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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):
NOVEMBER 24, 1998
QUEEN SAND RESOURCES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
STATE OF DELAWARE 0-21179 75-2615565
(State of incorporation) (Commission File No.) (IRS Employer Identification No.)
</TABLE>
13760 NOEL ROAD
SUITE 1030
DALLAS, TEXAS 75240-7336
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (972) 233-9906
3500 OAK LAWN
SUITE 380, L.B. #31
DALLAS, TEXAS 75219-4398
(Former name or former address, if change since last report)
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ITEM 5. OTHER EVENTS
GENERAL
On November 24, 1998, pursuant to the Securities Purchase Agreement
(the "Purchase Agreement"), dated as of November 10, 1998, among Queen Sand
Resources, Inc., a Delaware corporation (the "Company"), and the buyers
signatory thereto (the "Buyers"), the Company issued (i) 416,667 shares of the
Company's Common Stock to the Buyers (the "Common Shares"), (ii) certain
repricing rights (the "Repricing Rights") to acquire additional shares of Common
Stock (the "Repricing Common Shares") to the Buyers, (iii) warrants (the "Buyer
Warrants") to the Buyers to purchase an aggregate of up to 50,000 shares of
Common Stock (the "Warrant Common Shares") and (iv) warrants (the "Placement
Agent Warrants") to Jesup & Lamont Securities Corp. and Wellington Capital
Corporation, acting as placement agents, to purchase an aggregate of up to
50,000 shares of Common Stock. The aggregate gross consideration for the
issuances was $2.5 million. The Company also agreed to register for resale the
Common Shares, Repricing Common Shares and Warrant Common Shares pursuant to the
terms of a registration rights agreement (the "Registration Rights Agreement").
Initially capitalized terms used but not defined in this Current Report on Form
8-K have the meanings ascribed to such terms in the Purchase Agreement filed as
Exhibit 10.1 to this Current Report on Form 8-K and incorporated by reference
herein
REPRICING RIGHTS
Pursuant to the Purchase Agreement, each of the Buyers (or their
permitted assignees or successors) may exercise its Repricing Rights and acquire
shares of Common Stock in accordance with the following formula (the "Repricing
Rate"):
(Repricing Price -- Market Price)
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Market Price
The "Repricing Price" means, (i) during the period beginning on and
including the date which is 121 days after the Closing Date and ending on and
including the date which is 150 days after the Closing Date, 124% of the
Purchase Price, (ii) during the period beginning on and including the date which
is 151 days after the Closing Date and ending on and including the date which is
180 days after the Closing Date, 125% of the Purchase Price, (iii) during the
period beginning on and including the date which is 181 days after the Closing
Date and ending on and including the date which is 210 days after the Closing
Date, 126% of the Purchase Price, (iv) during the period beginning on and
including the date which is 211 days after the Closing Date and ending on and
including the date which is 240 days after the Closing Date, 127% of the
Purchase Price and (v) after the date which is 240 days after the Closing Date,
128% of the Purchase Price.
The "Market Price" means, as of any date of determination, the lowest
closing bid price during the fifteen consecutive trading days immediately
preceding such date of determination.
The Repricing Rate is multiplied by the number of Common Shares the
Buyer has chosen to reprice in order to determine the number of shares to be
issued to the Buyer.
If the Company fails to issue a stock certificate for the number of
shares of Common Stock to which the holder is entitled or to credit the holder's
balance account with The Depository Trust Company for such number of shares of
Common Stock to which the holder is entitled upon such holder's exercise of the
Repricing Rights within three trading days after the Company's or the transfer
agent's receipt of the exercise notice, the Company shall pay damages to such
holder on each day after the third trading day that such exercise is not
effected. The amount of damages shall equal 0.5% of the product of (i) the sum
of the number of shares of Common Stock not issued to the holder on a timely
basis and (ii) the closing bid price of the Common Stock on the last possible
date which the Company could have issued such Common Stock without violating its
delivery requirements. In addition, if the Buyer to whom the
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Company has failed to timely deliver the shares is forced to purchase other
outstanding shares of Common Stock of the Company in order to cover a sale order
by such Buyer (a "Buy-In"), then the Company will be required to pay to such
Buyer the positive difference between the price at which the Buyer bought its
covering shares and the sale price in respect of the shares sold by it.
The right of a holder of Repricing Rights to exercise such Repricing
Rights is limited as set forth below.
(i) Without the prior written consent of the Company, a holder
of Repricing Rights shall not be entitled to exercise an aggregate
number of Repricing Rights in excess of the number of Repricing Rights
which when divided by the number of Repricing Rights purchased by such
holder would exceed (A) 0.00 for the period beginning on November 24,
1998 and ending on and including the 120th day thereafter, (B) 0.25 for
the period beginning on the 121st day after November 24, 1998 and
ending on and including the 150th day after November 24, 1998, (C) 0.50
for the period beginning on and including the 151st day after November
24, 1998 and ending on and including the 180th day after November 24,
1998, (D) 0.75 for the period beginning on the 181st day after November
24, 1998 and ending on and including the 210th day after November 24,
1998, and (E) 1.00 for the period beginning on and including the 211th
day after November 24, 1998. This exercise restriction shall cease to
apply if a Major Transaction (as defined below) or Triggering Event (as
defined below) shall have occurred or been publicly announced or if a
registration statement meeting the requirements of the Registration
Rights Agreement shall not have been declared effective by the 120th
day after November 24, 1998.
(ii) As more fully described in the Purchase Agreement, a
holder of Repricing Rights shall not be entitled to exercise Repricing
Rights in excess of that number of Repricing Rights which, upon giving
effect to such exercise, would cause the aggregate number of shares of
Common Stock beneficially owned by the holder and its affiliates to
exceed 4.99% of the outstanding number of shares of the Common Stock
following such exercise. Such restriction is waivable by a holder upon
at least 61 days notice. In addition, as more fully described in the
Purchase Agreement, a holder of Repricing Rights shall not be entitled
to exercise Repricing Rights in excess of that number of Repricing
Rights which, upon giving effect to such exercise, would cause the
aggregate number of shares of Common Stock beneficially owned by the
holder and its affiliates to exceed 9.99% of the outstanding number of
shares of the Common Stock following such exercise. Such restriction is
waivable by a holder upon at least 61 days notice.
In addition to the exercise restrictions, a Buyer's right to exercise
its Repricing Right terminates automatically on the earlier of (i) if the
Initial Common Share with respect to which such Repricing Right was acquired is
sold prior to the date which is 121 days after the date on which such Repricing
Right was acquired, (ii) if the Initial Common Share with respect to which such
Repricing Right was acquired is sold on or after the date which is 121 days
after the Closing Date on which such Repricing Right was acquired at a price
equal to or greater than the Repricing Price in effect on the date of such sale,
(iii) on the date immediately following the date which is one year after the
date of the sale of the Initial Common Share with respect to which such
Repricing Right was acquired and (iv) if the Buyer elects to terminate the
Repricing Right in lieu of the Company repurchasing such Buyer's related Initial
Common Share.
COMPANY REPURCHASE RIGHTS
Pursuant to the Purchase Agreement, the Company may elect to repurchase
Repricing Rights exercised in lieu of issuing Repricing Common Shares upon such
exercise if the average closing bid price of the Common Stock for the five day
trading period immediately preceding the exercise date of the Repricing Rights
is not greater than $5.30. The repurchase price per Repricing Right shall be
equal to the product of (i) the Repricing Rate of the Repricing Right on the
exercise date and (ii) the last reported sale price of the Common Stock on the
exercise date.
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The Company may also elect to repurchase any or all of the Common
Shares issued to the Buyers and the Repricing Rights associated with such Common
Shares at any time prior to the Repricing Rights being exercised. The repurchase
price per Repricing Right shall be an amount per Common Share and associated
Repricing Right equal to (i) 124% of the Purchase Price, if the repurchase date
is prior to the date which is 120 days after the Closing Date and (ii) 128% of
the Purchase Price, if the repurchase date is on or after the date which is 120
days after the Closing Date.
HOLDER PUT RIGHTS
Pursuant to the Purchase Agreement, each holder of Common Shares or
Repricing Rights, has the right to require the Company to repurchase all or a
portion of such holder's Common Shares or Repricing Rights upon the occurrence
of a Major Transaction or a Triggering Event. The repurchase price is equal to
(i) for each Common Share with an associated Repricing Right, the greater of (A)
130% of the Purchase Price and (B) the sum of (i) the Purchase Price and (ii)
the product of (x) the Repricing Rate of the Repricing Right on the date of such
holder's delivery of a notice of repurchase and (y) the last reported sale price
of the Common Stock on the delivery date of a notice of repurchase, (ii) for
each Repricing Right without the associated Common Share, the product of (A) the
Repricing Rate of the Repricing Right on the date such holder's delivery of a
notice of repurchase and (B) the last reported sale price of the Common Stock on
the date of such holder's delivery of notice of repurchase and (iii) for each
Common Share without an associated Repricing Right, 130% of the Purchase Price.
A "Major Transaction" is deemed to have occurred at such time as any of
the following events:
(i) the consolidation, merger or other business combination of
the Company with or into another person (other than (A) a
consolidation, merger or other business combination in which holders of
the Company's voting power immediately prior to the transaction
continue after the transaction to hold, directly or indirectly, the
voting power of the surviving entity or entities necessary to elect a
majority of the members of the board of directors (or their equivalent
if other than a corporation) of such surviving entity or entities, or
(B) pursuant to a migratory merger effected solely for the purpose of
changing the jurisdiction of incorporation of the Company);
(ii) the sale or transfer of all or substantially all of the
Company's assets; or
(iii) a purchase, tender or exchange offer made to and
accepted by the holders of more than 40% of the outstanding shares of
Common Stock.
A "Triggering Event" is deemed to have occurred at such time as any of
the following events:
(i) a registration statement in respect of the resale of the
Common Shares, Repricing Common Shares and Warrant Common Shares (the
"Resale Registration Statement") has not been deemed effective by the
Commission on or prior to the 210th day after the Closing Date;
(ii) the effectiveness of the Resale Registration Statement
lapses for any reason or is unavailable for sale of the Registrable
Securities (as defined in the Registration Rights Agreement) in
accordance with the terms of the Registration Rights Agreement, and
such lapse or unavailability continues for a period of ten trading days
in aggregate (excluding any "blackout" periods permitted by the terms
of the Registration Rights Agreement);
(iii) the Common Stock is suspended from listing or is
delisted from The Nasdaq SmallCap Market or on any subsequent market
for a period of five consecutive days, unless such delisting is due to
the Company having the Common Stock relisted on a subsequent market
within such five day period;
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(iv) the Company notifies any holder of Repricing Rights,
including by way of public announcement, at any time, of its intention
not to comply or inability to comply with proper requests for exercise
of any Repricing Rights into shares of Common Stock;
(v) the Company fails to deliver shares of Common Stock
pursuant to the exercise of Repricing Rights within ten days of an
exercise date or to pay the amount due in respect of a Buy-In within
ten days after notice of such Buy-In is delivered to the Company;
(vi) the Company is not required to issue any Repricing Common
Shares pursuant to the exercise of Repricing Rights due to certain
restrictions imposed under the rules and regulations of The Nasdaq
Stock Market or the Company is otherwise unable to issue shares of
Common Stock upon delivery of an exercise notice for any reason;
(vii) if stockholder approval of the issuance of the
securities is required, the Company's stockholders fail to approve the
issuance of the shares of Common Stock upon the exercise of Repricing
Rights within 135 days of a Proxy Statement Trigger Date (as defined in
the Purchase Agreement);
(viii) the Company breaches any representation, warranty,
covenant or other material term or condition of the Purchase Agreement,
the Warrants, the Registration Rights Agreement or the irrevocable
transfer agent instructions or any other agreement, document,
certificate or other instrument delivered in connection with the
transactions contemplated thereby or hereby, and such breach, if
curable, continues for a period of at least ten days after written
notice thereof to the Company; or
(ix) a voluntary or involuntary case or proceeding is
commenced by or against the Company or a subsidiary under any
applicable federal or state bankruptcy, insolvency, reorganization or
other similar proceeding (excluding any involuntary proceeding that is
dismissed within thirty days of the filing thereof).
At any time after receipt of a notice from the Company that a Major
Transaction is to occur (or, in the event a notice is not delivered at least ten
days prior to a Major Transaction), any holder of Common Shares, Repricing
Common Shares or Repricing Rights then outstanding may require the Company to
repurchase all or a portion of the holder's Common Shares, Repricing Common
Shares or Repricing Rights. At any time after the earlier of a holder's receipt
of a notice from the Company that a Triggering Event has occurred and such
holder becoming aware of a Triggering Event, but in no event later than fifteen
business days after a holder's receipt of such notice, any holder of Common
Shares, Repricing Common Shares or Repricing Rights then outstanding may require
the Company to repurchase all or a portion of the holder's Common Shares,
Repricing Common Shares or Repricing Rights. The repurchase price upon the
occurrence of a Major Transaction or a Triggering Event is equal to (i) for each
Common Share with an associated Repricing Right, the greater of (A) 130% of the
Purchase Price and (B) the sum of (I) the Purchase Price and (II) the product of
(x) the Repricing Rate of the Repricing Right on the date of such holder's
delivery of notice of repurchase and (y) the last reported sale price of the
Common Stock on the date of such holder's delivery of a notice of repurchase,
(ii) for each Repricing Right without the associated Common Share, the product
of (x) the Repricing Rate of the Repricing Right on the date of such holder's
delivery of a notice to repurchase and (y) the last reported sale price of the
Common Stock on the date of such holder's delivery of notice of repurchase and
(iii) for each Common Share without an associated Repricing Right, 130% of the
Purchase Price.
The Company shall deliver the applicable repurchase price, in the case
of a repurchase pursuant to the occurrence of a Triggering Event, to such holder
within five business days after the Company's receipt of a notice of repurchase
from the holder and, in the case of a repurchase pursuant to the occurrence of a
Major Transaction, the Company shall deliver the applicable repurchase price
immediately prior to the consummation of the Major Transaction; provided that if
Common Shares are being
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repurchased, the holder's stock certificates shall have been delivered to the
Company; provided further that if the Company is unable to repurchase all of the
Common Shares or the Repricing Rights to be repurchased, the Company shall
repurchase an amount from each holder on a pro rata basis.
OTHER TERMS OF THE PURCHASE AGREEMENT
The Purchase Agreement contains customary representations and
warranties of the Company for transactions of this type.
Pursuant to the Purchase Agreement, the Company has agreed, among other
things, to abide by certain limitations on the Company's ability to raise equity
(the "Capital Raising Limitation"). Until December 31, 1998, the Capital Raising
Limitation prohibits the Company and its subsidiaries from entering into any
agreement for any equity financing through a structure similar to that set forth
in the Purchase Agreement (including any issuance of equity securities of the
Company or any subsidiary that are convertible or exchangeable into Common
Stock) unless it first delivers a written notice of the future offering to each
Buyer and provides each Buyer an option to purchase up to its pro rata portion
of the shares to be offered in the future offering. However, the Capital Raising
Limitation is limited to up to $2.5 million of future offerings.
If the Company would be, if all Repricing Rights were exercised on such
date required by the rules by the Nasdaq Stock Market, Inc. to obtain the
approval of the stockholders of the Company to issue the Repricing Shares upon
such exercise, then the Company must within 15 days file proxy materials with
the Securities and Exchange Commission relating to such stockholder approval and
use its best efforts to obtain as soon as possible, and in any event within 75
days, such stockholder approval. If the Company fails to obtain the approval of
the stockholders as described in this paragraph, then the Company shall pay to
each Buyer an amount in cash equal to the product of (i) the aggregate Purchase
Price paid by such Buyer multiplied by (ii) .025; multiplied by (iii) the
quotient of (x) the number of days after the deadline that the stockholder
approval is not obtained, divided by (y) 30.
WARRANTS
Pursuant to the Purchase Agreement, on November 24, 1998 the Company
issued the Buyer Warrants to the Buyers. The Buyer Warrants are exercisable for
three years commencing November 10, 1998. The Warrants are exercisable for an
aggregate of up to 50,000 shares of Common Stock at an exercise price of $6.60
per share. The Buyer 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 Buyer Warrants also include customary provisions with respect to,
among other things, transfer of the Warrants, mutilated or lost warrant
certificates, and notices to holder(s) of the Buyer Warrants.
REGISTRATION RIGHTS AGREEMENT
At the time of sale, none of the Common Shares, the Repricing Common
Shares or the Warrant Common Shares will be registered under the Securities Act
and therefore, will be, when issued, "restricted securities." The Company
entered into a Registration Rights Agreement dated November 10, 1998 with the
Buyers pursuant to which the Buyers are entitled to certain rights with respect
to the registration under the Securities Act of the Common Shares, the Repricing
Common Shares and the Warrant Common Shares (the "Registrable Securities").
Pursuant to the Registration Rights Agreement, the Company agreed to
file a registration statement on Form S-3 on or before the 60th day following
November 24, 1998, the resale of all of the Registrable Securities. The Company
is required to use its best efforts to cause such registration statement to
become effective as soon as practicable following the filing thereof; but in no
event later than the earlier of (i) the 135th day following November 24, 1998
and (ii) the fifth day after the Company learns that the
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Commission will not review the registration statement or that the Commission has
no further comments on the registration statement. If the registration statement
does not become effective by this date, then the Company is required to make
cash payments to the holders of the Registrable Securities equal to 2.0% of the
aggregate Purchase Price paid by each holder on the first day of each month
during the default. The Registration Rights Agreement also provides for
unlimited piggyback registration rights prior to the expiration of the
registration period for the Registrable Securities. The Company generally bears
the expense of any registration statement, while selling holders generally bear
selling expenses such as underwriting fees and discounts. The Registration
Rights Agreement also includes customary indemnification provisions.
PLACEMENT AGENTS
The Company paid $187,500 cash and issued the Placement Agent Warrants
to purchase 50,000 shares of the Company's Common Stock in consideration for
Jesup & Lamont Securities Corp. and Wellington Capital Corporation acting as the
placement agents in connection with the private equity placements to the Buyers.
The terms of the Placement Agent Warrants are substantially similar to those of
the Buyer Warrants.
ITEM 7. EXHIBITS.
4.1 Form of Warrant dated as of November 10, 1998 for the purchase
of shares of Common Stock issued by the Company to the persons
named on Schedule A.
10.1 Securities Purchase Agreement dated as of November 10, 1998
among Queen Sand Resources, Inc. and the buyers signatory
thereto.
10.3 Registration Rights Agreement dated as of November 10, 1998
among the Company and the buyers signatory thereto.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
QUEEN SAND RESOURCES, INC.
Date: December 3, 1998 By: /s/ EDWARD J. MUNDEN
--------------------------
Name: Edward J. Munden
Title: Chairman, Chief Executive
Officer and President
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EXHIBIT INDEX
Exhibit No. Description
4.1 Form of Warrant dated as of November 10, 1998 for the purchase
of shares of Common Stock issued by the Company to the persons
named on Schedule A.
10.1 Securities Purchase Agreement dated as of November 10, 1998
among Queen Sand Resources, Inc. and the buyers signatory
thereto.
10.3 Registration Rights Agreement dated as of November 10, 1998
among the Company and the buyers signatory thereto.
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EXHIBIT 4.1
NEITHER THE SECURITIES REPRESENTED BY THIS WARRANT NOR THE SECURITIES INTO WHICH
THIS WARRANT ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN FORM AND SUBSTANCE REASONABLY
ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING THIS SECURITY MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT.
QUEEN SAND RESOURCES, INC.
WARRANT TO PURCHASE COMMON STOCK
Warrant No.: ____ Number of Shares: _________
Date of Issuance: November 10, 1998
Queen Sand Resources, Inc., a Delaware corporation (the "COMPANY"), hereby
certifies that, for value received, ___________________, or its registered
assigns, is entitled, subject to the terms set forth below, to purchase from the
Company upon surrender of this Warrant, at any time or times on or after the
date hereof, but not after 11:59 P.M. New York City time on the Expiration Date
(as defined herein) _______________ (______) fully paid nonassessable shares of
Common Stock (as defined in Section 1(b)) of the Company (the "WARRANT SHARES")
at the purchase price per share provided in Section 1(b) below (the "WARRANT
EXERCISE PRICE"); provided, however, that in no event shall the holder be
entitled to exercise this Warrant for a number of Warrant Shares in excess of
that number of Warrant Shares which, upon giving effect to such exercise, would
cause the aggregate number of shares of Common Stock beneficially owned by the
holder and its affiliates to exceed 4.99% of the outstanding shares of the
Common Stock following such exercise. For purposes of the foregoing proviso, the
aggregate number of shares of Common Stock beneficially owned by the holder and
its affiliates shall include the number of shares of Common Stock issuable upon
exercise of this Warrant with respect to which the determination of such proviso
is being made, but shall exclude shares of Common Stock which would be issuable
upon (i) exercise of the remaining, unexercised Warrants beneficially owned by
the holder and its affiliates and (ii) exercise or conversion of the unexercised
or unconverted portion of any other securities of the Company beneficially owned
by the holder and its affiliates (including, without limitation, any
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convertible notes, convertible preferred stock, warrants or rights to receive
shares of Common Stock) subject to a limitation on conversion or exercise
analogous to the limitation contained herein. Except as set forth in the
preceding sentence, for purposes of this paragraph, beneficial ownership shall
be calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended. The holder may waive the foregoing limitations by written
notice to the Company upon not less than 61 days prior notice (with such waiver
taking effect only upon the expiration of such 61 day notice period).
Section 1.
(a) Securities Purchase Agreement. This Warrant is one of the
warrants (the "COMMON STOCK WARRANTS") issued pursuant to Section 1 of that
certain Securities Purchase Agreement, dated as of November 10, 1998, among the
Company and the Buyers party thereto (as amended and restated, the "PURCHASE
AGREEMENT").
(b) Definitions. The following words and terms as used in this
Warrant shall have the following meanings:
"APPROVED STOCK PLAN" shall mean any plan which has been
approved by the Board of Directors of the Company, pursuant to which the
Company's securities may be issued to any employee, officer, director or
consultant for services provided to the Company.
"BUSINESS DAY" means any day except Saturday, Sunday and
any day which shall be a legal holiday or a day on which banking institutions in
the State of New York are authorized or required by law or other government
action to close.
"CLOSING BID PRICE" means, for any security as of any
date, the last closing bid price for such security on The Nasdaq SmallCap Market
as reported by Bloomberg Financial Markets ("BLOOMBERG"), or, if The Nasdaq
SmallCap Market is not the principal trading market for such security, the last
closing bid price of such security on a Subsequent Market (as defined below) on
which such security is listed or traded as reported by Bloomberg, or if the
foregoing do not apply, the last closing bid price of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no closing bid price is reported for such security
by Bloomberg, the last closing trade price of such security as reported by
Bloomberg, or, if no last closing trade price is reported for such security by
Bloomberg, the average of the bid prices of any market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the
Closing Bid Price cannot be calculated for such security on such date on any of
the foregoing bases, the Closing Bid Price of such security on such date shall
be the fair market value as mutually determined by the Company and the holders
the Common Stock Warrants. If the Company and the holders
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of the Common Stock Warrants are unable to agree upon the fair market value of
the Common Stock, then such dispute shall be resolved pursuant to Section 2(a)
of this Warrant with the term "Closing Bid Price" being substituted for the term
"Market Price." (All such determinations to be appropriately adjusted for any
stock dividend, stock split or other similar transaction during such period).
"COMMON STOCK" means (i) the Company's common stock, par
value $.0015 per share, and (ii) any capital stock into which such Common Stock
shall have been changed or any capital stock resulting from a reclassification
of such Common Stock.
"COMMON STOCK DEEMED OUTSTANDING" means, at any given
time, the number of shares of Common Stock actually outstanding at such time,
plus the number of shares of Common Stock deemed to be outstanding pursuant to
Sections 8(b)(i) and 8(b)(ii) hereof regardless of whether the Options (as
defined in Section 8(b)(i) below) or Convertible Securities (as defined in
Section 8(b)(i) below) are actually exercisable or convertible at such time, but
excluding any shares of Common Stock issuable upon exercise of the Common Stock
Warrants.
"EXPIRATION DATE" means the date three (3) years from the
date of this Warrant or, if such date is not a Business Day, the next preceding
Business Day.
"MARKET PRICE" means, with respect to any security for any
date, the average of the Closing Bid Prices for such security during the five
(5) consecutive trading days immediately preceding such date.
"OTHER SECURITIES" means (i) those convertible securities,
options and warrants of the Company issued prior to, and outstanding on, the
date of issuance of this Warrant, (ii) the Common Shares (as defined in the
Securities Purchase Agreement), (iii) the Repricing Common Shares (as defined in
the Securities Purchase Agreement), (iv) the Repricing Rights (as defined in the
Securities Purchase Agreement), (v) shares of Common Stock, and warrants or
other securities that are convertible into or exchangeable for shares of Common
Stock, issuable in connection with the acquisition by the Company of oil and
natural gas companies (whether by merger, purchase of shares or exchange) or
properties, and (vi) rights of Joint Energy Development Investments Limited
Partnership, a Delaware limited partnership ("JEDI"), under Section 7.01 of the
Securities Purchase Agreement, dated as of March 27, 1997, between the Company
and JEDI (as such agreement is in effect on the date of the issuance of this
Warrant) arising from any issuances described in clause (v) above in this
definition.
"PERSON" means an individual, a limited liability company,
a partnership, a joint venture, a corporation, a trust, an unincorporated
organization, a government or any department or agency thereof, or any other
entity or organization.
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"REGISTRATION RIGHTS AGREEMENT" means the Registration
Rights Agreement dated the date hereof, among the Company and the Buyers party
thereto entered into in connection with the Purchase Agreement.
"SECURITIES ACT" means the Securities Act of 1933, as
amended.
"SUBSEQUENT MARKET" means any of the New York Stock
Exchange, American Stock Exchange or Nasdaq National Market.
"TRADING DAY" means (a) a day on which the Common Stock is
listed for trading on the Nasdaq SmallCap Market or on a Subsequent Market or
(b) if the Common Stock is not listed on the Nasdaq SmallCap Market or a
Subsequent Market, a day on which the Common Stock is traded in the
over-the-counter market, as reported by the OTC Bulletin Board, or (c) if the
Common Stock is not quoted on the OTC Bulletin Board, a day on which the Common
Stock is quoted in the over-the-counter market as reported by the National
Quotation Bureau Incorporated (or any similar organization or agency succeeding
its functions of reporting prices); provided, however, that in the event that
the Common Stock is not listed or quoted as set forth in (a), (b) and (c)
hereof, then a Trading Day shall be a Business Day.
"WARRANT" means this Warrant and all Warrants issued in
exchange, transfer or replacement thereof.
"WARRANT EXERCISE PRICE" shall be $6.60, subject to
adjustment as hereinafter provided.
(c) Other Definitional Provisions.
(i) Except as otherwise specified herein, all references
herein (A) to the Company shall be deemed to include the Company's successors
and (B) to any applicable law defined or referred to herein, shall be deemed
references to such applicable law as the same may have been or may be amended or
supplemented from time to time.
(ii) When used in this Warrant, the words "HEREIN,"
"HEREOF," and "HEREUNDER," and words of similar import, shall refer to this
Warrant as a whole and not to any provision of this Warrant, and the words
"SECTION," "SCHEDULE," and "EXHIBIT" shall refer to Sections of, and Schedules
and Exhibits to, this Warrant unless otherwise specified.
(iii) Whenever the context so requires, the neuter gender
includes the masculine or feminine, and the singular number includes the plural,
and vice versa.
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<PAGE> 5
Section 2. Exercise of Warrant.
(a) Subject to the terms and conditions hereof, this Warrant
may be exercised by the holder hereof then registered on the books of the
Company, in whole or in part, at any time during normal business hours on any
business day on or after the opening of business on the date hereof and prior to
11:59 P.M. New York City time on the Expiration Date by (i) delivery of a
written notice, in the form of the subscription notice attached as Exhibit A
hereto, of such holder's election to exercise this Warrant, which notice shall
specify the number of Warrant Shares to be purchased, (ii) payment to the
Company of an amount equal to the Warrant Exercise Price multiplied by the
number of Warrant Shares as to which the Warrant is being exercised (the
"AGGREGATE EXERCISE PRICE") in cash or by check or wire transfer, and (iii) the
surrender of this Warrant, at the principal office of the Company; provided,
that if such Warrant Shares are to be issued in any name other than that of the
registered holder of this Warrant, such issuance shall be deemed a transfer and
the provisions of Section 7 shall be applicable. In the event of any exercise of
the rights represented by this Warrant in compliance with this Section 2(a), a
certificate or certificates for the Warrant Shares so purchased, in such
denominations as may be requested by the holder hereof and registered in the
name of, or as directed by, the holder, shall be delivered at the Company's
expense to, or as directed by, such holder as soon as practicable after such
rights shall have been so exercised, and in any event no later than three
business days after such exercise. In the case of a dispute as to the
determination of the Warrant Exercise Price of a security or the arithmetic
calculation of the Warrant Shares, the Company shall promptly issue to the
holder the number of shares of Common Stock that is not disputed and shall
submit the disputed determinations or arithmetic calculations to the holder via
facsimile within one business day of receipt of the holder's subscription
notice. If the holder and the Company are unable to agree upon the determination
of the Warrant Exercise Price or arithmetic calculation of the Warrant Shares
within one day of such disputed determination or arithmetic calculation being
submitted to the holder, then the Company shall immediately submit via facsimile
(i) the disputed determination of the Warrant Exercise Price to an independent,
reputable investment banking firm or (ii) the disputed arithmetic calculation of
the Warrant Shares to its independent, outside accountant. The Company shall
cause the investment banking firm or the accountant, as the case may be, to
perform the determinations or calculations and notify the Company and the holder
of the results no later than two (2) Business Days from receipt of the disputed
determinations or calculations. Such investment banking firm's or accountant's
determination or calculation, as the case may be, shall be deemed conclusive
absent manifest error.
(b) Unless the rights represented by this Warrant shall have
expired or shall have been fully exercised, the Company shall, as soon as
practicable and in no event later than five Business Days after any exercise and
at its own expense, issue a new Warrant identical in all respects to the Warrant
exercised except (i) it shall represent rights to purchase the number of Warrant
Shares purchasable immediately prior to such
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<PAGE> 6
exercise under the Warrant exercised, less the number of Warrant Shares with
respect to which such Warrant is exercised, and (ii) the holder thereof shall be
deemed for all corporate purposes to have become the holder of record of such
Warrant Shares immediately prior to the close of business on the date on which
the Warrant is surrendered and payment of the amount due in respect of such
exercise and any applicable taxes is made, irrespective of the date of delivery
of certificates evidencing such Warrant Shares, except that, if the date of such
surrender and payment is a date when the stock transfer books of the Company are
properly closed, such person shall be deemed to have become the holder of such
Warrant Shares at the opening of business on the next succeeding date on which
the stock transfer books are open.
(c) No fractional shares of Common Stock are to be issued upon
the exercise of this Warrant, but rather the number of shares of Common Stock
issued upon exercise of this Warrant shall be rounded up or down to the nearest
whole number.
(d) If the Company shall fail for any reason or for no reason
to issue to the holder on a timely basis as described in this Section 2, a
certificate for the number of shares of Common Stock to which the holder is
entitled upon the holder's exercise of this Warrant or a new Warrant for the
number of shares of Common Stock to which such holder is entitled pursuant to
Section 2(b) hereof, the Company shall, in addition to any other remedies under
this Warrant or the Securities Purchase Agreement or otherwise available to such
holder, including any indemnification under Section 11 of the Securities
Purchase Agreement, pay as additional damages in cash to such holder on each
date after the fifth Business Day following receipt by the Company of the
exercise notice that such exercise is not timely effected in an amount equal to
0.5% of the product of (A) the sum of the number of shares of Common Stock not
issued to the holder on a timely basis and to which the holder is entitled and,
in the event the Company has failed to timely deliver a new Warrant, the number
of shares represented by the portion of this Warrant which is not being
converted, as the case may be, and (B) the average of the Closing Bid Prices for
the three consecutive trading days immediately preceding the last possible date
which the Company could have issued such Common Stock to the holder without
violating this Section 2.
(e) Notwithstanding anything contained herein to the contrary,
the holder of this Warrant may, at its election exercised in its sole
discretion, exercise this Warrant in whole or in part and, in lieu of making the
cash payment otherwise contemplated to be made to the Company upon such exercise
in payment of the Aggregate Exercise Price, elect instead to receive upon such
exercise the "Net Number" of shares of Common Stock determined according to the
following formula:
Net Number = (A x B) - (A x C)
-----------------
B
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<PAGE> 7
For purposes of the foregoing formula:
A= the total number shares with respect to which this
Warrant is then being exercised.
B= the Market Price immediately prior to the date of
the subscription notice.
C= the Warrant Exercise Price then in effect at the
time of such exercise.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the holder hereof,
and the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
Section 3. Covenants as to Common Stock; Certain Registrations. The
Company hereby covenants and agrees as follows:
(a) This Warrant is, and any Common Stock Warrants issued in
substitution for or replacement of this Warrant will upon issuance be, duly
authorized and validly issued.
(b) All Warrant Shares which may be issued upon the exercise
of the rights represented by this Warrant will, upon issuance, be validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issue thereof.
(c) During the period within which the rights represented by
this Warrant may be exercised, the Company will at all times have authorized and
reserved at least 100% of the number of shares of Common Stock needed to provide
for the exercise of the rights then represented by this Warrant and the par
value of said shares will at all times be less than or equal to the applicable
Warrant Exercise Price.
(d) The Company shall list the Warrant Shares within 10 days
of the date of this Warrant on the Nasdaq SmallCap Market and each other
Subsequent Market on which the Common Stock is then listed or traded and shall
maintain such listing for so long as any other shares of Common Stock shall be
so listed.
(e) The Company will not, by amendment of its charter or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities, or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant.
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<PAGE> 8
Without limiting the generality of the foregoing, the Company (i) will not
increase the par value of any shares of Common Stock receivable upon the
exercise of this Warrant above the Warrant Exercise Price then in effect, and
(ii) will take all such actions as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.
(f) This Warrant will be binding upon any entity succeeding to
the Company by merger, consolidation or acquisition of all or substantially all
of the Company's assets.
Section 4. Taxes. The Company shall pay any and all taxes which may
be payable with respect to the issuance and delivery of Warrant Shares upon
exercise of this Warrant.
Section 5. Warrant Holder Not Deemed a Stockholder. Except as otherwise
specifically provided herein, no holder, as such, of this Warrant shall be
entitled to vote or receive dividends or be deemed the holder of shares of the
Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings, receive dividends or subscription rights, or otherwise, prior to the
issuance to the holder of this Warrant of the Warrant Shares which he or she is
then entitled to receive upon the due exercise of this Warrant. In addition,
nothing contained in this Warrant shall be construed as imposing any liabilities
on such holder to purchase any securities or as a stockholder of the Company,
whether such liabilities are asserted by the Company or by creditors of the
Company. Notwithstanding this Section 5, the Company will provide the holder of
this Warrant with copies of the same notices and other information given to the
stockholders of the Company generally, contemporaneously with the giving thereof
to the stockholders.
Section 6. Representations of Holder. The holder of this Warrant, by
the acceptance hereof, represents that it is acquiring this Warrant and the
Warrant Shares for its own account for investment and not with a view to, or for
sale in connection with, any distribution hereof or of any of the shares of
Common Stock or other securities issuable upon the exercise thereof, and not
with any present intention of distributing any of the same. The holder of this
Warrant further represents, by acceptance hereof, that, as of this date, such
holder is an accredited investor as such term is defined in Rule 501(a) of
Regulation D promulgated by the Securities and Exchange Commission under the
Securities Act (an "ACCREDITED INVESTOR"). Upon exercise of this Warrant, the
holder shall, if requested by the Company, confirm in writing, in a form
satisfactory to the Company, that the Warrant Shares so purchased are being
acquired solely for the holder's own account and not as a nominee for any other
party, for investment, and not with a
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<PAGE> 9
view toward distribution or resale other than pursuant to an effective
registration statement or an exemption under the Securities Act and that such
holder is an Accredited Investor. Notwithstanding the foregoing, by making the
representations herein, the holder does not agree to hold the Warrant or the
Warrant Shares for any minimum or other specified term and reserves the right to
dispose of the Warrant and the Warrant Shares at any time in accordance with or
pursuant to a registration statement or an exemption under the Securities Act.
If such holder cannot make such representations because they would be factually
incorrect, it shall be a condition to such holder's exercise of the Warrant that
the Company receive such other representations as the Company considers
reasonably necessary to assure the Company that the issuance of its securities
upon exercise of the Warrant shall not violate any United States or state
securities laws.
Section 7. Ownership and Transfer.
(a) The Company shall maintain at its principal executive
offices (or such other office or agency of the Company as it may designate by
notice to the holder hereof), a register for this Warrant, in which the Company
shall record the name and address of the person in whose name this Warrant has
been issued, as well as the name and address of each transferee. The Company may
treat the person in whose name any Warrant is registered on the register as the
owner and holder thereof for all purposes, notwithstanding any notice to the
contrary, but in all events recognizing any transfers made in accordance with
the terms of this Warrant.
(b) This Warrant and the rights granted to the holder hereof
are transferable to affiliates of the holder hereof and to any investment funds
that are under common management with such holder, without the written consent
of the Company, and to other Persons, with the consent of the Company, which
consent shall not be unreasonably withheld, in whole or in part, upon surrender
of this Warrant, together with a properly executed warrant power in the form of
Exhibit B attached hereto; provided, however, that any transfer or assignment
shall be subject to the conditions set forth in Section 7(c) below.
(c) The holder of this Warrant understands that this Warrant
has not been and is not expected to be, registered under the Securities Act or
any state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (a) subsequently registered thereunder, or (b) such holder
shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company, to the effect that the
securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration; provided that (i)
any sale of such securities made in reliance on Rule 144 promulgated under the
Securities Act may be made only in accordance with the terms of said Rule and
further, if said Rule is not applicable, any resale of such securities under
circumstances in which the seller (or the person through whom the sale is made)
may be deemed to be an
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<PAGE> 10
underwriter (as that term is defined in the Securities Act) may require
compliance with some other exemption under the Securities Act or the rules and
regulations of the Securities and Exchange Commission thereunder; and (ii)
neither the Company nor any other person is under any obligation to register the
Common Stock Warrants under the Securities Act or any state securities laws or
to comply with the terms and conditions of any exemption thereunder.
(d) The Company is obligated to register the Warrant Shares
for resale under the Securities Act pursuant to the Registration Rights
Agreement and the initial holder of this Warrant (and certain assignees thereof)
is entitled to the registration rights in respect of the Warrant Shares as set
forth in the Registration Rights Agreement.
Section 8. Adjustment of Warrant Exercise Price and Number of Shares.
In order to prevent dilution of the rights granted under this Warrant, the
Warrant Exercise Price and the number of shares of Common Stock issuable upon
exercise of this Warrant shall be adjusted from time to time as follows:
(a) Adjustment of Warrant Exercise Price and Number of Shares
upon Issuance of Common Stock. If and whenever on or after the date of issuance
of this Warrant, the Company issues or sells, or is deemed to have issued or
sold, any shares of Common Stock or rights, warrants or options exercisable into
or exchangeable for shares of Common Stock (other than shares of Common Stock
deemed to have been issued by the Company in connection with an Approved Stock
Plan or upon exercise of the Other Securities) for a consideration per share
less than a price (the "APPLICABLE PRICE") equal to the Warrant Exercise Price
in effect immediately prior to such issuance or sale, then immediately after
such issue or sale the Warrant Exercise Price shall be reduced to an amount
determined by multiplying the Warrant Exercise Price in effect immediately prior
to such issue or sale by a fraction, the numerator of which shall be the sum of
(i) the number of shares of Common Stock Deemed Outstanding immediately prior to
such issue or sale, and (ii) the number of shares of Common Stock which the
aggregate consideration received (or to be received, assuming exercise or
conversion in full of such rights, warrants or convertible securities) for the
issuance of such additional shares of Common Stock would purchase at the Warrant
Exercise Price, and the denominator of which shall be the number of shares of
Common Stock Deemed Outstanding immediately after such issue or sale. Upon each
such adjustment of the Warrant Exercise Price hereunder, the number of shares of
Common Stock acquirable upon exercise of this Warrant shall be adjusted to the
number of shares determined by multiplying the Warrant Exercise Price in effect
immediately prior to such adjustment by the number of shares of Common Stock
acquirable upon exercise of this Warrant immediately prior to such adjustment
and dividing the product thereof by the Warrant Exercise Price resulting from
such adjustment. However, upon the expiration of any right, warrant or option to
purchase shares of Common Stock the issuance of which resulted in an adjustment
in the Warrant Exercise Price pursuant to this Section, if any such right,
warrant or option shall
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<PAGE> 11
expire without having been exercised, the Warrant Exercise Price shall,
immediately upon such expiration, be recomputed and effective immediately upon
such expiration shall be increased to the price which it would have been (but
reflecting any other adjustments in the Warrant Exercise Price made pursuant to
this Warrant upon the issuance of other rights, warrants or options) had the
adjustment of the Warrant Exercise Price made the issuance of such rights,
options or warrants been made on the basis of offering for subscription or
purchase only that number of shares of Common Stock actually purchased upon the
exercise of such rights, options or warrants actually exercised.
(b) Effect on Warrant Exercise Price of Certain Events. For
purposes of determining the adjusted Warrant Exercise Price under Section 8(a),
the following shall be applicable:
(i) Issuance of Options. If the Company in any manner
grants any rights or options to subscribe for or to purchase Common Stock (other
than pursuant to an Approved Stock Plan or Other Securities) or any stock or
other securities convertible into or exchangeable for, directly or indirectly,
Common Stock (such rights or options being herein called "OPTIONS" and such
convertible or exchangeable stock or securities being herein called "CONVERTIBLE
SECURITIES") and the price per share for which Common Stock is issuable upon the
exercise of such Options or upon conversion or exchange of such Convertible
Securities is less than the Applicable Price, then the total maximum number of
shares of Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Options shall be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For purposes of this Section 8(b)(i), the "price per share for which
Common Stock is issuable upon exercise of such Options or upon conversion or
exchange of such Convertible Securities" is determined by dividing (A) the total
amount, if any, received or receivable by the Company as consideration for the
granting of such Options, plus the minimum aggregate amount of additional
consideration payable to the Company upon the exercise of all such Options, plus
in the case of such Options which relate to Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable to the Company
upon the issuance or sale of such Convertible Securities and the conversion or
exchange thereof, by (B) the total maximum number of shares of Common Stock
issuable upon exercise of such Options or upon the conversion or exchange of all
such Convertible Securities issuable upon the exercise of such Options. No
adjustment of the Warrant Exercise Price shall be made upon the actual issuance
of such Common Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such Common Stock upon conversion or
exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the
Company in any manner issues or sells any Convertible Securities and the price
per share for which Common Stock is issuable upon such conversion or exchange is
less than the Applicable
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<PAGE> 12
Price, then the maximum number of shares of Common Stock issuable upon
conversion or exchange of such Convertible Securities shall be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For the purposes of this Section 8(b)(ii), the "price per share for which
Common Stock is issuable upon such conversion or exchange" is determined by
dividing (A) the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any, payable to the
Company upon the conversion or exchange thereof, by (B) the total maximum number
of shares of Common Stock issuable upon the conversion or exchange of all such
Convertible Securities. No adjustment of the Warrant Exercise Price shall be
made upon the actual issue of such Common Stock upon conversion or exchange of
such Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustment of the
Warrant Exercise Price had been or are to be made pursuant to other provisions
of this Section 8(b), no further adjustment of the Warrant Exercise Price shall
be made by reason of such issue or sale.
(iii) Change in Option Price or Rate of Conversion.
If the purchase price provided for in any Options, the additional consideration,
if any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable for Common Stock change at any time, the Warrant Exercise Price
in effect at the time of such change shall be readjusted to the Warrant Exercise
Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold and the number of shares of Common
Stock acquirable hereunder shall be correspondingly readjusted; provided that no
adjustment shall be made if such adjustment would result in an increase of the
Warrant Exercise Price then in effect.
(c) Effect on Warrant Exercise Price of Certain Events. For
purposes of determining the adjusted Warrant Exercise Price under Sections 8(a)
and 8(b), the following shall be applicable:
(i) Calculation of Consideration Received. If any
Common Stock, Options or Convertible Securities are issued or sold or deemed to
have been issued or sold for cash, the consideration received therefor will be
deemed to be the net amount received by the Company therefor. In case any Common
Stock, Options or Convertible Securities are issued or sold for a consideration
other than cash, the amount of the consideration other than cash received by the
Company will be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Company will be the Market Price of such securities on the date
of receipt. In case any Common Stock, Options or Convertible Securities are
issued to the owners of the non-surviving entity in connection with any
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<PAGE> 13
merger in which the Company is the surviving entity the amount of consideration
therefor will be deemed to be the fair value of such portion of the net assets
and business of the non-surviving entity as is attributable to such Common
Stock, Options or Convertible Securities, as the case may be. The fair value of
any consideration other than cash or securities will be determined by the
Company's Board of Directors, provided, that, if the Holder disagrees with such
determination, such dispute shall be resolved promptly by the independent
certified public accountants that regularly examines the financial statements of
the Company.
(ii) Treasury Shares. The number of shares of Common
Stock outstanding at any given time does not include shares owned or held by or
for the account of the Company, and the disposition of any shares so owned or
held will be considered an issue or sale of Common Stock.
(iii) Record Date. If the Company takes a record of
the holders of Common Stock for the purpose of entitling them (1) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (2) to subscribe for or purchase Common Stock, Options
or Convertible Securities, then such record date will be deemed to be the date
of the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(iv) Calculations. All calculations under this
Warrant shall be made to the nearest cent or the nearest 1/100th of a share, as
the case may be.
(d) Adjustment of Warrant Exercise Price upon Subdivision or
Combination of Common Stock. If the Company at any time after the date of
issuance of this Warrant subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Warrant Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced and
the number of shares of Common Stock obtainable upon exercise of this Warrant
will be proportionately increased. If the Company at any time after the date of
issuance of this Warrant combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Warrant Exercise Price in effect immediately prior
to such combination will be proportionately increased and the number of shares
of Common Stock obtainable upon exercise of this Warrant will be proportionately
decreased.
(e) Reorganization, Reclassification, Consolidation, Merger or
Sale. Any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Company's assets to another
Person (as defined below) or other
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<PAGE> 14
transaction which is effected in such a way that holders of Common Stock are
entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is referred
to herein as "ORGANIC CHANGE." Prior to the consummation of any Organic Change,
the Company will make appropriate provision (in form and substance satisfactory
to the holders of the Common Stock Warrants representing a majority of the
shares of Common Stock issuable upon exercise of such Common Stock Warrants then
outstanding) to ensure that each of the holders of the Common Stock Warrants
will thereafter have the right to acquire and receive in lieu of or addition to
(as the case may be) the shares of Common Stock immediately theretofore
acquirable and receivable upon the exercise of such holder's Common Stock
Warrants, such shares of stock, securities or assets as may be issued or payable
in the Organic Change with respect to or in exchange for the number of shares of
Common Stock immediately theretofore acquirable and receivable upon the exercise
of such holder's Common Stock Warrants had such Organic Change not taken place
(without taking into account any limitations or restrictions on exercise). In
any such case, the Company will make appropriate provision (in form and
substance satisfactory to the holders of the Common Stock Warrants representing
a majority of the shares of Common Stock issuable upon exercise of such Common
Stock Warrants then outstanding) with respect to such holders' rights and
interests to insure that the provisions of this Section 8 and Section 9 will
thereafter be applicable to the Common Stock Warrants (including, in the case of
any such consolidation, merger or sale in which the successor entity or
purchasing entity is other than the Company, an immediate adjustment of the
Warrant Exercise Price to the value for the Common Stock reflected by the terms
of such consolidation, merger or sale, and a corresponding immediate adjustment
in the number of shares of shares of Common Stock acquirable and receivable upon
exercise of the Common Stock Warrants, if the value so reflected is less than
the Warrant Exercise Price in effect immediately prior to such consolidation,
merger or sale). The terms of any documents evidencing an Organic Change shall
include such terms as to give effect to the tenor of this provision and
evidencing the obligation to deliver to each holder of Common Stock Warrants
such shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to acquire.
(f) Distribution of Assets. If the Company shall declare or
make any distribution of its assets (or rights to acquire its assets) to holders
of Common Stock as a partial liquidating dividend, by way or return of capital
or otherwise (including any dividend or distribution to the Company's
stockholders of cash or shares (or rights to acquire shares) of capital stock of
a subsidiary) (a "DISTRIBUTION"), at any time after the issuance of this
Warrant, then the holder of this Warrant shall be entitled upon exercise of this
Warrant for the purchase of any or all of the shares of Common Stock subject
hereto, after the record date for determining shareholders entitled to receive
such Distribution, to receive the amount of such assets (or rights) which would
have been payable to the holder had such holder been the holder of such shares
of Common Stock on the record date for determination of stockholders entitled to
such Distribution.
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<PAGE> 15
(g) Notices.
(i) Immediately upon any adjustment of the Warrant
Exercise Price, the Company will give written notice thereof to the holder of
this Warrant, setting forth in reasonable detail and certifying the calculation
of such adjustment.
(ii) The Company will give written notice to the
holder of this Warrant at least twenty (20) days prior to the date on which the
Company closes its books or takes a record (A) with respect to any dividend or
distribution upon the Common Stock, (B) with respect to any pro rata
subscription offer to holders of Common Stock or (C) for determining rights to
vote with respect to any Organic Change, dissolution or liquidation and in no
event shall such notice be provided to such holder prior to such information
being made known to the public.
(iii) The Company will also give written notice to
the holder of this Warrant at least twenty (20) days prior to the date on which
any Organic Change, dissolution or liquidation will take place and in no event
shall such notice be provided to such holder prior to such information being
made known to the public.
Section 9. Purchase Rights. In addition to any adjustments pursuant to
Section 8 above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of Common Stock (the "PURCHASE
RIGHTS"), then the holder of this Warrant will be entitled to acquire, upon the
terms applicable to such Purchase Rights, the aggregate Purchase Rights which
such holder could have acquired if such holder had held the number of shares of
Common Stock acquirable upon complete exercise of this Warrant immediately
before the date on which a record is taken for the grant, issuance or sale of
such Purchase Rights, or, if no such record is taken, the date as of which the
record holders of Common Stock are to be determined for the grant, issue or sale
of such Purchase Rights.
Section 10. Lost, Stolen, Mutilated or Destroyed Warrant. If this
Warrant is lost, stolen, mutilated or destroyed, the Company shall, on receipt
of an indemnification undertaking, issue a new Warrant of like denomination and
tenor as the Warrant so lost, stolen, mutilated or destroyed.
Section 11. Notice. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this Warrant
must be in writing and will be deemed to have been delivered (i) upon receipt,
when delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) upon receipt, when delivered by a
delivery service, in each case properly addressed to the
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<PAGE> 16
party to receive the same. The addresses and facsimile numbers for such
communications shall be:
If to the Company:
Queen Sand Resources, Inc.
3500 Oak Lawn, Suite 380, LB#31
Dallas, Texas 75219
Telephone: 214-521-9955
Facsimile: 214-521-9960
Attention: Robert P. Lindsay
and
Queen Sand Resources, Inc.
30 Metcalfe Street, Suite 620
Ottawa, Ontario, Canada K1P 5L4
Telephone: 613-230-7211
Facsimile: 613-230-6055
Attention: Edward J. Munden
With copy to:
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
Telephone: (214) 651-5553
Facsimile: (214) 651-5940
Attention: William L. Boeing, Esq.
If to a holder of this Warrant, to it at the address set forth
below such holder's signature on the signature page hereof.
Each party shall provide five days' prior written notice to the other party of
any change in address or facsimile number.
Section 12. Miscellaneous. This Warrant and any term hereof may be
changed, waived, discharged, or terminated only by an instrument in writing
signed by the party or holder hereof against which enforcement of such change,
waiver, discharge or termination is sought. The headings in this Warrant are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof. This Warrant shall be governed by and interpreted under the laws
of the State of New York without regard to principles of conflicts of law
thereof.
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<PAGE> 17
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
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<PAGE> 18
IN WITNESS WHEREOF, the Company has cause this Warrant to be
duly executed by its duly authorized officer as of the date first indicated
above.
QUEEN SAND RESOURCES, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
<PAGE> 19
EXHIBIT A TO WARRANT
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT
QUEEN SAND RESOURCES, INC.
The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("WARRANT SHARES") of Queen Sand
Resources, Inc., a Delaware corporation (the "COMPANY"), evidenced by the
attached Warrant (the "WARRANT"). Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.
1. Form of Warrant Exercise Price. The Holder intends that payment of
the Warrant Exercise Price shall be made as:
a "Cash Exercise" with respect to ________________
------------ Warrant Shares; and/or
a "Cashless Exercise" with respect to ______________
------------ Warrant Shares (to the extent permitted by the terms of
the Warrant).
2. Payment of Warrant Exercise Price. In the event that the holder has
elected a Cash Exercise with respect to some or all of the Warrant Shares to be
issued pursuant hereto, the holder shall pay the sum of $___________________ to
the Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.
Date: ,
--------------- -- ------
- --------------------------------
Name of Registered Holder
By:
-----------------------------
Name:
Title:
<PAGE> 20
EXHIBIT B TO WARRANT
FORM OF WARRANT POWER
FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
________________, Federal Identification No. __________, a warrant to purchase
____________ shares of the capital stock of Queen Sand Resources, Inc., a
Delaware corporation, represented by warrant certificate no. _____, standing in
the name of the undersigned on the books of said corporation. The undersigned
does hereby irrevocably constitute and appoint ______________, attorney to
transfer the warrants of said corporation, with full power of substitution in
the premises.
Dated:
-------------------
------------------------------------
By:
---------------------------------
Its:
--------------------------------
<PAGE> 21
SCHEDULE A
<TABLE>
<CAPTION>
Name Number of Warrants
- ---- ------------------
<S> <C>
Sovereign Partners L.P. 25,000
Dominion Capital Fund Ltd. 25,000
Jesup & Lamont Securities Corporation 20,000
Wellington Capital Corporation 30,000
</TABLE>
<PAGE> 1
EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of November
10, 1998, by and among Queen Sand Resources, Inc., a Delaware corporation (the
"COMPANY"), and the investors listed on the Schedule of Buyers attached hereto
(individually, a "BUYER" and collectively, the "BUYERS").
WHEREAS:
The Company and the Buyers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Rule 506
of Regulation D ("REGULATION D") as promulgated by the United States Securities
and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "1933 ACT"); and
The Buyers wish, severally and not jointly, to purchase, upon the terms
and conditions stated in this Agreement, (i) an aggregate of that number of
shares of the Company's common stock, par value $.0015 per share (the "COMMON
STOCK"), equal to $2,500,000 divided by the Purchase Price (as defined below)
(the "COMMON SHARES") in the respective amounts set forth opposite each Buyer's
name on the Schedule of Buyers attached hereto, (ii) the right with respect to
each Common Share (the "REPRICING RIGHT") to require the Company, subject to the
terms and conditions set forth herein, to issue the Buyers additional shares of
Common Stock (the "REPRICING COMMON SHARES") as described in Section 5 and (iii)
warrants in the form of Exhibit C attached hereto (the "WARRANTS"), entitling
the holders thereof to acquire from time to time from the Closing Date through
the third anniversary thereof an aggregate of 50,000 shares of Common Stock at
an exercise price (subject to adjustment as provided therein) equal to 110% of
the Purchase Price (the "WARRANT SHARES"). The Common Shares, the Warrants, the
Warrant Shares, the Repricing Rights, the Repricing Common Shares and any shares
of common stock issued as payment of Registration Delay Payments (as defined in
the Registration Rights Agreement, as defined below) collectively are referred
to in this Agreement as the "SECURITIES").
NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF COMMON SHARES.
a. The Closing. The issuance and sale of the Common Shares, Repricing
Rights and Warrants pursuant to this Agreement shall occur on November 24, 1998
(the "CLOSING DATE"). The closing of the transactions contemplated by this
Agreement (the "CLOSING") shall occur on the Closing Date at the offices of
Robinson Silverman Pearce Aronsohn & Berman, 1290 Avenue of the Americas, New
York, New York 10104, or at such other location as may be agreed to by the
parties.
b. Purchase of Securities. At the Closing (1) the Company shall deliver
to or as directed by each Buyer (i) a stock certificate, registered in the name
of such Buyer or such Buyer's designee (all such certificates are collectively,
the "STOCK CERTIFICATES") representing the number of Common Shares to be
acquired at the Closing by such Buyer (which shall equal the dollar amount of
Common Shares to be acquired at the Closing by each Buyer, as set forth in the
Schedule of Buyers attached hereto, divided by $6.00 (the "PURCHASE PRICE")),
(ii) a Warrant entitling such Buyer to acquire such Buyer's pro rata
<PAGE> 2
portion of the Warrant Shares (determined by reference to such Buyer's pro rata
portion of the aggregate Purchase Price being paid at Closing), (iii) one
Repricing Right for each Common Share issued at the Closing to such Buyer (which
shall be deemed incorporated and part of each Common Share issued), (iv) the
legal opinion of Haynes and Boone, LLP, dated as of the Closing Date, in form,
scope and substance customary for a transaction of this type and satisfactory to
such Buyer, (v) a certificate evidencing the incorporation or formation and good
standing (or similar instrument) of the Company and each Subsidiary in such
entity's jurisdiction of formation as of a date within ten days of the Closing
Date, (vi) a secretary's certificate of the Company as (A) resolutions
consistent with Section 3(b)(ii), (B) certified copies of the Company's
Certificate of Incorporation and Bylaws, each in effect at the Closing, (vii)
the Irrevocable Transfer Agent Instructions, in the form of Exhibit A attached
hereto, acknowledged in writing by the Company's transfer agent, and (viii) all
other instruments and writings required to have been delivered at or prior to
the Closing by the Company pursuant to this Agreement, including without
limitation, an executed Registration Rights Agreement, dated as of the Closing
Date, between the Company and the Buyers in the form of Exhibit D attached
hereto (the "REGISTRATION RIGHTS AGREEMENT"); and (2) each Buyer shall deliver
or cause to be delivered to the Company (i) by wire transfer of immediately
available funds in accordance with the Company's written wire instructions, the
Purchase Price for the Securities being acquired by it at the Closing
(determined by reference to the Schedule of Buyers attached hereto); and (ii)
all documents, instruments and writings required to have been delivered at or
prior to the Closing by such Buyer pursuant to this Agreement, including,
without limitation, an executed Registration Rights Agreement.
c. Closing Bid Price. For purposes of this Agreement, "CLOSING BID
PRICE" means, for any security as of any date, the last closing bid price for
such security on The Nasdaq SmallCap Market as reported by Bloomberg Financial
Markets ("BLOOMBERG"), or, if The Nasdaq SmallCap Market is not the principal
trading market for such security, the last closing bid price of such security on
a Subsequent Market (as defined below) on which such security is listed or
traded as reported by Bloomberg, or if the foregoing do not apply, the last
closing bid price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
closing bid price is reported for such security by Bloomberg, the last closing
trade price of such security as reported by Bloomberg, or, if no last closing
trade price is reported for such security by Bloomberg, the average of the bid
prices of any market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be
calculated for such security on such date on any of the foregoing bases, the
Closing Bid Price of such security on such date shall be the fair market value
as mutually determined by the Company and the holders of a majority of the
outstanding Common Shares and Repricing Rights (on an as exercised basis),
including for purposes of this determination any Common Shares and Repricing
Rights (on an as exercised basis) with respect to which the Purchase Price is
being determined. If the Company and the holders of Common Shares and Repricing
Rights are unable to agree upon the fair market value of the Common Stock, then
such dispute shall be resolved pursuant to Section 5(c)(iii) with the term
"Closing Bid Price" being substituted for the term "Market Price." (All such
determinations to be appropriately adjusted for any stock dividend, stock split
or other similar transaction during such period).
d. Trading Day. For purposes of this Agreement, "TRADING DAY" shall
mean (a) a day on which the Common Stock is listed for trading on the Nasdaq
SmallCap Market or on the New York Stock Exchange, American Stock Exchange or
Nasdaq National Market (each a "SUBSEQUENT MARKET") or (b) if the Common Stock
is not listed on the Nasdaq SmallCap Market or a Subsequent Market, a day on
which the Common Stock is traded in the over-the-counter market, as reported by
the OTC Bulletin Board,
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<PAGE> 3
or (c) if the Common Stock is not quoted on the OTC Bulletin Board, a day on
which the Common Stock is quoted in the over-the-counter market as reported by
the National Quotation Bureau Incorporated (or any similar organization or
agency succeeding its functions of reporting prices); provided, however, that in
the event that the Common Stock is not listed or quoted as set forth in (a), (b)
and (c) hereof, then a Trading Day shall be a Business Day.
f. Business Day. For purposes of this Agreement, "BUSINESS DAY" shall
mean any day except Saturday, Sunday and any day which shall be a legal holiday
or a day on which banking institutions in the State of New York are authorized
or required by law or other government action to close.
e. U.S. Dollars. Unless otherwise specified, all references to dollars
($) are to U.S. dollars (US$).
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself that:
a. Investment Purpose. Such Buyer is acquiring the Securities to be
issued or issuable to it hereunder for its own account for investment only and
not with a view towards, or for resale in connection with, the public sale or
distribution thereof, except pursuant to sales registered or exempted under the
1933 Act; provided, however, that by making the representations herein, such
Buyer does not agree to hold any of the Securities for any minimum or other
specific term and reserves the right to dispose of the Securities at any time in
accordance with or pursuant to a registration statement or an exemption under
the 1933 Act.
b. Accredited Investor Status. Such Buyer is an "accredited investor"
as that term is defined in Rule 501(a) of Regulation D.
c. Reliance on Exemptions. Such Buyer understands that the Securities
are being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and such
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.
d. Information. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the completeness and accuracy of the materials provided
to such Buyer by or on behalf of the Company with respect to the transactions
contemplated hereby or on the Company's representations and warranties contained
in this Agreement. Such Buyer understands that its investment in the Securities
involves a high degree of risk. Such Buyer has sought such accounting, legal and
tax advice as it has considered necessary to make an informed investment
decision with respect to its acquisition of the Securities.
-3-
<PAGE> 4
e. No Governmental Review. Such Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
f. Transfer or Resale. Such Buyer understands that, except as provided
in the Registration Rights Agreement: (i) the Securities have not been and are
not being registered under the 1933 Act or any state securities laws, and may
not be offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) such Buyer shall have delivered to the Company an
opinion of counsel, in a generally acceptable form, to the effect that the
Securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, (C) such Buyer
provides the Company with reasonable assurance that the Securities can be sold,
assigned or transferred pursuant to Rule 144 promulgated under the 1933 Act (or
a successor rule thereto) ("RULE 144"); (ii) any sale of the Securities made in
reliance on Rule 144 may be made only in accordance with the terms of Rule 144
and further, if Rule 144 is not applicable, any resale of the Securities under
circumstances in which the seller (or the person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the 1933 Act) may
require compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such Securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder, or (D) such transferee or assignee is an affiliate
controlled by Buyer. Notwithstanding anything to the contrary contained in the
Transaction Documents (as defined below), each Buyer shall be entitled to pledge
the Securities in connection with a bona fide margin account. Notwithstanding
anything to the contrary contained herein, the Company agrees that a Buyer may
transfer Securities to an affiliate thereof or to an investment fund that is
under common management with such Buyer or affiliate.
g. Authorization; Enforcement. This Agreement has been, and upon the
Closing the Registration Rights Agreement will have been, duly and validly
authorized, executed and delivered on behalf of such Buyer and is a valid and
binding agreement of such Buyer enforceable against such Buyer in accordance
with its terms.
h. Residency. Such Buyer is a resident of that country or jurisdiction
specified on the Schedule of Buyers.
The Company acknowledges and agrees that the Buyers make no
representations and warranties with respect to the transaction contemplated by
this Agreement except for those specifically set forth in this Section 2.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers
that:
a. Organization and Qualification. The Company and its "Subsidiaries"
(which for purposes of this Agreement means any entity in which the Company,
directly or indirectly, owns capital stock or holds an equity or similar
interest representing 50% or more of the outstanding equity or similar interests
(a complete list of which is set forth in Schedule 3(a)) are corporations duly
organized and validly existing in good standing under the laws of the
jurisdiction in which they are incorporated, and have the requisite
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<PAGE> 5
corporate power and authorization to own their properties and to carry on their
business as now being conducted. Each of the Company and its Subsidiaries is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which its ownership of property or the nature of the
business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not
reasonably be expected to have or result in a Material Adverse Effect. As used
in this Agreement, "MATERIAL ADVERSE EFFECT" means any material adverse effect
on the business, properties, assets, operations, results of operations,
financial condition or prospects of the Company and its Subsidiaries, if any,
taken as a whole, or on the transactions contemplated hereby or by the
agreements and instruments to be entered into in connection herewith or on the
authority or ability of the Company to perform its obligations in a timely
manner under the Transaction Documents (as defined below).
b. Authorization; Enforcement; Compliance with Other Instruments. (i)
The Company has the requisite corporate power and authority to enter into and
perform this Agreement, the Warrants, the Registration Rights Agreement, and the
Irrevocable Transfer Agent Instructions (as defined in Section 8) (collectively,
the "TRANSACTION DOCUMENTS"), and to issue the Securities in accordance with the
terms hereof and thereof, (ii) the execution and delivery of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including without limitation the issuance of
the Common Shares, the Repricing Rights and the Warrants and the reservation for
issuance and the issuance of the Warrant Shares and the Repricing Common Shares
issuable upon exercise of the Warrants and the Repricing Rights, respectively,
have been duly authorized by the Company's Board of Directors and no further
consent or authorization is required by the Company, its Board of Directors or
its stockholders generally (other than the consent of the stockholders that may
be required by the applicable rules of the Nasdaq Stock Market, Inc.), (iii)
this Agreement has been, and upon execution by the Company and delivery of the
other Transaction Documents, such other Transaction Documents will have been
duly executed and delivered by the Company, and (iv) this Agreement constitutes,
and upon execution and delivery by the Company of the other Transaction
Documents, such other Transaction Documents will constitute the valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms.
c. Capitalization. As of the date hereof, the authorized capital stock
of the Company consists of (i) 100,000,000 shares of Common Stock, of which as
of the date hereof, 30,933,612 shares were issued and outstanding, 3,500,000
shares are issuable and reserved for issuance pursuant to the Company's 1997
Incentive Equity Plan and the Company's Directors' Nonqualified Option Plan and
22,231,974 shares are currently issuable pursuant to securities (other than the
Repricing Rights and the Warrants) exercisable or exchangeable for, or
convertible into, shares of Common Stock; and (ii) 50,000,000 shares of
preferred stock, par value $0.01 per share, of which as of the date hereof,
9,609,700 shares were issued and outstanding and 9,600,000 shares are reserved
for issuance. All of such outstanding shares have been, or upon issuance will
be, validly issued and are fully paid and nonassessable. Except as disclosed in
Schedule 3(c), (i) no shares of the Company's capital stock are subject to
preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company; (ii) there are no outstanding debt
securities; (iii) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities
-5-
<PAGE> 6
or rights convertible into, any shares of capital stock of the Company or any of
its Subsidiaries, or contracts, commitments, understandings or arrangements by
which the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its Subsidiaries; (iv) there
are no agreements or arrangements under which the Company or any of its
Subsidiaries is obligated to register the sale of any of their securities under
the 1933 Act (except the Registration Rights Agreement); (v) there are no
outstanding securities of the Company or any of its Subsidiaries which contain
any redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to redeem a security of the Company or any of its
Subsidiaries; (vi) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities as described in this Agreement; and (vii) the Company does not
have any stock appreciation rights or "phantom stock" plans or agreements or any
similar plan or agreement.
d. Issuance of Securities. The Common Shares, the Repricing Rights and
the Warrants are duly authorized and, upon issuance in accordance with the terms
hereof, shall be (i) validly issued, fully paid and non-assessable, (ii) free
from all taxes, liens and charges with respect to the issue thereof and (iii)
entitled to the rights set forth herein and the Warrants. 883,333 shares of
Common Stock (subject to adjustment pursuant to the Company's covenant set forth
in Section 4(f) below) have been duly authorized and reserved for issuance upon
exercise of the Warrants and the Repricing Rights. Upon exercise in accordance
with the Warrants or this Agreement, as the case may be, the Warrant Shares and
the Repricing Common Shares, will be validly reserved and issued, duly listed,
fully paid and nonassessable and free from all taxes, liens and charges with
respect to the issue thereof, with the holders being entitled to all rights
accorded to a holder of Common Stock. The issuance by the Company of the
Securities is exempt from registration under the 1933 Act.
e. No Conflicts. Except as disclosed in Schedule 3(e), the execution,
delivery and performance of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the reservation for issuance and issuance of the
Warrant Shares and the Repricing Common Shares) do not and will not (i) result
in a violation of its Restated Certificate of Incorporation, as amended and as
in effect on the date hereof (the "CERTIFICATE OF INCORPORATION"), any
Certificate of Designations, Preferences and Rights of any outstanding series of
preferred stock of the Company or the Company's Amended and Restated By-laws, as
in effect on the date hereof (the "BY-LAWS"); (ii) conflict with, or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its Subsidiaries is a party (except for such conflicts or
defaults that individually or in the aggregate would not reasonably be expected
to have or result in a Material Adverse Effect); or (iii) result in a violation
of any law, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations and the rules and regulations of the
principal market or exchange on which the Common Stock is traded or listed)
applicable to the Company or any of its Subsidiaries or by which any property or
asset of the Company or any of its Subsidiaries is bound or affected (except for
such violations that individually or in the aggregate would not reasonably be
expected to have or result in a Material Adverse Effect). Neither the Company
nor its Subsidiaries is in violation of any term of or in default under (x) its
Certificate of Incorporation, any Certificate of Designation, Preferences and
Rights of any outstanding series of preferred stock or By-laws or their
organizational charter or by-laws, respectively, or (y) any contract, agreement,
mortgage, indebtedness, indenture, instrument, judgment, decree or order or any
statute, rule or regulation applicable to the Company or its Subsidiaries,
except for defaults that individually or in the aggregate would not have
Material Adverse Effect. The business of the Company and its Subsidiaries is not
being conducted, and shall not be
-6-
<PAGE> 7
conducted, in violation of any law, ordinance or regulation of any governmental
entity other than violations that would not have a Material Adverse Effect.
Except as specifically required by this Agreement and, the filing of a
registration statement in accordance with the Registration Rights Agreement, the
filing of a Form D with the Securities and Exchange Commission, filings required
under applicable state securities or "blue sky" laws and filings and approvals
required by The Nasdaq SmallCap Market, the Company is not required to obtain
any consent, authorization or order of, or make any filing or registration with,
any court or governmental agency or any regulatory or self-regulatory agency in
order for it to execute, deliver or perform any of its obligations under or
contemplated by the Transaction Documents in accordance with the terms hereof or
thereof. Except as disclosed in Schedule 3(e), all consents, authorizations,
orders, filings and registrations which the Company is required to obtain
pursuant to the preceding sentence have been obtained or effected on or prior to
the date hereof. The Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing. Since May 27, 1997,
the Company has not received notice (written or oral) from The Nasdaq SmallCap
Market that the Company was not in compliance with the listing or maintenance
requirements thereof. The Company is not in violation of the listing
requirements of The Nasdaq SmallCap Market as in effect on the date hereof and
is not aware of any facts which would reasonably lead to delisting or suspension
of the Common Stock by The Nasdaq SmallCap Market in the foreseeable future,
other than in conjunction with a listing of the Common Stock on a Subsequent
Market.
f. SEC Documents; Financial Statements. Since October 12, 1996, the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "1934 ACT") (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents incorporated by
reference therein being hereinafter referred to as the "SEC DOCUMENTS"). As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. All material
agreements to which the Company is a party or to which the property or assets of
the Company are subject have been filed as exhibits to the SEC Documents as
required. As of their respective dates, the financial statements of the Company
included in the SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto. Such financial statements have been prepared in
accordance with generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and fairly present in all material respects the
consolidated financial position of the Company and its consolidated Subsidiaries
as of the dates thereof and the results of their operations and cash flows for
the periods then ended (subject, in the case of unaudited statements, to normal
year-end immaterial audit adjustments). No other written information provided by
or on behalf of the Company to the Buyers which is not included in the SEC
Documents, including, without limitation, information referred to in Section
2(d) of this Agreement, contains any untrue statement of a material fact or
omits to state any material fact necessary in order to make the statements
therein, in the light of the circumstance under which they are or were made, not
misleading. Neither the Company nor any of its Subsidiaries or any of their
officers, directors, employees or agents have provided the Buyers with any
material, nonpublic information. The Company understands
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<PAGE> 8
and confirms that the Buyers will be relying upon the foregoing representation
in effecting transactions in the securities of the Company. The Company is, and
at the Closing Date will be, eligible to register securities for resale with the
Commission under Form S-3 promulgated under the Securities Act.
g. Absence of Certain Changes. Except as disclosed in the SEC Documents
and except for general economic and industry conditions, since June 30, 1998,
there has been no event, occurrence or development that has had or that could
reasonably be expected to have or result in a Material Adverse Effect. The
Company has not taken any steps, and does not currently expect to take any
steps, to seek protection pursuant to any bankruptcy law nor does the Company or
any of its Subsidiaries have any knowledge or reason to believe that its
creditors intend to initiate involuntary bankruptcy proceedings.
h. Absence of Litigation. There is no action, suit, proceeding, inquiry
or investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the Company
or any of its Subsidiaries, threatened against or affecting the Company, the
Common Stock or any of the Company's Subsidiaries or any of the Company's or the
Company's Subsidiaries' officers or directors in their capacities as such, that
could reasonably be expected to have or result in a Material Adverse Effect.
i. Acknowledgment Regarding Buyers' Purchase of Securities. The Company
acknowledges and agrees that each of the Buyers is acting solely in the capacity
of arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated thereby. The Company further acknowledges that each
Buyer is not acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to the Transaction Documents and the
transactions contemplated thereby and any advice given by any of the Buyers or
any of their respective representatives or agents in connection with the
Transaction Documents and the transactions contemplated thereby is merely
incidental to such Buyer's purchase of the Securities. The Company further
represents to each Buyer that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.
j. No General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Securities.
k. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering of Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of The Nasdaq Stock Market, Inc., nor will the
Company or any of its Subsidiaries take any action or steps that would require
registration of the Securities under the 1933 Act or cause the offering of the
Securities to be integrated with other offerings not permitted to be included in
the Registration Statement (as defined in the Registration Rights Agreement)
under which the Securities will be registered.
l. Employee Relations. Neither the Company nor any of its Subsidiaries
is involved in any union labor dispute nor, to the knowledge of the Company or
any of its Subsidiaries, is any such dispute threatened. Neither the Company nor
any of its Subsidiaries is a party to a collective bargaining
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<PAGE> 9
agreement, and the Company and its Subsidiaries believe that relations with
their employees are good. No executive officer (as defined in Rule 501(f) of the
1933 Act) has notified the Company that such officer intends to leave the
Company or otherwise terminate such officer's employment with the Company.
m. Intellectual Property Rights. The Company and its Subsidiaries own
or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. None of the Company's trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, government authorizations,
trade secrets or other intellectual property rights have expired or terminated,
or are expected to expire or terminate within two years from the date of this
Agreement. The Company and its Subsidiaries do not have any knowledge of any
infringement by the Company or its Subsidiaries of trademarks, trade name
rights, patents, patent rights, copyrights, inventions, licenses, service names,
service marks, service mark registrations, trade secret or other similar rights
of others, or of any such development of similar or identical trade secret or
technical information by others and, there is no claim, action or proceeding
being made or brought against, or to the Company's knowledge, being threatened
against, the Company or its Subsidiaries regarding trademarks, trade name
rights, patents, patent rights, inventions, copyrights, licenses, service names,
service marks, service mark registrations, trade secrets or other infringement;
and the Company and its Subsidiaries are unaware of any facts or circumstances
which might give rise to any of the foregoing.
n. Environmental Laws. The Company and its Subsidiaries (i) are in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS") other than violations which, individually or
in the aggregate, would not have or result in a Material Adverse Effect, (ii)
have received all material permits, licenses or other approvals required of them
under applicable Environmental Laws to conduct their respective businesses and
(iii) are in material compliance with all terms and conditions of any such
permit, license or approval.
o. Title. The Company and its Subsidiaries have good and marketable (or
if applicable, defensible) title in fee simple to all real property and good and
marketable (or if applicable, defensible) title to all personal property owned
by them which is material to the business of the Company and its Subsidiaries,
in each case free and clear of all liens, encumbrances and defects except such
as are described in Schedule 3(o) or such as are customary in the oil and gas
industry or such as would not have or result in a Material Adverse Effect. Any
real property and facilities held under lease by the Company or any of its
Subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are customary in the oil and gas industry or such as
would not have or result in a Material Adverse Effect.
p. Insurance. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary for similarly-situated and sized companies in the businesses in which
the Company and its Subsidiaries are engaged. Neither the Company nor any such
Subsidiary has been refused any insurance coverage sought or applied for and
neither the Company nor any such Subsidiary has any reason to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not have a Material
Adverse Effect.
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<PAGE> 10
q. Regulatory Permits. The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any such Subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit.
r. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, and (iii) access to assets is permitted only in accordance with
management's general or specific authorization.
s. Investment Company. The Company is not, and is not controlled by or
under common control with an affiliate of, an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
t. Tax Status. The Company and each of its Subsidiaries has made or
filed all federal and state income and all other tax returns, reports and
declarations required to be filed by any jurisdiction to which it is subject
(unless and only to the extent that the Company and each of its Subsidiaries has
set aside on its books provisions reasonably adequate for the payment of all
unpaid and unreported taxes) or in respect of tax obligations which are not
material in amount and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provisions reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
u. Certain Transactions. Except as set forth on Schedule 3(u) and in
the SEC Documents filed at least ten days prior to the date hereof and except
for arm's length transactions pursuant to which the Company makes payments in
the ordinary course of business upon terms no less favorable than the Company
could obtain from third parties and other than the grant of stock options
disclosed on Schedule 3(c), none of the executive officers or directors of the
Company is presently a party to any transaction with the Company or any of its
Subsidiaries (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner that would be required to disclosed in the SEC Documents.
v. Dilutive Effect. The Company understands and acknowledges that the
number of Repricing Common Shares issuable upon exercise of the Repricing Rights
will increase in certain circumstances and could result in substantial dilution
of the outstanding shares of Common Stock. The Company further acknowledges that
its obligation to issue Repricing Common Shares upon exercise of the Repricing
Rights in accordance with this Agreement is absolute and unconditional
regardless of the
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<PAGE> 11
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company.
w. Absence of Rights Agreement. The Company has not adopted a
shareholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Common Stock or a change in control of the Company.
4. COVENANTS AND CERTAIN AGREEMENTS.
a. Form D; Blue Sky Filings. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall take such
action and make such filings as the Company shall reasonably determine is
necessary and as required by applicable law to qualify the Securities for, or
obtain exemption for the Securities for, sale to the Buyers at the Closing
pursuant to this Agreement under applicable securities or "Blue Sky" laws of the
states of the United States, and shall provide evidence of any such action so
taken to the Buyers.
b. Furnishing of Information. So long as any Buyer owns Securities, the
Company covenants to timely file (or obtain extensions in respect thereof and
file within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to Section 13(a) or 15(d) of the 1934
Act. So long as any Buyer owns Securities, if the Company is not required to
file reports pursuant to Section 13(a) or 15(d) of the 1934 Act, it will prepare
and furnish to the Buyers and make publicly available in accordance with Rule
144(c) promulgated under the 1933 Act annual and quarterly financial statements,
together with a discussion and analysis of such financial statements in form and
substance substantially similar to those that would otherwise be required to be
included in reports required by Section 13(a) or 15(d) of the 1934 Act, as well
as any other information required thereby, in the time period that such filings
would have been required to have been made under the 1934 Act. The Company
further covenants that it will take such further action as any holder of the
Securities may reasonably request, all to the extent required from time to time
to enable such holder to sell Common Shares, Warrant Shares and Repricing Shares
without registration under the 1934 Act under Rule 144 promulgated under the
Securities Act. Upon the request of any such holder, the Company shall deliver
thereto a written certification of a duly authorized officer as to whether it
has complied with such requirements.
c. Use of Proceeds. The Company will use the net proceeds from the sale
of the Securities solely to repurchase shares of the Company's Series C
Convertible Preferred Stock and for general working capital purposes.
d. Certain Information. The Company agrees to send the following to
each Buyer during the Effectiveness Period (as defined in the Registration
Rights Agreement): (i) within one Business Day of the release thereof, facsimile
copies of all press releases issued by the Company or any of its Subsidiaries,
and (ii) copies of any notices and other information made available or given to
the stockholders of the Company generally, contemporaneously with the making
available or giving thereof to the stockholders.
e. Reservation of Shares. The Company shall take all action necessary
to at all times have authorized, and reserved for the purpose of issuance, no
less than 200% of the number of shares of Common Stock needed to provide for the
issuance of the Repricing Common Shares; provided, however,
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<PAGE> 12
that the above requirement shall expire as to each Buyer on the Date of
Repurchase at the Company's Election (as defined herein) to the extent of a
Repurchase at the Company's Election, and the Warrant Shares (without regard to
any limitations on the exercise of the Repricing Rights or Warrants).
f. Listing. The Company shall list 1,300,000 shares of Common Stock in
respect of the Securities within 10 days of the Closing Date and shall promptly
secure the listing of all additional Registrable Securities not previously
listed as such shares are issued (as defined in the Registration Rights
Agreement) on the Nasdaq SmallCap Market and each other Subsequent Market on
which the Common Stock is then listed or traded and shall maintain, so long as
any other shares of Common Stock shall be so listed, such listing of all
Registrable Securities from time to time issuable under the terms of the
Transaction Documents. The Company shall maintain the Common Stock's
authorization for listing on The Nasdaq SmallCap Market and any other Subsequent
Market on which the Common Stock is then listed or traded or in connection with
a Major Transaction (as defined below). Neither the Company nor any of its
Subsidiaries shall take any action which may result in the delisting or
suspension of the Common Stock on the Nasdaq SmallCap Market or on any
Subsequent Market on which the Common Stock is then listed or traded (other than
to switch listings from The Nasdaq SmallCap Market to a Subsequent Market). The
Company shall promptly provide to each Buyer copies of any notices it receives
from The Nasdaq SmallCap Market or any other Subsequent Market on which the
Common Stock is then listed or traded regarding the continued eligibility of the
Common Stock for listing on such automated quotation system or securities
exchange. The Company shall pay all fees and expenses in connection with
satisfying its obligations under this Section.
g. Filing of Form 8-K. On or before the tenth (10th) Business Day
following the Closing Date, the Company shall file a Form 8-K or a Form 10-Q
with the SEC describing the terms of the transaction contemplated by the
Transaction Documents and consummated at such Closing, in each case in the form
required by the 1934 Act.
h. Legends. The parties agree that the certificates or other
instruments representing the Warrants and, until such time as the sale of the
Common Shares, the Repricing Common Shares and the Warrant Shares have been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement, the stock certificates representing the Common Shares, the Repricing
Common Shares and the Warrant Shares, except as set forth below, shall bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN FORM AND
SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE
STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144
UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING THIS SECURITY
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT.
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The legend set forth above shall be removed and the Company shall issue a
certificate without any legend to the holder of the Securities upon which it is
stamped, if (i) such Securities are registered for resale under the 1933 Act,
(ii) in connection with a sale transaction, such holder provides the Company
with an opinion of counsel, in form acceptable to the Company, to the effect
that a public sale, assignment or transfer of such Securities may be made
without registration under the 1933 Act, or (iii) such holder provides the
Company with reasonable assurances that such Securities can be sold without
restriction pursuant to Rule 144(k). Any Repricing Shares and Warrant Shares
issued at such time as when there is an effective registration statement
covering such shares will not bear any restrictive legend. Each Buyer
acknowledges, covenants and agrees to sell the Securities represented by a
certificate(s) from which the legend has been removed, only pursuant to (i) a
registration statement effective under the 1933 Act, or (ii) advice of counsel
that such sale is exempt from registration required by Section 5 of the 1933
Act.
i. Stockholder Approval Under the Rules and Regulations of The Nasdaq
Stock Market. If the Company would be, if all Repricing Rights were exercised on
such date, required under the Rules and Regulations of the Nasdaq Stock Market,
Inc. to obtain the approval of the stockholders of the Company to issue the
Repricing Shares upon such exercise (such date, the "STOCKHOLDER APPROVAL
TRIGGER DATE"), then the Company shall, (i) within 3 Business Days, notify the
holders of Repricing Rights of such fact, (ii) within 15 days of the Stockholder
Approval Trigger Date file proxy materials relating to such stockholder approval
with the Securities and Exchange Commission, and (iii) use its best efforts to
obtain as soon as possible, and in any event within 75 days after the
Stockholder Approval Trigger Date (the "STOCKHOLDER APPROVAL DEADLINE"), such
stockholder approval for the issuance of all Securities described in this
Agreement (including the approval of issuances at a discount to market as may be
required by the Rules and Regulations of the Nasdaq Stock Market, Inc.). Each
holder of Repricing Rights may deliver a notice to the Company regarding such
requirement, in which event the time periods described herein shall commence on
the date of such notice. If the Company fails to obtain the approval of the
stockholders contemplated in this Section by the Stockholder Approval Deadline,
then, as partial relief (which remedy shall not be exclusive of any other
remedies available under this Agreement, at law or in equity), the Company shall
pay to each Buyer an amount in cash equal to the product of (i) the aggregate
Purchase Price paid by such Buyer multiplied by (ii) .025; multiplied by (iii)
the quotient of (x) the number of days after the Stockholder Approval Deadline
that the approval of the stockholders required by this Section is not obtained,
divided by (y) 30. The Company shall make the payments referred to in the
immediately preceding sentence within five days of the earlier of (I) the
holding of the meeting of the Company's stockholders, the failure of which
resulted in the requirement to make such payments, and (II) the last day of each
30-day period beginning on the Stockholder Approval Deadline. In the event the
Company fails to make such payments in a timely manner, such payments shall bear
interest at the lesser of (i) the rate of 2.0% per month or (ii) the highest
lawful rate (pro rated for partial months) until paid in full.
j. Right of First Refusal. From the date of this Agreement through
December 31, 1998, the Company and its Subsidiaries shall not enter into any
agreement for any equity financing through a structure similar to that set forth
in this Agreement (including any issuance of equity securities of the Company or
any Subsidiary that are convertible or exchangeable into or for Common Stock) (a
"FUTURE OFFERING"), unless it shall have first delivered to each Buyer or a
designee appointed by such Buyer written notice (the "FUTURE OFFERING NOTICE")
describing the proposed Future Offering, including the terms and conditions
thereof, and providing each Buyer an option to purchase up to its Aggregate
Percentage (as defined below), as of the date of delivery of the Future Offering
Notice, in the Future Offering (the limitation referred to in this sentence is
referred to as the "CAPITAL RAISING LIMITATION").
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<PAGE> 14
Notwithstanding anything to the contrary set forth herein, the right of first
refusal granted to the Buyers hereunder and the Capital Raising Limitation shall
be limited to up to $2,500,000 of Future Offerings. For purposes of this
Section, "AGGREGATE PERCENTAGE" at any time with respect to any Buyer shall mean
the percentage obtained by dividing (i) the aggregate number of Common Shares
purchased by such Buyer at the Closing by (ii) the aggregate number of Common
Shares purchased by all Buyers at the Closing. A Buyer can exercise its option
to participate in a Future Offering by delivering written notice thereof to
participate to the Company within five Business Days of receipt of a Future
Offering Notice, which notice shall state the quantity of securities being
offered in the Future Offering that such Buyer will purchase, up to its
Aggregate Percentage, and that number of securities it is willing to purchase in
excess of its Aggregate Percentage. In the event that one or more Buyers fail to
elect to purchase up to each such Buyer's Aggregate Percentage then each Buyer
which has indicated that it is willing to purchase a number of securities in
excess of its Aggregate Percentage shall be entitled to purchase its pro rata
portion (determined in the same manner as described in the preceding sentence)
of the securities in the Future Offering which one or more Buyers have not
elected to purchase. In the event the Buyers fail to elect to fully participate
in the Future Offering within the periods described in this Section, the Company
shall be permitted to sell securities in the Future Offering to the extent that
the Buyers' rights under this Section were not exercised, upon terms and
conditions specified in the Future Offering Notice. The Capital Raising
Limitation shall not apply to (i) a loan from a commercial bank or any affiliate
of Enron Corp., a Delaware corporation, provided such loan does not have an
equity component valued (as determined by a national investment bank mutually
agreed upon by the Company and the holders of a majority of the outstanding
Common Shares and Repricing Rights (on an as exercised basis)) in excess of 15%
of the proceeds of such loan; (ii) any transaction involving the Company's
issuances of securities (A) as consideration in a merger or consolidation with
nonaffiliated entities, (B) in connection with any strategic partnership or
joint venture (the primary purpose of which is not to raise equity capital), or
(C) as consideration for the acquisition of a business, product or license or
other assets or any share in an oil or gas company by the Company; (iii) the
issuance of Common Stock in a firm commitment, underwritten public offering with
net proceeds to the Company of at least $35,000,000, (iv) the issuance of
securities upon exercise or conversion of the Company's options, warrants or
other convertible securities outstanding as of the date hereof, (v) the grant of
additional options or warrants, or the issuance of additional securities, under
any Company stock option plan, restricted stock plan, stock purchase plan or
other plan or written compensation contract for the benefit of the Company's
employees or directors, (vi) any bridge financing, provided such financing does
not have an equity component valued (as determined by a national investment bank
mutually agreed upon by the Company and the holders of a majority of the
outstanding Common Shares and Repricing Rights (on an as exercised basis)) in
excess of 15% of the proceeds of such bridge financing or (vii) issuances of
securities under any rights (a) pursuant to that certain Securities Purchase
Agreement dated March 27, 1997 between the Company and Joint Energy Development
Investments L.P., or (b) pursuant to the Subordinated Revolving Credit Loan
Agreement, dated as of December 29, 1997, between the Company and Enron Capital
& Trade Resources Corp., as agent. The Buyers shall not be required to
participate or exercise their right of first refusal with respect to a
particular Future Offering in order to exercise their right of first refusal
with respect to later Future Offerings.
5. REPRICING COMMON SHARES.
a. Certain Defined Terms. For purposes of this Agreement, the following
terms shall have the following meanings:
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(i) "REPRICING PRICE" means, as of any date, (A) during the
period beginning on and including the date which is 121 days after the Closing
Date and ending on and including the date which is 150 days after the Closing
Date, 124% of the Purchase Price, (B) during the period beginning on and
including the date which is 151 days after the Closing Date and ending on and
including the date which is 180 days after the Closing Date, 125% of the
Purchase Price, (C) during the period beginning on and including the date which
is 181 days after the Closing Date and ending on and including the date which is
210 days after the Closing Date, 126% of the Purchase Price, (D) during the
period beginning on and including the date which is 211 days after the Closing
Date and ending on and including the date which is 240 days after the Closing
Date, 127% of the Purchase Price and (E) after the date which is 240 days after
the Closing Date, 128% of the Purchase Price.
(ii) "MARKET PRICE" means, as of any date of determination,
the lowest Closing Bid Price during the 15 consecutive Trading Days immediately
preceding such date of determination. All such determinations shall be
appropriately adjusted for any stock dividend, stock split, combination,
recapitalization, reclassification or other similar transaction during such
period.
(iii) "REPRICING RATE" means the number of shares of Common
Stock issuable upon exercise of each Repricing Right pursuant to Section 5(b)
determined according to the following formula; provided that if the result of
such formula is less than zero, then the result shall be deemed to be zero:
(Repricing Price - Market Price)
--------------------------------
Market Price
b. Repricing Right. Subject to the provisions of Sections 5(d) and 5(e)
below, at any time or times on or after the Closing Date, any holder of
Repricing Rights shall be entitled to exercise any whole number of Repricing
Rights for fully paid and nonassessable shares of Common Stock in accordance
with Section 5(c), at the Repricing Rate. The Company shall not issue any
fraction of a share of Common Stock upon any exercise of Repricing Rights. All
shares of Common Stock (including fractions thereof) issuable upon exercise of
more than one Repricing Right by a holder thereof shall be aggregated for
purposes of determining whether the exercise would result in the issuance of a
fraction of a share of Common Stock. If, after the aforementioned aggregation,
the issuance would result in the issuance of a fraction of a share of Common
Stock, the Company shall round such fraction of a share of Common Stock up or
down to the nearest whole share.
c. Mechanics of Exercise of Repricing Right. A holder of Repricing
Rights shall exercise such rights in accordance with the following terms:
(i) Holder's Delivery Requirements. To exercise Repricing
Rights for full shares of Common Stock on any date (the "EXERCISE DATE"), the
holder thereof shall (A) transmit by facsimile (or otherwise deliver), for
receipt on or prior to 11:59 p.m. New York City time, on such date, a copy of a
fully executed notice of exercise in the form attached hereto as Exhibit B (the
"EXERCISE NOTICE") to the Company, and (B) surrender to a common carrier, for
delivery to the Company as soon as practicable following such date, the
originally executed Exercise Notice.
(ii) Company's Response. Upon receipt by the Company of a
facsimile copy of an Exercise Notice, the Company shall promptly, but in no
event later than one Trading Day after receipt, send, via facsimile, a
confirmation of receipt of such Exercise Notice to such holder. Upon receipt by
the
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<PAGE> 16
Company of the originally executed Exercise Notice, the Company or the transfer
agent for the Common Stock (the "TRANSFER AGENT") (as applicable) shall, two (2)
Trading Days following the date of receipt, (I) issue and surrender to a common
carrier for overnight delivery to the address specified in the Exercise Notice,
a certificate, registered in the name of the holder or its designee, for the
number of shares of Common Stock to which the holder shall be entitled, or (II)
credit such aggregate number of shares of Common Stock to which the holder shall
be entitled to the holder's or its designee's balance account with The
Depository Trust Company.
(iii) Dispute Resolution. In the case of a dispute as to the
determination of the Market Price or the Repricing Price or the arithmetic
calculation of the Repricing Rate, the Company shall promptly issue to the
holder the number of shares of Common Stock that is not disputed and shall
submit the disputed determinations or arithmetic calculations to the holder via
facsimile within one Trading Day of receipt of such holder's Exercise Notice. If
such holder and the Company are unable to agree upon the determination of the
Market Price or the Repricing Price or arithmetic calculation of the Repricing
Rate within one Business Day of such disputed determination or arithmetic
calculation being submitted to the holder, then the Company shall within one
Trading Day submit via facsimile (A) the disputed determination of the Market
Price or Repricing Price to an independent, reputable investment bank, or (B)
the disputed arithmetic calculation of the Repricing Rate to its independent,
outside accountant. The Company shall cause the investment bank or the
accountant, as the case may be, to perform the determinations or calculations
and notify the Company and the holder of the results no later than two Trading
Days from the time it receives the disputed determinations or calculations. Such
investment bank's or accountant's determination or calculation, as the case may
be, shall be binding upon all parties absent manifest error.
(iv) Record Holder. The person or persons entitled to receive
the shares of Common Stock issuable upon an exercise of Repricing Rights shall
be treated for all purposes as the record holder or holders of such shares of
Common Stock on the Exercise Date.
(v) Company's Failure to Timely Deliver Repricing Common
Shares. If within three (3) Trading Days after the Company's receipt of the
Exercise Notice the Company shall fail to issue a certificate (which shall be
free of all restrictive legends other than those required by Section 4(h)) for
the number of shares of Common Stock to which a holder is entitled or to credit
the holder's balance account with The Depository Trust Company for such number
of shares of Common Stock to which the holder is entitled upon such holder's
exercise of the Repricing Rights, in addition to all other available remedies
which such holder may pursue hereunder (including indemnification pursuant to
Section 9 hereof), the Company shall pay additional damages to such holder on
each date after such third (3rd) Trading Day that such exercise is not timely
effected in an amount equal to 0.5% of the product of (A) the sum of the number
of shares of Common Stock not issued to the holder on a timely basis pursuant to
Section 5(c)(ii) and to which such holder is entitled and (B) the Closing Bid
Price of the Common Stock on the last possible date which the Company could have
issued such Common Stock to such holder without violating Section 5(c)(ii). In
addition, if the Buyer to whom the Company has failed to timely deliver the
shares is forced to purchase (a "BUY-IN") other outstanding shares of Common
Stock of the Company in order to cover a sale order by such Buyer, then the
Company will be required to pay to such Buyer the positive difference between
the price at which the Buyer bought its covering shares (inclusive of brokerage
commissions, if any) and the sale price in respect of the shares sold by it.
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<PAGE> 17
d. Exercise Restrictions. In addition to the termination provisions set
forth in Section 5(e), the right of a holder of Repricing Rights to exercise
such Repricing Rights to this Section 5 shall be limited as set forth below.
(i) Without the prior consent of the Company, a holder of
Repricing Rights shall not be entitled to exercise an aggregate number of
Repricing Rights from the Closing Date through the date of this determination in
excess of the number of Repricing Rights which when divided by the number of
Repricing Rights purchased by such holder would exceed (i) 0.00 for the period
beginning on the Closing Date and ending on and including the date which is 120
days thereafter, (ii) 0.25 for the period beginning on the date which is 121
days after the Closing Date and ending on and including the date which is 150
days after the Closing Date, (iii) 0.50 for the period beginning on and
including the date which is 151 days after the Closing Date and ending on and
including the date which is 180 days after the Closing Date, (iv) 0.75 for the
period beginning on the date which is 181 days after the Closing Date and ending
on and including the date which is 210 days after the Closing Date, and (v) 1.00
for the period beginning on and including the date which is 211 days after the
Closing Date. All such periods shall be considered on a cumulative basis.
Notwithstanding the foregoing, the exercise restriction set forth in this
Section 5(d) shall cease to apply if an event constituting a Major Transaction
or a Triggering Event (as defined in Section 7 below) shall have occurred or
been publicly announced or if a Registration Statement shall not have been
declared effective by the 120th day after the Closing Date.
(ii) Notwithstanding anything to the contrary in this
Agreement, in no event shall any holder of Repricing Rights be entitled to
exercise Repricing Rights in excess of that number of Repricing Rights which,
upon giving effect to such exercise, would cause the aggregate number of shares
of Common Stock beneficially owned by the holder and its affiliates to exceed
4.99% of the outstanding shares of the Common Stock following such exercise. For
purposes of the foregoing sentence, the aggregate number of shares of Common
Stock beneficially owned by the holder and its affiliates shall include the
number of shares of Common Stock issuable upon exercise of the Repricing Rights
with respect to which the determination of the foregoing sentence is being made,
but shall exclude the number of shares of Common Stock which would be issuable
upon (A) exercise of the remaining, unexercised Repricing Rights beneficially
owned by the holder and its affiliates, and (ii) exercise or conversion of the
unexercised or unconverted portion of any other securities of the Company
(including, without limitation, any warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained herein beneficially
owned by the holder and its affiliates. Except as set forth in the preceding
sentence, for purposes of this Section 5(d), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended. A holder may, as to itself only, waive the foregoing
limitations by written notice to the Company upon not less than 61 days prior
notice (with such waiver taking effect only upon the expiration of such 61 day
notice period).
(iii) Notwithstanding anything to the contrary in this
Agreement, in no event shall any holder of Repricing Rights be entitled to
exercise Repricing Rights in excess of that number of Repricing Rights which,
upon giving effect to such exercise, would cause the aggregate number of shares
of Common Stock beneficially owned by the holder and its affiliates to exceed
9.99% of the outstanding shares of the Common Stock following such exercise. For
purposes of the foregoing sentence, the aggregate number of shares of Common
Stock beneficially owned by the holder and its affiliates shall include the
number of shares of Common Stock issuable upon exercise of the Repricing Rights
with respect to which the determination of the foregoing sentence is being made,
but shall exclude the number of shares of Common Stock which would be issuable
upon (A) exercise of the remaining, unexercised
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<PAGE> 18
Repricing Rights beneficially owned by the holder and its affiliates, and (ii)
exercise or conversion of the unexercised or unconverted portion of any other
securities of the Company (including, without limitation, any warrants) subject
to a limitation on conversion or exercise analogous to the limitation contained
herein beneficially owned by the holder and its affiliates. Except as set forth
in the preceding sentence, for purposes of this Section 5(d), beneficial
ownership shall be calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended. A holder may, as to itself only, waive the
foregoing limitations by written notice to the Company upon not less than 61
days prior notice (with such waiver taking effect only upon the expiration of
such 61 day notice period).
e. Termination of Repricing Rights. Notwithstanding anything to the
contrary herein, the right of a holder of Repricing Rights to exercise such
Repricing Right shall terminate automatically and such holder shall have no
further rights with respect to such Repricing Right (provided that the Company
has complied with its obligations set forth in this Section 5 and Section 7)
upon the earlier of the following:
(i) The date of the sale of the Common Share with respect to
which such Repricing Right was acquired at any time prior to the date which is
120 days after the Closing Date;
(ii) The date of the sale of the Common Share with respect to
which such Repricing Right was acquired at any time on or after the date which
is 120 days after the Closing Date at a price equal to or greater than the
Repricing Price in effect on the date of such sale;
(iii) The date immediately following the date which is one
year after the date of the sale of the Common Share with respect to which such
Repricing Right was acquired; and
(iv) The date on which a holder of such Repricing Rights
delivers written notice to the Company pursuant to Section 6(c) of such holder's
election to terminate Repricing Rights selected by the Company for repurchase in
lieu of the Company repurchasing such holder's related Common Shares.
f. Taxes. The Company shall pay any and all transfer taxes which may be
imposed with respect to the issuance and delivery of shares of Common Stock upon
the exercise of the Repricing Rights.
g. Company's Right to Repurchase in Lieu of Issuing Repricing Common
Shares. (i) Notwithstanding anything herein to the contrary, but subject to
Section 5(g)(v), at any time after the Closing Date on which a Repricing Right
is acquired, the Company may elect to repurchase Repricing Rights exercised in
lieu of issuing shares of Common Stock upon such exercise, provided that the
average of the Closing Bid Prices on the five consecutive Trading Days
immediately preceding the Exercise Date is not greater than $5.30 (subject to
adjustment for stock splits, stock dividends, combinations, recapitalizations,
reclassifications and other similar events) (a "COMPANY REPURCHASE IN LIEU OF
EXERCISE"). If the Company is unable to repurchase all of the Repricing Rights
submitted for exercise on a given date, the Company shall repurchase that number
of Repricing Rights, from each holder of Repricing Rights submitted for exercise
on such date, equal to such holder's pro-rata amount (based on the number of
Repricing Rights held by such holder relative to the number of Repricing Rights
outstanding) of all Repricing Rights submitted for exercise on such date.
(ii) Repurchase Price of Company Repurchase in Lieu of
Exercise. The "REPURCHASE PRICE OF COMPANY REPURCHASE IN LIEU OF EXERCISE" shall
be an amount per Repricing Right equal to
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<PAGE> 19
the product of (A) the Repricing Rate of the Repricing Right on the Exercise
Date and (B) the last reported sale price of the Common Stock (as reported by
Bloomberg) on the Exercise Date.
(iii) Mechanics of Company Repurchase in Lieu of Exercise. The
Company shall exercise its right to repurchase by delivering written notice by
facsimile and overnight courier ("NOTICE OF COMPANY REPURCHASE IN LIEU OF
EXERCISE") to (A) each holder of the Repricing Rights and (ii) the Transfer
Agent. Such Notice of Company Repurchase in Lieu of Exercise shall confirm the
time period during which the Company may effect Company Repurchase in Lieu of
Exercise, which period shall begin on and include the date which is five
Business Days after the date of receipt by all of the holders' of the Notice of
Repurchase in Lieu of Exercise and shall end on and include the date which is 30
calendar days after the fifth Business Day following the date of receipt by all
of the holders of the Notice of Repurchase in Lieu of Exercise (the "REPURCHASE
IN LIEU OF EXERCISE PERIOD"). The Company may terminate a Repurchase in Lieu of
Exercise Period at any time with respect to Repricing Rights which have not been
submitted for exercise by delivering written notice of such termination to each
holder of Repricing Rights by facsimile and overnight courier at least five days
Business Days prior to the date of such termination. Any Repricing Rights
submitted for exercise after the termination of the Repurchase in Lieu of
Exercise Period shall be exercised in accordance with this Section 5.
(iv) Payment of Repurchase Price. The Company shall pay the
applicable Repurchase Price of Company Repurchase in Lieu of Exercise to the
holder of the Repricing Right being repurchased in cash within five Business
Days after the Exercise Date. If the Company shall fail to pay the applicable
Repurchase Price of Company Repurchase in Lieu of Exercise to such holder on a
timely basis as described in this Section 5(g)(iv), in addition to any remedy
such holder of Repricing Rights may have under this Agreement, such unpaid
amount shall bear interest at the rate of the lesser of 2.0% per month or the
maximum rate permitted by law, pro rated for partial months, until paid in full.
Until the Company pays such unpaid applicable Repurchase Price of Company
Repurchase in Lieu of Exercise in full to each holder, each holder of Repricing
Rights submitted for exercise pursuant to this Section 5(g) and for which the
applicable Repurchase Price of Company Repurchase in Lieu of Exercise has not
been paid, shall have the option (the "VOID COMPANY REPURCHASE OPTION") to, in
lieu of repurchase, to void such exercise of Repricing Rights for which the
applicable Repurchase Price of Company Repurchase in Lieu of Exercise has not
been paid, by sending written notice thereof to the Company via facsimile (the
"VOID COMPANY REPURCHASE NOTICE"). Upon the Company's receipt of such Void
Company Repurchase Notice(s) prior to payment of the full applicable repurchase
price to each holder, (x) the Company's Repurchase in Lieu of Exercise shall be
null and void with respect to those Repricing Rights submitted for exercise and
for which the applicable repurchase price has not been paid and (y) the holder
of such Repricing Rights shall the rights of unexercised Repricing Rights as set
forth in this Section 5. If the Company fails to timely effect a Company
Repurchase in Lieu of Exercise in accordance with this Section 5(g), the Company
shall not be allowed to submit another Notice of Company Repurchase in Lieu of
Exercise without the prior written consent of the holders of at least two-thirds
(2/3) of the Repricing Rights then outstanding.
(v) Company Must Have Immediately Available Funds or Credit
Facilities. The Company shall not be entitled to send any Notice of Company
Repurchase in Lieu of Exercise pursuant to Section 5(g)(ii) above and begin the
repurchase procedure under this Section 5(g), unless it has:
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<PAGE> 20
(A) the full amount of the Repurchase Price of
Company Repurchase in Lieu of Exercise in cash, available in a demand
or other immediately available account in a bank or similar financial
institution;
(B) credit facilities, with a bank or similar
financial institutions that are immediately available and unrestricted
for use in repurchasing the Repricing Rights, in the full amount of the
Repurchase Price of Company Repurchase in Lieu of Exercise;
(C) a written agreement with a standby underwriter or
qualified buyer ready, willing and able to purchase from the Company a
sufficient number of shares of stock to provide proceeds necessary to
repurchase any Repricing Right that is not exercised prior to a Company
Repurchase in Lieu of Exercise; or
(D) a combination of the items set forth in the
preceding clauses (A), (B) and (C), aggregating the full amount of the
Repurchase Price of Company Repurchase in Lieu of Exercise.
6. COMPANY'S RIGHT TO REPURCHASE AT ITS ELECTION.
a. Repurchase Rights. Notwithstanding anything herein to the contrary
but subject to Sections 6(d) and 6(e) and the last sentence of Section 6(c)
below, the Company shall have the right, in its sole discretion, to repurchase
("REPURCHASE AT THE COMPANY'S ELECTION"), from time to time, any or all of the
Common Shares and the Repricing Rights associated with such Common Shares at the
Repurchase Price at the Company's Election (as defined below). If the Company
elects to repurchase some, but not all, of the Common Shares and the associated
Repricing Rights, the Company shall repurchase an amount from each holder equal
to such holder's pro-rata amount (based on the number of Common Shares with
associated Repricing Rights held by such holder relative to the number of Common
Shares with associated Repricing Rights outstanding) of all Common Shares and
associated Repricing Rights being repurchased. Notwithstanding the foregoing,
the Company shall be entitled to repurchase Common Shares and the associated
Repricing Rights pursuant to this Section 6 only as single units. Accordingly,
the Company shall not be entitled to repurchase any Common Share pursuant to
this Section 6 if the associated Repricing Right has been exercised and shall
not be entitled to repurchase any Repricing Right pursuant to this Section 6 if
the associated Common Share has been sold.
b. Repurchase Price at the Company's Election. The "REPURCHASE PRICE AT
THE COMPANY'S ELECTION" shall be an amount per Common Share and associated
Repricing Right equal to (i) with respect to any Date of Repurchase at the
Company's Election prior to the date which is 120 days after the Closing Date,
124% of the Purchase Price and (ii) with respect to any Date of Repurchase at
the Company's Election on or after the date which is 120 days after the Closing
Date, 128% of the Purchase Price.
c. Mechanics of Repurchase at the Company's Election. The Company shall
effect each such repurchase no sooner than 10 Trading Days nor later than 20
Trading Days after delivering written notice of its Repurchase at the Company's
Election via facsimile and overnight courier ("NOTICE OF REPURCHASE AT THE
COMPANY'S ELECTION") to (i) each holder of the Common Shares and the associated
Repricing Rights and (ii) the Transfer Agent. Such Notice of Repurchase at the
Company's Election shall indicate (A) the number of Common Shares and associated
Repricing Rights that have been selected for repurchase, (B) the date that such
repurchase is to become effective (the "DATE OF REPURCHASE AT THE COMPANY'S
ELECTION") and (C) the applicable Repurchase Price at the Company's Election.
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<PAGE> 21
Notwithstanding the above, any holder may sell any Common Shares and exercise
any Repricing Rights that such holder is otherwise entitled to exercise for
shares of Common Stock pursuant to Section 5 above, on or prior to the date
immediately preceding the Date of Repurchase at the Company's Election,
including Common Shares and Repricing Rights that have been selected for
Repurchase at the Company's Election pursuant to this Section 6. Notwithstanding
anything to the contrary in this Section 6, any holder of Common Shares and
Repricing Rights selected for repurchase by the Company may elect, at such
holder's sole discretion, at any time prior to the Date of Repurchase at the
Company's Election, to terminate such holder's Repricing Rights selected for
repurchase by the Company in lieu of the Company having the right to repurchase
such holder's related Common Shares, by delivering written notice of such
election to the Company.
d. Payment of Repurchase Price. Each holder submitting Common Shares
being repurchased under this Section 6 shall send such holder's Stock
Certificates so repurchased to the Company within five (5) Business Days after
the Date of Repurchase at the Company's Election, and the Company shall pay the
applicable Repurchase Price at the Company's Election to that holder in cash
within three Business Days after such holder's Stock Certificates are so
delivered to the Company. If the Company shall fail to pay the applicable
Repurchase Price at the Company's Election to such holder on a timely basis as
described in this Section 6(d), in addition to any remedy such holder of Common
Shares may have under this Agreement, such unpaid amount shall either (a) bear
interest at lesser of (i) the rate of 2.0% per month or (ii) the highest lawful
rate (prorated for partial months) until paid in full or (b) demand the return
of such holder's Stock Certificates.
e. Company Must Have Immediately Available Funds or Credit Facilities.
The Company shall not be entitled to send any Notice of Repurchase at the
Company's Election pursuant to Section 6(c) above and begin the repurchase
procedure under this Section 6, unless it has:
(i) the full amount of the Repurchase Price at the Company's
Election in cash, available in a demand or other immediately available account
in a bank or similar financial institution;
(ii) credit facilities, with a bank or similar financial
institutions that are immediately available and unrestricted for use in
repurchasing the Common Shares and associated Repricing Rights, in the full
amount of the Repurchase Price at the Company's Election;
(iii) a written agreement with a standby underwriter or
qualified buyer ready, willing and able to purchase from the Company a
sufficient number of shares of stock to provide proceeds necessary to repurchase
any Common Shares and associated Repricing Rights that have not been sold or
exercised, respectively, prior to a Repurchase at the Company's Election; or
(iv) a combination of the items set forth in the preceding
clauses (i), (ii) and (iii), aggregating the full amount of the Repurchase Price
at the Company's Election.
f. Certain Conditions During Notice Period. The Company shall not be
entitled to repurchase the Common Shares and associated Repricing Rights on a
Date of Repurchase at the Election of the Company, unless each of the following
conditions are satisfied as of the date of the Notice of Repurchase at the
Company's Election and on each day from such date until and including the later
of the Date of Repurchase at the Company's Election and the date on which the
Company pays the applicable Repurchase Price:
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<PAGE> 22
(i) If required by the rules and regulations of the Nasdaq
SmallCap Market or any Subsequent Market, the Company's stockholders shall have
approved the issuance of the Securities on or prior to the date of the Notice of
Repurchase at the Company's Election;
(ii) The Registration Statement shall be effective and
available for the sale of no less than 125% of the sum of (A) the number of
Repricing Common Shares then issuable upon exercise of all outstanding Repricing
Rights, (B) the number of Warrant Shares then issuable upon exercise of all
outstanding Warrants and (C) the number of Common Shares, Repricing Common
Shares and Warrant Shares that are then held by the Buyers;
(iii) The Common Stock is listed for trading on The Nasdaq
SmallCap or on a Subsequent Market and is not then suspended from trading
thereon;
(iv) During the period beginning on and including the Closing
Date and ending on and including the Date of Repurchase at the Company's
Election, no event constituting a Major Transaction, including an agreement to
consummate a Major Transaction, shall have occurred nor shall any pending event
which would constitute a Major Transaction have been publicly disclosed;
(v) During the period beginning on the Closing Date and ending
on and including the Date of Repurchase at the Company's Election, the Company
shall have delivered Repricing Common Shares on a timely basis in accordance
with Section 5 and the Company shall have delivered Warrant Shares upon exercise
of the Warrants to the Buyers on a timely basis as set forth in Sections 2(a)
and 2(b) of the Warrants and otherwise the Company shall have been in compliance
with and shall not have breached in any material respect the provisions of this
Agreement, the Warrants, the Registration Rights Agreement or the Irrevocable
Transfer Agent Instructions; and
(vi) A Repurchase at the Company's Election shall not have
occurred previously.
7. REPURCHASE AT OPTION OF HOLDERS.
a. Repurchase Option Upon Major Transaction or Triggering Event. In
addition to all other rights of the holders of the Securities contained herein,
simultaneous with or after the occurrence of a Major Transaction (as defined
below) or a Triggering Event (as defined below), each holder of Common Shares or
Repricing Rights shall have the right, at such holder's option, to require the
Company to repurchase all or a portion of such holder's Common Shares or
Repricing Rights at a price equal to (i) for each Common Share with an
associated Repricing Right, the greater of (A) 130% of the Purchase Price and
(B) the sum of (I) the Purchase Price and (II) the product of (x) the Repricing
Rate of the Repricing Right on the date of such holder's delivery of a notice of
repurchase and (y) the last reported sale price of the Common Stock (as reported
by Bloomberg) on the date of such holder's delivery of a notice of repurchase,
(ii) for each Repricing Right without the associated Common Share, the product
of (x) the Repricing Rate of the Repricing Right on the date such holder's
delivery of a notice of repurchase and (y) the last reported sale price of the
Common Stock (as reported by Bloomberg) on the date of such holder's delivery of
a notice of repurchase and (iii) for each Common Share without an associated
Repricing Right, 130% of the Purchase Price (the "REPURCHASE PRICE").
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<PAGE> 23
b. "Major Transaction". A "MAJOR TRANSACTION" shall be deemed to have
occurred at such time as any of the following events:
(i) the consolidation, merger or other business combination of
the Company with or into another person (other than (A) a consolidation, merger
or other business combination in which holders of the Company's voting power
immediately prior to the transaction continue after the transaction to hold,
directly or indirectly, the voting power of the surviving entity or entities
necessary to elect a majority of the members of the board of directors (or their
equivalent if other than a corporation) of such surviving entity or entities, or
(B) pursuant to a migratory merger effected solely for the purpose of changing
the jurisdiction of incorporation of the Company);
(ii) the sale or transfer of all or substantially all of the
Company's assets; or
(iii) a purchase, tender or exchange offer made to and
accepted by the holders of more than 40% of the outstanding shares of Common
Stock.
c. "Triggering Event". A "TRIGGERING EVENT" shall be deemed to have
occurred at such time as any of the following events:
(i) the failure of the Registration Statement to be declared
effective by the SEC on or prior to the 210th day after the Closing Date;
(ii) during the Effectiveness Period, the effectiveness of the
Registration Statement lapses for any reason (including, without limitation, the
issuance of a stop order) or is unavailable to the holder of the Securities for
sale of the Registrable Securities (as defined in the Registration Rights
Agreement) in accordance with the terms of the Registration Rights Agreement,
and such lapse or unavailability continues for a period of ten Trading Days in
aggregate (excluding any "blackout" periods permitted by the terms of the
Registration Rights Agreement);
(iii) suspension from listing or delisting of the Common Stock
from The Nasdaq SmallCap Market or on any Subsequent Market for a period of five
consecutive days, unless such delisting is due to the Company having the Common
Stock relisted on a Subsequent Market within such five day period;
(iv) the Company's notice to any holder of Repricing Rights,
including by way of public announcement, at any time, of its intention not to
comply or inability to comply with proper requests for exercise of any Repricing
Rights into shares of Common Stock;
(v) the Company's failure to deliver Repricing Common Shares
within ten days of an Exercise Date or to pay the amount due in respect of a
Buy-In within ten days after notice of such Buy-In is delivered to the Company;
(vi) the Company is not required to issue any Repricing Common
Shares due to the provisions of Section 10(m) or the Company is otherwise unable
to issue Repricing Common Shares upon delivery of an Exercise Notice for any
reason;
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<PAGE> 24
(vii) if the Company is required to obtain stockholder
approval of the issuance of the Securities pursuant to Section 4(i) and the
holders of the Securities shall not have otherwise declared another applicable
Triggering Event under this Section 7(c) with respect to such occurrence, the
Company's stockholders fail to approve the issuance of the Repricing Common
Shares within 135 days of a Stockholder Approval Trigger Date;
(viii) the Company breaches any representation, warranty,
covenant or other material term or condition of any Transaction Document or the
Irrevocable Transfer Agent Instructions or any other agreement, document,
certificate or other instrument delivered in connection with the transactions
contemplated thereby or hereby, and such breach, if curable, continues for a
period of at least ten days after written notice thereof to the Company; or
(ix) the commencement by or against the Company or a
Subsidiary of voluntary or involuntary (which involuntary proceeding is not
dismissed within 30 days of the filing thereof) case or proceeding under any
applicable Federal or state bankruptcy, insolvency, reorganization or other
similar proceeding.
d. Mechanics of Repurchase at Option of Buyer Upon Major Transaction.
No sooner than 15 days nor later than 10 days prior to the consummation of a
Major Transaction, but not prior to the public announcement of such Major
Transaction, the Company shall deliver written notice thereof via facsimile and
overnight courier (a "NOTICE OF MAJOR TRANSACTION") to each holder of Common
Shares, the Repricing Common Shares and the Repricing Rights. At any time after
receipt of a Notice of Major Transaction (or, in the event a Notice of Major
Transaction is not delivered at least 10 days prior to a Major Transaction, at
any time on or after the date which is 10 days prior to a Major Transaction),
any holder of the Securities then outstanding may require the Company to
repurchase all or a portion of the holder's Common Shares, Repricing Common
Shares or Repricing Rights then outstanding by delivering written notice thereof
via facsimile and overnight courier (a "NOTICE OF REPURCHASE AT OPTION OF BUYER
UPON MAJOR TRANSACTION") to the Company, which Notice of Repurchase at Option of
Buyer Upon Major Transaction shall indicate (i) the number of such securities
that such holder is submitting for repurchase, and (ii) the applicable
Repurchase Price, as calculated pursuant to Section 7(a).
e. Mechanics of Repurchase at Option of Buyer Upon Triggering Event.
Within one (1) day after the occurrence of a Triggering Event, the Company shall
deliver written notice thereof via facsimile and overnight courier (a "NOTICE OF
TRIGGERING EVENT") to each holder of Common Shares, Repricing Common Shares or
Repricing Rights. At any time after the earlier of a holder's receipt of a
Notice of Triggering Event and such holder becoming aware of a Triggering Event,
but in no event later than fifteen (15) Business Days after a holder's receipt
of a Notice of Triggering Event, any holder of such securities then outstanding
may require the Company to repurchase all or a portion of the holder's Common
Shares, Repricing Common Shares or Repricing Rights then outstanding by
delivering written notice thereof via facsimile and overnight courier (a "NOTICE
OF REPURCHASE AT OPTION OF BUYER UPON TRIGGERING EVENT") to the Company, which
Notice of Repurchase at Option of Buyer Upon Triggering Event shall indicate (i)
the number of such securities that such holder is submitting for repurchase, and
(ii) the applicable Repurchase Price, as calculated pursuant to Section 7(a).
f. Payment of Repurchase Price. Upon the Company's receipt of a
Notice(s) of Repurchase at Option of Buyer Upon Triggering Event or a Notice(s)
of Repurchase at Option of Buyer Upon Major Transaction from any holder of
Common Shares, Repricing Common Shares or Repricing Rights, the
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<PAGE> 25
Company shall immediately notify each holder of Common Shares, Repricing Common
Shares or Repricing Rights by facsimile of the Company's receipt of such
Notice(s) of Repurchase at Option of Buyer Upon Triggering Event or Notice(s) of
Repurchase at Option of Buyer Upon Major Transaction and each holder which has
sent such a notice shall promptly submit to the Company such holder's Stock
Certificates which such holder has elected to have repurchased. The Company
shall deliver the applicable Repurchase Price, in the case of a repurchase
pursuant to Section 7(e), to such holder within five (5) Business Days after the
Company's receipt of a Notice of Repurchase at Option of Buyer Upon Triggering
Event and, in the case of a repurchase pursuant to Section 7(d), the Company
shall deliver the applicable Repurchase Price immediately prior to the
consummation of the Major Transaction; provided that a holder's Stock
Certificates, if Common Shares are being repurchased, shall have been so
delivered to the Company; provided further that if the Company is unable to
repurchase all of the Common Shares or the Repricing Rights to be repurchased,
the Company shall repurchase an amount from each holder of such securities being
repurchased equal to such holder's pro-rata amount (based on the number of such
securities held by such holder relative to the total number of such securities
outstanding) of all such securities being repurchased. If the Company shall fail
to repurchase all of the Common Shares or the Repricing Rights submitted for
repurchase, in addition to any remedy such holder of such securities may have
under this Agreement, the Warrants and the Registration Rights Agreement, the
applicable Repurchase Price payable in respect of such unrepurchased Common
Shares or Repricing Rights, as the case may be, shall bear interest at the
lesser of (i) rate of 2.0% per month or (ii) the highest lawful rate (prorated
for partial months) until paid in full. Until the Company pays such unpaid
applicable Repurchase Price in full to a holder of Common Shares or Repricing
Rights submitted for repurchase, such holder shall have the option (the "VOID
OPTIONAL REPURCHASE OPTION") to, in lieu of repurchase, require the Company to
promptly return to such holder(s) all of such securities that were submitted for
repurchase by such holder(s) under this Section 7 and for which the applicable
Repurchase Price has not been paid, by sending written notice thereof to the
Company via facsimile (the "VOID OPTIONAL REPURCHASE NOTICE"). Upon the
Company's receipt of such Void Optional Repurchase Notice(s) prior to payment of
the full applicable Repurchase Price to such holder, (i) the Notice(s) of
Repurchase at Option of Buyer Upon Triggering Event or the Notice(s) of
Repurchase at Option of Buyer Upon Major Transaction, as the case may be, shall
be null and void with respect to those securities submitted for repurchase and
for which the applicable Repurchase Price has not been paid and (ii) the Company
shall immediately return any Common Shares submitted to the Company by each
holder for repurchase under this Section 7 and for which the applicable
Repurchase Price has not been paid.
8. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its transfer agent,
and any subsequent transfer agent, to issue certificates, registered in the name
of each Buyer or its respective nominee(s), for the Repricing Common Shares and
the Warrant Shares in such amounts as specified from time to time by each Buyer
to the Company upon exercise of the Warrants or the Repricing Right, as the case
may be (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). Prior to registration of
the Common Shares, the Repricing Common Shares and the Warrant Shares for sale
under the 1933 Act, all such certificates shall bear the restrictive legend
specified in Section 4(h) of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section , and stop transfer instructions to give effect to Section 2(f)
(in the case of the Common Shares, the Repricing Common Shares and the Warrant
Shares, prior to registration of the Common Shares, the Repricing Common Shares
and the Warrant Shares under the 1933 Act) will be given by the Company to its
transfer agent and that the Securities shall otherwise be freely transferable on
the books and records of the Company as and to
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<PAGE> 26
the extent provided in this Agreement and the Registration Rights Agreement.
Nothing in this Section shall affect in any way each Buyer's obligations and
agreements set forth herein to comply with all applicable prospectus delivery
requirements, if any, upon resale of the Securities. Unless otherwise directed
by a Buyer, within five Business Days after the Registration Statement has been
declared effective by the SEC, the Company shall cause its transfer agent to
deliver one or more certificates to each Buyer representing the Common Shares,
the Repricing Common Shares and the Warrant Shares, if any, held by such Buyer
against delivery of the certificates then held by such Buyer, which certificates
shall be in such name and in such denominations as specified by such Buyer and
shall not bear any legends, and all other shares of Common Stock issuable in
respect of the Securities during such time as a Registration Statement is
effective shall be issued free of all restrictive legends. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Buyers by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 8 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 8, that the Buyers shall be entitled,
in addition to all other available remedies, to an injunction restraining any
breach and requiring immediate issuance and transfer, without the necessity of
showing economic loss and without any bond or other security being required.
9. INDEMNIFICATION. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Buyer and each other holder of the Securities and all of their stockholders,
officers, directors, employees and direct or indirect investors and any of the
forgoing person's agents or other representatives (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the "INDEMNITEES") from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys' fees and disbursements
(the "INDEMNIFIED LIABILITIES"), as incurred by any Indemnitee as a result of,
or arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(b) any breach of any covenant, agreement or obligation of the Company contained
in the Transaction Documents any other certificate, instrument or document
contemplated hereby or thereby, (c) any cause of action, suit or claim brought
or made against such Indemnitee and arising out of or resulting from the
execution, delivery, performance, breach or enforcement of the Transaction
Documents, (d) any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of the issuance of the Securities, or
(e) the status of such Buyer or holder of the Securities as an investor in the
Company. To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law.
10. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. The corporate laws of the State of Delaware shall
govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
interpreted in accordance with the laws of the State of New York without regard
to the principles of
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<PAGE> 27
conflict of laws. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
b. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
c. Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement supersedes all other
prior oral or written agreements between the Buyers, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and the Transaction Documents (inclusive of the schedules and
exhibits thereto) contain the entire understanding of the parties with respect
to the matters covered herein and therein. This Agreement shall not alter or
supplement any rights or obligations of the Company or the Buyers under any
other agreements to which they may both be party, including the Securities
Purchase Agreement, dated as of July 8, 1998 (as amended through the date
hereof), among the Company and one or more of the Buyers. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the holders of at least one-half (1/2) of the Securities (determined
on an as exercised into Common Stock basis at the time of such determination)
held by holders or former holders of the Common Shares then outstanding, and no
provision hereof may be waived other than by an instrument in writing signed by
the party against whom enforcement is sought. Notwithstanding the provisions of
the immediately preceding sentence or anything to the contrary contained in this
Agreement, the provisions of Sections 5(d)(ii) and (iii) may not be amended. No
permitted amendment hereunder shall be effective to the extent that it applies
to less than all of the holders of the Securities then outstanding. No
consideration shall be offered or paid to any person to amend or consent to a
waiver or modification of any provision of any of the Transaction Documents
unless the same consideration also is offered to all of the parties to the
Transaction Documents or holders of the Common Shares, as the case may be.
f. Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been
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<PAGE> 28
delivered (i) upon receipt, when
delivered personally; (ii) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section prior to 6:00 p.m. (New York City time) on a Business
Day, (iii) the Business Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section later than 6:00 p.m. (New York City time) on any date
and earlier than 11:59 p.m. (New York City time) on such date; or (iv) upon
receipt, when delivered by a reputable overnight delivery service, in each case
properly addressed to the party to receive the same. The addresses and facsimile
numbers for such communications shall be:
If to the Company: Queen Sand Resources, Inc.
3500 Oak Lawn, Suite 380, LB#31
Dallas, Texas 75219
Telephone: 214-521-9955
Facsimile: 214-521-9960
Attention: President
and
Queen Sand Resources, Inc.
30 Metcalfe Street, Suite 620
Ottawa, Ontario, Canada K1P 5L4
Telephone: 613-230-7211
Facsimile: 613-230-6055
Attention: President
With a copy to:
Haynes and Boone, LLP
901 Main Street
Suite 3100
Dallas, Texas 75202
Telephone: 214-651-5553
Facsimile: 214-651-5940
Attention: William L. Boeing, Esq.
If to a Buyer, to its address and facsimile number on the Schedule of
Buyers, with copies to such Buyer's representatives as set forth on the Schedule
of Buyers.
Each party shall provide five days' prior written notice to the other
party of any change in address or facsimile number.
g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Common Shares. The Company shall not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the holders of at least two-thirds (2/3) of the Common Shares,
Repricing Common Shares, Warrants, Warrant Shares and Repricing Rights
(determined on an as exercised into Common Stock basis at the time of such
determination) held by holders or former holders of the Common Shares then
outstanding, including by merger or consolidation. A Buyer may not assign some
or all of its rights
-28-
<PAGE> 29
hereunder without the consent of the Company; provided, however, that a Buyer
may assign some on all of its rights hereunder to an affiliate or a fund under
its common management, but any such assignment shall not release such Buyer from
its obligations hereunder unless such obligations are assumed by such assignee
and the Company has consented to such assignment and assumption.
h. No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. Survival. The representations, warranties, covenants and agreements
of the parties hereto, shall survive the Closings and issuances of the Repricing
Common Shares. Each Buyer shall be responsible only for its own representations,
warranties, agreements and covenants hereunder.
j. Publicity. The Company and each Buyer shall have the right to
approve before issuance any press releases or any other public statements with
respect to the transactions contemplated hereby; provided, however, that the
Company shall be entitled, without the prior approval of any Buyer, to make any
press release or other public disclosure with respect to such transactions as is
required by applicable law and regulations (although each Buyer shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release and shall be provided with a copy
thereof).
k. Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this the Transaction Documents and the consummation
of the transactions contemplated thereby.
l. Placement Agents. The Company acknowledges that it has engaged Jesup
& Lamont Securities Corporation and Wellington Capital Corporation as placement
agents in connection with the sale of the Securities, which placement agents may
have formally or informally engaged other agents on its behalf. The Company
shall be responsible for the payment of any placement agent's fees or brokers
commissions relating to or arising out of the transactions contemplated hereby.
The Company shall pay, and hold each Buyer harmless against, any liability, loss
or expense (including, without limitation, attorneys' fees and out of pocket
expenses), as incurred, arising in connection with any such claim.
m. Limitation on Number of Common Shares. Notwithstanding any other
provision herein, the Company shall not be obligated to issue any shares of
Common Stock upon exercise of the Repricing Rights if the issuance of such
shares of Common Stock would exceed that number of shares of Common Stock which
the Company may issue upon exercise of the Repricing Rights (the "EXCHANGE CAP")
without breaching the Company's obligations under the rules or regulations of
The Nasdaq Stock Market, Inc. (taking into account the number of Common Shares
issued on the Closing Date, the Repricing Rights, Repricing Common Shares
previously issued, Warrants and Warrant Shares previously issued), except that
such limitation shall not apply in the event that the Company (a) obtains the
approval of its stockholders as required by applicable rules and regulations of
The Nasdaq Stock Market, Inc. for issuances of Common Stock in excess of such
amount or (ii) obtains a written opinion from outside counsel to the Company
that such approval is not required, which opinion shall be reasonably
satisfactory to the holders of a majority of the Repricing Rights then
outstanding. Until such approval or written opinion is obtained, no holder of
Repricing Rights shall be issued, upon exercise of Repricing Rights, shares of
Common Stock
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<PAGE> 30
in an amount greater than the product of (i) the Exchange Cap amount multiplied
by (ii) a fraction, the numerator of which is the number of Repricing Rights
initially acquired by such Buyer pursuant to this Agreement and the denominator
of which is the aggregate amount of all the Repricing Rights acquired by all
Buyers pursuant to this Agreement (the "CAP ALLOCATION AMOUNT"). In the event
that any Buyer shall sell or otherwise transfer any of such Buyer's Repricing
Rights, the transferee shall be allocated a pro rata portion of such Buyer's Cap
Allocation Amount. In the event that any holder of Repricing Rights shall
exercise all of such holder's Repricing Rights into a number of shares of Common
Stock which, in the aggregate, is less than such holder's Cap Allocation Amount,
then the difference between such holder's Cap Allocation Amount and the number
of shares of Common Stock actually issued to such holder pursuant to the
exercise of Repricing Rights shall be allocated to the respective Cap Allocation
Amounts of the remaining holders of Repricing Rights on a pro rata basis in
proportion to the number of Repricing Rights then held by each such holder.
Nothing contained in this Section shall relieve any obligations of the Company
pursuant to Section 4(i) and 7(c)(vii).
n. No Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.
o. Remedies. Each Buyer and each holder of Common Shares, Repricing
Common Shares or Repricing Rights shall have all rights and remedies set forth
in the Transaction Documents and all rights and remedies which such holders have
been granted at any time under any other agreement or contract and all of the
rights which such holders have under any law. Any person having any rights under
any provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.
p. Payment Set Aside. To the extent that the Company makes a payment or
payments to the Buyers pursuant to the Transaction Documents or the Buyers
enforce or exercise their rights hereunder or thereunder, and such payment or
payments or the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
* * * * * *
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<PAGE> 31
IN WITNESS WHEREOF, the Buyers and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
QUEEN SAND RESOURCES, INC.
By:
---------------------------------
Name:
---------------------------
Its:
---------------------------
SOVEREIGN PARTNERS, L.P.
By: Thomson Kernaghan & Co., Ltd.
As Agent
By:
--------------------------
Name:
---------------------
Title:
--------------------
DOMINION CAPITAL FUND LTD.
By: Thomson Kernaghan & Co., Ltd.
As Agent
By:
--------------------------
Name:
---------------------
Title:
--------------------
<PAGE> 32
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
PURCHASE PRICE OF
INVESTOR NAME ADDRESS COMMON SHARES
- --------------------------- --------------------------------- -----------------------
<S> <C> <C>
Sovereign Partners L.P. c/o Thomson Kernaghan & Co. $1,250,000
365 Bay Street
Toronto, Ontario
Canada M5H 2V2
Attn: Mark Valentine
Facsimile: (416) 860-6140
Krieger & Prager
319 Fifth Avenue, 3rd Floor
New York, New York 10016
Attn: Samuel M. Krieger
Facsimile: (212) 213-2077
Dominion Capital Fund Ltd. c/o Thomson Kernaghan & Co. $1,250,000
365 Bay Street
Toronto, Ontario
Canada M5H 2V2
Attn: Mark Valentine
Facsimile: (416) 860-6140
Krieger & Prager
319 Fifth Avenue, 3rd Floor
New York, New York 10016
Attn: Samuel M. Krieger
Facsimile: (212) 213-2077
</TABLE>
LIST OF SCHEDULES
SCHEDULE 3(a) Subsidiaries
SCHEDULE 3(c) Capitalization
SCHEDULE 3(e) Conflicts
SCHEDULE 3(o) Liens
SCHEDULE 3(u) Certain Transactions
LIST OF EXHIBITS
EXHIBIT A Form of Irrevocable Transfer Agent Instructions
EXHIBIT B Form of Exercise Notice
EXHIBIT C Form of Warrant
EXHIBIT D Form of Registration Rights Agreement
<PAGE> 33
EXHIBIT B
QUEEN SAND RESOURCES, INC.
REPRICING RIGHT EXERCISE NOTICE
Reference is made to the Securities Purchase Agreement, dated as of November 10,
1998, by and among Queen Sand Resources, Inc. (the "COMPANY") and the buyers
named therein (the "SECURITIES PURCHASE AGREEMENT"). In accordance with and
pursuant to the Securities Purchase Agreement, the undersigned hereby elects to
exercise the number of Repricing Rights (as defined in the Securities Purchase
Agreement) of the Company, indicated below for shares of Common Stock, par value
$.0015 per share (the "COMMON STOCK"), of the Company, by tendering this
Repricing Right Exercise Notice. Capitalized terms used and not otherwise
defined in this Notice that are defined in the Securities Purchase Agreement
shall have the respective meanings set forth in the Securities Purchase
Agreement.
Date of Exercise:
----------------------------------
Number of Repricing Rights to be exercised:
----------------------------------
PLEASE CONFIRM THE FOLLOWING INFORMATION:
Repricing Price:
----------------------------------
Market Price:
----------------------------------
Number of shares of Common Stock
to be issued:
----------------------------------
PLEASE ISSUE THE COMMON STOCK FOR WHICH THE REPRICING RIGHTS ARE BEING EXERCISED
IN THE FOLLOWING NAME AND TO THE FOLLOWING ADDRESS:
Issue to:
----------------------------------
----------------------------------
----------------------------------
Facsimile Number:
----------------------------------
Authorization:
----------------------------------
By:
----------------------------
Title:
--------------------------
Dated:
----------------------------------
Account Number:
(if electronic book entry transfer):
----------------------------------
Transaction Code Number
(if electronic book entry transfer):
----------------------------------
<PAGE> 1
EXHIBIT 10.3
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made
and entered into as of November 10, 1998, among Queen Sand Resources, Inc., a
Delaware corporation (the "Company"), and the undersigned buyers (each a "Buyer"
and collectively, the "Buyers").
This Agreement is made pursuant to the Securities Purchase
Agreement, dated as of the date hereof, among the Company and the Buyers (the
"Purchase Agreement").
The Company and the Buyers hereby agree as follows:
1. Definitions
Capitalized terms used and not otherwise defined herein that
are defined in the Purchase Agreement shall have the meanings given such terms
in the Purchase Agreement. As used in this Agreement, the following terms shall
have the following meanings:
"Advice" shall have meaning set forth in Section 3(o).
"Affiliate" means, with respect to any Person, any other
Person that directly or indirectly controls or is controlled by or under common
control with such Person. For the purposes of this definition, "control," when
used with respect to any Person, means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms of "affiliated," "controlling" and "controlled" have
meanings correlative to the foregoing.
"Blackout Period" shall have the meaning set forth in Section
3(o).
"Business Day" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
state of New York generally are authorized or required by law or other
government actions to close.
"Closing Date" shall have the meaning set forth in the
Purchase Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Shares" shall have the meaning set forth in the
Purchase Agreement.
"Common Stock" means the Company's common stock, par value
$.0015 per share.
"Effectiveness Date" means the 135th day following the Closing
Date.
"Effectiveness Period" shall have the meaning set forth in
Section 2(a).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
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<PAGE> 2
"Filing Date" means the 60th day following the Closing Date.
"Holder" or "Holders" means the holder or holders, as the case
may be, from time to time of Registrable Securities.
"July Agreement " means the Registration Rights Agreement,
dated as of July 8, 1998, among the Company and the buyers party thereto, as
amended from time to time in accordance with its terms.
"Indemnified Party" shall have the meaning set forth in
Section 5(c).
"Indemnifying Party" shall have the meaning set forth in
Section 5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"Person" means an individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
"Registration Delay Payments" shall have the meaning set forth
in Section 2(d).
"Registration Delay Payment Shares" shall have the meaning set
forth in Section 2(d).
"Registrable Securities" means (i) the Common Shares, the
Registration Delay Payment Shares (if any) and the Warrant Shares and (ii) the
Repricing Common Shares; provided, however in order to account for the fact that
the number of Repricing Shares is determined in part upon the market price of
the Common Stock prior to the determination of the Repricing Rate, Registrable
Securities contemplated by clause (ii) above shall include (but not be limited
to) 833,333 shares of Common Stock. The Registration Statement to be filed by
the Company on the Filing Date shall cover at least 1,350,000 shares of Common
Stock. The Company shall be required to file additional Registration Statements
to the extent the sum of (i) the Common Shares, the Repricing Common Shares and
the Warrant Shares and (ii) the Registration Delay Payment Shares exceeds the
number of shares of Common Stock initially registered in accordance with the
immediately prior sentence. The Company shall have fifteen (15) days to file
such additional Registration Statements after notice of the requirement thereof,
which the Holders may give at such time when the number of shares referenced in
clauses (i) and (ii) above exceeds 85% of the number of shares of Common Stock
then registered in a Registration Statement hereunder.
"Registration Statement" means the registration statement and
any additional registration statements contemplated by Section 2(a), including
(in each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
-2-
<PAGE> 3
exhibits thereto, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
"Repricing Common Shares" means the shares of Common Stock
issuable in respect of the Repricing Rights.
"Repricing Rights" shall have the meaning set forth in the
Purchase Agreement.
"Rule 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 158" means Rule 158 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
"Special Counsel" means one special counsel to the Holders,
for which the Holders will be reimbursed by the Company pursuant to Section 4.
"Underwritten Registration or Underwritten Offering" means a
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective registration
statement.
"Warrants" means collectively (i) the Common Stock purchase
warrants issued or issuable to the Buyers pursuant to the Purchase Agreement,
and (ii) the Common Stock purchase warrants issued or issuable to Jesup & Lamont
Securities Corporation or to any other broker, placement agent or other Person
performing similar services to the Company in connection with the transactions
contemplated by the Purchase Agreement.
"Warrant Shares" means the shares of Common Stock issuable
upon exercise in full of the Warrants.
2. Shelf Registration
(a) On or prior to the Filing Date, the Company shall prepare
and file with the Commission a "Shelf" Registration Statement covering all
Registrable Securities for an offering to be made on a continuous basis pursuant
to Rule 415. The Registration Statement shall be on Form S-3 (if the Company is
not then eligible to register for resale the Registrable Securities on Form S-3
such registration shall be on another appropriate form in accordance herewith).
The Company shall use its best efforts to cause the Registration Statement to be
declared effective under the Securities Act as promptly as possible after the
filing thereof, but in any event prior to the Effectiveness Date, and shall use
its best efforts to keep such Registration Statement continuously effective
under the Securities Act until the date which is three years after the date that
such Registration Statement is declared effective by the Commission or such
earlier date when all Registrable Securities covered by such Registration
Statement have been sold or may be sold without volume restrictions pursuant to
Rule 144(k) as determined by the counsel to the Company pursuant
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<PAGE> 4
to a written opinion letter to such effect, addressed and acceptable to the
Company's transfer agent (the "Effectiveness Period"), provided, however, that
the Company shall not be deemed to have used its best efforts to keep the
Registration Statement effective during the Effectiveness Period if it
voluntarily takes any action that would result in the Holders not being able to
sell the Registrable Securities covered by such Registration Statement during
the Effectiveness Period, unless such action is pursuant to a Blackout Period
permitted hereunder, required under applicable law or the Company has filed a
post-effective amendment to the Registration Statement and the Commission has
not declared it effective. The aggregate number of Registrable Securities under
a Registration Statement shall be allocated among Holders pro rata based on the
total number of Registrable Securities issued or issuable as of the date such
Registration Statement is declared effective by the Commission.
(b) If the Holders of a majority of the Registrable Securities
so elect, an offering of Registrable Securities pursuant to the Registration
Statement may be effected in the form of an Underwritten Offering. In such
event, and, if the managing underwriters advise the Company and such Holders in
writing that in their opinion the amount of Registrable Securities proposed to
be sold in such Underwritten Offering exceeds the amount of Registrable
Securities which can be sold in such Underwritten Offering, there shall be
included in such Underwritten Offering the amount of such Registrable Securities
which in the opinion of such managing underwriters can be sold, and such amount
shall be allocated pro rata among the Holders proposing to sell Registrable
Securities in such Underwritten Offering.
(c) If any of the Registrable Securities are to be sold in an
Underwritten Offering, the investment banker in interest that will administer
the offering will be selected by the Holders of a majority of the Registrable
Securities included in such offering upon consultation with the Company. No
Holder may participate in any Underwritten Offering hereunder unless such Holder
(i) agrees to sell its Registrable Securities on the basis provided in any
underwriting agreements approved by the Persons entitled hereunder to approve
such arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such arrangements.
(d) If (i) a Registration Statement covering all Registrable
Securities is not filed on or before the Filing Date, or (ii) the Company fails
to file with the Commission a request for acceleration in accordance with Rule
12d1-2 promulgated under the Securities Exchange Act within five (5) days of the
date that the Company is notified (orally or in writing, whichever is earlier)
by the Commission that a Registration Statement will not be "reviewed" or is not
subject to further review; or (iii) a Registration Statement covering all
Registrable Securities is not declared effective by the Commission on or before
the Effectiveness Date, or (iv) if, after the Registration Statement has been
declared effective by the Commission, the Registration Statement is either not
effective as to all Registrable Securities throughout the Effectiveness Period
or the Holders are not permitted for any reason to make sales thereunder during
such period, except that days that a Registration Statement is not effective or
unavailable as to all Registrable Securities (1) because of a Blackout Period
hereunder or (2) because of changes required by the Holders in the Registration
Statement with respect to information relating to the Holders, including without
limitation changes to the plan of distribution (any such failure or breach being
referred to as an "Event," and for purposes of clauses (i) and (iii) the date on
which such Event occurs, or for purposes of clause (ii) the date on which such
five (5) day period is exceeded, being referred to as "Event Date"), then, in
any such case, as partial relief for the damages suffered therefrom by the
Holders (which remedy shall not be exclusive of any other remedies available at
law or in equity), the Company shall pay to each Holder an amount, in cash, as
liquidated damages and not as a penalty, on the Event Date, equal to 2.0% of the
aggregate Purchase Price paid by each Holder, and, on the first day of each
month following the Event Date until the triggering Event in cured, 2.0% of the
aggregate Purchase Price paid by each Holder, on a cumulative basis. The
payments to which a Holder shall be entitled pursuant to this Section are
referred to herein as "Registration Delay Payments." Registration Delay Payments
shall be calculated on a cumulative basis and paid within five Business Days of
the Event Date and each monthly anniversary thereof. If the Company fails to
make Registration Delay Payments in
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<PAGE> 5
a timely manner, such Registration Delay Payments shall bear interest at the
rate of 2.0% per month (or the maximum rate permitted by law), prorated for
partial months, until paid in full. If the Company fails to pay the Registration
Delay Payments, including any interest thereon, within 15 Business Days of the
applicable payment date, then the Holder entitled to such payments shall have
the right at any time, so long as the Company continues to fail to make such
payments, to require the Company, upon written notice, to immediately issue, in
lieu of the Registration Delay Payments, including any interest thereon, the
number of shares of Common Stock (the "Registration Delay Payment Shares") equal
to the quotient of (X) the sum of the Registration Delay Payments and all
interest accrued thereon, divided by (Y) the lowest Closing Bid Price on any
Trading Day during the period beginning on and including the date the
Registration Delay Payments were due and payable and ending on and including the
date the Holder delivers written notice to the Company of its election to
receive shares of Common Stock in lieu of the Registration Delay Payments.
3. Registration Procedures
In connection with the Company's registration obligations
hereunder, the Company shall:
(a) Prepare and file with the Commission on or prior to the
Filing Date, a Registration Statement on Form S-3 (or if the Company is not then
eligible to register for resale the Registrable Securities on Form S-3 such
registration shall be on another appropriate form in accordance herewith, or, in
connection with an Underwritten Offering hereunder, such other form available to
the Company and reasonably acceptable to the Holders) which shall contain the
"Plan of Distribution" attached hereto as Annex A (except if otherwise directed
by the Holders), and cause the Registration Statement to become effective and
remain effective as provided herein; provided, however, that not less than five
(5) Business Days prior to the filing of the Registration Statement or any
related Prospectus or any amendment or supplement thereto (including any
document that would be incorporated or deemed to be incorporated therein by
reference), the Company shall, (i) furnish to the Holders, their Special Counsel
and any managing underwriters, copies of all such documents proposed to be
filed, which documents (other than those incorporated or deemed to be
incorporated by reference) will be subject to the review of such Holders, their
Special Counsel and such managing underwriters, and (ii) cause its officers and
directors, counsel and independent certified public accountants to respond to
such inquiries as shall be necessary, in the reasonable opinion of respective
counsel to such Holders and such underwriters, to conduct a reasonable
investigation within the meaning of the Securities Act. The Company shall not
file the Registration Statement or any such Prospectus or any amendments or
supplements thereto to which the Holders of a majority of the Registrable
Securities, their Special Counsel, or any managing underwriters, shall
reasonably object on a timely basis.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement as may be
necessary to keep the Registration Statement continuously effective as to the
applicable Registrable Securities for the Effectiveness Period and prepare and
file with the Commission such additional Registration Statements in order to
register for resale under the Securities Act all of the Registrable Securities;
(ii) cause the related Prospectus to be amended or supplemented by any required
Prospectus supplement, and as so supplemented or amended to be filed pursuant to
Rule 424 (or any similar provisions then in force) promulgated under the
Securities Act; (iii) respond as promptly as reasonably possible to any comments
received from the Commission with respect to the Registration Statement or any
amendment thereto and as promptly as reasonably possible provide the Holders
true and complete copies of all correspondence from and to the Commission
relating to the Registration Statement; and (iv) comply in all material respects
with the provisions of the Securities Act and the Exchange Act with respect to
the disposition of all Registrable Securities covered by the Registration
Statement during the applicable period in accordance with the intended methods
of disposition by the Holders thereof set forth in the Registration Statement as
so amended or in such Prospectus as so supplemented.
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<PAGE> 6
(c) Notify the Holders of Registrable Securities to be sold,
their Special Counsel and any managing underwriters as promptly as reasonably
possible (and, in the case of (i)(A) below, not less than five (5) days prior to
such filing) and (if requested by any such Person) confirm such notice in
writing no later than one (1) Business Day following the day (i)(A) when a
Prospectus or any Prospectus supplement or post-effective amendment to the
Registration Statement is proposed to be filed; (B) when the Commission notifies
the Company whether there will be a "review" of such Registration Statement and
whenever the Commission comments in writing on such Registration Statement (the
Company shall provide true and complete copies thereof and all written responses
thereto to each of the Holders); and (C) with respect to the Registration
Statement or any post-effective amendment, when the same has become effective;
(ii) of any request by the Commission or any other Federal or state governmental
authority for amendments or supplements to the Registration Statement or
Prospectus or for additional information; (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement covering any or all of the Registrable Securities or the initiation of
any Proceedings for that purpose; (iv) if at any time any of the representations
and warranties of the Company contained in any agreement (including any
underwriting agreement) contemplated hereby ceases to be true and correct in all
material respects; (v) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from qualification
of any of the Registrable Securities for sale in any jurisdiction, or the
initiation or threatening of any Proceeding for such purpose; and (vi) of the
occurrence of any event that makes any statement made in the Registration
Statement or Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(d) Use its best efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of (i) any order suspending the effectiveness of
the Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.
(e) If requested by any managing underwriter or the Holders of
a majority in interest of the Registrable Securities to be sold in connection
with an Underwritten Offering, (i) (subject to a permitted Blackout Period)
promptly incorporate in a Prospectus supplement or post-effective amendment to
the Registration Statement such information as such managing underwriters and
such Holders reasonably agree should be included therein, and (ii) make all
required filings of such Prospectus supplement or such post-effective amendment
as soon as practicable after the Company has received notification of the
matters to be incorporated in such Prospectus supplement or post-effective
amendment; provided, however, that the Company shall not be required to take any
action pursuant to this Section 3(e) that would, in the opinion of counsel for
the Company, violate applicable law or be materially detrimental to the business
prospects of the Company.
(f) Furnish to each Holder, their Special Counsel and any
managing underwriters, without charge, at least one conformed copy of each
Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference, and all exhibits to the extent requested by
such Person (including those previously furnished or incorporated by reference)
promptly after the filing of such documents with the Commission.
(g) Promptly deliver to each Holder, their Special Counsel,
and any underwriters, without charge, as many copies of the Prospectus or
Prospectuses (including each form of prospectus) and each amendment or
supplement thereto as such Persons may reasonably request; and the Company
hereby consents to the use of such Prospectus and each amendment or supplement
thereto by each of the selling
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<PAGE> 7
Holders and any underwriters in connection with the offering and sale of the
Registrable Securities covered by such Prospectus and any amendment or
supplement thereto.
(h) Prior to any public offering of Registrable Securities,
use its best efforts to register or qualify or cooperate with the selling
Holders, any underwriters and their Special Counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any Holder or underwriter requests in writing, to keep each such registration or
qualification (or exemption therefrom) effective during the Effectiveness Period
and to do any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by a
Registration Statement; provided, however, that the Company shall not be
required to qualify generally to do business in any jurisdiction where it is not
then so qualified or to take any action that would subject it to general service
of process in any such jurisdiction where it is not then so subject or subject
the Company to any material tax in any such jurisdiction where it is not then so
subject.
(i) Cooperate with the Holders and any managing underwriters
to facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be delivered to a transferee pursuant to a
Registration Statement, which certificates shall be free, to the extent
permitted by applicable law, of all restrictive legends, and to enable such
Registrable Securities to be in such denominations and registered in such names
as any such managing underwriters or Holders may request at least two Business
Days prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section
3(c)(vi), as promptly as reasonably possible, prepare a supplement or amendment,
including a post-effective amendment, to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither the Registration Statement nor such
Prospectus will contain 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, in light of the circumstances under which they were made,
not misleading.
(k) Use its best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on the Nasdaq SmallCap
Market ("NASDAQ") and any other Subsequent Market, if any, on which similar
securities issued by the Company are then listed as and when required pursuant
to the Purchase Agreement.
(l) In the case of an Underwritten Offering, enter into such
agreements (including an underwriting agreement in form, scope and substance as
is customary in Underwritten Offerings) and take all such other actions in
connection therewith (including those reasonably requested by any managing
underwriters and the Holders of a majority of the Registrable Securities being
sold) in order to expedite or facilitate the disposition of such Registrable
Securities, and is entered into, (i) make such representations and warranties to
such Holders and such underwriters as are customarily made by issuers to
underwriters in underwritten public offerings, and confirm the same if and when
requested; (ii) obtain and deliver copies thereof to each Holder and the
managing underwriters, if any, of opinions of counsel to the Company and updates
thereof addressed to each Holder and each such underwriter, in form, scope and
substance reasonably satisfactory to any such managing underwriters and Special
Counsel to the selling Holders covering the matters customarily covered in
opinions requested in Underwritten Offerings and such other matters as may be
reasonably requested by such Special Counsel and underwriters; (iii) immediately
prior to the effectiveness of the Registration Statement, and, in the case of an
Underwritten Offering, at the time of delivery of any Registrable Securities
sold pursuant thereto, use its best reasonable efforts to obtain and deliver
copies to the Holders and the managing underwriters, if any, of "cold comfort"
letters and updates thereof from the independent certified public accountants of
the Company (and, if necessary, any other independent certified
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<PAGE> 8
public accountants of any subsidiary of the Company or of any business acquired
by the Company for which financial statements and financial data is, or is
required to be, included in the Registration Statement), addressed to the
Company in form and substance as are customary in connection with Underwritten
Offerings; (iv) if an underwriting agreement is entered into, the same shall
contain indemnification provisions and procedures no less favorable to the
selling Holders and the underwriters, if any, than those set forth in Section 5
(or such other provisions and procedures acceptable to the managing
underwriters, if any, and holders of a majority of Registrable Securities
participating in such Underwritten Offering); and (v) deliver such documents and
certificates as may be reasonably requested by the Holders of a majority of the
Registrable Securities being sold, their Special Counsel and any managing
underwriters to evidence the continued validity of the representations and
warranties made pursuant to clause 3(l)(i) above and to evidence compliance with
any customary conditions contained in the underwriting agreement or other
agreement entered into by the Company.
(m) Make available for inspection by the selling Holders, any
representative of such Holders, any underwriter participating in any disposition
of Registrable Securities, and any attorney or accountant retained by such
selling Holders or underwriters, at the offices where normally kept, during
reasonable business hours, all financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries, and cause the
officers, directors, agents and employees of the Company and its subsidiaries to
supply all information in each case reasonably requested by any such Holder,
representative, underwriter, attorney or accountant in connection with the
Registration Statement; provided, however, that any information that is
determined in good faith by the Company in writing to be of a confidential
nature at the time of delivery of such information shall be kept confidential by
such Persons, unless (i) disclosure of such information is required by court or
administrative order or is necessary to respond to inquiries of regulatory
authorities; (ii) such information becomes generally available to the public
other than as a result of a disclosure or failure to safeguard by such Person;
or (iii) such information becomes available to such Person from a source other
than the Company and such source is not known by such Person to be bound by a
confidentiality agreement with the Company.
(n) Comply with all applicable rules and regulations of the
Commission.
(o) The Company may require each selling Holder to furnish to
the Company such information regarding the distribution of such Registrable
Securities and the beneficial ownership of Common Stock held by such Holder as
is required by law to be disclosed in the Registration Statement, and the
Company may exclude from such registration, without any penalty otherwise
provided by this Agreement, the Registrable Securities of any such Holder who
unreasonably fails to furnish such information within a reasonable time after
receiving such request.
If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (if such reference to such Holder by name or otherwise
is not required by the Securities Act or any similar Federal statute then in
force) the deletion of the reference to such Holder in any amendment or
supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.
Each Holder covenants and agrees that (i) it will not sell any
Registrable Securities under the Registration Statement until it has received
copies of the Prospectus as then amended or supplemented as contemplated in
Section 3(g) and notice from the Company that such Registration Statement and
any post-effective amendments thereto have become effective as contemplated by
Section 3(c) and (ii) it and its officers, directors or Affiliates, if any, will
comply with the prospectus delivery requirements of the Securities Act as
applicable to it in connection with sales of Registrable Securities pursuant to
the Registration Statement.
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<PAGE> 9
Each Holder agrees by its acquisition of such Registrable
Securities that, upon receipt of a notice from the Company of the occurrence of
any event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv),
3(c)(v) or 3(c)(vi), such Holder will forthwith discontinue disposition of such
Registrable Securities under the Registration Statement until such Holder's
receipt of the copies of the supplemented Prospectus and/or amended Registration
Statement contemplated by Section 3(j), or until it is advised in writing (the
"Advice") by the Company that the use of the applicable Prospectus may be
resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus or Registration Statement.
If there is a significant business opportunity (including but
not limited to the acquisition or disposition of assets (other than in the
ordinary course of business) or any merger, consolidation, tender offer or other
similar transaction) available to the Company which the Board reasonably
determines not to be in the Company's best interest to disclose, then the
Company may suspend the right of the Holders to sell Registrable Securities
under a Registration Statement for a period not to exceed 20 Business Days
during the Effectiveness Period (the "Blackout Period").
4. Registration Expenses
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company, except as and to the extent
specified in Section 4(b), shall be borne by the Company whether or not pursuant
to an Underwritten Offering and whether or not the Registration Statement is
filed or becomes effective and whether or not any Registrable Securities are
sold pursuant to the Registration Statement. The fees and expenses referred to
in the foregoing sentence shall include, without limitation, (i) all
registration and filing fees (including, without limitation, fees and expenses
(A) with respect to filings required to be made with the NASDAQ and any
Subsequent Market on which the Common Stock is then listed for trading, and (B)
in compliance with state securities or Blue Sky laws (including, without
limitation, fees and disbursements of its counsel or, if its counsel fails to
timely make such determinations, counsel for the Holders (which will not be
subject to the restrictions set forth below) in connection with Blue Sky
qualifications or exemptions of the Registrable Securities and determination of
the eligibility of the Registrable Securities for investment under the laws of
such jurisdictions as the managing underwriters, if any, or the Holders of a
majority of Registrable Securities may designate)), (ii) printing expenses
(including, without limitation, expenses of printing certificates for
Registrable Securities and of printing prospectuses if the printing of
prospectuses is requested by the managing underwriters, if any, or by the
holders of a majority of the Registrable Securities included in the Registration
Statement), (iii) messenger, telephone and delivery expenses of the Company,
(iv) fees and disbursements of counsel for the Company and Special Counsel for
the Holders (which, in the case of the Special Counsel, will not exceed $7,500),
(v) Securities Act liability insurance, if the Company so desires such
insurance, and (vi) fees and expenses of all other Persons retained by the
Company in connection with the consummation of the transactions contemplated by
this Agreement. In addition, the Company shall be responsible for all of its
internal expenses incurred in connection with the consummation of the
transactions contemplated by this Agreement (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit, the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder.
(b) If the Holders require an Underwritten Offering pursuant
to the terms hereof, the Company shall be responsible for all costs, fees and
expenses in connection therewith, except for the fees and disbursements of the
Underwriters (including any underwriting commissions and discounts) and their
legal counsel and accountants. By way of illustration which is not intended to
diminish from the provisions of Section 4(a), the Holders shall not be
responsible for, and the Company shall be required to pay the fees or
disbursements incurred by the Company (including by its legal counsel and
accountants) in connection with, the preparation and filing of a Registration
Statement and related Prospectus for such offering, the
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<PAGE> 10
maintenance of such Registration Statement in accordance with the terms hereof,
the listing of the Registrable Securities in accordance with the requirements
hereof, and printing expenses incurred to comply with the requirements hereof.
5. Indemnification
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents (including any underwriters
retained by such Holder in connection with the offer and sale of Registrable
Securities), brokers (including brokers who offer and sell Registrable
Securities as principal as a result of a pledge or any failure to perform under
a margin call of Common Stock), investment advisors and employees of each of
them, each Person who controls any such Holder (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, agents and employees of each such controlling Person, to the fullest
extent permitted by applicable law, from and against any and all losses, claims,
damages, liabilities, costs (including, without limitation, costs of preparation
and reasonable attorneys' fees) and expenses (collectively, "Losses"), as
incurred, arising out of or relating to any untrue or alleged untrue statement
of a material fact contained in the Registration Statement, any Prospectus or
any form of prospectus or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or relating to any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in light of the circumstances under which they were made)
not misleading, except to the extent, but only to the extent, that such untrue
statements or omissions are based solely upon information regarding such Holder
furnished in writing to the Company by such Holder expressly for use therein, or
to the extent that such information relates to such Holder or such Holder's
proposed method of distribution of Registrable Securities and was reviewed and
expressly approved in writing by such Holder expressly for use in the
Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto. The Company shall notify the Holders promptly
of the institution, threat or assertion of any Proceeding of which the Company
is aware in connection with the transactions contemplated by this Agreement.
(b) Indemnification by Holders. Each Holder shall, severally
and not jointly, indemnify and hold harmless the Company, its directors,
officers, agents and employees, each Person who controls the Company (within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act),
and the directors, officers, agents or employees of such controlling Persons, to
the fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising solely out of or based solely upon any untrue
statement of a material fact contained in the Registration Statement, any
Prospectus, or any form of prospectus, or in any amendment or supplement
thereto, or arising solely out of or based solely upon any omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing by
such Holder to the Company specifically for inclusion in the Registration
Statement, such Prospectus or such form of prospectus or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in the Registration Statement, such
Prospectus or such form of Prospectus, or in any amendment or supplement
thereto. In no event shall the liability of any selling Holder hereunder be
greater in amount than the dollar amount of the net proceeds received by such
Holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity hereunder
(an "Indemnified Party"), such Indemnified Party shall promptly notify the
Person from whom indemnity is sought (the "Indemnifying Party") in writing, and
the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably
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<PAGE> 11
satisfactory to the Indemnified Party and the payment of all fees and expenses
incurred in connection with defense thereof; provided, that the failure of any
Indemnified Party to give such notice shall not relieve the Indemnifying Party
of its obligations or liabilities pursuant to this Agreement, except (and only)
to the extent that it shall be finally determined by a court of competent
jurisdiction (which determination is not subject to appeal or further review)
that such failure shall have proximately and materially adversely prejudiced the
Indemnifying Party.
An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in
writing to pay such fees and expenses; or (2) the Indemnifying Party shall have
failed promptly to assume the defense of such Proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3)
the named parties to any such Proceeding (including any impleaded parties)
include both such Indemnified Party and the Indemnifying Party, and such
Indemnified Party shall have been advised by counsel that a conflict of interest
is likely to exist if the same counsel were to represent such Indemnified Party
and the Indemnifying Party (in which case, if such Indemnified Party notifies
the Indemnifying Party in writing that it elects to employ separate counsel at
the expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party; provided, however, that the Indemnifying Party shall be
responsible for the fees and expenses of one counsel for all such Indemnified
Parties unless an Indemnified Party shall have been advised by counsel that a
conflict of interest is likely to exist if the same counsel were to represent
all such Indemnified Parties, in which case such Indemnified Party shall be
permitted, at the expense of the Indemnifying Party, to employ separate
counsel). The Indemnifying Party shall not be liable for any settlement of any
such Proceeding effected without its written consent, which consent shall not be
unreasonably withheld. No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, effect any settlement of any pending
Proceeding in respect of which any Indemnified Party is a party, unless such
settlement includes an unconditional release of such Indemnified Party from all
liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within ten (10) Business Days of written notice thereof to the
Indemnifying Party (regardless of whether it is ultimately determined that an
Indemnified Party is not entitled to indemnification hereunder; provided, that
the Indemnifying Party may require such Indemnified Party to undertake to
reimburse all such fees and expenses to the extent it is finally judicially
determined that such Indemnified Party is not entitled to indemnification
hereunder).
(d) Contribution. If a claim for indemnification under Section
5(a) or 5(b) is unavailable to an Indemnified Party (by reason of public policy
or otherwise), then each 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, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 5(c), any reasonable attorneys' or other
reasonable fees or expenses incurred by such party in connection with any
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<PAGE> 12
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 5(d) were determined by pro
rata allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. Not withstanding the provisions of this Section 5(d), no Holder shall
be required to contribute, in the aggregate, any amount in excess of the amount
by which the proceeds actually received by such Holder from the sale of the
Registrable Securities subject to the Proceeding exceeds the amount of any
damages that such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this
Section are in addition to any liability that the Indemnifying Parties may have
to the Indemnified Parties.
6. Miscellaneous
(a) Remedies. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company and each Holder agree that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Other than the July Agreement,
neither the Company nor any of its subsidiaries has entered, as of the date
hereof, nor shall the Company or any of its subsidiaries, on or after the date
of this Agreement, enter into any agreement with respect to its securities that
is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. Except as and to the extent
specified in Schedule 6(b) hereto, neither the Company nor any of its
subsidiaries has previously entered into any agreement granting any registration
rights with respect to any of its securities to any Person. Except pursuant to
the registration rights granted under the July Agreement, which are senior to
the registration rights granted under this Agreement, without limiting the
generality of the foregoing, without the written consent of the Holders of a
majority of the then outstanding Registrable Securities, the Company shall not
grant to any Person the right to request the Company to register any securities
of the Company under the Securities Act unless the rights so granted are subject
in all respects to the prior rights in full of the Holders set forth herein, and
are not otherwise in conflict or inconsistent with the provisions of this
Agreement (so long as the Company is in compliance with its registration
obligations hereunder and the restrictions relating to registration of
securities set forth in the Purchaser Agreement this sentence will not operate
to restrict the Company).
(c) No Piggyback on Registrations. Except as and to the extent
specified in Schedule 6(c) hereto, neither the Company nor any of its security
holders (other than the Holders in such capacity pursuant hereto) may include
securities of the Company in the Registration Statement other than the
Registrable Securities, and the Company shall not after the date hereof enter
into any agreement providing any such right to any of its security holders.
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<PAGE> 13
(d) Piggy-Back Registrations. If at any time when there is not
an effective Registration Statement covering all of the Registrable Securities
and the Underlying Shares, the Company shall determine to prepare and file with
the Commission a registration statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each holder of Registrable
Securities written notice of such determination and, if within fifteen (15) days
after receipt of such notice, any such holder shall so request in writing, the
Company shall include in such registration statement all or any part of such
Registrable Securities such holder requests to be registered; provided, however,
that the Company shall not be required to register any Registrable Securities
pursuant to this Section 7(d) that are eligible for sale pursuant to Rule 144(k)
of the Commission. Any registration statement referred to in this Section 6(d)
may be withdrawn at any time by the Company. The piggy-back rights of the
Holders pursuant to this Section 6(d) shall only be available at times when
there is not then an effective Registration Statement which the Holders are
permitted to utilize and that covers the resale of all Registrable Securities
then outstanding.
(e) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holders of at least two-thirds of the then outstanding Registrable
Securities; provided, however, that, for the purposes of this sentence,
Registrable Securities that are owned, directly or indirectly, by the Company,
or an Affiliate of the Company are not deemed outstanding. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of Holders and that does not
directly or indirectly affect the rights of other Holders may be given by
Holders of at least a majority of the Registrable Securities to which such
waiver or consent relates; provided, however, that the provisions of this
sentence may not be amended, modified, or supplemented except in accordance with
the provisions of the immediately preceding sentence.
(f) Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified in this Section prior to 6:00 p.m. (New York City time) on a
Business Day, (iii) the Business Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified in this Section later than 6:00 p.m. (New York City time) on
any date and earlier than 11:59 p.m. (New York City time) on such date; or (iv)
upon receipt, when delivered by a reputable overnight delivery service, in each
case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
If to the Company: Queen Sand Resources, Inc.
3500 Oak Lawn, Suite 380, LB#31
Dallas, Texas 75219
Facsimile: 214-521-9960
Attention: Robert P. Lindsay
and
Queen Sand Resources, Inc.
30 Metcalfe Street, Suite 620
Ottawa, Ontario, Canada K1P 5L4
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<PAGE> 14
Facsimile: 613-230-6055
Attention: Edward J. Munden
With copies to: Haynes and Boone, LLP
901 Main Street
Suite 3100
Dallas, Texas 75202
Facsimile: 214-651-5940
Attention: William L. Boeing
If to a Buyer, to its address and facsimile number on the Schedule of
Buyers, with copies to such Buyer's representatives as set forth on the Schedule
of Buyers attached to the Purchase Agreement.
Each party shall provide five days' prior written notice to the other
party of any change in address or facsimile number.
If to any other Person who is then the registered Holder:
To the address of such Holder as it appears in the stock
transfer books of the Company or such other address as may be
designated in writing hereafter, in the same manner, by such
Person.
(g) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
each Holder. Each Holder may assign their respective rights hereunder in the
manner and to the Persons as permitted under this Agreement and the Purchase
Agreement.
(h) Assignment of Registration Rights. The rights of each
Holder hereunder, including the right to have the Company register for resale
Registrable Securities in accordance with the terms of this Agreement, shall be
automatically assignable by each Holder to any Affiliate of such Holder, any
other Holder or Affiliate of any other Holder if: (i) the Holder agrees in
writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company within a reasonable time after such
assignment, (ii) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (a) the name and address of such
transferee or assignee, and (b) the securities with respect to which such
registration rights are being transferred or assigned, (iii) following such
transfer or assignment the further disposition of such securities by the
transferee or assignees is restricted under the Securities Act and applicable
state securities laws, (iv) at or before the time the Company receives the
written notice contemplated by clause (ii) of this Section, the transferee or
assignee agrees in writing with the Company to be bound by all of the provisions
of this Agreement, and (v) such transfer shall have been made in accordance with
the applicable requirements of the Purchase Agreement. The rights to assignment
shall apply to the Holders (and to subsequent) successors and assigns.
(i) Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.
(j) Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York without regard to the principles of conflicts
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<PAGE> 15
of law thereof. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of the any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner permitted
by law.
(k) Cumulative Remedies. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
(l) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(m) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(n) Shares Held by The Company and its Affiliates. Whenever
the consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its Affiliates (other than any Holder or transferees or successors or assigns
thereof if such Holder is deemed to be an Affiliate solely by reason of its
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
* * * * * *
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<PAGE> 16
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
QUEEN SAND RESOURCES, INC.
By:
----------------------------------
Name:
Its:
SOVEREIGN PARTNERS, L.P.
By: Thomson Kernaghan & Co., Ltd.
As Agent
By:
-------------------------------
Name:
Title:
DOMINION CAPITAL FUND LTD.
By: Thomson Kernaghan & Co., Ltd.
As Agent
By:
-------------------------------
Name:
Title:
<PAGE> 17
Annex A
PLAN OF DISTRIBUTION
The Selling Stockholders, their pledgees, donees, transferees or other
successors-in-interest, may, from time to time, sell all or a portion of the
shares of Common Stock being registered hereunder (the "Shares") in privately
negotiated transactions or otherwise, at fixed prices that may be changed, at
market prices prevailing at the time of sale, at prices related to such market
prices or at negotiated prices. The Shares may be sold by the Selling
Stockholders by one or more of the following methods, without limitation: (a)
block trades in which the broker or dealer so engaged will attempt to sell the
Shares as agent but may position and resell a portion of the block as principal
to facilitate the transaction, (b) purchases by a broker or dealer as principal
and resale by such broker or dealer for its account pursuant to this Prospectus,
(c) an exchange distribution in accordance with the rules of the applicable
exchange, (d) ordinary brokerage transactions and transactions in which the
broker solicits purchasers, (e) privately negotiated transactions, (f) short
sales, (g) a combination of any such methods of sale and (h) any other method
permitted pursuant to applicable law.
From time to time the Selling Stockholders may engage in short sales, short
sales against the box, puts and calls and other transactions in securities of
the Company or derivatives thereof, and may sell and deliver the Shares in
connection therewith or in settlement of securities loans. If the Selling
Stockholders engage in such transactions, the applicable conversion price may be
affected. From time to time the Selling Stockholders may pledge their Shares
pursuant to the margin provisions of its customer agreements with its brokers.
Upon a default by the Selling Stockholders, the broker may offer and sell the
pledged Shares from time to time.
In effecting sales, brokers and dealers engaged by the Selling Stockholders
may arrange for other brokers or dealers to participate in such sales. Brokers
or dealers may receive commissions or discounts from the Selling Stockholders
(or, if any such broker-dealer acts as agent for the purchaser of such shares,
from such purchaser) in amounts to be negotiated which are not expected to
exceed those customary in the types of transactions involved. Broker-dealers may
agree with the Selling Stockholders to sell a specified number of such Shares at
a stipulated price per share, and, to the extent such broker-dealer is unable to
do so acting as agent for a Selling Stockholder, to purchase as principal any
unsold Shares at the price required to fulfill the broker-dealer commitment to
the Selling Stockholders. Broker-dealers who acquire Shares as principal may
thereafter resell such Shares from time to time in transactions (which may
involve block transactions and sales to and through other broker-dealers,
including transactions of the nature described above) in the over-the-counter
market or otherwise at prices and on terms then prevailing at the time of sale,
at prices then related to the then-current market price or in negotiated
transactions and, in connection with such resales, may pay to or receive from
the purchasers of such Shares commissions as described above. The Selling
Stockholders may also sell the Shares in accordance with Rule 144 under the
Securities Act, rather than pursuant to this Prospectus.
The Selling Stockholders and any broker-dealers or agents that participate
with the Selling Stockholders in sales of the Shares may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales. In such event, any commissions received by such broker-dealers or agents
and any profit on the resale of the Shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
The Company is required to pay all fees and expenses incident to the
registration of the Shares, including fees and disbursements of one counsel (not
to exceed $7,500) to the Selling Stockholders. The Company has agreed to
indemnify the Selling Stockholders against certain losses, claims, damages and
liabilities, including liabilities under the Securities Act.
[such other disclosure as may be required
pursuant to applicable law]
