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As filed with the Securities and Exchange Commission on May 7, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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QUEEN SAND RESOURCES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2615565
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13760 NOEL ROAD, SUITE 1030
DALLAS, TEXAS 75240-7336
(972) 233-9906
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
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ROBERT P. LINDSAY
CHIEF OPERATING OFFICER
13760 NOEL ROAD, SUITE 1030
DALLAS, TEXAS 75240-7336
TELEPHONE: (972) 233-9906
FAX: (972) 233-9575
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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COPY TO:
WILLIAM L. BOEING
HAYNES AND BOONE, LLP
901 MAIN STREET, SUITE 3100
DALLAS, TEXAS 75202-3789
TELEPHONE: (214) 651-5000
FAX: (214) 651-5940
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED (1) SHARE (2) PRICE (2) FEE
<S> <C> <C> <C> <C>
Common Stock, par value $0.0015 per
share ................................ 5,226,910 shares $1.31 $6,847,252 $1,904
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(1) Pursuant to Rule 416, the Registration Statement also covers such
indeterminate additional shares of common stock as may become issuable to
prevent dilution resulting from stock splits, stock dividends or similar
events.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) based on the average of the high and low prices reported on
the Nasdaq SmallCap Market on May 3, 1999.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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The information in this Prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion Dated May , 1999
QUEEN SAND RESOURCES, INC.
5,226,910 SHARES OF COMMON STOCK
This Prospectus relates to shares of common stock of Queen Sand Resources,
Inc. to be sold from time to time by the selling stockholders named in this
Prospectus. We will not receive any of the proceeds from the sale of the shares
of common stock.
The selling stockholders may sell the shares of common stock covered by
this Prospectus through one or more underwriters. The selling stockholders may
also sell the shares of common stock directly to other purchasers or through
agents on the Nasdaq SmallCap Market in ordinary brokerage transactions, in
negotiated transactions or otherwise, at market prices prevailing at the time of
sales, at prices related to the then prevailing market price or at negotiated
prices. You should read this Prospectus and any supplement carefully before you
invest.
Our common stock is traded on the Nasdaq SmallCap Market under the symbol
"QSRI."
YOU SHOULD READ THE SECTION ENTITLED "RISK FACTORS" BEGINNING ON PAGE 3 FOR
A DISCUSSION OF CERTAIN FACTORS YOU SHOULD CONSIDER BEFORE BUYING OUR COMMON
STOCK.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this Prospectus is May , 1999
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TABLE OF CONTENTS
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Page
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A Warning about Forward-looking Statements.................................................................... 2
The Company................................................................................................... 3
Risk Factors.................................................................................................. 3
Use of Proceeds............................................................................................... 16
Selling Stockholders.......................................................................................... 16
Description of Capital Stock.................................................................................. 18
Shares Eligible for Future Sale............................................................................... 31
Plan of Distribution.......................................................................................... 31
Legal Matters................................................................................................. 33
Experts....................................................................................................... 33
Independent Auditors.......................................................................................... 33
Additional Information........................................................................................ 34
Incorporation by Reference.................................................................................... 34
Disclosure of Commission Position on Indemnification for Securities Act Liabilities........................... 35
Certain Definitions........................................................................................... 36
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A WARNING ABOUT FORWARD-LOOKING STATEMENTS
We make forward-looking statements in this document, and in our public
documents to which we refer, that are subject to risks and uncertainties in
addition to those set forth below. These forward-looking statements include
information about possible or assumed future results of our operations. Also,
when we use any of the words "believes," "expects," "intends," "anticipates" or
similar expressions, we are making forward-looking statements. Many possible
events or factors could affect our future financial results and performance.
This could cause our results or performance to differ materially from those we
express in our forward-looking statements. You should consider these risks when
you purchase our common stock.
These possible events or facts include the following:
o the timing and extent of changes in commodity prices for oil and
natural gas;
o the need to acquire, develop and replace reserves;
o our ability to obtain financing to fund our business strategy;
o environmental risks;
o drilling and operating risks;
o risks related to exploitation and development;
o uncertainties about the estimates of reserves;
o competition;
o government regulation; and
o our ability to meet our stated business goals.
Please read the section entitled "Risk Factors" beginning on page 3 for a
discussion of certain risks of our business and an investment in our common
stock.
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THE COMPANY
As used herein, "we" or the "Company" refers to Queen Sand Resources, Inc.,
a Delaware corporation ("Queen Sand Resources"), and its subsidiaries unless the
context indicates otherwise. Certain oil and gas industry terms used herein such
as "SEC PV-10" are defined in the section entitled "Certain Definitions"
beginning on page 36 of this Prospectus.
We are an independent energy company which emphasizes growth in oil and
natural gas reserves and production volumes through the acquisition,
exploitation and development of on-shore oil and natural gas properties located
in the United States. Since August 1994 we have grown primarily through 20
acquisitions of oil and natural gas properties for aggregate consideration of
approximately $160.0 million.
Our objective is to increase our reserves, production, earnings, cash flow
and net asset value by acquiring oil and natural gas reserves with stable
production and operating characteristics. To accomplish this objective, we not
only acquire oil and natural gas properties but also develop and exploit our
existing reserve base. We evaluate potential acquisition properties based on
their particular impact upon our portfolio of reserves. We focus on low reserve
replacement costs, long reserve life, an inventory of attractive development and
exploitation projects, and the potential for reserve and production growth. We
intend to fully develop these reserves by drilling primarily low-risk
development wells.
Our properties are located throughout 114 producing fields in the
southwestern United States. Our interests in the Gilmer Field in East Texas, the
J.C. Martin and the Lopeno/Volpe Fields in South Texas, and the Caprock Field in
New Mexico represent approximately 58% of our proved reserves (on a SEC PV-10
basis) at June 30, 1998. In addition, we have substantial operations in
Oklahoma, Kentucky and Louisiana.
The Company's principal executive offices and mailing address are 13760
Noel Road, Suite 1030, Dallas, Texas 75240-7336 and its telephone number at that
address is (972) 233-9906.
RISK FACTORS
Before you invest in our common stock, you should be aware that there are
various risks, including those described below.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS
We have a significant level of indebtedness. As of December 31, 1998, our
ratio of total indebtedness to total capitalization was 87% and our consolidated
total interest coverage ratio was 1.3:1.0. We intend to borrow more money in the
future to fund our acquisition and exploitation strategy. This relatively high
leverage could negatively affect our operations in a number of ways, including
the following:
o We rely on cash from our operations to pay the principal and interest
on our indebtedness. Our ability to generate cash from operations
depends on our level of production from our properties, general
economic conditions, including the prices paid for our oil and natural
gas, and other factors. Our operations may not generate enough cash to
pay the principal and interest on our indebtedness.
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o We must use a substantial portion of our cash flow from operations to
pay principal of and interest on our indebtedness, thereby reducing
funds available for other corporate purposes.
o Since our bank indebtedness (approximately $17.2 million at April 30,
1999) is at variable or floating interest rates, if the market rates
rise, our indebtedness service obligations will become more expensive.
o Our loan agreements contain covenants which require us to satisfy
ongoing financial tests and which limit our ability to among other
things, borrow additional money, pay dividends and sell assets.
o The level of our indebtedness could limit our flexibility in responding
to downturns in the economy or in our business.
Further, our high indebtedness level creates an increased risk that we may
default on our obligations. If we default, then the banks who lent us funds
could foreclose on our oil and natural gas properties securing their loans. In
the past, we have defaulted under certain financial covenants under the loans,
but the lenders have waived these defaults.
VOLATILITY OF OIL AND NATURAL GAS PRICES
Our financial condition, operating results and future growth are
substantially dependent upon commodity prices and the demand for oil and natural
gas. Historically, the markets for oil and natural gas have been volatile and
will likely continue to be volatile in the future. Prices for oil and natural
gas fluctuate widely in response to market uncertainty, changes in supply and
demand and a variety of additional factors, all of which are beyond our control.
These factors include:
o domestic and foreign political conditions;
o the overall supply of, and demand for, oil and natural gas;
o the price of imports of oil and natural gas;
o weather conditions;
o the price and availability of alternative fuels; and
o overall economic conditions.
Our future financial condition and results of operations will be dependent,
in part, upon the prices received for our oil and natural gas production, as
well as the costs of acquiring, finding, developing and producing reserves. We
have entered into and may in the future enter into hedging contracts to reduce
our exposure to price risks. See "-- Risks of Hedging Activities." Furthermore,
the prices we receive for the sale of our natural gas production depends in part
upon the availability, proximity and capacity of gathering systems. Our current
production is predominantly weighted toward natural gas, making earnings and
cash flow more sensitive to natural gas price fluctuations. For the fiscal year
ended June 30, 1998, we have estimated that a $0.10 per Mcf decline in natural
gas prices would have resulted in a $505,000 decrease in our earnings before
interest, taxes, depreciation and amortization ("EBITDA"), and a $1.00 per Bbl
decline in oil prices would have resulted in a $572,000 decrease in our EBITDA.
For the fiscal year ended June 30, 1998, we have estimated that a $0.10 per Mcf
increase in natural gas prices would have resulted in a $505,000 increase in our
EBITDA, and a $1.00 per Bbl increase in oil prices would have resulted in a
$931,000 increase in our EBITDA. Our ability to repay our outstanding
indebtedness, as well as our ability to maintain or increase our borrowing
capacity and to obtain additional capital on
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attractive terms, are also substantially dependent upon oil and natural gas
prices. See "-- Substantial Capital Requirements."
HISTORY OF LOSSES
Since commencing operations in 1995, we have not been profitable on an
annual or quarterly basis. We incurred net losses of approximately $32.8
million, $1.3 million and $1.1 million for the years ended June 30, 1998, June
30, 1997 and June 30, 1996, respectively, and approximately $40.0 million and
$1.4 million for the six months ended December 31, 1998 and December 31, 1997,
respectively. We expect operating losses and negative cash flows to continue for
the foreseeable future as we continue to incur significant operating expenses
and to make capital expenditures. We may not ever generate sufficient revenues
to achieve profitability. Even if we do achieve profitability, we may not
sustain or increase profitability on a quarterly or annual basis in the future.
At December 31, 1998, we had an accumulated deficit of approximately $18.0
million.
REPLACEMENT AND EXPANSION OF RESERVES
Our financial condition and results of operations depend substantially upon
our ability to acquire or find and successfully develop additional oil and
natural gas reserves. Our proved reserves will generally decline as reserves are
produced unless we acquire properties containing proved reserves or conduct
successful development, exploitation or exploration activities that add to our
reserves. The decline rate varies depending upon reservoir characteristics and
other factors. There can be no assurance that we will be able to economically
find and develop or acquire additional reserves to replace our current and
future production.
ACQUISITION RISKS
We expect to continue to evaluate and pursue acquisition opportunities,
primarily in the mid-continent and southwest regions of the United States.
Before acquiring oil and natural gas properties, we assess the recoverable
reserves, future oil and natural gas prices, operating costs, potential
environmental and other liabilities and other factors relating to the
properties. This assessment is necessarily inexact and its accuracy is
inherently uncertain. In connection with such an assessment, we believe our
method of review is generally consistent with industry practices. We may not
discover all existing or potential problems associated with the properties, and
we may not become sufficiently familiar with the properties to fully assess
their deficiencies and capabilities. We do not generally perform inspections on
every well, and we may not be able to observe structural and environmental
problems even when we conduct an inspection. Even if we identify problems, the
seller may not be willing or financially able to give contractual protection
against such problems, and we may decide to assume environmental and other
liabilities in connection with acquired properties. There can be no assurance
that our acquisitions will be successful. Any unsuccessful acquisition could
have a material adverse effect on our financial condition and results of
operations.
DRILLING AND OPERATING RISKS
Our business is also subject to all of the operating risks associated with
the drilling for and production and secondary recovery of oil and natural gas,
including, but not limited to:
o uncontrollable flows of oil, natural gas, brine or well fluids
(including fluids used in waterflood activities) into the environment
(including groundwater contamination);
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o fires;
o explosions; and
o pollution,
any of which could result in substantial losses. Drilling activities are subject
to many risks, including the risk that no commercially productive oil or natural
gas reservoirs will be encountered. There can be no assurance that new wells
drilled or participated in by us will be productive or that we will recover all
or any portion of our investment. Drilling for oil and natural gas may involve
unprofitable efforts, not only from dry wells, but from wells that are
productive but do not produce sufficient net revenues to return a profit after
drilling, operating and other costs. We do not have control over the cost of
drilling, completing and operating wells. Our drilling operations may be
curtailed, delayed or canceled as a result of a variety of factors, many of
which are beyond our control, including:
o economic and industry conditions (including the prices received for oil
and natural gas);
o mechanical problems;
o pressure or irregularities in formations;
o title problems;
o weather conditions;
o compliance with governmental requirements; and
o shortages in or delays in the delivery of equipment and services.
Our future drilling activities may not be successful. Lack of drilling success
could materially adversely affect our financial condition and results of
operations.
In addition to the substantial risk that wells drilled will not be
productive, the following hazards are inherent in oil and natural gas
development, exploitation, exploration, production and gathering, including:
o unusual or unexpected geologic formations;
o unanticipated pressures;
o downhole fires;
o mechanical failures;
o blowouts;
o cratering;
o explosions;
o uncontrollable flows of oil, natural gas or well fluids;
o pollution; and
o other environmental risks.
We could suffer substantial losses from these hazards due to injury and loss of
life, severe damage to and destruction of property and equipment, pollution and
other environmental damage and suspension of operations. We carry insurance that
we believe is in accordance with customary industry practices for companies of
our size. However, we do not fully insure against all risks associated with our
business either because such insurance is not available or because we believe
the cost thereof is prohibitive. The occurrence of an event that is not covered,
or not fully covered by insurance, could have a material adverse effect on our
financial condition and results of operations.
There are certain risks associated with secondary recovery operations,
especially the use of waterflooding techniques. Waterflooding involves
significant capital expenditures and uncertainty as to the total amount of
secondary reserves that can be recovered. In waterflood operations, there is
generally a
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delay between the initiation of water injection into a formation containing
hydrocarbons and any increase in production that may result. The unit production
costs per barrel of waterflood projects are generally higher during the initial
phases of such projects due to the purchase of injection water and related
costs, as well as during the later stages of the life of the project. The degree
of success, if any, of any secondary recovery program depends on a large number
of factors, including the porosity and permeability of the formation, the
technique used and the location of injection wells.
SUBSTANTIAL CAPITAL REQUIREMENTS
Our strategy of acquiring, developing and exploiting oil and natural gas
properties depends upon our ability to obtain financing for any such
expenditures. We expect to borrow a significant portion of the funds required
under our revolving credit facilities. These facilities limit the amounts we may
borrow thereunder to amounts, determined by the lenders in their sole
discretion, based upon projected net revenues from our oil and natural gas
properties and restricts the amounts we may borrow under other credit
facilities. As of the date of this Prospectus, the Bank of Montreal and the
other lenders under our Credit Agreement are reviewing our borrowing base under
the Credit Agreement. There can be no assurance as to the amount at which the
borrowing base will be set or as to how much we may borrow under the Credit
Agreement in the future. We could, under certain circumstances, borrow under the
revolving credit agreement with Enron Capital & Trade Resources, Inc. (the "ECT
Revolving Credit Agreement") up to the lesser of $10.0 million or 40% of the
borrowing base established under the Credit Agreement. The lenders can
semi-annually adjust the borrowings permitted to be outstanding under these
credit facilities. The lenders require that we repay outstanding borrowings in
excess of the borrowing limit ratably over a period no longer than six months.
No assurances can be given that we will be able to make any such mandatory
principal payments required by the lenders.
Any future acquisition by us requiring financing in excess of the amount
then available under the revolving credit facilities will depend upon the
lenders' evaluations of the properties proposed to be acquired.
UNCERTAINTY OF ESTIMATES OF PROVED RESERVES AND FUTURE NET REVENUES
There are numerous uncertainties in estimating quantities of proved
reserves and in projecting future rates of production and the timing of
development expenditures, including many factors beyond our control. Reservoir
engineering is a subjective process of estimating underground accumulations of
oil and natural gas that cannot be exactly measured. Estimates of oil and
natural gas reserves, of necessity, are projections based on engineering data,
and there are uncertainties inherent in the interpretation of such data, as well
as the projection of future rates of production and the timing of development
expenditures. Therefore, estimates of the economically recoverable quantities of
oil and natural gas attributable to any particular group of properties and
classifications of such reserves based on risk of recovery are a function of the
quality of available data and of engineering and geological interpretation and
judgment. Although we believe such estimates and projections are reasonable,
reserve estimates are imprecise and may be expected to change as additional
information becomes available. The estimated future net cash flows prepared by
different engineers or by the same engineers at different times may vary
substantially. There also can be no assurance that the Company's estimated
reserves will ultimately be produced or that the proved undeveloped reserves
will be developed within the periods anticipated. Actual production, revenues
and expenditures with respect to our reserves will likely vary from the
estimates, and such variances may be material.
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In addition, the estimates of future net revenues from our proved reserves
and the present value thereof are based upon certain assumptions about future
production levels, prices and costs that may not be correct. We emphasize with
respect to the estimates prepared by independent petroleum engineers that SEC
PV-10 should not be considered as representative of the fair market value of our
proved oil and natural gas properties because discounted future net cash flows
are based upon projected cash flows which do not provide for changes in oil and
natural gas prices or for escalation of expenses and capital costs. The
meaningfulness of such estimates is highly dependent upon the reasonableness of
the assumptions upon which they are based. Actual future prices and costs may
differ materially from those estimated.
NATURE OF THE NET PROFITS INTERESTS AND ROYALTY INTERESTS
General. As a result of the acquisition of interests in oil and natural gas
properties from pension funds managed by J.P. Morgan Investments (the "Morgan
Property Acquisition"), a substantial portion of our oil and natural gas
property interests are in the form of non-operated, net profits interests
("NPIs") and royalty interests ("RIs" and, together with the NPIs, the "Morgan
Properties"). The NPIs were conveyed to us by various assignors from such
assignor's net revenue interest (generally, a leasehold working interest less
lease burdens) in the oil and natural gas properties burdened by the NPIs and
RIs (the "Underlying Properties"). These conveyances were designed to be
conveyances of interests in real property.
As the owner of NPIs, we do not have the direct right to drill or operate
wells or to cause third parties to propose or drill wells on the Underlying
Properties. If an assignor or any other working interest owner proposes to drill
a well on one of the Underlying Properties, then the affected assignor must give
us notice of such proposal. Under the ancillary agreement covering the affected
Underlying Property, we will then have the option to pay the Applicable
Percentage (as defined in the ancillary agreement) of the assignor's working
interest share of the expenses of any well that is proposed. We would thereby
become entitled to a NPI equal to the Applicable Percentage multiplied by the
assignor's net revenue interest in that well. However, if an assignor elects not
to participate in the drilling of a well, we will be denied the opportunity to
participate in that well. Moreover, if an assignor owns less than a 100% working
interest in a proposed well, and the other owners of working interests in such
well elect not to participate in the well, the well will not be drilled unless
the money to pay the costs allocable to the working interest owners who do not
elect to participate in the well is obtained. The financial strength and the
competence of the various assignors, and to a lesser extent the financial
strength and the competence of other parties owning working interests in the
Underlying Properties, may have an effect on when and whether wells get drilled
on the Underlying Properties, and on whether operations are conducted in a
prudent and competent manner.
Finally, the NPIs were created subsequent and subject to the various
operating agreements that cover and govern operations on the Underlying
Properties. Possible consequences of the NPIs being subject to the applicable
operating agreements include:
o if an assignor elects not to participate in a major operation, the
entire original interest of the assignor (including the NPI) will be
relinquished to the consenting parties under the "non-consent penalty"
provisions of the standard form operating agreements that govern
operations on most of the Underlying Properties, and
o if an assignor fails to pay its share of costs arising under an
operating agreement, the entire original interest of the assignor
(including the NPIs) will be encumbered by the operator's lien. Because
the NPI may not burden every well covered by an operating agreement,
the NPI could
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arguably be encumbered by the operator's lien securing obligations
incurred by an assignor on wells in which the Company does not own a
NPI.
In the past, certain of the operators and/or assignors on the Morgan
Properties have experienced financial difficulties, including bankruptcy.
Further, in at least one instance an operator has claimed a right to setoff
against our revenue stream from our NPI for unpaid bills arising from the
nonpayment by a bankrupt assignor.
The RIs are comprised largely of term royalty interests, the duration of
which is the same as the oil and natural gas lease to which it pertains. A
smaller group of RIs are perpetual royalty interests which entitle the owner
thereof to a share of production from the Underlying Properties under both the
current oil and natural gas lease and any replacement or successor oil and
natural gas lease. In all cases, the RIs are non-operating interests, have
little or no influence over oil and natural gas development or operation on the
lands they burden and should be free of costs or liabilities arising from
operations by the working interest owners.
Sale and Abandonment of Underlying Properties. An assignor (and any
subsequent transferee of an assignor) has the right to abandon any well or
working interest included in the Underlying Properties if, in its opinion, such
well or property ceases to produce or is not capable of producing oil or natural
gas in commercially paying quantities. We may not control the timing of plugging
and abandoning wells. The conveyances provide that the assignor's working
interest share of the costs of plugging and abandoning uneconomic wells will be
deducted in calculating our net cash flow from the property.
The assignor can sell the Underlying Properties, subject to and burdened by
the RIs, without our consent. Accordingly, the Underlying Properties could be
transferred to a party with a weaker financial profile.
Litigation. The landowner royalty on the J.C. Martin Field is currently
subject to a lawsuit that may create uncertainty regarding our title to our
royalty interest. We believe the suit is without merit, and a favorable order of
summary judgment has been rendered in favor of the pension funds managed by J.P.
Morgan Investments. However, that order may be appealed. The purchase agreement
for the purchase of the Morgan Properties provides for the escrow of $8.0
million of the purchase price. In the event the summary judgment is later
overturned and a judgment is later entered against the pension funds managed by
J.P. Morgan Investments (or us as successor owner) rescinding the original
transaction whereby the pension funds managed by J.P. Morgan Investments
acquired their interest, the escrowed monies would be returned to us and we
would convey our property interest in the J.C. Martin Field to the plaintiff.
Certain Bankruptcy Issues. Although the matter is not entirely free from
doubt, we believe that the Morgan Properties should constitute real property
interests under applicable state law. The conveyances state that the NPIs
constitute real property interests and were recorded in the appropriate real
property records of the states in which the Underlying Properties are located.
If, during the term of the NPIs, an assignor becomes involved as a debtor in
bankruptcy proceedings, it is not entirely clear that all of the NPIs would be
treated as real property interests under the laws of such states. If in such a
proceeding the NPIs are determined to constitute real property interests, a
bankruptcy proceeding should not affect the NPIs in any material respect. If in
such a proceeding the NPI's are determined to constitute an executory contract
(a term used, but not defined, in the United States Bankruptcy Code to refer to
a contract under which the obligations of both the debtor and the other party to
such contract are so unsatisfied that the failure of either to complete
performance would constitute a material breach excusing performance by the
other) under applicable state law, and if such contract were not to be assumed
in a bankruptcy proceeding
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involving an assignor, we would be treated as an unsecured creditor of such
assignor with respect to such NPI in the pending bankruptcy. As a result, our
economic interest in any revenues generated by production from the Underlying
Property could be reduced or even eliminated.
FINANCIAL REPORTING IMPACT OF FULL COST METHOD OF ACCOUNTING
We use the full cost method of accounting for our investment in oil and
natural gas properties. Under the full cost method of accounting, all costs of
acquisition, exploration and development of oil and natural gas reserves are
capitalized into a "full cost pool" as such costs are incurred. As oil or
natural gas production takes place, the capitalized costs in the pool are
depleted using the unit-of-production method based on the ratio of current
production to total estimated proved oil and natural gas reserves. The resulting
depletion is charged to operations. To the extent that such capitalized costs
(net of accumulated depreciation, depletion and amortization) less deferred
taxes exceed the SEC PV-10 value of estimated future net cash flow from proved
reserves of oil and natural gas, and the lower of cost or fair value of unproved
properties after income tax effects, such excess costs are charged to
operations. Once incurred, a write-down of oil and natural gas properties is not
reversible at a later date even if oil or natural gas prices increase. At June
30, 1998, we recorded a write-down of our oil and natural gas properties of
$28.2 million. Significant downward revisions of quantity estimates or declines
in oil and natural gas prices from those in effect on June 30, 1998 which are
not offset by other factors could result in further write-downs for impairment
of oil and natural gas properties. Due to the decline in prices of oil and
natural gas from June 30, 1998 to December 31, 1998, we wrote down our oil and
natural gas properties at December 31, 1998 by $35 million.
ADVERSE EFFECTS OF COMPETITION
The oil and natural gas market is highly competitive. Competition in this
market takes many forms, including:
o acquiring properties;
o marketing oil and natural gas;
o securing equipment and personnel; and
o operating properties.
Our competitors include major oil companies, numerous independent oil and
natural gas companies, individual proprietors and others. Many of our
competitors have greater financial resources than we have and have been engaged
in the energy business for a much longer time than we have. We may not be able
to compete successfully with such competitors. Competition could prevent us from
acquiring properties at affordable prices. Therefore, competitors may be able to
pay more for desirable leases and to evaluate, bid for and purchase a greater
number of properties or prospects than our financial or personnel resources will
permit.
GOVERNMENT LAWS AND REGULATIONS
General Federal and State Regulation
The Company's oil and natural gas exploration, production and related
operations are subject to extensive rules and regulations promulgated by
federal, state and local agencies. Failure to comply with such rules and
regulations can result in substantial penalties. The regulatory burden on the
oil and natural gas industry increases the Company's cost of doing business and
affects our profitability. Because such
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<PAGE> 12
rules and regulations are frequently amended or reinterpreted, we are unable to
predict the future cost or impact of complying with such laws.
The Federal Energy Regulatory Commission ("FERC") regulates interstate
natural gas transportation rates and service conditions, which affect the
revenues received by the Company for sales of its production. Since the
mid-1980s, FERC has issued a series of orders that have significantly altered
the marketing and transportation of natural gas. It is difficult to predict the
ultimate impact of the orders on the Company. Generally, these orders have
eliminated or substantially reduced the interstate pipelines' traditional role
as wholesalers of natural gas, and has substantially increased competition and
volatility in natural gas markets.
From time to time, regulatory agencies have imposed price controls and
limitations on production by restricting the rate of flow of oil and natural gas
wells below natural production capacity in order to conserve supplies of oil and
natural gas.
Environmental Regulation
Our exploration, development and production of oil and natural gas,
including the operation of saltwater injection and disposal wells, are subject
to various federal, state and local environmental laws and regulations. Such
laws and regulations can increase the costs of planning, designing, installing
and operating oil and natural gas wells. We are also subject to regulations
governing the handling, transportation, storage and disposal of naturally
occurring radioactive materials that are found in our oil and natural gas
operations. Civil and criminal fines and penalties may be imposed for
non-compliance with these environmental laws and regulations. Additionally,
these laws and regulations require the acquisition of permits or other
governmental authorizations before undertaking certain activities, limit or
prohibit other activities because of protected wildlife areas or species, and
impose substantial liabilities for cleanup of pollution.
Certain federal and state statutes, also known as "Superfund" laws, can
impose joint and several retroactive liability, without regard to fault or the
legality of the original conduct, on certain classes of persons for the release
of a "hazardous substance" into the environment. In practice, cleanup costs are
usually allocated among various responsible parties. Potentially liable parties
include site owners or operators, past owners or operators under certain
conditions, and entities that arrange for the disposal or treatment of, or
transport hazardous substances found at the site. Although the federal statute
currently exempts petroleum, including but not limited to, crude oil, natural
gas and natural gas liquids from the definition of hazardous substance, our
operations may involve the use or handling of other materials that may be
classified as hazardous substances. Furthermore, there can be no assurance that
the exemption will be preserved in future amendments of the statute, if any.
Various statutes impose standards for the management, including treatment,
storage, and disposal of both hazardous and nonhazardous solid wastes. We
generate hazardous and nonhazardous solid waste in connection with our routine
operations. From time to time, proposals have been made that would reclassify
certain oil and natural gas wastes, including wastes generated during pipeline,
drilling, and production operations, as "hazardous wastes" which would make such
solid wastes subject to much more stringent handling, transportation, storage,
disposal, and clean-up requirements. This development could have a significant
impact on our operating costs. While state laws vary on this issue, state
initiatives to further regulate oil and natural gas wastes could have a similar
impact.
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<PAGE> 13
Because oil and natural gas exploration and production, and possibly other
activities, have been conducted at some of our properties by previous owners and
operators, materials from these operations remain on some of the properties and
in some instances require remediation. In addition, we have agreed to indemnify
some sellers of producing properties from whom we have acquired reserves against
certain liabilities for environmental claims associated with such properties.
While we do not believe that costs to be incurred by us for compliance and
remediating previously or currently owned or operated properties will be
material, there can be no guarantee that such costs will not result in material
expenditures.
Additionally, in the course of our routine oil and natural gas operations,
surface spills and leaks, including casing leaks, of oil or other materials
occur, and we incur costs for waste handling and environmental compliance.
Moreover, we are able to control directly the operations of only those wells for
which we act as the operator. Notwithstanding our lack of control over wells
owned by us but operated by others, we may be responsible for, in certain
circumstances, the failure of the operator to comply with the applicable
environmental regulations.
We do not anticipate that we will be required in the near future to expend
amounts that are material in relation to our total capital expenditures program
by reason of environmental laws and regulations, but inasmuch as such laws and
regulations are frequently changed, we cannot predict the ultimate cost of
compliance. There can be no assurance that more stringent laws and regulations
protecting the environment will not be adopted or that we will not otherwise
incur material expenses in connection with environmental laws and regulations in
the future.
RISKS OF HEDGING ACTIVITIES
In order to reduce our exposure to material fluctuations in the prices paid
for oil and natural gas, we have entered into and may in the future enter into
hedging contracts. While hedges can be structured in many different ways,
generally the hedges we enter into are intended to provide for "floors" (or
"caps" and "floors") on the prices paid for a set volume of production of oil or
natural gas over a set period of time. Our hedging contracts apply to only a
portion of our production and provide only limited price protection against
fluctuations in the oil and natural gas markets. If our reserves are not
produced at rates equivalent to the hedged position, we would be required to
satisfy our obligations under the hedging contracts on potentially unfavorable
terms without the ability to hedge that risk through sales of comparable
quantities of our own production. Further, the terms under which we enter into
hedging contracts are based on assumptions and estimates of numerous factors
such as cost of production and pipeline and other transportation costs to
delivery points. Substantial variations between the assumptions and estimates
and the actual results experienced could materially adversely affect our
anticipated profit margins and our ability to manage the risks associated with
fluctuations in oil and natural gas prices. See "-- Uncertainty of Estimates of
Proved Reserves and Future Net Revenues." Additionally, to the extent that we
enter into hedging contracts, we may be prevented from realizing the benefits of
price increases above the level of the hedges. Such hedging contracts are also
subject to the risk that the other party may prove unable or unwilling to
perform its obligations under such contracts. Any significant nonperformance
could have a material adverse effect on our financial condition and results of
operations.
SIGNIFICANT NUMBER OF AUTHORIZED BUT UNISSUED SHARES
The Board of Directors has total discretion in the issuance of shares of
common stock and Preferred Stock which may be issued in the future. We are
authorized to issue 100,000,000 shares of common stock (32,553,940 shares were
issued and outstanding at March 31, 1999). We are also authorized to issue
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<PAGE> 14
50,000,000 shares of Preferred Stock (9,603,086 shares of preferred stock were
issued and outstanding at March 31, 1999).
POTENTIAL CONFLICTS OF INTEREST
We have been, and continue to be, involved in various transactions with one
of our significant stockholders, Joint Energy Development Investments Limited
Partnership ("JEDI"). As of March 31, 1999, JEDI, an affiliate of Enron Corp.,
owns 9,600,000 shares of the Company's Series A Participating Convertible
Preferred Stock, par value $0.01 per share (the "Series A Preferred Stock"),
2,634,951 shares of common stock and warrants to acquire an additional aggregate
of 2,515,803 shares of our common stock. In addition, upon the occurrence of
certain defaults under the Certificate of Designation governing the Series A
Preferred Stock, JEDI would have the right to appoint a majority of the
Company's Board of Directors. As the holder of a significant portion of the
Company's voting stock, JEDI, as well as its affiliates (including Enron Corp.),
may have the ability to exercise significant influence over the management of
the Company. Enron Corp. and certain of its subsidiaries and other affiliates
collectively participate in nearly all phases of the oil and natural gas
industry and are, therefore, competitors of the Company. Effective December 29,
1997, we entered into the ECT Revolving Credit Agreement with ECT, a
wholly-owned subsidiary of Enron Corp. We are also a party to certain commodity
hedging arrangements with a subsidiary of Enron Corp. In addition, Enron Corp.
and certain of its affiliates have provided, or assisted in providing, and may
in the future provide or assist in arranging, financing to or for non-affiliated
participants in the oil and natural gas industry who are or may become
competitors of the Company.
CONTROL BY CERTAIN STOCKHOLDERS
As of March 31, 1999, the current officers and directors of the Company as
a group had a beneficial interest in or hold a proxy for approximately 15.7% of
the undiluted voting power, and JEDI had a beneficial interest in approximately
29% of the undiluted voting power, of the Company's voting equity. Consequently,
these stockholders, if they decide to act together, will be able exercise
significant control over the Company through their ability to determine the
outcome of votes of stockholders regarding, among other things, election of
directors and approval of significant transactions.
DILUTIVE ISSUANCES AND IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE
The Company has issued shares of its Series C Preferred Stock and shares of
its common stock that have potentially dilutive "reset" rights. Holders of
Series C Preferred Stock have the right to convert their shares into shares of
common stock at a conversion price generally equal to the stated value of the
Series C Preferred Stock ($1,000 per share) divided by the average of the
closing bid prices for the common stock immediately preceding the conversion
date. Of the 10,400 shares of Series C Preferred Stock issued in December 1997,
as of March 31, 1999, 2,152 shares have been repurchased by the Company and
3,010 shares have been converted into 828,960 shares of common stock (including
accrued dividends at 5% per annum payable in shares of common stock).
Pursuant to two purchase agreements signed in July and November 1998, we
issued an aggregate of 3,845,240 shares of common stock. As part of those
issuances and in consideration for the original issuance price paid by the
investors, we agreed to protect the holders against declines in the price of
their common stock by granting them one repricing right for every share issued.
Each repricing right gives the holder a one-time right to require the Company to
issue additional shares without the payment of additional consideration by the
shareholders. Generally, subject to certain limitations, the number of
additional
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<PAGE> 15
shares that will be issued when repricing rights are exercised by the holder is
determined by multiplying the number of reset rights being exercised times the
"repricing rate." The repricing rate is determined by the following formula:
"repricing price" - market price
market price
The repricing price is determined by multiplying the original purchase price of
the share by a premium that rises to 128% over time. The repricing rights expire
upon exercise. As long as the market price exceeds the repricing price, the
Company is not required to issue any additional shares. Since the date the
holders of the July transaction were first able to exercise their reset rights,
a total of 1,073,046 shares of common stock have been issued through March 31,
1999 upon exercise of such rights.
Because both the conversion provision of the Series C Preferred Stock and
the reset formula for the reset rights are based on the current bid price of the
common stock at the time of conversion or exercise, a significant number of
shares of common stock could be issued depending upon the market price of the
common stock.
Future sales by existing stockholders could adversely affect the prevailing
market price of the common stock. As of March 31, 1999, the Company had
32,553,940 shares of common stock outstanding. In addition,
o 9,600,000 shares of common stock are issuable upon conversion of our
Series A Participating Convertible Preferred Stock,
o 3,713,001 shares of common stock are issuable upon conversion of the
Series C Preferred Stock (assuming a conversion price of $1.50 per
share),
o 5,140,941 shares of common stock are issuable upon exercise of
outstanding warrants,
o 763,500 shares of common stock are issuable upon exercise of
outstanding stock options, and
o 12,226,390 shares could be issued upon exercise of the repricing rights
(assuming a market price of $1.50 per share).
FUTURE SALES OF COMMON STOCK
Of the issued and outstanding shares of common stock other than the shares
covered by this Registration Statement, 22,832,203 are freely tradeable without
restriction or further registration under the Securities Act. The shares of
common stock to be sold by the selling stockholders included in this
Registration Statement will be eligible for resale in the public marketplace
pursuant to this Registration Statement. The remaining issued and outstanding
shares of common stock (9,721,737 shares) are "restricted shares" and held by
affiliates of the Company. Certain stockholders who hold "restricted securities"
have previously been granted registration rights entitling them to demand, in
certain circumstances, that the Company register the shares of common stock held
by them for sale under the Securities Act. Sales of substantial amounts of
common stock in the public market, pursuant to Rule 144 or otherwise, or the
availability of such shares for sale, could adversely affect the prevailing
market price of the common stock and impair the Company's ability to raise
additional capital through the sale of equity securities. See "Shares Eligible
for Future Sale."
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<PAGE> 16
DEPENDENCE ON KEY PERSONNEL
We believe that our ability to successfully implement our business strategy
depends on the continued employment of Edward J. Munden, Chairman of the Board,
President and Chief Executive Officer, Robert P. Lindsay, Chief Operating
Officer and Executive Vice President, Ronald I. Benn, Chief Financial Officer
and Treasurer, Bruce I. Benn, Executive Vice President and Secretary, and other
key personnel, including V. Ed Butler, Vice President, Asset Management and
Ronald Idom, Vice President, Acquisitions. If any of these persons becomes
unable or unwilling to continue in their present positions, our business and
financial results could be materially adversely affected. The Company holds key
man insurance on the lives of each of Edward J. Munden, Robert P. Lindsay, Bruce
I. Benn and Ronald I. Benn. The Company also has employment agreements with each
of these officers (other than Mr. Idom) through 2002.
REPURCHASE OBLIGATIONS IN CONNECTION WITH PRIVATE EQUITY PLACEMENTS
In connection with two recent private equity placements, we granted to the
buyers the right to require us to repurchase such buyer's shares of common stock
and rights to acquire additional shares of common stock after the occurrence of
certain major transactions or triggering events, including, without limitation,
certain consolidations or mergers, the sale or transfer of all or substantially
all of our assets, a tender offer for more than 40% of the outstanding shares of
common stock, and certain defaults by us under our covenants to the buyers. In
addition, in connection with two private placements of our Preferred Stock, we
granted to the buyers the right to require us to repurchase such buyer's shares
of Preferred Stock after the occurrence of certain defaults and other events. We
would be required to obtain the consent of the lenders under the Credit
Agreement and the ECT Revolving Credit Agreement and the consent of the holders
of the Company's 12 1/2% Senior Notes due 2008 (the "Notes") before repurchasing
such shares and rights. If we could not obtain such consents, we would be in
default under our agreements with the buyers, and such default could trigger
cross defaults under the Credit Agreement, the ECT Revolving Credit Agreement or
the Indenture governing the Notes (the "Indenture"). In addition, if we fail to
repurchase the shares of common stock and repricing rights as required, we could
be liable to the buyers for damages. See "Description of Capital Stock-- Private
Equity Placements --Put Rights of Buyers."
EFFECT OF CHANGE OF CONTROL
The Indenture contains provisions that, under certain circumstances, will
cause the indebtedness to become due upon the occurrence of a change of control
(as defined in the Indenture) of the Company. If a change of control occurs, we
may not have the financial resources to repay this debt. These provisions could
also make it more difficult for a third party to acquire control of us.
PREFERRED STOCK; ANTI-TAKEOVER PROVISIONS
The common stock is subordinate to all outstanding classes of Preferred
Stock of the Company in the payment of dividends and other distributions made
with respect to the stock, including distributions upon liquidation or
dissolution of the Company. The Board of Directors of the Company is authorized
to issue an aggregate of 50,000,000 shares of Preferred Stock (excluding
9,605,238 shares outstanding as of March 31, 1999, and 9,600,000 reserved for
issuance in exchange for shares of Series A Participating Convertible Preferred
Stock) without first obtaining stockholder approval except in limited
circumstances. The Board of Directors may establish the preferences and rights
of any new shares of Preferred Stock issued. These new shares may have dividend
and liquidation preference over the common stock and may, if convertible into
common stock, dilute the current stockholders percentage interests.
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<PAGE> 17
Our Restated Certificate of Incorporation and Amended and Restated Bylaws
include certain provisions that may have the effect of discouraging persons
considering unsolicited tender offers or other unilateral takeover proposals.
These provisions include the Board of Directors' ability to issue additional
common stock and to issue, and determine the terms and provisions of, additional
Preferred Stock. The issuance of Preferred Stock may have the effect of delaying
or preventing someone taking control of us, even if a change of control were in
our stockholders' best interests. In certain circumstances the issuance of
Preferred Stock could depress the market price of the common stock.
USE OF PROCEEDS
We will not receive any proceeds from any sale of shares of common stock by
a Selling Stockholder (other than the exercise price payable upon the exercise
of any warrants issued to the selling stockholders (the "Warrants")). Assuming
the Warrants held by Northern Tier (defined below) for the 2,625,000 shares of
common stock (the resale of which shares of covered by this Prospectus) are
exercised through a cash exercise we would receive an aggregate of up to
$3,937,500 of proceeds. We anticipate that we will use any such proceeds for
general corporate purposes in the execution of our business strategy.
SELLING STOCKHOLDERS
General. This Prospectus covers offers and sales from time to time by each
Selling Stockholder of the common stock owned by such person. Each Selling
Stockholder acquired their shares pursuant to one or more private placements of
equity by us. Each of the selling stockholders currently holds or has the right
to acquire one or more of the following: (i) shares of common stock, (ii) shares
of common stock issuable upon conversion of the Company's Series C Convertible
Preferred Stock, par value $0.01 per share (the "Series C Preferred Stock"), and
(iii) shares of common stock issuable upon the exercise of warrants. Pursuant to
Rule 416 of the Securities Act, the selling stockholders may also offer and sell
shares of common stock issued as a result of, among other events, stock splits,
stock dividends and similar events. We have prepared and filed the Registration
Statement of which this Prospectus is a part pursuant to registration rights
granted in connection with certain of the private placements.
Collins and Ware, Inc. On August 1, 1997, we purchased certain operated oil
and natural gas properties from Collins and Ware, Inc. for cash consideration
(net of production subsequent to the February 1, 1997 effective date) of
approximately $6.0 million and 1,000,000 shares of our common stock. Ted
Collins, Jr., a Director of the Company, is the controlling shareholder of
Collins and Ware, Inc. This transaction was negotiated and closed prior to Mr.
Collins becoming one of our Directors. In connection with this purchase, we
entered into a Registration Rights Agreement with Collins and Ware, Inc.
granting piggyback registration rights with respect to the resale of the common
stock issued to Collins and Ware, Inc.
Palisades Holdings, Inc. In December 1997, the Company issued 400 shares of
its Series C Preferred Stock to Palisades Holdings, Inc. in consideration for
placement agent services performed in connection with the Company's December
1997 private placement of Series C Preferred Stock.
Ocean Marketing. The 151,500 shares of common stock being registered on
behalf of Ocean Marketing and National Producers Alliance Group Ltd. were
originally issued by us in December 1997 to Ocean Marketing in a private
placement in consideration for consulting services performed by Ocean Marketing.
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<PAGE> 18
Riata Energy, et. al. On March 9, 1998 (with an effective date of January
1, 1998), we purchased certain operated natural gas properties in western
Kentucky for net cash consideration of $450,000 and 337,500 shares of our common
stock. In connection with this purchase, we entered into a Registration Rights
Agreement with the sellers granting piggyback registration rights with respect
to the resale of the common stock issued to sellers.
VMX Group Ltd. VMX Group Ltd. acquired the 550,000 restricted shares of
common stock from a third party in an offshore transaction conducted pursuant to
Regulation S promulgated under the Securities Act.
Northern Tier Management, Inc. Pursuant to a Consulting Agreement (the
"Consulting Agreement") dated April 9, 1999 between us and Northern Tier Asset
Management, Inc. ("Northern Tier"), we issued to Northern Tier warrants to
purchase an aggregate of 2,625,000 shares of our common stock (the "Northern
Tier Warrants") in exchange for Northern Tier's agreement to provide us certain
consulting services. The consulting services to be provided include advice and
counsel regarding our strategic business and financial plans, strategy and
negotiations with potential lenders and investors and other involving financial
and financially related transactions. The term of the Consulting Agreement is
from April 1, 1999 until the earlier to occur of July 31, 2000 and the
termination of the Consulting Agreement.
The Northern Tier Warrants were issued in eleven series with expiration
dates ranging from July 31, 1999 to June 30, 2000 at an exercise price of $1.50.
The warrants provide for customary adjustments to the exercise price and number
of shares to be issued in the event of certain dividends and distributions to
holders of common stock, stock splits, combinations and mergers. The warrants
also include customary provisions with respect to, among other things, transfer
of the Warrants, mutilated or lost warrant certificates, and notices to
holder(s) of the warrants.
At the time of sale none of the Northern Tier Warrants nor the shares of
common stock issuable thereunder were or will be registered under the Securities
Act and therefore, will be, when issued, "restricted securities." We agreed to
register for resale the common stock issuable upon exercise of the warrants
pursuant to the terms of a Registration Rights Agreement dated April 9, 1999.
Pursuant to the Registration Rights Agreement, we agreed to file a
registration statement on Form S-3 as soon as commercially practicable, covering
the resale of all of the shares of common stock issuable upon exercise of the
Northern Tier Warrants. We generally bear the expense of any registration
statement, while the selling holders generally bear selling expenses such as
underwriting fees and discounts. The Registration Rights Agreement also includes
customary indemnification provisions.
Selling Stockholders Table. The following table lists the name of each
Selling Stockholder, the number of shares of common stock owned by each Selling
Stockholder before this offering (the "Offering"), the number of shares of
common stock that may be offered by each Selling Stockholder pursuant to this
Prospectus and the number of shares of common stock to be owned by each Selling
Stockholder upon completion of the Offering if all shares registered for resale
hereby are sold. None of the selling stockholders has held any position or
office or had any other material relationship with us in the last three years,
other than as described herein. The information below is as of March 31, 1999
and has been furnished by the respective selling stockholders.
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<PAGE> 19
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
NUMBER OF SHARES SHARES BEING SHARES OWNED
OWNED BEFORE REGISTERED AFTER THIS
NAME OF SELLING STOCKHOLDER THIS OFFERING FOR RESALE OFFERING (1)
- ------------------------------------------- ----------------- ------------ ---------------
<S> <C> <C> <C>
Collins and Ware, Inc..................... 1,002,500 (2) 1,000,000 2,500 (2)
Palisades Capital, Inc.................... 552,910 (3) 552,910 -0-
Ocean Marketing .......................... 131,500 131,500 -0-
National Producers Alliance Group Ltd..... 20,000 20,000 -0-
VMX Group Ltd............................. 550,000 550,000 -0-
Riata Energy, Inc......................... 233,896 233,896 -0-
Hunter Enis............................... 18,362 18,362 -0-
Dick Lowe................................. 18,362 18,362 -0-
Dan Poland................................ 25,313 25,313 -0-
Peggy Lynn McLeland, Trustee for
The Peggy McLeland Trust................ 17,189 17,189 -0-
Sidney M. Reilly, Trustee for
The Sidney M. Reilly Trust.............. 17,189 17,189 -0-
Sidney M. Reilly, et al.,
Trustees for The Grady Family Trust..... 17,189 17,189 -0-
Northern Tier Asset Management, Inc....... 2,625,000 (4) 2,625,000 -0-
-------------- ---------- -------
TOTAL............................ 5,226,910 5,226,910 2,500
</TABLE>
- --------------
(1) Assumes all shares registered under this Registration Statement will be
offered and sold.
(2) Includes 2,500 shares issuable upon exercise of stock options, which shares
are not being registered for resale hereby.
(3) Represents shares issuable upon conversion of shares of Series C Preferred
Stock by such holder (200% of the shares issuable assuming a conversion
price of $1.50).
(4) Represents shares currently issuable to such holder upon exercise of
warrants to purchase shares of our common stock.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital consists of 100,000,000 shares of common stock and
50,000,000 shares of Preferred Stock. At March 31, 1999, we had:
o 32,553,940 shares of common stock outstanding,
o 9,600,000 shares of Series A Participating Convertible Preferred Stock
(the "Series A Preferred Stock") outstanding,
o no shares of Series B Participating Convertible Preferred Stock (the
"Series B Preferred Stock") issued or outstanding, and
o 5,238 shares of Series C Preferred Stock outstanding.
COMMON STOCK
The holders of shares of common stock possess full voting power for the
election of directors and for all other purposes, each holder of common stock
being entitled to one vote for each share of common stock held of record by such
holder. The shares of common stock do not have cumulative voting rights.
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<PAGE> 20
As described below, the holders of Series A Preferred Stock are generally
entitled to vote (on an as-converted basis) as a single class with the holders
of the common stock, together with all other classes and series of stock of the
Company that are entitled to vote as a single class with the common stock, on
all matters coming before the Company's stockholders. Holders of a majority of
the shares of common stock and Series A Preferred Stock represented at a meeting
may approve most actions submitted to the stockholders except for certain
corporate actions (e.g. mergers, sale of assets and charter amendments) which
require the approval of holders of a majority of the total outstanding shares of
common stock and the Series A Preferred Stock or other matters that require a
class vote of the Preferred Stock.
Subject to the right of holders of any outstanding shares of Preferred
Stock, dividends may be paid on the common stock as and when declared by the
Company's Board of Directors out of any funds of the Company legally available
for the payment thereof. Holders of common stock have no subscription,
redemption, sinking fund, conversion or preemptive rights. The outstanding
shares of common stock are fully paid and nonassessable. After payment is made
in full to the holders of any outstanding shares of Preferred Stock in the event
of any liquidation, dissolution or winding up of the affairs of the Company, the
remaining assets and funds of the Company will be distributed to the holders of
common stock according to their respective shares.
PREFERRED STOCK
General
The Board of Directors may, without further action by the Company's
stockholders (subject to the terms of the Series A Preferred Stock and the
Series C Preferred Stock described below), from time to time, direct the
issuance of fully authorized shares of Preferred Stock, in classes or series and
may, at the time of issuance, determine the powers, rights, preferences and
limitations of each class or series. Satisfaction of any dividend preferences on
outstanding shares of Preferred Stock would reduce the amount of funds available
for the payment of dividends on common stock. Also, holders of Preferred Stock
would be entitled to receive a preference payment in the event of any
liquidation, dissolution or winding up of the Company before any payment is made
to the holders of common stock. Under certain circumstances, the issuance of
such Preferred Stock may render more difficult or tend to discourage a merger,
tender offer or proxy contest, the assumption of control by a holder of a large
block of the Company's securities or the removal of incumbent management.
Description of Series A Preferred Stock
General. The Certificate of Designation of the Series A Preferred Stock
authorizes the issuance of up to 9,600,000 shares of Series A Preferred Stock.
Voting. The holders of shares of Series A Preferred Stock are generally
entitled to vote (on an as-converted basis) together with the holders of the
common stock, together with all other classes and series of stock of the Company
that are entitled to vote as a single class with the common stock, on all
matters coming before the Company's stockholders. In any vote with respect to
which the Series A Preferred Stock shall vote with the holders of common stock
as a single class, each share of Series A Preferred Stock shall entitle the
holder thereof to cast the number of votes equal to the number which could be
cast in such vote by a holder of the number of shares of common stock into which
such shares of Series A Preferred Stock is convertible on the date of such vote.
With respect to any matter for which class voting is required by law or the
Company's Restated Certificate of Incorporation, except as otherwise described
herein, the holders of the Series A Preferred Stock will vote as a class and
each holder shall be entitled to one vote
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<PAGE> 21
for each share held. For so long as at least 960,000 shares of Series A
Preferred Stock are outstanding, the following matters will require the approval
of a majority of the holders of shares of Series A Preferred Stock, voting
together as a separate class:
o the amendment of any provision of the Company's Restated Certificate of
Incorporation or bylaws;
o the creation, authorization or issuance, or the increase in the
authorized amount of, any class or series of shares ranking on a parity
with or prior to the Series A Preferred Stock either as to dividends or
upon liquidation, dissolution or winding up;
o the merger or consolidation of the Company with or into any other
corporation or other entity or the sale of all or substantially all of
the Company's assets; or
o the reorganization, recapitalization, or restructuring or similar
transaction that requires the approval of the stockholders of the
Company.
Election of Directors. The holders of shares of Series A Preferred Stock
have the right, acting separately as a class, to elect a number of members to
the Company's Board of Directors in proportion to the percentage of the
outstanding voting power represented by the Series A Preferred Stock (currently,
such holders have the right to elect two directors). As of the date hereof, the
sole holder has not elected to exercise its right to elect directors to the
Company's Board of Directors.
Conversion. A holder of shares of Series A Preferred Stock has the right,
at the holder's option, to convert all or a portion of its shares into shares of
common stock at any time at an initial rate, subject to antidilution
adjustments, of one share of Series A Preferred Stock for one share of common
stock.
Concurrently with the transfer of any shares of Series A Preferred Stock to
any person (other than a direct or indirect affiliate of JEDI or other entity
managed by Enron Corp. or any of its affiliates), the shares of Series A
Preferred Stock so transferred will automatically convert into a like number of
shares of Series B Preferred Stock.
Dividends. The holders of the shares of Series A Preferred Stock are
entitled to receive dividends, when, and as if declared by the Board of
Directors, out of funds legally available therefor, any dividend (other than a
dividend or distribution paid in shares of, or warrants, rights or options
exercisable for or convertible into or exchangeable for, common stock) payable
on the common stock, as and when paid, in an amount equal to the amount each
such holder would have received if such holder's shares of Series A Preferred
Stock had been converted into common stock immediately prior to the record date,
or if there is no record date, the date of payment thereof. The holders of
Series A Preferred Stock will also have the right to certain dividends upon and
during the continuance of an Event of Default (as described below).
Liquidation. Upon the liquidation, dissolution or winding up of the
Company, the holders of the shares of Series A Preferred Stock, before any
distribution to the holders of common stock, will be entitled to receive an
amount per share equal to (a) $0.521 plus (b) all accrued and unpaid dividends
thereon ("Series A Liquidation Preference"). The holders of the shares of Series
A Preferred Stock will not be entitled to participate further in the
distribution of the assets of the Company.
Events of Default; Remedies. The Certificate of Designation of the Series A
Preferred Stock provides that an Event of Default will be deemed to have
occurred if the Company fails to comply with any of its covenants in the
Securities Purchase Agreement, dated as of March 27, 1997, between the Company
and
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JEDI; provided, that the Company will have a 30-day cure period with respect to
the non-compliance with certain covenants.
Upon the occurrence but only during the continuance of an Event of Default,
the holders of Series A Preferred Stock will be entitled to receive, in addition
to other dividends payable to holders of Series A Preferred Stock, when, as, and
if declared by the Board of Directors, out of funds legally available therefor,
cumulative preferential cash dividends accruing from the date of the Event of
Default in an amount per share per annum equal to 6% of the Series A Liquidation
Preference in effect at the time of accrual of such dividends, payable quarterly
in arrears on or before the 15th day after the last day of each calendar quarter
during which such dividends are payable. Unless full cumulative dividends
accrued on shares of Series A Preferred Stock have been or contemporaneously are
declared and paid, no dividend may be declared or paid or set aside for payment
on the common stock or any other junior securities (other than a dividend or
distribution paid in shares of, or warrants, rights or options exercisable for
or convertible into or exchangeable for, common stock or any other junior
securities), nor shall any common stock nor any other junior securities be
redeemed, purchased or otherwise acquired for any consideration nor may any
monies be paid to or made available for a sinking fund for the redemption of any
shares of any such securities.
Upon the occurrence and during the continuance of an Event of Default
resulting from the failure to comply with certain covenants, the holders of
shares of Series A Preferred Stock will have the right, acting separately as a
class, to elect a number of persons to the Board of Directors of the Company,
that along with any members of the Board of Directors who are serving at the
time of such action, will constitute a majority of the Board of Directors.
Upon the occurrence of an Event of Default resulting from the failure to
comply with certain covenants, each holder of shares of Series A Preferred Stock
will have the right, by written notice to the Company, to require the Company to
repurchase, out of funds legally available therefor, such holder's shares of
Series A Preferred Stock for an amount in cash equal to the Series A Liquidation
Preference in effect at the time of the Event of Default.
Description of Series B Preferred Stock
The Certificate of Designation of the Series B Preferred Stock authorizes
the issuance of up to 9,600,000 shares of Series B Preferred Stock. The terms of
the Series B Preferred Stock are substantially similar to those of the Series A
Preferred Stock except that the holders of Series B Preferred Stock will not:
o have class voting rights except as required under Delaware corporate
law,
o be entitled to any remedies upon an event of default, or
o be entitled to elect any directors of the Company, voting separately as
a class.
Description of Series C Preferred Stock
General. The Certificate of Designation of the Series C Preferred Stock
(the "Series C Certificate of Designation") authorizes the issuance of up to
10,400 shares of Series C Preferred Stock.
Voting. The holders of shares of Series C Preferred Stock are not entitled
to vote with the holders of the common stock except as required by law or as set
forth below. For so long as any shares of Series C
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<PAGE> 23
Preferred Stock are outstanding, the following matters will require the approval
of the holders of at least two-thirds of the then outstanding shares of Series C
Preferred Stock, voting together as a separate class:
o alter or change the rights, preferences or privileges of the Series C
Preferred Stock or any other capital stock of the Company so as to
affect adversely the Series C Preferred Stock;
o create any new class or series of capital stock having a preference
over or ranking pari passu with the Series C Preferred Stock as to
redemption, the payment of dividends or distribution of assets upon a
Liquidation Event (as defined in the Series C Certificate of
Designation) or any other liquidation, dissolution or winding up of the
Company;
o increase the authorized number of shares of Preferred Stock of the
Company;
o re-issue any shares of Series C Preferred Stock which have been
converted in accordance with the terms hereof;
o issue any Senior Securities (other than the Company's Series B
Preferred Stock pursuant to the terms of the Company's Series A
Preferred Stock) or Pari Passu Securities (each, as defined in the
Series C Certificate of Designation); or
o declare, pay or make any provision for any dividend or distribution
with respect to the common stock or any other capital stock of the
Company ranking junior to the Series C Preferred Stock as to dividends
or as to the distribution of assets upon liquidation, dissolution or
winding up of the Company.
In the event that the holders of at least two-thirds ( 2/3) of the then
outstanding shares of Series C Preferred Stock agree to allow the Company to
alter or change the rights, preferences or privileges of the shares of Series C
Preferred Stock pursuant to the terms hereof, or to waive any rights of the
holders hereunder, then the Company will deliver notice of such approved change
to the holders of the Series C Preferred Stock that did not agree to such
alteration or change (the "Dissenting Holders") and the Dissenting Holders shall
have the right for a period of thirty (30) days following such delivery to
convert their Series C Preferred Stock pursuant to the terms of the Series C
Preferred Stock as they existed prior to such alteration or change, or to
continue to hold such shares. No such change shall be effective to the extent
that, by its terms, it applies to less than all of the holders of Series C
Preferred Stock then outstanding.
Conversion. Subject to certain limitations set forth in the Series C
Certificate of Designation, a holder of shares of Series C Preferred Stock has
the right, at the holder's option, to convert all or a portion of its shares
into shares of common stock at any time. The number of shares of common stock
into which a share of Series C Preferred Stock may be converted will be
determined as of the conversion date according to a formula set forth in the
Series C Certificate of Designation. The conversion rate is equal to the
aggregate stated value of the shares to be converted divided by a floating
conversion price that is the lesser of (i) $7.35 and (ii) (A) the average of the
three lowest closing bid prices for the common stock during the 10 trading days
prior to the conversion date if the average daily trading volume for the common
stock on the Nasdaq SmallCap Market during the calender month of the conversion
date is equal to or greater than $540,000, or (B) the three lowest closing bid
prices for the common stock during the 20 days trading days prior to the
conversion date if the average daily trading volume for the common stock on the
Nasdaq SmallCap Market during the calender month of the conversion date is equal
to or greater than $360,000 but less than $540,000, or (C) the lowest closing
bid price for the common stock during the 15 trading
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<PAGE> 24
days prior to the conversion date if the average daily trading volume for the
common stock on the Nasdaq SmallCap Market during the calender month of the
conversion date is less than $360,000. By way of example only, if the effective
conversion price was $6.00 per share, each share of Series C Preferred Stock
would be convertible into approximately 167 shares of common stock (or 874,746
shares if all outstanding shares of Series C Convertible Preferred Stock were
converted). If the effective conversion price was $4.00 per share, each share of
Series C Preferred Stock would be convertible into approximately 250 shares of
common stock (or 1,309,500 shares if all outstanding shares of Series C
Preferred Stock were converted). If the Company fails to deliver shares of
common stock to a holder following a conversion in accordance with the Series C
Certificate of Designation, then the Company will be liable to the holder for
certain cash default payments set forth in the Series C Certificate of
Designation.
On December 24, 2001, all shares of Series C Preferred Stock that are then
outstanding shall be automatically converted into the number of shares of common
stock determined in accordance with the formula set forth in the Series C
Certificate of Designation.
The Series C Certificate of Designation provides for customary adjustments
to the number of shares issuable upon conversion in the event of certain
dividends and distributions to holders of common stock, certain
reclassifications of the common stock, stock splits, combinations and mergers
and similar transactions and certain changes of control.
Dividends. The holders of the shares of Series C Preferred Stock are
entitled to receive dividends, when, and as if declared by the Board of
Directors, out of funds legally available therefor, subject to the prior payment
of any accumulated and unpaid dividends to holders of Senior Securities, but
before payment of dividends to holders of Junior Securities (as defined in the
Series C Certificate of Designation), cumulative dividends on each share of
Series C Preferred Stock in an amount equal to the stated value of such share
multiplied by 5% per annum.
Liquidation. Upon the liquidation, dissolution or winding up of the
Company, the holders of the shares of Series C Preferred Stock, before any
distribution to the holders of Junior Securities, and after payment to holders
of Senior Securities, will be entitled to receive an amount equal to the stated
value of the Series C Preferred Stock (subject to ratable adjustment in the
event of reclassification of the Series C Preferred Stock or other similar
event) plus any accrued and unpaid dividends thereon.
Optional Redemption. The Company has the right to redeem all of the
outstanding Series C Preferred Stock at a price equal to the Liquidation
Preference of the Series C Preferred Stock then held by the holder divided by
80% ("Optional Redemption Price"), to the extent permitted by law and so long as
(i) the Company has sufficient cash available at the time; (ii) the Company
delivers written notice at least thirty trading days' prior to the redemption,
specifying both the date of the redemption and the amount payable to the holder;
and (iii) the common stock is actively traded on the NASDAQ Stock Market, the
New York Stock Exchange or the American Stock Exchange.
Mandatory Redemption. The Series C Certificate of Designation provides for
mandatory redemption by the Company when a Mandatory Redemption Event (as
defined in the Series C Certificate of Designation) occurs.
Upon the occurrence of a Mandatory Redemption Event, each holder of Series
C Preferred Stock will have the right to require the Company to redeem its
Series C Preferred Stock at a redemption price equal to the greater of (i) the
Liquidation Preference of the Series C Preferred
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<PAGE> 25
Stock being redeemed multiplied by 125% and (ii) an amount determined by
dividing the Liquidation Preference of the Series C Preferred Stock being
redeemed by the conversion price in effect on the mandatory redemption date and
multiplying the resulting quotient by the average closing bid price for the
common stock on the 5 trading days preceding the mandatory redemption date
("Mandatory Redemption Price").
If the Mandatory Redemption Price is not paid within five business days of
the redemption date and the holder has tendered its Series C Preferred Stock to
the Company, the holder is entitled to interest thereon, from the redemption
date until the Mandatory Redemption Price has been paid in full.
If the Mandatory Redemption Price is not paid within ten business days of
the redemption date, each holder of shares of Series C Preferred Stock will have
the right, by written notice to the Company, to require the Company to issue, in
lieu of the Mandatory Redemption Price, the number of shares of common stock of
the Company equal to the Mandatory Redemption Price divided by the conversion
price in effect on such conversion date as specified by the holder, with the
conversion price to be reduced by 1% for each day beyond the 10th business day
in which the Company fails to pay the Mandatory Redemption Price, but with the
maximum reduction of the conversion price to be 50%.
1998 PRIVATE EQUITY PLACEMENTS
General. The Company completed two private equity placements in 1998. In
the first placement, pursuant to the July Purchase Agreement, the Company issued
to the buyers:
o 2,357,144 shares of our common stock on July 8, 1998 and issued an
additional 1,071,430 shares of our common stock on July 20, 1998,
o certain repricing rights to acquire additional shares of common stock,
and
o warrants to purchase an aggregate of up to 605,000 shares of common
stock.
The aggregate gross consideration for the issuances was $24 million, $16.5
million of which was received by the Company on July 8, 1998 and $7.5 million of
which was received by the Company on July 20, 1998. The Company also agreed to
register for resale the common stock issued or issuable pursuant to the terms of
a Registration Rights Agreement dated as of July 8, 1998.
In addition, pursuant to the November Purchase Agreement, on November 24,
1998, the Company issued to the buyers:
o 416,667 shares of common stock,
o certain repricing rights to acquire additional shares of common stock,
and
o warrants to purchase 50,000 shares of common stock.
The Company also agreed to register for resale the common stock issued or
issuable pursuant to a Registration Rights Agreement dated November 10, 1998.
Set forth below is a description of the terms of the repricing rights as
well as certain other provisions contained in both the July Purchase Agreement
and the November Purchase Agreement. Initially capitalized terms used but not
defined in this section "Private Equity Placements" have the meanings ascribed
to such terms in the July Purchase Agreement and the November Purchase Agreement
filed as Exhibits to this Registration Statement on Form S-3.
Repricing Rights. Pursuant to the July Purchase Agreement and the November
Purchase Agreement, the Company granted certain Repricing Rights to the Buyers,
pursuant to which each of the Buyers (or
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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)
Market Price
The "Repricing Price" means:
o 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,
o 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,
o 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,
o 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
o 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 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.
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o 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 the Closing Date and
ending on and including the 120th day thereafter, (B) 0.25 for the
period beginning on the 121st day after the Closing Date and ending on
and including the 150th day after the Closing Date, (C) 0.50 for the
period beginning on and including the 151st day after the Closing Date
and ending on and including the 180th day after the Closing Date, (D)
0.75 for the period beginning on the 181st day after the Closing Date
and ending on and including the 210th day after the Closing Date, and
(E) 1.00 for the period beginning on and including the 211th day after
the Closing Date. 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 the Closing Date.
o As more fully described in the July Purchase Agreement and the November
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 to the exercise restrictions, a Buyer's right to exercise its
Repricing Right terminates automatically on the earlier to occur 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 July Purchase Agreement and the
November 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.
Pursuant to the July Purchase Agreement and the November Purchase
Agreement, 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.
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Put Rights of Buyers. Pursuant to the July Purchase Agreement and the November
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:
o 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);
o the sale or transfer of all or substantially all of the Company's
assets; or
o 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:
o 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
Securities and Exchange Commission (the "SEC") on or prior to the 210th
day after the Closing Date;
o during the Effectiveness Period 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);
o 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;
o 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;
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o 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;
o 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;
o 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;
o the Company breaches any representation, warranty, covenant or other
material term or condition of the July Purchase Agreement or the
November Purchase Agreement, as the case may be, 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
o 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 repurchased, the
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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 Agreements. Each of the July Purchase Agreement and
the November Purchase Agreement contains customary representations and
warranties of the Company for transactions of this type.
Pursuant to the July 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"). The Capital Raising Limitation
prohibits the Company and its subsidiaries from negotiating with any party for
any equity financing or issue any equity securities of the Company or any
subsidiary or securities convertible or exchangeable into or for equity
securities of the Company or any subsidiary during the period beginning on July
8, 1998 and ending on and including the 365th day after the Closing Date 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.
Also, under the November Purchase Agreement, 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 SEC 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 July Purchase Agreement, on July 8, 1998 the
Company issued the warrants to purchase an aggregate of up to 605,000 shares of
common stock to the Buyers. The warrants are exercisable for three years
commencing July 8, 1998 at an exercise price equal to 110% of the Purchase
Price. The warrants provide for customary adjustments to the exercise price and
number of shares to be issued in the event of certain dividends and
distributions to holders of common stock, stock splits, combinations and
mergers. The warrants also include customary provisions with respect to, among
other things, transfer of the Warrants, mutilated or lost warrant certificates,
and notices to holder(s) of the warrants. The Company also issued warrants to
purchase up to 480,000 shares of common stock to the placement agents in
connection with the July Purchase Agreement.
Pursuant to the November Purchase Agreement, as of November 10, 1998 the
Company issued the warrants to purchase an aggregate of up to 50,000 shares of
common stock to the Buyers. The warrants are exercisable for three years
commencing November 10, 1998 at an exercise price equal to 110% of the Purchase
Price. The warrants provide for customary adjustments to the exercise price and
number of shares to be issued in the event of certain dividends and
distributions to holders of common stock, stock splits, combinations and
mergers. The warrants also include customary provisions with respect to, among
other things, transfer of the Warrants, mutilated or lost warrant certificates,
and notices to holder(s) of the warrants. The Company also issued warrants to
purchase up to 50,000 shares of common stock to the placement agents in
connection with the November Purchase Agreement.
Registration Rights Agreement. At the time of sale none of the securities
issued or issuable under the July Purchase Agreement or the November Purchase
Agreement will be registered under the Securities Act
29
<PAGE> 31
and therefore, will be, when issued, "restricted securities." In connection with
each of the July Purchase Agreement and the November Purchase Agreement, the
Company entered into a Registration Rights Agreement 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").
The Company has filed a Registration Statement on Form S-3 with the SEC in
connection with the July Purchase Agreement, and the SEC declared the
Registration Statement effective September 22, 1998. The Company has filed a
Registration Statement on Form S-3 with the SEC in connection with the November
Purchase Agreement, and the SEC declared the Registration Statement effective
February 23, 1999.
Placement Agents. The Company paid $1.8 million cash and issued warrants to
purchase 480,000 shares of our common stock in consideration for Jesup & Lamont
Securities Corp., Philip Louis Trading Co., Inc., Wellington Capital Corporation
and James Cahill acting as the placement agents in connection with the placement
under the July Purchase Agreement. The Company paid $187,500 cash and issued
warrants to purchase 50,000 shares of our common stock in consideration for
Jesup & Lamont Securities Corp. and Wellington Capital Corporation acting as the
placement agents in connection with the placement under the November Purchase
Agreement.
Additional Rights to Purchase Common Stock. In November 1998, the Company
granted to certain investors the right to an aggregate of 60,876 shares of
common stock to obtain their participation. All of such rights were exercised
immediately after being granted.
1999 PRIVATE PLACEMENT
In April 1999, the Company issued warrants to purchase an aggregate of
2,625,000 shares of common stock to Northern Tier. See "Selling Stockholders --
1999 Private Placement."
WARRANTS
As of April 30, 1999, JEDI held warrants to purchase an aggregate of
2,515,803 shares of common stock at prices ranging from $3.54 to $7.00. The
warrants held by JEDI expire at various times on or before December 28, 1999. As
of March 31, 1999, certain institutional investors hold warrants to purchase an
aggregate of 2,545,358 shares of common stock at prices ranging from $2.50 to a
floating rate based on market price at the time of exercise. The warrants held
by the institutional investors expire at various times on or before December 24,
2001.
EXCHANGE RIGHTS
The ECT Revolving Credit Agreement provides that, commencing January 1999,
during certain periods, any indebtedness of Queen Sand Resources, Inc., a Nevada
corporation ("QSRn"), may be exchanged by the lenders for shares of our common
stock. The exchange ratio is based on a formula that is a function of the market
price of the common stock at the time of exchange.
30
<PAGE> 32
SHARES ELIGIBLE FOR FUTURE SALE
As of March 31, 1999, the Company had outstanding 32,553,940 shares of
common stock. In addition, 9,600,000 shares will be issuable upon conversion of
the Series A Participating Convertible Preferred Stock, 3,713,001 shares will be
issuable upon conversion of the Series C Preferred Stock (assuming a conversion
price of $1.50 per share), 5,140,941 shares will be issuable upon exercise of
outstanding warrants and 763,500 shares will be issuable upon exercise of
outstanding stock options. Also, 12,226,390 shares could be issued upon exercise
of the reset rights (assuming a market price of $1.50 per share). Of the issued
and outstanding shares of common stock other than the shares covered by this
Registration Statement, 22,832,203 shares are freely tradable without
restriction or further registration under the Securities Act. The shares of
common stock to be sold by the selling stockholders included in this
Registration Statement will be eligible for resale in the public marketplace
pursuant to the Registration Statement. All of the remaining 10,721,737 shares
of common stock held by existing stockholders will be "restricted" securities
within the meaning of the Securities Act as a result of the issuance thereof in
private transactions not involving a public offering. The "restricted"
securities may not be resold unless they are registered under the Securities Act
or are sold pursuant to an available exemption from registration, including Rule
144 under the Securities Act. Certain stockholders, including holders of
"restricted" securities, have been granted certain rights with respect to
registration under the Securities Act of shares of common stock held by them.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least one
year (including the holding period of any prior owner except an "affiliate" (as
that term is defined in Rule 144)) is entitled to sell, within any three-month
period, a number of those shares that does not exceed the greater of (i) 1% of
the then outstanding shares of the common stock (325,539 shares immediately
after this Offering) or (ii) the average weekly trading volume in the common
stock during the four calendar weeks preceding the date on which notice of the
sale is filed with the SEC. Sales under Rule 144 are also subject to certain
manner of sale provisions, notice requirements and requirements as to the
availability of current public information concerning the Company. Rule 144
provides that a person (or persons whose shares are aggregated) who is not
deemed to have been an affiliate of the Company at any time during the 90 days
preceding a sale, and who has beneficially owned shares for at least two years
(including, in certain circumstances, the holding period of any prior owner) is
entitled to sell those shares under Rule 144(k) without regard to the
limitations described above.
The Company can make no prediction as to the effect, if any, that sales of
shares or the availability of shares for sale will have on the market price for
the common stock prevailing from time to time. Nevertheless, sales of
substantial amounts of common stock in the public market could adversely affect
prevailing market prices. See "Risk Factors - Impact of Shares Eligible for
Future Sale."
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 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 of common stock may be sold by the selling
stockholders by one or more of the following methods, without limitation:
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<PAGE> 33
o block trades in which the broker or dealer so engaged will attempt to
sell the shares of common stock as agent but may position and resell a
portion of the block as principal to facilitate the transaction;
o purchases by a broker or dealer as principal and resale by such broker
or dealer for its account pursuant to this Prospectus;
o an exchange distribution in accordance with the rules of the applicable
exchange;
o ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
o privately negotiated transactions;
o short sales;
o a combination of any such methods of sale; and
o 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 of
common stock 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 of common stock 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 of common stock 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 of
common stock 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 of common stock at the price required to
fulfill the broker-dealer commitment to the selling stockholders. Broker-dealers
who acquire shares of common stock as principal may thereafter resell such
shares of common stock 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 of common stock 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 of common stock 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 of common
stock purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.
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<PAGE> 34
The Company is required to pay all fees and expenses incident to the
registration of the shares of common stock other than fees and expenses of 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.
In order to comply with certain states' securities laws, if applicable, the
shares of common stock will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
common stock may not be sold unless the common stock has been registered or
qualified for sale in such state or an exemption from registration or
qualification is available and is satisfied.
LEGAL MATTERS
The validity of the shares of common stock offered hereby have been passed
upon for the Company by its counsel, Haynes and Boone, LLP, Dallas, Texas.
EXPERTS
The estimates relating to the Company's proved oil and natural gas reserves
and future net revenues of oil and natural gas reserves as of June 30, 1997
(other than with respect to the Property Acquisitions) and at June 30, 1998
(other than with respect to the Morgan Properties) incorporated in this
Prospectus by reference to the Company's Annual Report on Form 10-KSB for the
year ended June 30, 1998 are based upon estimates of such reserves prepared by
H.J. Gruy in reliance upon its reports and upon the authority of this firm as
experts in petroleum engineering.
The estimates relating to the Company's proved oil and natural gas reserves
and future net revenues of oil and natural gas reserves as of June 30, 1996
incorporated in this Prospectus by reference to the Company's Annual Report on
Form 10-KSB for the year ended June 30, 1998 are based upon estimates of such
reserves prepared by Harper and Associates in reliance upon its reports and upon
the authority of this firm as experts in petroleum engineering.
The estimates relating to the Company's proved oil and natural gas reserves
and future net revenues of oil and natural gas reserves at June 30, 1998 with
respect to the Morgan Properties incorporated in this Prospectus by reference to
the Company's Annual Report on Form 10-KSB for the year ended June 30, 1998 are
based upon estimates of such reserves prepared by Ryder Scott, independent
consulting petroleum engineers, in reliance upon its report and upon the
authority of this firm as experts in petroleum engineering.
INDEPENDENT AUDITORS
The consolidated financial statements of the Company appearing in the
Company's Annual Report (Form 10-KSB) for the year ended June 30, 1998, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
consolidated financial statements have been incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
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<PAGE> 35
The statements of net profits interests and royalty interests revenues of
certain oil and natural gas producing properties acquired from pension funds
managed by J.P. Morgan Investments for the years ended June 30, 1997, 1996 and
1995 appearing in the Company's Current Report on Form 8-K dated March 19, 1998,
as amended by Current Report on Form 8-K/A-2 filed June 8, 1998, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon included therein and incorporated herein by reference. Such financial
statements have been incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file at the SEC's public reference rooms at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the SEC's regional offices located at 7
World Trade Center, 13th Floor, New York, New York 10048 and Suite 1400, 500
West Madison Street, Chicago, Illinois 60661. Please call the SEC at 1(800)
SEC-0330 for further information on the public reference rooms.
This Prospectus is part of a registration statement that we filed with the
SEC utilizing a "shelf" registration process. This Prospectus provides you with
a general description of the common stock the selling stockholders may offer and
information about the various alternative methods by which they may sell the
common stock. Under certain circumstances the selling stockholders may be
required to provide additional information about the method by which they intend
to sell the common stock. We will provide a Prospectus Supplement that will
contain specific information about the terms of that offering. The Prospectus
Supplement may also add, update or change information contained in this
Prospectus. You should read both this Prospectus and any Prospectus Supplement
together with additional information described under this heading "Additional
Information."
INCORPORATION BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is an
important part of this Prospectus, and information that we file later with the
SEC will automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings we make with the SEC
under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
until the selling stockholders' offering is completed:
o Annual Report on Form 10-KSB for the year ended June 30, 1998;
o Quarterly Report on Form 10-Q for the quarter ended September 30, 1998;
o Quarterly Report on Form 10-Q for the quarter ended December 31, 1998;
o Item 7 of Current Report on Form 8-K dated March 19, 1998, as amended
by Current Report on Form 8-K/A filed April 27, 1998 and Current Report
on Form 8-K/A-2 filed June 8, 1998;
o Current Report on Form 8-K dated November 24, 1998; and
o The description of our common stock contained in our Registration
Statement filed under Section 12 of the Securities Exchange Act of
1934.
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<PAGE> 36
We will provide these filings to any person, including any beneficial
owner, to whom this Prospectus is delivered, at no cost, upon written or oral
request to the Company as follows:
13760 Noel Road, Suite 1030
Dallas, Texas 75240-7336
Attn: Investor Relations
You may call William W. Lesikar, Vice-President Finance, of the Company at
(972) 233-9906 to request filings. You should rely only on the information
incorporated by reference or provided in this Prospectus or any Prospectus
Supplement. We have not authorized anyone else to provide you with different
information. The selling stockholders are not making an offer of these
securities in any state where the offer is not permitted. You should not assume
that the information in this Prospectus or any Prospectus Supplement is accurate
as of any date other than the date on the front of those documents.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Pursuant to the Registration Rights Agreement among the Company and the
selling stockholders, the Company has agreed to indemnify each Selling
Stockholder and its officers, directors, agents, brokers, investment advisors,
employees and any person who controls such Selling Stockholder against any
losses, claims, damages, liabilities, costs and expenses arising out of or
relating to (i) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement or any Prospectus, including any
amendments or supplements thereto, or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein (in 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 that such liabilities arise out of or are
based upon and in conformity with any information furnished in writing to the
Company by each respective Selling Stockholder expressly for use in the
Registration Statement or and amendment or supplement thereto. In addition, each
Selling Stockholder, acting severally and not jointly, under the Registration
Rights Agreement has agreed to indemnify the Company and its officers,
directors, employees, agents and any person who controls the Company against any
losses, claims, damages, liabilities, costs or expenses arising out of or based
upon and in conformity with written information furnished by such Selling
Stockholder expressly for use in the Registration Statement or an amendment or
supplement thereto. However, the foregoing indemnity shall not apply to amounts
paid in settlement of any such liability if the settlement is effected without
the consent of such Selling Stockholder.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
issuer pursuant to the foregoing provisions, or otherwise, the issuer has been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
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<PAGE> 37
CERTAIN DEFINITIONS
The following are certain defined terms used in this Prospectus:
"BBL." One stock tank barrel, or 42 US gallons liquid volume, used herein in
reference to crude oil or other liquid hydrocarbons.
"DEVELOPMENT WELL." A well drilled within the proved boundaries of an oil and
natural gas reservoir to the depth of a stratigraphic horizon known to be
productive.
"DRY WELL." A development or exploratory well found to be incapable of producing
either oil or natural gas in sufficient quantities to justify completion as
an oil or natural gas well.
"MCF." One thousand cubic feet.
"MORGAN PROPERTY ACQUISITION." The acquisition by the Company in April 1998 of
certain non-operated, net profits interests and royalty interests revenues
from pension funds managed by J.P. Morgan Investments.
"NET PROFITS INTEREST." A share of the gross oil and natural gas production from
a property, measured by net profits from the operation of the property,
that is carved out of the working interest. This is a non-operated
interest.
"PREFERRED STOCK." Capital stock of any Person of any class or classes (however
designated) that ranks prior, as to the payment of dividends or as to the
distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of Capital Stock of any
other class of such Person.
"PROPERTY ACQUISITIONS." Property Acquisitions means, collectively, (i) the
acquisition by the Company of certain natural gas properties in western
Kentucky on March 8, 1998, (ii) the acquisition by the Company of certain
oil and natural gas properties in New Mexico, Texas and Oklahoma from
Collins and Ware, Inc. and (iii) the Morgan Property Acquisition.
"PROVED RESERVES." The estimated quantities of crude oil, natural gas and gas
liquids which geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under
existing economic and operating conditions.
"PROVED UNDEVELOPED RESERVES" OR "PUD." Reserves are oil and gas reserves that
are expected to be recovered from new wells on undrilled acreage, or from
existing wells where a relatively major expenditure is required for
recompletion. Reserves on undrilled acreage shall be limited to those
drilling units offsetting productive units that are reasonably certain of
production when drilled. Proved reserves for other undrilled units can be
claimed only where it can be demonstrated with certainty that there is
continuity of production from the existing productive formation. Under no
circumstances should estimates for proved undeveloped reserves be
attributable to any acreage for which an application of fluid injection or
other improved recovery techniques is contemplated, unless such techniques
have been proved effective by actual tests in the area and in the same
reservoir.
"ROYALTY INTEREST." An interest in an oil and natural gas property entitling the
owner to a share of oil and natural gas production, free of costs of
production.
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"SEC PV-10." The present value of proved reserves is an estimate of the
discounted future net cash flows from each of the properties at December
31, 1998, or as otherwise indicated. Net cash flow is defined as net
revenues less, after deducting production and ad valorem taxes, future
capital costs and operating expenses, but before deducting federal income
taxes. As required by rules of the SEC, the future net cash flows have been
discounted at an annual rate of 10% to determine their "present value." The
present value is shown to indicate the effect of time on the value of the
revenue stream and should not be construed as being the fair market value
of the properties. In accordance with SEC rules, estimates have been made
using constant oil and natural gas prices and operating costs, at December
31, 1998, or as otherwise indicated.
"SECONDARY RECOVERY." A method of oil and natural gas extraction in which energy
sources extrinsic to the reservoir are utilized.
"WORKING INTEREST." The operating interest which gives the owner the right to
drill, produce and conduct operating activities on the property and a share
of production, subject to all royalties, overriding royalties and other
burdens and to all costs of exploration, development and operations and all
risks in connection therewith.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee................................................ $ 1,904
Nasdaq SmallCap Market Listing Fee................................................................. 0
Transfer Agent Fees................................................................................ 100
Printing Expenses.................................................................................. 0
Accounting Fees and Expenses....................................................................... 2,500
Legal Fees and Expenses (including fees of selling holders' counsel)............................... 15,000
Engineer Fees and Expenses......................................................................... 500
Blue Sky Fees and Expenses......................................................................... 500
Miscellaneous Expenses............................................................................. 96
---------
Total........................................................................................... $ 20,600
=========
</TABLE>
All of the above expenses except the Securities and Exchange Commission
registration fee and the Nasdaq SmallCap Market listing fee are estimated. All
of such expenses will be borne by the Company.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Restated Certificate of Incorporation, as amended (the
"Certificate of Incorporation"), provides that no director of the Company will
be personally liable to the Company or any of its stockholders for monetary
damages arising from the director's breach of fiduciary duty as a director.
However, this does not apply with respect to any action in which the director
would be liable under Section 174 of the General Corporation Law of the State of
Delaware ("Delaware Code") nor does it apply with respect to any liability in
which the director (i) breached his duty of loyalty to the Company or its
stockholders; (ii) did not act in good faith or, in failing to act, did not act
in good faith; (iii) acted in a manner involving intentional misconduct or a
knowing violation of law or, in failing to act, shall have acted in a manner
involving intentional misconduct or a knowing violation of law; or (iv) derived
an improper personal benefit.
The Certificate of Incorporation of the Company provides that the Company
shall indemnify its directors and officers and former directors and officers to
the fullest extent permitted by the Delaware Code. Pursuant to the provisions of
Section 145 of the Delaware Code, the Company has the power to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action, suit, or proceeding (other than an
action by or in the right of the Company) by reason of the fact that he is or
was a director, officer, employee, or agent of the Company, against any and all
expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred in connection with such action, suit, or proceeding. The
power to indemnify applies only if such person acted in good faith and in a
manner he reasonably believed to be in the best interest, or not opposed to the
best interest, of the Company and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
The power to indemnify applies to actions brought by or in the right of the
Company as well, but only to the extent of defense and settlement expenses and
not to any satisfaction of a judgment or settlement of the claim itself and with
the further limitation that in such actions no indemnification shall be made in
the
II-1
<PAGE> 40
event of any adjudication of negligence or misconduct unless the court, in its
discretion, believes that in light of all the circumstances indemnification
should apply.
The statute further specifically provides that the indemnification
authorized thereby shall not be deemed exclusive of any other rights to which
any such officer or director may be entitled under any bylaws, agreements, vote
of stockholders or disinterested directors, or otherwise.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
- --------------- -------------------------------------------------------------
<S> <C>
3.1 Restated Certificate of Incorporation, filed as Exhibit 4.5
to the Company's Registration Statement on Form S-3 filed
with the Securities and Exchange Commission on March 9, 1998,
which Exhibit is incorporated herein by reference.
3.2 Certificate of Designation of Series C Convertible Preferred
Stock, filed as an exhibit to the Company's Current Report on
Form 8-K dated December 24, 1997, which Exhibit is
incorporated herein by reference.
3.3 Amended and Restated Bylaws, filed as an Exhibit to the
Company's Current Report on Form 8-K dated May 6, 1997, which
Exhibit is incorporated herein by reference.
4.1 Stockholders' Agreement dated as of May 6, 1997, among the
Company, Bruce I. Benn, Edward J. Munden, Ronald I. Benn,
Robert P. Lindsay, EIBOC Investments Ltd. and Joint Energy
Development Investments Limited Partnership ("JEDI"), filed
as an Exhibit to the Company's Current Report on Form 8-K
dated May 6, 1997, which Exhibit is incorporated herein by
reference.
4.2 Indenture, dated July 1, 1998, in regard to 12 1/2% Senior
Notes due 2008 by and among the Company and certain of its
subsidiaries and Harris Trust and Savings Bank, as Trustee,
filed as an Exhibit to the Company's Current Report on Form
8-K dated July 8, 1998, which Exhibit is incorporated herein
by reference.
4.3 Form of 12% Notes due July 15, 2001, filed as an Exhibit to
the Company's Registration Statement on Form 10-SB filed with
the Securities and Exchange Commission on August 12, 1996,
which Exhibit is incorporated herein by reference.
4.4 Common Stock Purchase Warrant Representing Right to Purchase
100,000 Shares of Common Stock of the Company issued to
Forseti Investments Ltd. on May 6, 1997 and assigned to CSM
GmbH, filed as an Exhibit to the Company's Current Report on
Form 8-K dated May 6, 1997, which Exhibit is incorporated
herein by reference.
4.5 Common Stock Purchase Warrant Representing Right to Purchase
1,000,000 Shares of Common Stock of the Company issued to
Forseti Investments Ltd. on May 6, 1997 and assigned to CSM
GmbH, filed as an Exhibit to the Company's Current Report on
Form 8-K dated May 6, 1997, which Exhibit is incorporated
herein by reference.
4.6 Common Stock Purchase Warrant Representing Right to Purchase
28,066 Shares of Common Stock of the Company dated July 22,
1998 issued to JEDI, filed as an Exhibit to the Company's
Registration Statement on Form S-4 (No. 333-61403), filed
August 13, 1998.
4.7 Common Stock Purchase Warrant Representing Right to Purchase
1,697,881 Shares of Common Stock of the Company dated July
22, 1998 issued to JEDI, filed as an Exhibit to the Company's
Registration Statement on Form S-4 (No. 333-61403), filed
August 13, 1998.
</TABLE>
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<PAGE> 41
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
- --------------- -------------------------------------------------------------
<S> <C>
4.8 Form of Common Stock Purchase Warrant dated December 24, 1997
and issued to certain institutional investors, filed as an
Exhibit to the Company's Current Report on Form 8-K dated
December 24, 1997, which Exhibit is incorporated herein by
reference.
4.9 Form of Common Stock Purchase Warrant issued to certain
investors effective July 8, 1998, filed as an Exhibit to the
Company's Current Report on Form 8-K dated July 8, 1998,
which Exhibit is incorporated herein by reference.
4.10 Registration Rights Agreement between the Company and Collins
and Ware, Inc., dated August 1, 1997, filed as an Exhibit to
the Company's Registration Statement on Form S-4 (No.
333-61403), filed August 13, 1998.
4.11 Registration Rights Agreement between the Company and Riata
Energy, et. al dated April 9, 1998, filed as an Exhibit to
the Company's Registration Statement on Form S-4 (No.
333-61403), filed August 13, 1998.
4.12 Registration Rights Agreement among the Company and certain
institutional investors named therein, dated December 24,
1997, filed as an Exhibit to the Company's Current Report on
Form 8-K dated December 24, 1997, which Exhibit is
incorporated herein by reference.
4.13 Registration Rights Agreement by and between the Company and
JEDI dated May 6, 1997, filed as an Exhibit to the Company's
Current Report on Form 8-K dated May 6, 1997, which Exhibit
is incorporated herein by reference.
4.14 Registration Rights Agreement dated as of December 29, 1997
among the Company, the ECT Agent and JEDI, filed as an
Exhibit to the Company's Quarterly Report on Form 10-QSB for
the quarter ended December 30, 1997, which Exhibit is
incorporated herein by reference.
4.15 Registration Rights Agreement dated as of July 8, 1998 among
the Company and the buyers signatory thereto, filed as an
Exhibit to the Company's Current Report on Form 8-K dated
July 8, 1998, which Exhibit is incorporated herein by
reference.
4.16 Registration Rights Agreement, dated July 8, 1998, by and
among the Company and certain of its subsidiaries and Nesbitt
Burns Securities Inc., CIBC Oppenheimer Corp. and Societe
Generale Securities Corporation, as Placement Agents, filed
as an Exhibit to the Company's Current Report on Form 8-K
dated July 8, 1998, which Exhibit is incorporated herein by
reference.
4.17 Common Stock Purchase Warrant Representing Right to Purchase
48,701 Shares of Common Stock of the Company dated August 19,
1998 and issued to JEDI, filed as an Exhibit to the Company's
Annual Report on Form 10-KSB for the fiscal year ended June
30, 1998, which Exhibit is incorporated herein by reference.
4.18 Common Stock Purchase Warrant Representing Right to Purchase
80,108 Shares of Common Stock of the Company dated as of
November 30, 1998 issued to JEDI, filed as an Exhibit to the
Company's Registration Statement on Form S-3 (No. 333-70993),
which Exhibit is incorporated by reference.
4.19 Common Stock Purchase Warrant Representing Right to Purchase
4,329 Shares of Common Stock of the Company dated as of
September 11, 1998 issued to JEDI, filed as an Exhibit to the
Company's Registration Statement on Form S-3 (No. 333-70993),
which Exhibit is incorporated by reference.
4.20 Common Stock Purchase Warrant Representing Right to Purchase
206,340 Shares of Common Stock of the Company dated as of
November 23, 1998 issued to JEDI, filed as an Exhibit to the
Company's Registration Statement on Form S-3 (No. 333-70993),
which Exhibit is incorporated by reference.
4.21 Common Stock Purchase Warrant Representing Right to Purchase
18,836 Shares of Common Stock of the Company dated as of
November 27, 1998 issued to JEDI, filed as an Exhibit to the
Company's Registration Statement on Form S-3 (No. 333-70993),
which Exhibit is incorporated by reference.
</TABLE>
II-3
<PAGE> 42
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
- --------------- -------------------------------------------------------------
<S> <C>
4.22 Common Stock Purchase Warrant Representing Right to Purchase
3,160 Shares of Common Stock of the Company dated as of
November 25, 1998 issued to JEDI, filed as an Exhibit to the
Company's Registration Statement on Form S-3 (No. 333-70993),
which Exhibit is incorporated by reference.
4.23 Common Stock Purchase Warrant Representing Right to Purchase
162,955 Shares of Common Stock of the Company dated as of
November 30, 1998 issued to JEDI, filed as an Exhibit to the
Company's Registration Statement on Form S-3 (No. 333-70993),
which Exhibit is incorporated by reference.
4.24 Registration Rights Agreement dated November 10, 1998 among
Queen Sand Resources, Inc. and the buyers signatory thereto,
filed as an Exhibit to the Company's Current Report on Form
8-K dated November 24, 1998, which Exhibit is incorporated
herein by reference.
4.25 Form of Common Stock Purchase Warrant issued to certain
investors as of November 10, 1998, filed as an Exhibit to the
Company's Current Report on Form 8-K dated November 24, 1998,
which Exhibit is incorporated herein by reference.
4.26 Common Stock Purchase Warrant Representing Right to Purchase
22,033 Shares of Common Stock of the Company dated as of
December 28, 1998 issued to JEDI, filed as an Exhibit to the
Company's Registration Statement on Form S-3 (No. 333-70993),
which Exhibit is incorporated by reference.
4.27 Common Stock Purchase Warrant Representing Right to Purchase
12,380 Shares of Common Stock of the Company dated as of
December 15, 1998 issued to JEDI, filed as an Exhibit to the
Company's Registration Statement on Form S-3 (No. 333-70993),
which Exhibit is incorporated by reference.
4.28 Common Stock Purchase Warrant Representing Right to Purchase
133,708 Shares of Common Stock of the Company dated as of
December 14, 1998 issued to JEDI, filed as an Exhibit to the
Company's Registration Statement on Form S-3 (No. 333-70993),
which Exhibit is incorporated by reference.
4.29 Common Stock Purchase Warrant Representing Right to Purchase
37,141 Shares of Common Stock of the Company dated as of
December 11, 1998 issued to JEDI, filed as an Exhibit to the
Company's Registration Statement on Form S-3 (No. 333-70993),
which Exhibit is incorporated by reference.
4.30 Common Stock Purchase Warrant Representing Right to Purchase
8,360 Shares of Common Stock of the Company dated as of
December 9, 1998 issued to JEDI, filed as an Exhibit to the
Company's Registration Statement on Form S-3 (No. 333-70993),
which Exhibit is incorporated by reference.
4.31 Common Stock Purchase Warrant Representing Right to Purchase
10,973 Shares of Common Stock of the Company dated as of
December 7, 1998 issued to JEDI, filed as an Exhibit to the
Company's Registration Statement on Form S-3 (No. 333-70993),
which Exhibit is incorporated by reference.
4.32 Common Stock Purchase Warrant Representing Right to Purchase
8,180 Shares of Common Stock of the Company dated as of
December 4, 1998 issued to JEDI, filed as an Exhibit to the
Company's Registration Statement on Form S-3 (No. 333-70993),
which Exhibit is incorporated by reference.
4.33 Common Stock Purchase Warrant Representing Right to Purchase
13,335 Shares of Common Stock of the Company dated as of
December 4, 1998 issued to JEDI, filed as an Exhibit to the
Company's Registration Statement on Form S-3 (No. 333-70993),
which Exhibit is incorporated by reference.
4.34 Common Stock Purchase Warrant Representing Right to Purchase
8,180 Shares of Common Stock of the Company dated as of
December 2, 1998 issued to JEDI, filed as an Exhibit to the
Company's Registration Statement on Form S-3 (No. 333-70993),
which Exhibit is incorporated by reference.
</TABLE>
II-4
<PAGE> 43
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
- --------------- -------------------------------------------------------------
<S> <C>
4.35 Common Stock Purchase Warrant Representing Right to Purchase
21,331 Shares of Common Stock of the Company dated as of
December 2, 1998 issued to JEDI, filed as an Exhibit to the
Company's Registration Statement on Form S-3 (No. 333-70993),
which Exhibit is incorporated by reference.
4.36 Common Stock Purchase Warrant Representing Right to Purchase
18,372 Shares of Common Stock of the Company dated as of
November 30, 1998 issued to JEDI, filed as an Exhibit to the
Company's Registration Statement on Form S-3 (No. 333-70993),
which Exhibit is incorporated by reference.
4.37* Form of Common Stock Purchase Warrant issued to Northern Tier
Asset Management, Inc. issued by the Company on April 9,
1999.
4.38* Registration Rights Agreement dated as of April 9, 1999
between the Company and Northern Tier Asset Management, Inc.
4.39* Consulting Agreement dated as of April 9, 1999 between the
Company and Northern Tier Asset Management, Inc.
5.1* Opinion of Haynes and Boone, LLP.
23.1* Consent of Ernst & Young LLP.
23.2* Consent of Haynes and Boone, LLP, contained in the opinion
filed as Exhibit 5.1.
23.3* Consent of H.J. Gruy and Associates, Inc.
23.4* Consent of Harper & Associates, Inc.
23.5* Consent of Ryder Scott Company.
24.1* Power of Attorney, included as part of signature page of this
Registration Statement.
</TABLE>
- --------------------------
* Filed herewith.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Securities and Exchange Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in
the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
Registration Statement;
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
registration statement;
II-5
<PAGE> 44
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this Registration Statement.
(2) that, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and
(3) to remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE> 45
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas, on the 7th day of May, 1999.
QUEEN SAND RESOURCES, INC.
By: /s/ EDWARD J. MUNDEN
---------------------------------
Name: Edward J. Munden
Title: Chairman of the Board, President
and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints each of Robert P. Lindsay and William W.
Lesikar his or her true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign, execute and file with the
Securities and Exchange Commission and any state securities regulatory board or
commission any documents relating to the proposed issuance and registration of
the securities offered pursuant to this Registration Statement on Form S-3 under
the Securities Act of 1933, as amended, including any amendment or amendments
relating thereto (and, in addition, any Registration Statement filed pursuant to
Rule 462(b) under the Securities Act of 1933, as amended, for the offering to
which this Registration Statement relates), with all exhibits and any and all
documents required to be filed with respect thereto with any regulatory
authority, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises in order to
effectuate the same as fully to all intents and purposes as he or she might or
could do if personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-3 has been signed by the following persons on
behalf of the Registrant in the capacities and on the 7th day of May, 1999:
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
/s/ EDWARD J. MUNDEN Chairman of the Board, President, Chief Executive Officer
- ------------------------------------- and Director (principal executive officer)
Edward J. Munden
/s/ BRUCE I. BENN Executive Vice President, Secretary and Director
- -------------------------------------
Bruce I. Benn
/s/ RONALD I. BENN Chief Financial Officer (principal financial officer and
- ------------------------------------- accounting officer)
Ronald I. Benn
</TABLE>
II-7
<PAGE> 46
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
/s/ ROBERT P. LINDSAY Chief Operating Officer, Executive Vice President and
- ------------------------------------- Director
Robert P. Lindsay
/s/ TED COLLINS, JR. Director
- -------------------------------------
Ted Collins, Jr.
/s/ ELI REBICH Director
- -------------------------------------
Eli Rebich
</TABLE>
<PAGE> 47
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------- -----------
<S> <C>
3.1 Restated Certificate of Incorporation, filed as Exhibit 4.5
to the Company's Registration Statement on Form S-3 filed
with the Securities and Exchange Commission on March 9, 1998,
which Exhibit is incorporated herein by reference.
3.2 Certificate of Designation of Series C Convertible Preferred
Stock, filed as an exhibit to the Company's Current Report on
Form 8-K dated December 24, 1997, which Exhibit is
incorporated herein by reference.
3.3 Amended and Restated Bylaws, filed as an Exhibit to the
Company's Current Report on Form 8-K dated May 6, 1997, which
Exhibit is incorporated herein by reference.
4.1 Stockholders' Agreement dated as of May 6, 1997, among the
Company, Bruce I. Benn, Edward J. Munden, Ronald I. Benn,
Robert P. Lindsay, EIBOC Investments Ltd. and Joint Energy
Development Investments Limited Partnership ("JEDI"), filed
as an Exhibit to the Company's Current Report on Form 8-K
dated May 6, 1997, which Exhibit is incorporated herein by
reference.
4.2 Indenture, dated July 1, 1998, in regard to 12 1/2% Senior
Notes due 2008 by and among the Company and certain of its
subsidiaries and Harris Trust and Savings Bank, as Trustee,
filed as an Exhibit to the Company's Current Report on Form
8-K dated July 8, 1998, which Exhibit is incorporated herein
by reference.
4.3 Form of 12% Notes due July 15, 2001, filed as an Exhibit to
the Company's Registration Statement on Form 10-SB filed with
the Securities and Exchange Commission on August 12, 1996,
which Exhibit is incorporated herein by reference.
4.4 Common Stock Purchase Warrant Representing Right to Purchase
100,000 Shares of Common Stock of the Company issued to
Forseti Investments Ltd. on May 6, 1997 and assigned to CSM
GmbH, filed as an Exhibit to the Company's Current Report on
Form 8-K dated May 6, 1997, which Exhibit is incorporated
herein by reference.
4.5 Common Stock Purchase Warrant Representing Right to Purchase
1,000,000 Shares of Common Stock of the Company issued to
Forseti Investments Ltd. on May 6, 1997 and assigned to CSM
GmbH, filed as an Exhibit to the Company's Current Report on
Form 8-K dated May 6, 1997, which Exhibit is incorporated
herein by reference.
4.6 Common Stock Purchase Warrant Representing Right to Purchase
28,066 Shares of Common Stock of the Company dated July 22,
1998 issued to JEDI, filed as an Exhibit to the Company's
Registration Statement on Form S-4 (No. 333-61403), filed
August 13, 1998.
4.7 Common Stock Purchase Warrant Representing Right to Purchase
1,697,881 Shares of Common Stock of the Company dated July
22, 1998 issued to JEDI, filed as an Exhibit to the Company's
Registration Statement on Form S-4 (No. 333-61403), filed
August 13, 1998.
4.8 Form of Common Stock Purchase Warrant dated December 24, 1997
and issued to certain institutional investors, filed as an
Exhibit to the Company's Current Report on Form 8-K dated
December 24, 1997, which Exhibit is incorporated herein by
reference.
4.9 Form of Common Stock Purchase Warrant issued to certain
investors effective July 8, 1998, filed as an Exhibit to the
Company's Current Report on Form 8-K dated July 8, 1998,
which Exhibit is incorporated herein by reference.
4.10 Registration Rights Agreement between the Company and Collins
and Ware, Inc., dated August 1, 1997, filed as an Exhibit to
the Company's Registration Statement on Form S-4 (No.
333-61403), filed August 13, 1998.
4.11 Registration Rights Agreement between the Company and Riata
Energy, et. al dated April 9, 1998, filed as an Exhibit to
the Company's Registration Statement on Form S-4 (No.
333-61403), filed August 13, 1998.
</TABLE>
<PAGE> 48
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------- -----------
<S> <C>
4.12 Registration Rights Agreement among the Company and certain
institutional investors named therein, dated December 24,
1997, filed as an Exhibit to the Company's Current Report on
Form 8-K dated December 24, 1997, which Exhibit is
incorporated herein by reference.
4.13 Registration Rights Agreement by and between the Company and
JEDI dated May 6, 1997, filed as an Exhibit to the Company's
Current Report on Form 8-K dated May 6, 1997, which Exhibit
is incorporated herein by reference.
4.14 Registration Rights Agreement dated as of December 29, 1997
among the Company, the ECT Agent and JEDI, filed as an
Exhibit to the Company's Quarterly Report on Form 10-QSB for
the quarter ended December 30, 1997, which Exhibit is
incorporated herein by reference.
4.15 Registration Rights Agreement dated as of July 8, 1998 among
the Company and the buyers signatory thereto, filed as an
Exhibit to the Company's Current Report on Form 8-K dated
July 8, 1998, which Exhibit is incorporated herein by
reference.
4.16 Registration Rights Agreement, dated July 8, 1998, by and
among the Company and certain of its subsidiaries and Nesbitt
Burns Securities Inc., CIBC Oppenheimer Corp. and Societe
Generale Securities Corporation, as Placement Agents, filed
as an Exhibit to the Company's Current Report on Form 8-K
dated July 8, 1998, which Exhibit is incorporated herein by
reference.
4.17 Common Stock Purchase Warrant Representing Right to Purchase
48,701 Shares of Common Stock of the Company dated August 19,
1998 and issued to JEDI, filed as an Exhibit to the Company's
Annual Report on Form 10-KSB for the fiscal year ended June
30, 1998, which Exhibit is incorporated herein by reference.
4.18 Common Stock Purchase Warrant Representing Right to Purchase
80,108 Shares of Common Stock of the Company dated as of
November 30, 1998 issued to JEDI, filed as an Exhibit to the
Company's Registration Statement on Form S-3 (No. 333-70993),
which Exhibit is incorporated by reference.
4.19 Common Stock Purchase Warrant Representing Right to Purchase
4,329 Shares of Common Stock of the Company dated as of
September 11, 1998 issued to JEDI, filed as an Exhibit to the
Company's Registration Statement on Form S-3 (No. 333-70993),
which Exhibit is incorporated by reference.
4.20 Common Stock Purchase Warrant Representing Right to Purchase
206,340 Shares of Common Stock of the Company dated as of
November 23, 1998 issued to JEDI, filed as an Exhibit to the
Company's Registration Statement on Form S-3 (No. 333-70993),
which Exhibit is incorporated by reference.
4.21 Common Stock Purchase Warrant Representing Right to Purchase
18,836 Shares of Common Stock of the Company dated as of
November 27, 1998 issued to JEDI, filed as an Exhibit to the
Company's Registration Statement on Form S-3 (No. 333-70993),
which Exhibit is incorporated by reference.
4.22 Common Stock Purchase Warrant Representing Right to Purchase
3,160 Shares of Common Stock of the Company dated as of
November 25, 1998 issued to JEDI, filed as an Exhibit to the
Company's Registration Statement on Form S-3 (No. 333-70993),
which Exhibit is incorporated by reference.
4.23 Common Stock Purchase Warrant Representing Right to Purchase
162,955 Shares of Common Stock of the Company dated as of
November 30, 1998 issued to JEDI, filed as an Exhibit to the
Company's Registration Statement on Form S-3 (No. 333-70993),
which Exhibit is incorporated by reference.
4.24 Registration Rights Agreement dated November 10, 1998 among
Queen Sand Resources, Inc. and the buyers signatory thereto,
filed as an Exhibit to the Company's Current Report on Form
8-K dated November 24, 1998, which Exhibit is incorporated
herein by reference.
4.25 Form of Common Stock Purchase Warrant issued to certain
investors as of November 10, 1998, filed as an Exhibit to the
Company's Current Report on Form 8-K dated November 24, 1998,
which Exhibit is incorporated herein by reference.
</TABLE>
<PAGE> 49
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------- -----------
<S> <C>
4.26 Common Stock Purchase Warrant Representing Right to Purchase
22,033 Shares of Common Stock of the Company dated as of
December 28, 1998 issued to JEDI, filed as an Exhibit to the
Company's Registration Statement on Form S-3 (No. 333-70993),
which Exhibit is incorporated by reference.
4.27 Common Stock Purchase Warrant Representing Right to Purchase
12,380 Shares of Common Stock of the Company dated as of
December 15, 1998 issued to JEDI, filed as an Exhibit to the
Company's Registration Statement on Form S-3 (No. 333-70993),
which Exhibit is incorporated by reference.
4.28 Common Stock Purchase Warrant Representing Right to Purchase
133,708 Shares of Common Stock of the Company dated as of
December 14, 1998 issued to JEDI, filed as an Exhibit to the
Company's Registration Statement on Form S-3 (No. 333-70993),
which Exhibit is incorporated by reference.
4.29 Common Stock Purchase Warrant Representing Right to Purchase
37,141 Shares of Common Stock of the Company dated as of
December 11, 1998 issued to JEDI, filed as an Exhibit to the
Company's Registration Statement on Form S-3 (No. 333-70993),
which Exhibit is incorporated by reference.
4.30 Common Stock Purchase Warrant Representing Right to Purchase
8,360 Shares of Common Stock of the Company dated as of
December 9, 1998 issued to JEDI, filed as an Exhibit to the
Company's Registration Statement on Form S-3 (No. 333-70993),
which Exhibit is incorporated by reference.
4.31 Common Stock Purchase Warrant Representing Right to Purchase
10,973 Shares of Common Stock of the Company dated as of
December 7, 1998 issued to JEDI, filed as an Exhibit to the
Company's Registration Statement on Form S-3 (No. 333-70993),
which Exhibit is incorporated by reference.
4.32 Common Stock Purchase Warrant Representing Right to Purchase
8,180 Shares of Common Stock of the Company dated as of
December 4, 1998 issued to JEDI, filed as an Exhibit to the
Company's Registration Statement on Form S-3 (No. 333-70993),
which Exhibit is incorporated by reference.
4.33 Common Stock Purchase Warrant Representing Right to Purchase
13,335 Shares of Common Stock of the Company dated as of
December 4, 1998 issued to JEDI, filed as an Exhibit to the
Company's Registration Statement on Form S-3 (No. 333-70993),
which Exhibit is incorporated by reference.
4.34 Common Stock Purchase Warrant Representing Right to Purchase
8,180 Shares of Common Stock of the Company dated as of
December 2, 1998 issued to JEDI, filed as an Exhibit to the
Company's Registration Statement on Form S-3 (No. 333-70993),
which Exhibit is incorporated by reference.
4.35 Common Stock Purchase Warrant Representing Right to Purchase
21,331 Shares of Common Stock of the Company dated as of
December 2, 1998 issued to JEDI, filed as an Exhibit to the
Company's Registration Statement on Form S-3 (No. 333-70993),
which Exhibit is incorporated by reference.
4.36 Common Stock Purchase Warrant Representing Right to Purchase
18,372 Shares of Common Stock of the Company dated as of
November 30, 1998 issued to JEDI, filed as an Exhibit to the
Company's Registration Statement on Form S-3 (No. 333-70993),
which Exhibit is incorporated by reference.
4.37* Form of Common Stock Purchase Warrant issued to Northern Tier
Asset Management, Inc. issued by the Company on April 9,
1999.
4.38* Registration Rights Agreement dated as of April 9, 1999
between the Company and Northern Tier Asset Management, Inc.
4.39* Consulting Agreement dated as of April 9, 1999 between the
Company and Northern Tier Asset Management, Inc.
5.1* Opinion of Haynes and Boone, LLP.
23.1* Consent of Ernst & Young LLP.
</TABLE>
<PAGE> 50
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------- -----------
<S> <C>
23.2* Consent of Haynes and Boone, LLP, contained in the opinion
filed as Exhibit 5.1.
23.3* Consent of H.J. Gruy and Associates, Inc.
23.4* Consent of Harper & Associates, Inc.
23.5* Consent of Ryder Scott Company.
24.1* Power of Attorney, included as part of signature page of this
Registration Statement.
</TABLE>
- --------------------------
* Filed herewith.
<PAGE> 1
EXHIBIT 4.37
THIS WARRANT IS NOT ASSIGNABLE BY THE HOLDER WITHOUT THE EXPRESS WRITTEN
CONSENT OF THE COMPANY DELIVERED TO THE ASSIGNEE AT THE TIME OF SUCH
ASSIGNMENT AND ANY PURPORTED ASSIGNMENT MADE IN VIOLATION OF THIS PROVISION
SHALL RENDER THIS WARRANT VOID AND OF NO EFFECT.
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.
QUEEN SAND RESOURCES, INC.
WARRANT TO PURCHASE COMMON STOCK
Warrant No.: Number of Shares: _________
Series
Date of Issuance: March ____ 1999
Queen Sand Resources, Inc., a Delaware corporation (the "COMPANY"), hereby
certifies that, for value received, NORTHERN TIER ASSET MANAGEMENT, INC. (the
"HOLDER") 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. Eastern 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 " 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
<PAGE> 2
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 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) Consulting Agreement. This Warrant is one of the warrants
(the "COMMON STOCK WARRANTS") issued pursuant to that certain Consulting
Agreement, dated as of April 9 1999, between the Company and the Holder, (, the
"CONSULTING AGREEMENT").
(b) Definitions. The following words and terms as used in
this Warrant shall have the following meanings:
"BUSINESS DAY" means any day except Saturday, Sunday and
any day which is designated in the State of New York as a legal holiday or a
day on which banking institutions are authorized or legally required 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 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
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<PAGE> 3
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
Section 8 or Convertible Securities (as defined in Section 8) are actually
exercisable or convertible at such time, but excluding any shares of Common
Stock issuable upon exercise of the Common Stock Warrants.
"ESCROW AGENT" means Alan R. Turem, having an office at
4651 Roswell Road, Suite B-105 Atlanta, Georgia 30342.
"EXERCISE PRICE" shall be $1.50, subject to adjustment as
hereinafter provided.
"EXPIRATION DATE" means the ______________
"DEEMED MAXIMUM MARKET PRICE" means, with respect to any
security for any date, the lesser of [$2.00/$2.50/$3.00] and the average of the
Closing Bid Prices for such security during the three (3) 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 Repricing Common
Shares (as defined in the Securities Purchase Agreements dated as of July 8,
1998 and November 10, 1998), (iii) 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 subsequent acquisition by the Company of
oil and natural gas companies (whether by merger, purchase of shares or
exchange) or properties, and (vi) rights of JEDI (as defined in the Purchase
Agreement) 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 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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<PAGE> 4
"REGISTRATION RIGHTS AGREEMENT" means the Registration
Rights Agreement dated the date hereof, between the Company and the Holder
entered into in connection with the Consulting 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 or any other public
stock exchange on which the Company's Securities are listed for trading.
"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.
(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.
Section 2. Exercise of Warrant.
(a) Subject to the terms and conditions hereof, this Warrant
may be exercised by the Holder at any time and from time to time in whole or in
part provided that, without the prior written authorization of the Company, the
Holder may not exercise this Warrant before May 15,
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<PAGE> 5
1999 and then only if the warrants of all series having a lesser series number
than this Warrant have been exercised in full and 30 days have expired since
the last exercise of any warrant having a lesser series number. For the
purposes of this paragraph, series 1 and 2 shall be considered as one series.
Exercise may be done 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. Eastern Time on the Expiration Date by delivery to the Escrow Agent and
the Company in the manner specified below of (i) a written notice of such
Holder's election to exercise this Warrant which notice shall be in the form
attached as Exhibit A hereto, (the "EXERCISE NOTICE"), and shall specify the
number of Warrant Shares to be purchased and the other information set out
therein, (ii) payment to the Company of an amount equal to the 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
payable to the Company in immediately available funds, and (iii) the surrender
of this Warrant. 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
and the Exercise Notice shall be accompanied by such additional documentation
as may be required by that Section. Such Exercise Notice, payment, Warrant and
other documentation required for exercise shall be delivered to the Escrow
Agent at the address set out in Section 1 with a copy of the Exercise Notice
being delivered simultaneously to the Company.
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 five (5) business days after delivery
of the Exercise Notice to the Escrow Agent. In the case of a dispute as to the
determination of the 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
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 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.
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<PAGE> 6
(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 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) 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 = Y x (A - B)/B
For purposes of the foregoing formula:
Y = the total number shares with respect to which this Warrant
is then being exercised.
A = is the lesser of (i) the Deemed Maximum Market Price
applicable to the particular block and (ii) the average of the
closing bid prices of the common stock for 5 trading days
immediately prior to but not including the Exercise Date.
B = the 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
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<PAGE> 7
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 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. 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 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 Deemed Not a StockHolder. Except as
otherwise specifically provided herein, no Holder, as such, of this Warrant
shall be entitled to vote or
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<PAGE> 8
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 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
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<PAGE> 9
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) 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 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) except as provided below, 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 except as may be expressly set
out herein.
(c) The Company is obligated to register the Warrant Shares
for resale under the Securities Act pursuant to the Registration Rights
Agreement and the Holder of this Warrant is entitled to the registration rights
in respect of the Warrant Shares as set forth in the Registration Rights
Agreement.
Section 8. Adjustment of Exercise Price and Number of Shares. In order
to prevent dilution of the rights granted under this Warrant, the 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 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 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 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.
-9-
<PAGE> 10
(b) 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 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 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 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.
(c) 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> 11
(d) Notices.
(i) Immediately upon any adjustment of the 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.
(iv) 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. 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 10. 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 party
to receive the same. The addresses and facsimile numbers for such
communications shall be:
If to the Company:
Queen Sand Resources, Inc.
13760 Noell Rd., Suite 1030
Dallas, Texas 75240-7336
Telephone: 941-233-9906
Facsimile: 941-233-9575
Attention: Bruce I. Benn, Executive Vice President
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<PAGE> 12
and
Queen Sand Resources, Inc.
30 Metcalfe Street, Suite 620
Ottawa, Ontario, Canada K1P 5L4
Telephone: 613-230-7211
Facsimile: 613-230-6055
Attention: Bruce I. Benn, Executive Vice President
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 11. Miscellaneous.
(a) Waiver and Modification - 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.
(b) Headings - The headings in this Warrant are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(c) Governing Law - This Warrant shall be governed by and interpreted
under the laws of the State of Delaware without regard to principles of
conflicts of law thereof.
(d) Escrow Delivery - Pending exercise or cancellation, this Warrant
shall be delivered to and held by the Escrow Agent in accordance with the terms
of the Escrow Agreement entered into between the parties and the Escrow Agent
as of even date herewith.
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<PAGE> 13
(e) Cancellation Upon termination of the Consulting Agreement the
Company may cancel any unexercised portion of this Warrant without notice or
compensation to the Holder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused 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:
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<PAGE> 15
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 Exercise Price shall be
made as:
(a) "Cash Exercise" with respect to ______________________
Warrant Shares; and/or
(b) "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 and to the
extent 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 based on
an Exercise Price of $___________.
3. Determination of Cashless Exercise. In the event and to the
extent that the Holder has elected a Cashless Exercise with
respect to some or all of the Warrant Shares to be issued
pursuant hereto, the number of Warrant Shares shall be
determined in accordance with the terms of the Warrant based on
a Closing Bid Price of $___________ and an Exercise Price of
$__________.
4. Delivery of Warrant Shares. The Company shall deliver to the
Holder __________ Warrant Shares in accordance with the terms of
the Warrant to the persons whose names appear below in the
number of certificates as indicated beside their respective
names:
<PAGE> 16
Name
-----------------------------
Address
-----------------------------
Number of Shares
-----------------------------
Number of Certificates
-----------------------------
Date:__________________, _____
Name of Registered Holder
By:
---------------------------
Name:
Title:
<PAGE> 17
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> 1
EXHIBIT 4.38
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made
and entered into effective as of April 9, 1999, among Queen Sand Resources,
Inc., a Delaware corporation (the "Company"), and Northern Tier Asset
Management, Inc. (the "Buyer").
This Agreement is made pursuant to the Consulting Agreement,
dated as of the date hereof, among the Company and the Buyer (the "Consulting
Agreement").
The Company and the Buyer hereby agree as follows:
1. Definitions
Capitalized terms used and not otherwise defined herein that
are defined in the Consulting Agreement shall have the meanings given such terms
in the Consulting Agreement. As used in this Agreement, the following terms
shall have the following meanings:
"Advice" shall have meaning set forth in Section 3(m).
"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(m).
"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.
"Commission" means the United States Securities and Exchange
Commission.
"Common Stock" means the Company's common stock, par value
$.0015 per share.
"Effectiveness Period" shall have the meaning set forth in
Section 2.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Holder" or "Holders" means the holder or holders, as the case
may be, from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in
Section 5(c).
<PAGE> 2
"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.
"Registrable Securities" means the Warrant Shares.
"Registration Statement" means the registration statement,
including (in each case) the Prospectus, amendments and supplements to such
registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference or
deemed to be incorporated by reference in such registration statement.
"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.
"Warrants" means collectively the Common Stock purchase
warrants issued or issuable to the Buyer pursuant to the Consulting Agreement.
"Warrant Shares" means the shares of Common Stock issuable
upon exercise in full of the Warrants.
<PAGE> 3
2. Shelf Registration As soon as commercially practicable, 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 commercially
reasonable efforts to cause the Registration Statement to be declared effective
under the Securities Act as promptly as possible after the filing thereof, 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 to a written
opinion letter to such effect, addressed and acceptable to the Company's
transfer agent (the "Effectiveness Period").
3. Registration Procedures
In connection with the Company's registration obligations
hereunder, the Company shall:
(a) Prepare and file with the Commission 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) and use commercially reasonable
efforts to 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, the Company shall, (i)
furnish to the Holder and its Special Counsel 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 Holder
and its Special Counsel, 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 Special Counsel to such Holder, to
conduct a reasonable investigation within the meaning of the Securities Act.
(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; (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 Holder thereof set forth in the Registration Statement as so
amended or in such Prospectus as so supplemented.
(c) Notify the Holder of Registrable Securities to be sold and
its Special Counsel 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 three
(3) Business
<PAGE> 4
Days 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 the Holder); 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 commercially reasonable 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) Furnish to the Holder and its Special Counsel, without
charge, at least one conformed copy of each Registration Statement and each
amendment thereto, including financial statements and schedules, 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.
(f) Promptly deliver to the Holder and its Special Counsel,
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 the selling Holder
in connection with the offering and sale of the Registrable Securities covered
by such Prospectus and any amendment or supplement thereto.
(g) Prior to any public offering of Registrable Securities,
use commercially reasonable efforts to register or qualify or cooperate with the
selling Holder and its 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 the Holder 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
<PAGE> 5
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.
(h) Cooperate with the Holder 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 the Holder may request at least
two Business Days prior to any sale of Registrable Securities.
(i) 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.
(j) 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.
(k) Make available for inspection by the selling Holder and
any attorney or accountant retained by such selling Holder, 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, 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.
(l) Comply with all applicable rules and regulations of the
Commission.
(m) The Company may require the 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 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.
<PAGE> 6
The 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(f) 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.
The 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(i), 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 or other material event or
circumstance in respect of the Company which the Company 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 in respect of each transaction, event or circumstance for
a period not to exceed 60 Business Days during the Effectiveness Period (the
"Blackout Period").
4. Registration Expenses All fees and expenses incident to the
performance of or compliance with this Agreement by the Company shall be borne
by the Company 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) in connection with Blue Sky qualifications or
exemptions of the Registrable Securities, (ii) printing expenses (including,
without limitation, expenses of printing certificates for Registrable
Securities), (iii) messenger, telephone and delivery expenses of the Company,
(iv) Securities Act liability insurance, if the Company so desires such
insurance, and (v) 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.
<PAGE> 7
5. Indemnification
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
the Holder, the officers, directors, agents 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 Holder. The Holder shall 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 the 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 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
<PAGE> 8
(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
<PAGE> 9
by such party in connection with any 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. Notwithstanding 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
the Holder, of any of their obligations under this Agreement, the 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 the 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. So long as the Company uses
commercially reasonable efforts to cause the Registration Statement to become
effective and remain effective as agreed in Section 3(a) hereof, Holder shall
have no right to claim, and does hereby waive any claim, for any damages or
other remedy for any delay or failure of the Commission to declare the
Registration Statement effective.
(b) 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 Holder; 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.
<PAGE> 10
(c) 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 5:00 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 5:00 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.
13760 Noel Road, Suite 1030
Dallas, Texas 75240-7336
Facsimile: 972-233-9906
Attention: Robert P. Lindsay
and
Queen Sand Resources, Inc.
30 Metcalfe Street, Suite 620
Ottawa, Ontario, Canada K1P 5L4
Facsimile: 613-230-6055
Attention: Bruce I. Benn
With copies to: Haynes and Boone, LLP
901 Main Street
Suite 3100
Dallas, Texas 75202-3789
Facsimile: 214-651-5940
Attention: William L. Boeing
If to Buyer, to its address and facsimile number in the Consulting
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.
(d) 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 the Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
each Holder.
<PAGE> 11
(e) 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.
(f) Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Delaware without regard to the principles of conflicts 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, New York, 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 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.
(g) Cumulative Remedies. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
(h) 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.
(i) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
* * * * * *
<PAGE> 12
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
QUEEN SAND RESOURCES, INC.,
a Delaware corporation
By:
-----------------------------------------------
Name: Edward J. Munden, C.E.O.
By:
-----------------------------------------------
Name: Bruce I. Benn, Executive Vice President
NORTHERN TIER ASSET MANAGEMENT, INC.
By:
-----------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
By:
-----------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
<PAGE> 1
EXHIBIT 4.39
CONSULTING AGREEMENT
This Agreement is made as of April 9, 1999, by and between Queen Sand Resources,
Inc. (the "Company"), a Delaware corporation with its principal offices at 13760
Noel Road, Suite 1030, Dallas, Texas 65240-7336, and Northern Tier Asset
Management, Inc. ("NTA"), a Nevada Corporation, with its principal offices at
1270 - 6th Avenue, 12th Floor, New York, N.Y. 10020.
WITNESSETH
WHEREAS, the Company requires expertise in the area of investment banking to
support its business and growth; and
WHEREAS, NTA has substantial contacts among the members of the investment
community, investment banking expertise, and desires to act as a consultant to
provide investment banking and advisory services;
NOW, THEREFORE, in consideration of the premises and the mutual promises and
covenants contained herein and subject specifically to the conditions hereof,
and intending to be legally bound thereby, the parties agree as follows:
1. CERTAIN DEFINITIONS. When used in this Agreement, the following terms
shall have the meanings set forth below:
1.1. "Affiliate" - means any persons or entities controlled by a
party.
1.2. "Business Day" -means any day except Saturday, Sunday and day
which is designated in the State of New York as a legal
holiday or a day on which banking institutions are legally
required or authorized to close.
1.3. "Contact Person" - The person who shall be primarily
responsible for carrying out the duties of the parties
hereunder. The Company and NTA shall each appoint a Contact
Person to be responsible for their respective duties. In the
event that one party gives notice to the other party in
writing that, in their reasonable opinion, the other party's
Contact Person is not able to fulfill their duties and
responsibilities hereunder, both parties shall mutually agree
upon a replacement Contact Person within 10 days of the said
notice.
1.4. "Expiration Date" - means the Expiration Date as defined in
the Warrants.
1.5. "Exercise Price"- means the Exercise Price as defined in the
Warrants.
1.6. "Deemed Maximum Market Price" - means the Maximum Deemed
Market Price as defined in the Warrants.
<PAGE> 2
1.7. "Securities" - means the Warrants and the Warrant Shares as
defined herein.
1.8. "Warrants" - means the common share purchase warrants referred
to in paragraph 4.1.
1.9. "Warrant Shares" - means the shares of Common Stock issuable
upon the exercise of the Warrants.
2. SERVICES TO BE RENDERED BY NTA. NTA shall render the following services:
2.1. Advice and Counsel - NTA will provide advice and counsel
regarding the Company's strategic business and financial
plans, strategy and negotiations with potential
lenders/investors, merger/acquisition candidates, joint
ventures, corporate partners and others involving financial
and financially related transactions.
2.2. Introductions to the Securities Brokerage Community -NTA shall
use its contacts in the brokerage community to assist the
Company in establishing relationships with securities dealers
in North America and Europe and to provide the most recent
corporate information to interested securities dealers on a
regular and continuous basis. NTA understands that this is in
keeping with the Company's business objective to establish an
international network of securities dealers who have an
interest in the Company's securities.
2.3. Market Intelligence - NTA will monitor and react to sensitive
market information on a timely basis and provide advice, and
counsel and proprietary intelligence (including but not
limited to information on price, volume and the identification
of market-makers, buyers and sellers) to the Company in a
timely fashion with respect to securities in which the Company
has an interest. The Company understands that this information
is available from other sources but acknowledges that NTA can
provide it in a more timely fashion and with substantial
value-added interpretation of such information. The foregoing
notwithstanding, no information will be provided to the
Company with respect to the activities of any other NTA
customers or customer accounts without such customer's prior
consent.
2.4. Company and/or Company Client Transaction Due Diligence - NTA
will undertake due diligence on all proposed financial
transactions affecting the Company, of which NTA is notified
in writing in advance, including investigation and advice on
the financial, valuation and stock price implications thereof.
2.5. Additional Duties - the Company and NTA shall mutually agree
upon any additional duties which NTA may provide.
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<PAGE> 3
2.6. Best Efforts - All services to be provided by NTA shall be
provided on a best efforts basis. NTA shall devote such time
and effort to the affairs of the Company as is reasonable and
adequate to render the consulting services contemplated by
this agreement. NTA cannot guarantee results on behalf of the
Company, but shall pursue all reasonable avenues available
through its network of financial contacts. At such time as an
interest is expressed by a third party in the Company's needs,
NTA shall notify the Company and advise it as to the source of
such interest and any terms and conditions of such interest.
The acceptance and consummation of any transaction is subject
to acceptance of the terms and conditions by the Company. It
is understood that a portion of the compensation to be paid
hereunder is being paid hereunder is being paid by the Company
to have NTA remain available to assist it with transactions on
an as-needed basis.
2.7. Services Excluded - The parties may specifically exclude
certain services from the operation of this Agreement by
written addendum hereto and acknowledge and agree that the
following items are not intended to be included among the
services to be provided by NTA:
2.7.1. NTA agrees that neither it or any affiliate or fund with
which it is associated is or shall be a market-maker,
dealer or underwriter of any of the Company's securities
(but may be a placement agent by other "Selling
Agreement" from time to time) in the Company's
securities;
2.7.2. Any payments made herein to NTA are not, and shall not be
construed as, compensation to NTA for the purposes of
making a market, to cover NTA out-of-pocket expenses for
making a market, or for the submission by NTA of an
application to make a market in any of the Company's
securities;
2.7.3. No payment made herein to NTA are for the purpose of
affecting the price of any security or influencing any
market-making functions, including but not limited to
bid/ask quotations, initiation and termination of
quotations, retail securities activities, or for the
submission of any application to make a market.
2.7.4. It is understood and agreed that in performing any of the
services contemplated by this Agreement, NTA shall not be
taken to be rendering any legal opinions or any work that
is in the ordinary purview of a Certified Public
Accountant or of a licensed NASD broker.
3. TERM - NTA agrees to provide the services described herein beginning on
April 1, 1999 and continuing until July 31, 2000 or until this agreement is
terminated by the Company, whichever is earlier.
3
<PAGE> 4
4. COMPENSATION TO NTA.
4.1. Fees - As full and complete compensation for the services to
be provided by NTA to the Company, the Company agrees to issue
Warrants to NTA pursuant to the "Addendum" to this agreement.
The Company shall register for resale by NTA the Warrant
Shares into which the Warrants are exercisable pursuant to the
Registration Rights Agreement between the parties set out in
Schedule A.
4.2. Expenses - The Company shall be responsible for all fees and
expenses pertaining to the issuance, listing or registration
of any Securities contemplated by this Agreement, including,
but not limited to, SEC registration fees, transfer agent
fees, escrow fees, NASD registration or exchange listing fees
but not including any legal, accounting and other professional
fees incurred by NTA in connection with such registration.
4.3. Other Expenses: Transfer Taxes, Etc. - Subject to paragraphs
4.1, 4.2 and 11, NTA agrees that all fees and expenses
incurred by NTA in the performance of this agreement
including, without limitation, all fees of its legal counsel
and accountants shall be borne by NTA whether or not the
Company terminates this agreement prior to the expiry of the
period referred to in paragraph 3.
5. NTA'S REPRESENTATIONS AND WARRANTIES.
NTA represents and warrants that:
5.1. NTA Experience NTA has the experience and expertise to perform
the services contemplated by this Agreement and to evaluate an
investment in the Securities.
5.2. Investment Purpose. It 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
Securities Act of 1933, as amended (the "1933 Act"); provided,
however, that by making the representations herein, NTA 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.
5.3. Accredited Investor Status. NTA is an "accredited investor" as
that term is defined in Rule 501(a) of Regulation D
promulgated under the 1933 Act.
5.4. Reliance on Exemptions. NTA 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
4
<PAGE> 5
Company is relying in part upon the truth and accuracy of,
and NTA's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of NTA set
forth herein in order to determine the availability of such
exemptions and the eligibility of NTA to acquire the
Securities.
5.5. Information. NTA and its advisors, if any, have been furnished
with all public materials relating to the business, finances
and operations of the Company and materials relating to
issuance of the Securities which have been requested by NTA.
NTA has not received, nor will the Company provide, any
non-public information to NTA during the term of this
agreement. NTA acknowledges that it and such of its advisors
as it considers relevant have been afforded full and
sufficient opportunity to ask questions of the Company.
Neither such inquiries nor any other due diligence
investigations conducted by NTA or its advisors or its
representatives shall modify, amend or affect NTA's right to
rely on the completeness and accuracy of the materials
provided to NTA 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.
NTA understands that its investment in the Securities involves
a high degree of risk. NTA 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.
5.6. No Governmental Review. NTA 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.
5.7. Transfer or Resale. NTA 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) NTA 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) NTA 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
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<PAGE> 6
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 of NTA.
5.8. Legend. The parties agree that the certificates or other
instruments representing the Warrants and, until such time as
the sale of the Warrant Shares have been registered under the
1933 Act as contemplated by the Registration Rights Agreement,
the stock certificates representing the Warrant Shares, except
as set forth below, shall bear a restrictive legend in
substantially the following form (and a stop-transfer order
will 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.
5.9. 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 Warrant
Shares issued at such time as when there is an effective
registration statement covering such shares will not bear any
restrictive legend. NTA 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.
6. CERTAIN AGREEMENTS BY THE COMPANY
6.1. Registration. The Company agrees to use its best efforts to
register the Warrant Shares for resale in accordance with the
terms of the Registration Rights
6
<PAGE> 7
Agreement attached hereto provided that the Company may at its
option register the original issuance of the Securities
instead.
6.2. Form D; Blue Sky Filings. The Company agrees to file a Form D
with respect to the Securities as required under Regulation D.
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 under, or
obtain exemption for the Securities from, the applicable
securities or "Blue Sky" laws of the states of the United
States.
6.3. 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 100% of the number of
shares of Common Stock needed to provide for the issuance of
the Warrant Shares; provided, however, that the above
requirement shall expire on the last exercise date.
6.4. Listing. The Company shall list 2,625,000 shares of Common
Stock in respect of the Warrant Shares within 10 days of
the date of Execution of this Agreement on the Nasdaq SmallCap
Market. 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. 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 pay all fees and expenses in
connection with satisfying its obligations under this Section.
7. INDEMNIFICATION.
7.1. By the Company - The Company agrees to indemnify and hold
harmless NTA, and its officers, directors, employees and each
person who NTA contracts in connection with this Agreement
(provided such contract person is approved by the Company in
writing) against any and all liability, loss, and costs,
expenses or damages, including but not limited to, any and all
expenses whatsoever reasonably incurred in investigating,
preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever or howsoever caused by
reason of any injury (whether to body, property, personal or
business character or reputation) sustained by any person or
to any person or property by reason of any act, neglect,
default or omission, or any untrue or alleged untrue statement
of a material fact, or any misrepresentation of any material
fact or any breach of any material warranty or covenant as the
Company or any of its agents, employees, or other
representatives arising out of, or in relation to, this
Agreement. Nothing herein is intended to nor shall it relieve
either party from liability for its own act,
7
<PAGE> 8
omission or negligence. All remedies provided by law or in
equity shall be cumulative and not in the alternative.
7.2. By NTA - NTA agrees to indemnify and hold harmless the
Company, each of its officers, directors, employees and each
person, if any, who controls the Company against any and all
liability, loss, and costs, expenses or damages, including but
not limited to, any and all expenses whatsoever reasonably
incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever
or howsoever caused by reason of any injury (whether to body,
property, personal or business character or reputation)
sustained by any person or to any person or property by reason
of any act, neglect, default or omission, or any untrue or
alleged untrue statement of a material fact, or any
misrepresentation of any material fact or any breach of any
material warranty or covenant as the NTA or any of its agents,
employees, or other representatives arising out of, or in
relation to, this Agreement. Nothing herein is intended to nor
shall it relieve either party from liability for its own act,
omission or negligence. All remedies provided by law or in
equity shall be cumulative and not in the alternative.
8. COMPANY REPRESENTATIONS. the Company hereby represents, covenants and
warrants to NTA as follows:
8.1. Authorization - the Company and its signatories herein have
full power and authority to enter into this Agreement and to
carry out the transactions contemplated hereby.
8.2. No Violation - Neither the execution and delivery of this
Agreement nor the consummation of the transactions
contemplated hereby will violate any provision of the charter
or by-laws of the Company, or violate any term or provision of
any other Agreement or any statute or law.
8.3. Consents - All consents required or necessary to the
consummation of the transactions contemplated hereby,
including, without limitation, consents from federal, state,
or local governmental agencies and consents provided for under
any credit agreement, material contract, lease or other
agreement to which the Company is a party, have been obtained
or will be obtained prior to the commencement of the term
provided that if the Company is unable or unwilling to obtain
such consents, it may terminate this Agreement without
compensation to NTA.
8.4. Company's Material Representations. All representations and
statements provided about the Company to NTA are true and
complete and accurate to the best of the Company's knowledge.
8
<PAGE> 9
8.5. NTA Reliance - NTA has and will rely upon the documents,
instruments and written information furnished to NTA by the
Company its officers or designated employees.
9. CONFIDENTIALITY.
9.1. NTA and the Company each agree to provide reasonable security
measures to keep information confidential where release may be
detrimental to their respective business interests. NTA and
the Company shall each require their employees, agents,
affiliates, sub-Company's, other licensees, and others who
will have access to the information through NTA and the
Company respectively, to first enter into appropriate
non-disclosure Agreements requiring the confidentiality
contemplated by this Agreement in perpetuity.
9.2. NTA will not, either during its engagement by the Company
pursuant to this agreement or at any time thereafter,
disclose, use or make known for its or another's benefit, any
confidential information, knowledge, or data of the Company or
any of its affiliates in any way acquired or used by NTA
during its engagement by the Company. Confidential
information, knowledge or data of the Company and its
affiliates shall not include any information which is or
becomes generally available to the public other than as a
result of a disclosure by NTA or its representatives.
10. MISCELLANEOUS PROVISIONS.
10.1. Amendment and Modification - This Agreement and any part
thereof may be amended, waived, modified or supplemented only
by written Agreement of NTA and the Company.
10.2. Strict Compliance - No waiver or failure to insist upon strict
compliance with any obligation, covenant, agreement or
condition under this Agreement shall operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
10.3. 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 5:00 p.m.
(New York 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 5:00
p.m. (New York time); 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:
9
<PAGE> 10
If to the Company:
Queen Sand Resources, Inc.
13760 Noel Rd. Suite 1030 (L.B. 44)
Dallas, Texas 75240-7336
Telephone: 972-233-9906
Facsimile: 972-233-9575
Attention: Bruce I. Benn, Executive Vice-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: Bruce I. Benn, Executive Vice-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 NTA:
Northern Tier Asset Management, Inc.
1270 6th Avenue
12th Floor
New York, N.Y. 10020
Telephone: 619-759-2611
Facsimile: 619-759-2644
Attention: Tim Pinchin, Director
Each party shall provide five days' prior written notice to the other
party of any change in address or facsimile number.
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<PAGE> 11
10.4. Contact Persons. The Contact Person for the Company is Bruce
Benn, Executive Vice President. The Contact Person for NTA is
Tim J. Pinchin, Member and Director of Corporate Finance.
10.5. Assignment - This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns,
but neither this Agreement nor any right, interests or
obligations hereunder shall be delegated or assigned by any of
the parties hereto without the prior written consent of the
other party.
10.6. Publicity - Neither NTA nor the Company shall make or issue,
or cause to be made or issued, any announcement or written
statement concerning this Agreement or the transaction
contemplated hereby for dissemination to the general public
without the prior consent of the other party. This provision
shall not apply, however, to any announcement or written
statement required to be made by law or the regulations of any
federal or state governmental agency, except that the parties
shall agree concerning the timing and content of such
announcement before such announcement is made.
10.7. Governing Law - This Agreement and the legal relations among
the parties hereto shall be governed by and construed in
accordance with the laws of the State of Delaware, without
regard to its conflict of law doctrine. Notwithstanding the
provisions of paragraph 11 compelling compulsory arbitration,
the Company and NTA agree that if action is instituted to
enforce or interpret any provision of this Agreement the
jurisdiction and venue shall be in the state or federal court
sitting in New York City, New York.
10.8. Counterparts - This Agreement may be executed simultaneously
in two or more counterparts or by telefacsimile, each of which
shall be deemed an original, but all of which together shall
constitute one and the same instrument.
10.9. Headings - The heading of the Sections of this Agreement are
inserted for convenience only and shall not constitute a part
hereto or affect in any way the meaning or interpretation of
this Agreement.
10.10. Entire Agreement - This Agreement, including any Exhibits
hereto, and the other documents and certificates delivered
pursuant to the terms hereto, set forth the entire Agreement
and understanding of the parties hereto in respect of the
subject matter contained herein, and superseded all prior
Agreements, promise, covenants arrangements, communications,
representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto.
10.11. Attorneys' Fees and Costs - If any action is necessary to
enforce and collect upon the terms of this Agreement, the
prevailing party shall be entitled to reasonable
11
<PAGE> 12
attorneys' fees and costs, in addition to any other relief to
which that party may be entitled. This provision shall be
construed as applicable to the entire Agreement.
10.12. Survivability - If any part of this Agreement is found to be
invalid or unenforceable, that part shall be severable from
the remainder of this Agreement.
10.13. Further Assurances - Each of the parties agrees that it shall
from the time to time take such actions and execute such
additional instruments as may be reasonably necessary or
convenient to implement and carry out the intent and purpose
of this Agreement.
10.14. Right to Data After Termination - After termination of this
Agreement each party shall be entitled to the return of all
copies of any and all information provided to the other prior
to the date of termination and not previously returned to it.
10.15. Relationship of the Parties - NTA is an independent
contractor. Nothing contained in this Agreement shall be
deemed to cause either party to become the partner, agent or
legal representative of the other, nor create any fiduciary
relationship or joint venture between them, except as
otherwise expressly provided herein. It is not the intention
of the parties to create nor shall this Agreement be construed
to create any commercial relationship or other partnership.
Neither party shall have any authority to act for or to assume
any obligation or responsibility on behalf of the other party,
except as otherwise expressly provided herein.
11. ARBITRATION. The parties hereby agree to waive their right to seek remedy
in court, including their right to jury trial and to submit all disputes,
controversies, or differences between the Company or NTA or anyone claiming
through or under them including any of their respective officers,
directors, agents or employees, arising out of, in connection with or as a
result of this agreement, to final and binding arbitration rather than
through litigation.
11.1. Any disputing party shall submit the dispute for resolution in
New York, New York within five (5) days after receiving a
written request to do so from any of the aforesaid parties.
11.2. If any party to a dispute fails to submit the dispute to
arbitration on request, then the requesting party may itself
commence an arbitration proceeding, but is under no obligation
to do so.
11.3. If any party shall institute any court proceeding in an effort
to resist arbitration and be unsuccessful in resisting
arbitration or shall unsuccessfully contest the jurisdiction
of the arbitration forum, the prevailing party shall be
entitled to recover from the losing party its legal fees and
any out-of-pocket expenses
12
<PAGE> 13
incurred in connection with the defense of such legal
proceeding or its efforts to enforce its rights to arbitration
as provided for herein.
11.4. Any arbitration conducted hereunder shall be conducted by an
arbitrator selected by the American Arbitration Association.
Such arbitration shall be conducted pursuant to the commercial
Arbitration Rules of the American Arbitration Association.
11.5. The parties shall accept the decision of any award as being
final and conclusive and agree to abide thereby.
11.6. Any arbitration award shall be submitted to any court as a
basis for judgement and execution for collection.
12. TERMINATION. This Agreement shall terminate on July 31, 2000 or the date
that is 15 days following delivery of a Termination Notice by either party
to the other, whichever is earlier. Upon termination, any Warrants
remaining in possession of the Escrow Agent shall be returned to the
Company in accordance with the terms of the Escrow Agreement and, whether
or not the Agent has delivered such Warrants to the Company, the Company
may at its discretion cancel the Warrants.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
QUEEN SAND RESOURCES, INC.
By:
------------------------------------------
Edward J. Munden, President & Chief Executive Officer
By:
------------------------------------------
Bruce Benn, Executive Vice President
NTA: NORTHERN TIER ASSET MANAGEMENT, INC.
By:
------------------------------------------
Tim Pinchin, Member
13
<PAGE> 14
ADDENDUM
TO THE CONSULTING AGREEMENT
BETWEEN NTA AND QSR DATED APRIL 9, 1999
1. LOCKUP AND RESTRICTED SHARES. No lockup or restrictions shall be placed
upon the Officers', Insiders' and Directors' shares other than those
currently in place. However, the Company shall provide NTA with not less
than 3 days advance notice of any sales of the Company's securities by
officers and directors (other than sales of unrestricted securities or
sales made pursuant to any outstanding option plans) and the offering of
any securities of the Company (including any new Regulation D or Regulation
S offerings but excluding sales under any outstanding warrants, preference
shares or reset shares).
2. DTC REPORTS. The Company shall provide NTA with copies of any weekly DTC
reports as and when received by Company.
3. WARRANTS. The Company shall issue a total of 2,625,000 Warrants to NTA in
11 series as follows:
<TABLE>
<CAPTION>
NUMBER OF DEEMED
WARRANTS IN SERIES MAXIMUM
SERIES DESIGNATION EXPITATION DATE EXERCISE PRICE MARKET PRICE
----------- ----------- ----------------- -------------- ------------
<S> <C> <C> <C> <C>
450,000 1 July 31, 1999 $1.50 $2.00
450,000 2 July 31, 1999 $1.50 $2.00
450,000 3 September 30,1999 $1.50 $2.50
187,500 4 March 31, 2000 $1.50 $3.00
187,500 5 March 31, 2000 $1.50 $3.00
150,000 6 June 30, 2000 $1.50 $3.00
150,000 7 June 30, 2000 $1.50 $3.00
150,000 8 June 30, 2000 $1.50 $3.00
150,000 9 June 30, 2000 $1.50 $3.00
150,000 10 June 30, 2000 $1.50 $3.00
150,000 11 June 30, 2000 $1.50 $3.00
</TABLE>
4. WARRANT TERMS AND MANNER OF EXERCISE.
4.1. Each Warrant shall be exercisable for one share of common
stock of the Company (par value $0.0015) and, apart from the
Series Designation, Expiration Date, and Deemed Market Price,
all Warrants shall be in identical terms.
14
<PAGE> 15
4.2. Pending exercise, all warrants shall be deposited with an
Escrow Agent of the Company's choosing in accordance with the
terms of the Escrow Agreement attached hereto as Schedule B
For greater certainty the parties acknowledge and agree that
upon termination of the Agreement, all unexercised warrants
shall be returned to the written direction of the Company in
accordance with the terms of the Escrow Agreement.
4.3. The Exercise Notice, payment, Warrant and other documentation
required for exercise (including Cashless exercises) shall be
delivered to the Escrow Agent in accordance with the terms of
the Escrow Agreement.
4.4. NTA may pay the Exercise Price either in cash, by delivery of
immediately available funds or, at the election of NTA, by
Cashless Exercise, as defined below, or any combination
thereof.
4.5. The number of warrant shares pursuant to a Cashless Exercise
shall be determined in accordance with the following formula.
X = Y x (A-B)/B
Where:
X is the number of warrant shares to be issued to NTA
Y is the number of warrant shares in respect of which
the Warrant is being exercised.
A is the lesser of (i) the Deemed Maximum Market
Price applicable to the particular block and (ii)
the average of the closing bid prices of the common
stock for 5 trading days immediately prior to but
not including the Exercise Date.
B is the Exercise Price.
4.6. Subject to the terms hereof and the Warrant, NTA may exercise
the Warrants of any series at any time and from time to time
in whole or in part provided that, without the prior written
authorization of the Company, NTA may not exercise the
warrants of any series before May 15, 1999 and then only if
the warrants of all series having a lesser series number that
the warrants of the particular series being exercised have
been exercised in full and 30 days have expired since the last
exercise of any warrant having a lesser series number. For the
purposes of this paragraph, series 1 and 2 shall be considered
as one series.
4.7. Notwithstanding anything herein to the contrary, NTA shall,
upon exercise of any Warrant of series 1, leave blank the
provisions of paragraph 4 of the subscription form to be
completed by the Escrow Agent in accordance with the terms of
the Escrow Agreement and the Company may, at its option, cause
to be delivered to NTA unrestricted certificates of prior
issued shares of common stock in the place and stead
15
<PAGE> 16
of the Warrant Shares issuable in connection with the exercise
and, in such event, may deliver the Warrant Shares to such
other persons as it may determine.
4.8. Pending exercise, all warrants shall be deposited with an
Escrow Agent of the Company's choosing. Upon termination of
the Agreement, all unexercised warrants shall be returned to
the written direction of the Company.
4.9. In case of any conflict between the terms of the Warrant and
this addendum, the terms of the Warrant shall govern except
for the provisions of paragraph 4.6.
16
<PAGE> 1
EXHIBIT 5.1
[HAYNES AND BOONE, LLP LETTERHEAD]
May 7, 1999
Queen Sand Resources, Inc.
13760 Noel Road, Suite 1030
Dallas, TX 75240-7336
Re: Registration Statement on Form S-3 of 5,226,910 shares of Common Stock,
par value $.0015 per share, of Queen Sand Resources, Inc. ("Common
Stock")
Gentlemen:
We are securities counsel to Queen Sand Resources, Inc., a Delaware corporation
(the "Company"), in connection with the registration and issuance of up to
5,226,910 shares of Common Stock (the "Shares"), plus an indeterminate number of
additional shares of Common Stock issuable to prevent dilution resulting from
stock splits, stock dividends or similar events to be sold by the Selling
Stockholders named in the Prospectus constituting a part of this Registration
Statement (the "Selling Stockholders"), in some instances following the exercise
of warrants to purchase shares of Common Stock (the "Warrants") described in the
Prospectus.
We have examined such documents, records and matters of law as we have deemed
necessary for purposes of this opinion. Based on the foregoing, we are of the
opinion that the Shares are duly authorized and, and when issued to the Selling
Stockholders in accordance with the terms described in the Prospectus contained
in the Company's Registration Statement on Form S-3 to which this opinion is an
exhibit, will be validly issued, fully paid and nonassessable.
In rendering the foregoing opinion, we have relied as to certain factual matters
upon certificates of officers of the Company, the Selling Stockholders and
public officials, and we have not independently checked or verified the accuracy
of the statements contained therein.
We hereby consent to the filing of this opinion as Exhibit 5.1 to this
Registration Statement on Form S-3 filed by the Company to effect registration
of the Shares under the Securities Act of 1933, as amended, and to the reference
to us under the caption "Legal Matters" in the Prospectus constituting a part of
such Registration Statement.
Very truly yours
/s/ Haynes and Boone, LLP
Haynes and Boone, LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Queen Sand
Resources, Inc. (the "Company") for the registration of shares of its Common
Stock and to the incorporation by reference therein of (i) our report dated
September 2, 1998 with respect to the consolidated financial statements of the
Company included in its Annual Report (Form 10-KSB) for the year ended June 30,
1998 and (ii) our report dated April 17, 1998, with respect to the statements of
net profits interests and royalty interests revenues of certain oil and gas
producing properties acquired from pension funds managed by J.P. Morgan
Investments for the years ended June 30, 1997, 1996 and 1995 appearing in the
Company's Current Report on Form 8-K dated March 19, 1998, as amended by Current
Report on Form 8-K/A-2 dated June 8, 1998 and filed with the Securities and
Exchange Commission.
Ernest & Young LLP
May 6, 1999
<PAGE> 1
EXHIBIT 23.3
[H.J. GRUY AND ASSOCIATES, INC. LETTERHEAD]
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We hereby consent to (i) the incorporation by reference in the
Prospectus (the "Prospectus") constituting a part of the Registration Statement
on Form S-3 filed by Queen Sand Resources, Inc., a Delaware corporation (the
"Company"), under the Securities Act of 1933, of information contained in our
reserve reports relating to the proved oil and natural gas reserves and future
net revenues of oil and natural gas reserves of the Company as of June 30, 1997
(other than with respect to the Property Acquisitions (as defined in the
Prospectus)) and June 30, 1998 (other than with respect to the Morgan Properties
(as defined in the Prospectus)) and all references to such report letters and/or
this firm in such Prospectus and (ii) further consent to our being named as an
expert therein in the section titled "Engineers."
H.J. GRUY AND ASSOCIATES, INC.
By: /s/ ROBERT J. NAAS
-----------------------------------
Name: Robert J. Naas
Title: Executive Vice President
January 21, 1999
<PAGE> 1
EXHIBIT 23.4
[HARPER & ASSOCIATES, INC. LETTERHEAD]
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We hereby consent to (i) the incorporation by reference in the
Prospectus (the "Prospectus") constituting a part of the Registration Statement
on Form S-3 filed by Queen Sand Resources, Inc., a Delaware corporation (the
"Company"), under the Securities Act of 1933, of information contained in our
reserve reports relating to the proved oil and natural gas reserves and future
net revenues of oil and natural gas reserves as of June 30, 1996 and all
references to such report letters and/or this firm in such Prospectus and (ii)
further consent to our being named as an expert therein in the section titled
"Engineers."
HARPER & ASSOCIATES, INC.
/s/ G.M. HARPER
-----------------------------------
<PAGE> 1
EXHIBIT 23.5
[RYDER SCOTT COMPANY LETTERHEAD]
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We hereby consent to (i) the incorporation by reference in the
Prospectus (the "Prospectus") constituting a part of the Registration Statement
on Form S-3 filed by Queen Sand Resources, Inc., a Delaware corporation (the
"Company"), under the Securities Act of 1933, of information contained in our
reserve reports relating to the proved oil and natural gas reserves and future
net revenues of oil and natural gas reserves as of June 30, 1998 with respect
to the Morgan Properties (as defined in the Prospectus) and all references to
such report letters and/or this firm in such Prospectus and (ii) further
consent to our being named as an expert therein in the section titled
"Engineers."
/s/ RYDER SCOTT COMPANY
-----------------------------------------
Petroleum Engineers
Ryder Scott Company Petroleum Engineers
