 1. DESIGNATION, POWERS AND NAME. The Board of Directors
may, by resolution passed by a majority of the whole Board, designate one or
more committees, including, if they shall so determine, an Executive Committee,
each such committee to consist of one or more of the Directors of the
Corporation.
Each committee designated by the Board of Directors shall have and may
exercise such of the powers of the Board in the management of the business and
affairs of the Corporation as may be provided in such resolution or in these
Bylaws; provided, however, that no such committee shall have the power or
authority in reference to amending the Certificate of Incorporation (except
that a committee may, to the extent authorized in the
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resolution or resolutions providing for the issuance of shares of stock adopted
by the Board of Directors pursuant to authority, if any, expressly vested in
the Board by the provisions of the Certificate of Incorporation, (i) fix the
designations and any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the
Corporation or the conversion into, or the exchange of such shares for, shares
of any other class or classes or any other series of the same or any other
class or classes of stock of the Corporation, or (ii) fix the number of shares
of any series of stock or authorize the increase or decrease of the shares of
any series), adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending
the Bylaws of the Corporation; and, provided further, that, unless the
resolution establishing the committee, the Certificate of Incorporation or
these Bylaws expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock or to adopt
a certificate of ownership and merger pursuant to Section 253 of the DGCL. The
committee may authorize the seal of the Corporation, if any, to be affixed to
all papers which may require it. The Board of Directors may designate one or
more Directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting. In the absence or
disqualification of a member of a committee, the member or members present at
any meeting and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of the Board to act
at the meeting in the place of any such absent or disqualified member.
SECTION 2. MEETINGS; MINUTES. Unless the Board of Directors
shall otherwise provide, upon designation of any committee by the Board, such
committee shall elect one of its members as chairman and may elect one of its
members as vice chairman and shall adopt
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rules of proceeding providing for, among other things, the manner of calling
committee meetings, giving notices thereof, quorum requirements for such
meetings, and the methods of conducting the same. Each committee of Directors
shall keep regular minutes of its proceedings and report the same to the Board
of Directors when required.
SECTION 3. COMPENSATION. Members of special or standing
committees may be allowed compensation if the Board of Directors shall so
determine pursuant to Section 12 of Article III of these Bylaws.
SECTION 4. ACTION BY CONSENT; PARTICIPATION BY TELEPHONE OR
SIMILAR EQUIPMENT. Unless the Board of Directors, the Certificate of
Incorporation or these Bylaws shall otherwise provide, any action required or
permitted to be taken by any committee may be taken without a meeting if all
members of the committee consent in writing to the adoption of a resolution
authorizing the action. The resolution and the written consents thereto by the
members of the committee shall be filed with the minutes of the proceedings of
the committee. Unless the Board of Directors, the Certificate of Incorporation
or these Bylaws shall otherwise provide, any one or more members of any such
committee may participate in any meeting of the committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other. Participation by
such means shall constitute presence in person at a meeting of the committee.
SECTION 5. CHANGES IN COMMITTEES; RESIGNATIONS; REMOVALS. The
Board shall have power, by the affirmative vote of a majority of the authorized
number of Directors, at any time to change the members of, to fill vacancies
in, and to discharge any committee of the Board. Any member of any such
committee may resign at any time by giving notice to the Corporation; provided,
however, that notice to the Board, the Chairman of the Board, the President,
the chairman of such committee or the Secretary shall be deemed to constitute
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notice to the Corporation. Such resignation shall take effect upon receipt of
such notice or at any later time specified therein; and, unless otherwise
specified therein, acceptance of such resignation shall not be necessary to
make it effective. Any member of any such committee may be removed at any
time, with or without cause, by the affirmative vote of a majority of the
authorized number of Directors at any meeting of the Board called for that
purpose.
ARTICLE V
OFFICERS
SECTION 1. OFFICERS. The officers of the Corporation shall be a
Chairman of the Board, a President, one or more Vice Presidents (any one or
more of whom may be designated Executive Vice President or Senior Vice
President), a Secretary and a Treasurer. The Board of Directors may appoint
such other officers and agents, including Assistant Vice Presidents, Assistant
Secretaries and Assistant Treasurers, as it shall deem necessary, who shall
hold their offices for such terms and shall exercise such powers and perform
such duties as shall be determined by the Board. Any two or more offices,
other than the offices of President and Secretary, may be held by the same
person. No officer shall execute, acknowledge, verify or countersign any
instrument on behalf of the Corporation in more than one capacity, if such
instrument is required by law, by these Bylaws or by any act of the Corporation
to be executed, acknowledged, verified or countersigned by two or more
officers. The Chairman of the Board shall be elected from among the Directors.
With the foregoing exception, none of the other officers need be a Director,
and none of the officers need be a stockholder of the Corporation unless
otherwise required by the Certificate of Incorporation.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the
Corporation shall be elected annually by the Board of Directors at its first
regular meeting held after the annual meeting of stockholders or as soon
thereafter as conveniently practicable. Each officer shall hold office until
his successor shall have been elected or appointed and shall have been
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qualified or until his death or the effective date of his resignation or
removal, or until he shall cease to be a Director in the case of the Chairman
of the Board.
SECTION 3. REMOVAL AND RESIGNATION. Any officer or agent
elected or appointed by the Board of Directors may be removed, with or without
cause, by the affirmative vote of a majority of the Board of Directors
whenever, in its judgment, the best interests of the Corporation shall be
served thereby, but such removal shall be without prejudice to the contractual
rights, if any, of the person so removed. Any officer may resign at any time
by giving written notice to the Corporation. Any such resignation shall take
effect at the date of the receipt of such notice or at any later time specified
therein, and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 4. VACANCIES. Any vacancy occurring in any office of
the Corporation by death, resignation, removal or otherwise may be filled by
the Board of Directors and, in the case of any vacancy in an office other than
the office of Chairman of the Board (if any) or President, by the President for
the unexpired portion of the term.
SECTION 5. SALARIES. The salaries of all officers and agents of
the Corporation shall be fixed by the Board of Directors or pursuant to its
direction; and no officer shall be prevented from receiving such salary by
reason of his also being a Director.
SECTION 6. CHAIRMAN OF THE BOARD. The Chairman of the Board
shall have such duties as the Board of Directors may prescribe. In the
Chairman's absence, such duties shall be attended to by the President.
SECTION 7. PRESIDENT. The President shall be the chief
executive officer of the Corporation, and, subject to the provisions of these
Bylaws, shall have general and active control of all of its business and
affairs. The President shall preside at all meetings of the Board of Directors
and at all meetings of the stockholders. The President shall have the
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power to (i) appoint and remove subordinate officers, agents and employees,
including Assistant Secretaries and Assistant Treasurers, except that the
President may not remove those elected or appointed by the Board of Directors,
and (ii) delegate and determine their duties. The President shall keep the
Board of Directors and the Executive Committee (if any) fully informed and
shall consult them concerning the business of the Corporation. The President
may sign, with the Secretary or another officer of the Corporation thereunto
authorized by the Board of Directors, certificates for shares of the
Corporation and any deeds, bonds, mortgages, contracts, checks, notes, drafts
or other instruments the issue or execution of which shall have been authorized
by resolution of the Board of Directors, except in cases where the signing and
execution thereof has been expressly delegated by these Bylaws or by the Board
of Directors to some other officer or agent of the Corporation, or shall be
required by law to be otherwise executed. The President shall vote, or
authorize any other officer of the Corporation to vote, all shares of stock of
any other corporation standing in the name of the Corporation either in person
or by proxy. The President shall, in general, perform all other duties
normally incident to or as usually appertain to the office of President and
such other duties as may be prescribed by these Bylaws, the stockholders, the
Board of Directors or the Executive Committee (if any) from time to time.
SECTION 8. VICE PRESIDENTS. In the absence of the President, or
in the event of his inability or refusal to act, the Executive Vice President
(or in the event there shall be no Vice President designated Executive Vice
President, any Vice President designated by the Board) shall perform the duties
and exercise the powers of the President. Any Vice President may sign, with
the Secretary or Assistant Secretary or with the Treasurer or Assistant
Treasurer, certificates for shares of the Corporation and any deeds, bonds,
mortgages, contracts, checks, notes, drafts or other instruments the issue or
execution of which shall have been authorized by resolution of the Board of
Directors, except in cases where the
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signing and execution thereof has been expressly delegated by these Bylaws or
by the Board of Directors to some other officer or agent of the Corporation, or
shall be required by law to be otherwise executed. Vice Presidents shall
perform such other duties as from time to time may be assigned to them by the
Chairman of the Board (if any), the President, the Board of Directors or the
Executive Committee (if any).
SECTION 9. SECRETARY. The Secretary shall (i) record the
proceedings of the meetings of the stockholders, the Board of Directors and
committees of Directors in the permanent minute books of the Corporation kept
for that purpose, (ii) see that all notices are duly given in accordance with
the provisions of these Bylaws and as required by law, (iii) be custodian of
the corporate books and records and of the seal of the Corporation, and see
that the seal of the Corporation or a facsimile thereof is affixed to all
certificates for shares of the Corporation prior to the issue thereof and to
all documents, the execution of which on behalf of the Corporation under its
seal is duly authorized in accordance with the provisions of these Bylaws, (iv)
keep or cause to be kept a register of the post office address of each
stockholder which shall be furnished by such stockholder, (v) sign with the
Chairman of the Board (if any), the President, or an Executive Vice President
or Vice President, certificates for shares of the Corporation and any deeds,
bonds, mortgages, contracts, checks, notes, drafts or other instruments the
issue or execution of which shall have been authorized by resolution of the
Board of Directors, except in cases where the signing and execution thereof has
been expressly delegated by these Bylaws or by the Board of Directors to some
other officer or agent of the Corporation, or shall be required by law to be
otherwise executed, (vi) have general charge of the stock transfer books of the
Corporation and (vii) in general, perform all duties normally incident to the
office of Secretary and such other duties as from time to time may be assigned
by the Chairman of the Board (if any), the President, the Board of Directors or
the Executive Committee (if any).
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SECTION 10. TREASURER. If required by the Board of Directors,
the Treasurer shall give a bond for the faithful discharge of his or her duties
in such sum and with such surety or sureties as the Board of Directors shall
determine. The Treasurer shall (i) have charge and custody of and be
responsible for all funds and securities of the Corporation, receive and give
receipts for monies due and payable to the Corporation from any source
whatsoever, and deposit all such monies in the name of the Corporation in such
banks, trust companies or other depositories as shall be selected in accordance
with the provisions of Section 4 of Article VI of these Bylaws, (ii) prepare,
or cause to be prepared, for submission at each regular meeting of the Board of
Directors, at each annual meeting of the stockholders and at such other times
as may be required by the Board of Directors, the Chairman of the Board (if
any), the President or the Executive Committee (if any), a statement of
financial condition of the Corporation in such detail as may be required, (iii)
sign with the Chairman of the Board (if any), the President, or an Executive
Vice President or Vice President, certificates for shares of the Corporation
and any deeds, bonds, mortgages, contracts, checks, notes, drafts or other
instruments the issue or execution of which shall have been authorized by
resolution of the Board of Directors, except in cases where the signing and
execution thereof has been expressly delegated by these Bylaws or by the Board
of Directors to some other officer or agent of the Corporation, or shall be
required by law to be otherwise executed and (iv) in general, perform all the
duties incident to the office of Treasurer and such other duties as from time
to time may be assigned by the Chairman of the Board (if any), the President,
the Board of Directors or the Executive Committee (if any).
SECTION 11. ASSISTANT SECRETARY OR TREASURER. The Assistant
Secretaries and Assistant Treasurers shall, in general, perform such duties as
shall be assigned to them by the Secretary or the Treasurer, respectively, or
by the Chairman of the Board (if any), the President, the Board of Directors or
the Executive Committee (if any). The Assistant
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Secretaries and Assistant Treasurers shall, in the absence of the Secretary or
Treasurer, respectively, or in their respective inability or refusal to act,
perform all functions and duties which such absent officers may delegate, but
such delegation shall not relieve the absent officer from the responsibilities
and liabilities of their office. The Assistant Secretaries or the Assistant
Treasurers may sign, with the Chairman of the Board (if any), the President or
Executive Vice President or Vice President, certificates for shares of the
Corporation and any deeds, bonds, mortgages, contracts, checks, notes, drafts
or other instruments the issue or execution of which shall have been authorized
by a resolution of the Board of Directors, except in cases where the signing
and execution thereof has been expressly delegated by these Bylaws or by the
Board of Directors to some other officer or agent of the Corporation, or shall
be required by law to be otherwise executed. The Assistant Treasurers shall
respectively, if required by the Board of Directors, give bonds for the
faithful discharge of their duties in such sums and with such sureties as the
Board of Directors shall determine.
ARTICLE VI
CONTRACTS, CHECKS, LOANS, DEPOSITS, ETC.
SECTION 1. CONTRACTS. The Board may authorize any officer or
officers, agent or agents, in the name and on behalf of the Corporation, to
enter into any contract or to execute and deliver any instrument, which
authorization may be general or confined to specific instances; and, unless so
authorized by the Board, no officer, agent or employee shall have any power or
authority to bind the Corporation by any contract or engagement or to pledge
its credit or to render it liable pecuniarily for any purpose or for any
amount.
SECTION 2. CHECKS, ETC. All checks, drafts, bills of exchange
or other orders for the payment of money out of the funds of the Corporation,
and all notes or other evidences of indebtedness of the Corporation, shall be
signed in the name and on behalf of the Corporation
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in such manner as shall from time to time be authorized by the Board, which
authorization may be general or confined to specific instances.
SECTION 3. LOANS. No loan shall be contracted on behalf of the
Corporation, and no negotiable paper shall be issued in its name, unless
authorized by the Board, which authorization may be general or confined to
specific instances. All bonds, debentures, notes and other obligations or
evidences of indebtedness of the Corporation issued for such loans shall be
made, executed and delivered as the Board shall authorize.
SECTION 4. DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositaries as may be selected by or
in the manner designated by the Board. The Board or its designees may make
such special rules and regulations with respect to such bank accounts, not
inconsistent with the provisions of these Bylaws, as may be deemed expedient.
ARTICLE VII
CAPITAL STOCK
SECTION 1. STOCK CERTIFICATES. Each stockholder of the
Corporation shall be entitled to have, in such form as shall be approved by the
Board, a certificate or certificates signed by the Chairman of the Board or the
President and by either the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary (except that, when any such certificate is
countersigned by a transfer agent or registered by a registrar other than the
Corporation itself or any employee, the signatures of any such officers may be
facsimiles, engraved or printed), which may be sealed with the seal of the
Corporation (which seal may be a facsimile, engraved or printed), certifying
the number of shares of capital stock of the Corporation owned by such
stockholder. In case any officer who has signed or whose facsimile signature
has been placed upon any such certificate shall have ceased to be such
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officer before such certificate is issued, such certificate may be issued by
the Corporation with the same effect as if he were such officer at the date of
its issue.
If the Corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional, or other special rights of
each class of stock or series thereof, and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock; provided that, except as
otherwise stated in Section 202 of the DGCL, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the Corporation shall issue to represent such class or series of stock, a
statement that the Corporation will furnish without charge to each stockholder
who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
SECTION 2. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer
of the Corporation who has charge of the stock ledger of the Corporation shall
prepare and make or cause to have prepared or made, at least ten (10) days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing
the address of each stockholder and the number of shares registered in the name
of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the
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time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder of the Corporation who is present.
SECTION 3. STOCK LEDGER. The stock ledger of the Corporation
shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger, the list required by Section 2 of this Article VII or the
books and records of the Corporation, or to vote in person or by proxy at any
meeting of stockholders.
SECTION 4. TRANSFERS OF CAPITAL STOCK. Transfers of shares of
capital stock of the Corporation shall be made only on the stock record of the
Corporation by the holder of record thereof or by his attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary of
the Corporation or the transfer agent thereof, and only on surrender of the
certificate or certificates representing such shares, properly endorsed or
accompanied by a duly executed stock transfer power. The Board may make such
additional rules and regulations as it may deem expedient concerning the issue
and transfer of certificates representing shares or uncertificated shares of
the capital stock of the Corporation.
SECTION 5. LOST CERTIFICATES. The Board of Directors may direct
a new certificate to be issued in place of any certificate theretofore issued
by the Corporation alleged to have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming the certificate of
stock to be lost, stolen or destroyed. When authorizing such issue of a new
certificate, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate, or his legal representative, to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed or the issuance of such new certificate.
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SECTION 6. FIXING OF RECORD DATE. In order that the Corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, or entitled to receive payment of
any dividends or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Board may fix, in advance, a
record date, which record date shall (i) not precede the date upon which the
resolution fixing the record date is adopted by the Board and (ii) not be more
than sixty days nor less than ten days before the date of such meeting, nor
more than sixty days prior to any other action. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned
meeting.
In order that the Corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date, which record date shall (i) not precede the
date upon which the resolution fixing the record date is adopted by the Board
and (ii) not be more than ten days after the date upon which the resolution
fixing the record date is adopted by the Board.
SECTION 7. BENEFICIAL OWNERS. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person, whether or not it shall have express
or other notice thereof, except as otherwise provided by law.
ARTICLE VIII
DIVIDENDS
SECTION 1. DECLARATION. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the
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Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property or in shares of capital stock,
subject to the provisions of the Certificate of Incorporation.
SECTION 2. RESERVE. Before payment of any dividend, there may
be set aside out of any funds of the Corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the Corporation, and the Directors may modify or
abolish any such reserve in the manner in which it was created.
ARTICLE IX
INDEMNIFICATION
SECTION 1. INDEMNIFICATION. The Corporation shall indemnify to
the full extent authorized or permitted by Section 145 of the DGCL any person
(his heirs, executors and administrators) made, or threatened to be made, a
party to any action, suit or proceeding (whether civil, criminal,
administrative or investigative) by reason of the fact that he is or was a
Director or officer of the Corporation or by reason of the fact that as such
Director or officer, at the request of the Corporation, is or was serving any
other corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, in any capacity. Nothing contained herein shall affect any
rights to indemnification to which employees and agents of the Corporation
other than Directors and officers may be entitled by law.
SECTION 2. ADVANCEMENT OF EXPENSES. Expenses (including
attorneys' fees) incurred by an officer or Director of the Corporation in
defending any civil, criminal, administrative or investigative action, suit or
proceeding may be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding as authorized by the Board
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of Directors upon receipt of an undertaking by or on behalf of such Director or
officer to repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by the Corporation as authorized in this Article
IX. Such expenses incurred by employees and agents of the Corporation other
than Directors and officers may be paid upon such terms and conditions, if any,
as the Board of Directors deems appropriate.
SECTION 3. NON-EXCLUSIVITY. The indemnification and advancement
of expenses provided for hereby shall not be deemed exclusive of any other
rights to which a person seeking indemnification or advancement of expenses may
be entitled under any bylaw, agreement, vote of stockholders or disinterested
Directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.
SECTION 4. INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a Director, officer, employee
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under the
provisions of this Article IX.
SECTION 5. CONTINUITY. The indemnification and advancement of
expenses provided for in this Article IX shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
Director, officer, employee or agent of the Corporation and shall inure to the
benefit of the heirs, executors and administrators of such a person.
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ARTICLE X
SEAL
The Corporation's seal, if any, shall be circular in form and shall
include the name of the Corporation, the state and year of its incorporation,
and the word "Seal." The seal may be used by causing it or a facsimile thereof
to be impressed or affixed or in any other manner reproduced.
ARTICLE XI
WAIVER OF NOTICE
Whenever any notice is required by law, the Certificate of
Incorporation or these Bylaws to be given to any Director, member of a
committee or stockholder, a waiver thereof in writing, signed by the person or
persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the stockholders, Directors, or
members of a committee of Directors need be specified in any written waiver of
notice unless so required by the Certificate of Incorporation or these Bylaws.
ARTICLE XII
AMENDMENTS
These Bylaws or any of them may be amended or supplemented in any
respect at any time, either (a) at any meeting of stockholders, provided that
any amendment or supplement proposed to be acted upon at any such meeting shall
have been described or referred to in the notice of such meeting, or (b) at any
meeting of the Board, provided that any amendment or supplement proposed to be
acted upon at any such meeting shall have been described or
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referred to in the notice of such meeting or an announcement with respect
thereto shall have been made at the last previous Board meeting, and provided
further that no amendment or supplement adopted by the Board shall vary or
conflict with any amendment or supplement adopted by the stockholders.
I, the undersigned, being the Secretary of the Corporation DO HEREBY
CERTIFY THAT the foregoing are the bylaws of said Corporation, as adopted by
the sole director of said Corporation as of the ___ day of
_____________________, 1997.
____________________________________________
_________________________________, Secretary
26
<PAGE> 224
EXHIBIT M
EXECUTIVE EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement"), including Exhibit A hereto,
is entered into between Queen Sand Resources, Inc., a Delaware corporation
having offices at 3500 Oak Lawn, Suite 380, Dallas, Texas 75219 ("Employer"),
and ____________, an individual currently residing at ______________________
("Employee"), to be effective as of ____________________, 1997 (the "Effective
Date").
WITNESSETH:
WHEREAS, Employer is desirous of employing Employee pursuant to the
terms and conditions and for the consideration set forth in this Agreement, and
Employee is desirous of entering the employ of Employer pursuant to such terms
and conditions and for such consideration.
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants, and obligations contained herein, Employer and Employee agree as
follows:
ARTICLE 1: EMPLOYMENT AND DUTIES.
1.1 Employer agrees to employ Employee, and Employee agrees to be
employed by Employer, beginning as of the Effective Date and continuing until
the date set forth in Exhibit A to this Agreement (the "Term") subject to the
terms and conditions of this Agreement.
1.2 Employee initially shall be employed in the position set forth
in Exhibit A to this Agreement. Employer may subsequently assign Employee to a
different position or modify Employee's duties and responsibilities consistent
with the Employee's existing duties, responsibilities and level of authority.
Employer may assign this Agreement and Employee's employment to any of its
affiliates. Employee agrees to serve in the assigned position and to perform
diligently and to the best of Employee's abilities the duties and services
appertaining to such position as determined by Employer, as well as such
additional or different duties and services appropriate to such position which
Employee from time to time may be reasonably directed to perform by Employer.
Employee shall at all times comply with and be subject to such policies and
procedures as Employer may establish from time to time.
1.3 Employee shall, during the period of Employee's employment by
Employer, devote Employee's full business time, energy, and best efforts to the
business and affairs of Employer. Employee may not engage, directly or
indirectly, in any other business, investment, or activity that interferes with
Employee's performance of Employee's duties hereunder, is contrary to the
interests of Employer, or requires any significant portion of Employee's
business time. Notwithstanding anything herein to the contrary it is
acknowledged and agreed that the Employee may hold positions as director,
officer or employee of Capital House A Finance and Investment Corporation and
any corporation associated therewith; provided, that such activities do not
impair the performance by Employee of his duties hereunder or otherwise
interfere with Employee's compliance with his obligations set forth in the
preceding sentence.
<PAGE> 225
1.4 In connection with Employee's employment by Employer, Employer
shall endeavor to provide Employee access to such confidential information
pertaining to the business and services of Employer as is appropriate for
Employee's employment responsibilities. Employer also shall endeavor to
provide to Employee the opportunity to develop business relationships with
those of Employer's clients and potential clients that are appropriate for
Employee's employment responsibilities.
1.5 Employee acknowledges and agrees that Employee owes a
fiduciary duty of loyalty, fidelity and allegiance to act at all times in the
best interests of the Employer and to do no act which would injure Employer's
business, its interests, or its reputation. It is agreed that any direct or
indirect interest in, connection with, or benefit from any outside activities,
particularly commercial activities, which interest might in any way adversely
affect Employer or any of its affiliates, involves a possible conflict of
interest. In keeping with Employee's fiduciary duties to Employer, Employee
agrees that Employee shall not knowingly become involved in a conflict of
interest with Employer or its affiliates, or upon discovery thereof, allow such
a conflict to continue. Moreover, Employee agrees that Employee shall disclose
to Employer's Board of Directors any facts which might involve such a conflict
of interest.
1.6 Employer and Employee recognize that it is impossible to
provide an exhaustive list of actions or interests that constitute a conflict
of interest. Moreover, Employer and Employee recognize there are many
borderline situations. In some instances, full disclosure of facts by the
Employee to Employer's Board of Directors may be all that is necessary to
enable Employer or its affiliates to protect their interests. In others, if no
improper motivation appears to exist and the interests of Employer or its
affiliates have not suffered, prompt elimination of the outside interest will
suffice. In still others, it may be necessary for Employer to terminate the
employment relationship. Employer and Employee agree that Employer's
determination as to whether a conflict of interest exists shall be conclusive.
Employer reserves the right to take such action as, in its judgment, will end
the conflict.
ARTICLE 2: COMPENSATION AND BENEFITS.
2.1 The Employee shall be entitled to receive the salary set forth
in Exhibit A to this Agreement and to participate in any other compensation and
benefit plans referred to on Exhibit A to this Agreement, which benefit plans
are implemented by the Company after the date hereof, in each case to the
extent determined by the Board (or a Compensation Committee thereof).
2.2 While employed by Employer (both during the Term and
thereafter), Employee shall be allowed to participate, on the same basis
generally as other employees of Employer, in all general employee benefit plans
and programs, including improvements or modifications of the same, which on the
Effective Date or thereafter are made available by Employer to all or
substantially all of Employer's employees. Such benefits, plans, and programs
may, but are not required to, include, without limitation, medical, health, and
dental care, life insurance, disability protection, pension plans, relocation,
automobile allowance and directors liability insurance. Nothing in this
Agreement is to be construed or interpreted to provide greater rights,
participation, coverage, or benefits under such benefit plans or programs than
provided to similarly situated employees pursuant to the terms and conditions
of such benefit plans and programs. Employee shall have the right to
participate in an incentive compensation plan for similarly situated employees
to be adopted by Employer (the "Plan"). The Plan shall provide for at least
annual awards of cash, performance shares or units, or
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<PAGE> 226
other performance- or incentive-based compensation, or any combination thereof,
upon meeting the Employer's targeted performance objectives for the award year.
2.3 Employer shall not by reason of this Article 2 be obligated to
institute, maintain, or refrain from changing, amending, or discontinuing, any
such incentive compensation or employee benefit program or plan, so long as
such actions are similarly applicable to covered employees generally.
Moreover, unless specifically provided for in a written plan document adopted
by the Board of Directors of Employer, none of the benefits or arrangements
described in this Article 2 shall be secured or funded in any way, and each
shall instead constitute an unfunded and unsecured promise to pay money in the
future exclusively from the general assets of Employer.
2.4 Employer may withhold from any compensation, benefits, or
amounts payable under this Agreement all federal, state, city, or other taxes
as may be required pursuant to any law or governmental regulation or ruling.
It is acknowledged by the parties that the Employee is and, at his option, may
remain a resident of Canada during the term of this Agreement. In the event
that the Employee should be liable for any federal, provincial, state or local
income or payroll taxes, on any income or benefits earned by Employee in
respect of his employment by Employer, in an amount greater than that amount of
taxes that Employee would be liable for (after taking into account any and all
credits or deductions permitted under the laws of the United States and Canada
and any tax treaties in effect between those countries) on the same income and
benefits solely under the federal, provincial or local laws in effect in the
Commonwealth of Canada (collectively, the "Excess Taxes"), then Employer shall
"gross up" Employee's compensation under this Agreement in an amount sufficient
to pay such Excess Taxes.
2.5 The Employer shall reimburse the Employee for all reasonable,
ordinary and necessary expenses incurred by him in connection with his duties
upon production of receipts and an itemized account; provided, that, the
Employee shall obtain the prior approval of the Board for any expense greater
than $10,000. (U.S.)
ARTICLE 3: TERMINATION PRIOR TO EXPIRATION OF TERM.
3.1 Notwithstanding any other provisions herein to the contrary,
Employer shall have the right to terminate Employee's employment under this
Agreement at any time prior to the expiration of the Term for any of the
following reasons:
(i) For cause upon the good faith determination
by the Employer's Board of Directors that cause exists for the
termination of the employment relationship. As used in this
Section 3.1(i), the term "cause" shall mean (a) Employee has
willfully refused without proper legal reason to perform a
duty or responsibility required of Employee under this
Agreement which remains uncorrected for fifteen (15) days
following written notice to Employee by Employer of such
breach; (b) Employee has been convicted of a felony (which,
through lapse of time or otherwise, is not subject to appeal);
(c) Employee's involvement in a conflict of interest as
referenced in Sections 1.5 and 1.6 for which Employer makes a
determination to terminate the employment of Employee; (d)
Employee has willfully engaged in conduct that Employee knows
or should know is materially injurious to Employer or any of
its affiliates; or (e) Employee's material breach of any
material provision of this Agreement or corporate code or
policy which remains uncorrected for thirty (30) days
following written notice to Employee by Employer of such
breach. It is expressly
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<PAGE> 227
acknowledged and agreed that the decision as to whether cause
exists for termination of the employment relationship by
Employer is delegated to the Board of Directors of Employer
for determination;
(ii) upon Employee's death; or
(iii) upon Employee's becoming incapacitated by
accident, sickness, or other circumstance which renders him
mentally or physically incapable of performing the duties and
services required of Employee for a period of 120 consecutive
days, or for a period of 180 days, regardless of whether or
not such days are consecutive, within a 12-month period.
The termination of Employee's employment by Employer prior to the expiration of
the Term shall constitute a "Termination for Cause" if made pursuant to Section
3.1(i); the effect of such termination is specified in Section 3.4. The effect
of the employment relationship being terminated pursuant to Section 3.1(ii) as
a result of Employee's death is specified in Section 3.5. The effect of the
employment relationship being terminated pursuant to Section 3.1(iii) as a
result of the Employee becoming incapacitated is specified in Section 3.6.
3.2 Notwithstanding any other provisions of this Agreement except
Section 6.5, Employee shall have the right to terminate the employment
relationship under this Agreement at any time prior to the expiration of the
Term of employment for any other reason whatsoever, in the sole discretion of
Employee. The termination of Employee's employment by Employee prior to the
expiration of the Term shall constitute a "Voluntary Termination" if made
pursuant to Section 3.2; the effect of such termination is specified in Section
3.3.
3.3 Upon a Voluntary Termination, all future compensation to which
Employee is entitled and all future benefits for which Employee is eligible
shall cease and terminate as of the date of termination. Employee shall be
entitled to pro rata salary through the date of such termination and Employee
shall be entitled to any individual bonuses or individual incentive
compensation earned but not yet paid at the date of such termination.
Employee's rights under this Section are Employee's sole and exclusive rights
against Employer or its affiliates, and Employer's sole and exclusive liability
to Employee under this Agreement, in contract, tort, or otherwise, for any
Voluntary Termination. Employee covenants not to sue or lodge any claim,
demand or cause of action against Employer for any sums for Voluntary
Termination other than those sums specified in this Section.
3.4 Upon a Termination for Cause, all future compensation to which
Employee is entitled and all future benefits for which Employee is eligible
shall cease and terminate as of the date of termination. Employee shall be
entitled to pro rata salary through the date of such termination and Employee
shall be entitled to any individual bonuses or individual incentive
compensation earned but not yet paid at the date of such termination.
Employee's rights under this Section are Employee's sole and exclusive rights
against Employer or its affiliates, and Employer's sole and exclusive liability
to Employee under this Agreement, in contract, tort, or otherwise, for any
Termination for Cause. Employee covenants not to sue or lodge any claim,
demand or cause of action against Employer for any sums for Termination for
Cause other than those sums specified in this Section.
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<PAGE> 228
3.5 Upon termination of the employment relationship as a result of
Employee's death, Employee's heirs, administrators, or legatees shall be
entitled to Employee's pro rata salary through the date of such termination and
Employee's heirs, administrators, or legatees shall be entitled to any
individual bonuses or individual incentive compensation earned but not yet paid
to Employee at the date of such termination. The rights of Employee or his
heirs, administrators, or legatees under this Section are the sole and
exclusive rights of Employee, his heirs, administrators, and legatees against
Employer or its affiliates, and Employer's sole and exclusive liability to
Employee under this Agreement, in contract, tort, or otherwise, with respect to
such termination of the employment relationship.
3.6 Upon termination of the employment relationship as a result of
Employee's becoming incapacitated in the manner specified in Section 3.1(iii),
Employee shall be entitled to his pro rata salary through the date of such
termination and Employee shall be entitled to any individual bonuses or
individual incentive compensation earned but not yet paid to Employee at the
date of such termination. The rights of Employee or his heirs, administrators,
or legatees under this Section are the sole and exclusive rights of Employee,
his heirs, administrators, and legatees against Employer or its affiliates, and
Employer's sole and exclusive liability to Employee under this Agreement, in
contract, tort, or otherwise, with respect to such termination of the
employment relationship.
3.7 Termination of the employment relationship does not terminate
those obligations imposed by this Agreement which are continuing obligations,
including, without limitation, Employee's obligations under Articles 4 and 5.
ARTICLE 4: OWNERSHIP AND PROTECTION OF INFORMATION; COPYRIGHTS.
4.1 All information, ideas, concepts, improvements, discoveries,
and inventions, whether patentable or not, which are conceived, made, developed
or acquired by Employee, individually or in conjunction with others, during
Employee's employment by Employer (whether during business hours or otherwise
and whether on Employer's premises or otherwise) which relate to Employer's
business, products or services (including, without limitation, all such
information relating to corporate opportunities, research, financial and sales
data, pricing and trading terms, evaluations, opinions, interpretations,
acquisition prospects, the identity of customers or their requirements, the
identity of key contacts within the customer's organizations or within the
organization of acquisition prospects, or marketing and merchandising
techniques, prospective names, and marks) shall be disclosed to Employer and
are and shall be the sole and exclusive property of Employer. Moreover, all
drawings, memoranda, notes, records, files, correspondence, drawings, manuals,
models, specifications, computer programs, maps and all other writings or
materials of any type embodying any of such information, ideas, concepts,
improvements, discoveries, and inventions are and shall be the sole and
exclusive property of Employer.
4.2 Employee acknowledges that the business of Employer and its
affiliates is highly competitive and that their strategies, methods, books,
records, and documents, their technical information concerning their products,
equipment, services, and processes, procurement procedures and pricing
techniques, the names of and other information (such as credit and financial
data) concerning their customers and business affiliates, all comprise
confidential business information and trade secrets which are valuable,
special, and unique assets which Employer or its affiliates use in their
business to obtain a competitive advantage over their competitors. Employee
further acknowledges that protection of such
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<PAGE> 229
confidential business information and trade secrets against unauthorized
disclosure and use is of critical importance to Employer and its affiliates in
maintaining their competitive position. Employee hereby agrees that Employee
will not, at any time during or after his employment by Employer, make any
unauthorized disclosure of any confidential business information or trade
secrets of Employer or its affiliates, or make any use thereof, except in the
carrying out of his or her employment responsibilities hereunder. As a result
of Employee's employment by Employer, Employee may also from time to time have
access to, or knowledge of, confidential business information or trade secrets
of third parties, such as customers, suppliers, partners, joint venturers, and
the like, of Employer and its affiliates. Employee also agrees to preserve and
protect the confidentiality of such third party confidential information and
trade secrets to the same extent, and on the same basis, as Employer's
confidential business information and trade secrets. Employee acknowledges
that money damages would not be sufficient remedy for any breach of this
Article 4 by Employee, and Employer shall be entitled to enforce the provisions
of this Article 4 by terminating any payments then owing to Employee under this
Agreement and/or to specific performance and injunctive relief as remedies for
such breach or any threatened breach. Such remedies shall not be deemed the
exclusive remedies for a breach of this Article 4, but shall be in addition to
all remedies available at law or in equity to Employer, including the recovery
of damages from Employee and his agents involved in such breach.
4.3 All written materials, records, and other documents made by,
or coming into the possession of, Employee during the period of Employee's
employment by Employer which contain or disclose confidential business
information or trade secrets of Employer or its affiliates shall be and remain
the property of Employer or its affiliates, as the case may be. Upon
termination of Employee's employment by Employer, for any reason, Employee
promptly shall deliver the same, and all copies thereof, to Employer.
4.4 If, during Employee's employment by Employer, Employee creates
any original work of authorship fixed in any tangible medium of expression
which is the subject matter of copyright (such as videotapes, written
presentations on acquisitions, computer programs, drawings, maps, architectural
renditions, models, manuals, brochures, or the like) relating to Employer's
business, products, or services, whether such work is created solely by
Employee or jointly with others (whether during business hours or otherwise and
whether on Employer's premises or otherwise), Employee shall disclose such work
to Employer. Employer shall be deemed the author of such work if the work is
prepared by Employee in the scope of his employment; or, if the work is not
prepared by Employee within the scope of his employment but is specially
ordered by Employer as a contribution to a collective work, as a part of a
motion picture or other audiovisual work, as a translation, as a supplementary
work, as a compilation, or as an instructional text, then the work shall be
considered to be work made for hire and Employer shall be the author of the
work. If such work is neither prepared by the Employee within the scope of his
employment nor a work specially ordered and is deemed to be a work made for
hire, then Employee hereby agrees to assign, and by these presents does assign,
to Employer all of Employee's worldwide right, title, and interest in and to
such work and all rights of copyright therein.
4.5 Both during the period of Employee's employment by Employer
and thereafter, Employee shall assist Employer and its nominee, at any time, in
the protection of Employer's worldwide right, title, and interest in and to
information, ideas, concepts, improvements, discoveries, and inventions, and
its copyrighted works, including without limitation, the execution of all
formal assignment documents requested by Employer or its nominee and the
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<PAGE> 230
execution of all lawful oaths and applications for applications for patents and
registration of copyright in the United States and foreign countries.
ARTICLE 5: POST-EMPLOYMENT NON-COMPETITION OBLIGATIONS.
5.1 As part of the consideration for the compensation and benefits
to be paid to Employee hereunder, in keeping with Employee's duties as a
fiduciary and in order to protect Employer's interests in the confidential
information of Employer and the business relationships developed by Employee
with the clients and potential clients of Employer, and as an additional
incentive for Employer to enter into this Agreement, Employer and Employee
agree to the non-competition provisions of this Article 5. Employee agrees
that during the period of Employee's non-competition obligations hereunder,
Employee will not, directly or indirectly for Employee or for others, in any
geographic area or market where Employer or any of its affiliated companies are
conducting any business as of the date of termination of the employment
relationship or have during the previous twelve months conducted any business:
(i) engage in any business competitive with the business
conducted by Employer;
(ii) render advice or services to, or otherwise assist,
any other person, association, or entity who is engaged, directly or
indirectly, in any business competitive with the business conducted by
Employer;
(iii) induce any employee of Employer or any of its
affiliates to terminate his or her employment with Employer or its
affiliates, or hire or assist in the hiring of any such employee by
person, association, or entity not affiliated with Employer.
These non-competition obligations shall be pursuant to the Termination and
Severance Provisions of Exhibit A.
5.2 Employee understands that the foregoing restrictions may limit
his ability to engage in certain businesses anywhere in the world during the
period provided for above, but acknowledges that Employee will receive
sufficiently high remuneration and other benefits under this Agreement to
justify such restriction. Employee acknowledges that money damages would not
be sufficient remedy for any breach of this Article 5 by Employee, and Employer
shall be entitled to enforce the provisions of this Article 5 by terminating
any payments then owing to Employee under this Agreement and/or to specific
performance and injunctive relief as remedies for such breach or any threatened
breach. Such remedies shall not be deemed the exclusive remedies for a breach
of this Article 5, but shall be in addition to all remedies available at law or
in equity to Employer, including, without limitation, the recovery of damages
from Employee and his agents involved in such breach.
5.3 It is expressly understood and agreed that Employer and
Employee consider the restrictions contained in this Article 5 to be reasonable
and necessary to protect the proprietary information of Employer.
Nevertheless, if any of the aforesaid restrictions are found by a court having
jurisdiction to be unreasonable, or overly broad as to geographic area or time,
or otherwise unenforceable, the parties intend for the restrictions therein set
forth to be modified by such courts so as to be reasonable and enforceable and,
as so modified by the court, to be fully enforced.
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<PAGE> 231
ARTICLE 6: MISCELLANEOUS.
6.1 For purposes of this Agreement the terms "affiliates" or
"affiliated" means an entity who directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with
Employer.
6.2 Unless otherwise specified, whenever this Agreement requires
or permits any consent, approval, notice, request, or demand from one party to
another, that communication must be in writing (which may be by telecopy) to be
effective and is deemed to have been given (a) if by telecopy, when transmitted
to the appropriate telecopy number (and all communications sent by telecopy
must be confirmed promptly by telephone; but any requirement in this
parenthetical does not affect the date when the telecopy is deemed to have been
delivered), or (b) if by any other means, including by internationally
acceptable courier or hand delivery, when actually delivered. Until changed by
notice pursuant to this Agreement, the addresses (and telecopy numbers) are:
If to Employer: Queen Sand Resources, Inc.
3500 Oak Lawn, Suite 380, L.B.#31
Dallas, Texas 75219-4398
Attn: Robert P. Lindsay
Facsimile: (214) 521-9960
With copies to: Queen Sand Resources, Inc.
60 Queen Street, Suite 1400
Ottawa, Canada K1P 5Y7
Attn: Edward J. Munden
Facsimile: (613) 230-6055
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
Attn: William L. Boeing, Esq.
Facsimile: (214) 651-5940
If to Employee, to the address shown on the first page hereof.
Either Employer or Employee may furnish a change of address to the other in
writing in accordance herewith, except that notices of changes of address shall
be effective only upon receipt.
6.3 This Agreement shall be governed in all respects by the laws
of the State of Texas, excluding any conflict-of-law rule or principle that
might refer the construction of the Agreement to the laws of another State or
country.
6.4 No failure by either party hereto at any time to give notice
of any breach by the other party of, or to require compliance with, any
condition or provision of this Agreement shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time.
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<PAGE> 232
6.5 If a dispute arises out of or related to this Agreement, other
than a dispute regarding Employee's obligations under Article 4 or Article 5,
and if the dispute cannot be settled through direct discussions, then Employer
and Employee agree to first endeavor to settle the dispute in an amicable
manner by mediation, before having recourse to any other proceeding or forum.
Thereafter, if either party to this Agreement brings legal action to enforce
the terms of this Agreement, the party who prevails in such legal action,
whether plaintiff or defendant, in addition to the remedy or relief obtained in
such legal action shall be entitled to recover its, his, or her expenses
incurred in connection with such legal action, including, without limitation,
costs of Court and attorneys fees.
6.6 It is a desire and intent of the parties that the terms,
provisions, covenants, and remedies contained in this Agreement shall be
enforceable to the fullest extent permitted by law. If any such term,
provision, covenant, or remedy of this Agreement or the application thereof to
any person, association, or entity or circumstances shall, to any extent, be
construed to be invalid or unenforceable in whole or in part, then such term,
provision, covenant, or remedy shall be construed in a manner so as to permit
its enforceability under the applicable law to the fullest extent permitted by
law. In any case, the remaining provisions of this Agreement or the
application thereof to any person, association, or entity or circumstances
other than those to which they have been held invalid or unenforceable, shall
remain in full force and effect.
6.7 This Agreement shall be binding upon and inure to the benefit
of Employer and any other person, association, or entity which may hereafter
acquire or succeed to all or substantially all of the business or assets of
Employer by any means whether direct or indirect, by purchase, merger,
consolidation, or otherwise. Employee's rights and obligations under Agreement
hereof are personal and such rights, benefits, and obligations of Employee
shall not be voluntarily or involuntarily assigned, alienated, or transferred,
whether by operation of law or otherwise, without the prior written consent of
Employer.
6.8 There exist other agreements between Employer and Employee
relating to the employment relationship between them, e.g., the agreement with
respect to Employer's policies booklet and agreements with respect to benefit
plans. This Agreement replaces and merges previous agreements and discussions
pertaining to the following subject matters covered herein: the nature of
Employee's employment relationship with Employer and the term and termination
of such relationship. This Agreement constitutes the entire agreement of the
parties with regard to such subject matters, and contains all of the covenants,
promises, representations, warranties, and agreements between the parties with
respect such subject matters. Each party to this Agreement acknowledges that
no representation, inducement, promise, or agreement, oral or written, has been
made by either party with respect to such subject matters, which is not
embodied herein, and that no agreement, statement, or promise relating to the
employment of Employee by Employer that is not contained in this Agreement
shall be valid or binding. Any modification of this Agreement will be
effective only if it is in writing and signed by each party whose rights
hereunder are affected thereby, provided that any such modification must be
authorized or approved by the Board of Directors of Employer.
* * * * *
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<PAGE> 233
IN WITNESS WHEREOF, Employer and Employee have duly executed this
Agreement in multiple originals to be effective on the date first stated above.
QUEEN SAND RESOURCES, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
This day of , 1997
----- -------------
----------------------------------------
This day of , 1997
----- -------------
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<PAGE> 234
EXHIBIT A
TO
EMPLOYMENT AGREEMENT
The Employer and Employee agree that the Employee will be employed for
the term, title and initial salary amount as specified below. The Employee
will be entitled to other compensation and employee benefit plans and programs
implemented by the Company after the date hereof, which plans and programs may,
but are not required to, include those enumerated in the list immediately
below.
I. TERM - Six Months
TITLE - [ insert current title ]
INITIAL SALARY AMOUNT - $10,000 per month
REMUNERATION AND BENEFITS
o Bonuses
o Expense allowance
o Automobile
o Pension
o Key man and other life insurance
o Directors Liability Insurance
o Other (D&O liability insurance)
o Re-negotiation
o Relocation expenses
TERMINATION
SEVERANCE
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<PAGE> 235
EXHIBIT N
1997
-----------------,
Queen Sand Resources, Inc.
3500 Oak Lawn, Suite 380, L.B. #31
Dallas, Texas 75219-4398
Ladies and Gentlemen:
We have acted as counsel to Joint Energy Development Investments Limited
Partnership, a Delaware limited partnership ("JEDI"), in connection with the
Securities Purchase Agreement dated March 27, 1997 (the "Securities Purchase
Agreement") between JEDI and Queen Sand Resources, Inc., a Delaware corporation
(the "Company"), and the purchase by JEDI of certain securities of the Company
pursuant thereto. We are rendering this opinion pursuant to Section 5.02(c) of
the Securities Purchase Agreement. Initially capitalized terms used but not
otherwise defined herein shall have the meanings ascribed to them in the
Securities Purchase Agreement.
We have examined executed counterparts, or copies thereof, of the Securities
Purchase Agreement, the Registration Rights Agreement, the Stockholders'
Agreement and the Purchaser Earn Up Agreement (collectively, the "JEDI
Documents"). We have also examined originals or copies of the Agreement of
Limited Partnership of JEDI dated __________, 199__[, as amended] (the
"Partnership Agreement"), and such other documents and records as we have
deemed necessary and relevant for purposes hereof. In addition, we have relied
on certificates of representatives of JEDI and others and certificates of
public officials as to certain matters of fact relating to this opinion and
have made such investigations of law as we have deemed necessary and relevant
as a basis hereof. We have assumed the genuineness of all signatures, the
authenticity of all documents and records submitted to us as originals, the
conformity to authentic original documents and records of all documents and
records submitted to us as copies and the truthfulness of all statements of
fact contained therein. Moreover, we have assumed the due authorization,
execution and delivery of each of the JEDI Documents by all parties thereto
other than JEDI.
Based on the foregoing and subject to the limitations and assumptions set forth
herein, and having due regard for such legal considerations as we deem
relevant, we are of the opinion that:
1. JEDI is a limited partnership duly formed, validly
existing and in good standing under the laws of the State of Delaware.
2. JEDI has all necessary partnership power and authority
to execute, deliver and perform its obligations under each of the JEDI
Documents.
<PAGE> 236
Queen Sand Resources, Inc.
, 1997
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Page 2
3. The JEDI Documents have been executed and delivered by
duly authorized representatives of JEDI and constitute legal, valid and binding
obligations of JEDI enforceable against JEDI in accordance with their
respective terms.
4. No consent, approval, waiver, authorization, designation
or declaration of, or filing with, any Governmental Authority or other Person
is required in connection with the execution and delivery by JEDI of, and the
performance by JEDI of its obligations under, the JEDI Documents.
5. There is no Action, known to us after due inquiry,
pending or threatened against or affecting JEDI or its properties or assets
before or by any Governmental Authority, which relates to or challenges the
legality, validity or enforceability of any of the JEDI documents or which
(individually or in the aggregate) reasonably could be expected to impair the
ability or obligation of JEDI to perform fully on a timely basis any obligations
which it has or will have under the JEDI Documents.
6. The execution and delivery by JEDI of, and the
performance by JEDI of and compliance by JEDI with its obligations under, the
JEDI Documents do not and will not, with or without the giving of notice or the
lapse of time or both, conflict with or result in any violation or breach of or
constitute a default under, or result in or require the creation or imposition
of any Lien on or with respect to any of JEDI's properties under, (i) the
Partnership Agreement, (ii) any mortgage, indenture, lease, contract or other
agreement, known to us after due inquiry, to which JEDI is a party or by which
JEDI or any of its assets is bound or (iii) to our knowledge after due inquiry,
any judgment, decree, writ, injunction, order, law, statute, rule or regulation
of any Governmental Authority having jurisdiction over JEDI or its properties or
assets.
The foregoing opinion is, with your concurrence, predicated on and
qualified in its entirety by the following:
i. The foregoing opinion is based on and is limited to the
laws of this State of Texas, the Delaware General Corporation Law, the Delaware
Revised Uniform Limited Partnership Act and the relevant law of the United
States of America, and we render no opinion with respect to the law of any other
jurisdiction.
ii. With respect to our opinion as to the enforceability of
the JEDI Documents, we express no opinion as to the availability of specific
performance or other equitable remedy (regardless of whether such question is
considered in a proceeding in equity or at law), and such opinion is subject to
applicable bankruptcy, insolvency, moratorium and other similar laws affecting
generally the enforcement of creditors' rights. Furthermore, the enforceability
of any indemnity or contribution obligation contained in the Securities Purchase
Agreement or the Registration Rights Agreement may be limited under applicable
law or public policy.
<PAGE> 237
Queen Sand Resources, Inc.
, 1997
- ----------------
Page 3
iii. Whenever our opinion is based on circumstances "known to
us after due inquiry," we have relied exclusively on certificates of
representatives (after discussion of the contents thereof with such
representatives) of JEDI or certificates of others as to the existence or
nonexistence of the circumstances upon which such opinion is predicated. Nothing
has come to our attention, however, that has led us to believe that any such
certificate is untrue or inaccurate in any material respect.
iv. In rendering the opinion herein relating to the absence
of any litigation, investigation or administrative proceeding, we express no
opinion with respect to the possible effect of administrative and legislative
actions and proceedings as to which the Company is not named a party and
investigations of which the Company has received no written notice.
This opinion is solely for your benefit in connection with the
transactions contemplated by the Securities Purchase Agreement and may not be
quoted, circulated or published, in whole or in part, or furnished to any other
person without our express prior written consent.
Very truly yours,
Bracewell & Patterson, L.L.P.
<PAGE> 238
EXHIBIT O
[MAINTENANCE WARRANTS]
- --------------------------------------------------------------------------------
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES OR BLUE SKY LAWS
AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR IN RELIANCE ON AN OPINION,
REASONABLY SATISFACTORY TO QUEEN SAND RESOURCES, INC. IN FORM AND SUBSTANCE, OF
COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY, THAT SUCH SALE, PLEDGE OR OTHER
TRANSFER IS BEING MADE IN RELIANCE ON AN EXEMPTION FROM THE ACT AND ANY
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
- --------------------------------------------------------------------------------
QUEEN SAND RESOURCES, INC.
Common Stock Purchase Warrant
Representing Right To Purchase Shares of
Common Stock
of
Queen Sand Resources, Inc.
No.
FOR VALUE RECEIVED, QUEEN SAND RESOURCES, INC., a Delaware corporation
(the "Company"), hereby certifies that Joint Energy Development Investments
Limited Partnership, a Delaware limited partnership (the "Holder"), is
entitled, subject to the provisions of this Warrant, to purchase from the
Company, at any time or from time to time during the Exercise Period (as
hereinafter defined), a total of shares (as such number of shares may
be adjusted pursuant to the terms hereof, the "Warrant Shares") of Common
Stock, par value $.0015 per share, of the Company, at a price per share equal
to the Exercise Price (as defined below). This Warrant is issued to the Holder
(together with such other warrants as may be issued in exchange, transfer or
replacement of this Warrant, the "Warrants") pursuant to the Securities
Purchase Agreement (as
<PAGE> 239
defined below) and entitles the Holder to purchase the Warrant Shares and to
exercise the other rights, powers and privileges hereinafter provided.
Section 1. Definitions. The following terms, as used herein,
have the following respective meanings:
"Common Stock" means the Company's common stock, $0.0015 par value.
"Company" is defined in the introductory paragraph of this Warrant.
"Date of Issuance" means , .
"Exercise Period" means the period of time between the Date of
Issuance and 5:00 p.m. (New York City time) on the Expiration Date.
"Exercise Price" means an amount, per share, equal to $ .
The Exercise Price shall be subject to adjustment, as set forth in Section 4.
"Expiration Date" means , [to be the date one
year from the Date of Issuance].
"Holder" means Joint Energy Development Investments Limited
Partnership and its permitted assignees.
"Person" means any individual, corporation, limited or general
partnership, joint venture, association, joint-stock company, trust, limited
liability company, unincorporated organization or government or any agency or
political subdivision thereof.
"Required Holders" means the Holders of more than 50% of all Warrant
Shares then outstanding (assuming the full exercise of all Warrants).
"Securities Purchase Agreement" means the Securities Purchase
Agreement, dated as of March 27, 1997, between the Company and the Holder, as
such agreement shall be modified, amended and supplemented and in effect from
time to time.
"Value" means, as of any date of determination, with respect to the
Common Stock, $3.50 per share of Common Stock.
"Warrants" is defined in the introductory paragraph of this Warrant.
"Warrant Shares" is defined in the introductory paragraph of this
Warrant.
Section 2. Exercise of Warrant; Cancellations of Warrant. This
Warrant may be exercised in whole or in part, at any time or from time to time,
during the Exercise Period, by presentation and surrender hereof to the Company
at its principal office at the address set forth in Section 10 (or at such
other reasonable address as the Company may after the date hereof notify the
- 2 -
<PAGE> 240
Holder in writing, coming into effect not before 14 days after receipt of such
notice by the Holder), with the Purchase Form annexed hereto as Exhibit A duly
executed and accompanied by either (at the option of the Holder) proper payment
in cash or certified or bank check equal to the Exercise Price for the Warrant
Shares for which this Warrant is being exercised. Upon exercise of this
Warrant as aforesaid, the Company shall as promptly as practicable, and in any
event within 20 days thereafter, execute and deliver to the Holder a
certificate or certificates for the total number of Warrant Shares for which
this Warrant is being exercised, in such names and denominations as requested
in writing by the Holder. The Company shall pay any and all documentary stamp
or similar issue taxes payable in respect of the issue of the Warrant Shares.
If this Warrant is exercised in part only, the Company shall, upon surrender of
this Warrant, execute and deliver a new Warrant evidencing the rights of the
Holder thereof to purchase the balance of the Warrant Shares issuable
hereunder.
Section 3. Exchange, Transfer, Assignment or Loss of Warrant.
This Warrant is exchangeable, without expense, at the option of the Holder,
upon presentation and surrender hereof to the Company for other Warrants of
different denominations, entitling the Holder to purchase in the aggregate the
same number of Warrant Shares. The Holder of this Warrant shall be entitled,
without obtaining the consent of the Company, to transfer or assign its
interest in (and rights under) this Warrant in whole or in part to any Person
or Persons. Upon surrender of this Warrant to the Company, with the Assignment
Form annexed hereto as Exhibit B duly executed and funds sufficient to pay any
transfer tax, the Company shall, without charge, execute and deliver a new
Warrant or Warrants in the name of the assignee or assignees named in such
Assignment Form and, if the Holder's entire interest is not being assigned, in
the name of the Holder, and this Warrant shall promptly be canceled. This
Warrant may be divided or combined with other Warrants that carry the same
rights upon presentation hereof at the office of the Company, together with a
written notice specifying the names and denominations in which new Warrants are
to be issued and signed by the Holder hereof. Upon receipt by the Company of
evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification (including, if required in the reasonable judgment
of the Company, a statement of net worth of such Holder that is at a level
reasonably satisfactory to the Company), and upon surrender and cancellation of
this Warrant, if mutilated, the Company shall execute and deliver a new Warrant
of like tenor and date.
Section 4. Antidilution Provisions.
(a) Adjustment of Number of Warrant Shares and Exercise
Price. The number of Warrant Shares purchasable
pursuant hereto and the Exercise Price, each shall be
subject to adjustment from time to time on and after
the Date of Issuance as provided in this Section
4(a). In case the Company shall at any time after
the Date of Issuance (i) pay a dividend of shares of
Common Stock or make a distribution of shares of
Common Stock, (ii) subdivide its outstanding shares
of Common Stock into a larger number of shares of
Common Stock, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of
Common Stock or (iv) issue any shares of its capital
stock or other assets in a reclassification or
reorganization of the Common Stock (including any
such reclassification in connection with a
- 3 -
<PAGE> 241
consolidation or merger in which the Company is the
continuing entity), then (x) the securities
purchasable pursuant hereto shall be adjusted to the
number of Warrant Shares and amount of any other
securities, cash or other property of the Company
which the Holder would have owned or have been
entitled to receive after the happening of any of
the events described above, had this Warrant been
exercised immediately prior to the happening of such
event or any record date with respect thereto, and
(y) the Exercise Price shall be adjusted to equal
the Exercise Price immediately prior to the
adjustment multiplied by a fraction, (A) the
numerator of which is the number of Warrant Shares
for which this Warrant is exercisable immediately
prior to the adjustment, and (B) the denominator of
which is the number of shares for which this Warrant
is exercisable immediately after such adjustment. The
adjustments made pursuant to this Section 4(a) shall
become effective immediately after the effective
date of the event creating such right of adjustment,
retroactive to the record date, if any, for such
event. Any Warrant Shares purchasable as a result of
such adjustment shall not be issued prior to the
effective date of such event.
For the purpose of this Section 4(a) and (b), the
term "shares of Common Stock" means (i) the classes of stock
designated as the Common Stock of the Company as of the date
hereof, or (ii) any other class of stock resulting from
successive changes or reclassifications of such shares
consisting solely of changes in par value, or from par value
to no par value, or from no par value to par value. In the
event that at any time, as a result of an adjustment made
pursuant to this Section 4(a), the Holder shall become
entitled to receive any securities of the Company other than
shares of Common Stock, thereafter the number of such other
securities so receivable upon exercise of this Warrant shall
be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions
with respect to the Warrant Shares contained in this Section
4.
(b) Reorganization, Merger, etc. If any capital
reorganization, reclassification or similar
transaction involving the capital stock of the
Company (other than as specified in Section 4(a)),
any consolidation, merger or business combination of
the Company with another corporation or the sale or
conveyance of all or any substantial part of its
assets to another corporation, shall be effected in
such a way that holders of the shares of Common Stock
shall be entitled to receive stock, securities or
assets (including, without limitation, cash) with
respect to or in exchange for shares of the Common
Stock, then, prior to and as a condition of such
reorganization, reclassification, similar
transaction, consolidation, merger, business
combination, sale or conveyance, lawful and adequate
provision shall be made whereby the Holder shall
thereafter have the right to purchase and receive
upon the basis and upon the terms and conditions
specified in this Warrant and in lieu of the Warrant
Shares immediately theretofore purchasable and
receivable upon the exercise of this Warrant, such
shares of stock, securities or assets as may be
issued or payable with respect to or in
- 4 -
<PAGE> 242
exchange for a number of outstanding Warrant Shares
equal to the number of Warrant Shares immediately
theretofore purchasable and receivable upon the
exercise of this Warrant had such reorganization,
reclassification, similar transaction, consolidation,
merger, business combination, sale or conveyance not
taken place. The Company shall not effect any such
consolidation, merger, business combination, sale or
conveyance unless prior to or simultaneously with the
consummation thereof the survivor or successor
corporation (if other than the Company) resulting
from such consolidation or merger or the corporation
purchasing such assets shall assume by written
instrument executed and sent to the Holder, the
obligation to deliver to the Holder such shares of
stock, securities or assets as, in accordance with
the foregoing provisions, the Holder may be entitled
to receive.
(c) Statement on Warrant Certificates. Irrespective of
any adjustments in the Exercise Price or the number
or kind of Warrant Shares, this Warrant may continue
to express the same price and number and kind of
shares as are stated on the front page hereof.
(d) Exception to Adjustment. Anything herein to the
contrary notwithstanding, the Company shall not be
required to make any adjustment of the number of
Warrant Shares issuable hereunder or to the Exercise
Price in the case of the issuance of the Warrants or
the issuance of shares of the Common Stock (or other
securities) upon exercise of the Warrants.
(e) Treasury Shares. The number of shares of the Common
Stock outstanding at any time shall not include
treasury shares or shares owned or held by or for the
account of the Company or any of its subsidiaries,
and the disposition of any such shares shall be
considered an issue or sale of the Common Stock for
the purposes of this Section 4.
(f) Adjustment Notices to Holder. Upon any increase or
decrease in the number of Warrant Shares purchasable
upon the exercise of this Warrant or the Exercise
Price the Company shall, within 30 days thereafter,
deliver written notice thereof to all Holders, which
notice shall state the increased or decreased number
of Warrant Shares purchasable upon the exercise of
this Warrant and the adjusted Exercise Price, setting
forth in reasonable detail the method of calculation
and the facts upon which such calculations are based.
Section 5. Notification by the Company. In case at any time
while this Warrant remains outstanding:
(a) the Company shall declare any dividend or make any
distribution upon its Common Stock or any other class
of its capital stock; or
- 5 -
<PAGE> 243
(b) the Company shall offer for subscription pro rata to
the holders of its Common Stock or any other class of
its capital stock any additional shares of stock of
any class or any other securities convertible into or
exchangeable for shares of stock or any rights or
options to subscribe thereto; or
(c) the Board of Directors of the Company shall authorize
any capital reorganization, reclassification or
similar transaction involving the capital stock of
the Company, or a sale or conveyance of all or a
substantial part of the assets of the Company, or a
consolidation, merger or business combination of the
Company with another Person; or
(d) actions or proceedings shall be authorized or
commenced for a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in any one or more of such cases, the Company shall give written notice
to the Holder, at the earliest time legally practicable (and not less than 20
days before any record date or other date set for definitive action) of the
date on which (i) the books of the Company shall close or a record shall be
taken for such dividend, distribution or subscription rights or options or (ii)
such reorganization, reclassification, sale, conveyance, consolidation, merger,
dissolution, liquidation or winding-up shall take place or be voted on by
shareholders of the Company, as the case may be. Such notice shall also
specify the date as of which the holders of the Common Stock of record shall
participate in said dividend, distribution, subscription rights or options or
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, sale,
conveyance, consolidation, merger, dissolution, liquidation or winding-up, as
the case may be. If the action in question or the record date is subject to
the effectiveness of a registration statement under the Securities Act or to a
favorable vote of shareholders, the notice required by this Section 5 shall so
state.
Section 6. No Voting Rights: Limitations of Liability. Prior to
exercise, this Warrant will not entitle the Holder to any voting rights or
other rights as a stockholder of the Company. No provision hereof, in the
absence of affirmative action by the Holder to exercise this Warrant, and no
enumeration herein of the rights or privileges of the Holder, shall give rise
to any liability of the Holder for the purchase price of the Warrant Shares
pursuant to the exercise hereof.
Section 7. Amendment and Waiver.
(a) No failure or delay of the Holder in exercising any
power or right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of
such right or power, or any abandonment or
discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof
or the exercise of any other right or power. The
rights and remedies of the Holder are cumulative and
not exclusive of any rights or remedies which it
would otherwise have. The provisions of this Warrant
may be amended, modified or waived with (and only
with) the written consent of the Company and the
Required Holders.
- 6 -
<PAGE> 244
(b) No notice or demand on the Company in any case shall
entitle the Company to any other or further notice or
demand in similar or other circumstances.
Section 8. No Fractional Warrant Shares. The Company shall not
be required to issue stock certificates representing fractions of Warrant
Shares, but shall in respect of any fraction of a Warrant Share make a payment
in cash based on the Value of the Common Stock after giving effect to the full
exercise or conversion of the Warrants.
Section 9. Reservation of Warrant Shares. The Company shall
authorize, reserve and keep available at all times, free from preemptive
rights, a sufficient number of Warrant Shares to satisfy the requirements of
this Warrant.
Section 10. Notices. Unless otherwise specified, whenever this
Warrant requires or permits any consent, approval, notice, request, or demand
from one party to another, that communication must be in writing (which may be
by telecopy) to be effective and is deemed to have been given (a) if by
telecopy, when transmitted to the appropriate telecopy number (and all
communications sent by telecopy must be confirmed promptly by telephone; but
any requirement in this parenthetical does not affect the date when the
telecopy is deemed to have been delivered), or (b) if by any other means,
including by internationally acceptable courier or hand delivery, when actually
delivered. Until changed by notice pursuant to this Warrant, the address (and
telecopy number) for the Holder and the Company are:
If to Holder: Joint Energy Development Investments
Limited Partnership
c/o Enron Corp.
1400 Smith Street
Houston, Texas 77002
Attn: Donna Lowry - Director, 28th Floor
Facsimile: (713) 646-3602
If to Company: Queen Sand Resources, Inc.
3500 Oak Lawn, Suite 380, L.B.#31
Dallas, Texas 75219-4398
Attn: Robert P. Lindsay
Facsimile: (214) 521-9960
With copies to: Queen Sand Resources, Inc.
60 Queen Street, Suite 1400
Ottawa, Canada K1P 5Y7
Attn: Edward J. Munden
Facsimile: (613) 230-6055
- 7 -
<PAGE> 245
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
Attn: William L. Boeing, Esq.
Facsimile: (214) 651-5940
Section 11. Section and Other Headings. The headings contained
in this Warrant are for reference purposes only and will not affect in any way
the meaning or interpretation of this Warrant.
Section 12. Governing Law. THIS WARRANT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE.
Section 13. Binding Effect. The terms and provisions of this
Warrant shall inure to the benefit of the Holder and its successors and assigns
and shall be binding upon the Company and its successors and assigns,
including, without limitation, any Person succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets.
* * * * *
- 8 -
<PAGE> 246
IN WITNESS WHEREOF, the seal of the Company and the signature of its
duly authorized officer have been affixed hereto as of , .
[SEAL] QUEEN SAND RESOURCES, INC.
Attest: By:
---------------------------- ----------------------------------
Name:
--------------------------------
Title:
-------------------------------
and
Attest: By:
---------------------------- ----------------------------------
Name:
--------------------------------
Title:
-------------------------------
- 9 -
<PAGE> 247
EXHIBIT A
TO
WARRANT
PURCHASE FORM
To Be Executed by the Holder
Desiring to Exercise a Warrant of
Queen Sand Resources, Inc.
The undersigned holder hereby exercises the right to purchase
shares of Common Stock covered by the within Warrant, according to the
conditions thereof, and herewith makes payment in full of the Exercise Price of
such shares, in the amount of $ .
Name of Holder:
---------------------------------------------
Signature:
------------------------------------
Title:
---------------------------------------
Address:
---------------------------------------------
---------------------------------------------
---------------------------------------------
Dated:
--------------------------------, ----------.
- 10 -
<PAGE> 248
EXHIBIT B
TO
WARRANT
ASSIGNMENT FORM
To Be Executed by the Holder
Desiring to Transfer a Warrant of
Queen Sand Resources, Inc.
FOR VALUE RECEIVED, the undersigned holder hereby sells, assigns and
transfers unto the right to purchase
shares of Common Stock covered by the within Warrant, and does hereby
irrevocably constitute and appoint Attorney to transfer the
said Warrant on the books of the Company (as defined in such Warrant), with
full power of substitution.
Name of Holder:
-------------------------------------------
Signature:
----------------------------------
Title:
--------------------------------------
Address:
-------------------------------------------
-------------------------------------------
-------------------------------------------
Dated: , .
--------------------------- --------
In the presence of
- -----------------------------------------
NOTICE:
The signature to the foregoing Assignment Form must correspond to the name as
written upon the face of the within Warrant in every detail, without alteration
or enlargement or any change whatsoever.
- 11 -
<PAGE> 1
EXHIBIT 1.2
SECURITIES PURCHASE AGREEMENT
BETWEEN
QUEEN SAND RESOURCES, INC.
AND
FORSETI INVESTMENTS LTD.
DATED: MARCH 27, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2. REPURCHASE OF SHARES; ISSUANCE OF WARRANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Repurchase of Shares; Issuance of Warrants. . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Deliveries of Stockholder. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Deliveries of the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.1 Organization and Standing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.3 Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.4 Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.5 No Breach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.6 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.7 Investment Purposes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.8 Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.9 No Interested Director Transaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.1 Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.3 Valid Issuance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.4 No Breach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.5 Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 5. PRE-CLOSING COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.1 Covenants of Stockholder. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.2 Covenants of the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 6. CONDITIONS TO OBLIGATIONS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.1 Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.2 Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.3 First Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.4 Delivery of Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.5 Surplus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.6 Release. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 7. CONDITIONS TO OBLIGATIONS OF THE STOCKHOLDER . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.1 Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.2 Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.3 Delivery of Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.4 Legal Opinion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 8. RESTRICTIONS ON TRANSFER; ESCROW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8.1 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8.2 Permitted Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
8.3 Required Transfer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
8.4 Restrictions on Sale and Resale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
8.5 Permitted Transferees Bound. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.6 Compliance with Regulation S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.7 Legend. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.8 Escrow. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE 9. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
9.1 Indemnification of the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
9.2 Indemnification of Stockholder. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
9.3 Notice and Opportunity to Defend. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
9.4 Termination of Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
9.5 No Consequential Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 10. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 11. DISPUTE RESOLUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
11.1 Mediation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
11.2 Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 12. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
12.1 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
12.2 Governing Law; Choice of Forum;
Consent to Service of Process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
12.3 Invalid Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
12.4 Entirety and Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
12.5 Parties Bound. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
12.6 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
12.7 Section and Other Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
12.8 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
12.9 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
12.10 Specific Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
12.11 Further Documents and Actions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
EXHIBIT A CLASS A WARRANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
EXHIBIT B CLASS B WARRANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
EXHIBIT C EARN UP AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
EXHIBIT D JEDI EARN UP AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
EXHIBIT E ESCROW AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
EXHIBIT F FORM OF STOCK POWER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
EXHIBIT G FORM OF RELEASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
EXHIBIT H FORM OF LEGAL OPINION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
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<PAGE> 4
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is executed as of
the 27th day of March, 1997, between Queen Sand Resources, Inc., a Delaware
corporation ("Company"), and Forseti Investments Ltd., a corporation organized
under the laws of Barbados ("Stockholder").
WHEREAS, the Stockholder owns the Shares (defined below); and
WHEREAS, the Company has entered into the JEDI Purchase Agreement
(defined below) with JEDI (defined below) pursuant to which the Company will
issue shares of the Company's Series A Participating Convertible Preferred
Stock, par value $.01 per share, subject to the terms and conditions of the
JEDI Agreement; and
WHEREAS, immediately following the closing under the JEDI Agreement,
the Stockholder desires to sell to the Company, and the Company desires to
repurchase, the Shares pursuant to the terms and conditions in this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Stockholder and the Company
agree as follows:
ARTICLE 1.
DEFINITIONS
"AAA" means the American Arbitration Association, or any successor
organization.
"Agreement" is defined in the introductory paragraph to this
Agreement.
"Asserted Liability" is defined in Section 9.3.
"Class A Warrants" means the Class A Common Stock Purchase Warrants to
purchase 1,000,000 shares of Common Stock, substantially in the form of Exhibit
A to this Agreement.
"Class B Warrants" means the Class B Common Stock Purchase Warrants to
purchase 2,000,000 shares of Common Stock, substantially in the form of Exhibit
B to this Agreement.
"Common Stock" means the common stock, par value $.0015 per share, of
the Company.
"Company" is defined in the introductory paragraph to this Agreement.
"Consequential Damages" is defined in Section 9.5.
"Dispute" is defined in Section 11.1.
<PAGE> 5
"Earn Up Agreement" means the Earn Up Agreement to be entered into
between the Company and Stockholder substantially in the form of Exhibit C to
this Agreement.
"Escrow Agreement" means the Escrow Agreement substantially in the
form of Exhibit E to this Agreement to be entered into among the Company, the
Stockholder, and an escrow agent mutually acceptable to the Company and the
Stockholder.
"First Closing" means the closing of the transactions contemplated
under the JEDI Agreement.
"Holder" means Stockholder and its permitted assignees.
"Indemnitee" is defined in Section 9.3.
"Indemnitor" is defined in Section 9.3.
"JEDI" means Joint Energy Development Investments Limited Partnership,
a Delaware limited partnership.
"JEDI Agreement" means the Securities Purchase Agreement, dated of
even date herewith, between the Company and JEDI.
"JEDI Earn Up Agreement" means the Earn Up Agreement to be entered
into between the Company and JEDI substantially in the form of Exhibit D to
this Agreement.
"Lien" is defined in Section 2.1.
"Losses" is defined in Section 9.1.
"Mediator" is defined in Section 11.1.
"Person" means any individual, corporation, limited or general
partnership, joint venture, association, joint- stock company, trust, limited
liability company, unincorporated organization or government or any agency or
political subdivision thereof.
"Restricted Period" is defined in Section 8.3.
"Second Closing" is defined in Section 2.2.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means the 9,600,000 shares of Common Stock owned beneficially
and of record by Stockholder evidenced by stock certificates Nos. 515 through
610.
"Stockholder" is defined in the introductory paragraph to this
Agreement.
"Transfer" means any exercise, sale, transfer, encumbrance, gift,
donation, assignment, grant of any interest, pledge, hypothecation or other
disposition of any Warrants or Warrant
2
<PAGE> 6
Shares or any interest therein, whether voluntary or involuntary, including,
but not limited to, any transfer by operation of law, by court order, by
judicial process, or by foreclosure, levy, or attachment.
"Transferee" is defined in Section 8.2.
"U.S. person" is defined in Section 3.7.
"United States" is defined in Section 3.7.
"Warrant Shares" means any share of Common Stock issued or issuable
upon exercise of the Warrants.
"Warrants" means, collectively, the Class A Warrants and the Class B
Warrants.
ARTICLE 2.
REPURCHASE OF SHARES; ISSUANCE OF WARRANTS
2.1 Repurchase of Shares; Issuance of Warrants. At the
Second Closing and subject to the terms and conditions in this Agreement, the
Stockholder shall sell to the Company, and the Company shall purchase from the
Stockholder, the Shares, free and clear of any claim, lien, encumbrance or
limitation whatsoever (a "Lien") for an aggregate purchase price of (i) U.S.
$5,000,000 cash, (ii) the Class A Warrants, (iii) the Class B Warrants, and
(iv) the execution and delivery by the Company of the Earn Up Agreement.
2.2 Closing. Upon satisfaction or waiver of the
conditions precedent set forth in Articles 6 and 7, and unless this Agreement
shall have been terminated and the transactions herein contemplated shall have
been abandoned pursuant to the provisions of Article 10, the closing of the
sale and purchase of the Shares, the issuance of the Warrants, and the
execution and delivery of the Earn Up Agreement (the "Second Closing") shall
take place immediately upon consummation of the First Closing, which shall
occur as soon as practicable on or after the date that is 20 days after the
Company mails a Schedule 14C Information Statement to its stockholders.
2.3 Deliveries of Stockholder. At the Second Closing,
Stockholder shall deliver to the Company, against delivery by the Company of
the items specified in Section 2.4: (i) certificates Nos. 515 through 610
representing the Shares, endorsed in blank or accompanied by an executed stock
power in the form of Exhibit F, with all signatures guaranteed and in a form
acceptable to the Company's transfer agent, (ii) the Earn Up Agreement, duly
executed by the Stockholder, (iii) the Escrow Agreement, duly executed by the
Stockholder, and (iv) a certificate of an officer of the Stockholder certifying
the matters set forth in Sections 6.1 and 6.2.
2.4 Deliveries of the Company. At the Second Closing,
the Company shall, against delivery by the Stockholder of the items specified
in Section 2.3: (i) deliver $5,000,000 by wire or intrabank transfer of
immediately available funds to an account of the Stockholder in Houston, Texas
and acceptable to the Company, (ii) issue the Warrants, which Warrants
3
<PAGE> 7
shall be deposited with an escrow agent mutually acceptable to the Stockholder
and the Company pursuant to the Escrow Agreement, (iii) deliver to the
Stockholder the Earn Up Agreement, duly executed by the Company, (iv) deliver
to the Stockholder the Escrow Agreement, duly executed by the Company and the
escrow agent, and (v) deliver to the Stockholder a certificate of an officer of
the Company certifying the matters set forth in Sections 7.1 and 7.2.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER
Stockholder represents and warrants to the Company as follows:
3.1 Organization and Standing. Stockholder is a
corporation duly organized, validly existing and in good standing under the
laws of Barbados and has the requisite corporate power and authority to own,
lease and operate its properties and assets and carry on its business as
currently conducted (and as proposed to be conducted). All of the equity
interests of Stockholder are free and clear of any Liens.
3.2 Authorization. The Stockholder has full right, power
(corporate and other) and authority to enter into this Agreement, the Escrow
Agreement, and the Earn Up Agreement and to sell, assign, transfer, and deliver
the Shares. All necessary actions have been taken to ensure that the
execution, delivery, and performance by the Stockholder of this Agreement, the
Earn Up Agreement, the Escrow Agreement, and the consummation of the
contemplated transactions herein and therein have been duly authorized. This
Agreement has been, and at the Second Closing the Earn Up Agreement and the
Escrow Agreement will have been, duly executed and delivered by the Stockholder
and, assuming due execution by the Company, this Agreement constitutes, and at
the Second Closing each of the Earn Up Agreement and the Escrow Agreement will
constitute, the valid, legal, and binding obligation of the Stockholder,
enforceable against the Stockholder in accordance with their respective terms
except as limited by bankruptcy, insolvency, or other similar laws of general
application relating to the enforcement of creditors' rights.
3.3 Title. Stockholder is the owner beneficially and of
record of the Shares. As of the date of this Agreement, the Stockholder has
good and valid title to the Shares, free and clear of all Liens, other than
Certificate No. 610 representing 100,000 shares of Common Stock which is
pledged to Banque Cantonale de Geneve. At the Second Closing, the Stockholder
will have good and valid title to the Shares, free and clear of all Liens. At
the Second Closing, good and valid title to the Shares, free and clear of all
Liens, will pass to the Company. There are no outstanding options, calls,
commitments, voting agreements, participations or other contracts relating to
the Shares.
3.4 Approvals. No authorizations, approvals or consents
of, and no filings or registrations with, any governmental or regulatory
authority or agency or other Person, which have not already been made or
obtained, are necessary for the execution, delivery or performance by the
Stockholder of this Agreement, the Escrow Agreement, the Earn Up Agreement, and
the consummation of the transactions contemplated herein and therein or the
validity or enforceability hereof or thereof.
4
<PAGE> 8
3.5 No Breach. Assuming (i) the accuracy of the
representations and warranties of the Company, (ii) compliance with the
covenants of the Company, (iii) consummation of the JEDI Agreement, and neither
the execution and delivery of this Agreement, the Escrow Agreement, the Earn Up
Agreement, nor the consummation of the transactions herein or therein
contemplated, will conflict with or result in a breach of, or require any
consent under, the organizational documents of the Stockholder, or any
applicable law or regulation, or any order, writ, injunction or decree of any
court or governmental authority or agency, or any agreement or instrument to
which the Stockholder is a party or by which it is bound or to which any of its
properties or assets is subject, or constitute a default under any such
agreement or instrument or result in the creation or imposition of any Lien
upon any of the revenues or assets of the Stockholder pursuant to the terms of
any such agreement or instrument.
3.6 No Litigation. There are no actions, suits or
proceedings pending before any administrative tribunal or court of law, or
before any mediator or arbitrator (and to the knowledge of the Stockholder,
there is no basis for any such action, suit or proceeding), against or
affecting the Shares or Stockholder's interest in the Shares.
3.7 Investment Purposes.
(a) The Warrants and the Warrant Shares will be
acquired by the Stockholder for its own account for the purpose of
investment and not for offer or sale in any manner that would be in
violation of the securities laws of the United States of America or
any state thereof. The Stockholder (i) is not a U.S. person within
the meaning Regulation S promulgated under the Securities Act (a "U.S.
person"), (ii) is not acquiring the Warrants and will not acquire any
Warrant Shares for the account or benefit of any "U.S. person", and
(iii) is not organized under the laws of the United States of America,
its territories and possessions, any State of the United States or the
District of Columbia (the "United States"), and (iv) was not organized
for the purpose of acquiring the Warrants or any Warrant Shares, and
(v) is not registered under the Securities Exchange Act of 1934, as
amended, (vi) is not part of an identifiable group of U.S. citizens
abroad, and (vii) is not purchasing the Warrants in any transaction or
series of transactions that, although in technical compliance with
Regulation S, is part of a plan or scheme to evade the registration
provisions of the Securities Act in the United States. The
Stockholder has executed this Agreement outside the United States, and
at the time the buy order for the Warrants was originated the
Stockholder was outside the United States. All offers to the
Stockholder of the Warrants and the sale of the Warrants have occurred
outside the United States.
(b) The Stockholder is knowledgeable,
sophisticated and experienced in financial and business matters and in
making, and is qualified to make, decisions with respect to
investments in restricted securities (such as this Agreement, the
Warrants and the Warrant Shares) and has requested, received, reviewed
and considered all information it deems relevant in making a decision
to execute this Agreement and to purchase the Warrants. The
Stockholder acknowledges that it is capable of evaluating the merits
and risks of an investment in the Warrants and the Warrant Shares.
5
<PAGE> 9
(c) The Stockholder acknowledges that at all
times following its initial contact with the Company or its agents
pertaining to the Warrants and the Warrant Shares and through the
Second Closing, the Company made available to the Stockholder the
opportunity to ask questions and receive answers concerning the Company
and the terms and conditions of the offering, the Warrants and the
Warrant Shares, and to obtain any additional information that the
Company possesses or could acquire without unreasonable effort or
expense that is necessary to verify the accuracy of the information
furnished to the Stockholder.
(d) The Stockholder understands, acknowledges and
agrees that (a) the Warrants and the Warrant Shares have not been and
will not be registered under the Securities Act, or under any state or
foreign securities or blue sky laws, and may not be exercised,
offered, sold, transferred, pledged or otherwise disposed of in the
United States or to, or for the account or benefit of, any "U.S.
person," unless such securities are registered under the Securities
Act and any applicable state and foreign securities or blue sky laws
or exemptions from the registration requirements of the Securities Act
and any applicable state and foreign securities or blue sky laws are
available, (b) the Warrants and the Warrant Shares are being offered
and sold pursuant to the terms of Regulation S under the Securities
Act which permits securities to be sold to persons who are not "U.S.
persons" in "offshore transactions," subject to certain terms and
conditions and (c) the Warrants and the Warrant Shares will not have
been registered under the Securities Act of 1933 and will not be
freely transferable and may not be resold, transferred or assigned
except in compliance with the Securities Act and Article 8 of this
Agreement. Stockholder acknowledges that a statement or legend
reflecting the foregoing limitations will appear on any certificate or
other document evidencing ownership of the Warrants or the Warrant
Shares.
3.8 Brokers. Except for bank fees and charges in the ordinary
course of business, neither Stockholder, nor anyone acting on its
behalf has incurred or caused to be incurred any liability on the part of
Stockholder for any fee or commission in the nature of a finder's, originator's
or broker's fee in connection with any of the transactions contemplated by this
Agreement.
3.9 No Interested Director Transaction. Neither this Agreement,
nor the Earn Up Agreement or the Escrow Agreement, nor the transactions
contemplated hereby or thereby, constitutes a contract or transaction between
the Company and one or more of its directors or officers or between the Company
and any other corporation in which one or more of its directors or officers are
directors or officers or have a financial interest.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Stockholder as follows:
4.1 Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has the requisite corporate
6
<PAGE> 10
power and authority to own, lease and operate its properties and assets and
carry on its business as currently conducted (and as proposed to be conducted).
4.2 Authorization. The Company has full right, power
(corporate and other) and authority to enter into this Agreement, the Escrow
Agreement, the Earn Up Agreement, and the Warrants. All necessary actions have
been taken to ensure that the execution, delivery, and performance by the
Company of this Agreement, the Earn Up Agreement, the Escrow Agreement, the
Warrants, and the consummation of the contemplated transactions herein and
therein have been duly authorized. This Agreement has been, and at the Second
Closing the Earn Up Agreement, the Escrow Agreement, and the Warrants will have
been, duly executed and delivered by the Company and, assuming due execution by
the Stockholder, this Agreement constitutes, and at the Second Closing each of
the Earn Up Agreement, the Escrow Agreement, and the Warrants will constitute,
the valid, legal, and binding obligation of the Company, enforceable against
the Company in accordance with their respective terms (except as limited by
bankruptcy, insolvency or other laws of general application relating to the
enforcement of creditors' rights).
4.3 Valid Issuance. When issued in compliance with the
provisions of Article 2, the Warrants will be valid and binding obligations of
the Company, enforceable in accordance with their respective terms. When
issued and delivered in accordance with the Warrants, the Warrant Shares will
be duly authorized, validly issued, fully paid and nonassessable.
4.4 No Breach. Assuming (i) the accuracy of the
representations and warranties of the Stockholder, (ii) compliance with the
covenants of the Stockholder, and (iii) consummation of the JEDI Agreement,
neither the execution and delivery of this Agreement, the Earn Up Agreement,
the Escrow Agreement, or the Warrants, nor the consummation of the
transactions herein or therein contemplated, including the issuance and
delivery of the Warrants and, upon the exercise of the Warrants, the Warrant
Shares, nor compliance by the Company with the terms and provisions hereof or
thereof, will conflict with or result in a breach of, or require any consent
under, the Certificate of Incorporation or Bylaws of the Company, or any
applicable law or regulation, or any order, writ, injunction or decree of any
court or governmental authority or agency, or any agreement or instrument to
which the Company is a party or by which it is bound or to which any of its
properties or assets is subject, or constitute a default under any such
agreement or instrument or result in the creation or imposition of any Lien
upon any of the revenues or assets of the Company pursuant to the terms of any
such agreement or instrument, other than a conflict or breach which would not
have a material adverse effect on the Company and its subsidiaries taken as a
whole.
4.5 Approvals. No authorizations, approvals or consents
of, and no filings or registrations with, any governmental or regulatory
authority or agency or other Person, which have not already been made or
obtained, are necessary for the execution, delivery or performance by the
Company of this Agreement, the Earn Up Agreement, the Escrow Agreement, or the
Warrants and the Warrant Shares and the consummation of the transactions
contemplated herein and therein or the validity or enforceability hereof or
thereof.
7
<PAGE> 11
ARTICLE 5.
PRE-CLOSING COVENANTS
5.1 Covenants of Stockholder. From the date of this
Agreement until the earlier of the termination of this Agreement or the Second
Closing, except as otherwise consented by the Company in writing, Stockholder
shall:
(a) not (i) sell, transfer, assign, pledge,
hypothecate, or dispose of any of the Shares; (ii) grant a proxy or
enter into a voting agreement with respect to any of the Shares; or
(iii) enter into an agreement with respect to any of the foregoing;
and
(b) use its commercially reasonable efforts to
take all actions and to do all things reasonably necessary, proper or
advisable to satisfy the conditions of the parties to the obligations
hereunder prior to the First Closing and to consummate the
transactions contemplated by this Agreement immediately upon
consummation of the First Closing.
5.2 Covenants of the Company. From the date of this
Agreement until the earlier of the termination of this Agreement or the Second
Closing, except as otherwise consented by the Stockholder in writing, the
Company shall use its commercially reasonable efforts to take all actions and
to do all things reasonably necessary, proper or advisable to satisfy the
conditions of the parties to the obligations hereunder prior to First Closing
and to consummate the transactions contemplated by this Agreement immediately
upon consummation of the First Closing.
ARTICLE 6.
CONDITIONS TO OBLIGATIONS OF THE COMPANY
The obligations of the Company hereunder are subject to the
fulfillment, at or before the Second Closing, of each of the following
conditions (all or any of which may be waived in writing in whole or in part by
the Company). Stockholder shall use all commercially reasonable efforts to
fulfill, at or before the Second Closing, such of the following conditions (or
portions thereof) over which it has control:
6.1 Representations and Warranties. The representations
and warranties made by the Stockholder in this Agreement shall be true in all
material respects as of the date hereof and as of the date of the Second
Closing as if made upon the date of the Second Closing.
6.2 Performance. The Stockholder shall have performed
and complied with, in all material respects, all agreements, covenants,
obligations, and conditions required by this Agreement to be so performed or
complied with by the Stockholder at or before the Second Closing.
6.3 First Closing. The First Closing shall have
occurred.
8
<PAGE> 12
6.4 Delivery of Documents. The Stockholder shall have
delivered the documents and other instruments set forth in Section 2.3.
6.5 Surplus. The Company shall have adequate surplus to
repurchase the Shares.
6.6 Release. Stockholder shall have executed and
delivered a release to the Company substantially in the form of Exhibit G to
this Agreement.
ARTICLE 7.
CONDITIONS TO OBLIGATIONS OF THE STOCKHOLDER
The obligations of the Stockholder hereunder are subject to the
fulfillment, at or before the Second Closing, of each of the following
conditions (all or any of which may be waived in writing in whole or in part by
the Stockholder). The Company shall use all commercially reasonable efforts to
fulfill, at or before the Second Closing, such of the following conditions (or
portions thereof) over which it has control:
7.1 Representations and Warranties. The representations
and warranties made by the Company in this Agreement shall be true in all
material respects as of the date hereof and as of the date of the Second
Closing as if made upon the date of the Second Closing.
7.2 Performance. The Company shall have performed and
complied with, in all material respects, all agreements, covenants,
obligations, and conditions required by this Agreement to be so performed or
complied with by the Company at or before the Second Closing.
7.3 Delivery of Documents. The Company shall have
delivered the documents and other instruments set forth in Section 2.4.
7.4 Legal Opinion. The Company shall have delivered to
the Stockholder a legal opinion of Haynes and Boone, LLP substantially in the
form of Exhibit H to this Agreement.
ARTICLE 8.
RESTRICTIONS ON TRANSFER; ESCROW
8.1 General. A Holder shall not make or suffer any
Transfer of all or any part of its Warrants or Warrant Shares except in
accordance with the terms of this Agreement and the Warrants, and any purported
Transfer not made in compliance with this Agreement and the Warrants shall be
void and of no force and effect.
8.2 Permitted Transfers. Subject to the other provisions
of this Article 8, Stockholder may Transfer all or any part of its Warrants or
Warrant Shares (i) at any time with the prior written consent of the Company
(which consent shall not be unreasonably withheld); or (ii) at any time on or
after the first anniversary of the Second Closing; provided, that, in either
case
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<PAGE> 13
(a) Stockholder shall have delivered notice to
the Company that Stockholder desires to Transfer any of the Warrants
or the Warrant Shares, which notice shall describe in reasonable
detail the material terms of such proposed Transfer, including,
without limitation, the number of Warrants and/or Warrant Shares to be
Transferred, the identity of the proposed transferee (the
"Transferee"), the amount and form of the consideration to be paid to
Stockholder for the proposed Transfer, and the place where the
Warrants or Warrant Shares are to be delivered upon consummation of
the proposed transfer;
(b) Stockholder shall have delivered to the
Company a notarized statutory declaration from the Transferee
certifying the material terms of the proposed transfer, including,
without limitation, the amount and form of the consideration to be
paid to Stockholder for the proposed Transfer and such certifications
as the Company reasonably requests to ensure compliance with
Regulation S promulgated under the Securities Act, or another
exemption from the United States securities laws and that the
Transferee agrees to hold the Warrants or Warrant Shares subject to
the terms and conditions set forth in the Warrant and this Agreement;
(c) The Transferee shall have deposited the
consideration for the proposed Transfer into the escrow account under
the Escrow Agreement or such other location as the Company and the
Stockholder may mutually agree; and
(d) The proposed Transfer (including, without
limitation, a proposed Transfer that is an exercise) must involve at
least 100,000 Class A Warrants or Class B Warrants (or if at the time
of the proposed Transfer, the Stockholder owns less than 100,000 of
Class A Warrants or Class B Warrants, then the proposed Transfer must
involve all of the Class A Warrants or Class B Warrants then owned by
the Holder).
8.3 Required Transfer. If at any time on or before
September 30, 1998 the Company identifies a proposed Transferee of the Warrants
who is willing to purchase for cash at least 100,000 Warrants (provided that if
at the time of the proposed Transfer the Stockholder owns less than 100,000
Warrants, the proposed Transfer must involve all of the Warrants owned by the
Stockholder) for a purchase price of at least $2.40 per Class A Warrant and/or
for a purchase price of at least $3.50 per Class B Warrant and the Company has
determined that the proposed Transfer would comply with the provisions of
Sections 8.4 and 8.6, then upon notice by the Company to the Stockholder, the
Stockholder shall Transfer the Class A Warrants and/or Class B Warrants to the
proposed Transferee in accordance with the terms of the proposed Transfer
specified in the Company's notice to the Stockholder.
8.4 Restrictions on Sale and Resale.
(a) For a period of one year following the Second
Closing (the "Restricted Period"), Holder, its affiliates and any
person acting on its behalf shall not make any directed selling
efforts (as defined in Regulation S) in the United States in
connection with any offer or sale of the Warrants or the Warrant
Shares and shall not engage in any activity undertaken for the purpose
of, or that could reasonably be expected to have the effect of,
conditioning the market in the United States for the Warrants or the
Warrant Shares, or offer, sell, transfer, pledge or otherwise dispose
of the
10
<PAGE> 14
Warrants or the Warrant Shares or any interest therein, in the United
States or to, or for the account or benefit of, a "U.S. person."
(b) Holder understands and agrees that the
Warrants are transferable only on the books and records of the Company
and that the Warrant Shares are transferable only on the books and
records of the transfer agent in respect of the Common Stock.
(c) Unless registered under the Securities Act,
any proposed offer or Transfer of the Warrants or the Warrant Shares
during the Restricted Period or before the legend on the Warrants is
removed from any of the Warrants or any of the Warrant Shares or any
interest therein shall be subject to the condition that each of the
Holders must deliver to the Company (i) a written certification that
neither record nor beneficial ownership of the Warrants or the Warrant
Shares or any interest therein has been offered or sold in the United
States or to, or for the account or benefit of, any "U.S. person";
(ii) a written certification of the proposed transferee that such
transferee (or any account for which such transferee is acquiring such
Warrants or Warrant Shares or any interest therein) is not a "U.S.
person" or purchasing the Warrants or Warrant Shares for the account
or benefit of a "U.S. person", that such transferee is acquiring such
Warrants or Warrant Shares or such interest therein for such
transferee's own account (or an account over which it has investment
discretion) for investment purposes and not with a view to a
distribution, that such transferee did not receive any other offer
relating to the Warrants or Warrant Shares in the United States, that
at the time the buy order was originated, such transferee was outside
the United States, that such transferee is not a U.S. citizen part of
an identifiable group of U.S. citizens abroad, and that such
transferee is knowledgeable of and agrees to be bound by the
restrictions on resale set forth in this Agreement and Regulation S
during the Restricted Period and that such transferee agrees that
until the expiration of the Restricted Period, it will not, directly
or indirectly, execute or effect or cause to be executed or effected
any short sale, option, or equity swap transactions in or relating to
the Common Stock or any other derivative security transactions the
purpose or effect of which is to hedge or transfer to a third party
all or any part of the risk of loss associated with the ownership of
the Warrants or any of the Warrant Shares to be acquired from the
proposed transferor; and (iii) a written opinion of United States
legal counsel, in form and substance satisfactory to the Company, to
the effect that the offer, sale and transfer of the Warrants or the
Warrant Shares or any interest therein, as the case may be, are exempt
from registration under the Securities Act and any applicable state
securities or blue sky laws, and the rules and regulations promulgated
thereunder.
(d) A Holder will not, directly or indirectly,
voluntarily offer, sell, pledge, transfer or otherwise dispose of (or
solicit any offers to buy, purchase or otherwise acquire or take a
pledge of) its rights under this Agreement, the Warrants, the Warrant
Shares or any interest therein otherwise than in compliance with the
Securities Act, any applicable state securities or blue sky laws and
any applicable securities laws of jurisdictions outside the United
States, and the rules and regulations promulgated thereunder.
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<PAGE> 15
8.5 Permitted Transferees Bound. Prior to the Transfer
of Warrants or Warrant Shares, the Holder shall obtain a written agreement from
the Transferee (the "Permitted Transferee"), in form and substance reasonably
satisfactory to the Company, stating that the Transferee agrees to hold such
Warrant or Warrant Shares subject to the terms and conditions set forth in the
Warrant and this Agreement.
8.6 Compliance with Regulation S.
(a) Holder agrees that all offers and sales of
the Warrants or Warrant Shares prior to the expiration of the
Restricted Period shall be made only in accordance with the provisions
of Section 903 or 904 of Regulation S, pursuant to the registration of
the Warrants or the Warrant Shares under the Securities Act, or
pursuant to an available exemption from the registration requirements
of the Securities Act. In connection with the offer and sale of the
Warrants or Warrant Shares, a Holder will (i) not make an offer to a
person in the United States or to an identifiable group of U.S.
citizens abroad, and (ii) take all appropriate action so that at the
time the buy order is originated, it reasonably believes that the
buyer is outside the United States.
(b) All offering materials and documents used by
a Holder in connection with offers and sales of the Warrants or the
Warrant Shares prior to the expiration of the Restricted Period shall
include statements to the effect that the securities have not been
registered under the Securities Act, and may not be offered or sold in
the United States or to "U.S. persons" (other than distributors)
unless the securities are registered under the Securities Act, or an
exemption from the registration requirements of the Securities Act, is
available.
(c) No offer or sale of the Warrants or Warrant
Shares made prior to the expiration of the Restricted Period shall be
made by a Holder to a "U.S. person" or for the account or benefit of a
"U.S. person" (other than a distributor).
(d) If a Holder sells the Warrants or the Warrant
Shares to a distributor, a dealer (as defined in Section 2(12) of the
Securities Act, or a person receiving a selling concession or other
remuneration in respect of the securities sold, prior to the
expiration of the Restricted Period, a Holder shall send a
confirmation or other notice to the purchaser stating that the
purchaser is subject to the same restrictions on offers and sales that
apply to the Holder.
8.7 Legend. Each Warrant or certificate or instrument
(if any) representing the Warrant Shares issued upon exercise of the Warrants
(and each Warrant or certificate or instrument (if any) representing the
Warrant Shares issued to transferees of such Warrant or certificate or
instrument (if any)), unless at such time as the same is no longer required
under the applicable requirements of the Securities Act, or any applicable
state securities laws, shall bear the following legend:
On the Warrants:
12
<PAGE> 16
"THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON
STOCK ISSUABLE UPON EXERCISE THEREOF (THE "SECURITIES") HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR ANY OTHER UNITED STATES FEDERAL OR STATE SECURITIES OR
BLUE SKY LAWS OR APPLICABLE NON-UNITED STATES SECURITIES LAWS, AND
HAVE BEEN ISSUED IN A MANNER INTENDED TO COMPLY WITH THE CONDITIONS
CONTAINED IN REGULATION S UNDER THE ACT. PRIOR TO _______________,
1998, NO OFFER, SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION
(COLLECTIVELY, A "DISPOSAL") OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE MAY BE MADE (A) IN THE UNITED STATES OR TO, OR FOR THE
ACCOUNT OR BENEFIT OF, ANY "U.S. PERSON" (AS DEFINED IN REGULATION S)
UNLESS (i) REGISTERED UNDER THE ACT AND ANY APPLICABLE STATE
SECURITIES OR BLUE SKY LAWS OR (ii) QUEEN SAND RESOURCES, INC. (THE
"COMPANY") RECEIVES A WRITTEN OPINION OF UNITED STATES LEGAL COUNSEL
IN FORM AND SUBSTANCE SATISFACTORY TO IT TO THE EFFECT THAT SUCH
DISPOSAL IS EXEMPT FROM SUCH REGISTRATION REQUIREMENTS OR (B) OUTSIDE
THE UNITED STATES TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY PERSON WHO
IS NOT A "U.S. PERSON" UNLESS PRIOR TO SUCH DISPOSAL (i) THE
BENEFICIAL OWNER OF SUCH SECURITIES AND THE PROPOSED TRANSFEREE SUBMIT
CERTAIN CERTIFICATIONS TO THE COMPANY (FORMS OF WHICH ARE AVAILABLE
FROM THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICES) AND (ii) THE
COMPANY RECEIVES THE LEGAL OPINION DESCRIBED IN (A)(ii) ABOVE. THE
SECURITIES ARE ALSO SUBJECT TO CERTAIN RESTRICTIONS UPON TRANSFER AS
SET FORTH IN THIS WARRANT AND THE SECURITIES PURCHASE AGREEMENT DATED
AS OF _______________, 1997."
On the Warrant Shares:
"THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE (THE
"SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY OTHER UNITED
STATES FEDERAL OR STATE SECURITIES OR BLUE SKY LAWS OR APPLICABLE
NON-UNITED STATES SECURITIES LAWS, AND HAVE BEEN ISSUED IN A MANNER
INTENDED TO COMPLY WITH THE CONDITIONS CONTAINED IN REGULATION S UNDER
THE ACT. PRIOR TO _______________, 1998, NO OFFER, SALE, TRANSFER,
PLEDGE OR OTHER DISPOSITION (COLLECTIVELY, A "DISPOSAL") OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE MADE (A) IN THE
UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY "U.S.
PERSON" (AS DEFINED IN REGULATION S) UNLESS (i) REGISTERED UNDER THE
ACT AND ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR (ii) QUEEN
SAND RESOURCES, INC. (THE "COMPANY") RECEIVES A
13
<PAGE> 17
WRITTEN OPINION OF UNITED STATES LEGAL COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO IT TO THE EFFECT THAT SUCH DISPOSAL IS EXEMPT FROM
SUCH REGISTRATION REQUIREMENTS OR (B) OUTSIDE THE UNITED STATES TO, OR
FOR THE ACCOUNT OR BENEFIT OF, ANY PERSON WHO IS NOT A "U.S. PERSON"
UNLESS PRIOR TO SUCH DISPOSAL (i) THE BENEFICIAL OWNER OF SUCH
SECURITIES AND THE PROPOSED TRANSFEREE SUBMIT CERTAIN CERTIFICATIONS
TO THE COMPANY (FORMS OF WHICH ARE AVAILABLE FROM THE COMPANY AT ITS
PRINCIPAL EXECUTIVE OFFICES) AND (ii) THE COMPANY RECEIVES THE LEGAL
OPINION DESCRIBED IN (A)(ii) ABOVE. THE SECURITIES ARE ALSO SUBJECT
TO CERTAIN RESTRICTIONS UPON TRANSFER AS SET FORTH IN THE SECURITIES
PURCHASE AGREEMENT DATED AS OF MARCH 27, 1997."
8.8 Escrow. If the Company and the Stockholder
determine that the Warrants may be Transferred in compliance with this
Agreement, then the Company and the Stockholder shall promptly send a notice to
the Escrow Agent (a) to release the Warrants, as well as any consideration on
deposit in escrow under the Escrow Agreement for the proposed Transfer to the
Stockholder at the place requested by the Stockholder (subject to the other
limitations in this Article 8) and (b) to release any consideration due to the
Company for such Warrants to the Company.
ARTICLE 9.
INDEMNIFICATION
9.1 Indemnification of the Company. Stockholder shall
defend, indemnify, and hold harmless, the Company, the Company's successors and
assigns, the Company's subsidiaries, and their respective officers, directors,
stockholders (other than Stockholder), agents and employees, from and against,
and promptly reimburse them for, any and all losses, expenses, damages,
deficiencies, liabilities, payments, penalties, litigation, demands, defenses,
judgments, proceedings, costs, obligations, settlement costs, and attorneys',
accountants' and other professional advisors' fees (including costs of
investigation and preparation) of any kind or nature whatsoever (collectively,
"Losses"), directly or indirectly arising out of, resulting from, relating to
or in connection with any breach of, inaccuracy in, or nonperformance of, any
representation, warranty, covenant, or agreement of Stockholder contained in
this Agreement or any related documents.
9.2 Indemnification of Stockholder. The Company shall
defend, indemnify, and hold harmless Stockholder, and Stockholder's successors
and assigns, and their respective officers, directors, stockholders, agents,
and employees, from and against, and promptly reimburse them for, any and all
Losses arising out of or in connection with any breach of, inaccuracy in, or
nonperformance of, any representation, warranty, covenant, or agreement of the
Company contained in this Agreement or any related documents.
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<PAGE> 18
9.3 Notice and Opportunity to Defend.
(a) If any of the Persons entitled to
indemnification hereunder (the "Indemnitee") receives notice of any
claim or commencement of any action or proceeding (an "Asserted
Liability") with respect to which another Person (the "Indemnitor") is
obligated to provide indemnification pursuant to this Agreement, the
Indemnitee shall promptly give the Indemnitor notice thereof in
accordance with Section 12.6, describing the Asserted Liability in
reasonable detail and indicating the amount (which may be estimated)
of the Losses that have been or may be asserted by the Indemnitee
against the Indemnitor.
(b) The failure of the Indemnitee to give such
notice shall not result in a loss of the Indemnitee's right to
indemnification under this Agreement.
(c) No settlement or compromise of an Asserted
Liability may be made by an Indemnitee without the written consent of
the Indemnitor.
(d) If the Indemnitor so elects, the Indemnitor,
at the Indemnitor's expense, shall assume the defense of the Asserted
Liability and shall have the right to settle or compromise the same,
except that if the Indemnitee's counsel reasonably objects to such
assumption on the ground that there may be legal defenses available to
the Indemnitee that are different from or in addition to those
available to the Indemnitor, then the Indemnitee shall have the right
to employ separate counsel reasonably approved by the Indemnitor.
9.4 Termination of Indemnification. The indemnification
obligations of the parties shall terminate on the date on which all of the
Warrants have been Transferred or expired pursuant to their terms.
9.5 No Consequential Damages. Without affecting the
rights of the parties hereto to recovery of actual, direct Losses, under no
circumstances shall either party to this Agreement be liable to the other or
the other Persons described in Section 9.1 or 9.2 for consequential,
incidental, indirect, punitive, exemplary or special damages (collectively,
"Consequential Damages") resulting from any cause whatsoever, whether arising
in contract, warranty, tort (including negligence), strict liability, indemnity
or otherwise. It is expressly agreed that no failure by either party to this
Agreement to fulfill any condition hereof shall constitute a failure of
essential purpose entitling any party to seek Consequential Damages.
ARTICLE 10.
TERMINATION
This Agreement may be terminated, and the transactions contemplated
hereby may be abandoned:
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<PAGE> 19
(a) at any time before the First Closing by
written agreement of the Stockholder and the Company; or
(b) at any time before the First Closing by the
Stockholder or the Company if the transactions contemplated by this
Agreement have not been consummated on or before such date and such
failure to consummate is not caused by a breach of this Agreement
(including the representations and warranties contained herein) by the
party electing to terminate pursuant to this subsection (b); or
(c) at any time after the termination of the JEDI
Agreement prior to the Second Closing and the abandonment (without
consummation) of the transactions contemplated thereby.
If this Agreement is validly terminated pursuant this Article 10, this
Agreement will become null and void except that, (a) the provisions of Sections
12.9 and 12.10 will continue to apply following any such termination, and (b)
no party hereto will be relieved of any liability for damages that such party
may have to the other party by reason of such party's breach of this Agreement
(including any representation or warranty contained herein).
ARTICLE 11.
DISPUTE RESOLUTION
11.1 Mediation. Any controversy, dispute or claim arising
out of or relating to this Agreement (a "Dispute") shall be submitted to
non-binding mediation upon the request of the Company or Stockholder on the
following terms. Upon the request of either party, a neutral mediator
acceptable to both parties (the "Mediator") shall be appointed within 15 days.
The Mediator shall attempt through negotiations in any manner deemed reasonably
appropriate by the Mediator, in which the parties shall participate, to resolve
the Dispute. The Mediator shall be compensated at a rate agreeable to the
Company. Stockholder and the Mediator, and each of the Company and Stockholder
shall pay its pro rata share of such compensation and other expenses of the
mediation.
11.2 Arbitration. In the event that mediation of a
Dispute is terminated without resolution under Section 11.1, any controversy or
claim arising out of or relating to this Agreement, including the right to or
amount of indemnity, shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the AAA by three (3) arbitrators. Each of the
Stockholder and the Company shall appoint one arbitrator, who shall be an
impartial person. If a party fails to appoint an arbitrator within thirty (30)
days from the date a Demand to Arbitrate was made under Rule 6, the AAA shall
make the appointment of the arbitrator. The two (2) arbitrators thus appointed
shall appoint the third arbitrator, who shall be an impartial person. If said
two (2) arbitrators fail to appoint the third arbitrator within sixty (60) days
from the date a Demand to Arbitrate was made under Rule 6, the AAA shall make
the appointment of the third arbitrator, who shall be an impartial person.
Should any of the arbitrators appointed die, resign, refuse or become unable to
act before a decision is given, the vacancy shall be filled by the method set
forth in this clause for the original appointment. The arbitration shall be
held in Dallas, Texas and shall be conducted in the English language. A
decision by the arbitrators shall be final and binding on all the parties.
16
<PAGE> 20
The arbitrators shall execute and deliver to the respective parties the
arbitration panel's decision in writing. Judgment upon the award, if any,
rendered by the arbitrators (which must be expressed in United States Dollars)
may be entered in any court having jurisdiction thereof. In any award, the
arbitrators shall assess the arbitration costs and expenses, including, without
limitation, attorneys fees of the parties, in a manner deemed equitable by the
arbitrators, taking into account the arbitration decision.
ARTICLE 12.
MISCELLANEOUS
12.1 Survival. All representations and warranties made in
this Agreement shall survive the Second Closing.
12.2 Governing Law; Choice of Forum; Consent to Service of
Process. This Agreement shall be governed by the substantive laws of the State
of Texas. Except as provided in Article 11, the parties hereto agree that any
suit, action or proceeding arising out of or relating to this Agreement or any
agreement or obligation delivered in connection with this Agreement or any
judgment entered by any court in respect thereof shall be brought in the Courts
of the State of Texas, County of Dallas or in the United States District Court
for the Northern District of Texas and each such party hereby submits to the
exclusive jurisdiction of such courts for the purpose of any such suit, action
or proceeding relating to this Agreement or any related agreement or
obligation. The Stockholder hereby submits to jurisdiction of the State of
Texas and agrees that service of all writs, process and summonses in any such
suit, action or proceeding brought in the United States against the Stockholder
may be made upon CT Corporation System at its offices located at 350 North St.
Paul Street, Dallas, Texas 75201 (or any subsequent address of CT Corporation
System), and the Stockholder hereby irrevocably appoints CT Corporation System
at its offices located at 350 North St. Paul Street, Dallas, Texas 75201 (or
any subsequent address of CT Corporation System) its true and lawful
attorney-in-fact in its name, place and stead to accept such service of any and
all such writs, process and summonses, and agrees that the failure of CT
Corporation System] to give to the Stockholder any notice of any such service
of process shall not impair or affect the validity of such service or of any
judgment based thereon. The Company shall send, within 5 days after service of
process under this Section 12.2, notice to the Stockholder in accordance with
Section 12.6 of any service of process on CT Corporation System under this
Section 12.2. Service of process on the Company may be made to the Company's
registered agent in Delaware, Corporation Trust Centre, 1209 Orange Street, in
the City of Wilmington, County of New Castle.
Each party hereto hereby irrevocably waives any objection that it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or any agreement or obligation
delivered in connection with this Agreement, brought in the Courts of the State
of Texas, County of Dallas or the United States District Court for the Northern
District of Texas, and hereby further irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in
an inconvenient forum.
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<PAGE> 21
12.3 Invalid Provisions. If any provision of this
Agreement is held to be illegal, invalid or unenforceable, such provision shall
be fully severable.
12.4 Entirety and Amendments. This Agreement embodies the
entire agreement and understanding relating to the subject matter hereof,
supersedes all prior understandings between the parties relating to the subject
matter hereof, and may be amended only by an instrument in writing executed by
the Company and Stockholder.
12.5 Parties Bound. This Agreement shall be binding upon
and inure to the benefit of the Company, Stockholder and their respective
successors and permitted assigns. Neither the Company nor Stockholder may
assign its rights or delegate its obligations hereunder (whether voluntarily,
involuntarily, or by operation of law) without the prior written consent of the
other party.
12.6 Notices. Unless otherwise specified, whenever this
Agreement requires or permits any consent, approval, notice, request, or demand
from one party to another, that communication must be in writing (which may be
by telecopy) to be effective and is deemed to have been given (a) if by
telecopy, when transmitted to the appropriate telecopy number (and all
communications sent by telecopy must be confirmed promptly by telephone; but
any requirement in this parenthetical does not affect the date when the
telecopy is deemed to have been delivered), or (b) if by any other means,
including by internationally acceptable courier or hand delivery, when actually
delivered. Until changed by notice pursuant to this Agreement, the addresses
(and telecopy numbers):
If to Stockholder: Forseti Investments Ltd.
5-206 Dowell House
Bridgetown, Barbados
West Indies
Attn: Dennis Chandler
Facsimile: (246) 427-5667
With copies to: Faust Fresenius Heyne Scherzberg,
attorneys
Paul-Ehrlich-Strasse 37-39
60596 Frankfurt-Am-Main
Attn: Christoph Heyne
Facsimile: (49) 6963009090
If to Company: Queen Sand Resources, Inc.
3500 Oak Lawn, Suite 380, L.B.#31
Dallas, Texas 75219-4398
Attn: Robert P. Lindsay
Facsimile: (214) 521-9960
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<PAGE> 22
With copies to: Queen Sand Resources, Inc.
60 Queen Street, Suite 1400
Ottawa, Canada K1P 5Y7
Attn: Edward J. Munden
Facsimile: (613) 230-6055
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
Attn: William L. Boeing, Esq.
Facsimile: (214) 651-5940
12.7 Section and Other Headings. The headings contained
in this Agreement are for reference purposes only and will not affect in any
way the meaning or interpretation of this Agreement.
12.8 Counterparts. This Agreement may be executed in two
or more counterparts, each of which will be deemed an original and all of which
together will constitute one instrument.
12.9 Expenses. At the Second Closing, the Stockholder
shall pay its own costs and expenses as well as the reasonable costs and
expenses of the Company in connection with this Agreement and the transactions
contemplated hereby.
12.10 Specific Performance. It is expressly covenanted and
agreed that, in the event of a breach by Stockholder of any of its obligations
or covenants contained in this Agreement, subject to Article 11, although the
damage to the Company will be substantial, money damages will not afford an
adequate remedy, and the Company will suffer irreparable injury. Therefore, in
the event of any such breach and in addition to any other rights or remedies
which may be provided by law or this Agreement, the Company shall have the
right to specific performance of such particular obligations or covenants in
this Agreement by way of temporary and/or permanent injunctive relief.
12.11 Further Documents and Actions. Following the
execution of this Agreement, each of the Stockholder and the Company shall
execute and deliver such documents, provide such endorsements and take such
other actions as shall be reasonably requested by the other party to carry out
the transactions contemplated by this Agreement.
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<PAGE> 23
IN WITNESS WHEREOF, this Agreement has been executed as of the day and
year first stated above.
STOCKHOLDER:
FORSETI INVESTMENTS, LTD.
By: /s/ authorized signatory
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
[with notary attached]
COMPANY:
QUEEN SAND RESOURCES, INC.
By: /s/ Edward J. Munden
-----------------------------------
Name: Edward J. Munden
---------------------------------
Title: President and Chief
Executive Officer
--------------------------------
[with notary attached]
and
By: /s/ Robert P. Lindsay
-----------------------------------
Name: Robert P. Lindsay
---------------------------------
Title: Chief Operating Officer
--------------------------------
[with notary attached]
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<PAGE> 24
EXHIBIT A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE THEREOF (THE "SECURITIES") HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
OTHER UNITED STATES FEDERAL OR STATE SECURITIES OR BLUE SKY LAWS OR APPLICABLE
NON-UNITED STATES SECURITIES LAWS, AND HAVE BEEN ISSUED IN A MANNER INTENDED TO
COMPLY WITH THE CONDITIONS CONTAINED IN REGULATION S UNDER THE ACT. PRIOR TO
_______________, 1998, NO OFFER, SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION
(COLLECTIVELY, A "DISPOSAL") OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE
MAY BE MADE (A) IN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF,
ANY "U.S. PERSON" (AS DEFINED IN REGULATION S) UNLESS (i) REGISTERED UNDER THE
ACT AND ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR (ii) QUEEN SAND
RESOURCES, INC. (THE "COMPANY") RECEIVES A WRITTEN OPINION OF UNITED STATES
LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO IT TO THE EFFECT THAT SUCH
DISPOSAL IS EXEMPT FROM SUCH REGISTRATION REQUIREMENTS OR (B) OUTSIDE THE
UNITED STATES TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY PERSON WHO IS NOT A
"U.S. PERSON" UNLESS PRIOR TO SUCH DISPOSAL (i) THE BENEFICIAL OWNER OF SUCH
SECURITIES AND THE PROPOSED TRANSFEREE SUBMIT CERTAIN CERTIFICATIONS TO THE
COMPANY (FORMS OF WHICH ARE AVAILABLE FROM THE COMPANY AT ITS PRINCIPAL
EXECUTIVE OFFICES) AND (ii) THE COMPANY RECEIVES THE LEGAL OPINION DESCRIBED IN
(A)(ii) ABOVE. THE SECURITIES ARE ALSO SUBJECT TO CERTAIN RESTRICTIONS UPON
TRANSFER AS SET FORTH IN THIS WARRANT AND THE SECURITIES PURCHASE AGREEMENT
DATED AS OF _______________, 1997, A COPY OF WHICH IS AVAILABLE FOR INSPECTION
AT ITS PRINCIPAL PLACE OF BUSINESS.
- --------------------------------------------------------------------------------
QUEEN SAND RESOURCES, INC.
Class A Common Stock Purchase Warrant
Representing Right To Purchase Shares of
Common Stock
of
Queen Sand Resources, Inc.
-----------
No. A-1
-----------
FOR VALUE RECEIVED, QUEEN SAND RESOURCES, INC., a Delaware corporation
(the "Company"), hereby certifies that Forseti Investments Ltd., a Barbados
corporation (the "Holder"), is entitled, subject to the provisions of this
Warrant, to purchase from the
<PAGE> 25
Company, at any time or from time to time during the Exercise Period (as
hereinafter defined), a total of 1,000,000 shares (as such number of shares may
be adjusted pursuant to the terms hereof, the "Warrant Shares") of Common
Stock, par value $.0015 per share, of the Company, at a price per share equal
to the Exercise Price (as defined below). This Warrant is issued to the Holder
(together with such other warrants as may be issued in exchange, transfer or
replacement of this Warrant, the "Warrants") pursuant to the Securities
Purchase Agreement (as defined below) and entitles the Holder to purchase the
Warrant Shares and to exercise the other rights, powers and privileges
hereinafter provided, all on the terms and conditions and pursuant to the
provisions set forth herein and in the Securities Purchase Agreement.
Section 1. Definitions. The following terms, as used herein,
have the following respective meanings:
"Common Stock" means the Company's common stock, $0.0015 par value.
"Company" is defined in the introductory paragraph of this Warrant.
"Date of Issuance" means __________ _____, 1997.
"Earn Up Agreement" means the Earn Up Agreement, dated as of the date
hereof, between the Company and the Holder.
"Exercise Period" means the period of time between the Date of
Issuance and 5:00 p.m. (New York City time) on December 31, 1998, provided,
however, that any Warrants held by Forseti Investments Ltd. on the Election
Date (as defined in the Earn Up Agreement) shall expire on the Election Date
unless Forseti Investments Ltd. elects to retain the Warrants pursuant to
Section 2(a)(ii) of the Earn Up Agreement.
"Exercise Price" means an amount, per share, equal to $2.50 (U.S.
dollars). The Exercise Price shall be subject to adjustment, as set forth in
Section 4.
"Holder" means Forseti Investments Ltd. and its permitted assignees.
"Person" means any individual, corporation, limited or general
partnership, joint venture, association, joint- stock company, trust, limited
liability company, unincorporated organization or government or any agency or
political subdivision thereof.
"Required Holders" means the Holders of more than 50% of all Warrant
Shares then outstanding (assuming the full exercise of all Warrants).
"Securities Purchase Agreement" means the Securities Purchase
Agreement, dated as of March ___, 1997, between the Company and Forseti, as
such agreement shall be modified, amended and supplemented and in effect from
time to time.
"Value" means, as of any date of determination, with respect to the
Common Stock, $3.50 per share of Common Stock.
"Warrants" is defined in the introductory paragraph of this Warrant.
"Warrant Shares" is defined in the introductory paragraph of this
Warrant.
- 2 -
<PAGE> 26
Section 2. Exercise of Warrant; Cancellations of Warrant.
Subject to the Securities Purchase Agreement and the provisions of Regulation
S promulgated under the Securities Act of 1933, as amended, this Warrant may be
exercised in whole or in part, at any time or from time to time, during the
Exercise Period, by presentation and surrender hereof to the Company at its
principal office at the address set forth in Section 11 (or at such other
reasonable address as the Company may after the date hereof notify the Holder
in writing, coming into effect not before 14 days after receipt of such notice
by the Holder), with the Purchase Form annexed hereto as Exhibit A duly
executed and accompanied by either (at the option of the Holder) proper payment
in cash or certified or bank check equal to the Exercise Price for the Warrant
Shares for which this Warrant is being exercised; provided, that if this
Warrant is exercised in part, the Warrant must be exercised for the purchase of
at least 100,000 shares of Common Stock. Upon exercise of this Warrant as
aforesaid, the Company shall as promptly as practicable, and in any event
within 20 days thereafter, execute and deliver to the Holder a certificate or
certificates for the total number of Warrant Shares for which this Warrant is
being exercised, in such names and denominations as requested in writing by the
Holder. The Company shall pay any and all documentary stamp or similar issue
taxes payable in respect of the issue of the Warrant Shares. If this Warrant
is exercised in part only, the Company shall, upon surrender of this Warrant,
execute and deliver a new Warrant evidencing the rights of the Holder thereof
to purchase the balance of the Warrant Shares issuable hereunder.
Section 3. Exchange, Transfer, Assignment or Loss of Warrant.
This Warrant is exchangeable, without expense, at the option of the Holder,
upon presentation and surrender hereof to the Company for other Warrants of
different denominations, entitling the Holder to purchase in the aggregate the
same number of Warrant Shares. The Holder of this Warrant shall be entitled,
without obtaining the consent of the Company, to transfer or assign its
interest in (and rights under) this Warrant in whole or in part to any Person
or Persons, subject to the provisions of Section 7 of this Warrant and Article
8 of the Securities Purchase Agreement. Upon surrender of this Warrant to the
Company, with the Assignment Form annexed hereto as Exhibit B duly executed and
funds sufficient to pay any transfer tax, the Company shall, without charge,
execute and deliver a new Warrant or Warrants in the name of the assignee or
assignees named in such Assignment Form and, if the Holder's entire interest is
not being assigned, in the name of the Holder, and this Warrant shall promptly
be canceled. This Warrant may be divided or combined with other Warrants that
carry the same rights upon presentation hereof at the office of the Company,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued and signed by the Holder hereof. Upon receipt by
the Company of evidence satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or destruction) of
reasonably satisfactory indemnification (including, if required in the
reasonable judgment of the Company, a statement of net worth of such Holder
that is at a level reasonably satisfactory to the Company), and upon surrender
and cancellation of this Warrant, if mutilated, the Company shall execute and
deliver a new Warrant of like tenor and date.
Section 4. Antidilution Provisions.
(a) Adjustment of Number of Warrant Shares and Exercise Price.
The number of Warrant Shares purchasable pursuant hereto and the Exercise
Price, each shall be subject to adjustment from time to time on and after the
Date of Issuance as provided in this Section 4(a). In case the Company shall
at any time after the Date of Issuance (i) pay a dividend of shares of Common
Stock or make a distribution of shares of Common Stock, (ii) subdivide its
- 3 -
<PAGE> 27
outstanding shares of Common Stock into a larger number of shares of Common
Stock, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (iv) issue any shares of its capital stock
or other assets in a reclassification or reorganization of the Common Stock
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing entity), then (x) the securities
purchasable pursuant hereto shall be adjusted to the number of Warrant Shares
and amount of any other securities, cash or other property of the Company which
the Holder would have owned or have been entitled to receive after the
happening of any of the events described above, had this Warrant been exercised
immediately prior to the happening of such event or any record date with
respect thereto, and (y) the Exercise Price shall be adjusted to equal the
Exercise Price immediately prior to the adjustment multiplied by a fraction,
(A) the numerator of which is the number of Warrant Shares for which this
Warrant is exercisable immediately prior to the adjustment, and (B) the
denominator of which is the number of shares for which this Warrant is
exercisable immediately after such adjustment. The adjustments made pursuant
to this Section 4(a) shall become effective immediately after the effective
date of the event creating such right of adjustment, retroactive to the record
date, if any, for such event. Any Warrant Shares purchasable as a result of
such adjustment shall not be issued prior to the effective date of such event.
For the purpose of this Section 4(a) and (b), the term "shares of
Common Stock" means (i) the classes of stock designated as the Common Stock of
the Company as of the date hereof, or (ii) any other class of stock resulting
from successive changes or reclassifications of such shares consisting solely
of changes in par value, or from par value to no par value, or from no par
value to par value. In the event that at any time, as a result of an
adjustment made pursuant to this Section 4(a), the Holder shall become entitled
to receive any securities of the Company other than shares of Common Stock,
thereafter the number of such other securities so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with respect to
the Warrant Shares contained in this Section 4.
(b) Reorganization, Merger, etc. If any capital reorganization,
reclassification or similar transaction involving the capital stock of the
Company (other than as specified in Section 4(a)), any consolidation, merger or
business combination of the Company with another corporation or the sale or
conveyance of all or any substantial part of its assets to another corporation,
shall be effected in such a way that holders of the shares of Common Stock
shall be entitled to receive stock, securities or assets (including, without
limitation, cash) with respect to or in exchange for shares of the Common
Stock, then, prior to and as a condition of such reorganization,
reclassification, similar transaction, consolidation, merger, business
combination, sale or conveyance, lawful and adequate provision shall be made
whereby the Holder shall thereafter have the right to purchase and receive upon
the basis and upon the terms and conditions specified in this Warrant and in
lieu of the Warrant Shares immediately theretofore purchasable and receivable
upon the exercise of this Warrant, such shares of stock, securities or assets
as may be issued or payable with respect to or in exchange for a number of
outstanding Warrant Shares equal to the number of Warrant Shares immediately
theretofore purchasable and receivable upon the exercise of this Warrant had
such reorganization, reclassification, similar transaction, consolidation,
merger, business combination, sale or conveyance not taken place. The Company
shall not effect any such consolidation, merger, business combination, sale or
conveyance unless prior to or simultaneously with the consummation thereof the
survivor or successor corporation (if other than the Company) resulting from
such consolidation or merger or the corporation purchasing such assets shall
assume by written instrument executed and sent to the Holder, the
- 4 -
<PAGE> 28
obligation to deliver to the Holder such shares of stock, securities or
assets as, in accordance with the foregoing provisions, the Holder may be
entitled to receive.
(c) Statement on Warrant Certificates. Irrespective of any
adjustments in the Exercise Price or the number or kind of Warrant Shares, this
Warrant may continue to express the same price and number and kind of shares as
are stated on the front page hereof.
(d) Exception to Adjustment. Anything herein to the contrary
notwithstanding, the Company shall not be required to make any adjustment of
the number of Warrant Shares issuable hereunder or to the Exercise Price in the
case of the issuance of the Warrants or the issuance of shares of the Common
Stock (or other securities) upon exercise of the Warrants.
(e) Treasury Shares. The number of shares of the Common Stock
outstanding at any time shall not include treasury shares or shares owned or
held by or for the account of the Company or any of its subsidiaries, and the
disposition of any such shares shall be considered an issue or sale of the
Common Stock for the purposes of this Section 4.
(f) Adjustment Notices to Holder. Upon any increase or decrease
in the number of Warrant Shares purchasable upon the exercise of this Warrant
or the Exercise Price the Company shall, within 30 days thereafter, deliver
written notice thereof to all Holders, which notice shall state the increased
or decreased number of Warrant Shares purchasable upon the exercise of this
Warrant and the adjusted Exercise Price, setting forth in reasonable detail the
method of calculation and the facts upon which such calculations are based.
Section 5. Notification by the Company. In case at any time
while this Warrant remains outstanding:
(a) the Company shall declare any dividend or make any
distribution upon its Common Stock or any other class of its capital stock; or
(b) the Company shall offer for subscription pro rata to the
holders of its Common Stock or any other class of its capital stock any
additional shares of stock of any class or any other securities convertible
into or exchangeable for shares of stock or any rights or options to subscribe
thereto; or
(c) the Board of Directors of the Company shall authorize any
capital reorganization, reclassification or similar transaction involving the
capital stock of the Company, or a sale or conveyance of all or a substantial
part of the assets of the Company, or a consolidation, merger or business
combination of the Company with another Person; or
(d) actions or proceedings shall be authorized or commenced for a
voluntary or involuntary dissolution, liquidation or winding-up of the Company;
then, in any one or more of such cases, the Company shall give written notice
to the Holder, at the earliest time legally practicable (and not less than 20
days before any record date or other date set for definitive action) of the
date on which (i) the books of the Company shall close or a record shall be
taken for such dividend, distribution or subscription rights or options or (ii)
such reorganization, reclassification, sale, conveyance, consolidation, merger,
dissolution, liquidation or winding-up shall take place or be voted on by
shareholders of the Company, as the case may be. Such notice shall also
specify the date as of which the holders of the Common Stock of record shall
participate in said dividend, distribution, subscription
- 5 -
<PAGE> 29
rights or options or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, sale, conveyance, consolidation, merger, dissolution,
liquidation or winding-up, as the case may be. If the action in question or
the record date is subject to the effectiveness of a registration statement
under the Securities Act or to a favorable vote of shareholders, the notice
required by this Section 5 shall so state.
Section 6. No Voting Rights: Limitations of Liability. Prior to
exercise, this Warrant will not entitle the Holder to any voting rights or
other rights as a stockholder of the Company. No provision hereof, in the
absence of affirmative action by the Holder to exercise this Warrant, and no
enumeration herein of the rights or privileges of the Holder, shall give rise
to any liability of the Holder for the purchase price of the Warrant Shares
pursuant to the exercise hereof.
Section 7. Restrictions on Transfer. The Warrants and the
Warrant Shares shall not be transferable except upon the conditions in this
Warrant and specified in the Securities Purchase Agreement. The Warrants may
not be transferred, sold or otherwise disposed of except in blocks of Warrants
for the purchase of at least 100,000 shares of Common Stock; provided, that if
at the time of such transfer, sale or other disposition, the Warrants owned by
the Holder are for the purchase of less than 100,000 shares of Common Stock,
the Holder may sell, transfer or otherwise dispose of all, but not less than
all, of the Warrants. This Warrant bears and the certificates for Warrant
Shares will bear a legend as specified in the Securities Purchase Agreement.
The Holder by its acceptance of this Warrant agrees to comply with and to be
bound by all of the provisions of the Securities Purchase Agreement.
Section 8. Amendment and Waiver.
(a) No failure or delay of the Holder in exercising any power or
right hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of such right or power, or any abandonment or discontinuance
of steps to enforce such a right or power, preclude any other or further
exercise thereof or the exercise of any other right or power. The rights and
remedies of the Holder are cumulative and not exclusive of any rights or
remedies which it would otherwise have. The provisions of this Warrant may be
amended, modified or waived with (and only with) the written consent of the
Company and the Required Holders.
(b) No notice or demand on the Company in any case shall entitle
the Company to any other or further notice or demand in similar or other
circumstances.
Section 9. No Fractional Warrant Shares. The Company shall not
be required to issue stock certificates representing fractions of Warrant
Shares, but shall in respect of any fraction of a Warrant Share make a payment
in cash based on the Value of the Common Stock after giving effect to the full
exercise or conversion of the Warrants.
Section 10. Reservation of Warrant Shares. The Company shall
authorize, reserve and keep available at all times, free from preemptive
rights, a sufficient number of Warrant Shares to satisfy the requirements of
this Warrant.
- 6 -
<PAGE> 30
Section 11. Notices. Unless otherwise specified, whenever this
Warrant requires or permits any consent, approval, notice, request, or demand
from one party to another, that communication must be in writing (which may be
by telecopy) to be effective and is deemed to have been given (a) if by
telecopy, when transmitted to the appropriate telecopy number (and all
communications sent by telecopy must be confirmed promptly by telephone; but
any requirement in this parenthetical does not affect the date when the
telecopy is deemed to have been delivered), or (b) if by any other means,
including by internationally acceptable courier or hand delivery, when actually
delivered. Until changed by notice pursuant to this Warrant, the address (and
telecopy number) for the Holder and the Company are:
If to Holder: Forseti Investments Ltd.
5-206 Dowell House
Bridgetown, Barados
West Indies
Attn: Dennis Chandler
Facsimile: (246) 427-5667
With copies to: Faust Fresenius Heyne Scherzberg, attorneys
Paul-Ehrlich-Strasse 37-39
60596 Frankfurt-Am-Main
Attn: Christoph Heyne
Facsimile: (49) 6963009090
If to Company: Queen Sand Resources, Inc.
3500 Oak Lawn, Suite 380, L.B.#31
Dallas, Texas 75219-4398
Attn: Robert P. Lindsay
Facsimile: (214) 521-9960
With copies to: Queen Sand Resources, Inc.
60 Queen Street, Suite 1400
Ottawa, Canada K1P 5Y7
Attn: Edward J. Munden
Facsimile: (613) 230-6055
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
Attn: William L. Boeing, Esq.
Facsimile: (214) 651-5940
Section 12. Section and Other Headings. The headings contained
in this Warrant are for reference purposes only and will not affect in any way
the meaning or interpretation of this Warrant.
Section 13. Governing Law; Choice of Forum; Consent to Service of
Process. THIS WARRANT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF DELAWARE. The parties hereto agree that any suit,
action or proceeding arising out of or relating to this Warrant or any
agreement or obligation delivered in connection with this Warrant or any
judgment entered by any court in respect thereof shall be brought in the Courts
of the State of Texas, County of Dallas or in the United
- 7 -
<PAGE> 31
States District Court for the Northern District of Texas and each such party
hereby submits to the exclusive jurisdiction of such courts for the purpose of
any such suit, action or proceeding relating to this Warrant or any related
agreement or obligation. The Holder hereby submits to the jurisdiction of the
State of Texas and agrees that service of all writs, process and summonses in
any such suit, action or proceeding brought in the United States against the
Holder may be made upon CT Corporation System at its offices located at 350
North St. Paul Street, Dallas, Texas 75201 (or any subsequent address of CT
Corporation System), and the Holder hereby irrevocably appoints CT Corporation
System at its offices located at 350 North St. Paul Street, Dallas, Texas
75201 (or any subsequent address of CT Corporation System) its true and lawful
attorney-in-fact in their name, place and stead to accept such service of any
and all such writs, process and summonses, and agree that the failure of CT
Corporation System to give to the Holder any notice of any such service of
process shall not impair or affect the validity of such service or of any
judgment based thereon. The Company shall send, within 5 days after any
service of process under this Section 13, notice to the Holder in accordance
with Section 11 of any service of process on CT Corporation System under this
Section 13. Service of process on the Company may be made to the Company's
registered agent in Delaware, Corporation Trust Centre, 1209 Orange Street, in
the City of Wilmington, County of New Castle.
Each party hereto hereby irrevocably waives any objection that it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Warrant or any agreement or obligation
delivered in connection with this Warrant, brought in the Courts of the State
of Texas, County of Dallas or the United States District Court for the Northern
District of Texas, and hereby further irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in
an inconvenient forum.
Section 14. Binding Effect. The terms and provisions of this
Warrant shall inure to the benefit of the Holder and its successors and assigns
and shall be binding upon the Company and its successors and assigns,
including, without limitation, any Person succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets.
* * * * *
- 8 -
<PAGE> 32
IN WITNESS WHEREOF, the seal of the Company and the signature of its
duly authorized officer have been affixed hereto as of __________ _____, 1997.
[SEAL] QUEEN SAND RESOURCES, INC.
Attest: By:
-------------------------- --------------------------------
Name:
-------------------------------
Title:
------------------------------
and
Attest: By:
-------------------------- ---------------------------------
Name:
-------------------------------
Title:
------------------------------
- 9 -
<PAGE> 33
EXHIBIT A
TO
WARRANT
PURCHASE FORM
To Be Executed by the Holder
Desiring to Exercise a Warrant of
Queen Sand Resources, Inc.
The undersigned holder hereby exercises the right to purchase ______
shares of Common Stock covered by the within Warrant, according to the
conditions thereof, and herewith makes payment in full of the Exercise Price of
such shares, in the amount of $____________.
Name of Holder:
------------------------------------
Signature:
------------------------
Title:
----------------------------
Address:
--------------------------
------------------------------------
------------------------------------
Dated:
--------------------, --------.
- 10 -
<PAGE> 34
EXHIBIT B
TO
WARRANT
ASSIGNMENT FORM
To Be Executed by the Holder
Desiring to Transfer a Warrant of
Queen Sand Resources, Inc.
FOR VALUE RECEIVED, the undersigned holder hereby sells, assigns and
transfers unto __________________________ the right to purchase ____________
shares of Common Stock covered by the within Warrant, and does hereby
irrevocably constitute and appoint _________________ Attorney to transfer the
said Warrant on the books of the Company (as defined in such Warrant), with
full power of substitution.
Name of Holder:
------------------------------------
Signature:
------------------------
Title:
----------------------------
Address:
--------------------------
------------------------------------
------------------------------------
Dated:
---------------------, -------.
In the presence of
- -------------------------------------
NOTICE:
The signature to the foregoing Assignment Form must correspond to the name as
written upon the face of the within Warrant in every detail, without alteration
or enlargement or any change whatsoever.
- 11 -
<PAGE> 35
EXHIBIT B
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE THEREOF (THE "SECURITIES") HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
OTHER UNITED STATES FEDERAL OR STATE SECURITIES OR BLUE SKY LAWS OR APPLICABLE
NON-UNITED STATES SECURITIES LAWS, AND HAVE BEEN ISSUED IN A MANNER INTENDED TO
COMPLY WITH THE CONDITIONS CONTAINED IN REGULATION S UNDER THE ACT. PRIOR TO
_______________, 1998, NO OFFER, SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION
(COLLECTIVELY, A "DISPOSAL") OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE
MAY BE MADE (A) IN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF,
ANY "U.S. PERSON" (AS DEFINED IN REGULATION S) UNLESS (i) REGISTERED UNDER THE
ACT AND ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR (ii) QUEEN SAND
RESOURCES, INC. (THE "COMPANY") RECEIVES A WRITTEN OPINION OF UNITED STATES
LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO IT TO THE EFFECT THAT SUCH
DISPOSAL IS EXEMPT FROM SUCH REGISTRATION REQUIREMENTS OR (B) OUTSIDE THE
UNITED STATES TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY PERSON WHO IS NOT A
"U.S. PERSON" UNLESS PRIOR TO SUCH DISPOSAL (i) THE BENEFICIAL OWNER OF SUCH
SECURITIES AND THE PROPOSED TRANSFEREE SUBMIT CERTAIN CERTIFICATIONS TO THE
COMPANY (FORMS OF WHICH ARE AVAILABLE FROM THE COMPANY AT ITS PRINCIPAL
EXECUTIVE OFFICES) AND (ii) THE COMPANY RECEIVES THE LEGAL OPINION DESCRIBED IN
(A)(ii) ABOVE. THE SECURITIES ARE ALSO SUBJECT TO CERTAIN RESTRICTIONS UPON
TRANSFER AS SET FORTH IN THIS WARRANT AND THE SECURITIES PURCHASE AGREEMENT
DATED AS OF _______________, 1997, A COPY OF WHICH IS AVAILABLE FOR INSPECTION
AT ITS PRINCIPAL PLACE OF BUSINESS.
- --------------------------------------------------------------------------------
QUEEN SAND RESOURCES, INC.
Class B Common Stock Purchase Warrant
Representing Right To Purchase Shares of
Common Stock
of
Queen Sand Resources, Inc.
-------------
No. B-1
-------------
FOR VALUE RECEIVED, QUEEN SAND RESOURCES, INC., a Delaware corporation
(the "Company"), hereby certifies that Forseti Investments Ltd., a Barbados
corporation (the "Holder"), is entitled, subject to the provisions of this
Warrant, to purchase from the
<PAGE> 36
Company, at any time or from time to time during the Exercise Period (as
hereinafter defined), a total of 2,000,000 shares (as such number of shares may
be adjusted pursuant to the terms hereof, the "Warrant Shares") of Common
Stock, par value $.0015 per share, of the Company, at a price per share equal
to the Exercise Price (as defined below). This Warrant is issued to the Holder
(together with such other warrants as may be issued in exchange, transfer or
replacement of this Warrant, the "Warrants") pursuant to the Securities
Purchase Agreement (as defined below) and entitles the Holder to purchase the
Warrant Shares and to exercise the other rights, powers and privileges
hereinafter provided, all on the terms and conditions and pursuant to the
provisions set forth herein and in the Securities Purchase Agreement.
Section 1. Definitions. The following terms, as used herein,
have the following respective meanings:
"Common Stock" means the Company's common stock, $0.0015 par value.
"Company" is defined in the introductory paragraph of this Warrant.
"Date of Issuance" means __________ _____, 1997.
"Earn Up Agreement" means the Earn Up Agreement, dated as of the date
hereof, between the Company and the Holder.
"Exercise Period" means the period of time between the Date of
Issuance and 5:00 p.m. (New York City time) on December 31, 1998, provided,
however, that any Warrants held by Forseti Investments Ltd. on the Election
Date (as defined in the Earn Up Agreement) shall expire on the Election Date
unless Forseti Investments Ltd. elects to retain the Warrants pursuant to
Section 2(a)(ii) of the Earn Up Agreement.
"Exercise Price" means an amount, per share, equal to $2.50 (U.S.
dollars). The Exercise Price shall be subject to adjustment, as set forth in
Section 4.
"Holder" means Forseti Investments Ltd. and its permitted assignees.
"Person" means any individual, corporation, limited or general
partnership, joint venture, association, joint- stock company, trust, limited
liability company, unincorporated organization or government or any agency or
political subdivision thereof.
"Required Holders" means the Holders of more than 50% of all Warrant
Shares then outstanding (assuming the full exercise of all Warrants).
"Securities Purchase Agreement" means the Securities Purchase
Agreement, dated as of March ___, 1997, between the Company and Forseti, as
such agreement shall be modified, amended and supplemented and in effect from
time to time.
"Value" means, as of any date of determination, with respect to the
Common Stock, $3.50 per share of Common Stock.
"Warrants" is defined in the introductory paragraph of this Warrant.
"Warrant Shares" is defined in the introductory paragraph of this
Warrant.
- 2 -
<PAGE> 37
Section 2. Exercise of Warrant; Cancellations of
Warrant. Subject to the Securities Purchase Agreement and the provisions of
Regulation S promulgated under the Securities Act of 1933, as amended, this
Warrant may be exercised in whole or in part, at any time or from time to time,
during the Exercise Period, by presentation and surrender hereof to the Company
at its principal office at the address set forth in Section 11 (or at such
other reasonable address as the Company may after the date hereof notify the
Holder in writing, coming into effect not before 14 days after receipt of such
notice by the Holder), with the Purchase Form annexed hereto as Exhibit A duly
executed and accompanied by either (at the option of the Holder) proper payment
in cash or certified or bank check equal to the Exercise Price for the Warrant
Shares for which this Warrant is being exercised; provided, that if this
Warrant is exercised in part, the Warrant must be exercised for the purchase of
at least 100,000 shares of Common Stock. Upon exercise of this Warrant as
aforesaid, the Company shall as promptly as practicable, and in any event
within 20 days thereafter, execute and deliver to the Holder a certificate or
certificates for the total number of Warrant Shares for which this Warrant is
being exercised, in such names and denominations as requested in writing by the
Holder. The Company shall pay any and all documentary stamp or similar issue
taxes payable in respect of the issue of the Warrant Shares. If this Warrant
is exercised in part only, the Company shall, upon surrender of this Warrant,
execute and deliver a new Warrant evidencing the rights of the Holder thereof
to purchase the balance of the Warrant Shares issuable hereunder.
Section 3. Exchange, Transfer, Assignment or Loss of
Warrant. This Warrant is exchangeable, without expense, at the option of the
Holder, upon presentation and surrender hereof to the Company for other
Warrants of different denominations, entitling the Holder to purchase in the
aggregate the same number of Warrant Shares. The Holder of this Warrant shall
be entitled, without obtaining the consent of the Company, to transfer or
assign its interest in (and rights under) this Warrant in whole or in part to
any Person or Persons, subject to the provisions of Section 7 of this Warrant
and Article 8 of the Securities Purchase Agreement. Upon surrender of this
Warrant to the Company, with the Assignment Form annexed hereto as Exhibit B
duly executed and funds sufficient to pay any transfer tax, the Company shall,
without charge, execute and deliver a new Warrant or Warrants in the name of
the assignee or assignees named in such Assignment Form and, if the Holder's
entire interest is not being assigned, in the name of the Holder, and this
Warrant shall promptly be canceled. This Warrant may be divided or combined
with other Warrants that carry the same rights upon presentation hereof at the
office of the Company, together with a written notice specifying the names and
denominations in which new Warrants are to be issued and signed by the Holder
hereof. Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification
(including, if required in the reasonable judgment of the Company, a statement
of net worth of such Holder that is at a level reasonably satisfactory to the
Company), and upon surrender and cancellation of this Warrant, if mutilated,
the Company shall execute and deliver a new Warrant of like tenor and date.
Section 4. Antidilution Provisions.
(a) Adjustment of Number of Warrant Shares and
Exercise Price. The number of Warrant Shares purchasable pursuant hereto and
the Exercise Price, each shall be subject to adjustment from time to time on
and after the Date of Issuance as provided in this Section 4(a). In case the
Company shall at any time after the Date of Issuance (i) pay a dividend of
shares of Common Stock or make a distribution of shares of Common Stock, (ii)
subdivide its
- 3 -
<PAGE> 38
outstanding shares of Common Stock into a larger number of shares of Common
Stock, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (iv) issue any shares of its capital stock
or other assets in a reclassification or reorganization of the Common Stock
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing entity), then (x) the securities
purchasable pursuant hereto shall be adjusted to the number of Warrant Shares
and amount of any other securities, cash or other property of the Company which
the Holder would have owned or have been entitled to receive after the
happening of any of the events described above, had this Warrant been exercised
immediately prior to the happening of such event or any record date with
respect thereto, and (y) the Exercise Price shall be adjusted to equal the
Exercise Price immediately prior to the adjustment multiplied by a fraction,
(A) the numerator of which is the number of Warrant Shares for which this
Warrant is exercisable immediately prior to the adjustment, and (B) the
denominator of which is the number of shares for which this Warrant is
exercisable immediately after such adjustment. The adjustments made pursuant
to this Section 4(a) shall become effective immediately after the effective
date of the event creating such right of adjustment, retroactive to the record
date, if any, for such event. Any Warrant Shares purchasable as a result of
such adjustment shall not be issued prior to the effective date of such event.
For the purpose of this Section 4(a) and (b), the term "shares of
Common Stock" means (i) the classes of stock designated as the Common Stock of
the Company as of the date hereof, or (ii) any other class of stock resulting
from successive changes or reclassifications of such shares consisting solely
of changes in par value, or from par value to no par value, or from no par
value to par value. In the event that at any time, as a result of an
adjustment made pursuant to this Section 4(a), the Holder shall become entitled
to receive any securities of the Company other than shares of Common Stock,
thereafter the number of such other securities so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with respect to
the Warrant Shares contained in this Section 4.
(b) Reorganization, Merger, etc. If any capital
reorganization, reclassification or similar transaction involving the capital
stock of the Company (other than as specified in Section 4(a)), any
consolidation, merger or business combination of the Company with another
corporation or the sale or conveyance of all or any substantial part of its
assets to another corporation, shall be effected in such a way that holders of
the shares of Common Stock shall be entitled to receive stock, securities or
assets (including, without limitation, cash) with respect to or in exchange for
shares of the Common Stock, then, prior to and as a condition of such
reorganization, reclassification, similar transaction, consolidation, merger,
business combination, sale or conveyance, lawful and adequate provision shall
be made whereby the Holder shall thereafter have the right to purchase and
receive upon the basis and upon the terms and conditions specified in this
Warrant and in lieu of the Warrant Shares immediately theretofore purchasable
and receivable upon the exercise of this Warrant, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding Warrant Shares equal to the number of Warrant
Shares immediately theretofore purchasable and receivable upon the exercise of
this Warrant had such reorganization, reclassification, similar transaction,
consolidation, merger, business combination, sale or conveyance not taken
place. The Company shall not effect any such consolidation, merger, business
combination, sale or conveyance unless prior to or simultaneously with the
consummation thereof the survivor or successor corporation (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument executed and sent to
the Holder, the
- 4 -
<PAGE> 39
obligation to deliver to the Holder such shares of stock, securities or assets
as, in accordance with the foregoing provisions, the Holder may be entitled to
receive.
(c) Statement on Warrant Certificates.
Irrespective of any adjustments in the Exercise Price or the number or kind of
Warrant Shares, this Warrant may continue to express the same price and number
and kind of shares as are stated on the front page hereof.
(d) Exception to Adjustment. Anything herein to the
contrary notwithstanding, the Company shall not be required to make any
adjustment of the number of Warrant Shares issuable hereunder or to the
Exercise Price in the case of the issuance of the Warrants or the issuance of
shares of the Common Stock (or other securities) upon exercise of the Warrants.
(e) Treasury Shares. The number of shares of the Common
Stock outstanding at any time shall not include treasury shares or shares owned
or held by or for the account of the Company or any of its subsidiaries, and
the disposition of any such shares shall be considered an issue or sale of the
Common Stock for the purposes of this Section 4.
(f) Adjustment Notices to Holder. Upon any increase or
decrease in the number of Warrant Shares purchasable upon the exercise of this
Warrant or the Exercise Price the Company shall, within 30 days thereafter,
deliver written notice thereof to all Holders, which notice shall state the
increased or decreased number of Warrant Shares purchasable upon the exercise
of this Warrant and the adjusted Exercise Price, setting forth in reasonable
detail the method of calculation and the facts upon which such calculations are
based.
Section 5. Notification by the Company. In case at any
time while this Warrant remains outstanding:
(a) the Company shall declare any dividend or make any
distribution upon its Common Stock or any other class of its capital stock; or
(b) the Company shall offer for subscription pro rata to
the holders of its Common Stock or any other class of its capital stock any
additional shares of stock of any class or any other securities convertible
into or exchangeable for shares of stock or any rights or options to subscribe
thereto; or
(c) the Board of Directors of the Company shall authorize
any capital reorganization, reclassification or similar transaction involving
the capital stock of the Company, or a sale or conveyance of all or a
substantial part of the assets of the Company, or a consolidation, merger or
business combination of the Company with another Person; or
(d) actions or proceedings shall be authorized or
commenced for a voluntary or involuntary dissolution, liquidation or winding-up
of the Company;
then, in any one or more of such cases, the Company shall give written notice
to the Holder, at the earliest time legally practicable (and not less than 20
days before any record date or other date set for definitive action) of the
date on which (i) the books of the Company shall close or a record shall be
taken for such dividend, distribution or subscription rights or options or (ii)
such reorganization, reclassification, sale, conveyance, consolidation, merger,
dissolution, liquidation or winding-up shall take place or be voted on by
shareholders of the Company, as the case may be. Such notice shall also
specify the date as of which the holders of the Common Stock of record shall
participate in said dividend, distribution, subscription
- 5 -
<PAGE> 40
rights or options or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, sale, conveyance, consolidation, merger, dissolution,
liquidation or winding-up, as the case may be. If the action in question or
the record date is subject to the effectiveness of a registration statement
under the Securities Act or to a favorable vote of shareholders, the notice
required by this Section 5 shall so state.
Section 6. No Voting Rights: Limitations of Liability.
Prior to exercise, this Warrant will not entitle the Holder to any voting
rights or other rights as a stockholder of the Company. No provision hereof,
in the absence of affirmative action by the Holder to exercise this Warrant,
and no enumeration herein of the rights or privileges of the Holder, shall give
rise to any liability of the Holder for the purchase price of the Warrant
Shares pursuant to the exercise hereof.
Section 7. Restrictions on Transfer. The Warrants and
the Warrant Shares shall not be transferable except upon the conditions
specified in this Warrant and in the Securities Purchase Agreement. The
Warrants may not be transferred, sold or otherwise disposed of except in blocks
of Warrants for the purchase of at least 100,000 shares of Common Stock;
provided, that if at the time of such transfer, sale or other disposition, the
Warrants owned by the Holder are for the purchase of less than 100,000 shares
of Common Stock, the Holder may sell, transfer or otherwise dispose of all, but
not less than all, of the Warrants. This Warrant bears and the certificates
for Warrant Shares will bear a legend as specified in the Securities Purchase
Agreement. The Holder by its acceptance of this Warrant agrees to comply with
and to be bound by all of the provisions of the Securities Purchase Agreement.
Section 8. Amendment and Waiver.
(a) No failure or delay of the Holder in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The
rights and remedies of the Holder are cumulative and not exclusive of any
rights or remedies which it would otherwise have. The provisions of this
Warrant may be amended, modified or waived with (and only with) the written
consent of the Company and the Required Holders.
(b) No notice or demand on the Company in any case shall
entitle the Company to any other or further notice or demand in similar or
other circumstances.
Section 9. No Fractional Warrant Shares. The Company
shall not be required to issue stock certificates representing fractions of
Warrant Shares, but shall in respect of any fraction of a Warrant Share make a
payment in cash based on the Value of the Common Stock after giving effect to
the full exercise or conversion of the Warrants.
Section 10. Reservation of Warrant Shares. The Company
shall authorize, reserve and keep available at all times, free from preemptive
rights, a sufficient number of Warrant Shares to satisfy the requirements of
this Warrant.
- 6 -
<PAGE> 41
Section 11. Notices. Unless otherwise specified, whenever
this Warrant requires or permits any consent, approval, notice, request, or
demand from one party to another, that communication must be in writing (which
may be by telecopy) to be effective and is deemed to have been given (a) if by
telecopy, when transmitted to the appropriate telecopy number (and all
communications sent by telecopy must be confirmed promptly by telephone; but
any requirement in this parenthetical does not affect the date when the
telecopy is deemed to have been delivered), or (b) if by any other means,
including by internationally acceptable courier or hand delivery, when actually
delivered. Until changed by notice pursuant to this Warrant, the address (and
telecopy number) for the Holder and the Company are:
If to Holder: Forseti Investments Ltd.
5-206 Dowell House
Bridgetown, Barbados
West Indies
Attn: Dennis Chandler
Facsimile: (246) 427-5667
With copies to: Faust Fresenius Heyne Scherzberg,
attorneys
Paul-Ehrlich-Strasse 37-39
60596 Frankfurt-Am-Main
Attn: Christoph Heyne
Facsimile: (49) 6963009090
If to Company: Queen Sand Resources, Inc.
3500 Oak Lawn, Suite 380, L.B.#31
Dallas, Texas 75219-4398
Attn: Robert P. Lindsay
Facsimile: (214) 521-9960
With copies to: Queen Sand Resources, Inc.
60 Queen Street, Suite 1400
Ottawa, Canada K1P 5Y7
Attn: Edward J. Munden
Facsimile: (613) 230-6055
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
Attn: William L. Boeing, Esq.
Facsimile: (214) 651-5940
Section 12. Section and Other Headings. The headings
contained in this Warrant are for reference purposes only and will not affect
in any way the meaning or interpretation of this Warrant.
Section 13. Governing Law; Choice of Forum; Consent to
Service of Process. THIS WARRANT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE. The parties hereto agree
that any suit, action or proceeding arising out of or relating to this Warrant
or any agreement or obligation delivered in connection with this Warrant or any
judgment entered by any court in respect thereof shall be brought in the Courts
of the State of Texas, County of Dallas or in the United
- 7 -
<PAGE> 42
States District Court for the Northern District of Texas and each such party
hereby submits to the exclusive jurisdiction of such courts for the purpose of
any such suit, action or proceeding relating to this Warrant or any related
agreement or obligation. The Holder hereby submits to the jurisdiction of the
State of Texas and agrees that service of all writs, process and summonses in
any such suit, action or proceeding brought in the United States against the
Holder may be made upon CT Corporation System at its offices located at 350
North St. Paul Street, Dallas, Texas 75201 (or any subsequent address of CT
Corporation System), and the Holder hereby irrevocably appoints CT Corporation
System at its offices located at 350 North St. Paul Street, Dallas, Texas
75201 (or any subsequent address of CT Corporation System) its true and lawful
attorney-in-fact in their name, place and stead to accept such service of any
and all such writs, process and summonses, and agree that the failure of CT
Corporation System to give to the Holder any notice of any such service of
process shall not impair or affect the validity of such service or of any
judgment based thereon. The Company shall send, within 5 days after any
service of process under this Section 13, notice to the Holder in accordance
with Section 11 of any service of process on CT Corporation System under this
Section 13. Service of process on the Company may be made to the Company's
registered agent in Delaware, Corporation Trust Centre, 1209 Orange Street, in
the City of Wilmington, County of New Castle.
Each party hereto hereby irrevocably waives any objection that it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Warrant or any agreement or obligation
delivered in connection with this Warrant, brought in the Courts of the State
of Texas, County of Dallas or the United States District Court for the Northern
District of Texas, and hereby further irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in
an inconvenient forum.
Section 14. Binding Effect. The terms and provisions of
this Warrant shall inure to the benefit of the Holder and its successors and
assigns and shall be binding upon the Company and its successors and assigns,
including, without limitation, any Person succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets.
* * * * *
- 8 -
<PAGE> 43
IN WITNESS WHEREOF, the seal of the Company and the signature of its
duly authorized officer have been affixed hereto as of __________ _____, 1997.
[SEAL] QUEEN SAND RESOURCES, INC.
Attest: By:
-------------------------- --------------------------------
Name:
------------------------------
Title:
-----------------------------
and
Attest: By:
-------------------------- --------------------------------
Name:
------------------------------
Title:
-----------------------------
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<PAGE> 44
EXHIBIT A
TO
WARRANT
PURCHASE FORM
To Be Executed by the Holder
Desiring to Exercise a Warrant of
Queen Sand Resources, Inc.
The undersigned holder hereby exercises the right to purchase ______
shares of Common Stock covered by the within Warrant, according to the
conditions thereof, and herewith makes payment in full of the Exercise Price of
such shares, in the amount of $____________.
Name of Holder:
----------------------------------------------
Signature:
------------------------------------
Title:
----------------------------------------
Address:
--------------------------------------
----------------------------------------------
----------------------------------------------
Dated: , .
-------------------- ----
- 10 -
<PAGE> 45
EXHIBIT B
TO
WARRANT
ASSIGNMENT FORM
To Be Executed by the Holder
Desiring to Transfer a Warrant of
Queen Sand Resources, Inc.
FOR VALUE RECEIVED, the undersigned holder hereby sells, assigns and
transfers unto __________________________ the right to purchase ____________
shares of Common Stock covered by the within Warrant, and does hereby
irrevocably constitute and appoint _________________ Attorney to transfer the
said Warrant on the books of the Company (as defined in such Warrant), with
full power of substitution.
Name of Holder:
----------------------------------------------
Signature:
------------------------------------
Title:
----------------------------------------
Address:
--------------------------------------
----------------------------------------------
----------------------------------------------
Dated: , .
-------------- -----
In the presence of
- ----------------------------------
NOTICE:
The signature to the foregoing Assignment Form must correspond to the name as
written upon the face of the within Warrant in every detail, without alteration
or enlargement or any change whatsoever.
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<PAGE> 46
EXHIBIT C
EARN UP AGREEMENT
THIS EARN UP AGREEMENT (this "Agreement") is executed as of the _____
day of __________, 1997 between Queen Sand Resources, Inc., a Delaware
corporation (the "Company"), and Forseti Investments Ltd., a Barbados
corporation ("Forseti").
WHEREAS, the Company has entered into a Securities Purchase Agreement
(defined below) with Forseti pursuant to which the Company is purchasing
9,600,000 shares of Common Stock (defined below) from Forseti for (i)
$5,000,000 cash; (ii) the Class A Warrants (defined below); (iii) the Class B
Warrants (defined below); and (iv) this Agreement;
WHEREAS, the Company has entered into the JEDI Purchase Agreement
(defined below) with JEDI (defined below) pursuant to which the Company has
issued shares of the Company's Series A Participating Convertible Preferred
Stock, par value $0.01 per share, for (i) $5 million cash; and (ii) the JEDI
Earn Up Agreement (defined below);
NOW, THEREFORE, in consideration of these premises, the agreements
herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Forseti and the Company agree as follows:
1.0 DEFINITIONS
"AAA" means the American Arbitration Association, or any successor
organization.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of, or rights,
warrants or options to purchase, corporate stock or any other equity interest
(however designated) of or in such Person.
"Capitalized Lease Obligation" means the amount of the liability under
any capital lease that, in accordance with GAAP, is required to be capitalized
and reflected as a liability on the consolidated balance sheet of the Company
and its Subsidiaries.
"Class A Amount" is defined in Section 2(c).
<PAGE> 47
"Class B Amount" is defined in Section 2(d).
"Class A Warrants" means the Class A Common Stock Purchase Warrants to
purchase 1,000,000 shares of Common Stock, substantially in the form of Exhibit
A to this Agreement.
"Class B Warrants" means the Class B Common Stock Purchase Warrants to
purchase 2,000,000 shares of Common Stock, substantially in the form of Exhibit
B to this Agreement.
"Common Stock" means the common stock, par value $.0015 per share, of the
Company.
"Consolidated Adjusted Net Income" means the consolidated net income (or
loss) of the Company and its Subsidiaries for the fiscal year ending June 30,
1998 as determined in accordance with GAAP, adjusted by excluding, to the
extent included in consolidated net income, (a) net after-tax extraordinary
gains or losses (less all fees and expenses relating thereto), (b) net
after-tax gains or losses (less all fees and expenses relating thereto)
attributable to asset dispositions, (c) the net income (or net loss) of any
Person (other than the Company or any of its Subsidiaries) in which the Company
or any of its Subsidiaries has an ownership interest, except to the extent of
the amount of dividends or other distributions actually paid to the Company or
its Subsidiaries in cash by such other Person during such period, and (d) net
income (or net loss) of any Person combined with the Company or any of its
Subsidiaries on a "pooling of interests" basis attributable to any period prior
to the date of combination.
"Consolidated Interest Expense" means the amount which, in conformity
with GAAP, is set forth opposite the caption "interest expense" (or any like
caption) on the audited consolidated statement of operations of the Company and
its Subsidiaries for the fiscal year ended June 30, 1998.
"Consolidated Net Working Capital" means (i) the amount which, in
conformity with GAAP, is set forth opposite the caption "total current assets"
(or any like caption) on the audited consolidated balance sheet of the Company
and its Subsidiaries as of June 30, 1998 less (ii) the amount which, in
conformity with GAAP, is set forth opposite the caption "total current
liabilities" (or any like caption) on the audited consolidated balance sheet of
the Company and its Subsidiaries as of June 30, 1998.
"Consolidated Non-cash Charges" means the amount which, in conformity
with GAAP, is set forth opposite the caption "depreciation, depletion and
amortization" (or any like caption) on the audited consolidated statement of
operations of the Company and its Subsidiaries for the fiscal year ended June
30, 1998.
"Consolidated Tax Expense" means the amount which, in conformity with
GAAP, is set forth opposite the caption "income tax expense" (or any like
caption) on
2
<PAGE> 48
the audited consolidated statement of operations of the Company and its
Subsidiaries for the fiscal year ended June 30, 1998.
"Dispute" is defined in Section 6.
"EBITDA" means, without duplication, for the fiscal year ended June 30,
1998, the sum of (i) Consolidated Adjusted Net Income and (ii) to the extent
deducted in computing Consolidated Adjusted Net Income, Consolidated Interest
Expense, Consolidated Tax Expense and Consolidated Non-cash Charges.
"Earn Up Amount" is defined in Section 2(b).
"Election Date" means the later of (i) September 30, 1998 and (ii) the
date that is 14 days after the date that the Company notifies Forseti to
request Forseti's election under Section 2.
"Exercise Price" means $2.50.
"Forseti Interests" means all of the outstanding ownership interests in
Forseti and each entity that controls or owns an ownership interest in Forseti.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, in effect from time to
time.
"Guaranteed Debt" means, without duplication, all Indebtedness of any
other Person guaranteed directly or indirectly in any manner by the Company or
any of its Subsidiaries, or in effect guaranteed directly or indirectly by the
Company or any of its Subsidiaries through an agreement (i) to pay or purchase
such Indebtedness or to advance or supply funds for the payment or purchase of
such Indebtedness, (ii) to purchase, sell or lease (as lessee or lessor)
property, or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such Indebtedness or to assure the
holder of such Indebtedness against loss, (iii) to supply funds to, or in any
other manner invest in, the debtor (including any agreement to pay for property
or services to be acquired by such debtor irrespective of whether such property
is received or such services are rendered), (iv) to maintain working capital or
equity capital of the debtor, or otherwise to maintain the net worth, solvency
or other financial condition of the debtor or (v) otherwise to assure a
creditor against loss; provided that the term "guarantee" shall not include
endorsements for collection or deposit.
"Indebtedness" means, as of June 30, 1998, without duplication, (i) all
indebtedness of the Company or any of its Subsidiaries for borrowed money or
for the deferred purchase price of property or services, excluding any trade
accounts payable and other accrued current liabilities incurred in the ordinary
course of business, (ii) all obligations of the Company or any of its
Subsidiaries evidenced by bonds, notes, debentures or other similar
instruments, (iii) all indebtedness created or arising under any conditional
sale or other title retention agreement with respect to
3
<PAGE> 49
property acquired by the Company or any of its Subsidiaries (even if the rights
and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), but excluding
trade accounts payable arising in the ordinary course of business, (iv) all
Capitalized Lease Obligations, (v) all indebtedness referred to in (but not
excluded from) clause (i), (ii), (iii) or (iv) above of other Persons, the
payment of which is secured by (or for which the holder of such indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien upon
or in property (including, without limitation, accounts and contract rights)
owned by the Company or any of its Subsidiaries, even though such Person has
not assumed or become liable for the payment of such indebtedness, (vi) all
Guaranteed Debt, (vii) all Redeemable Capital Stock valued at its maximum fixed
repurchase price plus accrued and unpaid dividends, and (viii) any amendment,
supplement, modification, deferral, renewal, extension or refunding of any
liability of the types referred to in clauses (i) through (vii) above. For
purposes hereof, the "maximum fixed repurchase price" of any Redeemable Capital
Stock that does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Redeemable Capital Stock as if such
Redeemable Capital Stock were purchased on any date on which Indebtedness shall
be required to be determined pursuant to this Agreement, and if such price is
based upon, or measured by, the fair market value of such Redeemable Capital
Stock, such fair market value to be determined in good faith by the Board of
Directors of the issuer of such Redeemable Capital Stock.
"JEDI" means Joint Energy Development Investments Limited Partnership, a
Delaware limited partnership.
"JEDI Earn Up Agreement" means the Earn Up Agreement entered into
between the Company and JEDI substantially in the form of Exhibit C to this
Agreement.
"JEDI Purchase Agreement" means the Securities Purchase Agreement dated
March _____, 1997 between the Company and JEDI.
"Mediator" is defined in Section 6.
"Outstanding Shares" means, as of June 30, 1998, the issued and
outstanding shares of Common Stock, assuming the conversion of all shares of
preferred stock of the Company, that are convertible into shares of Common
Stock, and excluding any shares of Common Stock held in treasury by the Company
or held by any wholly-owned Subsidiary of the Company.
"Payment Date" means the later of (i) October 15, 1998 or (ii) the date
that is 15 days after the Election Date.
"Person" means any individual, corporation, limited or general
partnership, joint venture, association, joint-stock company, trust, limited
liability company,
4
<PAGE> 50
unincorporated organization or government or any agency or political
subdivision thereof.
<TABLE>
<S> <C> <C>
"Price" means, if:
-----
|Price(1) - Price(2)|
---------------------- less than or equal to 0.1, then (Price(1) + Price(2))/2;
Greater of Price(1) or Price(2)
provided, that if:
|Price(1) - Price(2)|
---------------------- greater than 0.1, then the Company and Forseti
Greater of Price(1) or Price(2)
</TABLE>
shall negotiate the Price; provided, further, that if the Price has not been
agreed upon within 5 business days after the determination of Price(1) and
Price(2), then the determination of the Price shall be submitted to nonbinding
mediation and arbitration in accordance with this Agreement. Notwithstanding
anything to the contrary in this Agreement, under no circumstances shall the
Price exceed the higher of Price(1) and Price(2) or be less than the lower of
Price(1) and Price(2).
(1.1 * SEC PV(10)) - Indebtedness + Consolidated Net
Working Capital
"Price(1)" =
----- ---------------------------------------------------------
Outstanding Shares
(6.0 * EBITDA) - Indebtedness + Consolidated Net Working
Capital
"Price(2)" =
----- ---------------------------------------------------------
Outstanding Shares
"Redeemable Capital Stock" means any Capital Stock of the Company or any
of its Subsidiaries that, either by its terms, by the terms of any security
into which it is convertible or exchangeable or otherwise, (i) is, or upon the
happening of an event or passage of time would be, required to be redeemed, or
(ii) is, or upon the happening of an event or passage of time would be,
redeemable at the option of the holder thereof, or (iii) is, or upon the
happening of an event or passage of time would be, convertible into or
exchangeable for debt securities.
"SEC PV(10)" means the pre tax future net cash flows from proved oil and
gas reserves of the Company and its Subsidiaries at June 30, 1998, computed
using a discount factor of ten percent, as determined in accordance with the
rules, regulations and guidelines of the United States Securities and Exchange
Commission and reported in the reserve report dated as of such date prepared in
accordance with Section 6.11 of the JEDI Purchase Agreement.
"Securities Purchase Agreement" means the Securities Purchase Agreement
dated March 27, 1997 between the Company and Forseti.
5
<PAGE> 51
"Statutory Declaration" means a statutory declaration by Forseti that as
of the Election Date and the Payment Date (i) the individual who, as of the
date hereof, owned all the Forseti Interests owns all of the Forseti Interests,
(ii) there are no encumbrances, pledges or other liens on any equity interests
in Forseti, and (iii) no other event under Section 8(h) has occurred.
"Subsidiary" of a Person means any corporation, limited liability
company, limited or general partnership, joint venture, association,
joint-stock company or business trust of which at the time of determination
such Person, directly and/or indirectly through one or more other Persons, owns
more than 50% of the voting interests.
"Transfer" of any property means any exercise, or any direct or indirect
sale, transfer, encumbrance, gift, donation, assignment, grant of any interest,
pledge, hypothecation or other disposition of such property or any interest
therein, whether voluntary or involuntary, including, but not limited to, any
transfer by operation of law, by court order, by judicial process, or by
foreclosure, levy, or attachment.
"Value" is defined in Section 2(f).
"Warrant Transfer Amount" is defined in Section 2(e).
"Warrants" means, collectively, the Class A Warrants and the Class B
Warrants.
2.0 FORSETI ELECTION; PAYMENT OF EARN UP AMOUNT
(a) On or before the Election Date, Forseti shall deliver notice to
the Company of its election to either (i) accept the payment of the Earn
Up Amount in accordance with the terms and conditions of this Agreement
(in which event the Warrants that have not been Transferred by Forseti
shall be delivered to the Company pursuant to Section 2(b)); or (ii)
retain the Warrants that have not been Transferred by Forseti (in which
event the Company shall have no obligation to pay Forseti the Earn Up
Amount and the Company's obligations under this Agreement shall
terminate immediately). If Forseti fails to deliver notice to the
Company on or before the Election Date specifying the election in (i) or
(ii), then Forseti shall be deemed to have elected (i) above.
(b) In the event that Forseti elects, or is deemed to elect, (i)
above, then on or before the Payment Date, subject to the limitations in
Section 3 and only against delivery by Forseti to the Company of (x) the
Warrants and (y) the Statutory Declaration, the Company shall pay
Forseti an amount (the "Earn Up Amount") equal to the amount, if any, by
which (i) the sum of the Class A Amount and the Class B Amount exceeds
(ii) the Warrant Transfer Amount; provided, that in no event shall the
Earn Up Amount exceed $9,400,000.
6
<PAGE> 52
(c) The "Class A Amount" means a dollar amount equal to the product
of (i) the Value (not to exceed $1.50) less $1.25, multiplied by (ii)
9,600,000; provided, that in no event shall the Class A Amount be
greater than $2,400,000; and if the Class A Amount is zero or a negative
number, the Class A Amount shall be deemed to be zero.
(d) The "Class B Amount" means a dollar amount equal to the product
of (i) the Value (not to exceed $1.25) less $0.521, multiplied by (ii)
9,600,000; provided, that in no event shall the Class B Amount be
greater than $7,000,000; and if the Class B Amount is zero or a negative
number, the Class B Amount shall be deemed to be zero.
(e) The "Warrant Transfer Amount" means a dollar amount equal to the
greatest of (i) the product of (x) $3.50 multiplied by (y) the aggregate
number of Class A Warrants and Class B Warrants Transferred by Forseti
before the Payment Date; (ii) the aggregate gross proceeds that Forseti
has received or is entitled to receive from the Transfer of all of the
Class A Warrants and Class B Warrants Transferred by Forseti before the
Payment Date; and (iii) the difference between the average daily bid
price of the Company's shares of Common Stock for the 21-day period
ending on the Election Date less the Exercise Price, multiplied by the
number of Class A Warrants and the Class B Warrants Transferred by
Forseti before the Payment Date.
(f) The "Value" means the product of the Price, multiplied by 0.60;
provided, that if (i) the Common Stock is quoted on The Nasdaq National
Market at the Election Date and (ii) the average daily trading volume of
the Company's shares of Common Stock for the 21-day period ending on the
Election Date is at least 50,000 shares per day (excluding trading of
shares in any accounts controlled by the Company or Forseti or their
respective Affiliates, and provided, that if on any of the 21 days the
trading volume is greater than 300,000 shares, then only 300,000 shares
on such days may be used in calculating the average), then Value means
the product of the Price, multiplied by 0.75.
(g) The Company represents and warrants to Forseti that the
definitions of the terms "Price" and "Value" in the JEDI Earn Up
Agreement are identical to the definitions of such terms in this
Agreement.
3.0 LIMITATION ON PAYMENT
The Company shall be obligated to pay Forseti under this Agreement only
to the extent that the Company has received a like amount as payment from JEDI
under the JEDI Earn Up Agreement. If JEDI shall fail to make payments due
under the JEDI Earn Up Agreement on the Election Date, then Company shall have
no obligation to pay Forseti under this Agreement until such time that JEDI
makes
7
<PAGE> 53
payment to the Company under the JEDI Earn Up Agreement, and then only to the
extent of payments made by JEDI under the JEDI Earn Up Agreement.
4.0 SHARING OF EXCESS PROCEEDS
If the sum of (i) $5,000,000 and (ii) the aggregate amount received by
Forseti from the Transfer of Warrants, exceeds the sum of (x) $14,400,000 plus
(y) a dollar amount equal to the sum of the expenses of the Company paid by
Forseti pursuant to the Securities Purchase Agreement, the reasonable
out-of-pocket expenses up to a maximum of $50,000 incurred by Forseti in
connection with the Securities Purchase Agreement, and the escrow agent fees
incurred by Forseti under the Escrow Agreement among the Company, Forseti and
____________________ the sum of subclauses (x) and (y) being referred to as
"Net Proceeds," then within 10 days of the date (the "Excess Determination
Date") the aggregate amount received by Forseti exceeds the Net Proceeds, (x)
Forseti shall deliver to the Company an amount in cash or by wire transfer of
immediately available funds equal to 75% of such amount received by Forseti in
excess of the Net Proceeds, and (y) Forseti shall spend the remaining 25% of
such excess amount to purchase from the Company, subject to applicable
securities laws, Common Stock at a price equal to the average of the Nasdaq bid
price over 21 trading days ending on the Excess Determination Date.
5.0 OPTION
Subject to this Section 5, the Company hereby grants to Forseti an
option to purchase from the Company a number of shares of Common Stock equal to
the quotient of (x) the amount by which the Earn Up Amount exceeds $7,000,000
and (y) $2.50 (as such number of shares may be adjusted pursuant to this
Section 5, the "Shares"), at a price per share equal to $2.50 (as such price
may be adjusted pursuant to this Section 5). The option granted in this
Section 5 is exerciseable in full or in part (i) only from the date that the
Earn Up Amount is paid by the Company to Forseti through the fifth business day
after the date of payment of the Earn Up Amount and (ii) by written notice to
the Company of such exercise, which notice shall be accompanied by proper
payment in cash or certified or bank check. The option in this Section 5.0 is
not transferable. The number of Shares for which the option in this Section 5
may be exercised, and the price at which such option may be exercised, are
subject to appropriate adjustment in the event that the Company (i) pays a
dividend of shares of Common Stock or makes a distribution in shares of Common
Stock), (ii) subdivides its outstanding shares of Common Stock into a larger
number of shares of Common Stock, (iii) combines its outstanding shares of
Common Stock into a smaller number of shares of Common Stock or (iv) issues any
shares of its capital stock or other assets in a reclassification or
reorganization of the Common Stock (including any such reclassification in
connection with a consolidation or merger in which the Company is the
continuing entity). THE OPTION IN THIS SECTION 5 AND THE SHARES OF COMMON
STOCK ISSUABLE UPON EXERCISE OF THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR ANY OTHER
8
<PAGE> 54
UNITED STATES FEDERAL OR STATE SECURITIES OR BLUE SKY LAWS OR APPLICABLE
NON-UNITED STATES SECURITIES LAWS.
6.0 MEDIATION.
Any controversy, dispute or claim arising out of or relating to this
Agreement (a "Dispute") shall be submitted to non-binding mediation upon the
request of the Company or Forseti on the following terms. Upon the request of
either party, a neutral mediator acceptable to both parties (the "Mediator")
shall be appointed within 15 days. The Mediator shall attempt through
negotiations in any manner deemed reasonably appropriate by the Mediator, in
which the parties shall participate, to resolve the Dispute. The Mediator
shall be compensated at a rate agreeable to the Company, Forseti and the
Mediator, and each of the Company and Forseti shall pay its pro rata share of
such compensation and other expenses of the mediation.
7.0 ARBITRATION.
In the event that mediation of a Dispute has not commenced within 15
days after a request for mediation is submitted or is terminated without
resolution under Section 6.0, any controversy or claim arising out of or
relating to this Agreement, including the right to or amount of indemnity,
shall be settled by arbitration in accordance with the Commercial Arbitration
Rules of the AAA by three (3) arbitrators. Each of Forseti and the Company
shall appoint one arbitrator, who shall be an impartial person. If a party
fails to appoint an arbitrator within thirty (30) days from the date a Demand
to Arbitrate was made under Rule 6, the AAA shall make the appointment of the
arbitrator. The two (2) arbitrators thus appointed shall appoint the third
arbitrator, who shall be an impartial person. If said two (2) arbitrators fail
to appoint the third arbitrator within sixty (60) days from the date a Demand
to Arbitrate was made under Rule 6, the AAA shall make the appointment of the
third arbitrator, who shall be an impartial person. Should any of the
arbitrators appointed die, resign, refuse or become unable to act before a
decision is given, the vacancy shall be filled by the method set forth in this
clause for the original appointment. The arbitration shall be held in Dallas,
Texas and shall be conducted in the English language. A decision by the
arbitrators shall be final and binding on all the parties. The arbitrators
shall execute and deliver to the respective parties the arbitration panel's
decision in writing. Judgment upon the award, if any, rendered by the
arbitrators (which must be expressed in United States Dollars) may be entered
in any court having jurisdiction thereof. In any award, the arbitrators shall
assess the arbitration costs and expenses, including, without limitation,
attorneys fees of the parties, in a manner deemed equitable by the arbitrators,
taking into account the arbitration decision. Notwithstanding anything to the
contrary in this Agreement, if a Dispute involves the determination of Price,
the Price, as determined by arbitration under this Section 7, shall not (i) (a)
exceed the higher or Price1 and Price2, or (b) be lower than the lower of
Price1 and Price2, (ii) exceed the Price as determined under the JEDI Earn Up
Agreement, including a Price as determined by arbitration under the provisions
of the JEDI Earn Up Agreement, or
9
<PAGE> 55
(iii) exceed the amount received by the Company from JEDI pursuant to the JEDI
Earn Up Agreement.
8.0 MISCELLANEOUS
(a) Governing Law; Choice of Forum; Consent to Service of Process.
This Agreement shall be governed by the substantive laws of the State of
Texas. Except as provided in Sections 6 and 7, the parties hereto agree
that any suit, action or proceeding arising out of or relating to this
Agreement or any agreement or obligation delivered in connection with
this Agreement or any judgment entered by any court in respect thereof
shall be brought in the Courts of the State of Texas, County of Dallas
or in the United States District Court for the Northern District of
Texas and each such party hereby submits to the exclusive jurisdiction
of such courts for the purpose of any such suit, action or proceeding
relating to this Agreement or any related agreement or obligation.
Forseti hereby submits to the jurisdiction of the State of Texas and
agrees that service of all writs, process and summonses in any such
suit, action or proceeding brought in the United States against Forseti
may be made upon CT Corporation System at its offices located at 350
North St. Paul Street, Dallas, Texas 75201 (or any subsequent address
of CT Corporation System), and Forseti hereby irrevocably appoints CT
Corporation System at its offices located at 350 North St. Paul Street,
Dallas, Texas 75201 (or any subsequent address of CT Corporation
System) its true and lawful attorney-in-fact in their name, place and
stead to accept such service of any and all such writs, process and
summonses, and agree that the failure of CT Corporation System to give
to Forseti any notice of any such service of process shall not impair or
affect the validity of such service or of any judgment based thereon.
The Company shall send, within 5 days after service of process under
this subsection (a), notice to Forseti in accordance with subsection (e)
of any service of process on CT Corporation System under this subsection
(a). Service of process on the Company may be made to the Company's
registered agent in Delaware, Corporation Trust Centre, 1209 Orange
Street, in the City of Wilmington, County of New Castle.
Each party hereto hereby irrevocably waives any objection that it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or any agreement
or obligation delivered in connection with this Agreement, brought in
the Courts of the State of Texas, County of Dallas or the United States
District Court for the Northern District of Texas, and hereby further
irrevocably waives any claim that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum.
(b) Invalid Provisions. If any provision of this Agreement is held
to be illegal, invalid or unenforceable, such provision shall be fully
severable.
10
<PAGE> 56
(c) Entirety and Amendments. This Agreement and that certain Letter
Agreement dated as of the date hereof between the Company and the
individual who owns directly or indirectly all of the Forseti Interests
embody the entire agreement and understanding relating to the subject
matter hereof and supersede all prior understandings between the parties
relating to the subject matter hereof. This Agreement may be amended
only by an instrument in writing executed by the Company and Forseti.
(d) Parties Bound. This Agreement shall be binding upon and inure to
the benefit of the Company and Forseti, and their respective successors
and permitted assigns. Neither the Company nor Forseti may assign its
rights or delegate its obligations hereunder (whether voluntarily,
involuntarily, or by operation of law) without the prior written consent
of the other party.
(e) Notices. Unless otherwise specified, whenever this Agreement
requires or permits any consent, approval, notice, request, or demand
from one party to another, that communication must be in writing (which
may be by telecopy) to be effective and is deemed to have been given (a)
if by telecopy, when transmitted to the appropriate telecopy number (and
all communications sent by telecopy must be confirmed promptly by
telephone; but any requirement in this parenthetical does not affect the
date when the telecopy is deemed to have been delivered), or (b) if by
any other means, including by internationally acceptable courier or hand
delivery, when actually delivered. Until changed by notice pursuant to
this Agreement, the address (and telecopy number) for the Company and
Forseti are:
If to Forseti: Forseti Investments Ltd.
5-206 Dowell House
Bridgetown, Barbados
West Indies
Attn: Dennis Chandler
Facsimile: (246) 427-5667
With copies to: Faust Fresenius Heyne Scherzberg, attorneys
Paul-Ehrlich-Strasse 37-39
60596 Frankfurt-Am-Main
Attn: Christoph Heyne
Facsimile: (49) 6963009090
If to Company: Queen Sand Resources, Inc.
3500 Oak Lawn, Suite 380, L.B.#31
Dallas, Texas 75219-4398
Attn: Robert P. Lindsay
Facsimile: (214) 521-9960
11
<PAGE> 57
With copies to: Queen Sand Resources, Inc.
60 Queen Street, Suite 1400
Ottawa, Canada K1P 5Y7
Attn: Edward J. Munden
Facsimile: (613) 230-6055
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
Attn: William L. Boeing
Facsimile: (214) 651-5940
(f) Section and Other Headings. The headings contained in this
Agreement are for reference purposes only and will not affect in any way
the meaning or interpretation of this Agreement.
(g) Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original and all of which
together will constitute one instrument.
(h) Termination. This Agreement shall terminate upon the earlier of
(i) the Transfer of any Warrants in violation of the restrictions on
Transfer of Warrants under the Securities Purchase Agreement, (ii) the
election by Forseti to retain the Warrants under Section 2(a)(ii), (iii)
the Transfer of all of the Warrants, (iv) upon the Transfer of any
ownership interest in Forseti or any entity controlling Forseti where
the purpose of the transfer is to realize or receive cash, securities or
any other property as consideration for the Warrants without
transferring the Warrants; and (v) as of the Election Date or the
Payment Date, the individual who, as of the date hereof owned, directly
or indirectly, all of the Forseti Interests does not own, directly or
indirectly, all of the Forseti Interests. No termination of this
Agreement shall affect the validity of the Warrants.
(i) Currency. All dollar amounts in this Agreement shall mean United
States dollars.
IN WITNESS WHEREOF, Forseti and the Company have executed this Agreement
as of the day and year first stated above.
FORSETI:
FORSETI INVESTMENTS LTD.
By:
----------------------------------------
12
<PAGE> 58
Name:
--------------------------------------
Title:
-------------------------------------
[with notary attached]
COMPANY:
QUEEN SAND RESOURCES, INC.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
[with notary attached]
and
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
[with notary attached]
13
<PAGE> 59
Company, at any time or from time to time during the Exercise Period (as
hereinafter defined), a total of 1,000,000 shares (as such number of shares may
be adjusted pursuant to the terms hereof, the "Warrant Shares") of Common
Stock, par value $.0015 per share, of the Company, at a price per share equal
to the Exercise Price (as defined below). This Warrant is issued to the Holder
(together with such other warrants as may be issued in exchange, transfer or
replacement of this Warrant, the "Warrants") pursuant to the Securities
Purchase Agreement (as defined below) and entitles the Holder to purchase the
Warrant Shares and to exercise the other rights, powers and privileges
hereinafter provided, all on the terms and conditions and pursuant to the
provisions set forth herein and in the Securities Purchase Agreement.
Section 1. Definitions. The following terms, as used
herein, have the following respective meanings:
"Common Stock" means the Company's common stock, $0.0015 par value.
"Company" is defined in the introductory paragraph of this Warrant.
"Date of Issuance" means __________ _____, 1997.
"Earn Up Agreement" means the Earn Up Agreement, dated as of the date
hereof, between the Company and the Holder.
"Exercise Period" means the period of time between the Date of
Issuance and 5:00 p.m. (New York City time) on December 31, 1998, provided,
however, that any Warrants held by Forseti Investments Ltd. on the Election
Date (as defined in the Earn Up Agreement) shall expire on the Election Date
unless Forseti Investments Ltd. elects to retain the Warrants pursuant to
Section 2(a)(ii) of the Earn Up Agreement.
"Exercise Price" means an amount, per share, equal to $2.50 (U.S.
dollars). The Exercise Price shall be subject to adjustment, as set forth in
Section 4.
"Holder" means Forseti Investments Ltd. and its permitted assignees.
"Person" means any individual, corporation, limited or general
partnership, joint venture, association, joint- stock company, trust, limited
liability company, unincorporated organization or government or any agency or
political subdivision thereof.
"Required Holders" means the Holders of more than 50% of all Warrant
Shares then outstanding (assuming the full exercise of all Warrants).
"Securities Purchase Agreement" means the Securities Purchase
Agreement, dated as of March ___, 1997, between the Company and Forseti, as
such agreement shall be modified, amended and supplemented and in effect from
time to time.
"Value" means, as of any date of determination, with respect to the
Common Stock, $3.50 per share of Common Stock.
"Warrants" is defined in the introductory paragraph of this Warrant.
"Warrant Shares" is defined in the introductory paragraph of this
Warrant.
- 2 -
<PAGE> 60
Section 2. Exercise of Warrant; Cancellations of
Warrant. Subject to the Securities Purchase Agreement and the provisions of
Regulation S promulgated under the Securities Act of 1933, as amended, this
Warrant may be exercised in whole or in part, at any time or from time to time,
during the Exercise Period, by presentation and surrender hereof to the Company
at its principal office at the address set forth in Section 11 (or at such
other reasonable address as the Company may after the date hereof notify the
Holder in writing, coming into effect not before 14 days after receipt of such
notice by the Holder), with the Purchase Form annexed hereto as Exhibit A duly
executed and accompanied by either (at the option of the Holder) proper payment
in cash or certified or bank check equal to the Exercise Price for the Warrant
Shares for which this Warrant is being exercised; provided, that if this
Warrant is exercised in part, the Warrant must be exercised for the purchase of
at least 100,000 shares of Common Stock. Upon exercise of this Warrant as
aforesaid, the Company shall as promptly as practicable, and in any event
within 20 days thereafter, execute and deliver to the Holder a certificate or
certificates for the total number of Warrant Shares for which this Warrant is
being exercised, in such names and denominations as requested in writing by the
Holder. The Company shall pay any and all documentary stamp or similar issue
taxes payable in respect of the issue of the Warrant Shares. If this Warrant
is exercised in part only, the Company shall, upon surrender of this Warrant,
execute and deliver a new Warrant evidencing the rights of the Holder thereof
to purchase the balance of the Warrant Shares issuable hereunder.
Section 3. Exchange, Transfer, Assignment or Loss of
Warrant. This Warrant is exchangeable, without expense, at the option of the
Holder, upon presentation and surrender hereof to the Company for other
Warrants of different denominations, entitling the Holder to purchase in the
aggregate the same number of Warrant Shares. The Holder of this Warrant shall
be entitled, without obtaining the consent of the Company, to transfer or
assign its interest in (and rights under) this Warrant in whole or in part to
any Person or Persons, subject to the provisions of Section 7 of this Warrant
and Article 8 of the Securities Purchase Agreement. Upon surrender of this
Warrant to the Company, with the Assignment Form annexed hereto as Exhibit B
duly executed and funds sufficient to pay any transfer tax, the Company shall,
without charge, execute and deliver a new Warrant or Warrants in the name of
the assignee or assignees named in such Assignment Form and, if the Holder's
entire interest is not being assigned, in the name of the Holder, and this
Warrant shall promptly be canceled. This Warrant may be divided or combined
with other Warrants that carry the same rights upon presentation hereof at the
office of the Company, together with a written notice specifying the names and
denominations in which new Warrants are to be issued and signed by the Holder
hereof. Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification
(including, if required in the reasonable judgment of the Company, a statement
of net worth of such Holder that is at a level reasonably satisfactory to the
Company), and upon surrender and cancellation of this Warrant, if mutilated,
the Company shall execute and deliver a new Warrant of like tenor and date.
Section 4. Antidilution Provisions.
(a) Adjustment of Number of Warrant Shares and Exercise Price.
The number of Warrant Shares purchasable pursuant hereto and the Exercise
Price, each shall be subject to adjustment from time to time on and after the
Date of Issuance as provided in this Section 4(a). In case the Company shall
at any time after the Date of Issuance (i) pay a dividend of shares of Common
Stock or make a distribution of shares of Common Stock, (ii) subdivide its
- 3 -
<PAGE> 61
outstanding shares of Common Stock into a larger number of shares of Common
Stock, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (iv) issue any shares of its capital stock
or other assets in a reclassification or reorganization of the Common Stock
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing entity), then (x) the securities
purchasable pursuant hereto shall be adjusted to the number of Warrant Shares
and amount of any other securities, cash or other property of the Company which
the Holder would have owned or have been entitled to receive after the
happening of any of the events described above, had this Warrant been exercised
immediately prior to the happening of such event or any record date with
respect thereto, and (y) the Exercise Price shall be adjusted to equal the
Exercise Price immediately prior to the adjustment multiplied by a fraction,
(A) the numerator of which is the number of Warrant Shares for which this
Warrant is exercisable immediately prior to the adjustment, and (B) the
denominator of which is the number of shares for which this Warrant is
exercisable immediately after such adjustment. The adjustments made pursuant
to this Section 4(a) shall become effective immediately after the effective
date of the event creating such right of adjustment, retroactive to the record
date, if any, for such event. Any Warrant Shares purchasable as a result of
such adjustment shall not be issued prior to the effective date of such event.
For the purpose of this Section 4(a) and (b), the term "shares of
Common Stock" means (i) the classes of stock designated as the Common Stock of
the Company as of the date hereof, or (ii) any other class of stock resulting
from successive changes or reclassifications of such shares consisting solely
of changes in par value, or from par value to no par value, or from no par
value to par value. In the event that at any time, as a result of an
adjustment made pursuant to this Section 4(a), the Holder shall become entitled
to receive any securities of the Company other than shares of Common Stock,
thereafter the number of such other securities so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with respect to
the Warrant Shares contained in this Section 4.
(b) Reorganization, Merger, etc. If any capital
reorganization, reclassification or similar transaction involving the capital
stock of the Company (other than as specified in Section 4(a)), any
consolidation, merger or business combination of the Company with another
corporation or the sale or conveyance of all or any substantial part of its
assets to another corporation, shall be effected in such a way that holders of
the shares of Common Stock shall be entitled to receive stock, securities or
assets (including, without limitation, cash) with respect to or in exchange for
shares of the Common Stock, then, prior to and as a condition of such
reorganization, reclassification, similar transaction, consolidation, merger,
business combination, sale or conveyance, lawful and adequate provision shall
be made whereby the Holder shall thereafter have the right to purchase and
receive upon the basis and upon the terms and conditions specified in this
Warrant and in lieu of the Warrant Shares immediately theretofore purchasable
and receivable upon the exercise of this Warrant, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding Warrant Shares equal to the number of Warrant
Shares immediately theretofore purchasable and receivable upon the exercise of
this Warrant had such reorganization, reclassification, similar transaction,
consolidation, merger, business combination, sale or conveyance not taken
place. The Company shall not effect any such consolidation, merger, business
combination, sale or conveyance unless prior to or simultaneously with the
consummation thereof the survivor or successor corporation (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument executed and sent to
the Holder, the
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<PAGE> 62
obligation to deliver to the Holder such shares of stock, securities or assets
as, in accordance with the foregoing provisions, the Holder may be entitled to
receive.
(c) Statement on Warrant Certificates. Irrespective of
any adjustments in the Exercise Price or the number or kind of Warrant Shares,
this Warrant may continue to express the same price and number and kind of
shares as are stated on the front page hereof.
(d) Exception to Adjustment. Anything herein to the
contrary notwithstanding, the Company shall not be required to make any
adjustment of the number of Warrant Shares issuable hereunder or to the
Exercise Price in the case of the issuance of the Warrants or the issuance of
shares of the Common Stock (or other securities) upon exercise of the Warrants.
(e) Treasury Shares. The number of shares of the Common
Stock outstanding at any time shall not include treasury shares or shares owned
or held by or for the account of the Company or any of its subsidiaries, and
the disposition of any such shares shall be considered an issue or sale of the
Common Stock for the purposes of this Section 4.
(f) Adjustment Notices to Holder. Upon any increase or
decrease in the number of Warrant Shares purchasable upon the exercise of this
Warrant or the Exercise Price the Company shall, within 30 days thereafter,
deliver written notice thereof to all Holders, which notice shall state the
increased or decreased number of Warrant Shares purchasable upon the exercise
of this Warrant and the adjusted Exercise Price, setting forth in reasonable
detail the method of calculation and the facts upon which such calculations are
based.
Section 5. Notification by the Company. In case at any
time while this Warrant remains outstanding:
(a) the Company shall declare any dividend or make any
distribution upon its Common Stock or any other class of its capital stock; or
(b) the Company shall offer for subscription pro rata to
the holders of its Common Stock or any other class of its capital stock any
additional shares of stock of any class or any other securities convertible
into or exchangeable for shares of stock or any rights or options to subscribe
thereto; or
(c) the Board of Directors of the Company shall authorize
any capital reorganization, reclassification or similar transaction involving
the capital stock of the Company, or a sale or conveyance of all or a
substantial part of the assets of the Company, or a consolidation, merger or
business combination of the Company with another Person; or
(d) actions or proceedings shall be authorized or
commenced for a voluntary or involuntary dissolution, liquidation or winding-up
of the Company;
then, in any one or more of such cases, the Company shall give written notice
to the Holder, at the earliest time legally practicable (and not less than 20
days before any record date or other date set for definitive action) of the
date on which (i) the books of the Company shall close or a record shall be
taken for such dividend, distribution or subscription rights or options or (ii)
such reorganization, reclassification, sale, conveyance, consolidation, merger,
dissolution, liquidation or winding-up shall take place or be voted on by
shareholders of the Company, as the case may be. Such notice shall also
specify the date as of which the holders of the Common Stock of record shall
participate in said dividend, distribution, subscription
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<PAGE> 63
rights or options or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, sale, conveyance, consolidation, merger, dissolution,
liquidation or winding-up, as the case may be. If the action in question or
the record date is subject to the effectiveness of a registration statement
under the Securities Act or to a favorable vote of shareholders, the notice
required by this Section 5 shall so state.
Section 6. No Voting Rights: Limitations of Liability.
Prior to exercise, this Warrant will not entitle the Holder to any voting
rights or other rights as a stockholder of the Company. No provision hereof,
in the absence of affirmative action by the Holder to exercise this Warrant,
and no enumeration herein of the rights or privileges of the Holder, shall give
rise to any liability of the Holder for the purchase price of the Warrant
Shares pursuant to the exercise hereof.
Section 7. Restrictions on Transfer. The Warrants and
the Warrant Shares shall not be transferable except upon the conditions in this
Warrant and specified in the Securities Purchase Agreement. The Warrants may
not be transferred, sold or otherwise disposed of except in blocks of Warrants
for the purchase of at least 100,000 shares of Common Stock; provided, that if
at the time of such transfer, sale or other disposition, the Warrants owned by
the Holder are for the purchase of less than 100,000 shares of Common Stock,
the Holder may sell, transfer or otherwise dispose of all, but not less than
all, of the Warrants. This Warrant bears and the certificates for Warrant
Shares will bear a legend as specified in the Securities Purchase Agreement.
The Holder by its acceptance of this Warrant agrees to comply with and to be
bound by all of the provisions of the Securities Purchase Agreement.
Section 8. Amendment and Waiver.
(a) No failure or delay of the Holder in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The
rights and remedies of the Holder are cumulative and not exclusive of any
rights or remedies which it would otherwise have. The provisions of this
Warrant may be amended, modified or waived with (and only with) the written
consent of the Company and the Required Holders.
(b) No notice or demand on the Company in any case shall
entitle the Company to any other or further notice or demand in similar or
other circumstances.
Section 9. No Fractional Warrant Shares. The Company
shall not be required to issue stock certificates representing fractions of
Warrant Shares, but shall in respect of any fraction of a Warrant Share make a
payment in cash based on the Value of the Common Stock after giving effect to
the full exercise or conversion of the Warrants.
Section 10. Reservation of Warrant Shares. The Company
shall authorize, reserve and keep available at all times, free from preemptive
rights, a sufficient number of Warrant Shares to satisfy the requirements of
this Warrant.
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<PAGE> 64
Section 11. Notices. Unless otherwise specified, whenever
this Warrant requires or permits any consent, approval, notice, request, or
demand from one party to another, that communication must be in writing (which
may be by telecopy) to be effective and is deemed to have been given (a) if by
telecopy, when transmitted to the appropriate telecopy number (and all
communications sent by telecopy must be confirmed promptly by telephone; but
any requirement in this parenthetical does not affect the date when the
telecopy is deemed to have been delivered), or (b) if by any other means,
including by internationally acceptable courier or hand delivery, when actually
delivered. Until changed by notice pursuant to this Warrant, the address (and
telecopy number) for the Holder and the Company are:
If to Holder: Forseti Investments Ltd.
5-206 Dowell House
Bridgetown, Barados
West Indies
Attn: Dennis Chandler
Facsimile: (246) 427-5667
With copies to: Faust Fresenius Heyne Scherzberg,
attorneys
Paul-Ehrlich-Strasse 37-39
60596 Frankfurt-Am-Main
Attn: Christoph Heyne
Facsimile: (49) 6963009090
If to Company: Queen Sand Resources, Inc.
3500 Oak Lawn, Suite 380, L.B.#31
Dallas, Texas 75219-4398
Attn: Robert P. Lindsay
Facsimile: (214) 521-9960
With copies to: Queen Sand Resources, Inc.
60 Queen Street, Suite 1400
Ottawa, Canada K1P 5Y7
Attn: Edward J. Munden
Facsimile: (613) 230-6055
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
Attn: William L. Boeing, Esq.
Facsimile: (214) 651-5940
Section 12. Section and Other Headings. The headings
contained in this Warrant are for reference purposes only and will not affect
in any way the meaning or interpretation of this Warrant.
Section 13. Governing Law; Choice of Forum; Consent to
Service of Process. THIS WARRANT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE. The parties hereto agree
that any suit, action or proceeding arising out of or relating to this Warrant
or any agreement or obligation delivered in connection with this Warrant or any
judgment entered by any court in respect thereof shall be brought in the Courts
of the State of Texas, County of Dallas or in the United
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<PAGE> 65
States District Court for the Northern District of Texas and each such party
hereby submits to the exclusive jurisdiction of such courts for the purpose of
any such suit, action or proceeding relating to this Warrant or any related
agreement or obligation. The Holder hereby submits to the jurisdiction of the
State of Texas and agrees that service of all writs, process and summonses in
any such suit, action or proceeding brought in the United States against the
Holder may be made upon CT Corporation System at its offices located at 350
North St. Paul Street, Dallas, Texas 75201 (or any subsequent address of CT
Corporation System), and the Holder hereby irrevocably appoints CT Corporation
System at its offices located at 350 North St. Paul Street, Dallas, Texas
75201 (or any subsequent address of CT Corporation System) its true and lawful
attorney-in-fact in their name, place and stead to accept such service of any
and all such writs, process and summonses, and agree that the failure of CT
Corporation System to give to the Holder any notice of any such service of
process shall not impair or affect the validity of such service or of any
judgment based thereon. The Company shall send, within 5 days after any
service of process under this Section 13, notice to the Holder in accordance
with Section 11 of any service of process on CT Corporation System under this
Section 13. Service of process on the Company may be made to the Company's
registered agent in Delaware, Corporation Trust Centre, 1209 Orange Street, in
the City of Wilmington, County of New Castle.
Each party hereto hereby irrevocably waives any objection that it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Warrant or any agreement or obligation
delivered in connection with this Warrant, brought in the Courts of the State
of Texas, County of Dallas or the United States District Court for the Northern
District of Texas, and hereby further irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in
an inconvenient forum.
Section 14. Binding Effect. The terms and provisions of
this Warrant shall inure to the benefit of the Holder and its successors and
assigns and shall be binding upon the Company and its successors and assigns,
including, without limitation, any Person succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets.
* * * * *
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<PAGE> 66
IN WITNESS WHEREOF, the seal of the Company and the signature of its
duly authorized officer have been affixed hereto as of __________ _____, 1997.
[SEAL] QUEEN SAND RESOURCES, INC.
Attest: By:
-------------------------- ---------------------------------
Name:
-------------------------------
Title:
------------------------------
and
Attest: By:
-------------------------- ---------------------------------
Name:
-------------------------------
Title:
------------------------------
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<PAGE> 67
EXHIBIT A
TO
WARRANT
PURCHASE FORM
To Be Executed by the Holder
Desiring to Exercise a Warrant of
Queen Sand Resources, Inc.
The undersigned holder hereby exercises the right to purchase ______
shares of Common Stock covered by the within Warrant, according to the
conditions thereof, and herewith makes payment in full of the Exercise Price of
such shares, in the amount of $____________.
Name of Holder:
--------------------------------------
Signature:
----------------------------
Title:
--------------------------------
Address:
------------------------------
--------------------------------------
--------------------------------------
Dated: , .
--------------------- -------
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<PAGE> 68
EXHIBIT B
TO
WARRANT
ASSIGNMENT FORM
To Be Executed by the Holder
Desiring to Transfer a Warrant of
Queen Sand Resources, Inc.
FOR VALUE RECEIVED, the undersigned holder hereby sells, assigns and
transfers unto __________________________ the right to purchase ____________
shares of Common Stock covered by the within Warrant, and does hereby
irrevocably constitute and appoint _________________ Attorney to transfer the
said Warrant on the books of the Company (as defined in such Warrant), with
full power of substitution.
Name of Holder:
--------------------------------------
Signature:
----------------------------
Title:
--------------------------------
Address:
------------------------------
--------------------------------------
--------------------------------------
Dated: , .
--------------------- -------
In the presence of
- ---------------------------------
NOTICE:
The signature to the foregoing Assignment Form must correspond to the name as
written upon the face of the within Warrant in every detail, without alteration
or enlargement or any change whatsoever.
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<PAGE> 69
EXHIBIT B
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE THEREOF (THE "SECURITIES") HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
OTHER UNITED STATES FEDERAL OR STATE SECURITIES OR BLUE SKY LAWS OR APPLICABLE
NON-UNITED STATES SECURITIES LAWS, AND HAVE BEEN ISSUED IN A MANNER INTENDED TO
COMPLY WITH THE CONDITIONS CONTAINED IN REGULATION S UNDER THE ACT. PRIOR TO
_______________, 1998, NO OFFER, SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION
(COLLECTIVELY, A "DISPOSAL") OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE
MAY BE MADE (A) IN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF,
ANY "U.S. PERSON" (AS DEFINED IN REGULATION S) UNLESS (i) REGISTERED UNDER THE
ACT AND ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR (ii) QUEEN SAND
RESOURCES, INC. (THE "COMPANY") RECEIVES A WRITTEN OPINION OF UNITED STATES
LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO IT TO THE EFFECT THAT SUCH
DISPOSAL IS EXEMPT FROM SUCH REGISTRATION REQUIREMENTS OR (B) OUTSIDE THE
UNITED STATES TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY PERSON WHO IS NOT A
"U.S. PERSON" UNLESS PRIOR TO SUCH DISPOSAL (i) THE BENEFICIAL OWNER OF SUCH
SECURITIES AND THE PROPOSED TRANSFEREE SUBMIT CERTAIN CERTIFICATIONS TO THE
COMPANY (FORMS OF WHICH ARE AVAILABLE FROM THE COMPANY AT ITS PRINCIPAL
EXECUTIVE OFFICES) AND (ii) THE COMPANY RECEIVES THE LEGAL OPINION DESCRIBED IN
(A)(ii) ABOVE. THE SECURITIES ARE ALSO SUBJECT TO CERTAIN RESTRICTIONS UPON
TRANSFER AS SET FORTH IN THIS WARRANT AND THE SECURITIES PURCHASE AGREEMENT
DATED AS OF _______________, 1997, A COPY OF WHICH IS AVAILABLE FOR INSPECTION
AT ITS PRINCIPAL PLACE OF BUSINESS.
- --------------------------------------------------------------------------------
QUEEN SAND RESOURCES, INC.
Class B Common Stock Purchase Warrant
Representing Right To Purchase Shares of
Common Stock
of
Queen Sand Resources, Inc.
-------------
No. B-1
-------------
FOR VALUE RECEIVED, QUEEN SAND RESOURCES, INC., a Delaware corporation
(the "Company"), hereby certifies that Forseti Investments Ltd., a Barbados
corporation (the "Holder"), is entitled, subject to the provisions of this
Warrant, to purchase from the
<PAGE> 70
Company, at any time or from time to time during the Exercise Period (as
hereinafter defined), a total of 2,000,000 shares (as such number of shares may
be adjusted pursuant to the terms hereof, the "Warrant Shares") of Common
Stock, par value $.0015 per share, of the Company, at a price per share equal
to the Exercise Price (as defined below). This Warrant is issued to the Holder
(together with such other warrants as may be issued in exchange, transfer or
replacement of this Warrant, the "Warrants") pursuant to the Securities
Purchase Agreement (as defined below) and entitles the Holder to purchase the
Warrant Shares and to exercise the other rights, powers and privileges
hereinafter provided, all on the terms and conditions and pursuant to the
provisions set forth herein and in the Securities Purchase Agreement.
Section 1. Definitions. The following terms, as used
herein, have the following respective meanings:
"Common Stock" means the Company's common stock, $0.0015 par value.
"Company" is defined in the introductory paragraph of this Warrant.
"Date of Issuance" means __________ _____, 1997.
"Earn Up Agreement" means the Earn Up Agreement, dated as of the date
hereof, between the Company and the Holder.
"Exercise Period" means the period of time between the Date of
Issuance and 5:00 p.m. (New York City time) on December 31, 1998, provided,
however, that any Warrants held by Forseti Investments Ltd. on the Election
Date (as defined in the Earn Up Agreement) shall expire on the Election Date
unless Forseti Investments Ltd. elects to retain the Warrants pursuant to
Section 2(a)(ii) of the Earn Up Agreement.
"Exercise Price" means an amount, per share, equal to $2.50 (U.S.
dollars). The Exercise Price shall be subject to adjustment, as set forth in
Section 4.
"Holder" means Forseti Investments Ltd. and its permitted assignees.
"Person" means any individual, corporation, limited or general
partnership, joint venture, association, joint- stock company, trust, limited
liability company, unincorporated organization or government or any agency or
political subdivision thereof.
"Required Holders" means the Holders of more than 50% of all Warrant
Shares then outstanding (assuming the full exercise of all Warrants).
"Securities Purchase Agreement" means the Securities Purchase
Agreement, dated as of March ___, 1997, between the Company and Forseti, as
such agreement shall be modified, amended and supplemented and in effect from
time to time.
"Value" means, as of any date of determination, with respect to the
Common Stock, $3.50 per share of Common Stock.
"Warrants" is defined in the introductory paragraph of this Warrant.
"Warrant Shares" is defined in the introductory paragraph of this
Warrant.
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<PAGE> 71
Section 2. Exercise of Warrant; Cancellations of
Warrant. Subject to the Securities Purchase Agreement and the provisions of
Regulation S promulgated under the Securities Act of 1933, as amended, this
Warrant may be exercised in whole or in part, at any time or from time to time,
during the Exercise Period, by presentation and surrender hereof to the Company
at its principal office at the address set forth in Section 11 (or at such
other reasonable address as the Company may after the date hereof notify the
Holder in writing, coming into effect not before 14 days after receipt of such
notice by the Holder), with the Purchase Form annexed hereto as Exhibit A duly
executed and accompanied by either (at the option of the Holder) proper payment
in cash or certified or bank check equal to the Exercise Price for the Warrant
Shares for which this Warrant is being exercised; provided, that if this
Warrant is exercised in part, the Warrant must be exercised for the purchase of
at least 100,000 shares of Common Stock. Upon exercise of this Warrant as
aforesaid, the Company shall as promptly as practicable, and in any event
within 20 days thereafter, execute and deliver to the Holder a certificate or
certificates for the total number of Warrant Shares for which this Warrant is
being exercised, in such names and denominations as requested in writing by the
Holder. The Company shall pay any and all documentary stamp or similar issue
taxes payable in respect of the issue of the Warrant Shares. If this Warrant
is exercised in part only, the Company shall, upon surrender of this Warrant,
execute and deliver a new Warrant evidencing the rights of the Holder thereof
to purchase the balance of the Warrant Shares issuable hereunder.
Section 3. Exchange, Transfer, Assignment or Loss of
Warrant. This Warrant is exchangeable, without expense, at the option of the
Holder, upon presentation and surrender hereof to the Company for other
Warrants of different denominations, entitling the Holder to purchase in the
aggregate the same number of Warrant Shares. The Holder of this Warrant shall
be entitled, without obtaining the consent of the Company, to transfer or
assign its interest in (and rights under) this Warrant in whole or in part to
any Person or Persons, subject to the provisions of Section 7 of this Warrant
and Article 8 of the Securities Purchase Agreement. Upon surrender of this
Warrant to the Company, with the Assignment Form annexed hereto as Exhibit B
duly executed and funds sufficient to pay any transfer tax, the Company shall,
without charge, execute and deliver a new Warrant or Warrants in the name of
the assignee or assignees named in such Assignment Form and, if the Holder's
entire interest is not being assigned, in the name of the Holder, and this
Warrant shall promptly be canceled. This Warrant may be divided or combined
with other Warrants that carry the same rights upon presentation hereof at the
office of the Company, together with a written notice specifying the names and
denominations in which new Warrants are to be issued and signed by the Holder
hereof. Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification
(including, if required in the reasonable judgment of the Company, a statement
of net worth of such Holder that is at a level reasonably satisfactory to the
Company), and upon surrender and cancellation of this Warrant, if mutilated,
the Company shall execute and deliver a new Warrant of like tenor and date.
Section 4. Antidilution Provisions.
(a) Adjustment of Number of Warrant Shares and
Exercise Price. The number of Warrant Shares purchasable pursuant hereto and
the Exercise Price, each shall be subject to adjustment from time to time on
and after the Date of Issuance as provided in this Section 4(a). In case the
Company shall at any time after the Date of Issuance (i) pay a dividend of
shares of Common Stock or make a distribution of shares of Common Stock, (ii)
subdivide its
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<PAGE> 72
outstanding shares of Common Stock into a larger number of shares of Common
Stock, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (iv) issue any shares of its capital stock
or other assets in a reclassification or reorganization of the Common Stock
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing entity), then (x) the securities
purchasable pursuant hereto shall be adjusted to the number of Warrant Shares
and amount of any other securities, cash or other property of the Company which
the Holder would have owned or have been entitled to receive after the
happening of any of the events described above, had this Warrant been exercised
immediately prior to the happening of such event or any record date with
respect thereto, and (y) the Exercise Price shall be adjusted to equal the
Exercise Price immediately prior to the adjustment multiplied by a fraction,
(A) the numerator of which is the number of Warrant Shares for which this
Warrant is exercisable immediately prior to the adjustment, and (B) the
denominator of which is the number of shares for which this Warrant is
exercisable immediately after such adjustment. The adjustments made pursuant
to this Section 4(a) shall become effective immediately after the effective
date of the event creating such right of adjustment, retroactive to the record
date, if any, for such event. Any Warrant Shares purchasable as a result of
such adjustment shall not be issued prior to the effective date of such event.
For the purpose of this Section 4(a) and (b), the term "shares of
Common Stock" means (i) the classes of stock designated as the Common Stock of
the Company as of the date hereof, or (ii) any other class of stock resulting
from successive changes or reclassifications of such shares consisting solely
of changes in par value, or from par value to no par value, or from no par
value to par value. In the event that at any time, as a result of an
adjustment made pursuant to this Section 4(a), the Holder shall become entitled
to receive any securities of the Company other than shares of Common Stock,
thereafter the number of such other securities so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with respect to
the Warrant Shares contained in this Section 4.
(b) Reorganization, Merger, etc. If any capital
reorganization, reclassification or similar transaction involving the capital
stock of the Company (other than as specified in Section 4(a)), any
consolidation, merger or business combination of the Company with another
corporation or the sale or conveyance of all or any substantial part of its
assets to another corporation, shall be effected in such a way that holders of
the shares of Common Stock shall be entitled to receive stock, securities or
assets (including, without limitation, cash) with respect to or in exchange for
shares of the Common Stock, then, prior to and as a condition of such
reorganization, reclassification, similar transaction, consolidation, merger,
business combination, sale or conveyance, lawful and adequate provision shall
be made whereby the Holder shall thereafter have the right to purchase and
receive upon the basis and upon the terms and conditions specified in this
Warrant and in lieu of the Warrant Shares immediately theretofore purchasable
and receivable upon the exercise of this Warrant, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding Warrant Shares equal to the number of Warrant
Shares immediately theretofore purchasable and receivable upon the exercise of
this Warrant had such reorganization, reclassification, similar transaction,
consolidation, merger, business combination, sale or conveyance not taken
place. The Company shall not effect any such consolidation, merger, business
combination, sale or conveyance unless prior to or simultaneously with the
consummation thereof the survivor or successor corporation (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument executed and sent to
the Holder, the
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<PAGE> 73
obligation to deliver to the Holder such shares of stock, securities or assets
as, in accordance with the foregoing provisions, the Holder may be entitled to
receive.
(c) Statement on Warrant Certificates. Irrespective of
any adjustments in the Exercise Price or the number or kind of Warrant Shares,
this Warrant may continue to express the same price and number and kind of
shares as are stated on the front page hereof.
(d) Exception to Adjustment. Anything herein to the
contrary notwithstanding, the Company shall not be required to make any
adjustment of the number of Warrant Shares issuable hereunder or to the
Exercise Price in the case of the issuance of the Warrants or the issuance of
shares of the Common Stock (or other securities) upon exercise of the Warrants.
(e) Treasury Shares. The number of shares of the Common
Stock outstanding at any time shall not include treasury shares or shares owned
or held by or for the account of the Company or any of its subsidiaries, and
the disposition of any such shares shall be considered an issue or sale of the
Common Stock for the purposes of this Section 4.
(f) Adjustment Notices to Holder. Upon any increase or
decrease in the number of Warrant Shares purchasable upon the exercise of this
Warrant or the Exercise Price the Company shall, within 30 days thereafter,
deliver written notice thereof to all Holders, which notice shall state the
increased or decreased number of Warrant Shares purchasable upon the exercise
of this Warrant and the adjusted Exercise Price, setting forth in reasonable
detail the method of calculation and the facts upon which such calculations are
based.
Section 5. Notification by the Company. In case at any
time while this Warrant remains outstanding:
(a) the Company shall declare any dividend or make any
distribution upon its Common Stock or any other class of its capital stock; or
(b) the Company shall offer for subscription pro rata to
the holders of its Common Stock or any other class of its capital stock any
additional shares of stock of any class or any other securities convertible
into or exchangeable for shares of stock or any rights or options to subscribe
thereto; or
(c) the Board of Directors of the Company shall authorize
any capital reorganization, reclassification or similar transaction involving
the capital stock of the Company, or a sale or conveyance of all or a
substantial part of the assets of the Company, or a consolidation, merger or
business combination of the Company with another Person; or
(d) actions or proceedings shall be authorized or
commenced for a voluntary or involuntary dissolution, liquidation or winding-up
of the Company;
then, in any one or more of such cases, the Company shall give written notice
to the Holder, at the earliest time legally practicable (and not less than 20
days before any record date or other date set for definitive action) of the
date on which (i) the books of the Company shall close or a record shall be
taken for such dividend, distribution or subscription rights or options or (ii)
such reorganization, reclassification, sale, conveyance, consolidation, merger,
dissolution, liquidation or winding-up shall take place or be voted on by
shareholders of the Company, as the case may be. Such notice shall also
specify the date as of which the holders of the Common Stock of record shall
participate in said dividend, distribution, subscription
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<PAGE> 74
rights or options or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, sale, conveyance, consolidation, merger, dissolution,
liquidation or winding-up, as the case may be. If the action in question or
the record date is subject to the effectiveness of a registration statement
under the Securities Act or to a favorable vote of shareholders, the notice
required by this Section 5 shall so state.
Section 6. No Voting Rights: Limitations of Liability.
Prior to exercise, this Warrant will not entitle the Holder to any voting
rights or other rights as a stockholder of the Company. No provision hereof,
in the absence of affirmative action by the Holder to exercise this Warrant,
and no enumeration herein of the rights or privileges of the Holder, shall give
rise to any liability of the Holder for the purchase price of the Warrant
Shares pursuant to the exercise hereof.
Section 7. Restrictions on Transfer. The Warrants and
the Warrant Shares shall not be transferable except upon the conditions
specified in this Warrant and in the Securities Purchase Agreement. The
Warrants may not be transferred, sold or otherwise disposed of except in blocks
of Warrants for the purchase of at least 100,000 shares of Common Stock;
provided, that if at the time of such transfer, sale or other disposition, the
Warrants owned by the Holder are for the purchase of less than 100,000 shares
of Common Stock, the Holder may sell, transfer or otherwise dispose of all, but
not less than all, of the Warrants. This Warrant bears and the certificates
for Warrant Shares will bear a legend as specified in the Securities Purchase
Agreement. The Holder by its acceptance of this Warrant agrees to comply with
and to be bound by all of the provisions of the Securities Purchase Agreement.
Section 8. Amendment and Waiver.
(a) No failure or delay of the Holder in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The
rights and remedies of the Holder are cumulative and not exclusive of any
rights or remedies which it would otherwise have. The provisions of this
Warrant may be amended, modified or waived with (and only with) the written
consent of the Company and the Required Holders.
(b) No notice or demand on the Company in any case shall
entitle the Company to any other or further notice or demand in similar or
other circumstances.
Section 9. No Fractional Warrant Shares. The Company
shall not be required to issue stock certificates representing fractions of
Warrant Shares, but shall in respect of any fraction of a Warrant Share make a
payment in cash based on the Value of the Common Stock after giving effect to
the full exercise or conversion of the Warrants.
Section 10. Reservation of Warrant Shares. The Company
shall authorize, reserve and keep available at all times, free from preemptive
rights, a sufficient number of Warrant Shares to satisfy the requirements of
this Warrant.
- 6 -
<PAGE> 75
Section 11. Notices. Unless otherwise specified, whenever
this Warrant requires or permits any consent, approval, notice, request, or
demand from one party to another, that communication must be in writing (which
may be by telecopy) to be effective and is deemed to have been given (a) if by
telecopy, when transmitted to the appropriate telecopy number (and all
communications sent by telecopy must be confirmed promptly by telephone; but
any requirement in this parenthetical does not affect the date when the
telecopy is deemed to have been delivered), or (b) if by any other means,
including by internationally acceptable courier or hand delivery, when actually
delivered. Until changed by notice pursuant to this Warrant, the address (and
telecopy number) for the Holder and the Company are:
If to Holder: Forseti Investments Ltd.
5-206 Dowell House
Bridgetown, Barbados
West Indies
Attn: Dennis Chandler
Facsimile: (246) 427-5667
With copies to: Faust Fresenius Heyne Scherzberg,
attorneys
Paul-Ehrlich-Strasse 37-39
60596 Frankfurt-Am-Main
Attn: Christoph Heyne
Facsimile: (49) 6963009090
If to Company: Queen Sand Resources, Inc.
3500 Oak Lawn, Suite 380, L.B.#31
Dallas, Texas 75219-4398
Attn: Robert P. Lindsay
Facsimile: (214) 521-9960
With copies to: Queen Sand Resources, Inc.
60 Queen Street, Suite 1400
Ottawa, Canada K1P 5Y7
Attn: Edward J. Munden
Facsimile: (613) 230-6055
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
Attn: William L. Boeing, Esq.
Facsimile: (214) 651-5940
Section 12. Section and Other Headings. The headings
contained in this Warrant are for reference purposes only and will not affect
in any way the meaning or interpretation of this Warrant.
Section 13. Governing Law; Choice of Forum; Consent to
Service of Process. THIS WARRANT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE. The parties hereto agree
that any suit, action or proceeding arising out of or relating to this Warrant
or any agreement or obligation delivered in connection with this Warrant or any
judgment entered by any court in respect thereof shall be brought in the Courts
of the State of Texas, County of Dallas or in the United
- 7 -
<PAGE> 76
States District Court for the Northern District of Texas and each such party
hereby submits to the exclusive jurisdiction of such courts for the purpose of
any such suit, action or proceeding relating to this Warrant or any related
agreement or obligation. The Holder hereby submits to the jurisdiction of the
State of Texas and agrees that service of all writs, process and summonses in
any such suit, action or proceeding brought in the United States against the
Holder may be made upon CT Corporation System at its offices located at 350
North St. Paul Street, Dallas, Texas 75201 (or any subsequent address of CT
Corporation System), and the Holder hereby irrevocably appoints CT Corporation
System at its offices located at 350 North St. Paul Street, Dallas, Texas
75201 (or any subsequent address of CT Corporation System) its true and lawful
attorney-in-fact in their name, place and stead to accept such service of any
and all such writs, process and summonses, and agree that the failure of CT
Corporation System to give to the Holder any notice of any such service of
process shall not impair or affect the validity of such service or of any
judgment based thereon. The Company shall send, within 5 days after any
service of process under this Section 13, notice to the Holder in accordance
with Section 11 of any service of process on CT Corporation System under this
Section 13. Service of process on the Company may be made to the Company's
registered agent in Delaware, Corporation Trust Centre, 1209 Orange Street, in
the City of Wilmington, County of New Castle.
Each party hereto hereby irrevocably waives any objection that it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Warrant or any agreement or obligation
delivered in connection with this Warrant, brought in the Courts of the State
of Texas, County of Dallas or the United States District Court for the Northern
District of Texas, and hereby further irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in
an inconvenient forum.
Section 14. Binding Effect. The terms and provisions of
this Warrant shall inure to the benefit of the Holder and its successors and
assigns and shall be binding upon the Company and its successors and assigns,
including, without limitation, any Person succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets.
* * * * *
- 8 -
<PAGE> 77
IN WITNESS WHEREOF, the seal of the Company and the signature of its
duly authorized officer have been affixed hereto as of __________ _____, 1997.
[SEAL] QUEEN SAND RESOURCES, INC.
Attest: By:
-------------------------- ---------------------------------
Name:
-------------------------------
Title:
------------------------------
and
Attest: By:
-------------------------- ---------------------------------
Name:
-------------------------------
Title:
------------------------------
- 9 -
<PAGE> 78
EXHIBIT A
TO
WARRANT
PURCHASE FORM
To Be Executed by the Holder
Desiring to Exercise a Warrant of
Queen Sand Resources, Inc.
The undersigned holder hereby exercises the right to purchase ______
shares of Common Stock covered by the within Warrant, according to the
conditions thereof, and herewith makes payment in full of the Exercise Price of
such shares, in the amount of $____________.
Name of Holder:
--------------------------------------
Signature:
----------------------------
Title:
--------------------------------
Address:
------------------------------
--------------------------------------
--------------------------------------
Dated: , .
--------------------- -------
- 10 -
<PAGE> 79
EXHIBIT B
TO
WARRANT
ASSIGNMENT FORM
To Be Executed by the Holder
Desiring to Transfer a Warrant of
Queen Sand Resources, Inc.
FOR VALUE RECEIVED, the undersigned holder hereby sells, assigns and
transfers unto __________________________ the right to purchase ____________
shares of Common Stock covered by the within Warrant, and does hereby
irrevocably constitute and appoint _________________ Attorney to transfer the
said Warrant on the books of the Company (as defined in such Warrant), with
full power of substitution.
Name of Holder:
--------------------------------------
Signature:
----------------------------
Title:
--------------------------------
Address:
------------------------------
--------------------------------------
--------------------------------------
Dated: , .
--------------------- -------
In the presence of
- --------------------------------------
NOTICE:
The signature to the foregoing Assignment Form must correspond to the name as
written upon the face of the within Warrant in every detail, without alteration
or enlargement or any change whatsoever.
- 11 -
<PAGE> 80
EXHIBIT C
EARN UP AGREEMENT
THIS EARN UP AGREEMENT (this "Agreement") is executed as of the _____
day of __________, 1997 between Queen Sand Resources, Inc., a Delaware
corporation (the "Company"), and Joint Energy Development Investments Limited
Partnership, a Delaware limited partnership ("JEDI").
WHEREAS, the Company has entered into the Purchase Agreement (defined
below) with JEDI pursuant to which JEDI is purchasing shares of the Company's
Series A Participating Convertible Preferred Stock, par value $0.01 per share
(the "Convertible Preferred Stock"), and certain warrants to purchase Common
Stock of the Company, in exchange for (i) $5,000,000 cash; and (ii) this
Agreement; and
WHEREAS, the Company is repurchasing 9,600,000 shares of Common Stock
(defined below) from Forseti Investments, ltd., a Barbados corporation
("Forseti"), pursuant to the terms of the Forseti Purchase Agreement (defined
below);
NOW, THEREFORE, in consideration of these premises, the agreements
herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, JEDI and the Company agree as follows:
1.0 DEFINITIONS
"AAA" means the American Arbitration Association, or any successor
organization.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of, or rights,
warrants or options to purchase, corporate stock or any other equity interest
(however designated) of or in such Person.
"Capitalized Lease Obligation" means the amount of the liability under
any capital lease that, in accordance with GAAP, is required to be capitalized
and reflected as a liability on the consolidated balance sheet of the Company
and its Subsidiaries.
"Class A Amount" is defined in Section 2(b).
<PAGE> 81
"Class B Amount" is defined in Section 2(c).
"Class A Warrants" means the Class A Common Stock Purchase Warrants to
purchase 1,000,000 shares of Common Stock issued to Forseti pursuant to the
Forseti Purchase Agreement.
"Class B Warrants" means the Class B Common Stock Purchase Warrants to
purchase 2,000,000 shares of Common Stock issued to Forseti pursuant to the
Forseti Purchase Agreement.
"Common Stock" means the common stock, par value $.0015 per share, of
the Company.
"Consolidated Adjusted Net Income" means the consolidated net income
(or loss) of the Company and its Subsidiaries for the fiscal year ending June
30, 1998 as determined in accordance with GAAP, adjusted by excluding, to the
extent included in consolidated net income, (a) net after-tax extraordinary
gains or losses (less all fees and expenses relating thereto), (b) net
after-tax gains or losses (less all fees and expenses relating thereto)
attributable to asset dispositions, (c) the net income (or net loss) of any
Person (other than the Company or any of its Subsidiaries) in which the Company
or any of its Subsidiaries has an ownership interest, except to the extent of
the amount of dividends or other distributions actually paid to the Company or
its Subsidiaries in cash by such other Person during such period, and (d) net
income (or net loss) of any Person combined with the Company or any of its
Subsidiaries on a "pooling of interests" basis attributable to any period prior
to the date of combination.
"Consolidated Interest Expense" means the amount which, in conformity
with GAAP, is set forth opposite the caption "interest expense" (or any like
caption) on the audited consolidated statement of operations of the Company and
its Subsidiaries for the fiscal year ended June 30, 1998.
"Consolidated Net Working Capital" means (i) the amount which, in
conformity with GAAP, is set forth opposite the caption "total current assets"
(or any like caption) on the audited consolidated balance sheet of the Company
and its Subsidiaries as of June 30, 1998 less (ii) the amount which, in
conformity with GAAP, is set forth opposite the caption "total current
liabilities" (or any like caption) on the audited consolidated balance sheet of
the Company and its Subsidiaries as of June 30, 1998.
"Consolidated Non-cash Charges" means the amount which, in conformity
with GAAP, is set forth opposite the caption "depreciation, depletion and
amortization" (or any like caption) on the audited consolidated statement of
operations of the Company and its Subsidiaries for the fiscal year ended June
30, 1998.
"Consolidated Tax Expense" means the amount which, in conformity with
GAAP, is set forth opposite the caption "income tax expense" (or any like
caption) on the audited consolidated statement of operations of the Company and
its Subsidiaries for the fiscal year ended June 30, 1998.
"Dispute" is defined in Section 4.
<PAGE> 82
"EBITDA" means, without duplication, for the fiscal year ended June
30, 1998, the sum of (i) Consolidated Adjusted Net Income and (ii) to the
extent deducted in computing Consolidated Adjusted Net Income, Consolidated
Interest Expense, Consolidated Tax Expense and Consolidated Non-cash Charges.
"Earn Up Amount" is defined in Section 2(a).
"Election Date" means September 30, 1998.
"Exercise Price" means $2.50.
"Forseti Earn Up Agreement" means the Earn Up Agreement entered into
between the Company and Forseti substantially in the form of Exhibit A to this
Agreement.
"Forseti Interests" means all of the outstanding ownership interests
in Forseti and each entity that controls or owns an ownership interests in
Forseti.
"Forseti Purchase Agreement" means the Securities Purchase Agreement
dated March 27, 1997 between the Company and Forseti.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, in effect from time to
time.
"Guaranteed Debt" means, without duplication, all Indebtedness of any
other Person guaranteed directly or indirectly in any manner by the Company or
any of its Subsidiaries, or in effect guaranteed directly or indirectly by the
Company or any of its Subsidiaries through an agreement (i) to pay or purchase
such Indebtedness or to advance or supply funds for the payment or purchase of
such Indebtedness, (ii) to purchase, sell or lease (as lessee or lessor)
property, or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such Indebtedness or to assure the
holder of such Indebtedness against loss, (iii) to supply funds to, or in any
other manner invest in, the debtor (including any agreement to pay for property
or services to be acquired by such debtor irrespective of whether such property
is received or such services are rendered), (iv) to maintain working capital or
equity capital of the debtor, or otherwise to maintain the net worth, solvency
or other financial condition of the debtor or (v) otherwise to assure a
creditor against loss; provided that the term "guarantee" shall not include
endorsements for collection or deposit.
"Indebtedness" means, as of June 30, 1998, without duplication, (i)
all indebtedness of the Company or any of its Subsidiaries for borrowed money
or for the deferred purchase price of property or services, excluding any trade
accounts payable and other accrued current liabilities incurred in the ordinary
course of business, (ii) all obligations of the Company or any of its
Subsidiaries evidenced by bonds, notes, debentures or other similar
instruments, (iii) all indebtedness created or arising under any conditional
sale or other title retention agreement with respect to property acquired by
the Company or any of its Subsidiaries (even if the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of
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<PAGE> 83
such property), but excluding trade accounts payable arising in the ordinary
course of business, (iv) all Capitalized Lease Obligations, (v) all
indebtedness referred to in (but not excluded from) clause (i), (ii), (iii) or
(iv) above of other Persons, the payment of which is secured by (or for which
the holder of such indebtedness has an existing right, contingent or otherwise,
to be secured by) any Lien upon or in property (including, without limitation,
accounts and contract rights) owned by the Company or any of its Subsidiaries,
even though such Person has not assumed or become liable for the payment of
such indebtedness, (vi) all Guaranteed Debt, (vii) all Redeemable Capital Stock
valued at its maximum fixed repurchase price plus accrued and unpaid dividends,
and (viii) any amendment, supplement, modification, deferral, renewal,
extension or refunding of any liability of the types referred to in clauses (i)
through (vii) above. For purposes hereof, the "maximum fixed repurchase price"
of any Redeemable Capital Stock that does not have a fixed repurchase price
shall be calculated in accordance with the terms of such Redeemable Capital
Stock as if such Redeemable Capital Stock were purchased on any date on which
Indebtedness shall be required to be determined pursuant to this Agreement, and
if such price is based upon, or measured by, the fair market value of such
Redeemable Capital Stock, such fair market value to be determined in good faith
by the Board of Directors of the issuer of such Redeemable Capital Stock.
"Mediator" is defined in Section 6.
"Outstanding Shares" means, as of June 30, 1998, the issued and
outstanding shares of Common Stock, assuming the conversion of all shares of
preferred stock of the Company that are convertible into shares of Common
Stock, and excluding any shares of Common Stock held in treasury by the Company
or held by any wholly-owned Subsidiary of the Company.
"Payment Date" means October 15, 1998.
"Person" means any individual, corporation, limited or general
partnership, joint venture, association, joint-stock company, trust, limited
liability company, unincorporated organization or government or any agency or
political subdivision thereof.
<TABLE>
<S> <C>
"Price" means, if:
(Price(1) - Price(2))
---------------------- less than or equal to 0.1, then (Price(1) + Price(2))/2;
Greater of Price(1) or Price(2)
provided, that if: (Price(1) - Price(2))
---------------------- greater than 0.1, then the Company and JEDI
Greater of Price(1) or Price(2)
</TABLE>
shall negotiate the Price; provided, further, that if the Price has not been
agreed upon within 5 business days after the determination of Price(1) and
Price(2), then the determination of the Price shall be submitted to nonbinding
mediation and arbitration in accordance with this Agreement. Notwithstanding
anything to the contrary in this Agreement, under no circumstances shall the
Price exceed the higher of Price(1) and Price(2) or be less than the lower of
Price(1) and Price(2).
-4-
<PAGE> 84
<TABLE>
<S> <C>
(1.1 * SEC PV(10)) - Indebtedness + Consolidated Net Working Capital
"Price(1)" = ------------------------------------------------------------------------------
Outstanding Shares
(6.0 * EBITDA) - Indebtedness + Consolidated Net Working Capital
"Price(2)" = ------------------------------------------------------------------------------
Outstanding Shares
</TABLE>
"Purchase Agreement" means the Securities Purchase Agreement dated
March 27, 1997 between the Company and JEDI.
"Redeemable Capital Stock" means any Capital Stock of the Company or
any of its Subsidiaries that, either by its terms, by the terms of any security
into which it is convertible or exchangeable or otherwise, (i) is, or upon the
happening of an event or passage of time would be, required to be redeemed, or
(ii) is, or upon the happening of an event or passage of time would be,
redeemable at the option of the holder thereof, or (iii) is, or upon the
happening of an event or passage of time would be, convertible into or
exchangeable for debt securities.
"SEC PV10" means the pre tax future net cash flows from proved oil and
gas reserves of the Company and its Subsidiaries at June 30, 1998, computed
using a discount factor of ten percent, as determined in accordance with the
rules, regulations and guidelines of the United States Securities and Exchange
Commission and reported in the reserve report dated as of such date prepared in
accordance with Section 6.11 of the Purchase Agreement.
"Statutory Declaration" means a statutory declaration by Forseti that
as of the Election Date and the Payment Date (i) the individual who, as of the
date hereof, owned all of the Forseti Interests owns all of the Forseti
Interests (ii) there are no encumbrances, pledges or other liens on any equity
interests in Forseti, and (iii) no other event under Section 6(h) has occurred.
"Subsidiary" of a Person means any corporation, limited liability
company, limited or general partnership, joint venture, association,
joint-stock company or business trust of which at the time of determination
such Person, directly and/or indirectly through one or more other Persons, owns
more than 50% of the voting interests.
"Transfer" of any property means any exercise, or any direct or
indirect sale, transfer, encumbrance, gift, donation, assignment, grant of any
interest, pledge, hypothecation or other disposition of such property or any
interest therein, whether voluntary or involuntary, including, but not limited
to, any transfer by operation of law, by court order, by judicial process, or
by foreclosure, levy, or attachment.
"Value" is defined in Section 2(e).
"Warrant Transfer Amount" is defined in Section 2(d).
"Warrants" means, collectively, the Class A Warrants and the Class B
Warrants.
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<PAGE> 85
2.0 PAYMENT OF EARN UP AMOUNT
(a) On the Payment Date, subject to the limitations in Section 3,
and only against delivery by the Company to JEDI of evidence
satisfactory to JEDI that Forseti has delivered to the Company (x) the
Warrants and (y) the Statutory Declaration, JEDI shall pay the Company
an amount (the "Earn Up Amount") equal to the amount, if any, by which
(i) the sum of the Class A Amount and the Class B Amount exceeds (ii)
the Warrant Transfer Amount; provided, that in no event shall the Earn
Up Amount exceed $9,400,000.
(b) The "Class A Amount" means a dollar amount equal to the
product of (i) the Value (not to exceed $1.50) less $1.25, multiplied
by (ii) 9,600,000; provided, that in no event shall the Class A Amount
be greater than $2,400,000; and if the Class A Amount is zero or a
negative number, the Class A Amount shall be deemed to be zero.
(c) The "Class B Amount" means a dollar amount equal to the
product of (i) the Value (not to exceed $1.25) less $0.521, multiplied
by (ii) 9,600,000; provided, that in no event shall the Class B Amount
be greater than $7,000,000; and if the Class B Amount is zero or a
negative number, the Class B Amount shall be deemed to be zero.
(d) The "Warrant Transfer Amount" means a dollar amount equal to
the greatest of (i) the product of (x) $3.50 multiplied by (y) the
aggregate number of Class A Warrants and Class B Warrants Transferred
by Forseti before the Payment Date; (ii) the aggregate gross proceeds
that Forseti has received or is entitled to receive from the Transfer
of all of the Class A Warrants and Class B Warrants Transferred by
Forseti before the Payment Date; and (iii) the difference between the
average daily bid price of the Company's Common Stock for the 21-day
period ending on the Election Date less the Exercise Price, multiplied
by the number of Class A Warrants and the Class B Warrants Transferred
by Forseti before the Payment Date.
(e) The "Value" means the product of the Price, multiplied by
0.60; provided, that if (i) the Common Stock is quoted on The Nasdaq
National Market at the Election Date and (ii) the average daily
trading volume of the Company's shares of Common Stock for the 21-day
period ending on the Election Date is at least 50,000 shares per day
(excluding trading of shares in any accounts controlled by the Company
or Forseti or their respective Affiliates, and provided, that if on
any of the 21 days the trading volume is greater than 300,000 shares,
then only 300,000 shares on such days may be used in calculating the
average), then Value means the product of the Price, multiplied by
0.75.
(f) The Company represents and warrants to JEDI that the
definitions of the terms "Price" and "Value" in the Forseti Earn Up
Agreement are identical to the definitions of such terms in this
Agreement.
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<PAGE> 86
3.0 LIMITATION ON EARN UP AMOUNT
The Earn Up Amount shall in no event exceed the amount defined in the
Forseti Purchase Agreement as the "Earn Up Amount."
4.0 MEDIATION.
Any controversy, dispute or claim arising out of or relating to this
Agreement (a "Dispute") shall be submitted to non-binding mediation upon the
request of the Company or Forseti on the following terms. Upon the request of
either party, a neutral mediator acceptable to both parties (the "Mediator")
shall be appointed within 15 days. The Mediator shall attempt through
negotiations in any manner deemed reasonably appropriate by the Mediator, in
which the parties shall participate, to resolve the Dispute. The Mediator
shall be compensated at a rate agreeable to the Company, Forseti and the
Mediator, and each of the Company and Forseti shall pay its pro rata share of
such compensation and other expenses of the mediation.
5.0 ARBITRATION.
In the event that mediation of a Dispute has not commenced within 15
days after a request for mediation is submitted or is terminated without
resolution under Section 5.0, any controversy or claim arising out of or
relating to this Agreement, including the right to or amount of indemnity,
shall be settled by arbitration in accordance with the Commercial Arbitration
Rules of the AAA by three (3) arbitrators. Each of Forseti and the Company
shall appoint one arbitrator, who shall be an impartial person. If a party
fails to appoint an arbitrator within thirty (30) days from the date a Demand
to Arbitrate was made under Rule 6, the AAA shall make the appointment of the
arbitrator. The two (2) arbitrators thus appointed shall appoint the third
arbitrator, who shall be an impartial person. If said two (2) arbitrators fail
to appoint the third arbitrator within sixty (60) days from the date a Demand
to Arbitrate was made under Rule 6, the AAA shall make the appointment of the
third arbitrator, who shall be an impartial person. Should any of the
arbitrators appointed die, resign, refuse or become unable to act before a
decision is given, the vacancy shall be filled by the method set forth in this
clause for the original appointment. The arbitration shall be held in Dallas,
Texas and shall be conducted in the English language. A decision by the
arbitrators shall be final and binding on all the parties. The arbitrators
shall execute and deliver to the respective parties the arbitration panel's
decision in writing. Judgment upon the award, if any, rendered by the
arbitrators (which must be expressed in United States Dollars) may be entered
in any court having jurisdiction thereof. In any award, the arbitrators shall
assess the arbitration costs and expenses, including, without limitation,
attorneys fees of the parties, in a manner deemed equitable by the arbitrators,
taking into account the arbitration decision. Notwithstanding anything to the
contrary in this Agreement, if a Dispute involves the determination of Price,
the Price, as determined by arbitration under this Section 5, shall not (i) (a)
exceed the higher or Price1 and Price2, or (b) be lower than the lower of
Price1 and Price2, or (ii) exceed the Price as determined under the Forseti
Earn Up Agreement, including a Price as determined by arbitration under the
provisions of the Forseti Earn Up Agreement.
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<PAGE> 87
6.0 MISCELLANEOUS
(a) Governing Law. This Agreement shall be governed by the
substantive laws of the State of Texas.
(b) Invalid Provisions. If any provision of this Agreement is
held to be illegal, invalid or unenforceable, such provision shall be
fully severable.
(c) Entirety and Amendments. This Agreement embodies the entire
agreement and understanding relating to the subject matter hereof,
supersedes all prior understandings between the parties relating to
the subject matter hereof, and may be amended only by an instrument in
writing executed by the Company and JEDI.
(d) Parties Bound. This Agreement shall be binding upon and inure
to the benefit of the Company and JEDI, and their respective
successors and permitted assigns. Neither the Company nor JEDI may
assign its rights or delegate its obligations hereunder (whether
voluntarily, involuntarily, or by operation of law) without the prior
written consent of the other party.
(e) Notices. Unless otherwise specified, whenever this Agreement
requires or permits any consent, approval, notice, request, or demand
from one party to another, that communication must be in writing
(which may be by telecopy) to be effective and is deemed to have been
given (a) if by telecopy, when transmitted to the appropriate telecopy
number (and all communications sent by telecopy must be confirmed
promptly by telephone; but any requirement in this parenthetical does
not affect the date when the telecopy is deemed to have been
delivered), or (b) if by any other means, including by internationally
acceptable courier or hand delivery, when actually delivered. Until
changed by notice pursuant to this Agreement, the address (and
telecopy number) for the Company and JEDI are:
If to JEDI: Joint Energy Development Investments
Limited Partnership
c/o Enron Corp.
1400 Smith Street
Houston, Texas 77002
Attention: Donna Lowry - Director,
28th Floor
Telecopier: (713) 646-3602
If to Company: Queen Sand Resources, Inc.
3500 Oak Lawn, Suite 380, L.B.#31
Dallas, Texas 75219-4398
Attn: Robert P. Lindsay
Facsimile: (214) 521-9960
-8-
<PAGE> 88
With copies to: Queen Sand Resources, Inc.
60 Queen Street, Suite 1400
Ottawa, Canada K1P 5Y7
Attn: Edward J. Munden
Facsimile: (613) 230-6055
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
Attn: William L. Boeing
Facsimile: (214) 651-5940
(f) Section and Other Headings. The headings contained in this
Agreement are for reference purposes only and will not affect in any
way the meaning or interpretation of this Agreement.
(g) Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original and all of
which together will constitute one instrument.
(h) Termination. This Agreement shall terminate automatically,
and JEDI shall have no obligation to pay any Earn Up Amount, (a) in
the event the "Election Date" under the Forseti Earn Up Agreement is
after September 30, 1998 or the "Payment Date" under the Forseti Earn
Up Agreement is after October 15, 1998, (b) upon the Transfer of any
Warrants in violation of the restrictions on Transfer of Warrants
under the Forseti Purchase Agreement, (c) upon the election by Forseti
to retain the Warrants under Section 2(a)(ii) of the Forseti Earn Up
Agreement, (d) upon the Transfer by Forseti of all of the Warrants,
(e) upon the Transfer of any ownership interest in Forseti or any
entity controlling Forseti where the purpose of the transfer is to
realize or receive cash, securities or any other property as
consideration for the Warrants without transferring the Warrants, (f)
in the event that, on the Election Date or the Payment Date, the
individual who, as of the date hereof owned, directly or indirectly,
all of the Forseti Interests does not own, directly or indirectly, all
of the Forseti Interests, or (g) the termination of the Forseti Earn
Up Agreement for any reason.
(i) Currency. All dollar amounts in this Agreement shall mean
United States dollars.
* * * * *
-9-
<PAGE> 89
IN WITNESS WHEREOF, JEDI and the Company have executed this Agreement
as of the day and year first stated above.
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP
By: Enron Capital Management Limited
Partnership, its General Partner
By: Enron Capital Corp., its General
Partner
By:
-----------------------------------
Steven M. Emshoff
Agent and Attorney-in-Fact
QUEEN SAND RESOURCES, INC.
By:
-----------------------------------
Edward J. Munden
President and Chief Executive
Officer
and
By:
----------------------------------
Robert P. Lindsay
Chief Operating Officer
-10-
<PAGE> 90
EXHIBIT D
EARN UP AGREEMENT
THIS EARN UP AGREEMENT (this "Agreement") is executed as of the _____
day of __________, 1997 between Queen Sand Resources, Inc., a Delaware
corporation (the "Company"), and Joint Energy Development Investments Limited
Partnership, a Delaware limited partnership ("JEDI").
WHEREAS, the Company has entered into the Purchase Agreement (defined
below) with JEDI pursuant to which JEDI is purchasing shares of the Company's
Series A Participating Convertible Preferred Stock, par value $0.01 per share
(the "Convertible Preferred Stock"), and certain warrants to purchase Common
Stock of the Company, in exchange for (i) $5,000,000 cash; and (ii) this
Agreement; and
WHEREAS, the Company is repurchasing 9,600,000 shares of Common Stock
(defined below) from Forseti Investments, ltd., a Barbados corporation
("Forseti"), pursuant to the terms of the Forseti Purchase Agreement (defined
below);
NOW, THEREFORE, in consideration of these premises, the agreements
herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, JEDI and the Company agree as follows:
1.0 DEFINITIONS
"AAA" means the American Arbitration Association, or any successor
organization.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of, or rights,
warrants or options to purchase, corporate stock or any other equity interest
(however designated) of or in such Person.
"Capitalized Lease Obligation" means the amount of the liability under
any capital lease that, in accordance with GAAP, is required to be capitalized
and reflected as a liability on the consolidated balance sheet of the Company
and its Subsidiaries.
"Class A Amount" is defined in Section 2(b).
"Class B Amount" is defined in Section 2(c).
<PAGE> 91
"Class A Warrants" means the Class A Common Stock Purchase Warrants to
purchase 1,000,000 shares of Common Stock issued to Forseti pursuant to the
Forseti Purchase Agreement.
"Class B Warrants" means the Class B Common Stock Purchase Warrants to
purchase 2,000,000 shares of Common Stock issued to Forseti pursuant to the
Forseti Purchase Agreement.
"Common Stock" means the common stock, par value $.0015 per share, of
the Company.
"Consolidated Adjusted Net Income" means the consolidated net income
(or loss) of the Company and its Subsidiaries for the fiscal year ending June
30, 1998 as determined in accordance with GAAP, adjusted by excluding, to the
extent included in consolidated net income, (a) net after-tax extraordinary
gains or losses (less all fees and expenses relating thereto), (b) net
after-tax gains or losses (less all fees and expenses relating thereto)
attributable to asset dispositions, (c) the net income (or net loss) of any
Person (other than the Company or any of its Subsidiaries) in which the Company
or any of its Subsidiaries has an ownership interest, except to the extent of
the amount of dividends or other distributions actually paid to the Company or
its Subsidiaries in cash by such other Person during such period, and (d) net
income (or net loss) of any Person combined with the Company or any of its
Subsidiaries on a "pooling of interests" basis attributable to any period prior
to the date of combination.
"Consolidated Interest Expense" means the amount which, in conformity
with GAAP, is set forth opposite the caption "interest expense" (or any like
caption) on the audited consolidated statement of operations of the Company and
its Subsidiaries for the fiscal year ended June 30, 1998.
"Consolidated Net Working Capital" means (i) the amount which, in
conformity with GAAP, is set forth opposite the caption "total current assets"
(or any like caption) on the audited consolidated balance sheet of the Company
and its Subsidiaries as of June 30, 1998 less (ii) the amount which, in
conformity with GAAP, is set forth opposite the caption "total current
liabilities" (or any like caption) on the audited consolidated balance sheet of
the Company and its Subsidiaries as of June 30, 1998.
"Consolidated Non-cash Charges" means the amount which, in conformity
with GAAP, is set forth opposite the caption "depreciation, depletion and
amortization" (or any like caption) on the audited consolidated statement of
operations of the Company and its Subsidiaries for the fiscal year ended June
30, 1998.
"Consolidated Tax Expense" means the amount which, in conformity with
GAAP, is set forth opposite the caption "income tax expense" (or any like
caption) on the audited consolidated statement of operations of the Company and
its Subsidiaries for the fiscal year ended June 30, 1998.
"Dispute" is defined in Section 4.
"EBITDA" means, without duplication, for the fiscal year ended June
30, 1998, the sum of (i) Consolidated Adjusted Net Income and (ii) to the
extent deducted in computing Consolidated Adjusted Net Income, Consolidated
Interest Expense, Consolidated Tax Expense and Consolidated Non-cash Charges.
<PAGE> 92
"Earn Up Amount" is defined in Section 2(a).
"Election Date" means September 30, 1998.
"Exercise Price" means $2.50.
"Forseti Earn Up Agreement" means the Earn Up Agreement entered into
between the Company and Forseti substantially in the form of Exhibit A to this
Agreement.
"Forseti Interests" means all of the outstanding ownership interests
in Forseti and each entity that controls or owns an ownership interests in
Forseti.
"Forseti Purchase Agreement" means the Securities Purchase Agreement
dated March 27, 1997 between the Company and Forseti.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, in effect from time to
time.
"Guaranteed Debt" means, without duplication, all Indebtedness of any
other Person guaranteed directly or indirectly in any manner by the Company or
any of its Subsidiaries, or in effect guaranteed directly or indirectly by the
Company or any of its Subsidiaries through an agreement (i) to pay or purchase
such Indebtedness or to advance or supply funds for the payment or purchase of
such Indebtedness, (ii) to purchase, sell or lease (as lessee or lessor)
property, or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such Indebtedness or to assure the
holder of such Indebtedness against loss, (iii) to supply funds to, or in any
other manner invest in, the debtor (including any agreement to pay for property
or services to be acquired by such debtor irrespective of whether such property
is received or such services are rendered), (iv) to maintain working capital or
equity capital of the debtor, or otherwise to maintain the net worth, solvency
or other financial condition of the debtor or (v) otherwise to assure a
creditor against loss; provided that the term "guarantee" shall not include
endorsements for collection or deposit.
"Indebtedness" means, as of June 30, 1998, without duplication, (i)
all indebtedness of the Company or any of its Subsidiaries for borrowed money
or for the deferred purchase price of property or services, excluding any trade
accounts payable and other accrued current liabilities incurred in the ordinary
course of business, (ii) all obligations of the Company or any of its
Subsidiaries evidenced by bonds, notes, debentures or other similar
instruments, (iii) all indebtedness created or arising under any conditional
sale or other title retention agreement with respect to property acquired by
the Company or any of its Subsidiaries (even if the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), but excluding trade accounts payable
arising in the ordinary course of business, (iv) all Capitalized Lease
Obligations, (v) all indebtedness referred to in (but not excluded from) clause
(i), (ii), (iii) or (iv) above of other Persons, the payment of which is
secured by (or for which the holder of such indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon or in property
(including, without limitation, accounts and contract rights) owned by the
Company or any of its Subsidiaries, even though such Person has not assumed
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<PAGE> 93
or become liable for the payment of such indebtedness, (vi) all Guaranteed
Debt, (vii) all Redeemable Capital Stock valued at its maximum fixed repurchase
price plus accrued and unpaid dividends, and (viii) any amendment, supplement,
modification, deferral, renewal, extension or refunding of any liability of the
types referred to in clauses (i) through (vii) above. For purposes hereof, the
"maximum fixed repurchase price" of any Redeemable Capital Stock that does not
have a fixed repurchase price shall be calculated in accordance with the terms
of such Redeemable Capital Stock as if such Redeemable Capital Stock were
purchased on any date on which Indebtedness shall be required to be determined
pursuant to this Agreement, and if such price is based upon, or measured by,
the fair market value of such Redeemable Capital Stock, such fair market value
to be determined in good faith by the Board of Directors of the issuer of such
Redeemable Capital Stock.
"Mediator" is defined in Section 6.
"Outstanding Shares" means, as of June 30, 1998, the issued and
outstanding shares of Common Stock, assuming the conversion of all shares of
preferred stock of the Company that are convertible into shares of Common
Stock, and excluding any shares of Common Stock held in treasury by the Company
or held by any wholly-owned Subsidiary of the Company.
"Payment Date" means October 15, 1998.
"Person" means any individual, corporation, limited or general
partnership, joint venture, association, joint- stock company, trust, limited
liability company, unincorporated organization or government or any agency or
political subdivision thereof.
<TABLE>
<S> <C>
"Price" means, if:
----- (Price(1) - Price(2))
less than 0.1, then (Price(1) + Price(2))/2;
----------------------
Greater of Price(1) or Price(2)
provided, that if: (Price(1) - Price(2))
greater than 0.1, then the Company and JEDI
----------------------
Greater of Price(1) or Price(2)
</TABLE>
shall negotiate the Price; provided, further, that if the Price has not been
agreed upon within 5 business days after the determination of Price1 and
Price2, then the determination of the Price shall be submitted to nonbinding
mediation and arbitration in accordance with this Agreement. Notwithstanding
anything to the contrary in this Agreement, under no circumstances shall the
Price exceed the higher of Price1 and Price2 or be less than the lower of
Price1 and Price2.
<TABLE>
<S> <C>
(1.1 * SEC PV(10)) - Indebtedness + Consolidated Net Working Capital
"Price(1)" =
----- ------------------------------------------------------------------------------
Outstanding Shares
(6.0 * EBITDA) - Indebtedness + Consolidated Net Working Capital
"Price(2)" =
----- ------------------------------------------------------------------------------
Outstanding Shares
</TABLE>
-4-
<PAGE> 94
"Purchase Agreement" means the Securities Purchase Agreement dated
March 27, 1997 between the Company and JEDI.
"Redeemable Capital Stock" means any Capital Stock of the Company or
any of its Subsidiaries that, either by its terms, by the terms of any security
into which it is convertible or exchangeable or otherwise, (i) is, or upon the
happening of an event or passage of time would be, required to be redeemed, or
(ii) is, or upon the happening of an event or passage of time would be,
redeemable at the option of the holder thereof, or (iii) is, or upon the
happening of an event or passage of time would be, convertible into or
exchangeable for debt securities.
"SEC PV10" means the pre tax future net cash flows from proved oil and
gas reserves of the Company and its Subsidiaries at June 30, 1998, computed
using a discount factor of ten percent, as determined in accordance with the
rules, regulations and guidelines of the United States Securities and Exchange
Commission and reported in the reserve report dated as of such date prepared in
accordance with Section 6.11 of the Purchase Agreement.
"Statutory Declaration" means a statutory declaration by Forseti that
as of the Election Date and the Payment Date (i) the individual who, as of the
date hereof, owned all of the Forseti Interests owns all of the Forseti
Interests (ii) there are no encumbrances, pledges or other liens on any equity
interests in Forseti, and (iii) no other event under Section 6(h) has occurred.
"Subsidiary" of a Person means any corporation, limited liability
company, limited or general partnership, joint venture, association,
joint-stock company or business trust of which at the time of determination
such Person, directly and/or indirectly through one or more other Persons, owns
more than 50% of the voting interests.
"Transfer" of any property means any exercise, or any direct or
indirect sale, transfer, encumbrance, gift, donation, assignment, grant of any
interest, pledge, hypothecation or other disposition of such property or any
interest therein, whether voluntary or involuntary, including, but not limited
to, any transfer by operation of law, by court order, by judicial process, or
by foreclosure, levy, or attachment.
"Value" is defined in Section 2(e).
"Warrant Transfer Amount" is defined in Section 2(d).
"Warrants" means, collectively, the Class A Warrants and the Class B
Warrants.
2.0 PAYMENT OF EARN UP AMOUNT
(a) On the Payment Date, subject to the limitations in Section 3,
and only against delivery by the Company to JEDI of evidence
satisfactory to JEDI that Forseti has delivered to the Company (x) the
Warrants and (y) the Statutory Declaration, JEDI shall pay the Company
an amount (the "Earn Up Amount") equal to the amount, if any, by which
(i) the sum of the Class A Amount and the Class B Amount exceeds (ii)
the Warrant Transfer Amount; provided, that in no event shall the Earn
Up Amount exceed $9,400,000.
-5-
<PAGE> 95
(b) The "Class A Amount" means a dollar amount equal to the
product of (i) the Value (not to exceed $1.50) less $1.25, multiplied
by (ii) 9,600,000; provided, that in no event shall the Class A Amount
be greater than $2,400,000; and if the Class A Amount is zero or a
negative number, the Class A Amount shall be deemed to be zero.
(c) The "Class B Amount" means a dollar amount equal to the
product of (i) the Value (not to exceed $1.25) less $0.521, multiplied
by (ii) 9,600,000; provided, that in no event shall the Class B Amount
be greater than $7,000,000; and if the Class B Amount is zero or a
negative number, the Class B Amount shall be deemed to be zero.
(d) The "Warrant Transfer Amount" means a dollar amount equal to
the greatest of (i) the product of (x) $3.50 multiplied by (y) the
aggregate number of Class A Warrants and Class B Warrants Transferred
by Forseti before the Payment Date; (ii) the aggregate gross proceeds
that Forseti has received or is entitled to receive from the Transfer
of all of the Class A Warrants and Class B Warrants Transferred by
Forseti before the Payment Date; and (iii) the difference between the
average daily bid price of the Company's Common Stock for the 21-day
period ending on the Election Date less the Exercise Price, multiplied
by the number of Class A Warrants and the Class B Warrants Transferred
by Forseti before the Payment Date.
(e) The "Value" means the product of the Price, multiplied by
0.60; provided, that if (i) the Common Stock is quoted on The Nasdaq
National Market at the Election Date and (ii) the average daily
trading volume of the Company's shares of Common Stock for the 21-day
period ending on the Election Date is at least 50,000 shares per day
(excluding trading of shares in any accounts controlled by the Company
or Forseti or their respective Affiliates, and provided, that if on
any of the 21 days the trading volume is greater than 300,000 shares,
then only 300,000 shares on such days may be used in calculating the
average), then Value means the product of the Price, multiplied by
0.75.
(f) The Company represents and warrants to JEDI that the
definitions of the terms "Price" and "Value" in the Forseti Earn Up
Agreement are identical to the definitions of such terms in this
Agreement.
3.0 LIMITATION ON EARN UP AMOUNT
The Earn Up Amount shall in no event exceed the amount defined in the
Forseti Purchase Agreement as the "Earn Up Amount."
4.0 MEDIATION.
Any controversy, dispute or claim arising out of or relating to this
Agreement (a "Dispute") shall be submitted to non-binding mediation upon the
request of the Company or Forseti on the following terms. Upon the request of
either party, a neutral mediator acceptable to both parties (the "Mediator")
shall be appointed within 15 days. The Mediator shall attempt through
negotiations in any manner deemed reasonably appropriate by the Mediator, in
which the parties shall participate,
-6-
<PAGE> 96
to resolve the Dispute. The Mediator shall be compensated at a rate agreeable
to the Company, Forseti and the Mediator, and each of the Company and Forseti
shall pay its pro rata share of such compensation and other expenses of the
mediation.
5.0 ARBITRATION.
In the event that mediation of a Dispute has not commenced within 15
days after a request for mediation is submitted or is terminated without
resolution under Section 5.0, any controversy or claim arising out of or
relating to this Agreement, including the right to or amount of indemnity,
shall be settled by arbitration in accordance with the Commercial Arbitration
Rules of the AAA by three (3) arbitrators. Each of Forseti and the Company
shall appoint one arbitrator, who shall be an impartial person. If a party
fails to appoint an arbitrator within thirty (30) days from the date a Demand
to Arbitrate was made under Rule 6, the AAA shall make the appointment of the
arbitrator. The two (2) arbitrators thus appointed shall appoint the third
arbitrator, who shall be an impartial person. If said two (2) arbitrators fail
to appoint the third arbitrator within sixty (60) days from the date a Demand
to Arbitrate was made under Rule 6, the AAA shall make the appointment of the
third arbitrator, who shall be an impartial person. Should any of the
arbitrators appointed die, resign, refuse or become unable to act before a
decision is given, the vacancy shall be filled by the method set forth in this
clause for the original appointment. The arbitration shall be held in Dallas,
Texas and shall be conducted in the English language. A decision by the
arbitrators shall be final and binding on all the parties. The arbitrators
shall execute and deliver to the respective parties the arbitration panel's
decision in writing. Judgment upon the award, if any, rendered by the
arbitrators (which must be expressed in United States Dollars) may be entered
in any court having jurisdiction thereof. In any award, the arbitrators shall
assess the arbitration costs and expenses, including, without limitation,
attorneys fees of the parties, in a manner deemed equitable by the arbitrators,
taking into account the arbitration decision. Notwithstanding anything to the
contrary in this Agreement, if a Dispute involves the determination of Price,
the Price, as determined by arbitration under this Section 5, shall not (i) (a)
exceed the higher or Price1 and Price2, or (b) be lower than the lower of
Price1 and Price2, or (ii) exceed the Price as determined under the Forseti
Earn Up Agreement, including a Price as determined by arbitration under the
provisions of the Forseti Earn Up Agreement.
6.0 MISCELLANEOUS
(a) Governing Law. This Agreement shall be governed by the
substantive laws of the State of Texas.
(b) Invalid Provisions. If any provision of this Agreement is
held to be illegal, invalid or unenforceable, such provision shall be
fully severable.
(c) Entirety and Amendments. This Agreement embodies the entire
agreement and understanding relating to the subject matter hereof,
supersedes all prior understandings between the parties relating to
the subject matter hereof, and may be amended only by an instrument in
writing executed by the Company and JEDI.
-7-
<PAGE> 97
(d) Parties Bound. This Agreement shall be binding upon and inure
to the benefit of the Company and JEDI, and their respective
successors and permitted assigns. Neither the Company nor JEDI may
assign its rights or delegate its obligations hereunder (whether
voluntarily, involuntarily, or by operation of law) without the prior
written consent of the other party.
(e) Notices. Unless otherwise specified, whenever this Agreement
requires or permits any consent, approval, notice, request, or demand
from one party to another, that communication must be in writing
(which may be by telecopy) to be effective and is deemed to have been
given (a) if by telecopy, when transmitted to the appropriate telecopy
number (and all communications sent by telecopy must be confirmed
promptly by telephone; but any requirement in this parenthetical does
not affect the date when the telecopy is deemed to have been
delivered), or (b) if by any other means, including by internationally
acceptable courier or hand delivery, when actually delivered. Until
changed by notice pursuant to this Agreement, the address (and
telecopy number) for the Company and JEDI are:
If to JEDI: Joint Energy Development Investments Limited
Partnership
c/o Enron Corp.
1400 Smith Street
Houston, Texas 77002
Attention: Donna Lowry - Director, 28th Floor
Telecopier: (713) 646-3602
If to Company: Queen Sand Resources, Inc.
3500 Oak Lawn, Suite 380, L.B.#31
Dallas, Texas 75219-4398
Attn: Robert P. Lindsay
Facsimile: (214) 521-9960
With copies to: Queen Sand Resources, Inc.
60 Queen Street, Suite 1400
Ottawa, Canada K1P 5Y7
Attn: Edward J. Munden
Facsimile: (613) 230-6055
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
Attn: William L. Boeing
Facsimile: (214) 651-5940
(f) Section and Other Headings. The headings contained in this
Agreement are for reference purposes only and will not affect in any
way the meaning or interpretation of this Agreement.
-8-
<PAGE> 98
(g) Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original and all of
which together will constitute one instrument.
(h) Termination. This Agreement shall terminate automatically,
and JEDI shall have no obligation to pay any Earn Up Amount, (a) in
the event the "Election Date" under the Forseti Earn Up Agreement is
after September 30, 1998 or the "Payment Date" under the Forseti Earn
Up Agreement is after October 15, 1998, (b) upon the Transfer of any
Warrants in violation of the restrictions on Transfer of Warrants
under the Forseti Purchase Agreement, (c) upon the election by Forseti
to retain the Warrants under Section 2(a)(ii) of the Forseti Earn Up
Agreement, (d) upon the Transfer by Forseti of all of the Warrants,
(e) upon the Transfer of any ownership interest in Forseti or any
entity controlling Forseti where the purpose of the transfer is to
realize or receive cash, securities or any other property as
consideration for the Warrants without transferring the Warrants, (f)
in the event that, on the Election Date or the Payment Date, the
individual who, as of the date hereof owned, directly or indirectly,
all of the Forseti Interests does not own, directly or indirectly, all
of the Forseti Interests, or (g) the termination of the Forseti Earn
Up Agreement for any reason.
(i) Currency. All dollar amounts in this Agreement shall mean
United States dollars.
* * * * *
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<PAGE> 99
IN WITNESS WHEREOF, JEDI and the Company have executed this Agreement
as of the day and year first stated above.
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP
By: Enron Capital Management Limited
Partnership, its General Partner
By: Enron Capital Corp., its General
Partner
By:
---------------------------------------
Steven M. Emshoff
Agent and Attorney-in-Fact
QUEEN SAND RESOURCES, INC.
By:
---------------------------------------
Edward J. Munden
President and Chief Executive
Officer
and
By:
---------------------------------------
Robert P. Lindsay
Chief Operating Officer
-10-
<PAGE> 100
EXHIBIT A
EARN UP AGREEMENT
THIS EARN UP AGREEMENT (this "Agreement") is executed as of the _____
day of __________, 1997 between Queen Sand Resources, Inc., a Delaware
corporation (the "Company"), and Forseti Investments Ltd., a Barbados
corporation ("Forseti").
WHEREAS, the Company has entered into a Securities Purchase Agreement
(defined below) with Forseti pursuant to which the Company is purchasing
9,600,000 shares of Common Stock (defined below) from Forseti for (i)
$5,000,000 cash; (ii) the Class A Warrants (defined below); (iii) the Class B
Warrants (defined below); and (iv) this Agreement;
WHEREAS, the Company has entered into the JEDI Purchase Agreement
(defined below) with JEDI (defined below) pursuant to which the Company has
issued shares of the Company's Series A Participating Convertible Preferred
Stock, par value $0.01 per share, for (i) $5 million cash; and (ii) the JEDI
Earn Up Agreement (defined below);
NOW, THEREFORE, in consideration of these premises, the agreements
herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Forseti and the Company agree as follows:
1.0 DEFINITIONS
"AAA" means the American Arbitration Association, or any successor
organization.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of, or rights,
warrants or options to purchase, corporate stock or any other equity interest
(however designated) of or in such Person.
"Capitalized Lease Obligation" means the amount of the liability under
any capital lease that, in accordance with GAAP, is required to be capitalized
and reflected as a liability on the consolidated balance sheet of the Company
and its Subsidiaries.
"Class A Amount" is defined in Section 2(c).
1
<PAGE> 101
"Class B Amount" is defined in Section 2(d).
"Class A Warrants" means the Class A Common Stock Purchase Warrants to
purchase 1,000,000 shares of Common Stock, substantially in the form of Exhibit
A to this Agreement.
"Class B Warrants" means the Class B Common Stock Purchase Warrants to
purchase 2,000,000 shares of Common Stock, substantially in the form of Exhibit
B to this Agreement.
"Common Stock" means the common stock, par value $.0015 per share, of
the Company.
"Consolidated Adjusted Net Income" means the consolidated net income
(or loss) of the Company and its Subsidiaries for the fiscal year ending June
30, 1998 as determined in accordance with GAAP, adjusted by excluding, to the
extent included in consolidated net income, (a) net after-tax extraordinary
gains or losses (less all fees and expenses relating thereto), (b) net
after-tax gains or losses (less all fees and expenses relating thereto)
attributable to asset dispositions, (c) the net income (or net loss) of any
Person (other than the Company or any of its Subsidiaries) in which the Company
or any of its Subsidiaries has an ownership interest, except to the extent of
the amount of dividends or other distributions actually paid to the Company or
its Subsidiaries in cash by such other Person during such period, and (d) net
income (or net loss) of any Person combined with the Company or any of its
Subsidiaries on a "pooling of interests" basis attributable to any period prior
to the date of combination.
"Consolidated Interest Expense" means the amount which, in conformity
with GAAP, is set forth opposite the caption "interest expense" (or any like
caption) on the audited consolidated statement of operations of the Company and
its Subsidiaries for the fiscal year ended June 30, 1998.
"Consolidated Net Working Capital" means (i) the amount which, in
conformity with GAAP, is set forth opposite the caption "total current assets"
(or any like caption) on the audited consolidated balance sheet of the Company
and its Subsidiaries as of June 30, 1998 less (ii) the amount which, in
conformity with GAAP, is set forth opposite the caption "total current
liabilities" (or any like caption) on the audited consolidated balance sheet of
the Company and its Subsidiaries as of June 30, 1998.
"Consolidated Non-cash Charges" means the amount which, in conformity
with GAAP, is set forth opposite the caption "depreciation, depletion and
amortization" (or any like caption) on the audited consolidated statement of
operations of the Company and its Subsidiaries for the fiscal year ended June
30, 1998.
"Consolidated Tax Expense" means the amount which, in conformity with
GAAP, is set forth opposite the caption "income tax expense" (or any like
caption) on
2
<PAGE> 102
the audited consolidated statement of operations of the Company and its
Subsidiaries for the fiscal year ended June 30, 1998.
"Dispute" is defined in Section 6.
"EBITDA" means, without duplication, for the fiscal year ended June
30, 1998, the sum of (i) Consolidated Adjusted Net Income and (ii) to the
extent deducted in computing Consolidated Adjusted Net Income, Consolidated
Interest Expense, Consolidated Tax Expense and Consolidated Non-cash Charges.
"Earn Up Amount" is defined in Section 2(b).
"Election Date" means the later of (i) September 30, 1998 and (ii) the
date that is 14 days after the date that the Company notifies Forseti to
request Forseti's election under Section 2.
"Exercise Price" means $2.50.
"Forseti Interests" means all of the outstanding ownership interests
in Forseti and each entity that controls or owns an ownership interest in
Forseti.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, in effect from time to
time.
"Guaranteed Debt" means, without duplication, all Indebtedness of any
other Person guaranteed directly or indirectly in any manner by the Company or
any of its Subsidiaries, or in effect guaranteed directly or indirectly by the
Company or any of its Subsidiaries through an agreement (i) to pay or purchase
such Indebtedness or to advance or supply funds for the payment or purchase of
such Indebtedness, (ii) to purchase, sell or lease (as lessee or lessor)
property, or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such Indebtedness or to assure the
holder of such Indebtedness against loss, (iii) to supply funds to, or in any
other manner invest in, the debtor (including any agreement to pay for property
or services to be acquired by such debtor irrespective of whether such property
is received or such services are rendered), (iv) to maintain working capital or
equity capital of the debtor, or otherwise to maintain the net worth, solvency
or other financial condition of the debtor or (v) otherwise to assure a
creditor against loss; provided that the term "guarantee" shall not include
endorsements for collection or deposit.
"Indebtedness" means, as of June 30, 1998, without duplication, (i)
all indebtedness of the Company or any of its Subsidiaries for borrowed money
or for the deferred purchase price of property or services, excluding any trade
accounts payable and other accrued current liabilities incurred in the ordinary
course of business, (ii) all obligations of the Company or any of its
Subsidiaries evidenced by bonds, notes, debentures or other similar
instruments, (iii) all indebtedness created or arising under any conditional
sale or other title retention agreement with respect to
3
<PAGE> 103
property acquired by the Company or any of its Subsidiaries (even if the rights
and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), but excluding
trade accounts payable arising in the ordinary course of business, (iv) all
Capitalized Lease Obligations, (v) all indebtedness referred to in (but not
excluded from) clause (i), (ii), (iii) or (iv) above of other Persons, the
payment of which is secured by (or for which the holder of such indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien upon
or in property (including, without limitation, accounts and contract rights)
owned by the Company or any of its Subsidiaries, even though such Person has
not assumed or become liable for the payment of such indebtedness, (vi) all
Guaranteed Debt, (vii) all Redeemable Capital Stock valued at its maximum fixed
repurchase price plus accrued and unpaid dividends, and (viii) any amendment,
supplement, modification, deferral, renewal, extension or refunding of any
liability of the types referred to in clauses (i) through (vii) above. For
purposes hereof, the "maximum fixed repurchase price" of any Redeemable Capital
Stock that does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Redeemable Capital Stock as if such
Redeemable Capital Stock were purchased on any date on which Indebtedness shall
be required to be determined pursuant to this Agreement, and if such price is
based upon, or measured by, the fair market value of such Redeemable Capital
Stock, such fair market value to be determined in good faith by the Board of
Directors of the issuer of such Redeemable Capital Stock.
"JEDI" means Joint Energy Development Investments Limited Partnership,
a Delaware limited partnership.
"JEDI Earn Up Agreement" means the Earn Up Agreement entered into
between the Company and JEDI substantially in the form of Exhibit C to this
Agreement.
"JEDI Purchase Agreement" means the Securities Purchase Agreement
dated March _____, 1997 between the Company and JEDI.
"Mediator" is defined in Section 6.
"Outstanding Shares" means, as of June 30, 1998, the issued and
outstanding shares of Common Stock, assuming the conversion of all shares of
preferred stock of the Company, that are convertible into shares of Common
Stock, and excluding any shares of Common Stock held in treasury by the Company
or held by any wholly-owned Subsidiary of the Company.
"Payment Date" means the later of (i) October 15, 1998 or (ii) the
date that is 15 days after the Election Date.
"Person" means any individual, corporation, limited or general
partnership, joint venture, association, joint- stock company, trust, limited
liability company,
4
<PAGE> 104
unincorporated organization or government or any agency or political
subdivision thereof.
<TABLE>
<S> <C>
"Price" means, if:
(Price(1) - Price(2))
--------------------- less than or equal to 0.1, then (Price(1) + Price(2))/2;
Greater of Price(1) or Price(2)
provided, that if: (Price(1) - Price(2))
---------------------- greater than 0.1, then the Company and Forseti
Greater of Price(1) or Price(2)
</TABLE>
shall negotiate the Price; provided, further, that if the Price has not been
agreed upon within 5 business days after the determination of Price1 and
Price2, then the determination of the Price shall be submitted to nonbinding
mediation and arbitration in accordance with this Agreement. Notwithstanding
anything to the contrary in this Agreement, under no circumstances shall the
Price exceed the higher of Price1 and Price2 or be less than the lower of
Price1 and Price2.
<TABLE>
<S> <C>
(1.1 * SEC PV(10)) - Indebtedness + Consolidated Net Working Capital
"Price(1)" = ------------------------------------------------------------------------------
Outstanding Shares
(6.0 * EBITDA) - Indebtedness + Consolidated Net Working Capital
"Price(2)" = ------------------------------------------------------------------------------
Outstanding Shares
</TABLE>
"Redeemable Capital Stock" means any Capital Stock of the Company or
any of its Subsidiaries that, either by its terms, by the terms of any security
into which it is convertible or exchangeable or otherwise, (i) is, or upon the
happening of an event or passage of time would be, required to be redeemed, or
(ii) is, or upon the happening of an event or passage of time would be,
redeemable at the option of the holder thereof, or (iii) is, or upon the
happening of an event or passage of time would be, convertible into or
exchangeable for debt securities.
"SEC PV(10)" means the pre tax future net cash flows from proved oil
and gas reserves of the Company and its Subsidiaries at June 30, 1998, computed
using a discount factor of ten percent, as determined in accordance with the
rules, regulations and guidelines of the United States Securities and Exchange
Commission and reported in the reserve report dated as of such date prepared in
accordance with Section 6.11 of the JEDI Purchase Agreement.
"Securities Purchase Agreement" means the Securities Purchase
Agreement dated March 27, 1997 between the Company and Forseti.
5
<PAGE> 105
"Statutory Declaration" means a statutory declaration by Forseti that
as of the Election Date and the Payment Date (i) the individual who, as of the
date hereof, owned all the Forseti Interests owns all of the Forseti Interests,
(ii) there are no encumbrances, pledges or other liens on any equity interests
in Forseti, and (iii) no other event under Section 8(h) has occurred.
"Subsidiary" of a Person means any corporation, limited liability
company, limited or general partnership, joint venture, association,
joint-stock company or business trust of which at the time of determination
such Person, directly and/or indirectly through one or more other Persons, owns
more than 50% of the voting interests.
"Transfer" of any property means any exercise, or any direct or
indirect sale, transfer, encumbrance, gift, donation, assignment, grant of any
interest, pledge, hypothecation or other disposition of such property or any
interest therein, whether voluntary or involuntary, including, but not limited
to, any transfer by operation of law, by court order, by judicial process, or
by foreclosure, levy, or attachment.
"Value" is defined in Section 2(f).
"Warrant Transfer Amount" is defined in Section 2(e).
"Warrants" means, collectively, the Class A Warrants and the Class B
Warrants.
2.0 FORSETI ELECTION; PAYMENT OF EARN UP AMOUNT
(a) On or before the Election Date, Forseti shall deliver notice
to the Company of its election to either (i) accept the payment of the
Earn Up Amount in accordance with the terms and conditions of this
Agreement (in which event the Warrants that have not been Transferred
by Forseti shall be delivered to the Company pursuant to Section
2(b)); or (ii) retain the Warrants that have not been Transferred by
Forseti (in which event the Company shall have no obligation to pay
Forseti the Earn Up Amount and the Company's obligations under this
Agreement shall terminate immediately). If Forseti fails to deliver
notice to the Company on or before the Election Date specifying the
election in (i) or (ii), then Forseti shall be deemed to have elected
(i) above.
(b) In the event that Forseti elects, or is deemed to elect, (i)
above, then on or before the Payment Date, subject to the limitations
in Section 3 and only against delivery by Forseti to the Company of
(x) the Warrants and (y) the Statutory Declaration, the Company shall
pay Forseti an amount (the "Earn Up Amount") equal to the amount, if
any, by which (i) the sum of the Class A Amount and the Class B Amount
exceeds (ii) the Warrant Transfer Amount; provided, that in no event
shall the Earn Up Amount exceed $9,400,000.
6
<PAGE> 106
(c) The "Class A Amount" means a dollar amount equal to the
product of (i) the Value (not to exceed $1.50) less $1.25, multiplied
by (ii) 9,600,000; provided, that in no event shall the Class A Amount
be greater than $2,400,000; and if the Class A Amount is zero or a
negative number, the Class A Amount shall be deemed to be zero.
(d) The "Class B Amount" means a dollar amount equal to the
product of (i) the Value (not to exceed $1.25) less $0.521, multiplied
by (ii) 9,600,000; provided, that in no event shall the Class B Amount
be greater than $7,000,000; and if the Class B Amount is zero or a
negative number, the Class B Amount shall be deemed to be zero.
(e) The "Warrant Transfer Amount" means a dollar amount equal to
the greatest of (i) the product of (x) $3.50 multiplied by (y) the
aggregate number of Class A Warrants and Class B Warrants Transferred
by Forseti before the Payment Date; (ii) the aggregate gross proceeds
that Forseti has received or is entitled to receive from the Transfer
of all of the Class A Warrants and Class B Warrants Transferred by
Forseti before the Payment Date; and (iii) the difference between the
average daily bid price of the Company's shares of Common Stock for
the 21-day period ending on the Election Date less the Exercise Price,
multiplied by the number of Class A Warrants and the Class B Warrants
Transferred by Forseti before the Payment Date.
(f) The "Value" means the product of the Price, multiplied by
0.60; provided, that if (i) the Common Stock is quoted on The Nasdaq
National Market at the Election Date and (ii) the average daily
trading volume of the Company's shares of Common Stock for the 21-day
period ending on the Election Date is at least 50,000 shares per day
(excluding trading of shares in any accounts controlled by the Company
or Forseti or their respective Affiliates, and provided, that if on
any of the 21 days the trading volume is greater than 300,000 shares,
then only 300,000 shares on such days may be used in calculating the
average), then Value means the product of the Price, multiplied by
0.75.
(g) The Company represents and warrants to Forseti that the
definitions of the terms "Price" and "Value" in the JEDI Earn Up
Agreement are identical to the definitions of such terms in this
Agreement.
3.0 LIMITATION ON PAYMENT
The Company shall be obligated to pay Forseti under this Agreement
only to the extent that the Company has received a like amount as payment from
JEDI under the JEDI Earn Up Agreement. If JEDI shall fail to make payments due
under the JEDI Earn Up Agreement on the Election Date, then Company shall have
no obligation to pay Forseti under this Agreement until such time that JEDI
makes
7
<PAGE> 107
payment to the Company under the JEDI Earn Up Agreement, and then only to the
extent of payments made by JEDI under the JEDI Earn Up Agreement.
4.0 SHARING OF EXCESS PROCEEDS
If the sum of (i) $5,000,000 and (ii) the aggregate amount received by
Forseti from the Transfer of Warrants, exceeds the sum of (x) $14,400,000 plus
(y) a dollar amount equal to the sum of the expenses of the Company paid by
Forseti pursuant to the Securities Purchase Agreement, the reasonable
out-of-pocket expenses up to a maximum of $50,000 incurred by Forseti in
connection with the Securities Purchase Agreement, and the escrow agent fees
incurred by Forseti under the Escrow Agreement among the Company, Forseti and
____________________ the sum of subclauses (x) and (y) being referred to as
"Net Proceeds," then within 10 days of the date (the "Excess Determination
Date") the aggregate amount received by Forseti exceeds the Net Proceeds, (x)
Forseti shall deliver to the Company an amount in cash or by wire transfer of
immediately available funds equal to 75% of such amount received by Forseti in
excess of the Net Proceeds, and (y) Forseti shall spend the remaining 25% of
such excess amount to purchase from the Company, subject to applicable
securities laws, Common Stock at a price equal to the average of the Nasdaq bid
price over 21 trading days ending on the Excess Determination Date.
5.0 OPTION
Subject to this Section 5, the Company hereby grants to Forseti an
option to purchase from the Company a number of shares of Common Stock equal to
the quotient of (x) the amount by which the Earn Up Amount exceeds $7,000,000
and (y) $2.50 (as such number of shares may be adjusted pursuant to this
Section 5, the "Shares"), at a price per share equal to $2.50 (as such price
may be adjusted pursuant to this Section 5). The option granted in this
Section 5 is exerciseable in full or in part (i) only from the date that the
Earn Up Amount is paid by the Company to Forseti through the fifth business day
after the date of payment of the Earn Up Amount and (ii) by written notice to
the Company of such exercise, which notice shall be accompanied by proper
payment in cash or certified or bank check. The option in this Section 5.0 is
not transferable. The number of Shares for which the option in this Section 5
may be exercised, and the price at which such option may be exercised, are
subject to appropriate adjustment in the event that the Company (i) pays a
dividend of shares of Common Stock or makes a distribution in shares of Common
Stock), (ii) subdivides its outstanding shares of Common Stock into a larger
number of shares of Common Stock, (iii) combines its outstanding shares of
Common Stock into a smaller number of shares of Common Stock or (iv) issues any
shares of its capital stock or other assets in a reclassification or
reorganization of the Common Stock (including any such reclassification in
connection with a consolidation or merger in which the Company is the
continuing entity). THE OPTION IN THIS SECTION 5 AND THE SHARES OF COMMON
STOCK ISSUABLE UPON EXERCISE OF THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR ANY OTHER
8
<PAGE> 108
UNITED STATES FEDERAL OR STATE SECURITIES OR BLUE SKY LAWS OR APPLICABLE
NON-UNITED STATES SECURITIES LAWS.
6.0 MEDIATION.
Any controversy, dispute or claim arising out of or relating to this
Agreement (a "Dispute") shall be submitted to non-binding mediation upon the
request of the Company or Forseti on the following terms. Upon the request of
either party, a neutral mediator acceptable to both parties (the "Mediator")
shall be appointed within 15 days. The Mediator shall attempt through
negotiations in any manner deemed reasonably appropriate by the Mediator, in
which the parties shall participate, to resolve the Dispute. The Mediator
shall be compensated at a rate agreeable to the Company, Forseti and the
Mediator, and each of the Company and Forseti shall pay its pro rata share of
such compensation and other expenses of the mediation.
7.0 ARBITRATION.
In the event that mediation of a Dispute has not commenced within 15
days after a request for mediation is submitted or is terminated without
resolution under Section 6.0, any controversy or claim arising out of or
relating to this Agreement, including the right to or amount of indemnity,
shall be settled by arbitration in accordance with the Commercial Arbitration
Rules of the AAA by three (3) arbitrators. Each of Forseti and the Company
shall appoint one arbitrator, who shall be an impartial person. If a party
fails to appoint an arbitrator within thirty (30) days from the date a Demand
to Arbitrate was made under Rule 6, the AAA shall make the appointment of the
arbitrator. The two (2) arbitrators thus appointed shall appoint the third
arbitrator, who shall be an impartial person. If said two (2) arbitrators fail
to appoint the third arbitrator within sixty (60) days from the date a Demand
to Arbitrate was made under Rule 6, the AAA shall make the appointment of the
third arbitrator, who shall be an impartial person. Should any of the
arbitrators appointed die, resign, refuse or become unable to act before a
decision is given, the vacancy shall be filled by the method set forth in this
clause for the original appointment. The arbitration shall be held in Dallas,
Texas and shall be conducted in the English language. A decision by the
arbitrators shall be final and binding on all the parties. The arbitrators
shall execute and deliver to the respective parties the arbitration panel's
decision in writing. Judgment upon the award, if any, rendered by the
arbitrators (which must be expressed in United States Dollars) may be entered
in any court having jurisdiction thereof. In any award, the arbitrators shall
assess the arbitration costs and expenses, including, without limitation,
attorneys fees of the parties, in a manner deemed equitable by the arbitrators,
taking into account the arbitration decision. Notwithstanding anything to the
contrary in this Agreement, if a Dispute involves the determination of Price,
the Price, as determined by arbitration under this Section 7, shall not (i) (a)
exceed the higher or Price1 and Price2, or (b) be lower than the lower of
Price1 and Price2, (ii) exceed the Price as determined under the JEDI Earn Up
Agreement, including a Price as determined by arbitration under the provisions
of the JEDI Earn Up Agreement, or
9
<PAGE> 109
(iii) exceed the amount received by the Company from JEDI pursuant to the JEDI
Earn Up Agreement.
8.0 MISCELLANEOUS
(a) Governing Law; Choice of Forum; Consent to Service of Process.
This Agreement shall be governed by the substantive laws of the State
of Texas. Except as provided in Sections 6 and 7, the parties hereto
agree that any suit, action or proceeding arising out of or relating
to this Agreement or any agreement or obligation delivered in
connection with this Agreement or any judgment entered by any court in
respect thereof shall be brought in the Courts of the State of Texas,
County of Dallas or in the United States District Court for the
Northern District of Texas and each such party hereby submits to the
exclusive jurisdiction of such courts for the purpose of any such
suit, action or proceeding relating to this Agreement or any related
agreement or obligation. Forseti hereby submits to the jurisdiction
of the State of Texas and agrees that service of all writs, process
and summonses in any such suit, action or proceeding brought in the
United States against Forseti may be made upon CT Corporation System
at its offices located at 350 North St. Paul Street, Dallas, Texas
75201 (or any subsequent address of CT Corporation System), and
Forseti hereby irrevocably appoints CT Corporation System at its
offices located at 350 North St. Paul Street, Dallas, Texas 75201 (or
any subsequent address of CT Corporation System) its true and lawful
attorney-in-fact in their name, place and stead to accept such service
of any and all such writs, process and summonses, and agree that the
failure of CT Corporation System to give to Forseti any notice of any
such service of process shall not impair or affect the validity of
such service or of any judgment based thereon. The Company shall
send, within 5 days after service of process under this subsection
(a), notice to Forseti in accordance with subsection (e) of any
service of process on CT Corporation System under this subsection (a).
Service of process on the Company may be made to the Company's
registered agent in Delaware, Corporation Trust Centre, 1209 Orange
Street, in the City of Wilmington, County of New Castle.
Each party hereto hereby irrevocably waives any objection that
it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement or
any agreement or obligation delivered in connection with this
Agreement, brought in the Courts of the State of Texas, County of
Dallas or the United States District Court for the Northern District
of Texas, and hereby further irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been
brought in an inconvenient forum.
(b) Invalid Provisions. If any provision of this Agreement is
held to be illegal, invalid or unenforceable, such provision shall be
fully severable.
10
<PAGE> 110
(c) Entirety and Amendments. This Agreement and that certain
Letter Agreement dated as of the date hereof between the Company and
the individual who owns directly or indirectly all of the Forseti
Interests embody the entire agreement and understanding relating to
the subject matter hereof and supersede all prior understandings
between the parties relating to the subject matter hereof. This
Agreement may be amended only by an instrument in writing executed by
the Company and Forseti.
(d) Parties Bound. This Agreement shall be binding upon and inure
to the benefit of the Company and Forseti, and their respective
successors and permitted assigns. Neither the Company nor Forseti may
assign its rights or delegate its obligations hereunder (whether
voluntarily, involuntarily, or by operation of law) without the prior
written consent of the other party.
(e) Notices. Unless otherwise specified, whenever this Agreement
requires or permits any consent, approval, notice, request, or demand
from one party to another, that communication must be in writing
(which may be by telecopy) to be effective and is deemed to have been
given (a) if by telecopy, when transmitted to the appropriate telecopy
number (and all communications sent by telecopy must be confirmed
promptly by telephone; but any requirement in this parenthetical does
not affect the date when the telecopy is deemed to have been
delivered), or (b) if by any other means, including by internationally
acceptable courier or hand delivery, when actually delivered. Until
changed by notice pursuant to this Agreement, the address (and
telecopy number) for the Company and Forseti are:
If to Forseti: Forseti Investments Ltd.
5-206 Dowell House
Bridgetown, Barbados
West Indies
Attn: Dennis Chandler
Facsimile: (246) 427-5667
With copies to: Faust Fresenius Heyne Scherzberg,
attorneys
Paul-Ehrlich-Strasse 37-39
60596 Frankfurt-Am-Main
Attn: Christoph Heyne
Facsimile: (49) 6963009090
If to Company: Queen Sand Resources, Inc.
3500 Oak Lawn, Suite 380, L.B.#31
Dallas, Texas 75219-4398
Attn: Robert P. Lindsay
Facsimile: (214) 521-9960
11
<PAGE> 111
With copies to: Queen Sand Resources, Inc.
60 Queen Street, Suite 1400
Ottawa, Canada K1P 5Y7
Attn: Edward J. Munden
Facsimile: (613) 230-6055
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
Attn: William L. Boeing
Facsimile: (214) 651-5940
(f) Section and Other Headings. The headings contained in this
Agreement are for reference purposes only and will not affect in any
way the meaning or interpretation of this Agreement.
(g) Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original and all of
which together will constitute one instrument.
(h) Termination. This Agreement shall terminate upon the earlier
of (i) the Transfer of any Warrants in violation of the restrictions
on Transfer of Warrants under the Securities Purchase Agreement, (ii)
the election by Forseti to retain the Warrants under Section 2(a)(ii),
(iii) the Transfer of all of the Warrants, (iv) upon the Transfer of
any ownership interest in Forseti or any entity controlling Forseti
where the purpose of the transfer is to realize or receive cash,
securities or any other property as consideration for the Warrants
without transferring the Warrants; and (v) as of the Election Date or
the Payment Date, the individual who, as of the date hereof owned,
directly or indirectly, all of the Forseti Interests does not own,
directly or indirectly, all of the Forseti Interests. No termination
of this Agreement shall affect the validity of the Warrants.
(i) Currency. All dollar amounts in this Agreement shall mean
United States dollars.
12
<PAGE> 112
IN WITNESS WHEREOF, Forseti and the Company have executed this
Agreement as of the day and year first stated above.
FORSETI:
FORSETI INVESTMENTS LTD.
By:
----------------------------------
Name:
-------------------------------
Title:
------------------------------
[with notary attached]
COMPANY:
QUEEN SAND RESOURCES, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
[with notary attached]
and
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
[with notary attached]
13
<PAGE> 113
EXHIBIT A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE THEREOF (THE "SECURITIES") HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
OTHER UNITED STATES FEDERAL OR STATE SECURITIES OR BLUE SKY LAWS OR APPLICABLE
NON-UNITED STATES SECURITIES LAWS, AND HAVE BEEN ISSUED IN A MANNER INTENDED TO
COMPLY WITH THE CONDITIONS CONTAINED IN REGULATION S UNDER THE ACT. PRIOR TO
_______________, 1998, NO OFFER, SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION
(COLLECTIVELY, A "DISPOSAL") OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE
MAY BE MADE (A) IN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF,
ANY "U.S. PERSON" (AS DEFINED IN REGULATION S) UNLESS (i) REGISTERED UNDER THE
ACT AND ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR (ii) QUEEN SAND
RESOURCES, INC. (THE "COMPANY") RECEIVES A WRITTEN OPINION OF UNITED STATES
LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO IT TO THE EFFECT THAT SUCH
DISPOSAL IS EXEMPT FROM SUCH REGISTRATION REQUIREMENTS OR (B) OUTSIDE THE
UNITED STATES TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY PERSON WHO IS NOT A
"U.S. PERSON" UNLESS PRIOR TO SUCH DISPOSAL (i) THE BENEFICIAL OWNER OF SUCH
SECURITIES AND THE PROPOSED TRANSFEREE SUBMIT CERTAIN CERTIFICATIONS TO THE
COMPANY (FORMS OF WHICH ARE AVAILABLE FROM THE COMPANY AT ITS PRINCIPAL
EXECUTIVE OFFICES) AND (ii) THE COMPANY RECEIVES THE LEGAL OPINION DESCRIBED IN
(A)(ii) ABOVE. THE SECURITIES ARE ALSO SUBJECT TO CERTAIN RESTRICTIONS UPON
TRANSFER AS SET FORTH IN THIS WARRANT AND THE SECURITIES PURCHASE AGREEMENT
DATED AS OF _______________, 1997, A COPY OF WHICH IS AVAILABLE FOR INSPECTION
AT ITS PRINCIPAL PLACE OF BUSINESS.
- --------------------------------------------------------------------------------
QUEEN SAND RESOURCES, INC.
Class A Common Stock Purchase Warrant
Representing Right To Purchase Shares of
Common Stock
of
Queen Sand Resources, Inc.
------------
No. A-1
------------
FOR VALUE RECEIVED, QUEEN SAND RESOURCES, INC., a Delaware corporation
(the "Company"), hereby certifies that Forseti Investments Ltd., a Barbados
corporation (the "Holder"), is entitled, subject to the provisions of this
Warrant, to purchase from the
<PAGE> 114
Company, at any time or from time to time during the Exercise Period (as
hereinafter defined), a total of 1,000,000 shares (as such number of shares may
be adjusted pursuant to the terms hereof, the "Warrant Shares") of Common
Stock, par value $.0015 per share, of the Company, at a price per share equal
to the Exercise Price (as defined below). This Warrant is issued to the Holder
(together with such other warrants as may be issued in exchange, transfer or
replacement of this Warrant, the "Warrants") pursuant to the Securities
Purchase Agreement (as defined below) and entitles the Holder to purchase the
Warrant Shares and to exercise the other rights, powers and privileges
hereinafter provided, all on the terms and conditions and pursuant to the
provisions set forth herein and in the Securities Purchase Agreement.
Section 1. Definitions. The following terms, as used
herein, have the following respective meanings:
"Common Stock" means the Company's common stock, $0.0015 par value.
"Company" is defined in the introductory paragraph of this Warrant.
"Date of Issuance" means __________ _____, 1997.
"Earn Up Agreement" means the Earn Up Agreement, dated as of the date
hereof, between the Company and the Holder.
"Exercise Period" means the period of time between the Date of
Issuance and 5:00 p.m. (New York City time) on December 31, 1998, provided,
however, that any Warrants held by Forseti Investments Ltd. on the Election
Date (as defined in the Earn Up Agreement) shall expire on the Election Date
unless Forseti Investments Ltd. elects to retain the Warrants pursuant to
Section 2(a)(ii) of the Earn Up Agreement.
"Exercise Price" means an amount, per share, equal to $2.50 (U.S.
dollars). The Exercise Price shall be subject to adjustment, as set forth in
Section 4.
"Holder" means Forseti Investments Ltd. and its permitted assignees.
"Person" means any individual, corporation, limited or general
partnership, joint venture, association, joint- stock company, trust, limited
liability company, unincorporated organization or government or any agency or
political subdivision thereof.
"Required Holders" means the Holders of more than 50% of all Warrant
Shares then outstanding (assuming the full exercise of all Warrants).
"Securities Purchase Agreement" means the Securities Purchase
Agreement, dated as of March ___, 1997, between the Company and Forseti, as
such agreement shall be modified, amended and supplemented and in effect from
time to time.
"Value" means, as of any date of determination, with respect to the
Common Stock, $3.50 per share of Common Stock.
"Warrants" is defined in the introductory paragraph of this Warrant.
"Warrant Shares" is defined in the introductory paragraph of this
Warrant.
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<PAGE> 115
Section 2. Exercise of Warrant; Cancellations of
Warrant. Subject to the Securities Purchase Agreement and the provisions of
Regulation S promulgated under the Securities Act of 1933, as amended, this
Warrant may be exercised in whole or in part, at any time or from time to time,
during the Exercise Period, by presentation and surrender hereof to the Company
at its principal office at the address set forth in Section 11 (or at such
other reasonable address as the Company may after the date hereof notify the
Holder in writing, coming into effect not before 14 days after receipt of such
notice by the Holder), with the Purchase Form annexed hereto as Exhibit A duly
executed and accompanied by either (at the option of the Holder) proper payment
in cash or certified or bank check equal to the Exercise Price for the Warrant
Shares for which this Warrant is being exercised; provided, that if this
Warrant is exercised in part, the Warrant must be exercised for the purchase of
at least 100,000 shares of Common Stock. Upon exercise of this Warrant as
aforesaid, the Company shall as promptly as practicable, and in any event
within 20 days thereafter, execute and deliver to the Holder a certificate or
certificates for the total number of Warrant Shares for which this Warrant is
being exercised, in such names and denominations as requested in writing by the
Holder. The Company shall pay any and all documentary stamp or similar issue
taxes payable in respect of the issue of the Warrant Shares. If this Warrant
is exercised in part only, the Company shall, upon surrender of this Warrant,
execute and deliver a new Warrant evidencing the rights of the Holder thereof
to purchase the balance of the Warrant Shares issuable hereunder.
Section 3. Exchange, Transfer, Assignment or Loss of
Warrant. This Warrant is exchangeable, without expense, at the option of the
Holder, upon presentation and surrender hereof to the Company for other
Warrants of different denominations, entitling the Holder to purchase in the
aggregate the same number of Warrant Shares. The Holder of this Warrant shall
be entitled, without obtaining the consent of the Company, to transfer or
assign its interest in (and rights under) this Warrant in whole or in part to
any Person or Persons, subject to the provisions of Section 7 of this Warrant
and Article 8 of the Securities Purchase Agreement. Upon surrender of this
Warrant to the Company, with the Assignment Form annexed hereto as Exhibit B
duly executed and funds sufficient to pay any transfer tax, the Company shall,
without charge, execute and deliver a new Warrant or Warrants in the name of
the assignee or assignees named in such Assignment Form and, if the Holder's
entire interest is not being assigned, in the name of the Holder, and this
Warrant shall promptly be canceled. This Warrant may be divided or combined
with other Warrants that carry the same rights upon presentation hereof at the
office of the Company, together with a written notice specifying the names and
denominations in which new Warrants are to be issued and signed by the Holder
hereof. Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification
(including, if required in the reasonable judgment of the Company, a statement
of net worth of such Holder that is at a level reasonably satisfactory to the
Company), and upon surrender and cancellation of this Warrant, if mutilated,
the Company shall execute and deliver a new Warrant of like tenor and date.
Section 4. Antidilution Provisions.
(a) Adjustment of Number of Warrant Shares and Exercise Price.
The number of Warrant Shares purchasable pursuant hereto and the Exercise
Price, each shall be subject to adjustment from time to time on and after the
Date of Issuance as provided in this Section 4(a). In case the Company shall
at any time after the Date of Issuance (i) pay a dividend of shares of Common
Stock or make a distribution of shares of Common Stock, (ii) subdivide its
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<PAGE> 116
outstanding shares of Common Stock into a larger number of shares of Common
Stock, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (iv) issue any shares of its capital stock
or other assets in a reclassification or reorganization of the Common Stock
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing entity), then (x) the securities
purchasable pursuant hereto shall be adjusted to the number of Warrant Shares
and amount of any other securities, cash or other property of the Company which
the Holder would have owned or have been entitled to receive after the
happening of any of the events described above, had this Warrant been exercised
immediately prior to the happening of such event or any record date with
respect thereto, and (y) the Exercise Price shall be adjusted to equal the
Exercise Price immediately prior to the adjustment multiplied by a fraction,
(A) the numerator of which is the number of Warrant Shares for which this
Warrant is exercisable immediately prior to the adjustment, and (B) the
denominator of which is the number of shares for which this Warrant is
exercisable immediately after such adjustment. The adjustments made pursuant
to this Section 4(a) shall become effective immediately after the effective
date of the event creating such right of adjustment, retroactive to the record
date, if any, for such event. Any Warrant Shares purchasable as a result of
such adjustment shall not be issued prior to the effective date of such event.
For the purpose of this Section 4(a) and (b), the term "shares of
Common Stock" means (i) the classes of stock designated as the Common Stock of
the Company as of the date hereof, or (ii) any other class of stock resulting
from successive changes or reclassifications of such shares consisting solely
of changes in par value, or from par value to no par value, or from no par
value to par value. In the event that at any time, as a result of an
adjustment made pursuant to this Section 4(a), the Holder shall become entitled
to receive any securities of the Company other than shares of Common Stock,
thereafter the number of such other securities so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with respect to
the Warrant Shares contained in this Section 4.
(b) Reorganization, Merger, etc. If any capital
reorganization, reclassification or similar transaction involving the capital
stock of the Company (other than as specified in Section 4(a)), any
consolidation, merger or business combination of the Company with another
corporation or the sale or conveyance of all or any substantial part of its
assets to another corporation, shall be effected in such a way that holders of
the shares of Common Stock shall be entitled to receive stock, securities or
assets (including, without limitation, cash) with respect to or in exchange for
shares of the Common Stock, then, prior to and as a condition of such
reorganization, reclassification, similar transaction, consolidation, merger,
business combination, sale or conveyance, lawful and adequate provision shall
be made whereby the Holder shall thereafter have the right to purchase and
receive upon the basis and upon the terms and conditions specified in this
Warrant and in lieu of the Warrant Shares immediately theretofore purchasable
and receivable upon the exercise of this Warrant, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding Warrant Shares equal to the number of Warrant
Shares immediately theretofore purchasable and receivable upon the exercise of
this Warrant had such reorganization, reclassification, similar transaction,
consolidation, merger, business combination, sale or conveyance not taken
place. The Company shall not effect any such consolidation, merger, business
combination, sale or conveyance unless prior to or simultaneously with the
consummation thereof the survivor or successor corporation (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument executed and sent to
the Holder, the
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<PAGE> 117
obligation to deliver to the Holder such shares of stock, securities or assets
as, in accordance with the foregoing provisions, the Holder may be entitled to
receive.
(c) Statement on Warrant Certificates. Irrespective of
any adjustments in the Exercise Price or the number or kind of Warrant Shares,
this Warrant may continue to express the same price and number and kind of
shares as are stated on the front page hereof.
(d) Exception to Adjustment. Anything herein to the
contrary notwithstanding, the Company shall not be required to make any
adjustment of the number of Warrant Shares issuable hereunder or to the
Exercise Price in the case of the issuance of the Warrants or the issuance of
shares of the Common Stock (or other securities) upon exercise of the Warrants.
(e) Treasury Shares. The number of shares of the Common
Stock outstanding at any time shall not include treasury shares or shares owned
or held by or for the account of the Company or any of its subsidiaries, and
the disposition of any such shares shall be considered an issue or sale of the
Common Stock for the purposes of this Section 4.
(f) Adjustment Notices to Holder. Upon any increase or
decrease in the number of Warrant Shares purchasable upon the exercise of this
Warrant or the Exercise Price the Company shall, within 30 days thereafter,
deliver written notice thereof to all Holders, which notice shall state the
increased or decreased number of Warrant Shares purchasable upon the exercise
of this Warrant and the adjusted Exercise Price, setting forth in reasonable
detail the method of calculation and the facts upon which such calculations are
based.
Section 5. Notification by the Company. In case at any
time while this Warrant remains outstanding:
(a) the Company shall declare any dividend or make any
distribution upon its Common Stock or any other class of its capital stock; or
(b) the Company shall offer for subscription pro rata to
the holders of its Common Stock or any other class of its capital stock any
additional shares of stock of any class or any other securities convertible
into or exchangeable for shares of stock or any rights or options to subscribe
thereto; or
(c) the Board of Directors of the Company shall authorize
any capital reorganization, reclassification or similar transaction involving
the capital stock of the Company, or a sale or conveyance of all or a
substantial part of the assets of the Company, or a consolidation, merger or
business combination of the Company with another Person; or
(d) actions or proceedings shall be authorized or
commenced for a voluntary or involuntary dissolution, liquidation or winding-up
of the Company;
then, in any one or more of such cases, the Company shall give written notice
to the Holder, at the earliest time legally practicable (and not less than 20
days before any record date or other date set for definitive action) of the
date on which (i) the books of the Company shall close or a record shall be
taken for such dividend, distribution or subscription rights or options or (ii)
such reorganization, reclassification, sale, conveyance, consolidation, merger,
dissolution, liquidation or winding-up shall take place or be voted on by
shareholders of the Company, as the case may be. Such notice shall also
specify the date as of which the holders of the Common Stock of record shall
participate in said dividend, distribution, subscription
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<PAGE> 118
rights or options or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, sale, conveyance, consolidation, merger, dissolution,
liquidation or winding-up, as the case may be. If the action in question or
the record date is subject to the effectiveness of a registration statement
under the Securities Act or to a favorable vote of shareholders, the notice
required by this Section 5 shall so state.
Section 6. No Voting Rights: Limitations of Liability.
Prior to exercise, this Warrant will not entitle the Holder to any voting
rights or other rights as a stockholder of the Company. No provision hereof,
in the absence of affirmative action by the Holder to exercise this Warrant,
and no enumeration herein of the rights or privileges of the Holder, shall give
rise to any liability of the Holder for the purchase price of the Warrant
Shares pursuant to the exercise hereof.
Section 7. Restrictions on Transfer. The Warrants and
the Warrant Shares shall not be transferable except upon the conditions in this
Warrant and specified in the Securities Purchase Agreement. The Warrants may
not be transferred, sold or otherwise disposed of except in blocks of Warrants
for the purchase of at least 100,000 shares of Common Stock; provided, that if
at the time of such transfer, sale or other disposition, the Warrants owned by
the Holder are for the purchase of less than 100,000 shares of Common Stock,
the Holder may sell, transfer or otherwise dispose of all, but not less than
all, of the Warrants. This Warrant bears and the certificates for Warrant
Shares will bear a legend as specified in the Securities Purchase Agreement.
The Holder by its acceptance of this Warrant agrees to comply with and to be
bound by all of the provisions of the Securities Purchase Agreement.
Section 8. Amendment and Waiver.
(a) No failure or delay of the Holder in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The
rights and remedies of the Holder are cumulative and not exclusive of any
rights or remedies which it would otherwise have. The provisions of this
Warrant may be amended, modified or waived with (and only with) the written
consent of the Company and the Required Holders.
(b) No notice or demand on the Company in any case shall
entitle the Company to any other or further notice or demand in similar or
other circumstances.
Section 9. No Fractional Warrant Shares. The Company
shall not be required to issue stock certificates representing fractions of
Warrant Shares, but shall in respect of any fraction of a Warrant Share make a
payment in cash based on the Value of the Common Stock after giving effect to
the full exercise or conversion of the Warrants.
Section 10. Reservation of Warrant Shares. The Company
shall authorize, reserve and keep available at all times, free from preemptive
rights, a sufficient number of Warrant Shares to satisfy the requirements of
this Warrant.
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<PAGE> 119
Section 11. Notices. Unless otherwise specified, whenever
this Warrant requires or permits any consent, approval, notice, request, or
demand from one party to another, that communication must be in writing (which
may be by telecopy) to be effective and is deemed to have been given (a) if by
telecopy, when transmitted to the appropriate telecopy number (and all
communications sent by telecopy must be confirmed promptly by telephone; but
any requirement in this parenthetical does not affect the date when the
telecopy is deemed to have been delivered), or (b) if by any other means,
including by internationally acceptable courier or hand delivery, when actually
delivered. Until changed by notice pursuant to this Warrant, the address (and
telecopy number) for the Holder and the Company are:
If to Holder: Forseti Investments Ltd.
5-206 Dowell House
Bridgetown, Barados
West Indies
Attn: Dennis Chandler
Facsimile: (246) 427-5667
With copies to: Faust Fresenius Heyne Scherzberg,
attorneys
Paul-Ehrlich-Strasse 37-39
60596 Frankfurt-Am-Main
Attn: Christoph Heyne
Facsimile: (49) 6963009090
If to Company: Queen Sand Resources, Inc.
3500 Oak Lawn, Suite 380, L.B.#31
Dallas, Texas 75219-4398
Attn: Robert P. Lindsay
Facsimile: (214) 521-9960
With copies to: Queen Sand Resources, Inc.
60 Queen Street, Suite 1400
Ottawa, Canada K1P 5Y7
Attn: Edward J. Munden
Facsimile: (613) 230-6055
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
Attn: William L. Boeing, Esq.
Facsimile: (214) 651-5940
Section 12. Section and Other Headings. The headings
contained in this Warrant are for reference purposes only and will not affect
in any way the meaning or interpretation of this Warrant.
Section 13. Governing Law; Choice of Forum; Consent to
Service of Process. THIS WARRANT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE. The parties hereto agree
that any suit, action or proceeding arising out of or relating to this Warrant
or any agreement or obligation delivered in connection with this Warrant or any
judgment entered by any court in respect thereof shall be brought in the Courts
of the State of Texas, County of Dallas or in the United
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<PAGE> 120
States District Court for the Northern District of Texas and each such party
hereby submits to the exclusive jurisdiction of such courts for the purpose of
any such suit, action or proceeding relating to this Warrant or any related
agreement or obligation. The Holder hereby submits to the jurisdiction of the
State of Texas and agrees that service of all writs, process and summonses in
any such suit, action or proceeding brought in the United States against the
Holder may be made upon CT Corporation System at its offices located at 350
North St. Paul Street, Dallas, Texas 75201 (or any subsequent address of CT
Corporation System), and the Holder hereby irrevocably appoints CT Corporation
System at its offices located at 350 North St. Paul Street, Dallas, Texas
75201 (or any subsequent address of CT Corporation System) its true and lawful
attorney-in-fact in their name, place and stead to accept such service of any
and all such writs, process and summonses, and agree that the failure of CT
Corporation System to give to the Holder any notice of any such service of
process shall not impair or affect the validity of such service or of any
judgment based thereon. The Company shall send, within 5 days after any
service of process under this Section 13, notice to the Holder in accordance
with Section 11 of any service of process on CT Corporation System under this
Section 13. Service of process on the Company may be made to the Company's
registered agent in Delaware, Corporation Trust Centre, 1209 Orange Street, in
the City of Wilmington, County of New Castle.
Each party hereto hereby irrevocably waives any objection that it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Warrant or any agreement or obligation
delivered in connection with this Warrant, brought in the Courts of the State
of Texas, County of Dallas or the United States District Court for the Northern
District of Texas, and hereby further irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in
an inconvenient forum.
Section 14. Binding Effect. The terms and provisions of
this Warrant shall inure to the benefit of the Holder and its successors and
assigns and shall be binding upon the Company and its successors and assigns,
including, without limitation, any Person succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets.
* * * * *
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<PAGE> 121
IN WITNESS WHEREOF, the seal of the Company and the signature of its
duly authorized officer have been affixed hereto as of __________ _____, 1997.
[SEAL] QUEEN SAND RESOURCES, INC.
Attest: By:
-------------------------- ---------------------------------
Name:
-------------------------------
Title:
------------------------------
and
Attest: By:
-------------------------- ---------------------------------
Name:
-------------------------------
Title:
------------------------------
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<PAGE> 122
EXHIBIT A
TO
WARRANT
PURCHASE FORM
To Be Executed by the Holder
Desiring to Exercise a Warrant of
Queen Sand Resources, Inc.
The undersigned holder hereby exercises the right to purchase ______
shares of Common Stock covered by the within Warrant, according to the
conditions thereof, and herewith makes payment in full of the Exercise Price of
such shares, in the amount of $____________.
Name of Holder:
--------------------------------------
Signature:
----------------------------
Title:
--------------------------------
Address:
------------------------------
--------------------------------------
--------------------------------------
Dated: , .
--------------------- -------
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<PAGE> 123
EXHIBIT B
TO
WARRANT
ASSIGNMENT FORM
To Be Executed by the Holder
Desiring to Transfer a Warrant of
Queen Sand Resources, Inc.
FOR VALUE RECEIVED, the undersigned holder hereby sells, assigns and
transfers unto __________________________ the right to purchase ____________
shares of Common Stock covered by the within Warrant, and does hereby
irrevocably constitute and appoint _________________ Attorney to transfer the
said Warrant on the books of the Company (as defined in such Warrant), with
full power of substitution.
Name of Holder:
--------------------------------------
Signature:
----------------------------
Title:
--------------------------------
Address:
------------------------------
--------------------------------------
--------------------------------------
Dated: , .
--------------------- -------
In the presence of
- ---------------------------------
NOTICE:
The signature to the foregoing Assignment Form must correspond to the name as
written upon the face of the within Warrant in every detail, without alteration
or enlargement or any change whatsoever.
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<PAGE> 124
EXHIBIT B
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE THEREOF (THE "SECURITIES") HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
OTHER UNITED STATES FEDERAL OR STATE SECURITIES OR BLUE SKY LAWS OR APPLICABLE
NON-UNITED STATES SECURITIES LAWS, AND HAVE BEEN ISSUED IN A MANNER INTENDED TO
COMPLY WITH THE CONDITIONS CONTAINED IN REGULATION S UNDER THE ACT. PRIOR TO
_______________, 1998, NO OFFER, SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION
(COLLECTIVELY, A "DISPOSAL") OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE
MAY BE MADE (A) IN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF,
ANY "U.S. PERSON" (AS DEFINED IN REGULATION S) UNLESS (i) REGISTERED UNDER THE
ACT AND ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR (ii) QUEEN SAND
RESOURCES, INC. (THE "COMPANY") RECEIVES A WRITTEN OPINION OF UNITED STATES
LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO IT TO THE EFFECT THAT SUCH
DISPOSAL IS EXEMPT FROM SUCH REGISTRATION REQUIREMENTS OR (B) OUTSIDE THE
UNITED STATES TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY PERSON WHO IS NOT A
"U.S. PERSON" UNLESS PRIOR TO SUCH DISPOSAL (i) THE BENEFICIAL OWNER OF SUCH
SECURITIES AND THE PROPOSED TRANSFEREE SUBMIT CERTAIN CERTIFICATIONS TO THE
COMPANY (FORMS OF WHICH ARE AVAILABLE FROM THE COMPANY AT ITS PRINCIPAL
EXECUTIVE OFFICES) AND (ii) THE COMPANY RECEIVES THE LEGAL OPINION DESCRIBED IN
(A)(ii) ABOVE. THE SECURITIES ARE ALSO SUBJECT TO CERTAIN RESTRICTIONS UPON
TRANSFER AS SET FORTH IN THIS WARRANT AND THE SECURITIES PURCHASE AGREEMENT
DATED AS OF _______________, 1997, A COPY OF WHICH IS AVAILABLE FOR INSPECTION
AT ITS PRINCIPAL PLACE OF BUSINESS.
- --------------------------------------------------------------------------------
QUEEN SAND RESOURCES, INC.
Class B Common Stock Purchase Warrant
Representing Right To Purchase Shares of
Common Stock
of
Queen Sand Resources, Inc.
-------------
No. B-1
-------------
FOR VALUE RECEIVED, QUEEN SAND RESOURCES, INC., a Delaware corporation
(the "Company"), hereby certifies that Forseti Investments Ltd., a Barbados
corporation (the "Holder"), is entitled, subject to the provisions of this
Warrant, to purchase from the
<PAGE> 125
Company, at any time or from time to time during the Exercise Period (as
hereinafter defined), a total of 2,000,000 shares (as such number of shares may
be adjusted pursuant to the terms hereof, the "Warrant Shares") of Common
Stock, par value $.0015 per share, of the Company, at a price per share equal
to the Exercise Price (as defined below). This Warrant is issued to the Holder
(together with such other warrants as may be issued in exchange, transfer or
replacement of this Warrant, the "Warrants") pursuant to the Securities
Purchase Agreement (as defined below) and entitles the Holder to purchase the
Warrant Shares and to exercise the other rights, powers and privileges
hereinafter provided, all on the terms and conditions and pursuant to the
provisions set forth herein and in the Securities Purchase Agreement.
Section 1. Definitions. The following terms, as used
herein, have the following respective meanings:
"Common Stock" means the Company's common stock, $0.0015 par value.
"Company" is defined in the introductory paragraph of this Warrant.
"Date of Issuance" means __________ _____, 1997.
"Earn Up Agreement" means the Earn Up Agreement, dated as of the date
hereof, between the Company and the Holder.
"Exercise Period" means the period of time between the Date of
Issuance and 5:00 p.m. (New York City time) on December 31, 1998, provided,
however, that any Warrants held by Forseti Investments Ltd. on the Election
Date (as defined in the Earn Up Agreement) shall expire on the Election Date
unless Forseti Investments Ltd. elects to retain the Warrants pursuant to
Section 2(a)(ii) of the Earn Up Agreement.
"Exercise Price" means an amount, per share, equal to $2.50 (U.S.
dollars). The Exercise Price shall be subject to adjustment, as set forth in
Section 4.
"Holder" means Forseti Investments Ltd. and its permitted assignees.
"Person" means any individual, corporation, limited or general
partnership, joint venture, association, joint- stock company, trust, limited
liability company, unincorporated organization or government or any agency or
political subdivision thereof.
"Required Holders" means the Holders of more than 50% of all Warrant
Shares then outstanding (assuming the full exercise of all Warrants).
"Securities Purchase Agreement" means the Securities Purchase
Agreement, dated as of March ___, 1997, between the Company and Forseti, as
such agreement shall be modified, amended and supplemented and in effect from
time to time.
"Value" means, as of any date of determination, with respect to the
Common Stock, $3.50 per share of Common Stock.
"Warrants" is defined in the introductory paragraph of this Warrant.
"Warrant Shares" is defined in the introductory paragraph of this
Warrant.
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<PAGE> 126
Section 2. Exercise of Warrant; Cancellations of
Warrant. Subject to the Securities Purchase Agreement and the provisions of
Regulation S promulgated under the Securities Act of 1933, as amended, this
Warrant may be exercised in whole or in part, at any time or from time to time,
during the Exercise Period, by presentation and surrender hereof to the Company
at its principal office at the address set forth in Section 11 (or at such
other reasonable address as the Company may after the date hereof notify the
Holder in writing, coming into effect not before 14 days after receipt of such
notice by the Holder), with the Purchase Form annexed hereto as Exhibit A duly
executed and accompanied by either (at the option of the Holder) proper payment
in cash or certified or bank check equal to the Exercise Price for the Warrant
Shares for which this Warrant is being exercised; provided, that if this
Warrant is exercised in part, the Warrant must be exercised for the purchase of
at least 100,000 shares of Common Stock. Upon exercise of this Warrant as
aforesaid, the Company shall as promptly as practicable, and in any event
within 20 days thereafter, execute and deliver to the Holder a certificate or
certificates for the total number of Warrant Shares for which this Warrant is
being exercised, in such names and denominations as requested in writing by the
Holder. The Company shall pay any and all documentary stamp or similar issue
taxes payable in respect of the issue of the Warrant Shares. If this Warrant
is exercised in part only, the Company shall, upon surrender of this Warrant,
execute and deliver a new Warrant evidencing the rights of the Holder thereof
to purchase the balance of the Warrant Shares issuable hereunder.
Section 3. Exchange, Transfer, Assignment or Loss of
Warrant. This Warrant is exchangeable, without expense, at the option of the
Holder, upon presentation and surrender hereof to the Company for other
Warrants of different denominations, entitling the Holder to purchase in the
aggregate the same number of Warrant Shares. The Holder of this Warrant shall
be entitled, without obtaining the consent of the Company, to transfer or
assign its interest in (and rights under) this Warrant in whole or in part to
any Person or Persons, subject to the provisions of Section 7 of this Warrant
and Article 8 of the Securities Purchase Agreement. Upon surrender of this
Warrant to the Company, with the Assignment Form annexed hereto as Exhibit B
duly executed and funds sufficient to pay any transfer tax, the Company shall,
without charge, execute and deliver a new Warrant or Warrants in the name of
the assignee or assignees named in such Assignment Form and, if the Holder's
entire interest is not being assigned, in the name of the Holder, and this
Warrant shall promptly be canceled. This Warrant may be divided or combined
with other Warrants that carry the same rights upon presentation hereof at the
office of the Company, together with a written notice specifying the names and
denominations in which new Warrants are to be issued and signed by the Holder
hereof. Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification
(including, if required in the reasonable judgment of the Company, a statement
of net worth of such Holder that is at a level reasonably satisfactory to the
Company), and upon surrender and cancellation of this Warrant, if mutilated,
the Company shall execute and deliver a new Warrant of like tenor and date.
Section 4. Antidilution Provisions.
(a) Adjustment of Number of Warrant Shares and
Exercise Price. The number of Warrant Shares purchasable pursuant hereto and
the Exercise Price, each shall be subject to adjustment from time to time on
and after the Date of Issuance as provided in this Section 4(a). In case the
Company shall at any time after the Date of Issuance (i) pay a dividend of
shares of Common Stock or make a distribution of shares of Common Stock, (ii)
subdivide its
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<PAGE> 127
outstanding shares of Common Stock into a larger number of shares of Common
Stock, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (iv) issue any shares of its capital stock
or other assets in a reclassification or reorganization of the Common Stock
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing entity), then (x) the securities
purchasable pursuant hereto shall be adjusted to the number of Warrant Shares
and amount of any other securities, cash or other property of the Company which
the Holder would have owned or have been entitled to receive after the
happening of any of the events described above, had this Warrant been exercised
immediately prior to the happening of such event or any record date with
respect thereto, and (y) the Exercise Price shall be adjusted to equal the
Exercise Price immediately prior to the adjustment multiplied by a fraction,
(A) the numerator of which is the number of Warrant Shares for which this
Warrant is exercisable immediately prior to the adjustment, and (B) the
denominator of which is the number of shares for which this Warrant is
exercisable immediately after such adjustment. The adjustments made pursuant
to this Section 4(a) shall become effective immediately after the effective
date of the event creating such right of adjustment, retroactive to the record
date, if any, for such event. Any Warrant Shares purchasable as a result of
such adjustment shall not be issued prior to the effective date of such event.
For the purpose of this Section 4(a) and (b), the term "shares of
Common Stock" means (i) the classes of stock designated as the Common Stock of
the Company as of the date hereof, or (ii) any other class of stock resulting
from successive changes or reclassifications of such shares consisting solely
of changes in par value, or from par value to no par value, or from no par
value to par value. In the event that at any time, as a result of an
adjustment made pursuant to this Section 4(a), the Holder shall become entitled
to receive any securities of the Company other than shares of Common Stock,
thereafter the number of such other securities so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with respect to
the Warrant Shares contained in this Section 4.
(b) Reorganization, Merger, etc. If any capital
reorganization, reclassification or similar transaction involving the capital
stock of the Company (other than as specified in Section 4(a)), any
consolidation, merger or business combination of the Company with another
corporation or the sale or conveyance of all or any substantial part of its
assets to another corporation, shall be effected in such a way that holders of
the shares of Common Stock shall be entitled to receive stock, securities or
assets (including, without limitation, cash) with respect to or in exchange for
shares of the Common Stock, then, prior to and as a condition of such
reorganization, reclassification, similar transaction, consolidation, merger,
business combination, sale or conveyance, lawful and adequate provision shall
be made whereby the Holder shall thereafter have the right to purchase and
receive upon the basis and upon the terms and conditions specified in this
Warrant and in lieu of the Warrant Shares immediately theretofore purchasable
and receivable upon the exercise of this Warrant, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding Warrant Shares equal to the number of Warrant
Shares immediately theretofore purchasable and receivable upon the exercise of
this Warrant had such reorganization, reclassification, similar transaction,
consolidation, merger, business combination, sale or conveyance not taken
place. The Company shall not effect any such consolidation, merger, business
combination, sale or conveyance unless prior to or simultaneously with the
consummation thereof the survivor or successor corporation (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument executed and sent to
the Holder, the
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<PAGE> 128
obligation to deliver to the Holder such shares of stock, securities or assets
as, in accordance with the foregoing provisions, the Holder may be entitled to
receive.
(c) Statement on Warrant Certificates. Irrespective of
any adjustments in the Exercise Price or the number or kind of Warrant Shares,
this Warrant may continue to express the same price and number and kind of
shares as are stated on the front page hereof.
(d) Exception to Adjustment. Anything herein to the
contrary notwithstanding, the Company shall not be required to make any
adjustment of the number of Warrant Shares issuable hereunder or to the
Exercise Price in the case of the issuance of the Warrants or the issuance of
shares of the Common Stock (or other securities) upon exercise of the Warrants.
(e) Treasury Shares. The number of shares of the Common
Stock outstanding at any time shall not include treasury shares or shares owned
or held by or for the account of the Company or any of its subsidiaries, and
the disposition of any such shares shall be considered an issue or sale of the
Common Stock for the purposes of this Section 4.
(f) Adjustment Notices to Holder. Upon any increase or
decrease in the number of Warrant Shares purchasable upon the exercise of this
Warrant or the Exercise Price the Company shall, within 30 days thereafter,
deliver written notice thereof to all Holders, which notice shall state the
increased or decreased number of Warrant Shares purchasable upon the exercise
of this Warrant and the adjusted Exercise Price, setting forth in reasonable
detail the method of calculation and the facts upon which such calculations are
based.
Section 5. Notification by the Company. In case at any
time while this Warrant remains outstanding:
(a) the Company shall declare any dividend or make any
distribution upon its Common Stock or any other class of its capital stock; or
(b) the Company shall offer for subscription pro rata to
the holders of its Common Stock or any other class of its capital stock any
additional shares of stock of any class or any other securities convertible
into or exchangeable for shares of stock or any rights or options to subscribe
thereto; or
(c) the Board of Directors of the Company shall authorize
any capital reorganization, reclassification or similar transaction involving
the capital stock of the Company, or a sale or conveyance of all or a
substantial part of the assets of the Company, or a consolidation, merger or
business combination of the Company with another Person; or
(d) actions or proceedings shall be authorized or
commenced for a voluntary or involuntary dissolution, liquidation or winding-up
of the Company;
then, in any one or more of such cases, the Company shall give written notice
to the Holder, at the earliest time legally practicable (and not less than 20
days before any record date or other date set for definitive action) of the
date on which (i) the books of the Company shall close or a record shall be
taken for such dividend, distribution or subscription rights or options or (ii)
such reorganization, reclassification, sale, conveyance, consolidation, merger,
dissolution, liquidation or winding-up shall take place or be voted on by
shareholders of the Company, as the case may be. Such notice shall also
specify the date as of which the holders of the Common Stock of record shall
participate in said dividend, distribution, subscription
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<PAGE> 129
rights or options or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, sale, conveyance, consolidation, merger, dissolution,
liquidation or winding-up, as the case may be. If the action in question or
the record date is subject to the effectiveness of a registration statement
under the Securities Act or to a favorable vote of shareholders, the notice
required by this Section 5 shall so state.
Section 6. No Voting Rights: Limitations of Liability.
Prior to exercise, this Warrant will not entitle the Holder to any voting
rights or other rights as a stockholder of the Company. No provision hereof,
in the absence of affirmative action by the Holder to exercise this Warrant,
and no enumeration herein of the rights or privileges of the Holder, shall give
rise to any liability of the Holder for the purchase price of the Warrant
Shares pursuant to the exercise hereof.
Section 7. Restrictions on Transfer. The Warrants and
the Warrant Shares shall not be transferable except upon the conditions
specified in this Warrant and in the Securities Purchase Agreement. The
Warrants may not be transferred, sold or otherwise disposed of except in blocks
of Warrants for the purchase of at least 100,000 shares of Common Stock;
provided, that if at the time of such transfer, sale or other disposition, the
Warrants owned by the Holder are for the purchase of less than 100,000 shares
of Common Stock, the Holder may sell, transfer or otherwise dispose of all, but
not less than all, of the Warrants. This Warrant bears and the certificates
for Warrant Shares will bear a legend as specified in the Securities Purchase
Agreement. The Holder by its acceptance of this Warrant agrees to comply with
and to be bound by all of the provisions of the Securities Purchase Agreement.
Section 8. Amendment and Waiver.
(a) No failure or delay of the Holder in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The
rights and remedies of the Holder are cumulative and not exclusive of any
rights or remedies which it would otherwise have. The provisions of this
Warrant may be amended, modified or waived with (and only with) the written
consent of the Company and the Required Holders.
(b) No notice or demand on the Company in any case shall
entitle the Company to any other or further notice or demand in similar or
other circumstances.
Section 9. No Fractional Warrant Shares. The Company
shall not be required to issue stock certificates representing fractions of
Warrant Shares, but shall in respect of any fraction of a Warrant Share make a
payment in cash based on the Value of the Common Stock after giving effect to
the full exercise or conversion of the Warrants.
Section 10. Reservation of Warrant Shares. The Company
shall authorize, reserve and keep available at all times, free from preemptive
rights, a sufficient number of Warrant Shares to satisfy the requirements of
this Warrant.
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<PAGE> 130
Section 11. Notices. Unless otherwise specified, whenever
this Warrant requires or permits any consent, approval, notice, request, or
demand from one party to another, that communication must be in writing (which
may be by telecopy) to be effective and is deemed to have been given (a) if by
telecopy, when transmitted to the appropriate telecopy number (and all
communications sent by telecopy must be confirmed promptly by telephone; but
any requirement in this parenthetical does not affect the date when the
telecopy is deemed to have been delivered), or (b) if by any other means,
including by internationally acceptable courier or hand delivery, when actually
delivered. Until changed by notice pursuant to this Warrant, the address (and
telecopy number) for the Holder and the Company are:
If to Holder: Forseti Investments Ltd.
5-206 Dowell House
Bridgetown, Barbados
West Indies
Attn: Dennis Chandler
Facsimile: (246) 427-5667
With copies to: Faust Fresenius Heyne Scherzberg,
attorneys
Paul-Ehrlich-Strasse 37-39
60596 Frankfurt-Am-Main
Attn: Christoph Heyne
Facsimile: (49) 6963009090
If to Company: Queen Sand Resources, Inc.
3500 Oak Lawn, Suite 380, L.B.#31
Dallas, Texas 75219-4398
Attn: Robert P. Lindsay
Facsimile: (214) 521-9960
With copies to: Queen Sand Resources, Inc.
60 Queen Street, Suite 1400
Ottawa, Canada K1P 5Y7
Attn: Edward J. Munden
Facsimile: (613) 230-6055
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
Attn: William L. Boeing, Esq.
Facsimile: (214) 651-5940
Section 12. Section and Other Headings. The headings
contained in this Warrant are for reference purposes only and will not affect
in any way the meaning or interpretation of this Warrant.
Section 13. Governing Law; Choice of Forum; Consent to
Service of Process. THIS WARRANT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE. The parties hereto agree
that any suit, action or proceeding arising out of or relating to this Warrant
or any agreement or obligation delivered in connection with this Warrant or any
judgment entered by any court in respect thereof shall be brought in the Courts
of the State of Texas, County of Dallas or in the United
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<PAGE> 131
States District Court for the Northern District of Texas and each such party
hereby submits to the exclusive jurisdiction of such courts for the purpose of
any such suit, action or proceeding relating to this Warrant or any related
agreement or obligation. The Holder hereby submits to the jurisdiction of the
State of Texas and agrees that service of all writs, process and summonses in
any such suit, action or proceeding brought in the United States against the
Holder may be made upon CT Corporation System at its offices located at 350
North St. Paul Street, Dallas, Texas 75201 (or any subsequent address of CT
Corporation System), and the Holder hereby irrevocably appoints CT Corporation
System at its offices located at 350 North St. Paul Street, Dallas, Texas
75201 (or any subsequent address of CT Corporation System) its true and lawful
attorney-in-fact in their name, place and stead to accept such service of any
and all such writs, process and summonses, and agree that the failure of CT
Corporation System to give to the Holder any notice of any such service of
process shall not impair or affect the validity of such service or of any
judgment based thereon. The Company shall send, within 5 days after any
service of process under this Section 13, notice to the Holder in accordance
with Section 11 of any service of process on CT Corporation System under this
Section 13. Service of process on the Company may be made to the Company's
registered agent in Delaware, Corporation Trust Centre, 1209 Orange Street, in
the City of Wilmington, County of New Castle.
Each party hereto hereby irrevocably waives any objection that it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Warrant or any agreement or obligation
delivered in connection with this Warrant, brought in the Courts of the State
of Texas, County of Dallas or the United States District Court for the Northern
District of Texas, and hereby further irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in
an inconvenient forum.
Section 14. Binding Effect. The terms and provisions of
this Warrant shall inure to the benefit of the Holder and its successors and
assigns and shall be binding upon the Company and its successors and assigns,
including, without limitation, any Person succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets.
* * * * *
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<PAGE> 132
IN WITNESS WHEREOF, the seal of the Company and the signature of its
duly authorized officer have been affixed hereto as of __________ _____, 1997.
[SEAL] QUEEN SAND RESOURCES, INC.
Attest: By:
-------------------------- ---------------------------------
Name:
-------------------------------
Title:
------------------------------
and
Attest: By:
-------------------------- ---------------------------------
Name:
-------------------------------
Title:
------------------------------
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<PAGE> 133
EXHIBIT A
TO
WARRANT
PURCHASE FORM
To Be Executed by the Holder
Desiring to Exercise a Warrant of
Queen Sand Resources, Inc.
The undersigned holder hereby exercises the right to purchase ______
shares of Common Stock covered by the within Warrant, according to the
conditions thereof, and herewith makes payment in full of the Exercise Price of
such shares, in the amount of $____________.
Name of Holder:
--------------------------------------
Signature:
----------------------------
Title:
--------------------------------
Address:
------------------------------
--------------------------------------
--------------------------------------
Dated: , .
--------------------- -------
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<PAGE> 134
EXHIBIT B
TO
WARRANT
ASSIGNMENT FORM
To Be Executed by the Holder
Desiring to Transfer a Warrant of
Queen Sand Resources, Inc.
FOR VALUE RECEIVED, the undersigned holder hereby sells, assigns and
transfers unto __________________________ the right to purchase ____________
shares of Common Stock covered by the within Warrant, and does hereby
irrevocably constitute and appoint _________________ Attorney to transfer the
said Warrant on the books of the Company (as defined in such Warrant), with
full power of substitution.
Name of Holder:
--------------------------------------
Signature:
----------------------------
Title:
--------------------------------
Address:
------------------------------
--------------------------------------
--------------------------------------
Dated: , .
--------------------- -------
In the presence of
- --------------------------------------
NOTICE:
The signature to the foregoing Assignment Form must correspond to the name as
written upon the face of the within Warrant in every detail, without alteration
or enlargement or any change whatsoever.
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<PAGE> 135
EXHIBIT C
EARN UP AGREEMENT
THIS EARN UP AGREEMENT (this "Agreement") is executed as of the _____
day of __________, 1997 between Queen Sand Resources, Inc., a Delaware
corporation (the "Company"), and Joint Energy Development Investments Limited
Partnership, a Delaware limited partnership ("JEDI").
WHEREAS, the Company has entered into the Purchase Agreement (defined
below) with JEDI pursuant to which JEDI is purchasing shares of the Company's
Series A Participating Convertible Preferred Stock, par value $0.01 per share
(the "Convertible Preferred Stock"), and certain warrants to purchase Common
Stock of the Company, in exchange for (i) $5,000,000 cash; and (ii) this
Agreement; and
WHEREAS, the Company is repurchasing 9,600,000 shares of Common Stock
(defined below) from Forseti Investments, ltd., a Barbados corporation
("Forseti"), pursuant to the terms of the Forseti Purchase Agreement (defined
below);
NOW, THEREFORE, in consideration of these premises, the agreements
herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, JEDI and the Company agree as follows:
1.0 DEFINITIONS
"AAA" means the American Arbitration Association, or any successor
organization.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of, or rights,
warrants or options to purchase, corporate stock or any other equity interest
(however designated) of or in such Person.
"Capitalized Lease Obligation" means the amount of the liability under
any capital lease that, in accordance with GAAP, is required to be capitalized
and reflected as a liability on the consolidated balance sheet of the Company
and its Subsidiaries.
"Class A Amount" is defined in Section 2(b).
<PAGE> 136
"Class B Amount" is defined in Section 2(c).
"Class A Warrants" means the Class A Common Stock Purchase Warrants to
purchase 1,000,000 shares of Common Stock issued to Forseti pursuant to the
Forseti Purchase Agreement.
"Class B Warrants" means the Class B Common Stock Purchase Warrants to
purchase 2,000,000 shares of Common Stock issued to Forseti pursuant to the
Forseti Purchase Agreement.
"Common Stock" means the common stock, par value $.0015 per share, of
the Company.
"Consolidated Adjusted Net Income" means the consolidated net income
(or loss) of the Company and its Subsidiaries for the fiscal year ending June
30, 1998 as determined in accordance with GAAP, adjusted by excluding, to the
extent included in consolidated net income, (a) net after-tax extraordinary
gains or losses (less all fees and expenses relating thereto), (b) net
after-tax gains or losses (less all fees and expenses relating thereto)
attributable to asset dispositions, (c) the net income (or net loss) of any
Person (other than the Company or any of its Subsidiaries) in which the Company
or any of its Subsidiaries has an ownership interest, except to the extent of
the amount of dividends or other distributions actually paid to the Company or
its Subsidiaries in cash by such other Person during such period, and (d) net
income (or net loss) of any Person combined with the Company or any of its
Subsidiaries on a "pooling of interests" basis attributable to any period prior
to the date of combination.
"Consolidated Interest Expense" means the amount which, in conformity
with GAAP, is set forth opposite the caption "interest expense" (or any like
caption) on the audited consolidated statement of operations of the Company and
its Subsidiaries for the fiscal year ended June 30, 1998.
"Consolidated Net Working Capital" means (i) the amount which, in
conformity with GAAP, is set forth opposite the caption "total current assets"
(or any like caption) on the audited consolidated balance sheet of the Company
and its Subsidiaries as of June 30, 1998 less (ii) the amount which, in
conformity with GAAP, is set forth opposite the caption "total current
liabilities" (or any like caption) on the audited consolidated balance sheet of
the Company and its Subsidiaries as of June 30, 1998.
"Consolidated Non-cash Charges" means the amount which, in conformity
with GAAP, is set forth opposite the caption "depreciation, depletion and
amortization" (or any like caption) on the audited consolidated statement of
operations of the Company and its Subsidiaries for the fiscal year ended June
30, 1998.
"Consolidated Tax Expense" means the amount which, in conformity with
GAAP, is set forth opposite the caption "income tax expense" (or any like
caption) on the audited consolidated statement of operations of the Company and
its Subsidiaries for the fiscal year ended June 30, 1998.
"Dispute" is defined in Section 4.
<PAGE> 137
"EBITDA" means, without duplication, for the fiscal year ended June
30, 1998, the sum of (i) Consolidated Adjusted Net Income and (ii) to the
extent deducted in computing Consolidated Adjusted Net Income, Consolidated
Interest Expense, Consolidated Tax Expense and Consolidated Non-cash Charges.
"Earn Up Amount" is defined in Section 2(a).
"Election Date" means September 30, 1998.
"Exercise Price" means $2.50.
"Forseti Earn Up Agreement" means the Earn Up Agreement entered into
between the Company and Forseti substantially in the form of Exhibit A to this
Agreement.
"Forseti Interests" means all of the outstanding ownership interests
in Forseti and each entity that controls or owns an ownership interests in
Forseti.
"Forseti Purchase Agreement" means the Securities Purchase Agreement
dated March 27, 1997 between the Company and Forseti.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, in effect from time to
time.
"Guaranteed Debt" means, without duplication, all Indebtedness of any
other Person guaranteed directly or indirectly in any manner by the Company or
any of its Subsidiaries, or in effect guaranteed directly or indirectly by the
Company or any of its Subsidiaries through an agreement (i) to pay or purchase
such Indebtedness or to advance or supply funds for the payment or purchase of
such Indebtedness, (ii) to purchase, sell or lease (as lessee or lessor)
property, or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such Indebtedness or to assure the
holder of such Indebtedness against loss, (iii) to supply funds to, or in any
other manner invest in, the debtor (including any agreement to pay for property
or services to be acquired by such debtor irrespective of whether such property
is received or such services are rendered), (iv) to maintain working capital or
equity capital of the debtor, or otherwise to maintain the net worth, solvency
or other financial condition of the debtor or (v) otherwise to assure a
creditor against loss; provided that the term "guarantee" shall not include
endorsements for collection or deposit.
"Indebtedness" means, as of June 30, 1998, without duplication, (i)
all indebtedness of the Company or any of its Subsidiaries for borrowed money
or for the deferred purchase price of property or services, excluding any trade
accounts payable and other accrued current liabilities incurred in the ordinary
course of business, (ii) all obligations of the Company or any of its
Subsidiaries evidenced by bonds, notes, debentures or other similar
instruments, (iii) all indebtedness created or arising under any conditional
sale or other title retention agreement with respect to property acquired by
the Company or any of its Subsidiaries (even if the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of
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<PAGE> 138
such property), but excluding trade accounts payable arising in the ordinary
course of business, (iv) all Capitalized Lease Obligations, (v) all
indebtedness referred to in (but not excluded from) clause (i), (ii), (iii) or
(iv) above of other Persons, the payment of which is secured by (or for which
the holder of such indebtedness has an existing right, contingent or otherwise,
to be secured by) any Lien upon or in property (including, without limitation,
accounts and contract rights) owned by the Company or any of its Subsidiaries,
even though such Person has not assumed or become liable for the payment of
such indebtedness, (vi) all Guaranteed Debt, (vii) all Redeemable Capital Stock
valued at its maximum fixed repurchase price plus accrued and unpaid dividends,
and (viii) any amendment, supplement, modification, deferral, renewal,
extension or refunding of any liability of the types referred to in clauses (i)
through (vii) above. For purposes hereof, the "maximum fixed repurchase price"
of any Redeemable Capital Stock that does not have a fixed repurchase price
shall be calculated in accordance with the terms of such Redeemable Capital
Stock as if such Redeemable Capital Stock were purchased on any date on which
Indebtedness shall be required to be determined pursuant to this Agreement, and
if such price is based upon, or measured by, the fair market value of such
Redeemable Capital Stock, such fair market value to be determined in good faith
by the Board of Directors of the issuer of such Redeemable Capital Stock.
"Mediator" is defined in Section 6.
"Outstanding Shares" means, as of June 30, 1998, the issued and
outstanding shares of Common Stock, assuming the conversion of all shares of
preferred stock of the Company that are convertible into shares of Common
Stock, and excluding any shares of Common Stock held in treasury by the Company
or held by any wholly-owned Subsidiary of the Company.
"Payment Date" means October 15, 1998.
"Person" means any individual, corporation, limited or general
partnership, joint venture, association, joint-stock company, trust, limited
liability company, unincorporated organization or government or any agency or
political subdivision thereof.
<TABLE>
<S> <C>
"Price" means, if:
(Price(1) - Price(2))
---------------------- less than or equal to 0.1, then (Price(1) + Price(2))/2;
Greater of Price(1) or Price(2)
provided, that if: (Price(1) - Price(2))
---------------------- greater than 0.1, then the Company and JEDI
Greater of Price(1) or Price(2)
</TABLE>
shall negotiate the Price; provided, further, that if the Price has not been
agreed upon within 5 business days after the determination of Price(1) and
Price(2), then the determination of the Price shall be submitted to nonbinding
mediation and arbitration in accordance with this Agreement. Notwithstanding
anything to the contrary in this Agreement, under no circumstances shall the
Price exceed the higher of Price(1) and Price(2) or be less than the lower of
Price(1) and Price(2).
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<PAGE> 139
<TABLE>
<S> <C>
(1.1 * SEC PV(10)) - Indebtedness + Consolidated Net Working Capital
"Price(1)" = ------------------------------------------------------------------------------
Outstanding Shares
(6.0 * EBITDA) - Indebtedness + Consolidated Net Working Capital
"Price(2)" = ------------------------------------------------------------------------------
Outstanding Shares
</TABLE>
"Purchase Agreement" means the Securities Purchase Agreement dated
March 27, 1997 between the Company and JEDI.
"Redeemable Capital Stock" means any Capital Stock of the Company or
any of its Subsidiaries that, either by its terms, by the terms of any security
into which it is convertible or exchangeable or otherwise, (i) is, or upon the
happening of an event or passage of time would be, required to be redeemed, or
(ii) is, or upon the happening of an event or passage of time would be,
redeemable at the option of the holder thereof, or (iii) is, or upon the
happening of an event or passage of time would be, convertible into or
exchangeable for debt securities.
"SEC PV10" means the pre tax future net cash flows from proved oil and
gas reserves of the Company and its Subsidiaries at June 30, 1998, computed
using a discount factor of ten percent, as determined in accordance with the
rules, regulations and guidelines of the United States Securities and Exchange
Commission and reported in the reserve report dated as of such date prepared in
accordance with Section 6.11 of the Purchase Agreement.
"Statutory Declaration" means a statutory declaration by Forseti that
as of the Election Date and the Payment Date (i) the individual who, as of the
date hereof, owned all of the Forseti Interests owns all of the Forseti
Interests (ii) there are no encumbrances, pledges or other liens on any equity
interests in Forseti, and (iii) no other event under Section 6(h) has occurred.
"Subsidiary" of a Person means any corporation, limited liability
company, limited or general partnership, joint venture, association,
joint-stock company or business trust of which at the time of determination
such Person, directly and/or indirectly through one or more other Persons, owns
more than 50% of the voting interests.
"Transfer" of any property means any exercise, or any direct or
indirect sale, transfer, encumbrance, gift, donation, assignment, grant of any
interest, pledge, hypothecation or other disposition of such property or any
interest therein, whether voluntary or involuntary, including, but not limited
to, any transfer by operation of law, by court order, by judicial process, or
by foreclosure, levy, or attachment.
"Value" is defined in Section 2(e).
"Warrant Transfer Amount" is defined in Section 2(d).
"Warrants" means, collectively, the Class A Warrants and the Class B
Warrants.
-5-
<PAGE> 140
2.0 PAYMENT OF EARN UP AMOUNT
(a) On the Payment Date, subject to the limitations in Section 3,
and only against delivery by the Company to JEDI of evidence
satisfactory to JEDI that Forseti has delivered to the Company (x) the
Warrants and (y) the Statutory Declaration, JEDI shall pay the Company
an amount (the "Earn Up Amount") equal to the amount, if any, by which
(i) the sum of the Class A Amount and the Class B Amount exceeds (ii)
the Warrant Transfer Amount; provided, that in no event shall the Earn
Up Amount exceed $9,400,000.
(b) The "Class A Amount" means a dollar amount equal to the
product of (i) the Value (not to exceed $1.50) less $1.25, multiplied
by (ii) 9,600,000; provided, that in no event shall the Class A Amount
be greater than $2,400,000; and if the Class A Amount is zero or a
negative number, the Class A Amount shall be deemed to be zero.
(c) The "Class B Amount" means a dollar amount equal to the
product of (i) the Value (not to exceed $1.25) less $0.521, multiplied
by (ii) 9,600,000; provided, that in no event shall the Class B Amount
be greater than $7,000,000; and if the Class B Amount is zero or a
negative number, the Class B Amount shall be deemed to be zero.
(d) The "Warrant Transfer Amount" means a dollar amount equal to
the greatest of (i) the product of (x) $3.50 multiplied by (y) the
aggregate number of Class A Warrants and Class B Warrants Transferred
by Forseti before the Payment Date; (ii) the aggregate gross proceeds
that Forseti has received or is entitled to receive from the Transfer
of all of the Class A Warrants and Class B Warrants Transferred by
Forseti before the Payment Date; and (iii) the difference between the
average daily bid price of the Company's Common Stock for the 21-day
period ending on the Election Date less the Exercise Price, multiplied
by the number of Class A Warrants and the Class B Warrants Transferred
by Forseti before the Payment Date.
(e) The "Value" means the product of the Price, multiplied by
0.60; provided, that if (i) the Common Stock is quoted on The Nasdaq
National Market at the Election Date and (ii) the average daily
trading volume of the Company's shares of Common Stock for the 21-day
period ending on the Election Date is at least 50,000 shares per day
(excluding trading of shares in any accounts controlled by the Company
or Forseti or their respective Affiliates, and provided, that if on
any of the 21 days the trading volume is greater than 300,000 shares,
then only 300,000 shares on such days may be used in calculating the
average), then Value means the product of the Price, multiplied by
0.75.
(f) The Company represents and warrants to JEDI that the
definitions of the terms "Price" and "Value" in the Forseti Earn Up
Agreement are identical to the definitions of such terms in this
Agreement.
-6-
<PAGE> 141
3.0 LIMITATION ON EARN UP AMOUNT
The Earn Up Amount shall in no event exceed the amount defined in the
Forseti Purchase Agreement as the "Earn Up Amount."
4.0 MEDIATION.
Any controversy, dispute or claim arising out of or relating to this
Agreement (a "Dispute") shall be submitted to non-binding mediation upon the
request of the Company or Forseti on the following terms. Upon the request of
either party, a neutral mediator acceptable to both parties (the "Mediator")
shall be appointed within 15 days. The Mediator shall attempt through
negotiations in any manner deemed reasonably appropriate by the Mediator, in
which the parties shall participate, to resolve the Dispute. The Mediator
shall be compensated at a rate agreeable to the Company, Forseti and the
Mediator, and each of the Company and Forseti shall pay its pro rata share of
such compensation and other expenses of the mediation.
5.0 ARBITRATION.
In the event that mediation of a Dispute has not commenced within 15
days after a request for mediation is submitted or is terminated without
resolution under Section 5.0, any controversy or claim arising out of or
relating to this Agreement, including the right to or amount of indemnity,
shall be settled by arbitration in accordance with the Commercial Arbitration
Rules of the AAA by three (3) arbitrators. Each of Forseti and the Company
shall appoint one arbitrator, who shall be an impartial person. If a party
fails to appoint an arbitrator within thirty (30) days from the date a Demand
to Arbitrate was made under Rule 6, the AAA shall make the appointment of the
arbitrator. The two (2) arbitrators thus appointed shall appoint the third
arbitrator, who shall be an impartial person. If said two (2) arbitrators fail
to appoint the third arbitrator within sixty (60) days from the date a Demand
to Arbitrate was made under Rule 6, the AAA shall make the appointment of the
third arbitrator, who shall be an impartial person. Should any of the
arbitrators appointed die, resign, refuse or become unable to act before a
decision is given, the vacancy shall be filled by the method set forth in this
clause for the original appointment. The arbitration shall be held in Dallas,
Texas and shall be conducted in the English language. A decision by the
arbitrators shall be final and binding on all the parties. The arbitrators
shall execute and deliver to the respective parties the arbitration panel's
decision in writing. Judgment upon the award, if any, rendered by the
arbitrators (which must be expressed in United States Dollars) may be entered
in any court having jurisdiction thereof. In any award, the arbitrators shall
assess the arbitration costs and expenses, including, without limitation,
attorneys fees of the parties, in a manner deemed equitable by the arbitrators,
taking into account the arbitration decision. Notwithstanding anything to the
contrary in this Agreement, if a Dispute involves the determination of Price,
the Price, as determined by arbitration under this Section 5, shall not (i) (a)
exceed the higher or Price1 and Price2, or (b) be lower than the lower of
Price1 and Price2, or (ii) exceed the Price as determined under the Forseti
Earn Up Agreement, including a Price as determined by arbitration under the
provisions of the Forseti Earn Up Agreement.
-7-
<PAGE> 142
6.0 MISCELLANEOUS
(a) Governing Law. This Agreement shall be governed by the
substantive laws of the State of Texas.
(b) Invalid Provisions. If any provision of this Agreement is
held to be illegal, invalid or unenforceable, such provision shall be
fully severable.
(c) Entirety and Amendments. This Agreement embodies the entire
agreement and understanding relating to the subject matter hereof,
supersedes all prior understandings between the parties relating to
the subject matter hereof, and may be amended only by an instrument in
writing executed by the Company and JEDI.
(d) Parties Bound. This Agreement shall be binding upon and inure
to the benefit of the Company and JEDI, and their respective
successors and permitted assigns. Neither the Company nor JEDI may
assign its rights or delegate its obligations hereunder (whether
voluntarily, involuntarily, or by operation of law) without the prior
written consent of the other party.
(e) Notices. Unless otherwise specified, whenever this Agreement
requires or permits any consent, approval, notice, request, or demand
from one party to another, that communication must be in writing
(which may be by telecopy) to be effective and is deemed to have been
given (a) if by telecopy, when transmitted to the appropriate telecopy
number (and all communications sent by telecopy must be confirmed
promptly by telephone; but any requirement in this parenthetical does
not affect the date when the telecopy is deemed to have been
delivered), or (b) if by any other means, including by internationally
acceptable courier or hand delivery, when actually delivered. Until
changed by notice pursuant to this Agreement, the address (and
telecopy number) for the Company and JEDI are:
If to JEDI: Joint Energy Development Investments
Limited Partnership
c/o Enron Corp.
1400 Smith Street
Houston, Texas 77002
Attention: Donna Lowry - Director,
28th Floor
Telecopier: (713) 646-3602
If to Company: Queen Sand Resources, Inc.
3500 Oak Lawn, Suite 380, L.B.#31
Dallas, Texas 75219-4398
Attn: Robert P. Lindsay
Facsimile: (214) 521-9960
-8-
<PAGE> 143
With copies to: Queen Sand Resources, Inc.
60 Queen Street, Suite 1400
Ottawa, Canada K1P 5Y7
Attn: Edward J. Munden
Facsimile: (613) 230-6055
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
Attn: William L. Boeing
Facsimile: (214) 651-5940
(f) Section and Other Headings. The headings contained in this
Agreement are for reference purposes only and will not affect in any
way the meaning or interpretation of this Agreement.
(g) Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original and all of
which together will constitute one instrument.
(h) Termination. This Agreement shall terminate automatically,
and JEDI shall have no obligation to pay any Earn Up Amount, (a) in
the event the "Election Date" under the Forseti Earn Up Agreement is
after September 30, 1998 or the "Payment Date" under the Forseti Earn
Up Agreement is after October 15, 1998, (b) upon the Transfer of any
Warrants in violation of the restrictions on Transfer of Warrants
under the Forseti Purchase Agreement, (c) upon the election by Forseti
to retain the Warrants under Section 2(a)(ii) of the Forseti Earn Up
Agreement, (d) upon the Transfer by Forseti of all of the Warrants,
(e) upon the Transfer of any ownership interest in Forseti or any
entity controlling Forseti where the purpose of the transfer is to
realize or receive cash, securities or any other property as
consideration for the Warrants without transferring the Warrants, (f)
in the event that, on the Election Date or the Payment Date, the
individual who, as of the date hereof owned, directly or indirectly,
all of the Forseti Interests does not own, directly or indirectly, all
of the Forseti Interests, or (g) the termination of the Forseti Earn
Up Agreement for any reason.
(i) Currency. All dollar amounts in this Agreement shall mean
United States dollars.
* * * * *
-9-
<PAGE> 144
IN WITNESS WHEREOF, JEDI and the Company have executed this Agreement
as of the day and year first stated above.
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP
By: Enron Capital Management Limited
Partnership, its General Partner
By: Enron Capital Corp., its General
Partner
By:
-----------------------------------
Steven M. Emshoff
Agent and Attorney-in-Fact
QUEEN SAND RESOURCES, INC.
By:
-----------------------------------
Edward J. Munden
President and Chief Executive
Officer
and
By:
----------------------------------
Robert P. Lindsay
Chief Operating Officer
-10-
<PAGE> 145
EXHIBIT E
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (the "Escrow Agreement") is made as of this __
day of __________, 1997, among Queen Sand Resources, Inc., a Delaware
corporation ("QSR"), Forseti Investments Ltd., a Barbados corporation
("Forseti"), and _________________ in its capacity as escrow agent hereunder
("Escrow Agent").
WHEREAS, QSR and Joint Energy Development Investments Limited
Partnership, a Delaware limited partnership ("JEDI"), are parties to a
Securities Purchase Agreement (the "JEDI Purchase Agreement"), pursuant to
which JEDI has purchased 9,600,000 shares of Series A Participating Convertible
Preferred Stock, par value $0.01 per share, of QSR (the "Preferred Stock"); and
WHEREAS, QSR and Forseti have entered into a Securities Purchase
Agreement (the "Forseti Agreement") whereby QSR has agreed to purchase
9,600,000 shares of its common stock, par value $.0015 per share (the "Common
Stock"), from Forseti in exchange for, among other things, Class A Common Stock
Purchase Warrants to purchase 1,000,000 shares of Common Stock (the "Class A
Warrants") and Class B Common Stock Purchase Warrants to purchase 2,000,000
shares of Common Stock (the "Class B Warrants", and, together with the Class A
Warrants, the "Warrants"); and
WHEREAS, pursuant to the Forseti Agreement, the Warrants are to be
held by an escrow agent subject to an escrow agreement; and
WHEREAS, QSR and Forseti have agreed to deposit the Warrants in escrow
pursuant to the terms hereof.
NOW THEREFORE, FOR AND IN CONSIDERATION of the mutual covenants and
agreements herein set forth, the parties hereto agree as follows:
1. Terms of Escrow. QSR herewith deposits with the Escrow Agent,
and the Escrow Agent hereby acknowledges receipt of, the Warrants. From time
to time after the date of this Agreement, a proposed purchaser of Warrants, the
Company and/or Forseti may deliver to the Escrow Agent consideration for a
proposed transfer of Warrants ("Transfer Consideration"), in each case against
delivery of a written receipt by the Escrow Agent to the Company and Forseti
acknowledging such delivery. The Escrow Agent shall hold the Warrants [in its
vault located at _________________] (the "Escrow Depository") until such time
as the Escrow Agent is properly authorized to transfer the Warrants pursuant to
Section 2. The Escrow Agent shall establish an account (the "Escrow Account")
which shall be credited with any Transfer Consideration deposited with the
Escrow Agent and which shall be increased by the income interest or earnings
earned and received with respect thereto (collectively, the "Interest") and
decreased by distributions made pursuant to this Escrow Agreement. All funds
held by the Escrow Agent shall be invested by the Escrow Agent in accordance
with the written directives received from time to time by Forseti.
2. Release of Warrants. The Escrow Agent is authorized and
directed to deliver the Warrants and the funds in the Escrow Account as
provided below:
<PAGE> 146
(a) At any time and from time to time prior to the
termination of this Escrow Agreement, upon delivery to the Escrow
Agent by QSR and Forseti of written notice, such notice to be
delivered in accordance with the terms of the Forseti Agreement and to
be in the form attached hereto as Exhibit A (the "Form"), the Escrow
Agent shall immediately deliver a copy of such notice to JEDI and
shall thereafter immediately deliver the number of Warrants referred
to in the notice and/or the funds in the Escrow Account from the
Escrow Depository to such place or agent as set forth in the notice.
Though QSR and Forseti shall deliver such notice in accordance with
the Agreement, the Escrow Agent shall not have any duty to determine
proper provision of notice, but, rather need only consider whether
receipt of the notice conforms to the Form.
(b) Upon the termination of this Escrow Agreement by the
mutual agreement of QSR, Forseti and the Escrow Agent, the Escrow
Agent shall deliver the Warrants and the funds in the Escrow Account
held by it to such place or agent as specified by Forseti in writing,
whereupon the duties of the Escrow Agent shall cease.
3. Indemnity; Interpleader; Resignation. To the extent permitted
by law, QSR and Forseti shall indemnify the Escrow Agent, its directors,
officers and employees (collectively, "Indemnitees") and hold such Indemnitees
harmless against, any loss, liability or expense incurred without negligence or
bad faith on such Indemnitees' part, arising out of or in connection with the
acceptance or administration of the Escrow Agent's duties hereunder, including
the cost and expense against any claim or liability in connection with the
exercise or performance of any of its powers or duties under this Agreement.
Further, QSR and Forseti agree as follows:
(a) The Escrow Agent shall be protected in acting upon
any written notice, request, waiver, consent, certificate, receipt,
authorization, or other paper or document which the Escrow Agent
believes to be genuine and what it purports to be.
(b) The Escrow Agent may confer with independent legal
counsel in the event of any dispute or question as to the construction
of any of the provisions hereof, or the Escrow Agent's duties
hereunder, and to the extent permitted by law, the Escrow Agent shall
incur no liability hereunder and shall be fully protected in acting in
accordance with the opinions and instructions of such counsel as to
the construction of any of the provisions hereof.
(c) In the event of any disagreement resulting in adverse
claims or demands being made in connection with the subject matter of
this Escrow Agreement, or in the event that the Escrow Agent is in
doubt as to what action the Escrow Agent should take hereunder, the
Escrow Agent may, at the Escrow Agent's sole and exclusive option,
refuse to comply with any claims or demands on the Escrow Agent, or
refuse to take any other action hereunder, so long as such
disagreement continues or such doubt exists, and in any such event,
the Escrow Agent shall not be or become liable in any way to any
person for the Escrow Agent's failure or refusal to act, and the
Escrow Agent shall be entitled to continue to so refrain from acting
until (i) the rights of all parties (including, but not limited to,
the Escrow Agent) have been fully and finally adjudicated by a court
of competent jurisdiction or determined by arbitration; or (ii) all
differences shall have been adjudged and all doubt resolved by
agreement among all of the interested parties, and the Escrow Agent
shall have been
<PAGE> 147
notified thereof in writing signed by all such parties. In addition
to the foregoing remedies, the Escrow Agent is hereby authorized, in
the event of any doubt as to the course of action the Escrow Agent
should take under this Escrow Agreement, to petition any court of
competent jurisdiction (the "Court") of Dallas County, Texas, for
instructions or to interplead this Escrow Agreement and the Warrants
so held into such Court. QSR and Forseti agree to the jurisdiction of
said Court over QSR and Forseti as well as this Escrow Agreement and
the Warrants and any funds in the Escrow Account, waive personal
service of process, and agree that service of process as set forth in
Section 10(a) shall constitute adequate service.
(d) The Escrow Agent may resign for any reason
whatsoever, upon thirty (30) days written notice to QSR and Forseti.
Upon the expiration of such thirty (30) day notice period, the Escrow
Agent may deliver the Warrants and any funds in the Escrow Account,
this Escrow Agreement and any and all other documents in the Escrow
Agent's possession under this Escrow Agreement to any successor Escrow
Agent appointed by QSR and Forseti hereto, or if no successor Escrow
Agent has been appointed, to any court of competent jurisdiction in
Dallas County, Texas. Upon either such delivery, the Escrow Agent
shall be released from any future performance under this Escrow
Agreement. A termination under this Section 3(d) shall in no way
change the terms of Section 3 affecting reimbursement of the Escrow
Agent's attorneys fees, costs and expenses and the indemnity specified
therein.
(e) In the event of a conflict between this Section 3 and
any other section of this Escrow Agreement, the terms and provisions
of this Section 3 shall prevail and control.
4. Further Instruments. Each of QSR and Forseti shall, whenever
and as often as such party shall be reasonably requested to so do by the Escrow
Agent, execute, acknowledge and deliver or cause to be executed, acknowledged
and delivered, any and all instruments and documents as may be reasonably
necessary in order to complete the transaction herein provided and to carry out
the intent and purposes hereof.
5. Reliance. Each of QSR, Forseti and the Escrow Agent have
relied upon their own examination of the terms and provisions contained in this
Escrow Agreement and the counsel of their own advisors.
6. Fees. Forseti hereby agrees to pay to the Escrow Agent
reasonable compensation for the services to be rendered by it hereunder and to
pay or to reimburse the Escrow Agent for all expenses, disbursements and
advances (including reasonable attorneys' fees) incurred or made by it in
connection with its joining this Escrow Agreement and with the carrying out of
its duties hereunder.
7. Termination. This Escrow Agreement shall terminate on the
date the Escrow Agent no longer holds any Warrants or any funds in the Escrow
Account under this Escrow Agreement and the payment of all fees and expenses
due to the Escrow Agent pursuant to this Escrow Agreement. Prior to such date,
this Escrow Agreement may be terminated only by an instrument in writing duly
executed by QSR and Forseti and delivered to the Escrow Agent.
- 3 -
<PAGE> 148
8. Discharge. In the event that QSR and Forseti desire to choose
another Escrow Agent, the successor Escrow Agent shall be chosen by QSR and
Forseti by mutual agreement. Any successor Escrow Agent hereunder shall have
all the rights, title, privileges, duties, obligations and protection of the
original Escrow Agent hereunder.
9. Notices. Unless otherwise specified, whenever this Escrow
Agreement requires or permits any consent, approval, notice, request, or demand
from one party to another, that communication must be in writing (which may be
by telecopy) to be effective and is deemed to have been given (a) if by
telecopy, when transmitted to the appropriate telecopy number (and all
communications sent by telecopy must be confirmed promptly by telephone; but
any requirement in this parenthetical does not affect the date when the
telecopy is deemed to have been delivered), or (b) if by any other means,
including by internationally acceptable courier or hand delivery, when actually
delivered. Until changed by notice pursuant to this Escrow Agreement, the
address (and telecopy number) for QSR, Forseti and the Escrow Agent are:
If to Forseti: Forseti Investments Ltd.
5-206 Dowell House
Bridgetown, Barbados
West Indies
Attn: Dennis Chandler
Facsimile: (246) 427-5667
With copies to: Faust Fresenius Heyne Scherzberg,
attorneys
Paul-Ehrlich-Strasse 37-39
60596 Frankfurt-Am-Main
Attn: Christoph Heyne
Facsimile: (49) 6963009090
If to QSR: Queen Sand Resources, Inc.
3500 Oak Lawn, Suite 380, L.B.#31
Dallas, Texas 75219-4398
Attn: Robert P. Lindsay
Facsimile: (214) 521-9960
With copies to: Queen Sand Resources, Inc.
60 Queen Street, Suite 1400
Ottawa, Canada K1P 5Y7
Attn: Edward J. Munden
Facsimile: (613) 230-6055
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
Attn: William L. Boeing, Esq.
Facsimile: (214) 651-5940
- 4 -
<PAGE> 149
If to JEDI: Joint Energy Development Investments
Limited Partnership
1400 Smith Street
Houston, Texas 77002-7361
Attn: Donna Lowry, Director - 28th
Floor
Facsimile: (713) 646-3602
10. Miscellaneous.
(a) Governing Law; Choice of Forum; Consent to
Service of Process. This Escrow Agreement shall be governed by the
substantive laws of the State of Texas. The parties hereto agree that
any suit, action or proceeding arising out of or relating to this
Escrow Agreement or any agreement or obligation delivered in
connection with this Escrow Agreement or any judgment entered by any
court in respect thereof shall be brought in the Courts of the State
of Texas, County of Dallas or in the United States District Court for
the Northern District of Texas and each such party hereby submits to
the exclusive jurisdiction of such courts for the purpose of any such
suit, action or proceeding relating to this Escrow Agreement or any
related agreement or obligation. Forseti hereby submits to the
jurisdiction of the State of Texas and agrees that service of all
writs, process and summonses in any such suit, action or proceeding
brought against Forseti in the United States may be made upon CT
Corporation System at its offices located at 350 North St. Paul
Street, Dallas, Texas 75201 (or any subsequent address of CT
Corporation System), and Forseti hereby irrevocably appoints CT
Corporation System at its offices located at 350 North St. Paul
Street, Dallas, Texas 75201 (or any subsequent address of CT
Corporation System) its true and lawful attorney-in-fact in their
name, place and stead to accept such service of any and all such
writs, process and summonses, and agree that the failure of CT
Corporation System to give to Forseti any notice of any such service
of process shall not impair or affect the validity of such service or
of any judgment based thereon. QSR and the Escrow Agent shall send,
within 5 days after service of process under this Section 10(a),
notice to Forseti in accordance with Section 9 of any service of
process under this Section 10(a). Service of process on the Company
may be made to the Company's registered agent in Delaware, Corporation
Trust Centre, 1209 Orange Street, in the City of Wilmington, County of
New Castle.
Each party hereto hereby irrevocably waives any objection that
it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Escrow
Agreement or any agreement or obligation delivered in connection with
this Escrow Agreement, brought in the Courts of the State of Texas,
County of Dallas or the United States District Court for the Northern
District of Texas, and hereby further irrevocably waives any claim
that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum.
(b) Invalid Provisions. If any provision of this
Escrow Agreement is held to be illegal, invalid or unenforceable, such
provision shall be fully severable.
(c) Entirety and Amendments. This Escrow
Agreement (along with the Forseti Agreement, the JEDI Purchase
Agreement, the Warrants, the Earn Up Agreement dated the date hereof
between QSR and Forseti, and the Earn Up Agreement dated the date
hereof between QSR and JEDI) embodies the entire
- 5 -
<PAGE> 150
agreement and understanding relating to the subject matter hereof,
supersedes all prior understandings between the parties relating to
the subject matter hereof, and may be amended only by an instrument in
writing executed by the QSR, Forseti, and the Escrow Agent.
(d) Parties Bound. This Escrow Agreement shall
be binding upon and inure to the benefit of QSR, Forseti, the Escrow
Agent, and their respective successors and permitted assigns. None of
QSR, Forseti, or the Escrow Agent may assign its rights or delegate
its obligations hereunder (whether voluntarily, involuntarily, or by
operation of law) without the prior written consent of the other
parties.
(e) Section and Other Headings. The headings
contained in this Escrow Agreement are for reference purposes only and
will not affect in any way the meaning or interpretation of this
Escrow Agreement.
(f) Counterparts. This Escrow Agreement may be
executed in two or more counterparts, each of which will be deemed an
original and all of which together will constitute one instrument.
- 6 -
<PAGE> 151
IN WITNESS WHEREOF, the parties hereto have caused this Escrow
Agreement to be duly executed as of the date first written.
[SEAL] QUEEN SAND RESOURCES, INC.,
a Delaware corporation
By:
----------------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
[with notary attached]
and
By:
----------------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
[with notary attached]
FORSETI INVESTMENTS LTD.,
a Barbados corporation
By:
----------------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
[with notary attached]
[ESCROW AGENT]
By:
----------------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
[with notary attached]
- 7 -
<PAGE> 152
EXHIBIT A
FORM OF NOTICE
[Escrow Agent]
- ----------------------
- ----------------------
Attn:
-----------------
Gentlemen and Ladies:
Reference is made to that certain Escrow Agreement dated as of
__________, 1997 among Queen Sand Resources, Inc., a Delaware corporation
("QSR"), Forseti Investments Ltd., a Barbados corporation ("Forseti") and
__________________, as Escrow Agent (the "Escrow Agreement"). In accordance
with Section 2 of the Escrow Agreement, you are hereby directed to deliver a
copy of this notice to JEDI and thereafter to deliver immediately (i) [insert
number of Warrants] from the Escrow Depository to ____________________ and (ii)
$__________________ to ____________________. Initially capitalized terms used
but not defined herein shall have the meanings ascribed to such terms in the
Escrow Agreement.
Very truly yours,
QUEEN SAND RESOURCES, INC.,
a Delaware corporation
By:
----------------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
FORSETI INVESTMENTS LTD.,
a Barbados corporation
By:
----------------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
cc: Joint Energy Development
Investments Limited Partnership
- 8 -
<PAGE> 153
EXHIBIT F
FORM OF STOCK POWER
(TO BE SIGNED ONLY UPON THE TRANSFER OF THE SHARES)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto Queen Sand Resources, Inc. 9,600,000 Shares of Common Stock,
par value $.0015 per share, of Queen Sand Resources, Inc. represented by
Certificate Nos. 515 through 610 inclusive and does hereby irrevocably
constitute and appoint ____________________ Attorney to transfer the said stock
on the books of Queen Sand Resources, Inc. with full power of substitution in
the premises.
Dated: FORSETI INVESTMENTS, LTD.
------------------
By:
-----------------------------------------------------------------------------
Name:
---------------------------------------------------------------------------
Title:
--------------------------------------------------------------------------
[signature guaranty]
[confirm acceptable to transfer agent]
26
<PAGE> 154
EXHIBIT G
FORM OF RELEASE
THIS RELEASE is entered into as of __________ _____, 1997 by Forseti
Investments Ltd., a Barbados corporation ("Forseti").
WHEREAS, Forseti owns 9,600,000 shares (the "Shares") of common stock,
par value $0.0015 per share, of Queen Sand Resources, Inc., a Delaware
corporation (the "Company"); and
WHEREAS, Forseti and the Company have entered into a Securities
Purchase Agreement dated __________ _____, 1997 (the "Securities Purchase
Agreement"), pursuant to which Forseti has agreed to sell to the Company the
Shares pursuant to the terms and conditions of the Securities Purchase
Agreement; and
WHEREAS, it is a condition to the Company's obligations under the
Securities Purchase Agreement that Forseti execute and deliver a release to the
Company.
NOW, THEREFORE, for and in consideration of the above premises and
other good and valuable consideration, the sufficiency of which is hereby
acknowledged, Forseti hereby agrees as follows:
1. Forseti does hereby unconditionally and
irrevocably compromise, settle, remise, acquit and fully and forever release
and discharge the Company and its officers, employees, agents, attorneys,
principals, directors and stockholders, and its and their respective heirs,
legal representatives, successors and assigns (collectively, the "Company
Released Parties") from any and all claims, demands, causes of action,
obligations, remedies, suits, damages and liabilities (collectively, the
"Forseti Claims") of any nature whatsoever, whether now known, suspected or
claimed, whether arising under common law, in equity or under statute, which
Forseti ever had, now has, or in the future may claim to have against the
Company Released Parties or which may have arisen at any time on or prior to
the date hereof and are in any manner related to the Shares (other than claims
that arise under the Securities Purchase Agreement, the Earn Up Agreement, the
Escrow Agreement or the Warrants).
2. Forseti covenants and agrees never to commence,
voluntarily aid in any way, prosecute or cause to be commenced or prosecuted
against the Company Released Parties any action or other proceeding based upon
any of the Forseti Claims which may have arisen at any time on or prior to the
date hereof and are in any manner related to the Shares (other than claims that
arise under the Securities Purchase Agreement, the Earn Up Agreement, the
Escrow Agreement or the Warrants).
3. Forseti hereby acknowledges that it understands and
agrees that the execution of this Release does not constitute in any manner
whatsoever an admission of liability on the part of the Company for any matters
covered by this Release, but that such liability is specifically denied.
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4. This Release shall be governed by and construed in
accordance with the laws of the State of Texas in all respects.
5. Forseti has full power and lawful authority to
execute and deliver this Release. The execution, delivery and performance by
Forseti of this Release have been duly and validly authorized by all necessary
action by Forseti. The Release has been duly executed and delivered by Forseti
and is a legal, valid and binding obligation of Forseti, enforceable against
Forseti in accordance with its respective terms, except to the extent that its
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally and except that the availability of equitable remedies, including
specific performance, is subject to the discretion of the court before which
any proceedings therefor may be brought.
6. Initially capitalized terms used not defined in this
Release have the meanings ascribed to such terms in the Securities Purchase
Agreement.
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EXECUTED by the undersigned as of the date first above written.
FORSETI INVESTMENTS LTD.
By:
--------------------------------------
Name:
--------------------------------
Title:
-------------------------------
[with notary attached]
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EXHIBIT H
FORM OF LEGAL OPINION
[Note: We would deliver Accord opinion.]
Based upon the foregoing and subject to the limitations and
qualifications in this opinion letter, we are of the opinion that:
1. The Company is a corporation incorporated, validly
existing, and in good standing under the laws of the State of Delaware. Each
of the Company's Subsidiaries is a corporation incorporated, validly existing
and in good standing under the laws of the state of its incorporation.
2. The Company is qualified to do business as a foreign
corporation and is in good standing in the States of _________________, which
are the only jurisdictions in which the Company has certified to us that it is
required to be so qualified (other than any jurisdiction with respect to which
the failure to be so qualified would not have a material adverse effect on the
assets, liabilities, financial condition, operations or prospects of the
Company and its subsidiaries taken as a whole). [duplicate for Subsidiaries]
[Note: Will be based solely on state good standing certificates.]
3. Each of the Company and each of the Company's
Subsidiaries has the corporate power and authority to own its properties and to
conduct its business as currently conducted.
4. The Warrants have been duly authorized and validly
issued and are fully paid and nonassessable and, to our Actual Knowledge, the
Warrants has not been issued in violation of preemptive rights of the Company's
stockholders. The Warrant Shares have been duly authorized and reserved for
issuance upon exercise of the Warrants, and upon such exercise in accordance
with the Warrants, respectively, will be validly issued, fully paid,
nonassessable and to our Actual Knowledge, free of preemptive rights.
5. The Company has all corporate power and authority (i)
to execute, deliver and perform its obligations under the Forseti Purchase
Agreement, the Earn Up Agreement, the Escrow Agreement and the Warrants, (ii)
to issue the Warrants in the manner contemplated by the Forseti Purchase
Agreement, and (iii) to issue the Warrant Shares in the manner contemplated by
the Warrants.
6. The Securities Purchase Agreement, the Earn Up
Agreement, the Escrow Agreement and the Warrants have been duly executed and
delivered by the Company and constitute legal, valid, and binding obligations
of the Company enforceable against it in accordance with their respective
terms.
7. [Regulation S opinion to come.]
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