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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K / A-1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED):
MARCH 19, 1998
QUEEN SAND RESOURCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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STATE OF DELAWARE 0-21179 75-2615565
(STATE OF INCORPORATION) (COMMISSION FILE NO.) (IRS EMPLOYER IDENTIFICATION NO.)
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3500 OAK LAWN
SUITE 380, LB #31
DALLAS, TEXAS 75219-4398
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (214) 521-9959
NO CHANGE
(FORMER NAME OR FORMER ADDRESS, IF CHANGE SINCE LAST REPORT)
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This Current Report amends and restates in its entirety the Current
Report on Form 8-K dated March 19, 1998 as follows:
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On April 20, 1998, Queen Sand Resources, Inc. (the "Company")
consummated the acquisition of certain non- operated royalty and net profits
overriding royalty interests (the "Morgan Properties") from two commingled
pension trust funds for which Morgan Guaranty Trust Company of New York serves
as trustee (the "Morgan Property Acquisition"). The gross purchase price was
$150 million in cash subject to standard closing adjustments for net production
revenues since October 1, 1997 and capital expenditures incurred since that
date (the net purchase price after adjustments is anticipated to be
approximately $130 million). The effective date of the transaction is October
1, 1997. Bank of Montreal, Enron Capital & Trade Resources Corp. ("Enron") and
an affiliate of Enron provided $141 million in incremental financing to fund
this acquisition. The Company funded the Morgan Property Acquisition with a
combination of three debt facilities arranged through the Bank of Montreal.
First, the Company amended and restated its existing senior secured revolving
credit facility (the "Revolver"). The Revolver now provides for a maximum
borrowing amount of $96 million, subject to borrowing base limitations. This
facility is now a 364 day revolver and converts to a four year amortizing term
facility thereafter. An aggregate of $87 million was drawn (including $15
million previously drawn to fund a down payment) under the Revolver to finance
the Morgan Property Acquisition resulting in an aggregate of $92 million now
outstanding under the Revolver. The Company also arranged a $30 million senior
secured single draw bullet term loan (the "Debt Bridge Facility") and a $30
million secured single draw bullet term loan (the "Equity Bridge Facility"),
both of which were fully drawn to fund the Morgan Property Acquisition. Both
facilities are due six months after closing although if not then repaid, the
Debt Bridge Facility can be converted to a five year term bullet loan and the
Equity Bridge Facility can be converted to a six year term facility. The
Company is currently engaged in arranging both debt and equity financing to
permanently replace the bridge facilities and to repay a substantial portion of
the indebtedness outstanding under the Revolver. In connection with arrangement
of the Equity Bridge Facility, the Company granted contingent warrants to the
lenders. The warrants provide that if any portion of the Equity Bridge Facility
is outstanding on (i) July 20, 1998, the lenders would have a vested right to
purchase at $.0015 per share Common Stock in an amount equal to an aggregate of
2% of the then-outstanding shares of Common Stock on a fully diluted basis
("fully diluted basis" meaning all then- outstanding shares of Common Stock
plus shares of Common Stock issuable upon exercise of outstanding options or
rights, whether or not vested) multiplied by a fraction the numerator of which
is the Equity Bridge Facility principal amount then-outstanding and the
denominator of which is $30 million, (ii) August 20, 1998, the lenders would
have a vested right to purchase an additional 2% of the fully diluted
outstanding Common Stock on the same terms as described in clause (i) above and
(iii) October 21, 1998, the lenders would have a fully vested right to purchase
an additional 10% of the fully diluted Common Stock on the same terms as
described in clause (i) above. The warrants expire on April 20, 2001.
The acquisition encompasses interests in over 600 wells in
approximately 40 different fields located primarily in East Texas, South Texas
and the Mid-continent area. The Company's independent engineers, Ryder Scott
Company, estimate that as of December 31, 1997, total proved reserves aggregated
approximately 124.1 billion cubic feet of natural gas and 3.6 million Bbls of
oil. The reserves are estimated to be approximately 85% natural gas, having an
estimated reserve-to-production ratio of over 10 years, and 76% are classified
by Ryder Scott Company as proved developed producing. The non-operated royalty
and net profits overriding royalty interests in the various properties range
from 2% to 80%.
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The Company has implemented a comprehensive hedging strategy for its
natural gas production from the Morgan Properties over the next five years. The
Company has placed 25% of its expected proved developed producing natural gas
reserves ("PDP") into a swap with Enron at $2.40 per thousand cubic feet
("Mcf"). Ten percent of the Company's expected PDP was hedged in a contract
with Enron with a floor of $1.90 per Mcf. The Company also hedged 40% of its
expected PDP with a series of non-participating collars with ceilings that
escalate from $2.70 per Mcf to $2.90 per Mcf over time. The Company has not yet
hedged its oil production from the Morgan Properties due to current unattractive
prices but anticipates it will enter into such hedging arrangements in the
future if and when the prices are more attractive.
The information in this Current Report on Form 8-K/A-1 includes
certain forward-looking statements that are based on assumptions that in the
future may prove not to have been accurate. These statements, and the
Company's business and prospects, are subject to a number of risks, including
production variances from expectations, uncertainties about estimates of
reserves, volatility of oil and natural gas prices, the need to develop and
replace its reserves, the substantial capital expenditures required to fund its
operations, environmental risks, drilling and operating risks, risks related to
exploratory and developmental drilling, competition, government regulation, and
the ability of the Company to implement its business strategy. These and other
risks are described in the Company's Annual Report on Form 10-KSB for the year
ended June 30, 1997, which report is available from the Company and the
Securities and Exchange Commission.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Financial Statements
(a) It is impractical to provide the required financial statements
of the acquired properties at this time. The Company plans to file such
information by amendment within sixty days.
(b) It is impractical to provide the required pro forma financial
information at this time. The Company plans to file such information by
amendment within sixty days.
Exhibits
10.1 Purchase and Sale Agreement among Morgan Guaranty Trust
Company of New York, as Trustee under Declaration of Trust dated November 10,
1982, as amended, for the Commingled Pension Trust Fund (Petroleum), Morgan
Guaranty Trust Company of New York, as Trustee under Declaration of Trust dated
November 10, 1982, as amended, for the Commingled Pension Trust Fund (Petroleum
II), Investment Royalty Corporation, Milam Royalty Corporation and Queen Sand
Resources, Inc., a Nevada corporation, previously filed.
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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: April 27, 1998 By: /s/ Robert P. Lindsay
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Name: Robert P. Lindsay
Title: Executive Vice President and
Chief Operating Officer
