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EXHIBIT 1.2
SECURITIES PURCHASE AGREEMENT
BETWEEN
QUEEN SAND RESOURCES, INC.
AND
FORSETI INVESTMENTS LTD.
DATED: MARCH 27, 1997
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TABLE OF CONTENTS
PAGE
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ARTICLE 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2. REPURCHASE OF SHARES; ISSUANCE OF WARRANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Repurchase of Shares; Issuance of Warrants. . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Deliveries of Stockholder. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Deliveries of the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.1 Organization and Standing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.3 Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.4 Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.5 No Breach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.6 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.7 Investment Purposes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.8 Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.9 No Interested Director Transaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.1 Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.3 Valid Issuance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.4 No Breach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.5 Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 5. PRE-CLOSING COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.1 Covenants of Stockholder. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.2 Covenants of the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 6. CONDITIONS TO OBLIGATIONS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.1 Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.2 Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.3 First Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.4 Delivery of Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.5 Surplus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.6 Release. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 7. CONDITIONS TO OBLIGATIONS OF THE STOCKHOLDER . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.1 Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.2 Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.3 Delivery of Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.4 Legal Opinion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 8. RESTRICTIONS ON TRANSFER; ESCROW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8.1 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8.2 Permitted Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(i)
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8.3 Required Transfer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
8.4 Restrictions on Sale and Resale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
8.5 Permitted Transferees Bound. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.6 Compliance with Regulation S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.7 Legend. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.8 Escrow. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE 9. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
9.1 Indemnification of the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
9.2 Indemnification of Stockholder. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
9.3 Notice and Opportunity to Defend. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
9.4 Termination of Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
9.5 No Consequential Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 10. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 11. DISPUTE RESOLUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
11.1 Mediation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
11.2 Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 12. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
12.1 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
12.2 Governing Law; Choice of Forum;
Consent to Service of Process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
12.3 Invalid Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
12.4 Entirety and Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
12.5 Parties Bound. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
12.6 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
12.7 Section and Other Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
12.8 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
12.9 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
12.10 Specific Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
12.11 Further Documents and Actions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
EXHIBIT A CLASS A WARRANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
EXHIBIT B CLASS B WARRANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
EXHIBIT C EARN UP AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
EXHIBIT D JEDI EARN UP AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
EXHIBIT E ESCROW AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
EXHIBIT F FORM OF STOCK POWER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
EXHIBIT G FORM OF RELEASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
EXHIBIT H FORM OF LEGAL OPINION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(ii)
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SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is executed as of
the 27th day of March, 1997, between Queen Sand Resources, Inc., a Delaware
corporation ("Company"), and Forseti Investments Ltd., a corporation organized
under the laws of Barbados ("Stockholder").
WHEREAS, the Stockholder owns the Shares (defined below); and
WHEREAS, the Company has entered into the JEDI Purchase Agreement
(defined below) with JEDI (defined below) pursuant to which the Company will
issue shares of the Company's Series A Participating Convertible Preferred
Stock, par value $.01 per share, subject to the terms and conditions of the
JEDI Agreement; and
WHEREAS, immediately following the closing under the JEDI Agreement,
the Stockholder desires to sell to the Company, and the Company desires to
repurchase, the Shares pursuant to the terms and conditions in this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Stockholder and the Company
agree as follows:
ARTICLE 1.
DEFINITIONS
"AAA" means the American Arbitration Association, or any successor
organization.
"Agreement" is defined in the introductory paragraph to this
Agreement.
"Asserted Liability" is defined in Section 9.3.
"Class A Warrants" means the Class A Common Stock Purchase Warrants to
purchase 1,000,000 shares of Common Stock, substantially in the form of Exhibit
A to this Agreement.
"Class B Warrants" means the Class B Common Stock Purchase Warrants to
purchase 2,000,000 shares of Common Stock, substantially in the form of Exhibit
B to this Agreement.
"Common Stock" means the common stock, par value $.0015 per share, of
the Company.
"Company" is defined in the introductory paragraph to this Agreement.
"Consequential Damages" is defined in Section 9.5.
"Dispute" is defined in Section 11.1.
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"Earn Up Agreement" means the Earn Up Agreement to be entered into
between the Company and Stockholder substantially in the form of Exhibit C to
this Agreement.
"Escrow Agreement" means the Escrow Agreement substantially in the
form of Exhibit E to this Agreement to be entered into among the Company, the
Stockholder, and an escrow agent mutually acceptable to the Company and the
Stockholder.
"First Closing" means the closing of the transactions contemplated
under the JEDI Agreement.
"Holder" means Stockholder and its permitted assignees.
"Indemnitee" is defined in Section 9.3.
"Indemnitor" is defined in Section 9.3.
"JEDI" means Joint Energy Development Investments Limited Partnership,
a Delaware limited partnership.
"JEDI Agreement" means the Securities Purchase Agreement, dated of
even date herewith, between the Company and JEDI.
"JEDI Earn Up Agreement" means the Earn Up Agreement to be entered
into between the Company and JEDI substantially in the form of Exhibit D to
this Agreement.
"Lien" is defined in Section 2.1.
"Losses" is defined in Section 9.1.
"Mediator" is defined in Section 11.1.
"Person" means any individual, corporation, limited or general
partnership, joint venture, association, joint- stock company, trust, limited
liability company, unincorporated organization or government or any agency or
political subdivision thereof.
"Restricted Period" is defined in Section 8.3.
"Second Closing" is defined in Section 2.2.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means the 9,600,000 shares of Common Stock owned beneficially
and of record by Stockholder evidenced by stock certificates Nos. 515 through
610.
"Stockholder" is defined in the introductory paragraph to this
Agreement.
"Transfer" means any exercise, sale, transfer, encumbrance, gift,
donation, assignment, grant of any interest, pledge, hypothecation or other
disposition of any Warrants or Warrant
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Shares or any interest therein, whether voluntary or involuntary, including,
but not limited to, any transfer by operation of law, by court order, by
judicial process, or by foreclosure, levy, or attachment.
"Transferee" is defined in Section 8.2.
"U.S. person" is defined in Section 3.7.
"United States" is defined in Section 3.7.
"Warrant Shares" means any share of Common Stock issued or issuable
upon exercise of the Warrants.
"Warrants" means, collectively, the Class A Warrants and the Class B
Warrants.
ARTICLE 2.
REPURCHASE OF SHARES; ISSUANCE OF WARRANTS
2.1 Repurchase of Shares; Issuance of Warrants. At the
Second Closing and subject to the terms and conditions in this Agreement, the
Stockholder shall sell to the Company, and the Company shall purchase from the
Stockholder, the Shares, free and clear of any claim, lien, encumbrance or
limitation whatsoever (a "Lien") for an aggregate purchase price of (i) U.S.
$5,000,000 cash, (ii) the Class A Warrants, (iii) the Class B Warrants, and
(iv) the execution and delivery by the Company of the Earn Up Agreement.
2.2 Closing. Upon satisfaction or waiver of the
conditions precedent set forth in Articles 6 and 7, and unless this Agreement
shall have been terminated and the transactions herein contemplated shall have
been abandoned pursuant to the provisions of Article 10, the closing of the
sale and purchase of the Shares, the issuance of the Warrants, and the
execution and delivery of the Earn Up Agreement (the "Second Closing") shall
take place immediately upon consummation of the First Closing, which shall
occur as soon as practicable on or after the date that is 20 days after the
Company mails a Schedule 14C Information Statement to its stockholders.
2.3 Deliveries of Stockholder. At the Second Closing,
Stockholder shall deliver to the Company, against delivery by the Company of
the items specified in Section 2.4: (i) certificates Nos. 515 through 610
representing the Shares, endorsed in blank or accompanied by an executed stock
power in the form of Exhibit F, with all signatures guaranteed and in a form
acceptable to the Company's transfer agent, (ii) the Earn Up Agreement, duly
executed by the Stockholder, (iii) the Escrow Agreement, duly executed by the
Stockholder, and (iv) a certificate of an officer of the Stockholder certifying
the matters set forth in Sections 6.1 and 6.2.
2.4 Deliveries of the Company. At the Second Closing,
the Company shall, against delivery by the Stockholder of the items specified
in Section 2.3: (i) deliver $5,000,000 by wire or intrabank transfer of
immediately available funds to an account of the Stockholder in Houston, Texas
and acceptable to the Company, (ii) issue the Warrants, which Warrants
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shall be deposited with an escrow agent mutually acceptable to the Stockholder
and the Company pursuant to the Escrow Agreement, (iii) deliver to the
Stockholder the Earn Up Agreement, duly executed by the Company, (iv) deliver
to the Stockholder the Escrow Agreement, duly executed by the Company and the
escrow agent, and (v) deliver to the Stockholder a certificate of an officer of
the Company certifying the matters set forth in Sections 7.1 and 7.2.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER
Stockholder represents and warrants to the Company as follows:
3.1 Organization and Standing. Stockholder is a
corporation duly organized, validly existing and in good standing under the
laws of Barbados and has the requisite corporate power and authority to own,
lease and operate its properties and assets and carry on its business as
currently conducted (and as proposed to be conducted). All of the equity
interests of Stockholder are free and clear of any Liens.
3.2 Authorization. The Stockholder has full right, power
(corporate and other) and authority to enter into this Agreement, the Escrow
Agreement, and the Earn Up Agreement and to sell, assign, transfer, and deliver
the Shares. All necessary actions have been taken to ensure that the
execution, delivery, and performance by the Stockholder of this Agreement, the
Earn Up Agreement, the Escrow Agreement, and the consummation of the
contemplated transactions herein and therein have been duly authorized. This
Agreement has been, and at the Second Closing the Earn Up Agreement and the
Escrow Agreement will have been, duly executed and delivered by the Stockholder
and, assuming due execution by the Company, this Agreement constitutes, and at
the Second Closing each of the Earn Up Agreement and the Escrow Agreement will
constitute, the valid, legal, and binding obligation of the Stockholder,
enforceable against the Stockholder in accordance with their respective terms
except as limited by bankruptcy, insolvency, or other similar laws of general
application relating to the enforcement of creditors' rights.
3.3 Title. Stockholder is the owner beneficially and of
record of the Shares. As of the date of this Agreement, the Stockholder has
good and valid title to the Shares, free and clear of all Liens, other than
Certificate No. 610 representing 100,000 shares of Common Stock which is
pledged to Banque Cantonale de Geneve. At the Second Closing, the Stockholder
will have good and valid title to the Shares, free and clear of all Liens. At
the Second Closing, good and valid title to the Shares, free and clear of all
Liens, will pass to the Company. There are no outstanding options, calls,
commitments, voting agreements, participations or other contracts relating to
the Shares.
3.4 Approvals. No authorizations, approvals or consents
of, and no filings or registrations with, any governmental or regulatory
authority or agency or other Person, which have not already been made or
obtained, are necessary for the execution, delivery or performance by the
Stockholder of this Agreement, the Escrow Agreement, the Earn Up Agreement, and
the consummation of the transactions contemplated herein and therein or the
validity or enforceability hereof or thereof.
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3.5 No Breach. Assuming (i) the accuracy of the
representations and warranties of the Company, (ii) compliance with the
covenants of the Company, (iii) consummation of the JEDI Agreement, and neither
the execution and delivery of this Agreement, the Escrow Agreement, the Earn Up
Agreement, nor the consummation of the transactions herein or therein
contemplated, will conflict with or result in a breach of, or require any
consent under, the organizational documents of the Stockholder, or any
applicable law or regulation, or any order, writ, injunction or decree of any
court or governmental authority or agency, or any agreement or instrument to
which the Stockholder is a party or by which it is bound or to which any of its
properties or assets is subject, or constitute a default under any such
agreement or instrument or result in the creation or imposition of any Lien
upon any of the revenues or assets of the Stockholder pursuant to the terms of
any such agreement or instrument.
3.6 No Litigation. There are no actions, suits or
proceedings pending before any administrative tribunal or court of law, or
before any mediator or arbitrator (and to the knowledge of the Stockholder,
there is no basis for any such action, suit or proceeding), against or
affecting the Shares or Stockholder's interest in the Shares.
3.7 Investment Purposes.
(a) The Warrants and the Warrant Shares will be
acquired by the Stockholder for its own account for the purpose of
investment and not for offer or sale in any manner that would be in
violation of the securities laws of the United States of America or
any state thereof. The Stockholder (i) is not a U.S. person within
the meaning Regulation S promulgated under the Securities Act (a "U.S.
person"), (ii) is not acquiring the Warrants and will not acquire any
Warrant Shares for the account or benefit of any "U.S. person", and
(iii) is not organized under the laws of the United States of America,
its territories and possessions, any State of the United States or the
District of Columbia (the "United States"), and (iv) was not organized
for the purpose of acquiring the Warrants or any Warrant Shares, and
(v) is not registered under the Securities Exchange Act of 1934, as
amended, (vi) is not part of an identifiable group of U.S. citizens
abroad, and (vii) is not purchasing the Warrants in any transaction or
series of transactions that, although in technical compliance with
Regulation S, is part of a plan or scheme to evade the registration
provisions of the Securities Act in the United States. The
Stockholder has executed this Agreement outside the United States, and
at the time the buy order for the Warrants was originated the
Stockholder was outside the United States. All offers to the
Stockholder of the Warrants and the sale of the Warrants have occurred
outside the United States.
(b) The Stockholder is knowledgeable,
sophisticated and experienced in financial and business matters and in
making, and is qualified to make, decisions with respect to
investments in restricted securities (such as this Agreement, the
Warrants and the Warrant Shares) and has requested, received, reviewed
and considered all information it deems relevant in making a decision
to execute this Agreement and to purchase the Warrants. The
Stockholder acknowledges that it is capable of evaluating the merits
and risks of an investment in the Warrants and the Warrant Shares.
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(c) The Stockholder acknowledges that at all
times following its initial contact with the Company or its agents
pertaining to the Warrants and the Warrant Shares and through the
Second Closing, the Company made available to the Stockholder the
opportunity to ask questions and receive answers concerning the Company
and the terms and conditions of the offering, the Warrants and the
Warrant Shares, and to obtain any additional information that the
Company possesses or could acquire without unreasonable effort or
expense that is necessary to verify the accuracy of the information
furnished to the Stockholder.
(d) The Stockholder understands, acknowledges and
agrees that (a) the Warrants and the Warrant Shares have not been and
will not be registered under the Securities Act, or under any state or
foreign securities or blue sky laws, and may not be exercised,
offered, sold, transferred, pledged or otherwise disposed of in the
United States or to, or for the account or benefit of, any "U.S.
person," unless such securities are registered under the Securities
Act and any applicable state and foreign securities or blue sky laws
or exemptions from the registration requirements of the Securities Act
and any applicable state and foreign securities or blue sky laws are
available, (b) the Warrants and the Warrant Shares are being offered
and sold pursuant to the terms of Regulation S under the Securities
Act which permits securities to be sold to persons who are not "U.S.
persons" in "offshore transactions," subject to certain terms and
conditions and (c) the Warrants and the Warrant Shares will not have
been registered under the Securities Act of 1933 and will not be
freely transferable and may not be resold, transferred or assigned
except in compliance with the Securities Act and Article 8 of this
Agreement. Stockholder acknowledges that a statement or legend
reflecting the foregoing limitations will appear on any certificate or
other document evidencing ownership of the Warrants or the Warrant
Shares.
3.8 Brokers. Except for bank fees and charges in the ordinary
course of business, neither Stockholder, nor anyone acting on its
behalf has incurred or caused to be incurred any liability on the part of
Stockholder for any fee or commission in the nature of a finder's, originator's
or broker's fee in connection with any of the transactions contemplated by this
Agreement.
3.9 No Interested Director Transaction. Neither this Agreement,
nor the Earn Up Agreement or the Escrow Agreement, nor the transactions
contemplated hereby or thereby, constitutes a contract or transaction between
the Company and one or more of its directors or officers or between the Company
and any other corporation in which one or more of its directors or officers are
directors or officers or have a financial interest.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Stockholder as follows:
4.1 Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has the requisite corporate
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power and authority to own, lease and operate its properties and assets and
carry on its business as currently conducted (and as proposed to be conducted).
4.2 Authorization. The Company has full right, power
(corporate and other) and authority to enter into this Agreement, the Escrow
Agreement, the Earn Up Agreement, and the Warrants. All necessary actions have
been taken to ensure that the execution, delivery, and performance by the
Company of this Agreement, the Earn Up Agreement, the Escrow Agreement, the
Warrants, and the consummation of the contemplated transactions herein and
therein have been duly authorized. This Agreement has been, and at the Second
Closing the Earn Up Agreement, the Escrow Agreement, and the Warrants will have
been, duly executed and delivered by the Company and, assuming due execution by
the Stockholder, this Agreement constitutes, and at the Second Closing each of
the Earn Up Agreement, the Escrow Agreement, and the Warrants will constitute,
the valid, legal, and binding obligation of the Company, enforceable against
the Company in accordance with their respective terms (except as limited by
bankruptcy, insolvency or other laws of general application relating to the
enforcement of creditors' rights).
4.3 Valid Issuance. When issued in compliance with the
provisions of Article 2, the Warrants will be valid and binding obligations of
the Company, enforceable in accordance with their respective terms. When
issued and delivered in accordance with the Warrants, the Warrant Shares will
be duly authorized, validly issued, fully paid and nonassessable.
4.4 No Breach. Assuming (i) the accuracy of the
representations and warranties of the Stockholder, (ii) compliance with the
covenants of the Stockholder, and (iii) consummation of the JEDI Agreement,
neither the execution and delivery of this Agreement, the Earn Up Agreement,
the Escrow Agreement, or the Warrants, nor the consummation of the
transactions herein or therein contemplated, including the issuance and
delivery of the Warrants and, upon the exercise of the Warrants, the Warrant
Shares, nor compliance by the Company with the terms and provisions hereof or
thereof, will conflict with or result in a breach of, or require any consent
under, the Certificate of Incorporation or Bylaws of the Company, or any
applicable law or regulation, or any order, writ, injunction or decree of any
court or governmental authority or agency, or any agreement or instrument to
which the Company is a party or by which it is bound or to which any of its
properties or assets is subject, or constitute a default under any such
agreement or instrument or result in the creation or imposition of any Lien
upon any of the revenues or assets of the Company pursuant to the terms of any
such agreement or instrument, other than a conflict or breach which would not
have a material adverse effect on the Company and its subsidiaries taken as a
whole.
4.5 Approvals. No authorizations, approvals or consents
of, and no filings or registrations with, any governmental or regulatory
authority or agency or other Person, which have not already been made or
obtained, are necessary for the execution, delivery or performance by the
Company of this Agreement, the Earn Up Agreement, the Escrow Agreement, or the
Warrants and the Warrant Shares and the consummation of the transactions
contemplated herein and therein or the validity or enforceability hereof or
thereof.
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ARTICLE 5.
PRE-CLOSING COVENANTS
5.1 Covenants of Stockholder. From the date of this
Agreement until the earlier of the termination of this Agreement or the Second
Closing, except as otherwise consented by the Company in writing, Stockholder
shall:
(a) not (i) sell, transfer, assign, pledge,
hypothecate, or dispose of any of the Shares; (ii) grant a proxy or
enter into a voting agreement with respect to any of the Shares; or
(iii) enter into an agreement with respect to any of the foregoing;
and
(b) use its commercially reasonable efforts to
take all actions and to do all things reasonably necessary, proper or
advisable to satisfy the conditions of the parties to the obligations
hereunder prior to the First Closing and to consummate the
transactions contemplated by this Agreement immediately upon
consummation of the First Closing.
5.2 Covenants of the Company. From the date of this
Agreement until the earlier of the termination of this Agreement or the Second
Closing, except as otherwise consented by the Stockholder in writing, the
Company shall use its commercially reasonable efforts to take all actions and
to do all things reasonably necessary, proper or advisable to satisfy the
conditions of the parties to the obligations hereunder prior to First Closing
and to consummate the transactions contemplated by this Agreement immediately
upon consummation of the First Closing.
ARTICLE 6.
CONDITIONS TO OBLIGATIONS OF THE COMPANY
The obligations of the Company hereunder are subject to the
fulfillment, at or before the Second Closing, of each of the following
conditions (all or any of which may be waived in writing in whole or in part by
the Company). Stockholder shall use all commercially reasonable efforts to
fulfill, at or before the Second Closing, such of the following conditions (or
portions thereof) over which it has control:
6.1 Representations and Warranties. The representations
and warranties made by the Stockholder in this Agreement shall be true in all
material respects as of the date hereof and as of the date of the Second
Closing as if made upon the date of the Second Closing.
6.2 Performance. The Stockholder shall have performed
and complied with, in all material respects, all agreements, covenants,
obligations, and conditions required by this Agreement to be so performed or
complied with by the Stockholder at or before the Second Closing.
6.3 First Closing. The First Closing shall have
occurred.
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6.4 Delivery of Documents. The Stockholder shall have
delivered the documents and other instruments set forth in Section 2.3.
6.5 Surplus. The Company shall have adequate surplus to
repurchase the Shares.
6.6 Release. Stockholder shall have executed and
delivered a release to the Company substantially in the form of Exhibit G to
this Agreement.
ARTICLE 7.
CONDITIONS TO OBLIGATIONS OF THE STOCKHOLDER
The obligations of the Stockholder hereunder are subject to the
fulfillment, at or before the Second Closing, of each of the following
conditions (all or any of which may be waived in writing in whole or in part by
the Stockholder). The Company shall use all commercially reasonable efforts to
fulfill, at or before the Second Closing, such of the following conditions (or
portions thereof) over which it has control:
7.1 Representations and Warranties. The representations
and warranties made by the Company in this Agreement shall be true in all
material respects as of the date hereof and as of the date of the Second
Closing as if made upon the date of the Second Closing.
7.2 Performance. The Company shall have performed and
complied with, in all material respects, all agreements, covenants,
obligations, and conditions required by this Agreement to be so performed or
complied with by the Company at or before the Second Closing.
7.3 Delivery of Documents. The Company shall have
delivered the documents and other instruments set forth in Section 2.4.
7.4 Legal Opinion. The Company shall have delivered to
the Stockholder a legal opinion of ▇▇▇▇▇▇ and ▇▇▇▇▇, LLP substantially in the
form of Exhibit H to this Agreement.
ARTICLE 8.
RESTRICTIONS ON TRANSFER; ESCROW
8.1 General. A Holder shall not make or suffer any
Transfer of all or any part of its Warrants or Warrant Shares except in
accordance with the terms of this Agreement and the Warrants, and any purported
Transfer not made in compliance with this Agreement and the Warrants shall be
void and of no force and effect.
8.2 Permitted Transfers. Subject to the other provisions
of this Article 8, Stockholder may Transfer all or any part of its Warrants or
Warrant Shares (i) at any time with the prior written consent of the Company
(which consent shall not be unreasonably withheld); or (ii) at any time on or
after the first anniversary of the Second Closing; provided, that, in either
case
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(a) Stockholder shall have delivered notice to
the Company that Stockholder desires to Transfer any of the Warrants
or the Warrant Shares, which notice shall describe in reasonable
detail the material terms of such proposed Transfer, including,
without limitation, the number of Warrants and/or Warrant Shares to be
Transferred, the identity of the proposed transferee (the
"Transferee"), the amount and form of the consideration to be paid to
Stockholder for the proposed Transfer, and the place where the
Warrants or Warrant Shares are to be delivered upon consummation of
the proposed transfer;
(b) Stockholder shall have delivered to the
Company a notarized statutory declaration from the Transferee
certifying the material terms of the proposed transfer, including,
without limitation, the amount and form of the consideration to be
paid to Stockholder for the proposed Transfer and such certifications
as the Company reasonably requests to ensure compliance with
Regulation S promulgated under the Securities Act, or another
exemption from the United States securities laws and that the
Transferee agrees to hold the Warrants or Warrant Shares subject to
the terms and conditions set forth in the Warrant and this Agreement;
(c) The Transferee shall have deposited the
consideration for the proposed Transfer into the escrow account under
the Escrow Agreement or such other location as the Company and the
Stockholder may mutually agree; and
(d) The proposed Transfer (including, without
limitation, a proposed Transfer that is an exercise) must involve at
least 100,000 Class A Warrants or Class B Warrants (or if at the time
of the proposed Transfer, the Stockholder owns less than 100,000 of
Class A Warrants or Class B Warrants, then the proposed Transfer must
involve all of the Class A Warrants or Class B Warrants then owned by
the Holder).
8.3 Required Transfer. If at any time on or before
September 30, 1998 the Company identifies a proposed Transferee of the Warrants
who is willing to purchase for cash at least 100,000 Warrants (provided that if
at the time of the proposed Transfer the Stockholder owns less than 100,000
Warrants, the proposed Transfer must involve all of the Warrants owned by the
Stockholder) for a purchase price of at least $2.40 per Class A Warrant and/or
for a purchase price of at least $3.50 per Class B Warrant and the Company has
determined that the proposed Transfer would comply with the provisions of
Sections 8.4 and 8.6, then upon notice by the Company to the Stockholder, the
Stockholder shall Transfer the Class A Warrants and/or Class B Warrants to the
proposed Transferee in accordance with the terms of the proposed Transfer
specified in the Company's notice to the Stockholder.
8.4 Restrictions on Sale and Resale.
(a) For a period of one year following the Second
Closing (the "Restricted Period"), Holder, its affiliates and any
person acting on its behalf shall not make any directed selling
efforts (as defined in Regulation S) in the United States in
connection with any offer or sale of the Warrants or the Warrant
Shares and shall not engage in any activity undertaken for the purpose
of, or that could reasonably be expected to have the effect of,
conditioning the market in the United States for the Warrants or the
Warrant Shares, or offer, sell, transfer, pledge or otherwise dispose
of the
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Warrants or the Warrant Shares or any interest therein, in the United
States or to, or for the account or benefit of, a "U.S. person."
(b) Holder understands and agrees that the
Warrants are transferable only on the books and records of the Company
and that the Warrant Shares are transferable only on the books and
records of the transfer agent in respect of the Common Stock.
(c) Unless registered under the Securities Act,
any proposed offer or Transfer of the Warrants or the Warrant Shares
during the Restricted Period or before the legend on the Warrants is
removed from any of the Warrants or any of the Warrant Shares or any
interest therein shall be subject to the condition that each of the
Holders must deliver to the Company (i) a written certification that
neither record nor beneficial ownership of the Warrants or the Warrant
Shares or any interest therein has been offered or sold in the United
States or to, or for the account or benefit of, any "U.S. person";
(ii) a written certification of the proposed transferee that such
transferee (or any account for which such transferee is acquiring such
Warrants or Warrant Shares or any interest therein) is not a "U.S.
person" or purchasing the Warrants or Warrant Shares for the account
or benefit of a "U.S. person", that such transferee is acquiring such
Warrants or Warrant Shares or such interest therein for such
transferee's own account (or an account over which it has investment
discretion) for investment purposes and not with a view to a
distribution, that such transferee did not receive any other offer
relating to the Warrants or Warrant Shares in the United States, that
at the time the buy order was originated, such transferee was outside
the United States, that such transferee is not a U.S. citizen part of
an identifiable group of U.S. citizens abroad, and that such
transferee is knowledgeable of and agrees to be bound by the
restrictions on resale set forth in this Agreement and Regulation S
during the Restricted Period and that such transferee agrees that
until the expiration of the Restricted Period, it will not, directly
or indirectly, execute or effect or cause to be executed or effected
any short sale, option, or equity swap transactions in or relating to
the Common Stock or any other derivative security transactions the
purpose or effect of which is to hedge or transfer to a third party
all or any part of the risk of loss associated with the ownership of
the Warrants or any of the Warrant Shares to be acquired from the
proposed transferor; and (iii) a written opinion of United States
legal counsel, in form and substance satisfactory to the Company, to
the effect that the offer, sale and transfer of the Warrants or the
Warrant Shares or any interest therein, as the case may be, are exempt
from registration under the Securities Act and any applicable state
securities or blue sky laws, and the rules and regulations promulgated
thereunder.
(d) A Holder will not, directly or indirectly,
voluntarily offer, sell, pledge, transfer or otherwise dispose of (or
solicit any offers to buy, purchase or otherwise acquire or take a
pledge of) its rights under this Agreement, the Warrants, the Warrant
Shares or any interest therein otherwise than in compliance with the
Securities Act, any applicable state securities or blue sky laws and
any applicable securities laws of jurisdictions outside the United
States, and the rules and regulations promulgated thereunder.
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8.5 Permitted Transferees Bound. Prior to the Transfer
of Warrants or Warrant Shares, the Holder shall obtain a written agreement from
the Transferee (the "Permitted Transferee"), in form and substance reasonably
satisfactory to the Company, stating that the Transferee agrees to hold such
Warrant or Warrant Shares subject to the terms and conditions set forth in the
Warrant and this Agreement.
8.6 Compliance with Regulation S.
(a) Holder agrees that all offers and sales of
the Warrants or Warrant Shares prior to the expiration of the
Restricted Period shall be made only in accordance with the provisions
of Section 903 or 904 of Regulation S, pursuant to the registration of
the Warrants or the Warrant Shares under the Securities Act, or
pursuant to an available exemption from the registration requirements
of the Securities Act. In connection with the offer and sale of the
Warrants or Warrant Shares, a Holder will (i) not make an offer to a
person in the United States or to an identifiable group of U.S.
citizens abroad, and (ii) take all appropriate action so that at the
time the buy order is originated, it reasonably believes that the
buyer is outside the United States.
(b) All offering materials and documents used by
a Holder in connection with offers and sales of the Warrants or the
Warrant Shares prior to the expiration of the Restricted Period shall
include statements to the effect that the securities have not been
registered under the Securities Act, and may not be offered or sold in
the United States or to "U.S. persons" (other than distributors)
unless the securities are registered under the Securities Act, or an
exemption from the registration requirements of the Securities Act, is
available.
(c) No offer or sale of the Warrants or Warrant
Shares made prior to the expiration of the Restricted Period shall be
made by a Holder to a "U.S. person" or for the account or benefit of a
"U.S. person" (other than a distributor).
(d) If a Holder sells the Warrants or the Warrant
Shares to a distributor, a dealer (as defined in Section 2(12) of the
Securities Act, or a person receiving a selling concession or other
remuneration in respect of the securities sold, prior to the
expiration of the Restricted Period, a Holder shall send a
confirmation or other notice to the purchaser stating that the
purchaser is subject to the same restrictions on offers and sales that
apply to the Holder.
8.7 Legend. Each Warrant or certificate or instrument
(if any) representing the Warrant Shares issued upon exercise of the Warrants
(and each Warrant or certificate or instrument (if any) representing the
Warrant Shares issued to transferees of such Warrant or certificate or
instrument (if any)), unless at such time as the same is no longer required
under the applicable requirements of the Securities Act, or any applicable
state securities laws, shall bear the following legend:
On the Warrants:
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"THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON
STOCK ISSUABLE UPON EXERCISE THEREOF (THE "SECURITIES") HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR ANY OTHER UNITED STATES FEDERAL OR STATE SECURITIES OR
BLUE SKY LAWS OR APPLICABLE NON-UNITED STATES SECURITIES LAWS, AND
HAVE BEEN ISSUED IN A MANNER INTENDED TO COMPLY WITH THE CONDITIONS
CONTAINED IN REGULATION S UNDER THE ACT. PRIOR TO _______________,
1998, NO OFFER, SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION
(COLLECTIVELY, A "DISPOSAL") OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE MAY BE MADE (A) IN THE UNITED STATES OR TO, OR FOR THE
ACCOUNT OR BENEFIT OF, ANY "U.S. PERSON" (AS DEFINED IN REGULATION S)
UNLESS (i) REGISTERED UNDER THE ACT AND ANY APPLICABLE STATE
SECURITIES OR BLUE SKY LAWS OR (ii) QUEEN SAND RESOURCES, INC. (THE
"COMPANY") RECEIVES A WRITTEN OPINION OF UNITED STATES LEGAL COUNSEL
IN FORM AND SUBSTANCE SATISFACTORY TO IT TO THE EFFECT THAT SUCH
DISPOSAL IS EXEMPT FROM SUCH REGISTRATION REQUIREMENTS OR (B) OUTSIDE
THE UNITED STATES TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY PERSON WHO
IS NOT A "U.S. PERSON" UNLESS PRIOR TO SUCH DISPOSAL (i) THE
BENEFICIAL OWNER OF SUCH SECURITIES AND THE PROPOSED TRANSFEREE SUBMIT
CERTAIN CERTIFICATIONS TO THE COMPANY (FORMS OF WHICH ARE AVAILABLE
FROM THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICES) AND (ii) THE
COMPANY RECEIVES THE LEGAL OPINION DESCRIBED IN (A)(ii) ABOVE. THE
SECURITIES ARE ALSO SUBJECT TO CERTAIN RESTRICTIONS UPON TRANSFER AS
SET FORTH IN THIS WARRANT AND THE SECURITIES PURCHASE AGREEMENT DATED
AS OF _______________, 1997."
On the Warrant Shares:
"THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE (THE
"SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY OTHER UNITED
STATES FEDERAL OR STATE SECURITIES OR BLUE SKY LAWS OR APPLICABLE
NON-UNITED STATES SECURITIES LAWS, AND HAVE BEEN ISSUED IN A MANNER
INTENDED TO COMPLY WITH THE CONDITIONS CONTAINED IN REGULATION S UNDER
THE ACT. PRIOR TO _______________, 1998, NO OFFER, SALE, TRANSFER,
PLEDGE OR OTHER DISPOSITION (COLLECTIVELY, A "DISPOSAL") OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE MADE (A) IN THE
UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY "U.S.
PERSON" (AS DEFINED IN REGULATION S) UNLESS (i) REGISTERED UNDER THE
ACT AND ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR (ii) QUEEN
SAND RESOURCES, INC. (THE "COMPANY") RECEIVES A
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WRITTEN OPINION OF UNITED STATES LEGAL COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO IT TO THE EFFECT THAT SUCH DISPOSAL IS EXEMPT FROM
SUCH REGISTRATION REQUIREMENTS OR (B) OUTSIDE THE UNITED STATES TO, OR
FOR THE ACCOUNT OR BENEFIT OF, ANY PERSON WHO IS NOT A "U.S. PERSON"
UNLESS PRIOR TO SUCH DISPOSAL (i) THE BENEFICIAL OWNER OF SUCH
SECURITIES AND THE PROPOSED TRANSFEREE SUBMIT CERTAIN CERTIFICATIONS
TO THE COMPANY (FORMS OF WHICH ARE AVAILABLE FROM THE COMPANY AT ITS
PRINCIPAL EXECUTIVE OFFICES) AND (ii) THE COMPANY RECEIVES THE LEGAL
OPINION DESCRIBED IN (A)(ii) ABOVE. THE SECURITIES ARE ALSO SUBJECT
TO CERTAIN RESTRICTIONS UPON TRANSFER AS SET FORTH IN THE SECURITIES
PURCHASE AGREEMENT DATED AS OF MARCH 27, 1997."
8.8 Escrow. If the Company and the Stockholder
determine that the Warrants may be Transferred in compliance with this
Agreement, then the Company and the Stockholder shall promptly send a notice to
the Escrow Agent (a) to release the Warrants, as well as any consideration on
deposit in escrow under the Escrow Agreement for the proposed Transfer to the
Stockholder at the place requested by the Stockholder (subject to the other
limitations in this Article 8) and (b) to release any consideration due to the
Company for such Warrants to the Company.
ARTICLE 9.
INDEMNIFICATION
9.1 Indemnification of the Company. Stockholder shall
defend, indemnify, and hold harmless, the Company, the Company's successors and
assigns, the Company's subsidiaries, and their respective officers, directors,
stockholders (other than Stockholder), agents and employees, from and against,
and promptly reimburse them for, any and all losses, expenses, damages,
deficiencies, liabilities, payments, penalties, litigation, demands, defenses,
judgments, proceedings, costs, obligations, settlement costs, and attorneys',
accountants' and other professional advisors' fees (including costs of
investigation and preparation) of any kind or nature whatsoever (collectively,
"Losses"), directly or indirectly arising out of, resulting from, relating to
or in connection with any breach of, inaccuracy in, or nonperformance of, any
representation, warranty, covenant, or agreement of Stockholder contained in
this Agreement or any related documents.
9.2 Indemnification of Stockholder. The Company shall
defend, indemnify, and hold harmless Stockholder, and Stockholder's successors
and assigns, and their respective officers, directors, stockholders, agents,
and employees, from and against, and promptly reimburse them for, any and all
Losses arising out of or in connection with any breach of, inaccuracy in, or
nonperformance of, any representation, warranty, covenant, or agreement of the
Company contained in this Agreement or any related documents.
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9.3 Notice and Opportunity to Defend.
(a) If any of the Persons entitled to
indemnification hereunder (the "Indemnitee") receives notice of any
claim or commencement of any action or proceeding (an "Asserted
Liability") with respect to which another Person (the "Indemnitor") is
obligated to provide indemnification pursuant to this Agreement, the
Indemnitee shall promptly give the Indemnitor notice thereof in
accordance with Section 12.6, describing the Asserted Liability in
reasonable detail and indicating the amount (which may be estimated)
of the Losses that have been or may be asserted by the Indemnitee
against the Indemnitor.
(b) The failure of the Indemnitee to give such
notice shall not result in a loss of the Indemnitee's right to
indemnification under this Agreement.
(c) No settlement or compromise of an Asserted
Liability may be made by an Indemnitee without the written consent of
the Indemnitor.
(d) If the Indemnitor so elects, the Indemnitor,
at the Indemnitor's expense, shall assume the defense of the Asserted
Liability and shall have the right to settle or compromise the same,
except that if the Indemnitee's counsel reasonably objects to such
assumption on the ground that there may be legal defenses available to
the Indemnitee that are different from or in addition to those
available to the Indemnitor, then the Indemnitee shall have the right
to employ separate counsel reasonably approved by the Indemnitor.
9.4 Termination of Indemnification. The indemnification
obligations of the parties shall terminate on the date on which all of the
Warrants have been Transferred or expired pursuant to their terms.
9.5 No Consequential Damages. Without affecting the
rights of the parties hereto to recovery of actual, direct Losses, under no
circumstances shall either party to this Agreement be liable to the other or
the other Persons described in Section 9.1 or 9.2 for consequential,
incidental, indirect, punitive, exemplary or special damages (collectively,
"Consequential Damages") resulting from any cause whatsoever, whether arising
in contract, warranty, tort (including negligence), strict liability, indemnity
or otherwise. It is expressly agreed that no failure by either party to this
Agreement to fulfill any condition hereof shall constitute a failure of
essential purpose entitling any party to seek Consequential Damages.
ARTICLE 10.
TERMINATION
This Agreement may be terminated, and the transactions contemplated
hereby may be abandoned:
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(a) at any time before the First Closing by
written agreement of the Stockholder and the Company; or
(b) at any time before the First Closing by the
Stockholder or the Company if the transactions contemplated by this
Agreement have not been consummated on or before such date and such
failure to consummate is not caused by a breach of this Agreement
(including the representations and warranties contained herein) by the
party electing to terminate pursuant to this subsection (b); or
(c) at any time after the termination of the JEDI
Agreement prior to the Second Closing and the abandonment (without
consummation) of the transactions contemplated thereby.
If this Agreement is validly terminated pursuant this Article 10, this
Agreement will become null and void except that, (a) the provisions of Sections
12.9 and 12.10 will continue to apply following any such termination, and (b)
no party hereto will be relieved of any liability for damages that such party
may have to the other party by reason of such party's breach of this Agreement
(including any representation or warranty contained herein).
ARTICLE 11.
DISPUTE RESOLUTION
11.1 Mediation. Any controversy, dispute or claim arising
out of or relating to this Agreement (a "Dispute") shall be submitted to
non-binding mediation upon the request of the Company or Stockholder on the
following terms. Upon the request of either party, a neutral mediator
acceptable to both parties (the "Mediator") shall be appointed within 15 days.
The Mediator shall attempt through negotiations in any manner deemed reasonably
appropriate by the Mediator, in which the parties shall participate, to resolve
the Dispute. The Mediator shall be compensated at a rate agreeable to the
Company. Stockholder and the Mediator, and each of the Company and Stockholder
shall pay its pro rata share of such compensation and other expenses of the
mediation.
11.2 Arbitration. In the event that mediation of a
Dispute is terminated without resolution under Section 11.1, any controversy or
claim arising out of or relating to this Agreement, including the right to or
amount of indemnity, shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the AAA by three (3) arbitrators. Each of the
Stockholder and the Company shall appoint one arbitrator, who shall be an
impartial person. If a party fails to appoint an arbitrator within thirty (30)
days from the date a Demand to Arbitrate was made under Rule 6, the AAA shall
make the appointment of the arbitrator. The two (2) arbitrators thus appointed
shall appoint the third arbitrator, who shall be an impartial person. If said
two (2) arbitrators fail to appoint the third arbitrator within sixty (60) days
from the date a Demand to Arbitrate was made under Rule 6, the AAA shall make
the appointment of the third arbitrator, who shall be an impartial person.
Should any of the arbitrators appointed die, resign, refuse or become unable to
act before a decision is given, the vacancy shall be filled by the method set
forth in this clause for the original appointment. The arbitration shall be
held in Dallas, Texas and shall be conducted in the English language. A
decision by the arbitrators shall be final and binding on all the parties.
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The arbitrators shall execute and deliver to the respective parties the
arbitration panel's decision in writing. Judgment upon the award, if any,
rendered by the arbitrators (which must be expressed in United States Dollars)
may be entered in any court having jurisdiction thereof. In any award, the
arbitrators shall assess the arbitration costs and expenses, including, without
limitation, attorneys fees of the parties, in a manner deemed equitable by the
arbitrators, taking into account the arbitration decision.
ARTICLE 12.
MISCELLANEOUS
12.1 Survival. All representations and warranties made in
this Agreement shall survive the Second Closing.
12.2 Governing Law; Choice of Forum; Consent to Service of
Process. This Agreement shall be governed by the substantive laws of the State
of Texas. Except as provided in Article 11, the parties hereto agree that any
suit, action or proceeding arising out of or relating to this Agreement or any
agreement or obligation delivered in connection with this Agreement or any
judgment entered by any court in respect thereof shall be brought in the Courts
of the State of Texas, County of Dallas or in the United States District Court
for the Northern District of Texas and each such party hereby submits to the
exclusive jurisdiction of such courts for the purpose of any such suit, action
or proceeding relating to this Agreement or any related agreement or
obligation. The Stockholder hereby submits to jurisdiction of the State of
Texas and agrees that service of all writs, process and summonses in any such
suit, action or proceeding brought in the United States against the Stockholder
may be made upon CT Corporation System at its offices located at ▇▇▇ ▇▇▇▇▇ ▇▇.
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ (or any subsequent address of CT Corporation
System), and the Stockholder hereby irrevocably appoints CT Corporation System
at its offices located at ▇▇▇ ▇▇▇▇▇ ▇▇. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ (or
any subsequent address of CT Corporation System) its true and lawful
attorney-in-fact in its name, place and stead to accept such service of any and
all such writs, process and summonses, and agrees that the failure of CT
Corporation System] to give to the Stockholder any notice of any such service
of process shall not impair or affect the validity of such service or of any
judgment based thereon. The Company shall send, within 5 days after service of
process under this Section 12.2, notice to the Stockholder in accordance with
Section 12.6 of any service of process on CT Corporation System under this
Section 12.2. Service of process on the Company may be made to the Company's
registered agent in Delaware, Corporation Trust Centre, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇
▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ of New Castle.
Each party hereto hereby irrevocably waives any objection that it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or any agreement or obligation
delivered in connection with this Agreement, brought in the Courts of the State
of Texas, County of Dallas or the United States District Court for the Northern
District of Texas, and hereby further irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in
an inconvenient forum.
17
21
12.3 Invalid Provisions. If any provision of this
Agreement is held to be illegal, invalid or unenforceable, such provision shall
be fully severable.
12.4 Entirety and Amendments. This Agreement embodies the
entire agreement and understanding relating to the subject matter hereof,
supersedes all prior understandings between the parties relating to the subject
matter hereof, and may be amended only by an instrument in writing executed by
the Company and Stockholder.
12.5 Parties Bound. This Agreement shall be binding upon
and inure to the benefit of the Company, Stockholder and their respective
successors and permitted assigns. Neither the Company nor Stockholder may
assign its rights or delegate its obligations hereunder (whether voluntarily,
involuntarily, or by operation of law) without the prior written consent of the
other party.
12.6 Notices. Unless otherwise specified, whenever this
Agreement requires or permits any consent, approval, notice, request, or demand
from one party to another, that communication must be in writing (which may be
by telecopy) to be effective and is deemed to have been given (a) if by
telecopy, when transmitted to the appropriate telecopy number (and all
communications sent by telecopy must be confirmed promptly by telephone; but
any requirement in this parenthetical does not affect the date when the
telecopy is deemed to have been delivered), or (b) if by any other means,
including by internationally acceptable courier or hand delivery, when actually
delivered. Until changed by notice pursuant to this Agreement, the addresses
(and telecopy numbers):
If to Stockholder: Forseti Investments Ltd.
▇-▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
West Indies
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With copies to: ▇▇▇▇▇ Fresenius ▇▇▇▇▇ Scherzberg,
attorneys
▇▇▇▇-▇▇▇▇▇▇▇-Strasse 37-39
60596 Frankfurt-Am-Main
Attn: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇) ▇▇▇▇▇▇▇▇▇▇
If to Company: Queen Sand Resources, Inc.
▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇.▇.#▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
18
22
With copies to: Queen Sand Resources, Inc.
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇▇ and ▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. Boeing, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
12.7 Section and Other Headings. The headings contained
in this Agreement are for reference purposes only and will not affect in any
way the meaning or interpretation of this Agreement.
12.8 Counterparts. This Agreement may be executed in two
or more counterparts, each of which will be deemed an original and all of which
together will constitute one instrument.
12.9 Expenses. At the Second Closing, the Stockholder
shall pay its own costs and expenses as well as the reasonable costs and
expenses of the Company in connection with this Agreement and the transactions
contemplated hereby.
12.10 Specific Performance. It is expressly covenanted and
agreed that, in the event of a breach by Stockholder of any of its obligations
or covenants contained in this Agreement, subject to Article 11, although the
damage to the Company will be substantial, money damages will not afford an
adequate remedy, and the Company will suffer irreparable injury. Therefore, in
the event of any such breach and in addition to any other rights or remedies
which may be provided by law or this Agreement, the Company shall have the
right to specific performance of such particular obligations or covenants in
this Agreement by way of temporary and/or permanent injunctive relief.
12.11 Further Documents and Actions. Following the
execution of this Agreement, each of the Stockholder and the Company shall
execute and deliver such documents, provide such endorsements and take such
other actions as shall be reasonably requested by the other party to carry out
the transactions contemplated by this Agreement.
19
23
IN WITNESS WHEREOF, this Agreement has been executed as of the day and
year first stated above.
STOCKHOLDER:
FORSETI INVESTMENTS, LTD.
By: /s/ authorized signatory
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
[with notary attached]
COMPANY:
QUEEN SAND RESOURCES, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------
Title: President and Chief
Executive Officer
--------------------------------
[with notary attached]
and
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------------
Title: Chief Operating Officer
--------------------------------
[with notary attached]
20
24
EXHIBIT A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE THEREOF (THE "SECURITIES") HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
OTHER UNITED STATES FEDERAL OR STATE SECURITIES OR BLUE SKY LAWS OR APPLICABLE
NON-UNITED STATES SECURITIES LAWS, AND HAVE BEEN ISSUED IN A MANNER INTENDED TO
COMPLY WITH THE CONDITIONS CONTAINED IN REGULATION S UNDER THE ACT. PRIOR TO
_______________, 1998, NO OFFER, SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION
(COLLECTIVELY, A "DISPOSAL") OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE
MAY BE MADE (A) IN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF,
ANY "U.S. PERSON" (AS DEFINED IN REGULATION S) UNLESS (i) REGISTERED UNDER THE
ACT AND ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR (ii) QUEEN SAND
RESOURCES, INC. (THE "COMPANY") RECEIVES A WRITTEN OPINION OF UNITED STATES
LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO IT TO THE EFFECT THAT SUCH
DISPOSAL IS EXEMPT FROM SUCH REGISTRATION REQUIREMENTS OR (B) OUTSIDE THE
UNITED STATES TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY PERSON WHO IS NOT A
"U.S. PERSON" UNLESS PRIOR TO SUCH DISPOSAL (i) THE BENEFICIAL OWNER OF SUCH
SECURITIES AND THE PROPOSED TRANSFEREE SUBMIT CERTAIN CERTIFICATIONS TO THE
COMPANY (FORMS OF WHICH ARE AVAILABLE FROM THE COMPANY AT ITS PRINCIPAL
EXECUTIVE OFFICES) AND (ii) THE COMPANY RECEIVES THE LEGAL OPINION DESCRIBED IN
(A)(ii) ABOVE. THE SECURITIES ARE ALSO SUBJECT TO CERTAIN RESTRICTIONS UPON
TRANSFER AS SET FORTH IN THIS WARRANT AND THE SECURITIES PURCHASE AGREEMENT
DATED AS OF _______________, 1997, A COPY OF WHICH IS AVAILABLE FOR INSPECTION
AT ITS PRINCIPAL PLACE OF BUSINESS.
--------------------------------------------------------------------------------
QUEEN SAND RESOURCES, INC.
Class A Common Stock Purchase Warrant
Representing Right To Purchase Shares of
Common Stock
of
Queen Sand Resources, Inc.
-----------
No. A-1
-----------
FOR VALUE RECEIVED, QUEEN SAND RESOURCES, INC., a Delaware corporation
(the "Company"), hereby certifies that Forseti Investments Ltd., a Barbados
corporation (the "Holder"), is entitled, subject to the provisions of this
Warrant, to purchase from the
25
Company, at any time or from time to time during the Exercise Period (as
hereinafter defined), a total of 1,000,000 shares (as such number of shares may
be adjusted pursuant to the terms hereof, the "Warrant Shares") of Common
Stock, par value $.0015 per share, of the Company, at a price per share equal
to the Exercise Price (as defined below). This Warrant is issued to the Holder
(together with such other warrants as may be issued in exchange, transfer or
replacement of this Warrant, the "Warrants") pursuant to the Securities
Purchase Agreement (as defined below) and entitles the Holder to purchase the
Warrant Shares and to exercise the other rights, powers and privileges
hereinafter provided, all on the terms and conditions and pursuant to the
provisions set forth herein and in the Securities Purchase Agreement.
Section 1. Definitions. The following terms, as used herein,
have the following respective meanings:
"Common Stock" means the Company's common stock, $0.0015 par value.
"Company" is defined in the introductory paragraph of this Warrant.
"Date of Issuance" means __________ _____, 1997.
"Earn Up Agreement" means the Earn Up Agreement, dated as of the date
hereof, between the Company and the Holder.
"Exercise Period" means the period of time between the Date of
Issuance and 5:00 p.m. (New York City time) on December 31, 1998, provided,
however, that any Warrants held by Forseti Investments Ltd. on the Election
Date (as defined in the Earn Up Agreement) shall expire on the Election Date
unless Forseti Investments Ltd. elects to retain the Warrants pursuant to
Section 2(a)(ii) of the Earn Up Agreement.
"Exercise Price" means an amount, per share, equal to $2.50 (U.S.
dollars). The Exercise Price shall be subject to adjustment, as set forth in
Section 4.
"Holder" means Forseti Investments Ltd. and its permitted assignees.
"Person" means any individual, corporation, limited or general
partnership, joint venture, association, joint- stock company, trust, limited
liability company, unincorporated organization or government or any agency or
political subdivision thereof.
"Required Holders" means the Holders of more than 50% of all Warrant
Shares then outstanding (assuming the full exercise of all Warrants).
"Securities Purchase Agreement" means the Securities Purchase
Agreement, dated as of March ___, 1997, between the Company and Forseti, as
such agreement shall be modified, amended and supplemented and in effect from
time to time.
"Value" means, as of any date of determination, with respect to the
Common Stock, $3.50 per share of Common Stock.
"Warrants" is defined in the introductory paragraph of this Warrant.
"Warrant Shares" is defined in the introductory paragraph of this
Warrant.
- 2 -
26
Section 2. Exercise of Warrant; Cancellations of Warrant.
Subject to the Securities Purchase Agreement and the provisions of Regulation
S promulgated under the Securities Act of 1933, as amended, this Warrant may be
exercised in whole or in part, at any time or from time to time, during the
Exercise Period, by presentation and surrender hereof to the Company at its
principal office at the address set forth in Section 11 (or at such other
reasonable address as the Company may after the date hereof notify the Holder
in writing, coming into effect not before 14 days after receipt of such notice
by the Holder), with the Purchase Form annexed hereto as Exhibit A duly
executed and accompanied by either (at the option of the Holder) proper payment
in cash or certified or bank check equal to the Exercise Price for the Warrant
Shares for which this Warrant is being exercised; provided, that if this
Warrant is exercised in part, the Warrant must be exercised for the purchase of
at least 100,000 shares of Common Stock. Upon exercise of this Warrant as
aforesaid, the Company shall as promptly as practicable, and in any event
within 20 days thereafter, execute and deliver to the Holder a certificate or
certificates for the total number of Warrant Shares for which this Warrant is
being exercised, in such names and denominations as requested in writing by the
Holder. The Company shall pay any and all documentary stamp or similar issue
taxes payable in respect of the issue of the Warrant Shares. If this Warrant
is exercised in part only, the Company shall, upon surrender of this Warrant,
execute and deliver a new Warrant evidencing the rights of the Holder thereof
to purchase the balance of the Warrant Shares issuable hereunder.
Section 3. Exchange, Transfer, Assignment or Loss of Warrant.
This Warrant is exchangeable, without expense, at the option of the Holder,
upon presentation and surrender hereof to the Company for other Warrants of
different denominations, entitling the Holder to purchase in the aggregate the
same number of Warrant Shares. The Holder of this Warrant shall be entitled,
without obtaining the consent of the Company, to transfer or assign its
interest in (and rights under) this Warrant in whole or in part to any Person
or Persons, subject to the provisions of Section 7 of this Warrant and Article
8 of the Securities Purchase Agreement. Upon surrender of this Warrant to the
Company, with the Assignment Form annexed hereto as Exhibit B duly executed and
funds sufficient to pay any transfer tax, the Company shall, without charge,
execute and deliver a new Warrant or Warrants in the name of the assignee or
assignees named in such Assignment Form and, if the Holder's entire interest is
not being assigned, in the name of the Holder, and this Warrant shall promptly
be canceled. This Warrant may be divided or combined with other Warrants that
carry the same rights upon presentation hereof at the office of the Company,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued and signed by the Holder hereof. Upon receipt by
the Company of evidence satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or destruction) of
reasonably satisfactory indemnification (including, if required in the
reasonable judgment of the Company, a statement of net worth of such Holder
that is at a level reasonably satisfactory to the Company), and upon surrender
and cancellation of this Warrant, if mutilated, the Company shall execute and
deliver a new Warrant of like tenor and date.
Section 4. Antidilution Provisions.
(a) Adjustment of Number of Warrant Shares and Exercise Price.
The number of Warrant Shares purchasable pursuant hereto and the Exercise
Price, each shall be subject to adjustment from time to time on and after the
Date of Issuance as provided in this Section 4(a). In case the Company shall
at any time after the Date of Issuance (i) pay a dividend of shares of Common
Stock or make a distribution of shares of Common Stock, (ii) subdivide its
- 3 -
27
outstanding shares of Common Stock into a larger number of shares of Common
Stock, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (iv) issue any shares of its capital stock
or other assets in a reclassification or reorganization of the Common Stock
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing entity), then (x) the securities
purchasable pursuant hereto shall be adjusted to the number of Warrant Shares
and amount of any other securities, cash or other property of the Company which
the Holder would have owned or have been entitled to receive after the
happening of any of the events described above, had this Warrant been exercised
immediately prior to the happening of such event or any record date with
respect thereto, and (y) the Exercise Price shall be adjusted to equal the
Exercise Price immediately prior to the adjustment multiplied by a fraction,
(A) the numerator of which is the number of Warrant Shares for which this
Warrant is exercisable immediately prior to the adjustment, and (B) the
denominator of which is the number of shares for which this Warrant is
exercisable immediately after such adjustment. The adjustments made pursuant
to this Section 4(a) shall become effective immediately after the effective
date of the event creating such right of adjustment, retroactive to the record
date, if any, for such event. Any Warrant Shares purchasable as a result of
such adjustment shall not be issued prior to the effective date of such event.
For the purpose of this Section 4(a) and (b), the term "shares of
Common Stock" means (i) the classes of stock designated as the Common Stock of
the Company as of the date hereof, or (ii) any other class of stock resulting
from successive changes or reclassifications of such shares consisting solely
of changes in par value, or from par value to no par value, or from no par
value to par value. In the event that at any time, as a result of an
adjustment made pursuant to this Section 4(a), the Holder shall become entitled
to receive any securities of the Company other than shares of Common Stock,
thereafter the number of such other securities so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with respect to
the Warrant Shares contained in this Section 4.
(b) Reorganization, Merger, etc. If any capital reorganization,
reclassification or similar transaction involving the capital stock of the
Company (other than as specified in Section 4(a)), any consolidation, merger or
business combination of the Company with another corporation or the sale or
conveyance of all or any substantial part of its assets to another corporation,
shall be effected in such a way that holders of the shares of Common Stock
shall be entitled to receive stock, securities or assets (including, without
limitation, cash) with respect to or in exchange for shares of the Common
Stock, then, prior to and as a condition of such reorganization,
reclassification, similar transaction, consolidation, merger, business
combination, sale or conveyance, lawful and adequate provision shall be made
whereby the Holder shall thereafter have the right to purchase and receive upon
the basis and upon the terms and conditions specified in this Warrant and in
lieu of the Warrant Shares immediately theretofore purchasable and receivable
upon the exercise of this Warrant, such shares of stock, securities or assets
as may be issued or payable with respect to or in exchange for a number of
outstanding Warrant Shares equal to the number of Warrant Shares immediately
theretofore purchasable and receivable upon the exercise of this Warrant had
such reorganization, reclassification, similar transaction, consolidation,
merger, business combination, sale or conveyance not taken place. The Company
shall not effect any such consolidation, merger, business combination, sale or
conveyance unless prior to or simultaneously with the consummation thereof the
survivor or successor corporation (if other than the Company) resulting from
such consolidation or merger or the corporation purchasing such assets shall
assume by written instrument executed and sent to the Holder, the
- 4 -
28
obligation to deliver to the Holder such shares of stock, securities or
assets as, in accordance with the foregoing provisions, the Holder may be
entitled to receive.
(c) Statement on Warrant Certificates. Irrespective of any
adjustments in the Exercise Price or the number or kind of Warrant Shares, this
Warrant may continue to express the same price and number and kind of shares as
are stated on the front page hereof.
(d) Exception to Adjustment. Anything herein to the contrary
notwithstanding, the Company shall not be required to make any adjustment of
the number of Warrant Shares issuable hereunder or to the Exercise Price in the
case of the issuance of the Warrants or the issuance of shares of the Common
Stock (or other securities) upon exercise of the Warrants.
(e) Treasury Shares. The number of shares of the Common Stock
outstanding at any time shall not include treasury shares or shares owned or
held by or for the account of the Company or any of its subsidiaries, and the
disposition of any such shares shall be considered an issue or sale of the
Common Stock for the purposes of this Section 4.
(f) Adjustment Notices to Holder. Upon any increase or decrease
in the number of Warrant Shares purchasable upon the exercise of this Warrant
or the Exercise Price the Company shall, within 30 days thereafter, deliver
written notice thereof to all Holders, which notice shall state the increased
or decreased number of Warrant Shares purchasable upon the exercise of this
Warrant and the adjusted Exercise Price, setting forth in reasonable detail the
method of calculation and the facts upon which such calculations are based.
Section 5. Notification by the Company. In case at any time
while this Warrant remains outstanding:
(a) the Company shall declare any dividend or make any
distribution upon its Common Stock or any other class of its capital stock; or
(b) the Company shall offer for subscription pro rata to the
holders of its Common Stock or any other class of its capital stock any
additional shares of stock of any class or any other securities convertible
into or exchangeable for shares of stock or any rights or options to subscribe
thereto; or
(c) the Board of Directors of the Company shall authorize any
capital reorganization, reclassification or similar transaction involving the
capital stock of the Company, or a sale or conveyance of all or a substantial
part of the assets of the Company, or a consolidation, merger or business
combination of the Company with another Person; or
(d) actions or proceedings shall be authorized or commenced for a
voluntary or involuntary dissolution, liquidation or winding-up of the Company;
then, in any one or more of such cases, the Company shall give written notice
to the Holder, at the earliest time legally practicable (and not less than 20
days before any record date or other date set for definitive action) of the
date on which (i) the books of the Company shall close or a record shall be
taken for such dividend, distribution or subscription rights or options or (ii)
such reorganization, reclassification, sale, conveyance, consolidation, merger,
dissolution, liquidation or winding-up shall take place or be voted on by
shareholders of the Company, as the case may be. Such notice shall also
specify the date as of which the holders of the Common Stock of record shall
participate in said dividend, distribution, subscription
- 5 -
29
rights or options or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, sale, conveyance, consolidation, merger, dissolution,
liquidation or winding-up, as the case may be. If the action in question or
the record date is subject to the effectiveness of a registration statement
under the Securities Act or to a favorable vote of shareholders, the notice
required by this Section 5 shall so state.
Section 6. No Voting Rights: Limitations of Liability. Prior to
exercise, this Warrant will not entitle the Holder to any voting rights or
other rights as a stockholder of the Company. No provision hereof, in the
absence of affirmative action by the Holder to exercise this Warrant, and no
enumeration herein of the rights or privileges of the Holder, shall give rise
to any liability of the Holder for the purchase price of the Warrant Shares
pursuant to the exercise hereof.
Section 7. Restrictions on Transfer. The Warrants and the
Warrant Shares shall not be transferable except upon the conditions in this
Warrant and specified in the Securities Purchase Agreement. The Warrants may
not be transferred, sold or otherwise disposed of except in blocks of Warrants
for the purchase of at least 100,000 shares of Common Stock; provided, that if
at the time of such transfer, sale or other disposition, the Warrants owned by
the Holder are for the purchase of less than 100,000 shares of Common Stock,
the Holder may sell, transfer or otherwise dispose of all, but not less than
all, of the Warrants. This Warrant bears and the certificates for Warrant
Shares will bear a legend as specified in the Securities Purchase Agreement.
The Holder by its acceptance of this Warrant agrees to comply with and to be
bound by all of the provisions of the Securities Purchase Agreement.
Section 8. Amendment and Waiver.
(a) No failure or delay of the Holder in exercising any power or
right hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of such right or power, or any abandonment or discontinuance
of steps to enforce such a right or power, preclude any other or further
exercise thereof or the exercise of any other right or power. The rights and
remedies of the Holder are cumulative and not exclusive of any rights or
remedies which it would otherwise have. The provisions of this Warrant may be
amended, modified or waived with (and only with) the written consent of the
Company and the Required Holders.
(b) No notice or demand on the Company in any case shall entitle
the Company to any other or further notice or demand in similar or other
circumstances.
Section 9. No Fractional Warrant Shares. The Company shall not
be required to issue stock certificates representing fractions of Warrant
Shares, but shall in respect of any fraction of a Warrant Share make a payment
in cash based on the Value of the Common Stock after giving effect to the full
exercise or conversion of the Warrants.
Section 10. Reservation of Warrant Shares. The Company shall
authorize, reserve and keep available at all times, free from preemptive
rights, a sufficient number of Warrant Shares to satisfy the requirements of
this Warrant.
- 6 -
30
Section 11. Notices. Unless otherwise specified, whenever this
Warrant requires or permits any consent, approval, notice, request, or demand
from one party to another, that communication must be in writing (which may be
by telecopy) to be effective and is deemed to have been given (a) if by
telecopy, when transmitted to the appropriate telecopy number (and all
communications sent by telecopy must be confirmed promptly by telephone; but
any requirement in this parenthetical does not affect the date when the
telecopy is deemed to have been delivered), or (b) if by any other means,
including by internationally acceptable courier or hand delivery, when actually
delivered. Until changed by notice pursuant to this Warrant, the address (and
telecopy number) for the Holder and the Company are:
If to Holder: Forseti Investments Ltd.
▇-▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With copies to: ▇▇▇▇▇ Fresenius ▇▇▇▇▇ Scherzberg, attorneys
▇▇▇▇-▇▇▇▇▇▇▇-Strasse 37-39
60596 Frankfurt-Am-Main
Attn: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇) ▇▇▇▇▇▇▇▇▇▇
If to Company: Queen Sand Resources, Inc.
▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇.▇.#▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With copies to: Queen Sand Resources, Inc.
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇▇ and ▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. Boeing, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Section 12. Section and Other Headings. The headings contained
in this Warrant are for reference purposes only and will not affect in any way
the meaning or interpretation of this Warrant.
Section 13. Governing Law; Choice of Forum; Consent to Service of
Process. THIS WARRANT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF DELAWARE. The parties hereto agree that any suit,
action or proceeding arising out of or relating to this Warrant or any
agreement or obligation delivered in connection with this Warrant or any
judgment entered by any court in respect thereof shall be brought in the Courts
of the State of Texas, County of Dallas or in the United
- 7 -
▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ for the Northern District of Texas and each such party
hereby submits to the exclusive jurisdiction of such courts for the purpose of
any such suit, action or proceeding relating to this Warrant or any related
agreement or obligation. The Holder hereby submits to the jurisdiction of the
State of Texas and agrees that service of all writs, process and summonses in
any such suit, action or proceeding brought in the United States against the
Holder may be made upon CT Corporation System at its offices located at ▇▇▇
▇▇▇▇▇ ▇▇. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ (or any subsequent address of CT
Corporation System), and the Holder hereby irrevocably appoints CT Corporation
System at its offices located at ▇▇▇ ▇▇▇▇▇ ▇▇. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇ (or any subsequent address of CT Corporation System) its true and lawful
attorney-in-fact in their name, place and ▇▇▇▇▇ to accept such service of any
and all such writs, process and summonses, and agree that the failure of CT
Corporation System to give to the Holder any notice of any such service of
process shall not impair or affect the validity of such service or of any
judgment based thereon. The Company shall send, within 5 days after any
service of process under this Section 13, notice to the Holder in accordance
with Section 11 of any service of process on CT Corporation System under this
Section 13. Service of process on the Company may be made to the Company's
registered agent in Delaware, Corporation Trust Centre, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇
▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ of New Castle.
Each party hereto hereby irrevocably waives any objection that it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Warrant or any agreement or obligation
delivered in connection with this Warrant, brought in the Courts of the State
of Texas, County of Dallas or the United States District Court for the Northern
District of Texas, and hereby further irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in
an inconvenient forum.
Section 14. Binding Effect. The terms and provisions of this
Warrant shall inure to the benefit of the Holder and its successors and assigns
and shall be binding upon the Company and its successors and assigns,
including, without limitation, any Person succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets.
* * * * *
- 8 -
32
IN WITNESS WHEREOF, the seal of the Company and the signature of its
duly authorized officer have been affixed hereto as of __________ _____, 1997.
[SEAL] QUEEN SAND RESOURCES, INC.
Attest: By:
-------------------------- --------------------------------
Name:
-------------------------------
Title:
------------------------------
and
Attest: By:
-------------------------- ---------------------------------
Name:
-------------------------------
Title:
------------------------------
- 9 -
33
EXHIBIT A
TO
WARRANT
PURCHASE FORM
To Be Executed by the Holder
Desiring to Exercise a Warrant of
Queen Sand Resources, Inc.
The undersigned holder hereby exercises the right to purchase ______
shares of Common Stock covered by the within Warrant, according to the
conditions thereof, and herewith makes payment in full of the Exercise Price of
such shares, in the amount of $____________.
Name of Holder:
------------------------------------
Signature:
------------------------
Title:
----------------------------
Address:
--------------------------
------------------------------------
------------------------------------
Dated:
--------------------, --------.
- 10 -
34
EXHIBIT B
TO
WARRANT
ASSIGNMENT FORM
To Be Executed by the Holder
Desiring to Transfer a Warrant of
Queen Sand Resources, Inc.
FOR VALUE RECEIVED, the undersigned holder hereby sells, assigns and
transfers unto __________________________ the right to purchase ____________
shares of Common Stock covered by the within Warrant, and does hereby
irrevocably constitute and appoint _________________ Attorney to transfer the
said Warrant on the books of the Company (as defined in such Warrant), with
full power of substitution.
Name of Holder:
------------------------------------
Signature:
------------------------
Title:
----------------------------
Address:
--------------------------
------------------------------------
------------------------------------
Dated:
---------------------, -------.
In the presence of
-------------------------------------
NOTICE:
The signature to the foregoing Assignment Form must correspond to the name as
written upon the face of the within Warrant in every detail, without alteration
or enlargement or any change whatsoever.
- 11 -
35
EXHIBIT B
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE THEREOF (THE "SECURITIES") HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
OTHER UNITED STATES FEDERAL OR STATE SECURITIES OR BLUE SKY LAWS OR APPLICABLE
NON-UNITED STATES SECURITIES LAWS, AND HAVE BEEN ISSUED IN A MANNER INTENDED TO
COMPLY WITH THE CONDITIONS CONTAINED IN REGULATION S UNDER THE ACT. PRIOR TO
_______________, 1998, NO OFFER, SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION
(COLLECTIVELY, A "DISPOSAL") OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE
MAY BE MADE (A) IN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF,
ANY "U.S. PERSON" (AS DEFINED IN REGULATION S) UNLESS (i) REGISTERED UNDER THE
ACT AND ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR (ii) QUEEN SAND
RESOURCES, INC. (THE "COMPANY") RECEIVES A WRITTEN OPINION OF UNITED STATES
LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO IT TO THE EFFECT THAT SUCH
DISPOSAL IS EXEMPT FROM SUCH REGISTRATION REQUIREMENTS OR (B) OUTSIDE THE
UNITED STATES TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY PERSON WHO IS NOT A
"U.S. PERSON" UNLESS PRIOR TO SUCH DISPOSAL (i) THE BENEFICIAL OWNER OF SUCH
SECURITIES AND THE PROPOSED TRANSFEREE SUBMIT CERTAIN CERTIFICATIONS TO THE
COMPANY (FORMS OF WHICH ARE AVAILABLE FROM THE COMPANY AT ITS PRINCIPAL
EXECUTIVE OFFICES) AND (ii) THE COMPANY RECEIVES THE LEGAL OPINION DESCRIBED IN
(A)(ii) ABOVE. THE SECURITIES ARE ALSO SUBJECT TO CERTAIN RESTRICTIONS UPON
TRANSFER AS SET FORTH IN THIS WARRANT AND THE SECURITIES PURCHASE AGREEMENT
DATED AS OF _______________, 1997, A COPY OF WHICH IS AVAILABLE FOR INSPECTION
AT ITS PRINCIPAL PLACE OF BUSINESS.
--------------------------------------------------------------------------------
QUEEN SAND RESOURCES, INC.
Class B Common Stock Purchase Warrant
Representing Right To Purchase Shares of
Common Stock
of
Queen Sand Resources, Inc.
-------------
No. B-1
-------------
FOR VALUE RECEIVED, QUEEN SAND RESOURCES, INC., a Delaware corporation
(the "Company"), hereby certifies that Forseti Investments Ltd., a Barbados
corporation (the "Holder"), is entitled, subject to the provisions of this
Warrant, to purchase from the
36
Company, at any time or from time to time during the Exercise Period (as
hereinafter defined), a total of 2,000,000 shares (as such number of shares may
be adjusted pursuant to the terms hereof, the "Warrant Shares") of Common
Stock, par value $.0015 per share, of the Company, at a price per share equal
to the Exercise Price (as defined below). This Warrant is issued to the Holder
(together with such other warrants as may be issued in exchange, transfer or
replacement of this Warrant, the "Warrants") pursuant to the Securities
Purchase Agreement (as defined below) and entitles the Holder to purchase the
Warrant Shares and to exercise the other rights, powers and privileges
hereinafter provided, all on the terms and conditions and pursuant to the
provisions set forth herein and in the Securities Purchase Agreement.
Section 1. Definitions. The following terms, as used herein,
have the following respective meanings:
"Common Stock" means the Company's common stock, $0.0015 par value.
"Company" is defined in the introductory paragraph of this Warrant.
"Date of Issuance" means __________ _____, 1997.
"Earn Up Agreement" means the Earn Up Agreement, dated as of the date
hereof, between the Company and the Holder.
"Exercise Period" means the period of time between the Date of
Issuance and 5:00 p.m. (New York City time) on December 31, 1998, provided,
however, that any Warrants held by Forseti Investments Ltd. on the Election
Date (as defined in the Earn Up Agreement) shall expire on the Election Date
unless Forseti Investments Ltd. elects to retain the Warrants pursuant to
Section 2(a)(ii) of the Earn Up Agreement.
"Exercise Price" means an amount, per share, equal to $2.50 (U.S.
dollars). The Exercise Price shall be subject to adjustment, as set forth in
Section 4.
"Holder" means Forseti Investments Ltd. and its permitted assignees.
"Person" means any individual, corporation, limited or general
partnership, joint venture, association, joint- stock company, trust, limited
liability company, unincorporated organization or government or any agency or
political subdivision thereof.
"Required Holders" means the Holders of more than 50% of all Warrant
Shares then outstanding (assuming the full exercise of all Warrants).
"Securities Purchase Agreement" means the Securities Purchase
Agreement, dated as of March ___, 1997, between the Company and Forseti, as
such agreement shall be modified, amended and supplemented and in effect from
time to time.
"Value" means, as of any date of determination, with respect to the
Common Stock, $3.50 per share of Common Stock.
"Warrants" is defined in the introductory paragraph of this Warrant.
"Warrant Shares" is defined in the introductory paragraph of this
Warrant.
- 2 -
37
Section 2. Exercise of Warrant; Cancellations of
Warrant. Subject to the Securities Purchase Agreement and the provisions of
Regulation S promulgated under the Securities Act of 1933, as amended, this
Warrant may be exercised in whole or in part, at any time or from time to time,
during the Exercise Period, by presentation and surrender hereof to the Company
at its principal office at the address set forth in Section 11 (or at such
other reasonable address as the Company may after the date hereof notify the
Holder in writing, coming into effect not before 14 days after receipt of such
notice by the Holder), with the Purchase Form annexed hereto as Exhibit A duly
executed and accompanied by either (at the option of the Holder) proper payment
in cash or certified or bank check equal to the Exercise Price for the Warrant
Shares for which this Warrant is being exercised; provided, that if this
Warrant is exercised in part, the Warrant must be exercised for the purchase of
at least 100,000 shares of Common Stock. Upon exercise of this Warrant as
aforesaid, the Company shall as promptly as practicable, and in any event
within 20 days thereafter, execute and deliver to the Holder a certificate or
certificates for the total number of Warrant Shares for which this Warrant is
being exercised, in such names and denominations as requested in writing by the
Holder. The Company shall pay any and all documentary stamp or similar issue
taxes payable in respect of the issue of the Warrant Shares. If this Warrant
is exercised in part only, the Company shall, upon surrender of this Warrant,
execute and deliver a new Warrant evidencing the rights of the Holder thereof
to purchase the balance of the Warrant Shares issuable hereunder.
Section 3. Exchange, Transfer, Assignment or Loss of
Warrant. This Warrant is exchangeable, without expense, at the option of the
Holder, upon presentation and surrender hereof to the Company for other
Warrants of different denominations, entitling the Holder to purchase in the
aggregate the same number of Warrant Shares. The Holder of this Warrant shall
be entitled, without obtaining the consent of the Company, to transfer or
assign its interest in (and rights under) this Warrant in whole or in part to
any Person or Persons, subject to the provisions of Section 7 of this Warrant
and Article 8 of the Securities Purchase Agreement. Upon surrender of this
Warrant to the Company, with the Assignment Form annexed hereto as Exhibit B
duly executed and funds sufficient to pay any transfer tax, the Company shall,
without charge, execute and deliver a new Warrant or Warrants in the name of
the assignee or assignees named in such Assignment Form and, if the Holder's
entire interest is not being assigned, in the name of the Holder, and this
Warrant shall promptly be canceled. This Warrant may be divided or combined
with other Warrants that carry the same rights upon presentation hereof at the
office of the Company, together with a written notice specifying the names and
denominations in which new Warrants are to be issued and signed by the Holder
hereof. Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification
(including, if required in the reasonable judgment of the Company, a statement
of net worth of such Holder that is at a level reasonably satisfactory to the
Company), and upon surrender and cancellation of this Warrant, if mutilated,
the Company shall execute and deliver a new Warrant of like tenor and date.
Section 4. Antidilution Provisions.
(a) Adjustment of Number of Warrant Shares and
Exercise Price. The number of Warrant Shares purchasable pursuant hereto and
the Exercise Price, each shall be subject to adjustment from time to time on
and after the Date of Issuance as provided in this Section 4(a). In case the
Company shall at any time after the Date of Issuance (i) pay a dividend of
shares of Common Stock or make a distribution of shares of Common Stock, (ii)
subdivide its
- 3 -
38
outstanding shares of Common Stock into a larger number of shares of Common
Stock, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (iv) issue any shares of its capital stock
or other assets in a reclassification or reorganization of the Common Stock
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing entity), then (x) the securities
purchasable pursuant hereto shall be adjusted to the number of Warrant Shares
and amount of any other securities, cash or other property of the Company which
the Holder would have owned or have been entitled to receive after the
happening of any of the events described above, had this Warrant been exercised
immediately prior to the happening of such event or any record date with
respect thereto, and (y) the Exercise Price shall be adjusted to equal the
Exercise Price immediately prior to the adjustment multiplied by a fraction,
(A) the numerator of which is the number of Warrant Shares for which this
Warrant is exercisable immediately prior to the adjustment, and (B) the
denominator of which is the number of shares for which this Warrant is
exercisable immediately after such adjustment. The adjustments made pursuant
to this Section 4(a) shall become effective immediately after the effective
date of the event creating such right of adjustment, retroactive to the record
date, if any, for such event. Any Warrant Shares purchasable as a result of
such adjustment shall not be issued prior to the effective date of such event.
For the purpose of this Section 4(a) and (b), the term "shares of
Common Stock" means (i) the classes of stock designated as the Common Stock of
the Company as of the date hereof, or (ii) any other class of stock resulting
from successive changes or reclassifications of such shares consisting solely
of changes in par value, or from par value to no par value, or from no par
value to par value. In the event that at any time, as a result of an
adjustment made pursuant to this Section 4(a), the Holder shall become entitled
to receive any securities of the Company other than shares of Common Stock,
thereafter the number of such other securities so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with respect to
the Warrant Shares contained in this Section 4.
(b) Reorganization, Merger, etc. If any capital
reorganization, reclassification or similar transaction involving the capital
stock of the Company (other than as specified in Section 4(a)), any
consolidation, merger or business combination of the Company with another
corporation or the sale or conveyance of all or any substantial part of its
assets to another corporation, shall be effected in such a way that holders of
the shares of Common Stock shall be entitled to receive stock, securities or
assets (including, without limitation, cash) with respect to or in exchange for
shares of the Common Stock, then, prior to and as a condition of such
reorganization, reclassification, similar transaction, consolidation, merger,
business combination, sale or conveyance, lawful and adequate provision shall
be made whereby the Holder shall thereafter have the right to purchase and
receive upon the basis and upon the terms and conditions specified in this
Warrant and in lieu of the Warrant Shares immediately theretofore purchasable
and receivable upon the exercise of this Warrant, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding Warrant Shares equal to the number of Warrant
Shares immediately theretofore purchasable and receivable upon the exercise of
this Warrant had such reorganization, reclassification, similar transaction,
consolidation, merger, business combination, sale or conveyance not taken
place. The Company shall not effect any such consolidation, merger, business
combination, sale or conveyance unless prior to or simultaneously with the
consummation thereof the survivor or successor corporation (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument executed and sent to
the Holder, the
- 4 -
39
obligation to deliver to the Holder such shares of stock, securities or assets
as, in accordance with the foregoing provisions, the Holder may be entitled to
receive.
(c) Statement on Warrant Certificates.
Irrespective of any adjustments in the Exercise Price or the number or kind of
Warrant Shares, this Warrant may continue to express the same price and number
and kind of shares as are stated on the front page hereof.
(d) Exception to Adjustment. Anything herein to the
contrary notwithstanding, the Company shall not be required to make any
adjustment of the number of Warrant Shares issuable hereunder or to the
Exercise Price in the case of the issuance of the Warrants or the issuance of
shares of the Common Stock (or other securities) upon exercise of the Warrants.
(e) Treasury Shares. The number of shares of the Common
Stock outstanding at any time shall not include treasury shares or shares owned
or held by or for the account of the Company or any of its subsidiaries, and
the disposition of any such shares shall be considered an issue or sale of the
Common Stock for the purposes of this Section 4.
(f) Adjustment Notices to Holder. Upon any increase or
decrease in the number of Warrant Shares purchasable upon the exercise of this
Warrant or the Exercise Price the Company shall, within 30 days thereafter,
deliver written notice thereof to all Holders, which notice shall state the
increased or decreased number of Warrant Shares purchasable upon the exercise
of this Warrant and the adjusted Exercise Price, setting forth in reasonable
detail the method of calculation and the facts upon which such calculations are
based.
Section 5. Notification by the Company. In case at any
time while this Warrant remains outstanding:
(a) the Company shall declare any dividend or make any
distribution upon its Common Stock or any other class of its capital stock; or
(b) the Company shall offer for subscription pro rata to
the holders of its Common Stock or any other class of its capital stock any
additional shares of stock of any class or any other securities convertible
into or exchangeable for shares of stock or any rights or options to subscribe
thereto; or
(c) the Board of Directors of the Company shall authorize
any capital reorganization, reclassification or similar transaction involving
the capital stock of the Company, or a sale or conveyance of all or a
substantial part of the assets of the Company, or a consolidation, merger or
business combination of the Company with another Person; or
(d) actions or proceedings shall be authorized or
commenced for a voluntary or involuntary dissolution, liquidation or winding-up
of the Company;
then, in any one or more of such cases, the Company shall give written notice
to the Holder, at the earliest time legally practicable (and not less than 20
days before any record date or other date set for definitive action) of the
date on which (i) the books of the Company shall close or a record shall be
taken for such dividend, distribution or subscription rights or options or (ii)
such reorganization, reclassification, sale, conveyance, consolidation, merger,
dissolution, liquidation or winding-up shall take place or be voted on by
shareholders of the Company, as the case may be. Such notice shall also
specify the date as of which the holders of the Common Stock of record shall
participate in said dividend, distribution, subscription
- 5 -
40
rights or options or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, sale, conveyance, consolidation, merger, dissolution,
liquidation or winding-up, as the case may be. If the action in question or
the record date is subject to the effectiveness of a registration statement
under the Securities Act or to a favorable vote of shareholders, the notice
required by this Section 5 shall so state.
Section 6. No Voting Rights: Limitations of Liability.
Prior to exercise, this Warrant will not entitle the Holder to any voting
rights or other rights as a stockholder of the Company. No provision hereof,
in the absence of affirmative action by the Holder to exercise this Warrant,
and no enumeration herein of the rights or privileges of the Holder, shall give
rise to any liability of the Holder for the purchase price of the Warrant
Shares pursuant to the exercise hereof.
Section 7. Restrictions on Transfer. The Warrants and
the Warrant Shares shall not be transferable except upon the conditions
specified in this Warrant and in the Securities Purchase Agreement. The
Warrants may not be transferred, sold or otherwise disposed of except in blocks
of Warrants for the purchase of at least 100,000 shares of Common Stock;
provided, that if at the time of such transfer, sale or other disposition, the
Warrants owned by the Holder are for the purchase of less than 100,000 shares
of Common Stock, the Holder may sell, transfer or otherwise dispose of all, but
not less than all, of the Warrants. This Warrant bears and the certificates
for Warrant Shares will bear a legend as specified in the Securities Purchase
Agreement. The Holder by its acceptance of this Warrant agrees to comply with
and to be bound by all of the provisions of the Securities Purchase Agreement.
Section 8. Amendment and Waiver.
(a) No failure or delay of the Holder in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The
rights and remedies of the Holder are cumulative and not exclusive of any
rights or remedies which it would otherwise have. The provisions of this
Warrant may be amended, modified or waived with (and only with) the written
consent of the Company and the Required Holders.
(b) No notice or demand on the Company in any case shall
entitle the Company to any other or further notice or demand in similar or
other circumstances.
Section 9. No Fractional Warrant Shares. The Company
shall not be required to issue stock certificates representing fractions of
Warrant Shares, but shall in respect of any fraction of a Warrant Share make a
payment in cash based on the Value of the Common Stock after giving effect to
the full exercise or conversion of the Warrants.
Section 10. Reservation of Warrant Shares. The Company
shall authorize, reserve and keep available at all times, free from preemptive
rights, a sufficient number of Warrant Shares to satisfy the requirements of
this Warrant.
- 6 -
41
Section 11. Notices. Unless otherwise specified, whenever
this Warrant requires or permits any consent, approval, notice, request, or
demand from one party to another, that communication must be in writing (which
may be by telecopy) to be effective and is deemed to have been given (a) if by
telecopy, when transmitted to the appropriate telecopy number (and all
communications sent by telecopy must be confirmed promptly by telephone; but
any requirement in this parenthetical does not affect the date when the
telecopy is deemed to have been delivered), or (b) if by any other means,
including by internationally acceptable courier or hand delivery, when actually
delivered. Until changed by notice pursuant to this Warrant, the address (and
telecopy number) for the Holder and the Company are:
If to Holder: Forseti Investments Ltd.
▇-▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
West Indies
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With copies to: ▇▇▇▇▇ Fresenius ▇▇▇▇▇ Scherzberg,
attorneys
▇▇▇▇-▇▇▇▇▇▇▇-Strasse 37-39
60596 Frankfurt-Am-Main
Attn: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇) ▇▇▇▇▇▇▇▇▇▇
If to Company: Queen Sand Resources, Inc.
▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇.▇.#▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With copies to: Queen Sand Resources, Inc.
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇▇ and ▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. Boeing, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Section 12. Section and Other Headings. The headings
contained in this Warrant are for reference purposes only and will not affect
in any way the meaning or interpretation of this Warrant.
Section 13. Governing Law; Choice of Forum; Consent to
Service of Process. THIS WARRANT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE. The parties hereto agree
that any suit, action or proceeding arising out of or relating to this Warrant
or any agreement or obligation delivered in connection with this Warrant or any
judgment entered by any court in respect thereof shall be brought in the Courts
of the State of Texas, County of Dallas or in the United
- 7 -
▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ for the Northern District of Texas and each such party
hereby submits to the exclusive jurisdiction of such courts for the purpose of
any such suit, action or proceeding relating to this Warrant or any related
agreement or obligation. The Holder hereby submits to the jurisdiction of the
State of Texas and agrees that service of all writs, process and summonses in
any such suit, action or proceeding brought in the United States against the
Holder may be made upon CT Corporation System at its offices located at ▇▇▇
▇▇▇▇▇ ▇▇. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ (or any subsequent address of CT
Corporation System), and the Holder hereby irrevocably appoints CT Corporation
System at its offices located at ▇▇▇ ▇▇▇▇▇ ▇▇. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇ (or any subsequent address of CT Corporation System) its true and lawful
attorney-in-fact in their name, place and ▇▇▇▇▇ to accept such service of any
and all such writs, process and summonses, and agree that the failure of CT
Corporation System to give to the Holder any notice of any such service of
process shall not impair or affect the validity of such service or of any
judgment based thereon. The Company shall send, within 5 days after any
service of process under this Section 13, notice to the Holder in accordance
with Section 11 of any service of process on CT Corporation System under this
Section 13. Service of process on the Company may be made to the Company's
registered agent in Delaware, Corporation Trust Centre, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇
▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ of New Castle.
Each party hereto hereby irrevocably waives any objection that it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Warrant or any agreement or obligation
delivered in connection with this Warrant, brought in the Courts of the State
of Texas, County of Dallas or the United States District Court for the Northern
District of Texas, and hereby further irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in
an inconvenient forum.
Section 14. Binding Effect. The terms and provisions of
this Warrant shall inure to the benefit of the Holder and its successors and
assigns and shall be binding upon the Company and its successors and assigns,
including, without limitation, any Person succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets.
* * * * *
- 8 -
43
IN WITNESS WHEREOF, the seal of the Company and the signature of its
duly authorized officer have been affixed hereto as of __________ _____, 1997.
[SEAL] QUEEN SAND RESOURCES, INC.
Attest: By:
-------------------------- --------------------------------
Name:
------------------------------
Title:
-----------------------------
and
Attest: By:
-------------------------- --------------------------------
Name:
------------------------------
Title:
-----------------------------
- 9 -
44
EXHIBIT A
TO
WARRANT
PURCHASE FORM
To Be Executed by the Holder
Desiring to Exercise a Warrant of
Queen Sand Resources, Inc.
The undersigned holder hereby exercises the right to purchase ______
shares of Common Stock covered by the within Warrant, according to the
conditions thereof, and herewith makes payment in full of the Exercise Price of
such shares, in the amount of $____________.
Name of Holder:
----------------------------------------------
Signature:
------------------------------------
Title:
----------------------------------------
Address:
--------------------------------------
----------------------------------------------
----------------------------------------------
Dated: , .
-------------------- ----
- 10 -
45
EXHIBIT B
TO
WARRANT
ASSIGNMENT FORM
To Be Executed by the Holder
Desiring to Transfer a Warrant of
Queen Sand Resources, Inc.
FOR VALUE RECEIVED, the undersigned holder hereby sells, assigns and
transfers unto __________________________ the right to purchase ____________
shares of Common Stock covered by the within Warrant, and does hereby
irrevocably constitute and appoint _________________ Attorney to transfer the
said Warrant on the books of the Company (as defined in such Warrant), with
full power of substitution.
Name of Holder:
----------------------------------------------
Signature:
------------------------------------
Title:
----------------------------------------
Address:
--------------------------------------
----------------------------------------------
----------------------------------------------
Dated: , .
-------------- -----
In the presence of
----------------------------------
NOTICE:
The signature to the foregoing Assignment Form must correspond to the name as
written upon the face of the within Warrant in every detail, without alteration
or enlargement or any change whatsoever.
- 11 -
46
EXHIBIT C
EARN UP AGREEMENT
THIS EARN UP AGREEMENT (this "Agreement") is executed as of the _____
day of __________, 1997 between Queen Sand Resources, Inc., a Delaware
corporation (the "Company"), and Forseti Investments Ltd., a Barbados
corporation ("Forseti").
WHEREAS, the Company has entered into a Securities Purchase Agreement
(defined below) with Forseti pursuant to which the Company is purchasing
9,600,000 shares of Common Stock (defined below) from Forseti for (i)
$5,000,000 cash; (ii) the Class A Warrants (defined below); (iii) the Class B
Warrants (defined below); and (iv) this Agreement;
WHEREAS, the Company has entered into the JEDI Purchase Agreement
(defined below) with JEDI (defined below) pursuant to which the Company has
issued shares of the Company's Series A Participating Convertible Preferred
Stock, par value $0.01 per share, for (i) $5 million cash; and (ii) the JEDI
Earn Up Agreement (defined below);
NOW, THEREFORE, in consideration of these premises, the agreements
herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Forseti and the Company agree as follows:
1.0 DEFINITIONS
"AAA" means the American Arbitration Association, or any successor
organization.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of, or rights,
warrants or options to purchase, corporate stock or any other equity interest
(however designated) of or in such Person.
"Capitalized Lease Obligation" means the amount of the liability under
any capital lease that, in accordance with GAAP, is required to be capitalized
and reflected as a liability on the consolidated balance sheet of the Company
and its Subsidiaries.
"Class A Amount" is defined in Section 2(c).
47
"Class B Amount" is defined in Section 2(d).
"Class A Warrants" means the Class A Common Stock Purchase Warrants to
purchase 1,000,000 shares of Common Stock, substantially in the form of Exhibit
A to this Agreement.
"Class B Warrants" means the Class B Common Stock Purchase Warrants to
purchase 2,000,000 shares of Common Stock, substantially in the form of Exhibit
B to this Agreement.
"Common Stock" means the common stock, par value $.0015 per share, of the
Company.
"Consolidated Adjusted Net Income" means the consolidated net income (or
loss) of the Company and its Subsidiaries for the fiscal year ending June 30,
1998 as determined in accordance with GAAP, adjusted by excluding, to the
extent included in consolidated net income, (a) net after-tax extraordinary
gains or losses (less all fees and expenses relating thereto), (b) net
after-tax gains or losses (less all fees and expenses relating thereto)
attributable to asset dispositions, (c) the net income (or net loss) of any
Person (other than the Company or any of its Subsidiaries) in which the Company
or any of its Subsidiaries has an ownership interest, except to the extent of
the amount of dividends or other distributions actually paid to the Company or
its Subsidiaries in cash by such other Person during such period, and (d) net
income (or net loss) of any Person combined with the Company or any of its
Subsidiaries on a "pooling of interests" basis attributable to any period prior
to the date of combination.
"Consolidated Interest Expense" means the amount which, in conformity
with GAAP, is set forth opposite the caption "interest expense" (or any like
caption) on the audited consolidated statement of operations of the Company and
its Subsidiaries for the fiscal year ended June 30, 1998.
"Consolidated Net Working Capital" means (i) the amount which, in
conformity with GAAP, is set forth opposite the caption "total current assets"
(or any like caption) on the audited consolidated balance sheet of the Company
and its Subsidiaries as of June 30, 1998 less (ii) the amount which, in
conformity with GAAP, is set forth opposite the caption "total current
liabilities" (or any like caption) on the audited consolidated balance sheet of
the Company and its Subsidiaries as of June 30, 1998.
"Consolidated Non-cash Charges" means the amount which, in conformity
with GAAP, is set forth opposite the caption "depreciation, depletion and
amortization" (or any like caption) on the audited consolidated statement of
operations of the Company and its Subsidiaries for the fiscal year ended June
30, 1998.
"Consolidated Tax Expense" means the amount which, in conformity with
GAAP, is set forth opposite the caption "income tax expense" (or any like
caption) on
2
48
the audited consolidated statement of operations of the Company and its
Subsidiaries for the fiscal year ended June 30, 1998.
"Dispute" is defined in Section 6.
"EBITDA" means, without duplication, for the fiscal year ended June 30,
1998, the sum of (i) Consolidated Adjusted Net Income and (ii) to the extent
deducted in computing Consolidated Adjusted Net Income, Consolidated Interest
Expense, Consolidated Tax Expense and Consolidated Non-cash Charges.
"Earn Up Amount" is defined in Section 2(b).
"Election Date" means the later of (i) September 30, 1998 and (ii) the
date that is 14 days after the date that the Company notifies Forseti to
request Forseti's election under Section 2.
"Exercise Price" means $2.50.
"Forseti Interests" means all of the outstanding ownership interests in
Forseti and each entity that controls or owns an ownership interest in Forseti.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, in effect from time to
time.
"Guaranteed Debt" means, without duplication, all Indebtedness of any
other Person guaranteed directly or indirectly in any manner by the Company or
any of its Subsidiaries, or in effect guaranteed directly or indirectly by the
Company or any of its Subsidiaries through an agreement (i) to pay or purchase
such Indebtedness or to advance or supply funds for the payment or purchase of
such Indebtedness, (ii) to purchase, sell or lease (as lessee or lessor)
property, or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such Indebtedness or to assure the
holder of such Indebtedness against loss, (iii) to supply funds to, or in any
other manner invest in, the debtor (including any agreement to pay for property
or services to be acquired by such debtor irrespective of whether such property
is received or such services are rendered), (iv) to maintain working capital or
equity capital of the debtor, or otherwise to maintain the net worth, solvency
or other financial condition of the debtor or (v) otherwise to assure a
creditor against loss; provided that the term "guarantee" shall not include
endorsements for collection or deposit.
"Indebtedness" means, as of June 30, 1998, without duplication, (i) all
indebtedness of the Company or any of its Subsidiaries for borrowed money or
for the deferred purchase price of property or services, excluding any trade
accounts payable and other accrued current liabilities incurred in the ordinary
course of business, (ii) all obligations of the Company or any of its
Subsidiaries evidenced by bonds, notes, debentures or other similar
instruments, (iii) all indebtedness created or arising under any conditional
sale or other title retention agreement with respect to
3
49
property acquired by the Company or any of its Subsidiaries (even if the rights
and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), but excluding
trade accounts payable arising in the ordinary course of business, (iv) all
Capitalized Lease Obligations, (v) all indebtedness referred to in (but not
excluded from) clause (i), (ii), (iii) or (iv) above of other Persons, the
payment of which is secured by (or for which the holder of such indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien upon
or in property (including, without limitation, accounts and contract rights)
owned by the Company or any of its Subsidiaries, even though such Person has
not assumed or become liable for the payment of such indebtedness, (vi) all
Guaranteed Debt, (vii) all Redeemable Capital Stock valued at its maximum fixed
repurchase price plus accrued and unpaid dividends, and (viii) any amendment,
supplement, modification, deferral, renewal, extension or refunding of any
liability of the types referred to in clauses (i) through (vii) above. For
purposes hereof, the "maximum fixed repurchase price" of any Redeemable Capital
Stock that does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Redeemable Capital Stock as if such
Redeemable Capital Stock were purchased on any date on which Indebtedness shall
be required to be determined pursuant to this Agreement, and if such price is
based upon, or measured by, the fair market value of such Redeemable Capital
Stock, such fair market value to be determined in good faith by the Board of
Directors of the issuer of such Redeemable Capital Stock.
"JEDI" means Joint Energy Development Investments Limited Partnership, a
Delaware limited partnership.
"JEDI Earn Up Agreement" means the Earn Up Agreement entered into
between the Company and JEDI substantially in the form of Exhibit C to this
Agreement.
"JEDI Purchase Agreement" means the Securities Purchase Agreement dated
March _____, 1997 between the Company and JEDI.
"Mediator" is defined in Section 6.
"Outstanding Shares" means, as of June 30, 1998, the issued and
outstanding shares of Common Stock, assuming the conversion of all shares of
preferred stock of the Company, that are convertible into shares of Common
Stock, and excluding any shares of Common Stock held in treasury by the Company
or held by any wholly-owned Subsidiary of the Company.
"Payment Date" means the later of (i) October 15, 1998 or (ii) the date
that is 15 days after the Election Date.
"Person" means any individual, corporation, limited or general
partnership, joint venture, association, joint-stock company, trust, limited
liability company,
4
50
unincorporated organization or government or any agency or political
subdivision thereof.
"Price" means, if:
-----
|Price(1) - Price(2)|
---------------------- less than or equal to 0.1, then (Price(1) + Price(2))/2;
Greater of Price(1) or Price(2)
provided, that if:
|Price(1) - Price(2)|
---------------------- greater than 0.1, then the Company and Forseti
Greater of Price(1) or Price(2)
shall negotiate the Price; provided, further, that if the Price has not been
agreed upon within 5 business days after the determination of Price(1) and
Price(2), then the determination of the Price shall be submitted to nonbinding
mediation and arbitration in accordance with this Agreement. Notwithstanding
anything to the contrary in this Agreement, under no circumstances shall the
Price exceed the higher of Price(1) and Price(2) or be less than the lower of
Price(1) and Price(2).
(1.1 * SEC PV(10)) - Indebtedness + Consolidated Net
Working Capital
"Price(1)" =
----- ---------------------------------------------------------
Outstanding Shares
(6.0 * EBITDA) - Indebtedness + Consolidated Net Working
Capital
"Price(2)" =
----- ---------------------------------------------------------
Outstanding Shares
"Redeemable Capital Stock" means any Capital Stock of the Company or any
of its Subsidiaries that, either by its terms, by the terms of any security
into which it is convertible or exchangeable or otherwise, (i) is, or upon the
happening of an event or passage of time would be, required to be redeemed, or
(ii) is, or upon the happening of an event or passage of time would be,
redeemable at the option of the holder thereof, or (iii) is, or upon the
happening of an event or passage of time would be, convertible into or
exchangeable for debt securities.
"SEC PV(10)" means the pre tax future net cash flows from proved oil and
gas reserves of the Company and its Subsidiaries at June 30, 1998, computed
using a discount factor of ten percent, as determined in accordance with the
rules, regulations and guidelines of the United States Securities and Exchange
Commission and reported in the reserve report dated as of such date prepared in
accordance with Section 6.11 of the JEDI Purchase Agreement.
"Securities Purchase Agreement" means the Securities Purchase Agreement
dated March 27, 1997 between the Company and Forseti.
5
51
"Statutory Declaration" means a statutory declaration by Forseti that as
of the Election Date and the Payment Date (i) the individual who, as of the
date hereof, owned all the Forseti Interests owns all of the Forseti Interests,
(ii) there are no encumbrances, pledges or other liens on any equity interests
in Forseti, and (iii) no other event under Section 8(h) has occurred.
"Subsidiary" of a Person means any corporation, limited liability
company, limited or general partnership, joint venture, association,
joint-stock company or business trust of which at the time of determination
such Person, directly and/or indirectly through one or more other Persons, owns
more than 50% of the voting interests.
"Transfer" of any property means any exercise, or any direct or indirect
sale, transfer, encumbrance, gift, donation, assignment, grant of any interest,
pledge, hypothecation or other disposition of such property or any interest
therein, whether voluntary or involuntary, including, but not limited to, any
transfer by operation of law, by court order, by judicial process, or by
foreclosure, levy, or attachment.
"Value" is defined in Section 2(f).
"Warrant Transfer Amount" is defined in Section 2(e).
"Warrants" means, collectively, the Class A Warrants and the Class B
Warrants.
2.0 FORSETI ELECTION; PAYMENT OF EARN UP AMOUNT
(a) On or before the Election Date, Forseti shall deliver notice to
the Company of its election to either (i) accept the payment of the Earn
Up Amount in accordance with the terms and conditions of this Agreement
(in which event the Warrants that have not been Transferred by Forseti
shall be delivered to the Company pursuant to Section 2(b)); or (ii)
retain the Warrants that have not been Transferred by Forseti (in which
event the Company shall have no obligation to pay Forseti the Earn Up
Amount and the Company's obligations under this Agreement shall
terminate immediately). If Forseti fails to deliver notice to the
Company on or before the Election Date specifying the election in (i) or
(ii), then Forseti shall be deemed to have elected (i) above.
(b) In the event that Forseti elects, or is deemed to elect, (i)
above, then on or before the Payment Date, subject to the limitations in
Section 3 and only against delivery by Forseti to the Company of (x) the
Warrants and (y) the Statutory Declaration, the Company shall pay
Forseti an amount (the "Earn Up Amount") equal to the amount, if any, by
which (i) the sum of the Class A Amount and the Class B Amount exceeds
(ii) the Warrant Transfer Amount; provided, that in no event shall the
Earn Up Amount exceed $9,400,000.
6
52
(c) The "Class A Amount" means a dollar amount equal to the product
of (i) the Value (not to exceed $1.50) less $1.25, multiplied by (ii)
9,600,000; provided, that in no event shall the Class A Amount be
greater than $2,400,000; and if the Class A Amount is zero or a negative
number, the Class A Amount shall be deemed to be zero.
(d) The "Class B Amount" means a dollar amount equal to the product
of (i) the Value (not to exceed $1.25) less $0.521, multiplied by (ii)
9,600,000; provided, that in no event shall the Class B Amount be
greater than $7,000,000; and if the Class B Amount is zero or a negative
number, the Class B Amount shall be deemed to be zero.
(e) The "Warrant Transfer Amount" means a dollar amount equal to the
greatest of (i) the product of (x) $3.50 multiplied by (y) the aggregate
number of Class A Warrants and Class B Warrants Transferred by Forseti
before the Payment Date; (ii) the aggregate gross proceeds that Forseti
has received or is entitled to receive from the Transfer of all of the
Class A Warrants and Class B Warrants Transferred by Forseti before the
Payment Date; and (iii) the difference between the average daily bid
price of the Company's shares of Common Stock for the 21-day period
ending on the Election Date less the Exercise Price, multiplied by the
number of Class A Warrants and the Class B Warrants Transferred by
Forseti before the Payment Date.
(f) The "Value" means the product of the Price, multiplied by 0.60;
provided, that if (i) the Common Stock is quoted on The Nasdaq National
Market at the Election Date and (ii) the average daily trading volume of
the Company's shares of Common Stock for the 21-day period ending on the
Election Date is at least 50,000 shares per day (excluding trading of
shares in any accounts controlled by the Company or Forseti or their
respective Affiliates, and provided, that if on any of the 21 days the
trading volume is greater than 300,000 shares, then only 300,000 shares
on such days may be used in calculating the average), then Value means
the product of the Price, multiplied by 0.75.
(g) The Company represents and warrants to Forseti that the
definitions of the terms "Price" and "Value" in the JEDI Earn Up
Agreement are identical to the definitions of such terms in this
Agreement.
3.0 LIMITATION ON PAYMENT
The Company shall be obligated to pay Forseti under this Agreement only
to the extent that the Company has received a like amount as payment from JEDI
under the JEDI Earn Up Agreement. If JEDI shall fail to make payments due
under the JEDI Earn Up Agreement on the Election Date, then Company shall have
no obligation to pay Forseti under this Agreement until such time that JEDI
makes
7
53
payment to the Company under the JEDI Earn Up Agreement, and then only to the
extent of payments made by JEDI under the JEDI Earn Up Agreement.
4.0 SHARING OF EXCESS PROCEEDS
If the sum of (i) $5,000,000 and (ii) the aggregate amount received by
Forseti from the Transfer of Warrants, exceeds the sum of (x) $14,400,000 plus
(y) a dollar amount equal to the sum of the expenses of the Company paid by
Forseti pursuant to the Securities Purchase Agreement, the reasonable
out-of-pocket expenses up to a maximum of $50,000 incurred by Forseti in
connection with the Securities Purchase Agreement, and the escrow agent fees
incurred by Forseti under the Escrow Agreement among the Company, Forseti and
____________________ the sum of subclauses (x) and (y) being referred to as
"Net Proceeds," then within 10 days of the date (the "Excess Determination
Date") the aggregate amount received by Forseti exceeds the Net Proceeds, (x)
Forseti shall deliver to the Company an amount in cash or by wire transfer of
immediately available funds equal to 75% of such amount received by Forseti in
excess of the Net Proceeds, and (y) Forseti shall spend the remaining 25% of
such excess amount to purchase from the Company, subject to applicable
securities laws, Common Stock at a price equal to the average of the Nasdaq bid
price over 21 trading days ending on the Excess Determination Date.
5.0 OPTION
Subject to this Section 5, the Company hereby grants to Forseti an
option to purchase from the Company a number of shares of Common Stock equal to
the quotient of (x) the amount by which the Earn Up Amount exceeds $7,000,000
and (y) $2.50 (as such number of shares may be adjusted pursuant to this
Section 5, the "Shares"), at a price per share equal to $2.50 (as such price
may be adjusted pursuant to this Section 5). The option granted in this
Section 5 is exerciseable in full or in part (i) only from the date that the
Earn Up Amount is paid by the Company to Forseti through the fifth business day
after the date of payment of the Earn Up Amount and (ii) by written notice to
the Company of such exercise, which notice shall be accompanied by proper
payment in cash or certified or bank check. The option in this Section 5.0 is
not transferable. The number of Shares for which the option in this Section 5
may be exercised, and the price at which such option may be exercised, are
subject to appropriate adjustment in the event that the Company (i) pays a
dividend of shares of Common Stock or makes a distribution in shares of Common
Stock), (ii) subdivides its outstanding shares of Common Stock into a larger
number of shares of Common Stock, (iii) combines its outstanding shares of
Common Stock into a smaller number of shares of Common Stock or (iv) issues any
shares of its capital stock or other assets in a reclassification or
reorganization of the Common Stock (including any such reclassification in
connection with a consolidation or merger in which the Company is the
continuing entity). THE OPTION IN THIS SECTION 5 AND THE SHARES OF COMMON
STOCK ISSUABLE UPON EXERCISE OF THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR ANY OTHER
8
54
UNITED STATES FEDERAL OR STATE SECURITIES OR BLUE SKY LAWS OR APPLICABLE
NON-UNITED STATES SECURITIES LAWS.
6.0 MEDIATION.
Any controversy, dispute or claim arising out of or relating to this
Agreement (a "Dispute") shall be submitted to non-binding mediation upon the
request of the Company or Forseti on the following terms. Upon the request of
either party, a neutral mediator acceptable to both parties (the "Mediator")
shall be appointed within 15 days. The Mediator shall attempt through
negotiations in any manner deemed reasonably appropriate by the Mediator, in
which the parties shall participate, to resolve the Dispute. The Mediator
shall be compensated at a rate agreeable to the Company, Forseti and the
Mediator, and each of the Company and Forseti shall pay its pro rata share of
such compensation and other expenses of the mediation.
7.0 ARBITRATION.
In the event that mediation of a Dispute has not commenced within 15
days after a request for mediation is submitted or is terminated without
resolution under Section 6.0, any controversy or claim arising out of or
relating to this Agreement, including the right to or amount of indemnity,
shall be settled by arbitration in accordance with the Commercial Arbitration
Rules of the AAA by three (3) arbitrators. Each of Forseti and the Company
shall appoint one arbitrator, who shall be an impartial person. If a party
fails to appoint an arbitrator within thirty (30) days from the date a Demand
to Arbitrate was made under Rule 6, the AAA shall make the appointment of the
arbitrator. The two (2) arbitrators thus appointed shall appoint the third
arbitrator, who shall be an impartial person. If said two (2) arbitrators fail
to appoint the third arbitrator within sixty (60) days from the date a Demand
to Arbitrate was made under Rule 6, the AAA shall make the appointment of the
third arbitrator, who shall be an impartial person. Should any of the
arbitrators appointed die, resign, refuse or become unable to act before a
decision is given, the vacancy shall be filled by the method set forth in this
clause for the original appointment. The arbitration shall be held in Dallas,
Texas and shall be conducted in the English language. A decision by the
arbitrators shall be final and binding on all the parties. The arbitrators
shall execute and deliver to the respective parties the arbitration panel's
decision in writing. Judgment upon the award, if any, rendered by the
arbitrators (which must be expressed in United States Dollars) may be entered
in any court having jurisdiction thereof. In any award, the arbitrators shall
assess the arbitration costs and expenses, including, without limitation,
attorneys fees of the parties, in a manner deemed equitable by the arbitrators,
taking into account the arbitration decision. Notwithstanding anything to the
contrary in this Agreement, if a Dispute involves the determination of Price,
the Price, as determined by arbitration under this Section 7, shall not (i) (a)
exceed the higher or Price1 and Price2, or (b) be lower than the lower of
Price1 and Price2, (ii) exceed the Price as determined under the JEDI Earn Up
Agreement, including a Price as determined by arbitration under the provisions
of the JEDI Earn Up Agreement, or
9
55
(iii) exceed the amount received by the Company from JEDI pursuant to the JEDI
Earn Up Agreement.
8.0 MISCELLANEOUS
(a) Governing Law; Choice of Forum; Consent to Service of Process.
This Agreement shall be governed by the substantive laws of the State of
Texas. Except as provided in Sections 6 and 7, the parties hereto agree
that any suit, action or proceeding arising out of or relating to this
Agreement or any agreement or obligation delivered in connection with
this Agreement or any judgment entered by any court in respect thereof
shall be brought in the Courts of the State of Texas, County of Dallas
or in the United States District Court for the Northern District of
Texas and each such party hereby submits to the exclusive jurisdiction
of such courts for the purpose of any such suit, action or proceeding
relating to this Agreement or any related agreement or obligation.
Forseti hereby submits to the jurisdiction of the State of Texas and
agrees that service of all writs, process and summonses in any such
suit, action or proceeding brought in the United States against Forseti
may be made upon CT Corporation System at its offices located at ▇▇▇
▇▇▇▇▇ ▇▇. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ (or any subsequent address
of CT Corporation System), and Forseti hereby irrevocably appoints CT
Corporation System at its offices located at ▇▇▇ ▇▇▇▇▇ ▇▇. ▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ (or any subsequent address of CT Corporation
System) its true and lawful attorney-in-fact in their name, place and
▇▇▇▇▇ to accept such service of any and all such writs, process and
summonses, and agree that the failure of CT Corporation System to give
to Forseti any notice of any such service of process shall not impair or
affect the validity of such service or of any judgment based thereon.
The Company shall send, within 5 days after service of process under
this subsection (a), notice to Forseti in accordance with subsection (e)
of any service of process on CT Corporation System under this subsection
(a). Service of process on the Company may be made to the Company's
registered agent in Delaware, Corporation Trust Centre, ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ of New Castle.
Each party hereto hereby irrevocably waives any objection that it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or any agreement
or obligation delivered in connection with this Agreement, brought in
the Courts of the State of Texas, County of Dallas or the United States
District Court for the Northern District of Texas, and hereby further
irrevocably waives any claim that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum.
(b) Invalid Provisions. If any provision of this Agreement is held
to be illegal, invalid or unenforceable, such provision shall be fully
severable.
10
56
(c) Entirety and Amendments. This Agreement and that certain Letter
Agreement dated as of the date hereof between the Company and the
individual who owns directly or indirectly all of the Forseti Interests
embody the entire agreement and understanding relating to the subject
matter hereof and supersede all prior understandings between the parties
relating to the subject matter hereof. This Agreement may be amended
only by an instrument in writing executed by the Company and Forseti.
(d) Parties Bound. This Agreement shall be binding upon and inure to
the benefit of the Company and Forseti, and their respective successors
and permitted assigns. Neither the Company nor Forseti may assign its
rights or delegate its obligations hereunder (whether voluntarily,
involuntarily, or by operation of law) without the prior written consent
of the other party.
(e) Notices. Unless otherwise specified, whenever this Agreement
requires or permits any consent, approval, notice, request, or demand
from one party to another, that communication must be in writing (which
may be by telecopy) to be effective and is deemed to have been given (a)
if by telecopy, when transmitted to the appropriate telecopy number (and
all communications sent by telecopy must be confirmed promptly by
telephone; but any requirement in this parenthetical does not affect the
date when the telecopy is deemed to have been delivered), or (b) if by
any other means, including by internationally acceptable courier or hand
delivery, when actually delivered. Until changed by notice pursuant to
this Agreement, the address (and telecopy number) for the Company and
Forseti are:
If to Forseti: Forseti Investments Ltd.
▇-▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
West Indies
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With copies to: ▇▇▇▇▇ Fresenius ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, attorneys
▇▇▇▇-▇▇▇▇▇▇▇-Strasse 37-39
60596 Frankfurt-Am-Main
Attn: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇) ▇▇▇▇▇▇▇▇▇▇
If to Company: Queen Sand Resources, Inc.
▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇.▇.#▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
11
57
With copies to: Queen Sand Resources, Inc.
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇▇ and ▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. Boeing
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(f) Section and Other Headings. The headings contained in this
Agreement are for reference purposes only and will not affect in any way
the meaning or interpretation of this Agreement.
(g) Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original and all of which
together will constitute one instrument.
(h) Termination. This Agreement shall terminate upon the earlier of
(i) the Transfer of any Warrants in violation of the restrictions on
Transfer of Warrants under the Securities Purchase Agreement, (ii) the
election by Forseti to retain the Warrants under Section 2(a)(ii), (iii)
the Transfer of all of the Warrants, (iv) upon the Transfer of any
ownership interest in Forseti or any entity controlling Forseti where
the purpose of the transfer is to realize or receive cash, securities or
any other property as consideration for the Warrants without
transferring the Warrants; and (v) as of the Election Date or the
Payment Date, the individual who, as of the date hereof owned, directly
or indirectly, all of the Forseti Interests does not own, directly or
indirectly, all of the Forseti Interests. No termination of this
Agreement shall affect the validity of the Warrants.
(i) Currency. All dollar amounts in this Agreement shall mean United
States dollars.
IN WITNESS WHEREOF, Forseti and the Company have executed this Agreement
as of the day and year first stated above.
FORSETI:
FORSETI INVESTMENTS LTD.
By:
----------------------------------------
12
58
Name:
--------------------------------------
Title:
-------------------------------------
[with notary attached]
COMPANY:
QUEEN SAND RESOURCES, INC.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
[with notary attached]
and
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
[with notary attached]
13
59
Company, at any time or from time to time during the Exercise Period (as
hereinafter defined), a total of 1,000,000 shares (as such number of shares may
be adjusted pursuant to the terms hereof, the "Warrant Shares") of Common
Stock, par value $.0015 per share, of the Company, at a price per share equal
to the Exercise Price (as defined below). This Warrant is issued to the Holder
(together with such other warrants as may be issued in exchange, transfer or
replacement of this Warrant, the "Warrants") pursuant to the Securities
Purchase Agreement (as defined below) and entitles the Holder to purchase the
Warrant Shares and to exercise the other rights, powers and privileges
hereinafter provided, all on the terms and conditions and pursuant to the
provisions set forth herein and in the Securities Purchase Agreement.
Section 1. Definitions. The following terms, as used
herein, have the following respective meanings:
"Common Stock" means the Company's common stock, $0.0015 par value.
"Company" is defined in the introductory paragraph of this Warrant.
"Date of Issuance" means __________ _____, 1997.
"Earn Up Agreement" means the Earn Up Agreement, dated as of the date
hereof, between the Company and the Holder.
"Exercise Period" means the period of time between the Date of
Issuance and 5:00 p.m. (New York City time) on December 31, 1998, provided,
however, that any Warrants held by Forseti Investments Ltd. on the Election
Date (as defined in the Earn Up Agreement) shall expire on the Election Date
unless Forseti Investments Ltd. elects to retain the Warrants pursuant to
Section 2(a)(ii) of the Earn Up Agreement.
"Exercise Price" means an amount, per share, equal to $2.50 (U.S.
dollars). The Exercise Price shall be subject to adjustment, as set forth in
Section 4.
"Holder" means Forseti Investments Ltd. and its permitted assignees.
"Person" means any individual, corporation, limited or general
partnership, joint venture, association, joint- stock company, trust, limited
liability company, unincorporated organization or government or any agency or
political subdivision thereof.
"Required Holders" means the Holders of more than 50% of all Warrant
Shares then outstanding (assuming the full exercise of all Warrants).
"Securities Purchase Agreement" means the Securities Purchase
Agreement, dated as of March ___, 1997, between the Company and Forseti, as
such agreement shall be modified, amended and supplemented and in effect from
time to time.
"Value" means, as of any date of determination, with respect to the
Common Stock, $3.50 per share of Common Stock.
"Warrants" is defined in the introductory paragraph of this Warrant.
"Warrant Shares" is defined in the introductory paragraph of this
Warrant.
- 2 -
60
Section 2. Exercise of Warrant; Cancellations of
Warrant. Subject to the Securities Purchase Agreement and the provisions of
Regulation S promulgated under the Securities Act of 1933, as amended, this
Warrant may be exercised in whole or in part, at any time or from time to time,
during the Exercise Period, by presentation and surrender hereof to the Company
at its principal office at the address set forth in Section 11 (or at such
other reasonable address as the Company may after the date hereof notify the
Holder in writing, coming into effect not before 14 days after receipt of such
notice by the Holder), with the Purchase Form annexed hereto as Exhibit A duly
executed and accompanied by either (at the option of the Holder) proper payment
in cash or certified or bank check equal to the Exercise Price for the Warrant
Shares for which this Warrant is being exercised; provided, that if this
Warrant is exercised in part, the Warrant must be exercised for the purchase of
at least 100,000 shares of Common Stock. Upon exercise of this Warrant as
aforesaid, the Company shall as promptly as practicable, and in any event
within 20 days thereafter, execute and deliver to the Holder a certificate or
certificates for the total number of Warrant Shares for which this Warrant is
being exercised, in such names and denominations as requested in writing by the
Holder. The Company shall pay any and all documentary stamp or similar issue
taxes payable in respect of the issue of the Warrant Shares. If this Warrant
is exercised in part only, the Company shall, upon surrender of this Warrant,
execute and deliver a new Warrant evidencing the rights of the Holder thereof
to purchase the balance of the Warrant Shares issuable hereunder.
Section 3. Exchange, Transfer, Assignment or Loss of
Warrant. This Warrant is exchangeable, without expense, at the option of the
Holder, upon presentation and surrender hereof to the Company for other
Warrants of different denominations, entitling the Holder to purchase in the
aggregate the same number of Warrant Shares. The Holder of this Warrant shall
be entitled, without obtaining the consent of the Company, to transfer or
assign its interest in (and rights under) this Warrant in whole or in part to
any Person or Persons, subject to the provisions of Section 7 of this Warrant
and Article 8 of the Securities Purchase Agreement. Upon surrender of this
Warrant to the Company, with the Assignment Form annexed hereto as Exhibit B
duly executed and funds sufficient to pay any transfer tax, the Company shall,
without charge, execute and deliver a new Warrant or Warrants in the name of
the assignee or assignees named in such Assignment Form and, if the Holder's
entire interest is not being assigned, in the name of the Holder, and this
Warrant shall promptly be canceled. This Warrant may be divided or combined
with other Warrants that carry the same rights upon presentation hereof at the
office of the Company, together with a written notice specifying the names and
denominations in which new Warrants are to be issued and signed by the Holder
hereof. Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification
(including, if required in the reasonable judgment of the Company, a statement
of net worth of such Holder that is at a level reasonably satisfactory to the
Company), and upon surrender and cancellation of this Warrant, if mutilated,
the Company shall execute and deliver a new Warrant of like tenor and date.
Section 4. Antidilution Provisions.
(a) Adjustment of Number of Warrant Shares and Exercise Price.
The number of Warrant Shares purchasable pursuant hereto and the Exercise
Price, each shall be subject to adjustment from time to time on and after the
Date of Issuance as provided in this Section 4(a). In case the Company shall
at any time after the Date of Issuance (i) pay a dividend of shares of Common
Stock or make a distribution of shares of Common Stock, (ii) subdivide its
- 3 -
61
outstanding shares of Common Stock into a larger number of shares of Common
Stock, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (iv) issue any shares of its capital stock
or other assets in a reclassification or reorganization of the Common Stock
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing entity), then (x) the securities
purchasable pursuant hereto shall be adjusted to the number of Warrant Shares
and amount of any other securities, cash or other property of the Company which
the Holder would have owned or have been entitled to receive after the
happening of any of the events described above, had this Warrant been exercised
immediately prior to the happening of such event or any record date with
respect thereto, and (y) the Exercise Price shall be adjusted to equal the
Exercise Price immediately prior to the adjustment multiplied by a fraction,
(A) the numerator of which is the number of Warrant Shares for which this
Warrant is exercisable immediately prior to the adjustment, and (B) the
denominator of which is the number of shares for which this Warrant is
exercisable immediately after such adjustment. The adjustments made pursuant
to this Section 4(a) shall become effective immediately after the effective
date of the event creating such right of adjustment, retroactive to the record
date, if any, for such event. Any Warrant Shares purchasable as a result of
such adjustment shall not be issued prior to the effective date of such event.
For the purpose of this Section 4(a) and (b), the term "shares of
Common Stock" means (i) the classes of stock designated as the Common Stock of
the Company as of the date hereof, or (ii) any other class of stock resulting
from successive changes or reclassifications of such shares consisting solely
of changes in par value, or from par value to no par value, or from no par
value to par value. In the event that at any time, as a result of an
adjustment made pursuant to this Section 4(a), the Holder shall become entitled
to receive any securities of the Company other than shares of Common Stock,
thereafter the number of such other securities so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with respect to
the Warrant Shares contained in this Section 4.
(b) Reorganization, Merger, etc. If any capital
reorganization, reclassification or similar transaction involving the capital
stock of the Company (other than as specified in Section 4(a)), any
consolidation, merger or business combination of the Company with another
corporation or the sale or conveyance of all or any substantial part of its
assets to another corporation, shall be effected in such a way that holders of
the shares of Common Stock shall be entitled to receive stock, securities or
assets (including, without limitation, cash) with respect to or in exchange for
shares of the Common Stock, then, prior to and as a condition of such
reorganization, reclassification, similar transaction, consolidation, merger,
business combination, sale or conveyance, lawful and adequate provision shall
be made whereby the Holder shall thereafter have the right to purchase and
receive upon the basis and upon the terms and conditions specified in this
Warrant and in lieu of the Warrant Shares immediately theretofore purchasable
and receivable upon the exercise of this Warrant, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding Warrant Shares equal to the number of Warrant
Shares immediately theretofore purchasable and receivable upon the exercise of
this Warrant had such reorganization, reclassification, similar transaction,
consolidation, merger, business combination, sale or conveyance not taken
place. The Company shall not effect any such consolidation, merger, business
combination, sale or conveyance unless prior to or simultaneously with the
consummation thereof the survivor or successor corporation (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument executed and sent to
the Holder, the
- 4 -
62
obligation to deliver to the Holder such shares of stock, securities or assets
as, in accordance with the foregoing provisions, the Holder may be entitled to
receive.
(c) Statement on Warrant Certificates. Irrespective of
any adjustments in the Exercise Price or the number or kind of Warrant Shares,
this Warrant may continue to express the same price and number and kind of
shares as are stated on the front page hereof.
(d) Exception to Adjustment. Anything herein to the
contrary notwithstanding, the Company shall not be required to make any
adjustment of the number of Warrant Shares issuable hereunder or to the
Exercise Price in the case of the issuance of the Warrants or the issuance of
shares of the Common Stock (or other securities) upon exercise of the Warrants.
(e) Treasury Shares. The number of shares of the Common
Stock outstanding at any time shall not include treasury shares or shares owned
or held by or for the account of the Company or any of its subsidiaries, and
the disposition of any such shares shall be considered an issue or sale of the
Common Stock for the purposes of this Section 4.
(f) Adjustment Notices to Holder. Upon any increase or
decrease in the number of Warrant Shares purchasable upon the exercise of this
Warrant or the Exercise Price the Company shall, within 30 days thereafter,
deliver written notice thereof to all Holders, which notice shall state the
increased or decreased number of Warrant Shares purchasable upon the exercise
of this Warrant and the adjusted Exercise Price, setting forth in reasonable
detail the method of calculation and the facts upon which such calculations are
based.
Section 5. Notification by the Company. In case at any
time while this Warrant remains outstanding:
(a) the Company shall declare any dividend or make any
distribution upon its Common Stock or any other class of its capital stock; or
(b) the Company shall offer for subscription pro rata to
the holders of its Common Stock or any other class of its capital stock any
additional shares of stock of any class or any other securities convertible
into or exchangeable for shares of stock or any rights or options to subscribe
thereto; or
(c) the Board of Directors of the Company shall authorize
any capital reorganization, reclassification or similar transaction involving
the capital stock of the Company, or a sale or conveyance of all or a
substantial part of the assets of the Company, or a consolidation, merger or
business combination of the Company with another Person; or
(d) actions or proceedings shall be authorized or
commenced for a voluntary or involuntary dissolution, liquidation or winding-up
of the Company;
then, in any one or more of such cases, the Company shall give written notice
to the Holder, at the earliest time legally practicable (and not less than 20
days before any record date or other date set for definitive action) of the
date on which (i) the books of the Company shall close or a record shall be
taken for such dividend, distribution or subscription rights or options or (ii)
such reorganization, reclassification, sale, conveyance, consolidation, merger,
dissolution, liquidation or winding-up shall take place or be voted on by
shareholders of the Company, as the case may be. Such notice shall also
specify the date as of which the holders of the Common Stock of record shall
participate in said dividend, distribution, subscription
- 5 -
63
rights or options or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, sale, conveyance, consolidation, merger, dissolution,
liquidation or winding-up, as the case may be. If the action in question or
the record date is subject to the effectiveness of a registration statement
under the Securities Act or to a favorable vote of shareholders, the notice
required by this Section 5 shall so state.
Section 6. No Voting Rights: Limitations of Liability.
Prior to exercise, this Warrant will not entitle the Holder to any voting
rights or other rights as a stockholder of the Company. No provision hereof,
in the absence of affirmative action by the Holder to exercise this Warrant,
and no enumeration herein of the rights or privileges of the Holder, shall give
rise to any liability of the Holder for the purchase price of the Warrant
Shares pursuant to the exercise hereof.
Section 7. Restrictions on Transfer. The Warrants and
the Warrant Shares shall not be transferable except upon the conditions in this
Warrant and specified in the Securities Purchase Agreement. The Warrants may
not be transferred, sold or otherwise disposed of except in blocks of Warrants
for the purchase of at least 100,000 shares of Common Stock; provided, that if
at the time of such transfer, sale or other disposition, the Warrants owned by
the Holder are for the purchase of less than 100,000 shares of Common Stock,
the Holder may sell, transfer or otherwise dispose of all, but not less than
all, of the Warrants. This Warrant bears and the certificates for Warrant
Shares will bear a legend as specified in the Securities Purchase Agreement.
The Holder by its acceptance of this Warrant agrees to comply with and to be
bound by all of the provisions of the Securities Purchase Agreement.
Section 8. Amendment and Waiver.
(a) No failure or delay of the Holder in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The
rights and remedies of the Holder are cumulative and not exclusive of any
rights or remedies which it would otherwise have. The provisions of this
Warrant may be amended, modified or waived with (and only with) the written
consent of the Company and the Required Holders.
(b) No notice or demand on the Company in any case shall
entitle the Company to any other or further notice or demand in similar or
other circumstances.
Section 9. No Fractional Warrant Shares. The Company
shall not be required to issue stock certificates representing fractions of
Warrant Shares, but shall in respect of any fraction of a Warrant Share make a
payment in cash based on the Value of the Common Stock after giving effect to
the full exercise or conversion of the Warrants.
Section 10. Reservation of Warrant Shares. The Company
shall authorize, reserve and keep available at all times, free from preemptive
rights, a sufficient number of Warrant Shares to satisfy the requirements of
this Warrant.
- 6 -
64
Section 11. Notices. Unless otherwise specified, whenever
this Warrant requires or permits any consent, approval, notice, request, or
demand from one party to another, that communication must be in writing (which
may be by telecopy) to be effective and is deemed to have been given (a) if by
telecopy, when transmitted to the appropriate telecopy number (and all
communications sent by telecopy must be confirmed promptly by telephone; but
any requirement in this parenthetical does not affect the date when the
telecopy is deemed to have been delivered), or (b) if by any other means,
including by internationally acceptable courier or hand delivery, when actually
delivered. Until changed by notice pursuant to this Warrant, the address (and
telecopy number) for the Holder and the Company are:
If to Holder: Forseti Investments Ltd.
▇-▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With copies to: ▇▇▇▇▇ Fresenius ▇▇▇▇▇ Scherzberg,
attorneys
▇▇▇▇-▇▇▇▇▇▇▇-Strasse 37-39
60596 Frankfurt-Am-Main
Attn: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇) ▇▇▇▇▇▇▇▇▇▇
If to Company: Queen Sand Resources, Inc.
▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇.▇.#▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With copies to: Queen Sand Resources, Inc.
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇▇ and ▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. Boeing, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Section 12. Section and Other Headings. The headings
contained in this Warrant are for reference purposes only and will not affect
in any way the meaning or interpretation of this Warrant.
Section 13. Governing Law; Choice of Forum; Consent to
Service of Process. THIS WARRANT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE. The parties hereto agree
that any suit, action or proceeding arising out of or relating to this Warrant
or any agreement or obligation delivered in connection with this Warrant or any
judgment entered by any court in respect thereof shall be brought in the Courts
of the State of Texas, County of Dallas or in the United
- 7 -
▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ for the Northern District of Texas and each such party
hereby submits to the exclusive jurisdiction of such courts for the purpose of
any such suit, action or proceeding relating to this Warrant or any related
agreement or obligation. The Holder hereby submits to the jurisdiction of the
State of Texas and agrees that service of all writs, process and summonses in
any such suit, action or proceeding brought in the United States against the
Holder may be made upon CT Corporation System at its offices located at ▇▇▇
▇▇▇▇▇ ▇▇. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ (or any subsequent address of CT
Corporation System), and the Holder hereby irrevocably appoints CT Corporation
System at its offices located at ▇▇▇ ▇▇▇▇▇ ▇▇. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇ (or any subsequent address of CT Corporation System) its true and lawful
attorney-in-fact in their name, place and ▇▇▇▇▇ to accept such service of any
and all such writs, process and summonses, and agree that the failure of CT
Corporation System to give to the Holder any notice of any such service of
process shall not impair or affect the validity of such service or of any
judgment based thereon. The Company shall send, within 5 days after any
service of process under this Section 13, notice to the Holder in accordance
with Section 11 of any service of process on CT Corporation System under this
Section 13. Service of process on the Company may be made to the Company's
registered agent in Delaware, Corporation Trust Centre, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇
▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ of New Castle.
Each party hereto hereby irrevocably waives any objection that it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Warrant or any agreement or obligation
delivered in connection with this Warrant, brought in the Courts of the State
of Texas, County of Dallas or the United States District Court for the Northern
District of Texas, and hereby further irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in
an inconvenient forum.
Section 14. Binding Effect. The terms and provisions of
this Warrant shall inure to the benefit of the Holder and its successors and
assigns and shall be binding upon the Company and its successors and assigns,
including, without limitation, any Person succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets.
* * * * *
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66
IN WITNESS WHEREOF, the seal of the Company and the signature of its
duly authorized officer have been affixed hereto as of __________ _____, 1997.
[SEAL] QUEEN SAND RESOURCES, INC.
Attest: By:
-------------------------- ---------------------------------
Name:
-------------------------------
Title:
------------------------------
and
Attest: By:
-------------------------- ---------------------------------
Name:
-------------------------------
Title:
------------------------------
- 9 -
67
EXHIBIT A
TO
WARRANT
PURCHASE FORM
To Be Executed by the Holder
Desiring to Exercise a Warrant of
Queen Sand Resources, Inc.
The undersigned holder hereby exercises the right to purchase ______
shares of Common Stock covered by the within Warrant, according to the
conditions thereof, and herewith makes payment in full of the Exercise Price of
such shares, in the amount of $____________.
Name of Holder:
--------------------------------------
Signature:
----------------------------
Title:
--------------------------------
Address:
------------------------------
--------------------------------------
--------------------------------------
Dated: , .
--------------------- -------
- 10 -
68
EXHIBIT B
TO
WARRANT
ASSIGNMENT FORM
To Be Executed by the Holder
Desiring to Transfer a Warrant of
Queen Sand Resources, Inc.
FOR VALUE RECEIVED, the undersigned holder hereby sells, assigns and
transfers unto __________________________ the right to purchase ____________
shares of Common Stock covered by the within Warrant, and does hereby
irrevocably constitute and appoint _________________ Attorney to transfer the
said Warrant on the books of the Company (as defined in such Warrant), with
full power of substitution.
Name of Holder:
--------------------------------------
Signature:
----------------------------
Title:
--------------------------------
Address:
------------------------------
--------------------------------------
--------------------------------------
Dated: , .
--------------------- -------
In the presence of
---------------------------------
NOTICE:
The signature to the foregoing Assignment Form must correspond to the name as
written upon the face of the within Warrant in every detail, without alteration
or enlargement or any change whatsoever.
- 11 -
69
EXHIBIT B
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE THEREOF (THE "SECURITIES") HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
OTHER UNITED STATES FEDERAL OR STATE SECURITIES OR BLUE SKY LAWS OR APPLICABLE
NON-UNITED STATES SECURITIES LAWS, AND HAVE BEEN ISSUED IN A MANNER INTENDED TO
COMPLY WITH THE CONDITIONS CONTAINED IN REGULATION S UNDER THE ACT. PRIOR TO
_______________, 1998, NO OFFER, SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION
(COLLECTIVELY, A "DISPOSAL") OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE
MAY BE MADE (A) IN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF,
ANY "U.S. PERSON" (AS DEFINED IN REGULATION S) UNLESS (i) REGISTERED UNDER THE
ACT AND ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR (ii) QUEEN SAND
RESOURCES, INC. (THE "COMPANY") RECEIVES A WRITTEN OPINION OF UNITED STATES
LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO IT TO THE EFFECT THAT SUCH
DISPOSAL IS EXEMPT FROM SUCH REGISTRATION REQUIREMENTS OR (B) OUTSIDE THE
UNITED STATES TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY PERSON WHO IS NOT A
"U.S. PERSON" UNLESS PRIOR TO SUCH DISPOSAL (i) THE BENEFICIAL OWNER OF SUCH
SECURITIES AND THE PROPOSED TRANSFEREE SUBMIT CERTAIN CERTIFICATIONS TO THE
COMPANY (FORMS OF WHICH ARE AVAILABLE FROM THE COMPANY AT ITS PRINCIPAL
EXECUTIVE OFFICES) AND (ii) THE COMPANY RECEIVES THE LEGAL OPINION DESCRIBED IN
(A)(ii) ABOVE. THE SECURITIES ARE ALSO SUBJECT TO CERTAIN RESTRICTIONS UPON
TRANSFER AS SET FORTH IN THIS WARRANT AND THE SECURITIES PURCHASE AGREEMENT
DATED AS OF _______________, 1997, A COPY OF WHICH IS AVAILABLE FOR INSPECTION
AT ITS PRINCIPAL PLACE OF BUSINESS.
--------------------------------------------------------------------------------
QUEEN SAND RESOURCES, INC.
Class B Common Stock Purchase Warrant
Representing Right To Purchase Shares of
Common Stock
of
Queen Sand Resources, Inc.
-------------
No. B-1
-------------
FOR VALUE RECEIVED, QUEEN SAND RESOURCES, INC., a Delaware corporation
(the "Company"), hereby certifies that Forseti Investments Ltd., a Barbados
corporation (the "Holder"), is entitled, subject to the provisions of this
Warrant, to purchase from the
70
Company, at any time or from time to time during the Exercise Period (as
hereinafter defined), a total of 2,000,000 shares (as such number of shares may
be adjusted pursuant to the terms hereof, the "Warrant Shares") of Common
Stock, par value $.0015 per share, of the Company, at a price per share equal
to the Exercise Price (as defined below). This Warrant is issued to the Holder
(together with such other warrants as may be issued in exchange, transfer or
replacement of this Warrant, the "Warrants") pursuant to the Securities
Purchase Agreement (as defined below) and entitles the Holder to purchase the
Warrant Shares and to exercise the other rights, powers and privileges
hereinafter provided, all on the terms and conditions and pursuant to the
provisions set forth herein and in the Securities Purchase Agreement.
Section 1. Definitions. The following terms, as used
herein, have the following respective meanings:
"Common Stock" means the Company's common stock, $0.0015 par value.
"Company" is defined in the introductory paragraph of this Warrant.
"Date of Issuance" means __________ _____, 1997.
"Earn Up Agreement" means the Earn Up Agreement, dated as of the date
hereof, between the Company and the Holder.
"Exercise Period" means the period of time between the Date of
Issuance and 5:00 p.m. (New York City time) on December 31, 1998, provided,
however, that any Warrants held by Forseti Investments Ltd. on the Election
Date (as defined in the Earn Up Agreement) shall expire on the Election Date
unless Forseti Investments Ltd. elects to retain the Warrants pursuant to
Section 2(a)(ii) of the Earn Up Agreement.
"Exercise Price" means an amount, per share, equal to $2.50 (U.S.
dollars). The Exercise Price shall be subject to adjustment, as set forth in
Section 4.
"Holder" means Forseti Investments Ltd. and its permitted assignees.
"Person" means any individual, corporation, limited or general
partnership, joint venture, association, joint- stock company, trust, limited
liability company, unincorporated organization or government or any agency or
political subdivision thereof.
"Required Holders" means the Holders of more than 50% of all Warrant
Shares then outstanding (assuming the full exercise of all Warrants).
"Securities Purchase Agreement" means the Securities Purchase
Agreement, dated as of March ___, 1997, between the Company and Forseti, as
such agreement shall be modified, amended and supplemented and in effect from
time to time.
"Value" means, as of any date of determination, with respect to the
Common Stock, $3.50 per share of Common Stock.
"Warrants" is defined in the introductory paragraph of this Warrant.
"Warrant Shares" is defined in the introductory paragraph of this
Warrant.
- 2 -
71
Section 2. Exercise of Warrant; Cancellations of
Warrant. Subject to the Securities Purchase Agreement and the provisions of
Regulation S promulgated under the Securities Act of 1933, as amended, this
Warrant may be exercised in whole or in part, at any time or from time to time,
during the Exercise Period, by presentation and surrender hereof to the Company
at its principal office at the address set forth in Section 11 (or at such
other reasonable address as the Company may after the date hereof notify the
Holder in writing, coming into effect not before 14 days after receipt of such
notice by the Holder), with the Purchase Form annexed hereto as Exhibit A duly
executed and accompanied by either (at the option of the Holder) proper payment
in cash or certified or bank check equal to the Exercise Price for the Warrant
Shares for which this Warrant is being exercised; provided, that if this
Warrant is exercised in part, the Warrant must be exercised for the purchase of
at least 100,000 shares of Common Stock. Upon exercise of this Warrant as
aforesaid, the Company shall as promptly as practicable, and in any event
within 20 days thereafter, execute and deliver to the Holder a certificate or
certificates for the total number of Warrant Shares for which this Warrant is
being exercised, in such names and denominations as requested in writing by the
Holder. The Company shall pay any and all documentary stamp or similar issue
taxes payable in respect of the issue of the Warrant Shares. If this Warrant
is exercised in part only, the Company shall, upon surrender of this Warrant,
execute and deliver a new Warrant evidencing the rights of the Holder thereof
to purchase the balance of the Warrant Shares issuable hereunder.
Section 3. Exchange, Transfer, Assignment or Loss of
Warrant. This Warrant is exchangeable, without expense, at the option of the
Holder, upon presentation and surrender hereof to the Company for other
Warrants of different denominations, entitling the Holder to purchase in the
aggregate the same number of Warrant Shares. The Holder of this Warrant shall
be entitled, without obtaining the consent of the Company, to transfer or
assign its interest in (and rights under) this Warrant in whole or in part to
any Person or Persons, subject to the provisions of Section 7 of this Warrant
and Article 8 of the Securities Purchase Agreement. Upon surrender of this
Warrant to the Company, with the Assignment Form annexed hereto as Exhibit B
duly executed and funds sufficient to pay any transfer tax, the Company shall,
without charge, execute and deliver a new Warrant or Warrants in the name of
the assignee or assignees named in such Assignment Form and, if the Holder's
entire interest is not being assigned, in the name of the Holder, and this
Warrant shall promptly be canceled. This Warrant may be divided or combined
with other Warrants that carry the same rights upon presentation hereof at the
office of the Company, together with a written notice specifying the names and
denominations in which new Warrants are to be issued and signed by the Holder
hereof. Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification
(including, if required in the reasonable judgment of the Company, a statement
of net worth of such Holder that is at a level reasonably satisfactory to the
Company), and upon surrender and cancellation of this Warrant, if mutilated,
the Company shall execute and deliver a new Warrant of like tenor and date.
Section 4. Antidilution Provisions.
(a) Adjustment of Number of Warrant Shares and
Exercise Price. The number of Warrant Shares purchasable pursuant hereto and
the Exercise Price, each shall be subject to adjustment from time to time on
and after the Date of Issuance as provided in this Section 4(a). In case the
Company shall at any time after the Date of Issuance (i) pay a dividend of
shares of Common Stock or make a distribution of shares of Common Stock, (ii)
subdivide its
- 3 -
72
outstanding shares of Common Stock into a larger number of shares of Common
Stock, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (iv) issue any shares of its capital stock
or other assets in a reclassification or reorganization of the Common Stock
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing entity), then (x) the securities
purchasable pursuant hereto shall be adjusted to the number of Warrant Shares
and amount of any other securities, cash or other property of the Company which
the Holder would have owned or have been entitled to receive after the
happening of any of the events described above, had this Warrant been exercised
immediately prior to the happening of such event or any record date with
respect thereto, and (y) the Exercise Price shall be adjusted to equal the
Exercise Price immediately prior to the adjustment multiplied by a fraction,
(A) the numerator of which is the number of Warrant Shares for which this
Warrant is exercisable immediately prior to the adjustment, and (B) the
denominator of which is the number of shares for which this Warrant is
exercisable immediately after such adjustment. The adjustments made pursuant
to this Section 4(a) shall become effective immediately after the effective
date of the event creating such right of adjustment, retroactive to the record
date, if any, for such event. Any Warrant Shares purchasable as a result of
such adjustment shall not be issued prior to the effective date of such event.
For the purpose of this Section 4(a) and (b), the term "shares of
Common Stock" means (i) the classes of stock designated as the Common Stock of
the Company as of the date hereof, or (ii) any other class of stock resulting
from successive changes or reclassifications of such shares consisting solely
of changes in par value, or from par value to no par value, or from no par
value to par value. In the event that at any time, as a result of an
adjustment made pursuant to this Section 4(a), the Holder shall become entitled
to receive any securities of the Company other than shares of Common Stock,
thereafter the number of such other securities so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with respect to
the Warrant Shares contained in this Section 4.
(b) Reorganization, Merger, etc. If any capital
reorganization, reclassification or similar transaction involving the capital
stock of the Company (other than as specified in Section 4(a)), any
consolidation, merger or business combination of the Company with another
corporation or the sale or conveyance of all or any substantial part of its
assets to another corporation, shall be effected in such a way that holders of
the shares of Common Stock shall be entitled to receive stock, securities or
assets (including, without limitation, cash) with respect to or in exchange for
shares of the Common Stock, then, prior to and as a condition of such
reorganization, reclassification, similar transaction, consolidation, merger,
business combination, sale or conveyance, lawful and adequate provision shall
be made whereby the Holder shall thereafter have the right to purchase and
receive upon the basis and upon the terms and conditions specified in this
Warrant and in lieu of the Warrant Shares immediately theretofore purchasable
and receivable upon the exercise of this Warrant, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding Warrant Shares equal to the number of Warrant
Shares immediately theretofore purchasable and receivable upon the exercise of
this Warrant had such reorganization, reclassification, similar transaction,
consolidation, merger, business combination, sale or conveyance not taken
place. The Company shall not effect any such consolidation, merger, business
combination, sale or conveyance unless prior to or simultaneously with the
consummation thereof the survivor or successor corporation (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument executed and sent to
the Holder, the
- 4 -
73
obligation to deliver to the Holder such shares of stock, securities or assets
as, in accordance with the foregoing provisions, the Holder may be entitled to
receive.
(c) Statement on Warrant Certificates. Irrespective of
any adjustments in the Exercise Price or the number or kind of Warrant Shares,
this Warrant may continue to express the same price and number and kind of
shares as are stated on the front page hereof.
(d) Exception to Adjustment. Anything herein to the
contrary notwithstanding, the Company shall not be required to make any
adjustment of the number of Warrant Shares issuable hereunder or to the
Exercise Price in the case of the issuance of the Warrants or the issuance of
shares of the Common Stock (or other securities) upon exercise of the Warrants.
(e) Treasury Shares. The number of shares of the Common
Stock outstanding at any time shall not include treasury shares or shares owned
or held by or for the account of the Company or any of its subsidiaries, and
the disposition of any such shares shall be considered an issue or sale of the
Common Stock for the purposes of this Section 4.
(f) Adjustment Notices to Holder. Upon any increase or
decrease in the number of Warrant Shares purchasable upon the exercise of this
Warrant or the Exercise Price the Company shall, within 30 days thereafter,
deliver written notice thereof to all Holders, which notice shall state the
increased or decreased number of Warrant Shares purchasable upon the exercise
of this Warrant and the adjusted Exercise Price, setting forth in reasonable
detail the method of calculation and the facts upon which such calculations are
based.
Section 5. Notification by the Company. In case at any
time while this Warrant remains outstanding:
(a) the Company shall declare any dividend or make any
distribution upon its Common Stock or any other class of its capital stock; or
(b) the Company shall offer for subscription pro rata to
the holders of its Common Stock or any other class of its capital stock any
additional shares of stock of any class or any other securities convertible
into or exchangeable for shares of stock or any rights or options to subscribe
thereto; or
(c) the Board of Directors of the Company shall authorize
any capital reorganization, reclassification or similar transaction involving
the capital stock of the Company, or a sale or conveyance of all or a
substantial part of the assets of the Company, or a consolidation, merger or
business combination of the Company with another Person; or
(d) actions or proceedings shall be authorized or
commenced for a voluntary or involuntary dissolution, liquidation or winding-up
of the Company;
then, in any one or more of such cases, the Company shall give written notice
to the Holder, at the earliest time legally practicable (and not less than 20
days before any record date or other date set for definitive action) of the
date on which (i) the books of the Company shall close or a record shall be
taken for such dividend, distribution or subscription rights or options or (ii)
such reorganization, reclassification, sale, conveyance, consolidation, merger,
dissolution, liquidation or winding-up shall take place or be voted on by
shareholders of the Company, as the case may be. Such notice shall also
specify the date as of which the holders of the Common Stock of record shall
participate in said dividend, distribution, subscription
- 5 -
74
rights or options or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, sale, conveyance, consolidation, merger, dissolution,
liquidation or winding-up, as the case may be. If the action in question or
the record date is subject to the effectiveness of a registration statement
under the Securities Act or to a favorable vote of shareholders, the notice
required by this Section 5 shall so state.
Section 6. No Voting Rights: Limitations of Liability.
Prior to exercise, this Warrant will not entitle the Holder to any voting
rights or other rights as a stockholder of the Company. No provision hereof,
in the absence of affirmative action by the Holder to exercise this Warrant,
and no enumeration herein of the rights or privileges of the Holder, shall give
rise to any liability of the Holder for the purchase price of the Warrant
Shares pursuant to the exercise hereof.
Section 7. Restrictions on Transfer. The Warrants and
the Warrant Shares shall not be transferable except upon the conditions
specified in this Warrant and in the Securities Purchase Agreement. The
Warrants may not be transferred, sold or otherwise disposed of except in blocks
of Warrants for the purchase of at least 100,000 shares of Common Stock;
provided, that if at the time of such transfer, sale or other disposition, the
Warrants owned by the Holder are for the purchase of less than 100,000 shares
of Common Stock, the Holder may sell, transfer or otherwise dispose of all, but
not less than all, of the Warrants. This Warrant bears and the certificates
for Warrant Shares will bear a legend as specified in the Securities Purchase
Agreement. The Holder by its acceptance of this Warrant agrees to comply with
and to be bound by all of the provisions of the Securities Purchase Agreement.
Section 8. Amendment and Waiver.
(a) No failure or delay of the Holder in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The
rights and remedies of the Holder are cumulative and not exclusive of any
rights or remedies which it would otherwise have. The provisions of this
Warrant may be amended, modified or waived with (and only with) the written
consent of the Company and the Required Holders.
(b) No notice or demand on the Company in any case shall
entitle the Company to any other or further notice or demand in similar or
other circumstances.
Section 9. No Fractional Warrant Shares. The Company
shall not be required to issue stock certificates representing fractions of
Warrant Shares, but shall in respect of any fraction of a Warrant Share make a
payment in cash based on the Value of the Common Stock after giving effect to
the full exercise or conversion of the Warrants.
Section 10. Reservation of Warrant Shares. The Company
shall authorize, reserve and keep available at all times, free from preemptive
rights, a sufficient number of Warrant Shares to satisfy the requirements of
this Warrant.
- 6 -
75
Section 11. Notices. Unless otherwise specified, whenever
this Warrant requires or permits any consent, approval, notice, request, or
demand from one party to another, that communication must be in writing (which
may be by telecopy) to be effective and is deemed to have been given (a) if by
telecopy, when transmitted to the appropriate telecopy number (and all
communications sent by telecopy must be confirmed promptly by telephone; but
any requirement in this parenthetical does not affect the date when the
telecopy is deemed to have been delivered), or (b) if by any other means,
including by internationally acceptable courier or hand delivery, when actually
delivered. Until changed by notice pursuant to this Warrant, the address (and
telecopy number) for the Holder and the Company are:
If to Holder: Forseti Investments Ltd.
▇-▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
West Indies
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With copies to: ▇▇▇▇▇ Fresenius ▇▇▇▇▇ Scherzberg,
attorneys
▇▇▇▇-▇▇▇▇▇▇▇-Strasse 37-39
60596 Frankfurt-Am-Main
Attn: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇) ▇▇▇▇▇▇▇▇▇▇
If to Company: Queen Sand Resources, Inc.
▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇.▇.#▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With copies to: Queen Sand Resources, Inc.
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇▇ and ▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. Boeing, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Section 12. Section and Other Headings. The headings
contained in this Warrant are for reference purposes only and will not affect
in any way the meaning or interpretation of this Warrant.
Section 13. Governing Law; Choice of Forum; Consent to
Service of Process. THIS WARRANT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE. The parties hereto agree
that any suit, action or proceeding arising out of or relating to this Warrant
or any agreement or obligation delivered in connection with this Warrant or any
judgment entered by any court in respect thereof shall be brought in the Courts
of the State of Texas, County of Dallas or in the United
- 7 -
▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ for the Northern District of Texas and each such party
hereby submits to the exclusive jurisdiction of such courts for the purpose of
any such suit, action or proceeding relating to this Warrant or any related
agreement or obligation. The Holder hereby submits to the jurisdiction of the
State of Texas and agrees that service of all writs, process and summonses in
any such suit, action or proceeding brought in the United States against the
Holder may be made upon CT Corporation System at its offices located at ▇▇▇
▇▇▇▇▇ ▇▇. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ (or any subsequent address of CT
Corporation System), and the Holder hereby irrevocably appoints CT Corporation
System at its offices located at ▇▇▇ ▇▇▇▇▇ ▇▇. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇ (or any subsequent address of CT Corporation System) its true and lawful
attorney-in-fact in their name, place and ▇▇▇▇▇ to accept such service of any
and all such writs, process and summonses, and agree that the failure of CT
Corporation System to give to the Holder any notice of any such service of
process shall not impair or affect the validity of such service or of any
judgment based thereon. The Company shall send, within 5 days after any
service of process under this Section 13, notice to the Holder in accordance
with Section 11 of any service of process on CT Corporation System under this
Section 13. Service of process on the Company may be made to the Company's
registered agent in Delaware, Corporation Trust Centre, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇
▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ of New Castle.
Each party hereto hereby irrevocably waives any objection that it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Warrant or any agreement or obligation
delivered in connection with this Warrant, brought in the Courts of the State
of Texas, County of Dallas or the United States District Court for the Northern
District of Texas, and hereby further irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in
an inconvenient forum.
Section 14. Binding Effect. The terms and provisions of
this Warrant shall inure to the benefit of the Holder and its successors and
assigns and shall be binding upon the Company and its successors and assigns,
including, without limitation, any Person succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets.
* * * * *
- 8 -
77
IN WITNESS WHEREOF, the seal of the Company and the signature of its
duly authorized officer have been affixed hereto as of __________ _____, 1997.
[SEAL] QUEEN SAND RESOURCES, INC.
Attest: By:
-------------------------- ---------------------------------
Name:
-------------------------------
Title:
------------------------------
and
Attest: By:
-------------------------- ---------------------------------
Name:
-------------------------------
Title:
------------------------------
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78
EXHIBIT A
TO
WARRANT
PURCHASE FORM
To Be Executed by the Holder
Desiring to Exercise a Warrant of
Queen Sand Resources, Inc.
The undersigned holder hereby exercises the right to purchase ______
shares of Common Stock covered by the within Warrant, according to the
conditions thereof, and herewith makes payment in full of the Exercise Price of
such shares, in the amount of $____________.
Name of Holder:
--------------------------------------
Signature:
----------------------------
Title:
--------------------------------
Address:
------------------------------
--------------------------------------
--------------------------------------
Dated: , .
--------------------- -------
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79
EXHIBIT B
TO
WARRANT
ASSIGNMENT FORM
To Be Executed by the Holder
Desiring to Transfer a Warrant of
Queen Sand Resources, Inc.
FOR VALUE RECEIVED, the undersigned holder hereby sells, assigns and
transfers unto __________________________ the right to purchase ____________
shares of Common Stock covered by the within Warrant, and does hereby
irrevocably constitute and appoint _________________ Attorney to transfer the
said Warrant on the books of the Company (as defined in such Warrant), with
full power of substitution.
Name of Holder:
--------------------------------------
Signature:
----------------------------
Title:
--------------------------------
Address:
------------------------------
--------------------------------------
--------------------------------------
Dated: , .
--------------------- -------
In the presence of
--------------------------------------
NOTICE:
The signature to the foregoing Assignment Form must correspond to the name as
written upon the face of the within Warrant in every detail, without alteration
or enlargement or any change whatsoever.
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80
EXHIBIT C
EARN UP AGREEMENT
THIS EARN UP AGREEMENT (this "Agreement") is executed as of the _____
day of __________, 1997 between Queen Sand Resources, Inc., a Delaware
corporation (the "Company"), and Joint Energy Development Investments Limited
Partnership, a Delaware limited partnership ("JEDI").
WHEREAS, the Company has entered into the Purchase Agreement (defined
below) with JEDI pursuant to which JEDI is purchasing shares of the Company's
Series A Participating Convertible Preferred Stock, par value $0.01 per share
(the "Convertible Preferred Stock"), and certain warrants to purchase Common
Stock of the Company, in exchange for (i) $5,000,000 cash; and (ii) this
Agreement; and
WHEREAS, the Company is repurchasing 9,600,000 shares of Common Stock
(defined below) from Forseti Investments, ltd., a Barbados corporation
("Forseti"), pursuant to the terms of the Forseti Purchase Agreement (defined
below);
NOW, THEREFORE, in consideration of these premises, the agreements
herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, JEDI and the Company agree as follows:
1.0 DEFINITIONS
"AAA" means the American Arbitration Association, or any successor
organization.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of, or rights,
warrants or options to purchase, corporate stock or any other equity interest
(however designated) of or in such Person.
"Capitalized Lease Obligation" means the amount of the liability under
any capital lease that, in accordance with GAAP, is required to be capitalized
and reflected as a liability on the consolidated balance sheet of the Company
and its Subsidiaries.
"Class A Amount" is defined in Section 2(b).
81
"Class B Amount" is defined in Section 2(c).
"Class A Warrants" means the Class A Common Stock Purchase Warrants to
purchase 1,000,000 shares of Common Stock issued to Forseti pursuant to the
Forseti Purchase Agreement.
"Class B Warrants" means the Class B Common Stock Purchase Warrants to
purchase 2,000,000 shares of Common Stock issued to Forseti pursuant to the
Forseti Purchase Agreement.
"Common Stock" means the common stock, par value $.0015 per share, of
the Company.
"Consolidated Adjusted Net Income" means the consolidated net income
(or loss) of the Company and its Subsidiaries for the fiscal year ending June
30, 1998 as determined in accordance with GAAP, adjusted by excluding, to the
extent included in consolidated net income, (a) net after-tax extraordinary
gains or losses (less all fees and expenses relating thereto), (b) net
after-tax gains or losses (less all fees and expenses relating thereto)
attributable to asset dispositions, (c) the net income (or net loss) of any
Person (other than the Company or any of its Subsidiaries) in which the Company
or any of its Subsidiaries has an ownership interest, except to the extent of
the amount of dividends or other distributions actually paid to the Company or
its Subsidiaries in cash by such other Person during such period, and (d) net
income (or net loss) of any Person combined with the Company or any of its
Subsidiaries on a "pooling of interests" basis attributable to any period prior
to the date of combination.
"Consolidated Interest Expense" means the amount which, in conformity
with GAAP, is set forth opposite the caption "interest expense" (or any like
caption) on the audited consolidated statement of operations of the Company and
its Subsidiaries for the fiscal year ended June 30, 1998.
"Consolidated Net Working Capital" means (i) the amount which, in
conformity with GAAP, is set forth opposite the caption "total current assets"
(or any like caption) on the audited consolidated balance sheet of the Company
and its Subsidiaries as of June 30, 1998 less (ii) the amount which, in
conformity with GAAP, is set forth opposite the caption "total current
liabilities" (or any like caption) on the audited consolidated balance sheet of
the Company and its Subsidiaries as of June 30, 1998.
"Consolidated Non-cash Charges" means the amount which, in conformity
with GAAP, is set forth opposite the caption "depreciation, depletion and
amortization" (or any like caption) on the audited consolidated statement of
operations of the Company and its Subsidiaries for the fiscal year ended June
30, 1998.
"Consolidated Tax Expense" means the amount which, in conformity with
GAAP, is set forth opposite the caption "income tax expense" (or any like
caption) on the audited consolidated statement of operations of the Company and
its Subsidiaries for the fiscal year ended June 30, 1998.
"Dispute" is defined in Section 4.
82
"EBITDA" means, without duplication, for the fiscal year ended June
30, 1998, the sum of (i) Consolidated Adjusted Net Income and (ii) to the
extent deducted in computing Consolidated Adjusted Net Income, Consolidated
Interest Expense, Consolidated Tax Expense and Consolidated Non-cash Charges.
"Earn Up Amount" is defined in Section 2(a).
"Election Date" means September 30, 1998.
"Exercise Price" means $2.50.
"Forseti Earn Up Agreement" means the Earn Up Agreement entered into
between the Company and Forseti substantially in the form of Exhibit A to this
Agreement.
"Forseti Interests" means all of the outstanding ownership interests
in Forseti and each entity that controls or owns an ownership interests in
Forseti.
"Forseti Purchase Agreement" means the Securities Purchase Agreement
dated March 27, 1997 between the Company and Forseti.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, in effect from time to
time.
"Guaranteed Debt" means, without duplication, all Indebtedness of any
other Person guaranteed directly or indirectly in any manner by the Company or
any of its Subsidiaries, or in effect guaranteed directly or indirectly by the
Company or any of its Subsidiaries through an agreement (i) to pay or purchase
such Indebtedness or to advance or supply funds for the payment or purchase of
such Indebtedness, (ii) to purchase, sell or lease (as lessee or lessor)
property, or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such Indebtedness or to assure the
holder of such Indebtedness against loss, (iii) to supply funds to, or in any
other manner invest in, the debtor (including any agreement to pay for property
or services to be acquired by such debtor irrespective of whether such property
is received or such services are rendered), (iv) to maintain working capital or
equity capital of the debtor, or otherwise to maintain the net worth, solvency
or other financial condition of the debtor or (v) otherwise to assure a
creditor against loss; provided that the term "guarantee" shall not include
endorsements for collection or deposit.
"Indebtedness" means, as of June 30, 1998, without duplication, (i)
all indebtedness of the Company or any of its Subsidiaries for borrowed money
or for the deferred purchase price of property or services, excluding any trade
accounts payable and other accrued current liabilities incurred in the ordinary
course of business, (ii) all obligations of the Company or any of its
Subsidiaries evidenced by bonds, notes, debentures or other similar
instruments, (iii) all indebtedness created or arising under any conditional
sale or other title retention agreement with respect to property acquired by
the Company or any of its Subsidiaries (even if the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of
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83
such property), but excluding trade accounts payable arising in the ordinary
course of business, (iv) all Capitalized Lease Obligations, (v) all
indebtedness referred to in (but not excluded from) clause (i), (ii), (iii) or
(iv) above of other Persons, the payment of which is secured by (or for which
the holder of such indebtedness has an existing right, contingent or otherwise,
to be secured by) any Lien upon or in property (including, without limitation,
accounts and contract rights) owned by the Company or any of its Subsidiaries,
even though such Person has not assumed or become liable for the payment of
such indebtedness, (vi) all Guaranteed Debt, (vii) all Redeemable Capital Stock
valued at its maximum fixed repurchase price plus accrued and unpaid dividends,
and (viii) any amendment, supplement, modification, deferral, renewal,
extension or refunding of any liability of the types referred to in clauses (i)
through (vii) above. For purposes hereof, the "maximum fixed repurchase price"
of any Redeemable Capital Stock that does not have a fixed repurchase price
shall be calculated in accordance with the terms of such Redeemable Capital
Stock as if such Redeemable Capital Stock were purchased on any date on which
Indebtedness shall be required to be determined pursuant to this Agreement, and
if such price is based upon, or measured by, the fair market value of such
Redeemable Capital Stock, such fair market value to be determined in good faith
by the Board of Directors of the issuer of such Redeemable Capital Stock.
"Mediator" is defined in Section 6.
"Outstanding Shares" means, as of June 30, 1998, the issued and
outstanding shares of Common Stock, assuming the conversion of all shares of
preferred stock of the Company that are convertible into shares of Common
Stock, and excluding any shares of Common Stock held in treasury by the Company
or held by any wholly-owned Subsidiary of the Company.
"Payment Date" means October 15, 1998.
"Person" means any individual, corporation, limited or general
partnership, joint venture, association, joint-stock company, trust, limited
liability company, unincorporated organization or government or any agency or
political subdivision thereof.
"Price" means, if:
(Price(1) - Price(2))
---------------------- less than or equal to 0.1, then (Price(1) + Price(2))/2;
Greater of Price(1) or Price(2)
provided, that if: (Price(1) - Price(2))
---------------------- greater than 0.1, then the Company and JEDI
Greater of Price(1) or Price(2)
shall negotiate the Price; provided, further, that if the Price has not been
agreed upon within 5 business days after the determination of Price(1) and
Price(2), then the determination of the Price shall be submitted to nonbinding
mediation and arbitration in accordance with this Agreement. Notwithstanding
anything to the contrary in this Agreement, under no circumstances shall the
Price exceed the higher of Price(1) and Price(2) or be less than the lower of
Price(1) and Price(2).
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(1.1 * SEC PV(10)) - Indebtedness + Consolidated Net Working Capital
"Price(1)" = ------------------------------------------------------------------------------
Outstanding Shares
(6.0 * EBITDA) - Indebtedness + Consolidated Net Working Capital
"Price(2)" = ------------------------------------------------------------------------------
Outstanding Shares
"Purchase Agreement" means the Securities Purchase Agreement dated
March 27, 1997 between the Company and JEDI.
"Redeemable Capital Stock" means any Capital Stock of the Company or
any of its Subsidiaries that, either by its terms, by the terms of any security
into which it is convertible or exchangeable or otherwise, (i) is, or upon the
happening of an event or passage of time would be, required to be redeemed, or
(ii) is, or upon the happening of an event or passage of time would be,
redeemable at the option of the holder thereof, or (iii) is, or upon the
happening of an event or passage of time would be, convertible into or
exchangeable for debt securities.
"SEC PV10" means the pre tax future net cash flows from proved oil and
gas reserves of the Company and its Subsidiaries at June 30, 1998, computed
using a discount factor of ten percent, as determined in accordance with the
rules, regulations and guidelines of the United States Securities and Exchange
Commission and reported in the reserve report dated as of such date prepared in
accordance with Section 6.11 of the Purchase Agreement.
"Statutory Declaration" means a statutory declaration by Forseti that
as of the Election Date and the Payment Date (i) the individual who, as of the
date hereof, owned all of the Forseti Interests owns all of the Forseti
Interests (ii) there are no encumbrances, pledges or other liens on any equity
interests in Forseti, and (iii) no other event under Section 6(h) has occurred.
"Subsidiary" of a Person means any corporation, limited liability
company, limited or general partnership, joint venture, association,
joint-stock company or business trust of which at the time of determination
such Person, directly and/or indirectly through one or more other Persons, owns
more than 50% of the voting interests.
"Transfer" of any property means any exercise, or any direct or
indirect sale, transfer, encumbrance, gift, donation, assignment, grant of any
interest, pledge, hypothecation or other disposition of such property or any
interest therein, whether voluntary or involuntary, including, but not limited
to, any transfer by operation of law, by court order, by judicial process, or
by foreclosure, levy, or attachment.
"Value" is defined in Section 2(e).
"Warrant Transfer Amount" is defined in Section 2(d).
"Warrants" means, collectively, the Class A Warrants and the Class B
Warrants.
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85
2.0 PAYMENT OF EARN UP AMOUNT
(a) On the Payment Date, subject to the limitations in Section 3,
and only against delivery by the Company to JEDI of evidence
satisfactory to JEDI that Forseti has delivered to the Company (x) the
Warrants and (y) the Statutory Declaration, JEDI shall pay the Company
an amount (the "Earn Up Amount") equal to the amount, if any, by which
(i) the sum of the Class A Amount and the Class B Amount exceeds (ii)
the Warrant Transfer Amount; provided, that in no event shall the Earn
Up Amount exceed $9,400,000.
(b) The "Class A Amount" means a dollar amount equal to the
product of (i) the Value (not to exceed $1.50) less $1.25, multiplied
by (ii) 9,600,000; provided, that in no event shall the Class A Amount
be greater than $2,400,000; and if the Class A Amount is zero or a
negative number, the Class A Amount shall be deemed to be zero.
(c) The "Class B Amount" means a dollar amount equal to the
product of (i) the Value (not to exceed $1.25) less $0.521, multiplied
by (ii) 9,600,000; provided, that in no event shall the Class B Amount
be greater than $7,000,000; and if the Class B Amount is zero or a
negative number, the Class B Amount shall be deemed to be zero.
(d) The "Warrant Transfer Amount" means a dollar amount equal to
the greatest of (i) the product of (x) $3.50 multiplied by (y) the
aggregate number of Class A Warrants and Class B Warrants Transferred
by Forseti before the Payment Date; (ii) the aggregate gross proceeds
that Forseti has received or is entitled to receive from the Transfer
of all of the Class A Warrants and Class B Warrants Transferred by
Forseti before the Payment Date; and (iii) the difference between the
average daily bid price of the Company's Common Stock for the 21-day
period ending on the Election Date less the Exercise Price, multiplied
by the number of Class A Warrants and the Class B Warrants Transferred
by Forseti before the Payment Date.
(e) The "Value" means the product of the Price, multiplied by
0.60; provided, that if (i) the Common Stock is quoted on The Nasdaq
National Market at the Election Date and (ii) the average daily
trading volume of the Company's shares of Common Stock for the 21-day
period ending on the Election Date is at least 50,000 shares per day
(excluding trading of shares in any accounts controlled by the Company
or Forseti or their respective Affiliates, and provided, that if on
any of the 21 days the trading volume is greater than 300,000 shares,
then only 300,000 shares on such days may be used in calculating the
average), then Value means the product of the Price, multiplied by
0.75.
(f) The Company represents and warrants to JEDI that the
definitions of the terms "Price" and "Value" in the Forseti Earn Up
Agreement are identical to the definitions of such terms in this
Agreement.
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86
3.0 LIMITATION ON EARN UP AMOUNT
The Earn Up Amount shall in no event exceed the amount defined in the
Forseti Purchase Agreement as the "Earn Up Amount."
4.0 MEDIATION.
Any controversy, dispute or claim arising out of or relating to this
Agreement (a "Dispute") shall be submitted to non-binding mediation upon the
request of the Company or Forseti on the following terms. Upon the request of
either party, a neutral mediator acceptable to both parties (the "Mediator")
shall be appointed within 15 days. The Mediator shall attempt through
negotiations in any manner deemed reasonably appropriate by the Mediator, in
which the parties shall participate, to resolve the Dispute. The Mediator
shall be compensated at a rate agreeable to the Company, Forseti and the
Mediator, and each of the Company and Forseti shall pay its pro rata share of
such compensation and other expenses of the mediation.
5.0 ARBITRATION.
In the event that mediation of a Dispute has not commenced within 15
days after a request for mediation is submitted or is terminated without
resolution under Section 5.0, any controversy or claim arising out of or
relating to this Agreement, including the right to or amount of indemnity,
shall be settled by arbitration in accordance with the Commercial Arbitration
Rules of the AAA by three (3) arbitrators. Each of Forseti and the Company
shall appoint one arbitrator, who shall be an impartial person. If a party
fails to appoint an arbitrator within thirty (30) days from the date a Demand
to Arbitrate was made under Rule 6, the AAA shall make the appointment of the
arbitrator. The two (2) arbitrators thus appointed shall appoint the third
arbitrator, who shall be an impartial person. If said two (2) arbitrators fail
to appoint the third arbitrator within sixty (60) days from the date a Demand
to Arbitrate was made under Rule 6, the AAA shall make the appointment of the
third arbitrator, who shall be an impartial person. Should any of the
arbitrators appointed die, resign, refuse or become unable to act before a
decision is given, the vacancy shall be filled by the method set forth in this
clause for the original appointment. The arbitration shall be held in Dallas,
Texas and shall be conducted in the English language. A decision by the
arbitrators shall be final and binding on all the parties. The arbitrators
shall execute and deliver to the respective parties the arbitration panel's
decision in writing. Judgment upon the award, if any, rendered by the
arbitrators (which must be expressed in United States Dollars) may be entered
in any court having jurisdiction thereof. In any award, the arbitrators shall
assess the arbitration costs and expenses, including, without limitation,
attorneys fees of the parties, in a manner deemed equitable by the arbitrators,
taking into account the arbitration decision. Notwithstanding anything to the
contrary in this Agreement, if a Dispute involves the determination of Price,
the Price, as determined by arbitration under this Section 5, shall not (i) (a)
exceed the higher or Price1 and Price2, or (b) be lower than the lower of
Price1 and Price2, or (ii) exceed the Price as determined under the Forseti
Earn Up Agreement, including a Price as determined by arbitration under the
provisions of the Forseti Earn Up Agreement.
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6.0 MISCELLANEOUS
(a) Governing Law. This Agreement shall be governed by the
substantive laws of the State of Texas.
(b) Invalid Provisions. If any provision of this Agreement is
held to be illegal, invalid or unenforceable, such provision shall be
fully severable.
(c) Entirety and Amendments. This Agreement embodies the entire
agreement and understanding relating to the subject matter hereof,
supersedes all prior understandings between the parties relating to
the subject matter hereof, and may be amended only by an instrument in
writing executed by the Company and JEDI.
(d) Parties Bound. This Agreement shall be binding upon and inure
to the benefit of the Company and JEDI, and their respective
successors and permitted assigns. Neither the Company nor JEDI may
assign its rights or delegate its obligations hereunder (whether
voluntarily, involuntarily, or by operation of law) without the prior
written consent of the other party.
(e) Notices. Unless otherwise specified, whenever this Agreement
requires or permits any consent, approval, notice, request, or demand
from one party to another, that communication must be in writing
(which may be by telecopy) to be effective and is deemed to have been
given (a) if by telecopy, when transmitted to the appropriate telecopy
number (and all communications sent by telecopy must be confirmed
promptly by telephone; but any requirement in this parenthetical does
not affect the date when the telecopy is deemed to have been
delivered), or (b) if by any other means, including by internationally
acceptable courier or hand delivery, when actually delivered. Until
changed by notice pursuant to this Agreement, the address (and
telecopy number) for the Company and JEDI are:
If to JEDI: Joint Energy Development Investments
Limited Partnership
c/o Enron Corp.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇ - Director,
28th Floor
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
If to Company: Queen Sand Resources, Inc.
▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇.▇.#▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
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88
With copies to: Queen Sand Resources, Inc.
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇▇ and ▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. Boeing
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(f) Section and Other Headings. The headings contained in this
Agreement are for reference purposes only and will not affect in any
way the meaning or interpretation of this Agreement.
(g) Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original and all of
which together will constitute one instrument.
(h) Termination. This Agreement shall terminate automatically,
and JEDI shall have no obligation to pay any Earn Up Amount, (a) in
the event the "Election Date" under the Forseti Earn Up Agreement is
after September 30, 1998 or the "Payment Date" under the Forseti Earn
Up Agreement is after October 15, 1998, (b) upon the Transfer of any
Warrants in violation of the restrictions on Transfer of Warrants
under the Forseti Purchase Agreement, (c) upon the election by Forseti
to retain the Warrants under Section 2(a)(ii) of the Forseti Earn Up
Agreement, (d) upon the Transfer by Forseti of all of the Warrants,
(e) upon the Transfer of any ownership interest in Forseti or any
entity controlling Forseti where the purpose of the transfer is to
realize or receive cash, securities or any other property as
consideration for the Warrants without transferring the Warrants, (f)
in the event that, on the Election Date or the Payment Date, the
individual who, as of the date hereof owned, directly or indirectly,
all of the Forseti Interests does not own, directly or indirectly, all
of the Forseti Interests, or (g) the termination of the Forseti Earn
Up Agreement for any reason.
(i) Currency. All dollar amounts in this Agreement shall mean
United States dollars.
* * * * *
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89
IN WITNESS WHEREOF, JEDI and the Company have executed this Agreement
as of the day and year first stated above.
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP
By: Enron Capital Management Limited
Partnership, its General Partner
By: Enron Capital Corp., its General
Partner
By:
-----------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Agent and Attorney-in-Fact
QUEEN SAND RESOURCES, INC.
By:
-----------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
President and Chief Executive
Officer
and
By:
----------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Chief Operating Officer
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90
EXHIBIT D
EARN UP AGREEMENT
THIS EARN UP AGREEMENT (this "Agreement") is executed as of the _____
day of __________, 1997 between Queen Sand Resources, Inc., a Delaware
corporation (the "Company"), and Joint Energy Development Investments Limited
Partnership, a Delaware limited partnership ("JEDI").
WHEREAS, the Company has entered into the Purchase Agreement (defined
below) with JEDI pursuant to which JEDI is purchasing shares of the Company's
Series A Participating Convertible Preferred Stock, par value $0.01 per share
(the "Convertible Preferred Stock"), and certain warrants to purchase Common
Stock of the Company, in exchange for (i) $5,000,000 cash; and (ii) this
Agreement; and
WHEREAS, the Company is repurchasing 9,600,000 shares of Common Stock
(defined below) from Forseti Investments, ltd., a Barbados corporation
("Forseti"), pursuant to the terms of the Forseti Purchase Agreement (defined
below);
NOW, THEREFORE, in consideration of these premises, the agreements
herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, JEDI and the Company agree as follows:
1.0 DEFINITIONS
"AAA" means the American Arbitration Association, or any successor
organization.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of, or rights,
warrants or options to purchase, corporate stock or any other equity interest
(however designated) of or in such Person.
"Capitalized Lease Obligation" means the amount of the liability under
any capital lease that, in accordance with GAAP, is required to be capitalized
and reflected as a liability on the consolidated balance sheet of the Company
and its Subsidiaries.
"Class A Amount" is defined in Section 2(b).
"Class B Amount" is defined in Section 2(c).
91
"Class A Warrants" means the Class A Common Stock Purchase Warrants to
purchase 1,000,000 shares of Common Stock issued to Forseti pursuant to the
Forseti Purchase Agreement.
"Class B Warrants" means the Class B Common Stock Purchase Warrants to
purchase 2,000,000 shares of Common Stock issued to Forseti pursuant to the
Forseti Purchase Agreement.
"Common Stock" means the common stock, par value $.0015 per share, of
the Company.
"Consolidated Adjusted Net Income" means the consolidated net income
(or loss) of the Company and its Subsidiaries for the fiscal year ending June
30, 1998 as determined in accordance with GAAP, adjusted by excluding, to the
extent included in consolidated net income, (a) net after-tax extraordinary
gains or losses (less all fees and expenses relating thereto), (b) net
after-tax gains or losses (less all fees and expenses relating thereto)
attributable to asset dispositions, (c) the net income (or net loss) of any
Person (other than the Company or any of its Subsidiaries) in which the Company
or any of its Subsidiaries has an ownership interest, except to the extent of
the amount of dividends or other distributions actually paid to the Company or
its Subsidiaries in cash by such other Person during such period, and (d) net
income (or net loss) of any Person combined with the Company or any of its
Subsidiaries on a "pooling of interests" basis attributable to any period prior
to the date of combination.
"Consolidated Interest Expense" means the amount which, in conformity
with GAAP, is set forth opposite the caption "interest expense" (or any like
caption) on the audited consolidated statement of operations of the Company and
its Subsidiaries for the fiscal year ended June 30, 1998.
"Consolidated Net Working Capital" means (i) the amount which, in
conformity with GAAP, is set forth opposite the caption "total current assets"
(or any like caption) on the audited consolidated balance sheet of the Company
and its Subsidiaries as of June 30, 1998 less (ii) the amount which, in
conformity with GAAP, is set forth opposite the caption "total current
liabilities" (or any like caption) on the audited consolidated balance sheet of
the Company and its Subsidiaries as of June 30, 1998.
"Consolidated Non-cash Charges" means the amount which, in conformity
with GAAP, is set forth opposite the caption "depreciation, depletion and
amortization" (or any like caption) on the audited consolidated statement of
operations of the Company and its Subsidiaries for the fiscal year ended June
30, 1998.
"Consolidated Tax Expense" means the amount which, in conformity with
GAAP, is set forth opposite the caption "income tax expense" (or any like
caption) on the audited consolidated statement of operations of the Company and
its Subsidiaries for the fiscal year ended June 30, 1998.
"Dispute" is defined in Section 4.
"EBITDA" means, without duplication, for the fiscal year ended June
30, 1998, the sum of (i) Consolidated Adjusted Net Income and (ii) to the
extent deducted in computing Consolidated Adjusted Net Income, Consolidated
Interest Expense, Consolidated Tax Expense and Consolidated Non-cash Charges.
92
"Earn Up Amount" is defined in Section 2(a).
"Election Date" means September 30, 1998.
"Exercise Price" means $2.50.
"Forseti Earn Up Agreement" means the Earn Up Agreement entered into
between the Company and Forseti substantially in the form of Exhibit A to this
Agreement.
"Forseti Interests" means all of the outstanding ownership interests
in Forseti and each entity that controls or owns an ownership interests in
Forseti.
"Forseti Purchase Agreement" means the Securities Purchase Agreement
dated March 27, 1997 between the Company and Forseti.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, in effect from time to
time.
"Guaranteed Debt" means, without duplication, all Indebtedness of any
other Person guaranteed directly or indirectly in any manner by the Company or
any of its Subsidiaries, or in effect guaranteed directly or indirectly by the
Company or any of its Subsidiaries through an agreement (i) to pay or purchase
such Indebtedness or to advance or supply funds for the payment or purchase of
such Indebtedness, (ii) to purchase, sell or lease (as lessee or lessor)
property, or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such Indebtedness or to assure the
holder of such Indebtedness against loss, (iii) to supply funds to, or in any
other manner invest in, the debtor (including any agreement to pay for property
or services to be acquired by such debtor irrespective of whether such property
is received or such services are rendered), (iv) to maintain working capital or
equity capital of the debtor, or otherwise to maintain the net worth, solvency
or other financial condition of the debtor or (v) otherwise to assure a
creditor against loss; provided that the term "guarantee" shall not include
endorsements for collection or deposit.
"Indebtedness" means, as of June 30, 1998, without duplication, (i)
all indebtedness of the Company or any of its Subsidiaries for borrowed money
or for the deferred purchase price of property or services, excluding any trade
accounts payable and other accrued current liabilities incurred in the ordinary
course of business, (ii) all obligations of the Company or any of its
Subsidiaries evidenced by bonds, notes, debentures or other similar
instruments, (iii) all indebtedness created or arising under any conditional
sale or other title retention agreement with respect to property acquired by
the Company or any of its Subsidiaries (even if the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), but excluding trade accounts payable
arising in the ordinary course of business, (iv) all Capitalized Lease
Obligations, (v) all indebtedness referred to in (but not excluded from) clause
(i), (ii), (iii) or (iv) above of other Persons, the payment of which is
secured by (or for which the holder of such indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon or in property
(including, without limitation, accounts and contract rights) owned by the
Company or any of its Subsidiaries, even though such Person has not assumed
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93
or become liable for the payment of such indebtedness, (vi) all Guaranteed
Debt, (vii) all Redeemable Capital Stock valued at its maximum fixed repurchase
price plus accrued and unpaid dividends, and (viii) any amendment, supplement,
modification, deferral, renewal, extension or refunding of any liability of the
types referred to in clauses (i) through (vii) above. For purposes hereof, the
"maximum fixed repurchase price" of any Redeemable Capital Stock that does not
have a fixed repurchase price shall be calculated in accordance with the terms
of such Redeemable Capital Stock as if such Redeemable Capital Stock were
purchased on any date on which Indebtedness shall be required to be determined
pursuant to this Agreement, and if such price is based upon, or measured by,
the fair market value of such Redeemable Capital Stock, such fair market value
to be determined in good faith by the Board of Directors of the issuer of such
Redeemable Capital Stock.
"Mediator" is defined in Section 6.
"Outstanding Shares" means, as of June 30, 1998, the issued and
outstanding shares of Common Stock, assuming the conversion of all shares of
preferred stock of the Company that are convertible into shares of Common
Stock, and excluding any shares of Common Stock held in treasury by the Company
or held by any wholly-owned Subsidiary of the Company.
"Payment Date" means October 15, 1998.
"Person" means any individual, corporation, limited or general
partnership, joint venture, association, joint- stock company, trust, limited
liability company, unincorporated organization or government or any agency or
political subdivision thereof.
"Price" means, if:
----- (Price(1) - Price(2))
less than 0.1, then (Price(1) + Price(2))/2;
----------------------
Greater of Price(1) or Price(2)
provided, that if: (Price(1) - Price(2))
greater than 0.1, then the Company and JEDI
----------------------
Greater of Price(1) or Price(2)
shall negotiate the Price; provided, further, that if the Price has not been
agreed upon within 5 business days after the determination of Price1 and
Price2, then the determination of the Price shall be submitted to nonbinding
mediation and arbitration in accordance with this Agreement. Notwithstanding
anything to the contrary in this Agreement, under no circumstances shall the
Price exceed the higher of Price1 and Price2 or be less than the lower of
Price1 and Price2.
(1.1 * SEC PV(10)) - Indebtedness + Consolidated Net Working Capital
"Price(1)" =
----- ------------------------------------------------------------------------------
Outstanding Shares
(6.0 * EBITDA) - Indebtedness + Consolidated Net Working Capital
"Price(2)" =
----- ------------------------------------------------------------------------------
Outstanding Shares
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"Purchase Agreement" means the Securities Purchase Agreement dated
March 27, 1997 between the Company and JEDI.
"Redeemable Capital Stock" means any Capital Stock of the Company or
any of its Subsidiaries that, either by its terms, by the terms of any security
into which it is convertible or exchangeable or otherwise, (i) is, or upon the
happening of an event or passage of time would be, required to be redeemed, or
(ii) is, or upon the happening of an event or passage of time would be,
redeemable at the option of the holder thereof, or (iii) is, or upon the
happening of an event or passage of time would be, convertible into or
exchangeable for debt securities.
"SEC PV10" means the pre tax future net cash flows from proved oil and
gas reserves of the Company and its Subsidiaries at June 30, 1998, computed
using a discount factor of ten percent, as determined in accordance with the
rules, regulations and guidelines of the United States Securities and Exchange
Commission and reported in the reserve report dated as of such date prepared in
accordance with Section 6.11 of the Purchase Agreement.
"Statutory Declaration" means a statutory declaration by Forseti that
as of the Election Date and the Payment Date (i) the individual who, as of the
date hereof, owned all of the Forseti Interests owns all of the Forseti
Interests (ii) there are no encumbrances, pledges or other liens on any equity
interests in Forseti, and (iii) no other event under Section 6(h) has occurred.
"Subsidiary" of a Person means any corporation, limited liability
company, limited or general partnership, joint venture, association,
joint-stock company or business trust of which at the time of determination
such Person, directly and/or indirectly through one or more other Persons, owns
more than 50% of the voting interests.
"Transfer" of any property means any exercise, or any direct or
indirect sale, transfer, encumbrance, gift, donation, assignment, grant of any
interest, pledge, hypothecation or other disposition of such property or any
interest therein, whether voluntary or involuntary, including, but not limited
to, any transfer by operation of law, by court order, by judicial process, or
by foreclosure, levy, or attachment.
"Value" is defined in Section 2(e).
"Warrant Transfer Amount" is defined in Section 2(d).
"Warrants" means, collectively, the Class A Warrants and the Class B
Warrants.
2.0 PAYMENT OF EARN UP AMOUNT
(a) On the Payment Date, subject to the limitations in Section 3,
and only against delivery by the Company to JEDI of evidence
satisfactory to JEDI that Forseti has delivered to the Company (x) the
Warrants and (y) the Statutory Declaration, JEDI shall pay the Company
an amount (the "Earn Up Amount") equal to the amount, if any, by which
(i) the sum of the Class A Amount and the Class B Amount exceeds (ii)
the Warrant Transfer Amount; provided, that in no event shall the Earn
Up Amount exceed $9,400,000.
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(b) The "Class A Amount" means a dollar amount equal to the
product of (i) the Value (not to exceed $1.50) less $1.25, multiplied
by (ii) 9,600,000; provided, that in no event shall the Class A Amount
be greater than $2,400,000; and if the Class A Amount is zero or a
negative number, the Class A Amount shall be deemed to be zero.
(c) The "Class B Amount" means a dollar amount equal to the
product of (i) the Value (not to exceed $1.25) less $0.521, multiplied
by (ii) 9,600,000; provided, that in no event shall the Class B Amount
be greater than $7,000,000; and if the Class B Amount is zero or a
negative number, the Class B Amount shall be deemed to be zero.
(d) The "Warrant Transfer Amount" means a dollar amount equal to
the greatest of (i) the product of (x) $3.50 multiplied by (y) the
aggregate number of Class A Warrants and Class B Warrants Transferred
by Forseti before the Payment Date; (ii) the aggregate gross proceeds
that Forseti has received or is entitled to receive from the Transfer
of all of the Class A Warrants and Class B Warrants Transferred by
Forseti before the Payment Date; and (iii) the difference between the
average daily bid price of the Company's Common Stock for the 21-day
period ending on the Election Date less the Exercise Price, multiplied
by the number of Class A Warrants and the Class B Warrants Transferred
by Forseti before the Payment Date.
(e) The "Value" means the product of the Price, multiplied by
0.60; provided, that if (i) the Common Stock is quoted on The Nasdaq
National Market at the Election Date and (ii) the average daily
trading volume of the Company's shares of Common Stock for the 21-day
period ending on the Election Date is at least 50,000 shares per day
(excluding trading of shares in any accounts controlled by the Company
or Forseti or their respective Affiliates, and provided, that if on
any of the 21 days the trading volume is greater than 300,000 shares,
then only 300,000 shares on such days may be used in calculating the
average), then Value means the product of the Price, multiplied by
0.75.
(f) The Company represents and warrants to JEDI that the
definitions of the terms "Price" and "Value" in the Forseti Earn Up
Agreement are identical to the definitions of such terms in this
Agreement.
3.0 LIMITATION ON EARN UP AMOUNT
The Earn Up Amount shall in no event exceed the amount defined in the
Forseti Purchase Agreement as the "Earn Up Amount."
4.0 MEDIATION.
Any controversy, dispute or claim arising out of or relating to this
Agreement (a "Dispute") shall be submitted to non-binding mediation upon the
request of the Company or Forseti on the following terms. Upon the request of
either party, a neutral mediator acceptable to both parties (the "Mediator")
shall be appointed within 15 days. The Mediator shall attempt through
negotiations in any manner deemed reasonably appropriate by the Mediator, in
which the parties shall participate,
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96
to resolve the Dispute. The Mediator shall be compensated at a rate agreeable
to the Company, Forseti and the Mediator, and each of the Company and Forseti
shall pay its pro rata share of such compensation and other expenses of the
mediation.
5.0 ARBITRATION.
In the event that mediation of a Dispute has not commenced within 15
days after a request for mediation is submitted or is terminated without
resolution under Section 5.0, any controversy or claim arising out of or
relating to this Agreement, including the right to or amount of indemnity,
shall be settled by arbitration in accordance with the Commercial Arbitration
Rules of the AAA by three (3) arbitrators. Each of Forseti and the Company
shall appoint one arbitrator, who shall be an impartial person. If a party
fails to appoint an arbitrator within thirty (30) days from the date a Demand
to Arbitrate was made under Rule 6, the AAA shall make the appointment of the
arbitrator. The two (2) arbitrators thus appointed shall appoint the third
arbitrator, who shall be an impartial person. If said two (2) arbitrators fail
to appoint the third arbitrator within sixty (60) days from the date a Demand
to Arbitrate was made under Rule 6, the AAA shall make the appointment of the
third arbitrator, who shall be an impartial person. Should any of the
arbitrators appointed die, resign, refuse or become unable to act before a
decision is given, the vacancy shall be filled by the method set forth in this
clause for the original appointment. The arbitration shall be held in Dallas,
Texas and shall be conducted in the English language. A decision by the
arbitrators shall be final and binding on all the parties. The arbitrators
shall execute and deliver to the respective parties the arbitration panel's
decision in writing. Judgment upon the award, if any, rendered by the
arbitrators (which must be expressed in United States Dollars) may be entered
in any court having jurisdiction thereof. In any award, the arbitrators shall
assess the arbitration costs and expenses, including, without limitation,
attorneys fees of the parties, in a manner deemed equitable by the arbitrators,
taking into account the arbitration decision. Notwithstanding anything to the
contrary in this Agreement, if a Dispute involves the determination of Price,
the Price, as determined by arbitration under this Section 5, shall not (i) (a)
exceed the higher or Price1 and Price2, or (b) be lower than the lower of
Price1 and Price2, or (ii) exceed the Price as determined under the Forseti
Earn Up Agreement, including a Price as determined by arbitration under the
provisions of the Forseti Earn Up Agreement.
6.0 MISCELLANEOUS
(a) Governing Law. This Agreement shall be governed by the
substantive laws of the State of Texas.
(b) Invalid Provisions. If any provision of this Agreement is
held to be illegal, invalid or unenforceable, such provision shall be
fully severable.
(c) Entirety and Amendments. This Agreement embodies the entire
agreement and understanding relating to the subject matter hereof,
supersedes all prior understandings between the parties relating to
the subject matter hereof, and may be amended only by an instrument in
writing executed by the Company and JEDI.
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97
(d) Parties Bound. This Agreement shall be binding upon and inure
to the benefit of the Company and JEDI, and their respective
successors and permitted assigns. Neither the Company nor JEDI may
assign its rights or delegate its obligations hereunder (whether
voluntarily, involuntarily, or by operation of law) without the prior
written consent of the other party.
(e) Notices. Unless otherwise specified, whenever this Agreement
requires or permits any consent, approval, notice, request, or demand
from one party to another, that communication must be in writing
(which may be by telecopy) to be effective and is deemed to have been
given (a) if by telecopy, when transmitted to the appropriate telecopy
number (and all communications sent by telecopy must be confirmed
promptly by telephone; but any requirement in this parenthetical does
not affect the date when the telecopy is deemed to have been
delivered), or (b) if by any other means, including by internationally
acceptable courier or hand delivery, when actually delivered. Until
changed by notice pursuant to this Agreement, the address (and
telecopy number) for the Company and JEDI are:
If to JEDI: Joint Energy Development Investments Limited
Partnership
c/o Enron Corp.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇ - Director, 28th Floor
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
If to Company: Queen Sand Resources, Inc.
▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇.▇.#▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With copies to: Queen Sand Resources, Inc.
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇▇ and ▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. Boeing
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(f) Section and Other Headings. The headings contained in this
Agreement are for reference purposes only and will not affect in any
way the meaning or interpretation of this Agreement.
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98
(g) Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original and all of
which together will constitute one instrument.
(h) Termination. This Agreement shall terminate automatically,
and JEDI shall have no obligation to pay any Earn Up Amount, (a) in
the event the "Election Date" under the Forseti Earn Up Agreement is
after September 30, 1998 or the "Payment Date" under the Forseti Earn
Up Agreement is after October 15, 1998, (b) upon the Transfer of any
Warrants in violation of the restrictions on Transfer of Warrants
under the Forseti Purchase Agreement, (c) upon the election by Forseti
to retain the Warrants under Section 2(a)(ii) of the Forseti Earn Up
Agreement, (d) upon the Transfer by Forseti of all of the Warrants,
(e) upon the Transfer of any ownership interest in Forseti or any
entity controlling Forseti where the purpose of the transfer is to
realize or receive cash, securities or any other property as
consideration for the Warrants without transferring the Warrants, (f)
in the event that, on the Election Date or the Payment Date, the
individual who, as of the date hereof owned, directly or indirectly,
all of the Forseti Interests does not own, directly or indirectly, all
of the Forseti Interests, or (g) the termination of the Forseti Earn
Up Agreement for any reason.
(i) Currency. All dollar amounts in this Agreement shall mean
United States dollars.
* * * * *
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IN WITNESS WHEREOF, JEDI and the Company have executed this Agreement
as of the day and year first stated above.
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP
By: Enron Capital Management Limited
Partnership, its General Partner
By: Enron Capital Corp., its General
Partner
By:
---------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Agent and Attorney-in-Fact
QUEEN SAND RESOURCES, INC.
By:
---------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
President and Chief Executive
Officer
and
By:
---------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Chief Operating Officer
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100
EXHIBIT A
EARN UP AGREEMENT
THIS EARN UP AGREEMENT (this "Agreement") is executed as of the _____
day of __________, 1997 between Queen Sand Resources, Inc., a Delaware
corporation (the "Company"), and Forseti Investments Ltd., a Barbados
corporation ("Forseti").
WHEREAS, the Company has entered into a Securities Purchase Agreement
(defined below) with Forseti pursuant to which the Company is purchasing
9,600,000 shares of Common Stock (defined below) from Forseti for (i)
$5,000,000 cash; (ii) the Class A Warrants (defined below); (iii) the Class B
Warrants (defined below); and (iv) this Agreement;
WHEREAS, the Company has entered into the JEDI Purchase Agreement
(defined below) with JEDI (defined below) pursuant to which the Company has
issued shares of the Company's Series A Participating Convertible Preferred
Stock, par value $0.01 per share, for (i) $5 million cash; and (ii) the JEDI
Earn Up Agreement (defined below);
NOW, THEREFORE, in consideration of these premises, the agreements
herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Forseti and the Company agree as follows:
1.0 DEFINITIONS
"AAA" means the American Arbitration Association, or any successor
organization.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of, or rights,
warrants or options to purchase, corporate stock or any other equity interest
(however designated) of or in such Person.
"Capitalized Lease Obligation" means the amount of the liability under
any capital lease that, in accordance with GAAP, is required to be capitalized
and reflected as a liability on the consolidated balance sheet of the Company
and its Subsidiaries.
"Class A Amount" is defined in Section 2(c).
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101
"Class B Amount" is defined in Section 2(d).
"Class A Warrants" means the Class A Common Stock Purchase Warrants to
purchase 1,000,000 shares of Common Stock, substantially in the form of Exhibit
A to this Agreement.
"Class B Warrants" means the Class B Common Stock Purchase Warrants to
purchase 2,000,000 shares of Common Stock, substantially in the form of Exhibit
B to this Agreement.
"Common Stock" means the common stock, par value $.0015 per share, of
the Company.
"Consolidated Adjusted Net Income" means the consolidated net income
(or loss) of the Company and its Subsidiaries for the fiscal year ending June
30, 1998 as determined in accordance with GAAP, adjusted by excluding, to the
extent included in consolidated net income, (a) net after-tax extraordinary
gains or losses (less all fees and expenses relating thereto), (b) net
after-tax gains or losses (less all fees and expenses relating thereto)
attributable to asset dispositions, (c) the net income (or net loss) of any
Person (other than the Company or any of its Subsidiaries) in which the Company
or any of its Subsidiaries has an ownership interest, except to the extent of
the amount of dividends or other distributions actually paid to the Company or
its Subsidiaries in cash by such other Person during such period, and (d) net
income (or net loss) of any Person combined with the Company or any of its
Subsidiaries on a "pooling of interests" basis attributable to any period prior
to the date of combination.
"Consolidated Interest Expense" means the amount which, in conformity
with GAAP, is set forth opposite the caption "interest expense" (or any like
caption) on the audited consolidated statement of operations of the Company and
its Subsidiaries for the fiscal year ended June 30, 1998.
"Consolidated Net Working Capital" means (i) the amount which, in
conformity with GAAP, is set forth opposite the caption "total current assets"
(or any like caption) on the audited consolidated balance sheet of the Company
and its Subsidiaries as of June 30, 1998 less (ii) the amount which, in
conformity with GAAP, is set forth opposite the caption "total current
liabilities" (or any like caption) on the audited consolidated balance sheet of
the Company and its Subsidiaries as of June 30, 1998.
"Consolidated Non-cash Charges" means the amount which, in conformity
with GAAP, is set forth opposite the caption "depreciation, depletion and
amortization" (or any like caption) on the audited consolidated statement of
operations of the Company and its Subsidiaries for the fiscal year ended June
30, 1998.
"Consolidated Tax Expense" means the amount which, in conformity with
GAAP, is set forth opposite the caption "income tax expense" (or any like
caption) on
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102
the audited consolidated statement of operations of the Company and its
Subsidiaries for the fiscal year ended June 30, 1998.
"Dispute" is defined in Section 6.
"EBITDA" means, without duplication, for the fiscal year ended June
30, 1998, the sum of (i) Consolidated Adjusted Net Income and (ii) to the
extent deducted in computing Consolidated Adjusted Net Income, Consolidated
Interest Expense, Consolidated Tax Expense and Consolidated Non-cash Charges.
"Earn Up Amount" is defined in Section 2(b).
"Election Date" means the later of (i) September 30, 1998 and (ii) the
date that is 14 days after the date that the Company notifies Forseti to
request Forseti's election under Section 2.
"Exercise Price" means $2.50.
"Forseti Interests" means all of the outstanding ownership interests
in Forseti and each entity that controls or owns an ownership interest in
Forseti.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, in effect from time to
time.
"Guaranteed Debt" means, without duplication, all Indebtedness of any
other Person guaranteed directly or indirectly in any manner by the Company or
any of its Subsidiaries, or in effect guaranteed directly or indirectly by the
Company or any of its Subsidiaries through an agreement (i) to pay or purchase
such Indebtedness or to advance or supply funds for the payment or purchase of
such Indebtedness, (ii) to purchase, sell or lease (as lessee or lessor)
property, or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such Indebtedness or to assure the
holder of such Indebtedness against loss, (iii) to supply funds to, or in any
other manner invest in, the debtor (including any agreement to pay for property
or services to be acquired by such debtor irrespective of whether such property
is received or such services are rendered), (iv) to maintain working capital or
equity capital of the debtor, or otherwise to maintain the net worth, solvency
or other financial condition of the debtor or (v) otherwise to assure a
creditor against loss; provided that the term "guarantee" shall not include
endorsements for collection or deposit.
"Indebtedness" means, as of June 30, 1998, without duplication, (i)
all indebtedness of the Company or any of its Subsidiaries for borrowed money
or for the deferred purchase price of property or services, excluding any trade
accounts payable and other accrued current liabilities incurred in the ordinary
course of business, (ii) all obligations of the Company or any of its
Subsidiaries evidenced by bonds, notes, debentures or other similar
instruments, (iii) all indebtedness created or arising under any conditional
sale or other title retention agreement with respect to
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103
property acquired by the Company or any of its Subsidiaries (even if the rights
and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), but excluding
trade accounts payable arising in the ordinary course of business, (iv) all
Capitalized Lease Obligations, (v) all indebtedness referred to in (but not
excluded from) clause (i), (ii), (iii) or (iv) above of other Persons, the
payment of which is secured by (or for which the holder of such indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien upon
or in property (including, without limitation, accounts and contract rights)
owned by the Company or any of its Subsidiaries, even though such Person has
not assumed or become liable for the payment of such indebtedness, (vi) all
Guaranteed Debt, (vii) all Redeemable Capital Stock valued at its maximum fixed
repurchase price plus accrued and unpaid dividends, and (viii) any amendment,
supplement, modification, deferral, renewal, extension or refunding of any
liability of the types referred to in clauses (i) through (vii) above. For
purposes hereof, the "maximum fixed repurchase price" of any Redeemable Capital
Stock that does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Redeemable Capital Stock as if such
Redeemable Capital Stock were purchased on any date on which Indebtedness shall
be required to be determined pursuant to this Agreement, and if such price is
based upon, or measured by, the fair market value of such Redeemable Capital
Stock, such fair market value to be determined in good faith by the Board of
Directors of the issuer of such Redeemable Capital Stock.
"JEDI" means Joint Energy Development Investments Limited Partnership,
a Delaware limited partnership.
"JEDI Earn Up Agreement" means the Earn Up Agreement entered into
between the Company and JEDI substantially in the form of Exhibit C to this
Agreement.
"JEDI Purchase Agreement" means the Securities Purchase Agreement
dated March _____, 1997 between the Company and JEDI.
"Mediator" is defined in Section 6.
"Outstanding Shares" means, as of June 30, 1998, the issued and
outstanding shares of Common Stock, assuming the conversion of all shares of
preferred stock of the Company, that are convertible into shares of Common
Stock, and excluding any shares of Common Stock held in treasury by the Company
or held by any wholly-owned Subsidiary of the Company.
"Payment Date" means the later of (i) October 15, 1998 or (ii) the
date that is 15 days after the Election Date.
"Person" means any individual, corporation, limited or general
partnership, joint venture, association, joint- stock company, trust, limited
liability company,
4
104
unincorporated organization or government or any agency or political
subdivision thereof.
"Price" means, if:
(Price(1) - Price(2))
--------------------- less than or equal to 0.1, then (Price(1) + Price(2))/2;
Greater of Price(1) or Price(2)
provided, that if: (Price(1) - Price(2))
---------------------- greater than 0.1, then the Company and Forseti
Greater of Price(1) or Price(2)
shall negotiate the Price; provided, further, that if the Price has not been
agreed upon within 5 business days after the determination of Price1 and
Price2, then the determination of the Price shall be submitted to nonbinding
mediation and arbitration in accordance with this Agreement. Notwithstanding
anything to the contrary in this Agreement, under no circumstances shall the
Price exceed the higher of Price1 and Price2 or be less than the lower of
Price1 and Price2.
(1.1 * SEC PV(10)) - Indebtedness + Consolidated Net Working Capital
"Price(1)" = ------------------------------------------------------------------------------
Outstanding Shares
(6.0 * EBITDA) - Indebtedness + Consolidated Net Working Capital
"Price(2)" = ------------------------------------------------------------------------------
Outstanding Shares
"Redeemable Capital Stock" means any Capital Stock of the Company or
any of its Subsidiaries that, either by its terms, by the terms of any security
into which it is convertible or exchangeable or otherwise, (i) is, or upon the
happening of an event or passage of time would be, required to be redeemed, or
(ii) is, or upon the happening of an event or passage of time would be,
redeemable at the option of the holder thereof, or (iii) is, or upon the
happening of an event or passage of time would be, convertible into or
exchangeable for debt securities.
"SEC PV(10)" means the pre tax future net cash flows from proved oil
and gas reserves of the Company and its Subsidiaries at June 30, 1998, computed
using a discount factor of ten percent, as determined in accordance with the
rules, regulations and guidelines of the United States Securities and Exchange
Commission and reported in the reserve report dated as of such date prepared in
accordance with Section 6.11 of the JEDI Purchase Agreement.
"Securities Purchase Agreement" means the Securities Purchase
Agreement dated March 27, 1997 between the Company and Forseti.
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105
"Statutory Declaration" means a statutory declaration by Forseti that
as of the Election Date and the Payment Date (i) the individual who, as of the
date hereof, owned all the Forseti Interests owns all of the Forseti Interests,
(ii) there are no encumbrances, pledges or other liens on any equity interests
in Forseti, and (iii) no other event under Section 8(h) has occurred.
"Subsidiary" of a Person means any corporation, limited liability
company, limited or general partnership, joint venture, association,
joint-stock company or business trust of which at the time of determination
such Person, directly and/or indirectly through one or more other Persons, owns
more than 50% of the voting interests.
"Transfer" of any property means any exercise, or any direct or
indirect sale, transfer, encumbrance, gift, donation, assignment, grant of any
interest, pledge, hypothecation or other disposition of such property or any
interest therein, whether voluntary or involuntary, including, but not limited
to, any transfer by operation of law, by court order, by judicial process, or
by foreclosure, levy, or attachment.
"Value" is defined in Section 2(f).
"Warrant Transfer Amount" is defined in Section 2(e).
"Warrants" means, collectively, the Class A Warrants and the Class B
Warrants.
2.0 FORSETI ELECTION; PAYMENT OF EARN UP AMOUNT
(a) On or before the Election Date, Forseti shall deliver notice
to the Company of its election to either (i) accept the payment of the
Earn Up Amount in accordance with the terms and conditions of this
Agreement (in which event the Warrants that have not been Transferred
by Forseti shall be delivered to the Company pursuant to Section
2(b)); or (ii) retain the Warrants that have not been Transferred by
Forseti (in which event the Company shall have no obligation to pay
Forseti the Earn Up Amount and the Company's obligations under this
Agreement shall terminate immediately). If Forseti fails to deliver
notice to the Company on or before the Election Date specifying the
election in (i) or (ii), then Forseti shall be deemed to have elected
(i) above.
(b) In the event that Forseti elects, or is deemed to elect, (i)
above, then on or before the Payment Date, subject to the limitations
in Section 3 and only against delivery by Forseti to the Company of
(x) the Warrants and (y) the Statutory Declaration, the Company shall
pay Forseti an amount (the "Earn Up Amount") equal to the amount, if
any, by which (i) the sum of the Class A Amount and the Class B Amount
exceeds (ii) the Warrant Transfer Amount; provided, that in no event
shall the Earn Up Amount exceed $9,400,000.
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106
(c) The "Class A Amount" means a dollar amount equal to the
product of (i) the Value (not to exceed $1.50) less $1.25, multiplied
by (ii) 9,600,000; provided, that in no event shall the Class A Amount
be greater than $2,400,000; and if the Class A Amount is zero or a
negative number, the Class A Amount shall be deemed to be zero.
(d) The "Class B Amount" means a dollar amount equal to the
product of (i) the Value (not to exceed $1.25) less $0.521, multiplied
by (ii) 9,600,000; provided, that in no event shall the Class B Amount
be greater than $7,000,000; and if the Class B Amount is zero or a
negative number, the Class B Amount shall be deemed to be zero.
(e) The "Warrant Transfer Amount" means a dollar amount equal to
the greatest of (i) the product of (x) $3.50 multiplied by (y) the
aggregate number of Class A Warrants and Class B Warrants Transferred
by Forseti before the Payment Date; (ii) the aggregate gross proceeds
that Forseti has received or is entitled to receive from the Transfer
of all of the Class A Warrants and Class B Warrants Transferred by
Forseti before the Payment Date; and (iii) the difference between the
average daily bid price of the Company's shares of Common Stock for
the 21-day period ending on the Election Date less the Exercise Price,
multiplied by the number of Class A Warrants and the Class B Warrants
Transferred by Forseti before the Payment Date.
(f) The "Value" means the product of the Price, multiplied by
0.60; provided, that if (i) the Common Stock is quoted on The Nasdaq
National Market at the Election Date and (ii) the average daily
trading volume of the Company's shares of Common Stock for the 21-day
period ending on the Election Date is at least 50,000 shares per day
(excluding trading of shares in any accounts controlled by the Company
or Forseti or their respective Affiliates, and provided, that if on
any of the 21 days the trading volume is greater than 300,000 shares,
then only 300,000 shares on such days may be used in calculating the
average), then Value means the product of the Price, multiplied by
0.75.
(g) The Company represents and warrants to Forseti that the
definitions of the terms "Price" and "Value" in the JEDI Earn Up
Agreement are identical to the definitions of such terms in this
Agreement.
3.0 LIMITATION ON PAYMENT
The Company shall be obligated to pay Forseti under this Agreement
only to the extent that the Company has received a like amount as payment from
JEDI under the JEDI Earn Up Agreement. If JEDI shall fail to make payments due
under the JEDI Earn Up Agreement on the Election Date, then Company shall have
no obligation to pay Forseti under this Agreement until such time that JEDI
makes
7
107
payment to the Company under the JEDI Earn Up Agreement, and then only to the
extent of payments made by JEDI under the JEDI Earn Up Agreement.
4.0 SHARING OF EXCESS PROCEEDS
If the sum of (i) $5,000,000 and (ii) the aggregate amount received by
Forseti from the Transfer of Warrants, exceeds the sum of (x) $14,400,000 plus
(y) a dollar amount equal to the sum of the expenses of the Company paid by
Forseti pursuant to the Securities Purchase Agreement, the reasonable
out-of-pocket expenses up to a maximum of $50,000 incurred by Forseti in
connection with the Securities Purchase Agreement, and the escrow agent fees
incurred by Forseti under the Escrow Agreement among the Company, Forseti and
____________________ the sum of subclauses (x) and (y) being referred to as
"Net Proceeds," then within 10 days of the date (the "Excess Determination
Date") the aggregate amount received by Forseti exceeds the Net Proceeds, (x)
Forseti shall deliver to the Company an amount in cash or by wire transfer of
immediately available funds equal to 75% of such amount received by Forseti in
excess of the Net Proceeds, and (y) Forseti shall spend the remaining 25% of
such excess amount to purchase from the Company, subject to applicable
securities laws, Common Stock at a price equal to the average of the Nasdaq bid
price over 21 trading days ending on the Excess Determination Date.
5.0 OPTION
Subject to this Section 5, the Company hereby grants to Forseti an
option to purchase from the Company a number of shares of Common Stock equal to
the quotient of (x) the amount by which the Earn Up Amount exceeds $7,000,000
and (y) $2.50 (as such number of shares may be adjusted pursuant to this
Section 5, the "Shares"), at a price per share equal to $2.50 (as such price
may be adjusted pursuant to this Section 5). The option granted in this
Section 5 is exerciseable in full or in part (i) only from the date that the
Earn Up Amount is paid by the Company to Forseti through the fifth business day
after the date of payment of the Earn Up Amount and (ii) by written notice to
the Company of such exercise, which notice shall be accompanied by proper
payment in cash or certified or bank check. The option in this Section 5.0 is
not transferable. The number of Shares for which the option in this Section 5
may be exercised, and the price at which such option may be exercised, are
subject to appropriate adjustment in the event that the Company (i) pays a
dividend of shares of Common Stock or makes a distribution in shares of Common
Stock), (ii) subdivides its outstanding shares of Common Stock into a larger
number of shares of Common Stock, (iii) combines its outstanding shares of
Common Stock into a smaller number of shares of Common Stock or (iv) issues any
shares of its capital stock or other assets in a reclassification or
reorganization of the Common Stock (including any such reclassification in
connection with a consolidation or merger in which the Company is the
continuing entity). THE OPTION IN THIS SECTION 5 AND THE SHARES OF COMMON
STOCK ISSUABLE UPON EXERCISE OF THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR ANY OTHER
8
▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ FEDERAL OR STATE SECURITIES OR BLUE SKY LAWS OR APPLICABLE
NON-UNITED STATES SECURITIES LAWS.
6.0 MEDIATION.
Any controversy, dispute or claim arising out of or relating to this
Agreement (a "Dispute") shall be submitted to non-binding mediation upon the
request of the Company or Forseti on the following terms. Upon the request of
either party, a neutral mediator acceptable to both parties (the "Mediator")
shall be appointed within 15 days. The Mediator shall attempt through
negotiations in any manner deemed reasonably appropriate by the Mediator, in
which the parties shall participate, to resolve the Dispute. The Mediator
shall be compensated at a rate agreeable to the Company, Forseti and the
Mediator, and each of the Company and Forseti shall pay its pro rata share of
such compensation and other expenses of the mediation.
7.0 ARBITRATION.
In the event that mediation of a Dispute has not commenced within 15
days after a request for mediation is submitted or is terminated without
resolution under Section 6.0, any controversy or claim arising out of or
relating to this Agreement, including the right to or amount of indemnity,
shall be settled by arbitration in accordance with the Commercial Arbitration
Rules of the AAA by three (3) arbitrators. Each of Forseti and the Company
shall appoint one arbitrator, who shall be an impartial person. If a party
fails to appoint an arbitrator within thirty (30) days from the date a Demand
to Arbitrate was made under Rule 6, the AAA shall make the appointment of the
arbitrator. The two (2) arbitrators thus appointed shall appoint the third
arbitrator, who shall be an impartial person. If said two (2) arbitrators fail
to appoint the third arbitrator within sixty (60) days from the date a Demand
to Arbitrate was made under Rule 6, the AAA shall make the appointment of the
third arbitrator, who shall be an impartial person. Should any of the
arbitrators appointed die, resign, refuse or become unable to act before a
decision is given, the vacancy shall be filled by the method set forth in this
clause for the original appointment. The arbitration shall be held in Dallas,
Texas and shall be conducted in the English language. A decision by the
arbitrators shall be final and binding on all the parties. The arbitrators
shall execute and deliver to the respective parties the arbitration panel's
decision in writing. Judgment upon the award, if any, rendered by the
arbitrators (which must be expressed in United States Dollars) may be entered
in any court having jurisdiction thereof. In any award, the arbitrators shall
assess the arbitration costs and expenses, including, without limitation,
attorneys fees of the parties, in a manner deemed equitable by the arbitrators,
taking into account the arbitration decision. Notwithstanding anything to the
contrary in this Agreement, if a Dispute involves the determination of Price,
the Price, as determined by arbitration under this Section 7, shall not (i) (a)
exceed the higher or Price1 and Price2, or (b) be lower than the lower of
Price1 and Price2, (ii) exceed the Price as determined under the JEDI Earn Up
Agreement, including a Price as determined by arbitration under the provisions
of the JEDI Earn Up Agreement, or
9
109
(iii) exceed the amount received by the Company from JEDI pursuant to the JEDI
Earn Up Agreement.
8.0 MISCELLANEOUS
(a) Governing Law; Choice of Forum; Consent to Service of Process.
This Agreement shall be governed by the substantive laws of the State
of Texas. Except as provided in Sections 6 and 7, the parties hereto
agree that any suit, action or proceeding arising out of or relating
to this Agreement or any agreement or obligation delivered in
connection with this Agreement or any judgment entered by any court in
respect thereof shall be brought in the Courts of the State of Texas,
County of Dallas or in the United States District Court for the
Northern District of Texas and each such party hereby submits to the
exclusive jurisdiction of such courts for the purpose of any such
suit, action or proceeding relating to this Agreement or any related
agreement or obligation. Forseti hereby submits to the jurisdiction
of the State of Texas and agrees that service of all writs, process
and summonses in any such suit, action or proceeding brought in the
United States against Forseti may be made upon CT Corporation System
at its offices located at ▇▇▇ ▇▇▇▇▇ ▇▇. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇ (or any subsequent address of CT Corporation System), and
Forseti hereby irrevocably appoints CT Corporation System at its
offices located at ▇▇▇ ▇▇▇▇▇ ▇▇. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ (or
any subsequent address of CT Corporation System) its true and lawful
attorney-in-fact in their name, place and ▇▇▇▇▇ to accept such service
of any and all such writs, process and summonses, and agree that the
failure of CT Corporation System to give to Forseti any notice of any
such service of process shall not impair or affect the validity of
such service or of any judgment based thereon. The Company shall
send, within 5 days after service of process under this subsection
(a), notice to Forseti in accordance with subsection (e) of any
service of process on CT Corporation System under this subsection (a).
Service of process on the Company may be made to the Company's
registered agent in Delaware, Corporation Trust Centre, ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ of New Castle.
Each party hereto hereby irrevocably waives any objection that
it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement or
any agreement or obligation delivered in connection with this
Agreement, brought in the Courts of the State of Texas, County of
Dallas or the United States District Court for the Northern District
of Texas, and hereby further irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been
brought in an inconvenient forum.
(b) Invalid Provisions. If any provision of this Agreement is
held to be illegal, invalid or unenforceable, such provision shall be
fully severable.
10
110
(c) Entirety and Amendments. This Agreement and that certain
Letter Agreement dated as of the date hereof between the Company and
the individual who owns directly or indirectly all of the Forseti
Interests embody the entire agreement and understanding relating to
the subject matter hereof and supersede all prior understandings
between the parties relating to the subject matter hereof. This
Agreement may be amended only by an instrument in writing executed by
the Company and Forseti.
(d) Parties Bound. This Agreement shall be binding upon and inure
to the benefit of the Company and Forseti, and their respective
successors and permitted assigns. Neither the Company nor Forseti may
assign its rights or delegate its obligations hereunder (whether
voluntarily, involuntarily, or by operation of law) without the prior
written consent of the other party.
(e) Notices. Unless otherwise specified, whenever this Agreement
requires or permits any consent, approval, notice, request, or demand
from one party to another, that communication must be in writing
(which may be by telecopy) to be effective and is deemed to have been
given (a) if by telecopy, when transmitted to the appropriate telecopy
number (and all communications sent by telecopy must be confirmed
promptly by telephone; but any requirement in this parenthetical does
not affect the date when the telecopy is deemed to have been
delivered), or (b) if by any other means, including by internationally
acceptable courier or hand delivery, when actually delivered. Until
changed by notice pursuant to this Agreement, the address (and
telecopy number) for the Company and Forseti are:
If to Forseti: Forseti Investments Ltd.
▇-▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
West Indies
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With copies to: ▇▇▇▇▇ Fresenius ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇,
attorneys
▇▇▇▇-▇▇▇▇▇▇▇-Strasse 37-39
60596 Frankfurt-Am-Main
Attn: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇) ▇▇▇▇▇▇▇▇▇▇
If to Company: Queen Sand Resources, Inc.
▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇.▇.#▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
11
111
With copies to: Queen Sand Resources, Inc.
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇▇ and ▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. Boeing
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(f) Section and Other Headings. The headings contained in this
Agreement are for reference purposes only and will not affect in any
way the meaning or interpretation of this Agreement.
(g) Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original and all of
which together will constitute one instrument.
(h) Termination. This Agreement shall terminate upon the earlier
of (i) the Transfer of any Warrants in violation of the restrictions
on Transfer of Warrants under the Securities Purchase Agreement, (ii)
the election by Forseti to retain the Warrants under Section 2(a)(ii),
(iii) the Transfer of all of the Warrants, (iv) upon the Transfer of
any ownership interest in Forseti or any entity controlling Forseti
where the purpose of the transfer is to realize or receive cash,
securities or any other property as consideration for the Warrants
without transferring the Warrants; and (v) as of the Election Date or
the Payment Date, the individual who, as of the date hereof owned,
directly or indirectly, all of the Forseti Interests does not own,
directly or indirectly, all of the Forseti Interests. No termination
of this Agreement shall affect the validity of the Warrants.
(i) Currency. All dollar amounts in this Agreement shall mean
United States dollars.
12
112
IN WITNESS WHEREOF, Forseti and the Company have executed this
Agreement as of the day and year first stated above.
FORSETI:
FORSETI INVESTMENTS LTD.
By:
----------------------------------
Name:
-------------------------------
Title:
------------------------------
[with notary attached]
COMPANY:
QUEEN SAND RESOURCES, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
[with notary attached]
and
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
[with notary attached]
13
113
EXHIBIT A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE THEREOF (THE "SECURITIES") HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
OTHER UNITED STATES FEDERAL OR STATE SECURITIES OR BLUE SKY LAWS OR APPLICABLE
NON-UNITED STATES SECURITIES LAWS, AND HAVE BEEN ISSUED IN A MANNER INTENDED TO
COMPLY WITH THE CONDITIONS CONTAINED IN REGULATION S UNDER THE ACT. PRIOR TO
_______________, 1998, NO OFFER, SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION
(COLLECTIVELY, A "DISPOSAL") OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE
MAY BE MADE (A) IN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF,
ANY "U.S. PERSON" (AS DEFINED IN REGULATION S) UNLESS (i) REGISTERED UNDER THE
ACT AND ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR (ii) QUEEN SAND
RESOURCES, INC. (THE "COMPANY") RECEIVES A WRITTEN OPINION OF UNITED STATES
LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO IT TO THE EFFECT THAT SUCH
DISPOSAL IS EXEMPT FROM SUCH REGISTRATION REQUIREMENTS OR (B) OUTSIDE THE
UNITED STATES TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY PERSON WHO IS NOT A
"U.S. PERSON" UNLESS PRIOR TO SUCH DISPOSAL (i) THE BENEFICIAL OWNER OF SUCH
SECURITIES AND THE PROPOSED TRANSFEREE SUBMIT CERTAIN CERTIFICATIONS TO THE
COMPANY (FORMS OF WHICH ARE AVAILABLE FROM THE COMPANY AT ITS PRINCIPAL
EXECUTIVE OFFICES) AND (ii) THE COMPANY RECEIVES THE LEGAL OPINION DESCRIBED IN
(A)(ii) ABOVE. THE SECURITIES ARE ALSO SUBJECT TO CERTAIN RESTRICTIONS UPON
TRANSFER AS SET FORTH IN THIS WARRANT AND THE SECURITIES PURCHASE AGREEMENT
DATED AS OF _______________, 1997, A COPY OF WHICH IS AVAILABLE FOR INSPECTION
AT ITS PRINCIPAL PLACE OF BUSINESS.
--------------------------------------------------------------------------------
QUEEN SAND RESOURCES, INC.
Class A Common Stock Purchase Warrant
Representing Right To Purchase Shares of
Common Stock
of
Queen Sand Resources, Inc.
------------
No. A-1
------------
FOR VALUE RECEIVED, QUEEN SAND RESOURCES, INC., a Delaware corporation
(the "Company"), hereby certifies that Forseti Investments Ltd., a Barbados
corporation (the "Holder"), is entitled, subject to the provisions of this
Warrant, to purchase from the
114
Company, at any time or from time to time during the Exercise Period (as
hereinafter defined), a total of 1,000,000 shares (as such number of shares may
be adjusted pursuant to the terms hereof, the "Warrant Shares") of Common
Stock, par value $.0015 per share, of the Company, at a price per share equal
to the Exercise Price (as defined below). This Warrant is issued to the Holder
(together with such other warrants as may be issued in exchange, transfer or
replacement of this Warrant, the "Warrants") pursuant to the Securities
Purchase Agreement (as defined below) and entitles the Holder to purchase the
Warrant Shares and to exercise the other rights, powers and privileges
hereinafter provided, all on the terms and conditions and pursuant to the
provisions set forth herein and in the Securities Purchase Agreement.
Section 1. Definitions. The following terms, as used
herein, have the following respective meanings:
"Common Stock" means the Company's common stock, $0.0015 par value.
"Company" is defined in the introductory paragraph of this Warrant.
"Date of Issuance" means __________ _____, 1997.
"Earn Up Agreement" means the Earn Up Agreement, dated as of the date
hereof, between the Company and the Holder.
"Exercise Period" means the period of time between the Date of
Issuance and 5:00 p.m. (New York City time) on December 31, 1998, provided,
however, that any Warrants held by Forseti Investments Ltd. on the Election
Date (as defined in the Earn Up Agreement) shall expire on the Election Date
unless Forseti Investments Ltd. elects to retain the Warrants pursuant to
Section 2(a)(ii) of the Earn Up Agreement.
"Exercise Price" means an amount, per share, equal to $2.50 (U.S.
dollars). The Exercise Price shall be subject to adjustment, as set forth in
Section 4.
"Holder" means Forseti Investments Ltd. and its permitted assignees.
"Person" means any individual, corporation, limited or general
partnership, joint venture, association, joint- stock company, trust, limited
liability company, unincorporated organization or government or any agency or
political subdivision thereof.
"Required Holders" means the Holders of more than 50% of all Warrant
Shares then outstanding (assuming the full exercise of all Warrants).
"Securities Purchase Agreement" means the Securities Purchase
Agreement, dated as of March ___, 1997, between the Company and Forseti, as
such agreement shall be modified, amended and supplemented and in effect from
time to time.
"Value" means, as of any date of determination, with respect to the
Common Stock, $3.50 per share of Common Stock.
"Warrants" is defined in the introductory paragraph of this Warrant.
"Warrant Shares" is defined in the introductory paragraph of this
Warrant.
- 2 -
115
Section 2. Exercise of Warrant; Cancellations of
Warrant. Subject to the Securities Purchase Agreement and the provisions of
Regulation S promulgated under the Securities Act of 1933, as amended, this
Warrant may be exercised in whole or in part, at any time or from time to time,
during the Exercise Period, by presentation and surrender hereof to the Company
at its principal office at the address set forth in Section 11 (or at such
other reasonable address as the Company may after the date hereof notify the
Holder in writing, coming into effect not before 14 days after receipt of such
notice by the Holder), with the Purchase Form annexed hereto as Exhibit A duly
executed and accompanied by either (at the option of the Holder) proper payment
in cash or certified or bank check equal to the Exercise Price for the Warrant
Shares for which this Warrant is being exercised; provided, that if this
Warrant is exercised in part, the Warrant must be exercised for the purchase of
at least 100,000 shares of Common Stock. Upon exercise of this Warrant as
aforesaid, the Company shall as promptly as practicable, and in any event
within 20 days thereafter, execute and deliver to the Holder a certificate or
certificates for the total number of Warrant Shares for which this Warrant is
being exercised, in such names and denominations as requested in writing by the
Holder. The Company shall pay any and all documentary stamp or similar issue
taxes payable in respect of the issue of the Warrant Shares. If this Warrant
is exercised in part only, the Company shall, upon surrender of this Warrant,
execute and deliver a new Warrant evidencing the rights of the Holder thereof
to purchase the balance of the Warrant Shares issuable hereunder.
Section 3. Exchange, Transfer, Assignment or Loss of
Warrant. This Warrant is exchangeable, without expense, at the option of the
Holder, upon presentation and surrender hereof to the Company for other
Warrants of different denominations, entitling the Holder to purchase in the
aggregate the same number of Warrant Shares. The Holder of this Warrant shall
be entitled, without obtaining the consent of the Company, to transfer or
assign its interest in (and rights under) this Warrant in whole or in part to
any Person or Persons, subject to the provisions of Section 7 of this Warrant
and Article 8 of the Securities Purchase Agreement. Upon surrender of this
Warrant to the Company, with the Assignment Form annexed hereto as Exhibit B
duly executed and funds sufficient to pay any transfer tax, the Company shall,
without charge, execute and deliver a new Warrant or Warrants in the name of
the assignee or assignees named in such Assignment Form and, if the Holder's
entire interest is not being assigned, in the name of the Holder, and this
Warrant shall promptly be canceled. This Warrant may be divided or combined
with other Warrants that carry the same rights upon presentation hereof at the
office of the Company, together with a written notice specifying the names and
denominations in which new Warrants are to be issued and signed by the Holder
hereof. Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification
(including, if required in the reasonable judgment of the Company, a statement
of net worth of such Holder that is at a level reasonably satisfactory to the
Company), and upon surrender and cancellation of this Warrant, if mutilated,
the Company shall execute and deliver a new Warrant of like tenor and date.
Section 4. Antidilution Provisions.
(a) Adjustment of Number of Warrant Shares and Exercise Price.
The number of Warrant Shares purchasable pursuant hereto and the Exercise
Price, each shall be subject to adjustment from time to time on and after the
Date of Issuance as provided in this Section 4(a). In case the Company shall
at any time after the Date of Issuance (i) pay a dividend of shares of Common
Stock or make a distribution of shares of Common Stock, (ii) subdivide its
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116
outstanding shares of Common Stock into a larger number of shares of Common
Stock, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (iv) issue any shares of its capital stock
or other assets in a reclassification or reorganization of the Common Stock
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing entity), then (x) the securities
purchasable pursuant hereto shall be adjusted to the number of Warrant Shares
and amount of any other securities, cash or other property of the Company which
the Holder would have owned or have been entitled to receive after the
happening of any of the events described above, had this Warrant been exercised
immediately prior to the happening of such event or any record date with
respect thereto, and (y) the Exercise Price shall be adjusted to equal the
Exercise Price immediately prior to the adjustment multiplied by a fraction,
(A) the numerator of which is the number of Warrant Shares for which this
Warrant is exercisable immediately prior to the adjustment, and (B) the
denominator of which is the number of shares for which this Warrant is
exercisable immediately after such adjustment. The adjustments made pursuant
to this Section 4(a) shall become effective immediately after the effective
date of the event creating such right of adjustment, retroactive to the record
date, if any, for such event. Any Warrant Shares purchasable as a result of
such adjustment shall not be issued prior to the effective date of such event.
For the purpose of this Section 4(a) and (b), the term "shares of
Common Stock" means (i) the classes of stock designated as the Common Stock of
the Company as of the date hereof, or (ii) any other class of stock resulting
from successive changes or reclassifications of such shares consisting solely
of changes in par value, or from par value to no par value, or from no par
value to par value. In the event that at any time, as a result of an
adjustment made pursuant to this Section 4(a), the Holder shall become entitled
to receive any securities of the Company other than shares of Common Stock,
thereafter the number of such other securities so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with respect to
the Warrant Shares contained in this Section 4.
(b) Reorganization, Merger, etc. If any capital
reorganization, reclassification or similar transaction involving the capital
stock of the Company (other than as specified in Section 4(a)), any
consolidation, merger or business combination of the Company with another
corporation or the sale or conveyance of all or any substantial part of its
assets to another corporation, shall be effected in such a way that holders of
the shares of Common Stock shall be entitled to receive stock, securities or
assets (including, without limitation, cash) with respect to or in exchange for
shares of the Common Stock, then, prior to and as a condition of such
reorganization, reclassification, similar transaction, consolidation, merger,
business combination, sale or conveyance, lawful and adequate provision shall
be made whereby the Holder shall thereafter have the right to purchase and
receive upon the basis and upon the terms and conditions specified in this
Warrant and in lieu of the Warrant Shares immediately theretofore purchasable
and receivable upon the exercise of this Warrant, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding Warrant Shares equal to the number of Warrant
Shares immediately theretofore purchasable and receivable upon the exercise of
this Warrant had such reorganization, reclassification, similar transaction,
consolidation, merger, business combination, sale or conveyance not taken
place. The Company shall not effect any such consolidation, merger, business
combination, sale or conveyance unless prior to or simultaneously with the
consummation thereof the survivor or successor corporation (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument executed and sent to
the Holder, the
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117
obligation to deliver to the Holder such shares of stock, securities or assets
as, in accordance with the foregoing provisions, the Holder may be entitled to
receive.
(c) Statement on Warrant Certificates. Irrespective of
any adjustments in the Exercise Price or the number or kind of Warrant Shares,
this Warrant may continue to express the same price and number and kind of
shares as are stated on the front page hereof.
(d) Exception to Adjustment. Anything herein to the
contrary notwithstanding, the Company shall not be required to make any
adjustment of the number of Warrant Shares issuable hereunder or to the
Exercise Price in the case of the issuance of the Warrants or the issuance of
shares of the Common Stock (or other securities) upon exercise of the Warrants.
(e) Treasury Shares. The number of shares of the Common
Stock outstanding at any time shall not include treasury shares or shares owned
or held by or for the account of the Company or any of its subsidiaries, and
the disposition of any such shares shall be considered an issue or sale of the
Common Stock for the purposes of this Section 4.
(f) Adjustment Notices to Holder. Upon any increase or
decrease in the number of Warrant Shares purchasable upon the exercise of this
Warrant or the Exercise Price the Company shall, within 30 days thereafter,
deliver written notice thereof to all Holders, which notice shall state the
increased or decreased number of Warrant Shares purchasable upon the exercise
of this Warrant and the adjusted Exercise Price, setting forth in reasonable
detail the method of calculation and the facts upon which such calculations are
based.
Section 5. Notification by the Company. In case at any
time while this Warrant remains outstanding:
(a) the Company shall declare any dividend or make any
distribution upon its Common Stock or any other class of its capital stock; or
(b) the Company shall offer for subscription pro rata to
the holders of its Common Stock or any other class of its capital stock any
additional shares of stock of any class or any other securities convertible
into or exchangeable for shares of stock or any rights or options to subscribe
thereto; or
(c) the Board of Directors of the Company shall authorize
any capital reorganization, reclassification or similar transaction involving
the capital stock of the Company, or a sale or conveyance of all or a
substantial part of the assets of the Company, or a consolidation, merger or
business combination of the Company with another Person; or
(d) actions or proceedings shall be authorized or
commenced for a voluntary or involuntary dissolution, liquidation or winding-up
of the Company;
then, in any one or more of such cases, the Company shall give written notice
to the Holder, at the earliest time legally practicable (and not less than 20
days before any record date or other date set for definitive action) of the
date on which (i) the books of the Company shall close or a record shall be
taken for such dividend, distribution or subscription rights or options or (ii)
such reorganization, reclassification, sale, conveyance, consolidation, merger,
dissolution, liquidation or winding-up shall take place or be voted on by
shareholders of the Company, as the case may be. Such notice shall also
specify the date as of which the holders of the Common Stock of record shall
participate in said dividend, distribution, subscription
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118
rights or options or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, sale, conveyance, consolidation, merger, dissolution,
liquidation or winding-up, as the case may be. If the action in question or
the record date is subject to the effectiveness of a registration statement
under the Securities Act or to a favorable vote of shareholders, the notice
required by this Section 5 shall so state.
Section 6. No Voting Rights: Limitations of Liability.
Prior to exercise, this Warrant will not entitle the Holder to any voting
rights or other rights as a stockholder of the Company. No provision hereof,
in the absence of affirmative action by the Holder to exercise this Warrant,
and no enumeration herein of the rights or privileges of the Holder, shall give
rise to any liability of the Holder for the purchase price of the Warrant
Shares pursuant to the exercise hereof.
Section 7. Restrictions on Transfer. The Warrants and
the Warrant Shares shall not be transferable except upon the conditions in this
Warrant and specified in the Securities Purchase Agreement. The Warrants may
not be transferred, sold or otherwise disposed of except in blocks of Warrants
for the purchase of at least 100,000 shares of Common Stock; provided, that if
at the time of such transfer, sale or other disposition, the Warrants owned by
the Holder are for the purchase of less than 100,000 shares of Common Stock,
the Holder may sell, transfer or otherwise dispose of all, but not less than
all, of the Warrants. This Warrant bears and the certificates for Warrant
Shares will bear a legend as specified in the Securities Purchase Agreement.
The Holder by its acceptance of this Warrant agrees to comply with and to be
bound by all of the provisions of the Securities Purchase Agreement.
Section 8. Amendment and Waiver.
(a) No failure or delay of the Holder in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The
rights and remedies of the Holder are cumulative and not exclusive of any
rights or remedies which it would otherwise have. The provisions of this
Warrant may be amended, modified or waived with (and only with) the written
consent of the Company and the Required Holders.
(b) No notice or demand on the Company in any case shall
entitle the Company to any other or further notice or demand in similar or
other circumstances.
Section 9. No Fractional Warrant Shares. The Company
shall not be required to issue stock certificates representing fractions of
Warrant Shares, but shall in respect of any fraction of a Warrant Share make a
payment in cash based on the Value of the Common Stock after giving effect to
the full exercise or conversion of the Warrants.
Section 10. Reservation of Warrant Shares. The Company
shall authorize, reserve and keep available at all times, free from preemptive
rights, a sufficient number of Warrant Shares to satisfy the requirements of
this Warrant.
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119
Section 11. Notices. Unless otherwise specified, whenever
this Warrant requires or permits any consent, approval, notice, request, or
demand from one party to another, that communication must be in writing (which
may be by telecopy) to be effective and is deemed to have been given (a) if by
telecopy, when transmitted to the appropriate telecopy number (and all
communications sent by telecopy must be confirmed promptly by telephone; but
any requirement in this parenthetical does not affect the date when the
telecopy is deemed to have been delivered), or (b) if by any other means,
including by internationally acceptable courier or hand delivery, when actually
delivered. Until changed by notice pursuant to this Warrant, the address (and
telecopy number) for the Holder and the Company are:
If to Holder: Forseti Investments Ltd.
▇-▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With copies to: ▇▇▇▇▇ Fresenius ▇▇▇▇▇ Scherzberg,
attorneys
▇▇▇▇-▇▇▇▇▇▇▇-Strasse 37-39
60596 Frankfurt-Am-Main
Attn: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇) ▇▇▇▇▇▇▇▇▇▇
If to Company: Queen Sand Resources, Inc.
▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇.▇.#▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With copies to: Queen Sand Resources, Inc.
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇▇ and ▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. Boeing, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Section 12. Section and Other Headings. The headings
contained in this Warrant are for reference purposes only and will not affect
in any way the meaning or interpretation of this Warrant.
Section 13. Governing Law; Choice of Forum; Consent to
Service of Process. THIS WARRANT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE. The parties hereto agree
that any suit, action or proceeding arising out of or relating to this Warrant
or any agreement or obligation delivered in connection with this Warrant or any
judgment entered by any court in respect thereof shall be brought in the Courts
of the State of Texas, County of Dallas or in the United
- 7 -
▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ for the Northern District of Texas and each such party
hereby submits to the exclusive jurisdiction of such courts for the purpose of
any such suit, action or proceeding relating to this Warrant or any related
agreement or obligation. The Holder hereby submits to the jurisdiction of the
State of Texas and agrees that service of all writs, process and summonses in
any such suit, action or proceeding brought in the United States against the
Holder may be made upon CT Corporation System at its offices located at ▇▇▇
▇▇▇▇▇ ▇▇. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ (or any subsequent address of CT
Corporation System), and the Holder hereby irrevocably appoints CT Corporation
System at its offices located at ▇▇▇ ▇▇▇▇▇ ▇▇. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇ (or any subsequent address of CT Corporation System) its true and lawful
attorney-in-fact in their name, place and ▇▇▇▇▇ to accept such service of any
and all such writs, process and summonses, and agree that the failure of CT
Corporation System to give to the Holder any notice of any such service of
process shall not impair or affect the validity of such service or of any
judgment based thereon. The Company shall send, within 5 days after any
service of process under this Section 13, notice to the Holder in accordance
with Section 11 of any service of process on CT Corporation System under this
Section 13. Service of process on the Company may be made to the Company's
registered agent in Delaware, Corporation Trust Centre, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇
▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ of New Castle.
Each party hereto hereby irrevocably waives any objection that it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Warrant or any agreement or obligation
delivered in connection with this Warrant, brought in the Courts of the State
of Texas, County of Dallas or the United States District Court for the Northern
District of Texas, and hereby further irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in
an inconvenient forum.
Section 14. Binding Effect. The terms and provisions of
this Warrant shall inure to the benefit of the Holder and its successors and
assigns and shall be binding upon the Company and its successors and assigns,
including, without limitation, any Person succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets.
* * * * *
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121
IN WITNESS WHEREOF, the seal of the Company and the signature of its
duly authorized officer have been affixed hereto as of __________ _____, 1997.
[SEAL] QUEEN SAND RESOURCES, INC.
Attest: By:
-------------------------- ---------------------------------
Name:
-------------------------------
Title:
------------------------------
and
Attest: By:
-------------------------- ---------------------------------
Name:
-------------------------------
Title:
------------------------------
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122
EXHIBIT A
TO
WARRANT
PURCHASE FORM
To Be Executed by the Holder
Desiring to Exercise a Warrant of
Queen Sand Resources, Inc.
The undersigned holder hereby exercises the right to purchase ______
shares of Common Stock covered by the within Warrant, according to the
conditions thereof, and herewith makes payment in full of the Exercise Price of
such shares, in the amount of $____________.
Name of Holder:
--------------------------------------
Signature:
----------------------------
Title:
--------------------------------
Address:
------------------------------
--------------------------------------
--------------------------------------
Dated: , .
--------------------- -------
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123
EXHIBIT B
TO
WARRANT
ASSIGNMENT FORM
To Be Executed by the Holder
Desiring to Transfer a Warrant of
Queen Sand Resources, Inc.
FOR VALUE RECEIVED, the undersigned holder hereby sells, assigns and
transfers unto __________________________ the right to purchase ____________
shares of Common Stock covered by the within Warrant, and does hereby
irrevocably constitute and appoint _________________ Attorney to transfer the
said Warrant on the books of the Company (as defined in such Warrant), with
full power of substitution.
Name of Holder:
--------------------------------------
Signature:
----------------------------
Title:
--------------------------------
Address:
------------------------------
--------------------------------------
--------------------------------------
Dated: , .
--------------------- -------
In the presence of
---------------------------------
NOTICE:
The signature to the foregoing Assignment Form must correspond to the name as
written upon the face of the within Warrant in every detail, without alteration
or enlargement or any change whatsoever.
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124
EXHIBIT B
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE THEREOF (THE "SECURITIES") HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
OTHER UNITED STATES FEDERAL OR STATE SECURITIES OR BLUE SKY LAWS OR APPLICABLE
NON-UNITED STATES SECURITIES LAWS, AND HAVE BEEN ISSUED IN A MANNER INTENDED TO
COMPLY WITH THE CONDITIONS CONTAINED IN REGULATION S UNDER THE ACT. PRIOR TO
_______________, 1998, NO OFFER, SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION
(COLLECTIVELY, A "DISPOSAL") OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE
MAY BE MADE (A) IN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF,
ANY "U.S. PERSON" (AS DEFINED IN REGULATION S) UNLESS (i) REGISTERED UNDER THE
ACT AND ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR (ii) QUEEN SAND
RESOURCES, INC. (THE "COMPANY") RECEIVES A WRITTEN OPINION OF UNITED STATES
LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO IT TO THE EFFECT THAT SUCH
DISPOSAL IS EXEMPT FROM SUCH REGISTRATION REQUIREMENTS OR (B) OUTSIDE THE
UNITED STATES TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY PERSON WHO IS NOT A
"U.S. PERSON" UNLESS PRIOR TO SUCH DISPOSAL (i) THE BENEFICIAL OWNER OF SUCH
SECURITIES AND THE PROPOSED TRANSFEREE SUBMIT CERTAIN CERTIFICATIONS TO THE
COMPANY (FORMS OF WHICH ARE AVAILABLE FROM THE COMPANY AT ITS PRINCIPAL
EXECUTIVE OFFICES) AND (ii) THE COMPANY RECEIVES THE LEGAL OPINION DESCRIBED IN
(A)(ii) ABOVE. THE SECURITIES ARE ALSO SUBJECT TO CERTAIN RESTRICTIONS UPON
TRANSFER AS SET FORTH IN THIS WARRANT AND THE SECURITIES PURCHASE AGREEMENT
DATED AS OF _______________, 1997, A COPY OF WHICH IS AVAILABLE FOR INSPECTION
AT ITS PRINCIPAL PLACE OF BUSINESS.
--------------------------------------------------------------------------------
QUEEN SAND RESOURCES, INC.
Class B Common Stock Purchase Warrant
Representing Right To Purchase Shares of
Common Stock
of
Queen Sand Resources, Inc.
-------------
No. B-1
-------------
FOR VALUE RECEIVED, QUEEN SAND RESOURCES, INC., a Delaware corporation
(the "Company"), hereby certifies that Forseti Investments Ltd., a Barbados
corporation (the "Holder"), is entitled, subject to the provisions of this
Warrant, to purchase from the
125
Company, at any time or from time to time during the Exercise Period (as
hereinafter defined), a total of 2,000,000 shares (as such number of shares may
be adjusted pursuant to the terms hereof, the "Warrant Shares") of Common
Stock, par value $.0015 per share, of the Company, at a price per share equal
to the Exercise Price (as defined below). This Warrant is issued to the Holder
(together with such other warrants as may be issued in exchange, transfer or
replacement of this Warrant, the "Warrants") pursuant to the Securities
Purchase Agreement (as defined below) and entitles the Holder to purchase the
Warrant Shares and to exercise the other rights, powers and privileges
hereinafter provided, all on the terms and conditions and pursuant to the
provisions set forth herein and in the Securities Purchase Agreement.
Section 1. Definitions. The following terms, as used
herein, have the following respective meanings:
"Common Stock" means the Company's common stock, $0.0015 par value.
"Company" is defined in the introductory paragraph of this Warrant.
"Date of Issuance" means __________ _____, 1997.
"Earn Up Agreement" means the Earn Up Agreement, dated as of the date
hereof, between the Company and the Holder.
"Exercise Period" means the period of time between the Date of
Issuance and 5:00 p.m. (New York City time) on December 31, 1998, provided,
however, that any Warrants held by Forseti Investments Ltd. on the Election
Date (as defined in the Earn Up Agreement) shall expire on the Election Date
unless Forseti Investments Ltd. elects to retain the Warrants pursuant to
Section 2(a)(ii) of the Earn Up Agreement.
"Exercise Price" means an amount, per share, equal to $2.50 (U.S.
dollars). The Exercise Price shall be subject to adjustment, as set forth in
Section 4.
"Holder" means Forseti Investments Ltd. and its permitted assignees.
"Person" means any individual, corporation, limited or general
partnership, joint venture, association, joint- stock company, trust, limited
liability company, unincorporated organization or government or any agency or
political subdivision thereof.
"Required Holders" means the Holders of more than 50% of all Warrant
Shares then outstanding (assuming the full exercise of all Warrants).
"Securities Purchase Agreement" means the Securities Purchase
Agreement, dated as of March ___, 1997, between the Company and Forseti, as
such agreement shall be modified, amended and supplemented and in effect from
time to time.
"Value" means, as of any date of determination, with respect to the
Common Stock, $3.50 per share of Common Stock.
"Warrants" is defined in the introductory paragraph of this Warrant.
"Warrant Shares" is defined in the introductory paragraph of this
Warrant.
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126
Section 2. Exercise of Warrant; Cancellations of
Warrant. Subject to the Securities Purchase Agreement and the provisions of
Regulation S promulgated under the Securities Act of 1933, as amended, this
Warrant may be exercised in whole or in part, at any time or from time to time,
during the Exercise Period, by presentation and surrender hereof to the Company
at its principal office at the address set forth in Section 11 (or at such
other reasonable address as the Company may after the date hereof notify the
Holder in writing, coming into effect not before 14 days after receipt of such
notice by the Holder), with the Purchase Form annexed hereto as Exhibit A duly
executed and accompanied by either (at the option of the Holder) proper payment
in cash or certified or bank check equal to the Exercise Price for the Warrant
Shares for which this Warrant is being exercised; provided, that if this
Warrant is exercised in part, the Warrant must be exercised for the purchase of
at least 100,000 shares of Common Stock. Upon exercise of this Warrant as
aforesaid, the Company shall as promptly as practicable, and in any event
within 20 days thereafter, execute and deliver to the Holder a certificate or
certificates for the total number of Warrant Shares for which this Warrant is
being exercised, in such names and denominations as requested in writing by the
Holder. The Company shall pay any and all documentary stamp or similar issue
taxes payable in respect of the issue of the Warrant Shares. If this Warrant
is exercised in part only, the Company shall, upon surrender of this Warrant,
execute and deliver a new Warrant evidencing the rights of the Holder thereof
to purchase the balance of the Warrant Shares issuable hereunder.
Section 3. Exchange, Transfer, Assignment or Loss of
Warrant. This Warrant is exchangeable, without expense, at the option of the
Holder, upon presentation and surrender hereof to the Company for other
Warrants of different denominations, entitling the Holder to purchase in the
aggregate the same number of Warrant Shares. The Holder of this Warrant shall
be entitled, without obtaining the consent of the Company, to transfer or
assign its interest in (and rights under) this Warrant in whole or in part to
any Person or Persons, subject to the provisions of Section 7 of this Warrant
and Article 8 of the Securities Purchase Agreement. Upon surrender of this
Warrant to the Company, with the Assignment Form annexed hereto as Exhibit B
duly executed and funds sufficient to pay any transfer tax, the Company shall,
without charge, execute and deliver a new Warrant or Warrants in the name of
the assignee or assignees named in such Assignment Form and, if the Holder's
entire interest is not being assigned, in the name of the Holder, and this
Warrant shall promptly be canceled. This Warrant may be divided or combined
with other Warrants that carry the same rights upon presentation hereof at the
office of the Company, together with a written notice specifying the names and
denominations in which new Warrants are to be issued and signed by the Holder
hereof. Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification
(including, if required in the reasonable judgment of the Company, a statement
of net worth of such Holder that is at a level reasonably satisfactory to the
Company), and upon surrender and cancellation of this Warrant, if mutilated,
the Company shall execute and deliver a new Warrant of like tenor and date.
Section 4. Antidilution Provisions.
(a) Adjustment of Number of Warrant Shares and
Exercise Price. The number of Warrant Shares purchasable pursuant hereto and
the Exercise Price, each shall be subject to adjustment from time to time on
and after the Date of Issuance as provided in this Section 4(a). In case the
Company shall at any time after the Date of Issuance (i) pay a dividend of
shares of Common Stock or make a distribution of shares of Common Stock, (ii)
subdivide its
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127
outstanding shares of Common Stock into a larger number of shares of Common
Stock, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (iv) issue any shares of its capital stock
or other assets in a reclassification or reorganization of the Common Stock
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing entity), then (x) the securities
purchasable pursuant hereto shall be adjusted to the number of Warrant Shares
and amount of any other securities, cash or other property of the Company which
the Holder would have owned or have been entitled to receive after the
happening of any of the events described above, had this Warrant been exercised
immediately prior to the happening of such event or any record date with
respect thereto, and (y) the Exercise Price shall be adjusted to equal the
Exercise Price immediately prior to the adjustment multiplied by a fraction,
(A) the numerator of which is the number of Warrant Shares for which this
Warrant is exercisable immediately prior to the adjustment, and (B) the
denominator of which is the number of shares for which this Warrant is
exercisable immediately after such adjustment. The adjustments made pursuant
to this Section 4(a) shall become effective immediately after the effective
date of the event creating such right of adjustment, retroactive to the record
date, if any, for such event. Any Warrant Shares purchasable as a result of
such adjustment shall not be issued prior to the effective date of such event.
For the purpose of this Section 4(a) and (b), the term "shares of
Common Stock" means (i) the classes of stock designated as the Common Stock of
the Company as of the date hereof, or (ii) any other class of stock resulting
from successive changes or reclassifications of such shares consisting solely
of changes in par value, or from par value to no par value, or from no par
value to par value. In the event that at any time, as a result of an
adjustment made pursuant to this Section 4(a), the Holder shall become entitled
to receive any securities of the Company other than shares of Common Stock,
thereafter the number of such other securities so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with respect to
the Warrant Shares contained in this Section 4.
(b) Reorganization, Merger, etc. If any capital
reorganization, reclassification or similar transaction involving the capital
stock of the Company (other than as specified in Section 4(a)), any
consolidation, merger or business combination of the Company with another
corporation or the sale or conveyance of all or any substantial part of its
assets to another corporation, shall be effected in such a way that holders of
the shares of Common Stock shall be entitled to receive stock, securities or
assets (including, without limitation, cash) with respect to or in exchange for
shares of the Common Stock, then, prior to and as a condition of such
reorganization, reclassification, similar transaction, consolidation, merger,
business combination, sale or conveyance, lawful and adequate provision shall
be made whereby the Holder shall thereafter have the right to purchase and
receive upon the basis and upon the terms and conditions specified in this
Warrant and in lieu of the Warrant Shares immediately theretofore purchasable
and receivable upon the exercise of this Warrant, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding Warrant Shares equal to the number of Warrant
Shares immediately theretofore purchasable and receivable upon the exercise of
this Warrant had such reorganization, reclassification, similar transaction,
consolidation, merger, business combination, sale or conveyance not taken
place. The Company shall not effect any such consolidation, merger, business
combination, sale or conveyance unless prior to or simultaneously with the
consummation thereof the survivor or successor corporation (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument executed and sent to
the Holder, the
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128
obligation to deliver to the Holder such shares of stock, securities or assets
as, in accordance with the foregoing provisions, the Holder may be entitled to
receive.
(c) Statement on Warrant Certificates. Irrespective of
any adjustments in the Exercise Price or the number or kind of Warrant Shares,
this Warrant may continue to express the same price and number and kind of
shares as are stated on the front page hereof.
(d) Exception to Adjustment. Anything herein to the
contrary notwithstanding, the Company shall not be required to make any
adjustment of the number of Warrant Shares issuable hereunder or to the
Exercise Price in the case of the issuance of the Warrants or the issuance of
shares of the Common Stock (or other securities) upon exercise of the Warrants.
(e) Treasury Shares. The number of shares of the Common
Stock outstanding at any time shall not include treasury shares or shares owned
or held by or for the account of the Company or any of its subsidiaries, and
the disposition of any such shares shall be considered an issue or sale of the
Common Stock for the purposes of this Section 4.
(f) Adjustment Notices to Holder. Upon any increase or
decrease in the number of Warrant Shares purchasable upon the exercise of this
Warrant or the Exercise Price the Company shall, within 30 days thereafter,
deliver written notice thereof to all Holders, which notice shall state the
increased or decreased number of Warrant Shares purchasable upon the exercise
of this Warrant and the adjusted Exercise Price, setting forth in reasonable
detail the method of calculation and the facts upon which such calculations are
based.
Section 5. Notification by the Company. In case at any
time while this Warrant remains outstanding:
(a) the Company shall declare any dividend or make any
distribution upon its Common Stock or any other class of its capital stock; or
(b) the Company shall offer for subscription pro rata to
the holders of its Common Stock or any other class of its capital stock any
additional shares of stock of any class or any other securities convertible
into or exchangeable for shares of stock or any rights or options to subscribe
thereto; or
(c) the Board of Directors of the Company shall authorize
any capital reorganization, reclassification or similar transaction involving
the capital stock of the Company, or a sale or conveyance of all or a
substantial part of the assets of the Company, or a consolidation, merger or
business combination of the Company with another Person; or
(d) actions or proceedings shall be authorized or
commenced for a voluntary or involuntary dissolution, liquidation or winding-up
of the Company;
then, in any one or more of such cases, the Company shall give written notice
to the Holder, at the earliest time legally practicable (and not less than 20
days before any record date or other date set for definitive action) of the
date on which (i) the books of the Company shall close or a record shall be
taken for such dividend, distribution or subscription rights or options or (ii)
such reorganization, reclassification, sale, conveyance, consolidation, merger,
dissolution, liquidation or winding-up shall take place or be voted on by
shareholders of the Company, as the case may be. Such notice shall also
specify the date as of which the holders of the Common Stock of record shall
participate in said dividend, distribution, subscription
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129
rights or options or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, sale, conveyance, consolidation, merger, dissolution,
liquidation or winding-up, as the case may be. If the action in question or
the record date is subject to the effectiveness of a registration statement
under the Securities Act or to a favorable vote of shareholders, the notice
required by this Section 5 shall so state.
Section 6. No Voting Rights: Limitations of Liability.
Prior to exercise, this Warrant will not entitle the Holder to any voting
rights or other rights as a stockholder of the Company. No provision hereof,
in the absence of affirmative action by the Holder to exercise this Warrant,
and no enumeration herein of the rights or privileges of the Holder, shall give
rise to any liability of the Holder for the purchase price of the Warrant
Shares pursuant to the exercise hereof.
Section 7. Restrictions on Transfer. The Warrants and
the Warrant Shares shall not be transferable except upon the conditions
specified in this Warrant and in the Securities Purchase Agreement. The
Warrants may not be transferred, sold or otherwise disposed of except in blocks
of Warrants for the purchase of at least 100,000 shares of Common Stock;
provided, that if at the time of such transfer, sale or other disposition, the
Warrants owned by the Holder are for the purchase of less than 100,000 shares
of Common Stock, the Holder may sell, transfer or otherwise dispose of all, but
not less than all, of the Warrants. This Warrant bears and the certificates
for Warrant Shares will bear a legend as specified in the Securities Purchase
Agreement. The Holder by its acceptance of this Warrant agrees to comply with
and to be bound by all of the provisions of the Securities Purchase Agreement.
Section 8. Amendment and Waiver.
(a) No failure or delay of the Holder in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The
rights and remedies of the Holder are cumulative and not exclusive of any
rights or remedies which it would otherwise have. The provisions of this
Warrant may be amended, modified or waived with (and only with) the written
consent of the Company and the Required Holders.
(b) No notice or demand on the Company in any case shall
entitle the Company to any other or further notice or demand in similar or
other circumstances.
Section 9. No Fractional Warrant Shares. The Company
shall not be required to issue stock certificates representing fractions of
Warrant Shares, but shall in respect of any fraction of a Warrant Share make a
payment in cash based on the Value of the Common Stock after giving effect to
the full exercise or conversion of the Warrants.
Section 10. Reservation of Warrant Shares. The Company
shall authorize, reserve and keep available at all times, free from preemptive
rights, a sufficient number of Warrant Shares to satisfy the requirements of
this Warrant.
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130
Section 11. Notices. Unless otherwise specified, whenever
this Warrant requires or permits any consent, approval, notice, request, or
demand from one party to another, that communication must be in writing (which
may be by telecopy) to be effective and is deemed to have been given (a) if by
telecopy, when transmitted to the appropriate telecopy number (and all
communications sent by telecopy must be confirmed promptly by telephone; but
any requirement in this parenthetical does not affect the date when the
telecopy is deemed to have been delivered), or (b) if by any other means,
including by internationally acceptable courier or hand delivery, when actually
delivered. Until changed by notice pursuant to this Warrant, the address (and
telecopy number) for the Holder and the Company are:
If to Holder: Forseti Investments Ltd.
▇-▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
West Indies
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With copies to: ▇▇▇▇▇ Fresenius ▇▇▇▇▇ Scherzberg,
attorneys
▇▇▇▇-▇▇▇▇▇▇▇-Strasse 37-39
60596 Frankfurt-Am-Main
Attn: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇) ▇▇▇▇▇▇▇▇▇▇
If to Company: Queen Sand Resources, Inc.
▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇.▇.#▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With copies to: Queen Sand Resources, Inc.
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇▇ and ▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. Boeing, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Section 12. Section and Other Headings. The headings
contained in this Warrant are for reference purposes only and will not affect
in any way the meaning or interpretation of this Warrant.
Section 13. Governing Law; Choice of Forum; Consent to
Service of Process. THIS WARRANT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE. The parties hereto agree
that any suit, action or proceeding arising out of or relating to this Warrant
or any agreement or obligation delivered in connection with this Warrant or any
judgment entered by any court in respect thereof shall be brought in the Courts
of the State of Texas, County of Dallas or in the United
- 7 -
▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ for the Northern District of Texas and each such party
hereby submits to the exclusive jurisdiction of such courts for the purpose of
any such suit, action or proceeding relating to this Warrant or any related
agreement or obligation. The Holder hereby submits to the jurisdiction of the
State of Texas and agrees that service of all writs, process and summonses in
any such suit, action or proceeding brought in the United States against the
Holder may be made upon CT Corporation System at its offices located at ▇▇▇
▇▇▇▇▇ ▇▇. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ (or any subsequent address of CT
Corporation System), and the Holder hereby irrevocably appoints CT Corporation
System at its offices located at ▇▇▇ ▇▇▇▇▇ ▇▇. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇ (or any subsequent address of CT Corporation System) its true and lawful
attorney-in-fact in their name, place and ▇▇▇▇▇ to accept such service of any
and all such writs, process and summonses, and agree that the failure of CT
Corporation System to give to the Holder any notice of any such service of
process shall not impair or affect the validity of such service or of any
judgment based thereon. The Company shall send, within 5 days after any
service of process under this Section 13, notice to the Holder in accordance
with Section 11 of any service of process on CT Corporation System under this
Section 13. Service of process on the Company may be made to the Company's
registered agent in Delaware, Corporation Trust Centre, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇
▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ of New Castle.
Each party hereto hereby irrevocably waives any objection that it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Warrant or any agreement or obligation
delivered in connection with this Warrant, brought in the Courts of the State
of Texas, County of Dallas or the United States District Court for the Northern
District of Texas, and hereby further irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in
an inconvenient forum.
Section 14. Binding Effect. The terms and provisions of
this Warrant shall inure to the benefit of the Holder and its successors and
assigns and shall be binding upon the Company and its successors and assigns,
including, without limitation, any Person succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets.
* * * * *
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132
IN WITNESS WHEREOF, the seal of the Company and the signature of its
duly authorized officer have been affixed hereto as of __________ _____, 1997.
[SEAL] QUEEN SAND RESOURCES, INC.
Attest: By:
-------------------------- ---------------------------------
Name:
-------------------------------
Title:
------------------------------
and
Attest: By:
-------------------------- ---------------------------------
Name:
-------------------------------
Title:
------------------------------
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133
EXHIBIT A
TO
WARRANT
PURCHASE FORM
To Be Executed by the Holder
Desiring to Exercise a Warrant of
Queen Sand Resources, Inc.
The undersigned holder hereby exercises the right to purchase ______
shares of Common Stock covered by the within Warrant, according to the
conditions thereof, and herewith makes payment in full of the Exercise Price of
such shares, in the amount of $____________.
Name of Holder:
--------------------------------------
Signature:
----------------------------
Title:
--------------------------------
Address:
------------------------------
--------------------------------------
--------------------------------------
Dated: , .
--------------------- -------
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134
EXHIBIT B
TO
WARRANT
ASSIGNMENT FORM
To Be Executed by the Holder
Desiring to Transfer a Warrant of
Queen Sand Resources, Inc.
FOR VALUE RECEIVED, the undersigned holder hereby sells, assigns and
transfers unto __________________________ the right to purchase ____________
shares of Common Stock covered by the within Warrant, and does hereby
irrevocably constitute and appoint _________________ Attorney to transfer the
said Warrant on the books of the Company (as defined in such Warrant), with
full power of substitution.
Name of Holder:
--------------------------------------
Signature:
----------------------------
Title:
--------------------------------
Address:
------------------------------
--------------------------------------
--------------------------------------
Dated: , .
--------------------- -------
In the presence of
--------------------------------------
NOTICE:
The signature to the foregoing Assignment Form must correspond to the name as
written upon the face of the within Warrant in every detail, without alteration
or enlargement or any change whatsoever.
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135
EXHIBIT C
EARN UP AGREEMENT
THIS EARN UP AGREEMENT (this "Agreement") is executed as of the _____
day of __________, 1997 between Queen Sand Resources, Inc., a Delaware
corporation (the "Company"), and Joint Energy Development Investments Limited
Partnership, a Delaware limited partnership ("JEDI").
WHEREAS, the Company has entered into the Purchase Agreement (defined
below) with JEDI pursuant to which JEDI is purchasing shares of the Company's
Series A Participating Convertible Preferred Stock, par value $0.01 per share
(the "Convertible Preferred Stock"), and certain warrants to purchase Common
Stock of the Company, in exchange for (i) $5,000,000 cash; and (ii) this
Agreement; and
WHEREAS, the Company is repurchasing 9,600,000 shares of Common Stock
(defined below) from Forseti Investments, ltd., a Barbados corporation
("Forseti"), pursuant to the terms of the Forseti Purchase Agreement (defined
below);
NOW, THEREFORE, in consideration of these premises, the agreements
herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, JEDI and the Company agree as follows:
1.0 DEFINITIONS
"AAA" means the American Arbitration Association, or any successor
organization.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of, or rights,
warrants or options to purchase, corporate stock or any other equity interest
(however designated) of or in such Person.
"Capitalized Lease Obligation" means the amount of the liability under
any capital lease that, in accordance with GAAP, is required to be capitalized
and reflected as a liability on the consolidated balance sheet of the Company
and its Subsidiaries.
"Class A Amount" is defined in Section 2(b).
136
"Class B Amount" is defined in Section 2(c).
"Class A Warrants" means the Class A Common Stock Purchase Warrants to
purchase 1,000,000 shares of Common Stock issued to Forseti pursuant to the
Forseti Purchase Agreement.
"Class B Warrants" means the Class B Common Stock Purchase Warrants to
purchase 2,000,000 shares of Common Stock issued to Forseti pursuant to the
Forseti Purchase Agreement.
"Common Stock" means the common stock, par value $.0015 per share, of
the Company.
"Consolidated Adjusted Net Income" means the consolidated net income
(or loss) of the Company and its Subsidiaries for the fiscal year ending June
30, 1998 as determined in accordance with GAAP, adjusted by excluding, to the
extent included in consolidated net income, (a) net after-tax extraordinary
gains or losses (less all fees and expenses relating thereto), (b) net
after-tax gains or losses (less all fees and expenses relating thereto)
attributable to asset dispositions, (c) the net income (or net loss) of any
Person (other than the Company or any of its Subsidiaries) in which the Company
or any of its Subsidiaries has an ownership interest, except to the extent of
the amount of dividends or other distributions actually paid to the Company or
its Subsidiaries in cash by such other Person during such period, and (d) net
income (or net loss) of any Person combined with the Company or any of its
Subsidiaries on a "pooling of interests" basis attributable to any period prior
to the date of combination.
"Consolidated Interest Expense" means the amount which, in conformity
with GAAP, is set forth opposite the caption "interest expense" (or any like
caption) on the audited consolidated statement of operations of the Company and
its Subsidiaries for the fiscal year ended June 30, 1998.
"Consolidated Net Working Capital" means (i) the amount which, in
conformity with GAAP, is set forth opposite the caption "total current assets"
(or any like caption) on the audited consolidated balance sheet of the Company
and its Subsidiaries as of June 30, 1998 less (ii) the amount which, in
conformity with GAAP, is set forth opposite the caption "total current
liabilities" (or any like caption) on the audited consolidated balance sheet of
the Company and its Subsidiaries as of June 30, 1998.
"Consolidated Non-cash Charges" means the amount which, in conformity
with GAAP, is set forth opposite the caption "depreciation, depletion and
amortization" (or any like caption) on the audited consolidated statement of
operations of the Company and its Subsidiaries for the fiscal year ended June
30, 1998.
"Consolidated Tax Expense" means the amount which, in conformity with
GAAP, is set forth opposite the caption "income tax expense" (or any like
caption) on the audited consolidated statement of operations of the Company and
its Subsidiaries for the fiscal year ended June 30, 1998.
"Dispute" is defined in Section 4.
137
"EBITDA" means, without duplication, for the fiscal year ended June
30, 1998, the sum of (i) Consolidated Adjusted Net Income and (ii) to the
extent deducted in computing Consolidated Adjusted Net Income, Consolidated
Interest Expense, Consolidated Tax Expense and Consolidated Non-cash Charges.
"Earn Up Amount" is defined in Section 2(a).
"Election Date" means September 30, 1998.
"Exercise Price" means $2.50.
"Forseti Earn Up Agreement" means the Earn Up Agreement entered into
between the Company and Forseti substantially in the form of Exhibit A to this
Agreement.
"Forseti Interests" means all of the outstanding ownership interests
in Forseti and each entity that controls or owns an ownership interests in
Forseti.
"Forseti Purchase Agreement" means the Securities Purchase Agreement
dated March 27, 1997 between the Company and Forseti.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, in effect from time to
time.
"Guaranteed Debt" means, without duplication, all Indebtedness of any
other Person guaranteed directly or indirectly in any manner by the Company or
any of its Subsidiaries, or in effect guaranteed directly or indirectly by the
Company or any of its Subsidiaries through an agreement (i) to pay or purchase
such Indebtedness or to advance or supply funds for the payment or purchase of
such Indebtedness, (ii) to purchase, sell or lease (as lessee or lessor)
property, or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such Indebtedness or to assure the
holder of such Indebtedness against loss, (iii) to supply funds to, or in any
other manner invest in, the debtor (including any agreement to pay for property
or services to be acquired by such debtor irrespective of whether such property
is received or such services are rendered), (iv) to maintain working capital or
equity capital of the debtor, or otherwise to maintain the net worth, solvency
or other financial condition of the debtor or (v) otherwise to assure a
creditor against loss; provided that the term "guarantee" shall not include
endorsements for collection or deposit.
"Indebtedness" means, as of June 30, 1998, without duplication, (i)
all indebtedness of the Company or any of its Subsidiaries for borrowed money
or for the deferred purchase price of property or services, excluding any trade
accounts payable and other accrued current liabilities incurred in the ordinary
course of business, (ii) all obligations of the Company or any of its
Subsidiaries evidenced by bonds, notes, debentures or other similar
instruments, (iii) all indebtedness created or arising under any conditional
sale or other title retention agreement with respect to property acquired by
the Company or any of its Subsidiaries (even if the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of
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138
such property), but excluding trade accounts payable arising in the ordinary
course of business, (iv) all Capitalized Lease Obligations, (v) all
indebtedness referred to in (but not excluded from) clause (i), (ii), (iii) or
(iv) above of other Persons, the payment of which is secured by (or for which
the holder of such indebtedness has an existing right, contingent or otherwise,
to be secured by) any Lien upon or in property (including, without limitation,
accounts and contract rights) owned by the Company or any of its Subsidiaries,
even though such Person has not assumed or become liable for the payment of
such indebtedness, (vi) all Guaranteed Debt, (vii) all Redeemable Capital Stock
valued at its maximum fixed repurchase price plus accrued and unpaid dividends,
and (viii) any amendment, supplement, modification, deferral, renewal,
extension or refunding of any liability of the types referred to in clauses (i)
through (vii) above. For purposes hereof, the "maximum fixed repurchase price"
of any Redeemable Capital Stock that does not have a fixed repurchase price
shall be calculated in accordance with the terms of such Redeemable Capital
Stock as if such Redeemable Capital Stock were purchased on any date on which
Indebtedness shall be required to be determined pursuant to this Agreement, and
if such price is based upon, or measured by, the fair market value of such
Redeemable Capital Stock, such fair market value to be determined in good faith
by the Board of Directors of the issuer of such Redeemable Capital Stock.
"Mediator" is defined in Section 6.
"Outstanding Shares" means, as of June 30, 1998, the issued and
outstanding shares of Common Stock, assuming the conversion of all shares of
preferred stock of the Company that are convertible into shares of Common
Stock, and excluding any shares of Common Stock held in treasury by the Company
or held by any wholly-owned Subsidiary of the Company.
"Payment Date" means October 15, 1998.
"Person" means any individual, corporation, limited or general
partnership, joint venture, association, joint-stock company, trust, limited
liability company, unincorporated organization or government or any agency or
political subdivision thereof.
"Price" means, if:
(Price(1) - Price(2))
---------------------- less than or equal to 0.1, then (Price(1) + Price(2))/2;
Greater of Price(1) or Price(2)
provided, that if: (Price(1) - Price(2))
---------------------- greater than 0.1, then the Company and JEDI
Greater of Price(1) or Price(2)
shall negotiate the Price; provided, further, that if the Price has not been
agreed upon within 5 business days after the determination of Price(1) and
Price(2), then the determination of the Price shall be submitted to nonbinding
mediation and arbitration in accordance with this Agreement. Notwithstanding
anything to the contrary in this Agreement, under no circumstances shall the
Price exceed the higher of Price(1) and Price(2) or be less than the lower of
Price(1) and Price(2).
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(1.1 * SEC PV(10)) - Indebtedness + Consolidated Net Working Capital
"Price(1)" = ------------------------------------------------------------------------------
Outstanding Shares
(6.0 * EBITDA) - Indebtedness + Consolidated Net Working Capital
"Price(2)" = ------------------------------------------------------------------------------
Outstanding Shares
"Purchase Agreement" means the Securities Purchase Agreement dated
March 27, 1997 between the Company and JEDI.
"Redeemable Capital Stock" means any Capital Stock of the Company or
any of its Subsidiaries that, either by its terms, by the terms of any security
into which it is convertible or exchangeable or otherwise, (i) is, or upon the
happening of an event or passage of time would be, required to be redeemed, or
(ii) is, or upon the happening of an event or passage of time would be,
redeemable at the option of the holder thereof, or (iii) is, or upon the
happening of an event or passage of time would be, convertible into or
exchangeable for debt securities.
"SEC PV10" means the pre tax future net cash flows from proved oil and
gas reserves of the Company and its Subsidiaries at June 30, 1998, computed
using a discount factor of ten percent, as determined in accordance with the
rules, regulations and guidelines of the United States Securities and Exchange
Commission and reported in the reserve report dated as of such date prepared in
accordance with Section 6.11 of the Purchase Agreement.
"Statutory Declaration" means a statutory declaration by Forseti that
as of the Election Date and the Payment Date (i) the individual who, as of the
date hereof, owned all of the Forseti Interests owns all of the Forseti
Interests (ii) there are no encumbrances, pledges or other liens on any equity
interests in Forseti, and (iii) no other event under Section 6(h) has occurred.
"Subsidiary" of a Person means any corporation, limited liability
company, limited or general partnership, joint venture, association,
joint-stock company or business trust of which at the time of determination
such Person, directly and/or indirectly through one or more other Persons, owns
more than 50% of the voting interests.
"Transfer" of any property means any exercise, or any direct or
indirect sale, transfer, encumbrance, gift, donation, assignment, grant of any
interest, pledge, hypothecation or other disposition of such property or any
interest therein, whether voluntary or involuntary, including, but not limited
to, any transfer by operation of law, by court order, by judicial process, or
by foreclosure, levy, or attachment.
"Value" is defined in Section 2(e).
"Warrant Transfer Amount" is defined in Section 2(d).
"Warrants" means, collectively, the Class A Warrants and the Class B
Warrants.
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2.0 PAYMENT OF EARN UP AMOUNT
(a) On the Payment Date, subject to the limitations in Section 3,
and only against delivery by the Company to JEDI of evidence
satisfactory to JEDI that Forseti has delivered to the Company (x) the
Warrants and (y) the Statutory Declaration, JEDI shall pay the Company
an amount (the "Earn Up Amount") equal to the amount, if any, by which
(i) the sum of the Class A Amount and the Class B Amount exceeds (ii)
the Warrant Transfer Amount; provided, that in no event shall the Earn
Up Amount exceed $9,400,000.
(b) The "Class A Amount" means a dollar amount equal to the
product of (i) the Value (not to exceed $1.50) less $1.25, multiplied
by (ii) 9,600,000; provided, that in no event shall the Class A Amount
be greater than $2,400,000; and if the Class A Amount is zero or a
negative number, the Class A Amount shall be deemed to be zero.
(c) The "Class B Amount" means a dollar amount equal to the
product of (i) the Value (not to exceed $1.25) less $0.521, multiplied
by (ii) 9,600,000; provided, that in no event shall the Class B Amount
be greater than $7,000,000; and if the Class B Amount is zero or a
negative number, the Class B Amount shall be deemed to be zero.
(d) The "Warrant Transfer Amount" means a dollar amount equal to
the greatest of (i) the product of (x) $3.50 multiplied by (y) the
aggregate number of Class A Warrants and Class B Warrants Transferred
by Forseti before the Payment Date; (ii) the aggregate gross proceeds
that Forseti has received or is entitled to receive from the Transfer
of all of the Class A Warrants and Class B Warrants Transferred by
Forseti before the Payment Date; and (iii) the difference between the
average daily bid price of the Company's Common Stock for the 21-day
period ending on the Election Date less the Exercise Price, multiplied
by the number of Class A Warrants and the Class B Warrants Transferred
by Forseti before the Payment Date.
(e) The "Value" means the product of the Price, multiplied by
0.60; provided, that if (i) the Common Stock is quoted on The Nasdaq
National Market at the Election Date and (ii) the average daily
trading volume of the Company's shares of Common Stock for the 21-day
period ending on the Election Date is at least 50,000 shares per day
(excluding trading of shares in any accounts controlled by the Company
or Forseti or their respective Affiliates, and provided, that if on
any of the 21 days the trading volume is greater than 300,000 shares,
then only 300,000 shares on such days may be used in calculating the
average), then Value means the product of the Price, multiplied by
0.75.
(f) The Company represents and warrants to JEDI that the
definitions of the terms "Price" and "Value" in the Forseti Earn Up
Agreement are identical to the definitions of such terms in this
Agreement.
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3.0 LIMITATION ON EARN UP AMOUNT
The Earn Up Amount shall in no event exceed the amount defined in the
Forseti Purchase Agreement as the "Earn Up Amount."
4.0 MEDIATION.
Any controversy, dispute or claim arising out of or relating to this
Agreement (a "Dispute") shall be submitted to non-binding mediation upon the
request of the Company or Forseti on the following terms. Upon the request of
either party, a neutral mediator acceptable to both parties (the "Mediator")
shall be appointed within 15 days. The Mediator shall attempt through
negotiations in any manner deemed reasonably appropriate by the Mediator, in
which the parties shall participate, to resolve the Dispute. The Mediator
shall be compensated at a rate agreeable to the Company, Forseti and the
Mediator, and each of the Company and Forseti shall pay its pro rata share of
such compensation and other expenses of the mediation.
5.0 ARBITRATION.
In the event that mediation of a Dispute has not commenced within 15
days after a request for mediation is submitted or is terminated without
resolution under Section 5.0, any controversy or claim arising out of or
relating to this Agreement, including the right to or amount of indemnity,
shall be settled by arbitration in accordance with the Commercial Arbitration
Rules of the AAA by three (3) arbitrators. Each of Forseti and the Company
shall appoint one arbitrator, who shall be an impartial person. If a party
fails to appoint an arbitrator within thirty (30) days from the date a Demand
to Arbitrate was made under Rule 6, the AAA shall make the appointment of the
arbitrator. The two (2) arbitrators thus appointed shall appoint the third
arbitrator, who shall be an impartial person. If said two (2) arbitrators fail
to appoint the third arbitrator within sixty (60) days from the date a Demand
to Arbitrate was made under Rule 6, the AAA shall make the appointment of the
third arbitrator, who shall be an impartial person. Should any of the
arbitrators appointed die, resign, refuse or become unable to act before a
decision is given, the vacancy shall be filled by the method set forth in this
clause for the original appointment. The arbitration shall be held in Dallas,
Texas and shall be conducted in the English language. A decision by the
arbitrators shall be final and binding on all the parties. The arbitrators
shall execute and deliver to the respective parties the arbitration panel's
decision in writing. Judgment upon the award, if any, rendered by the
arbitrators (which must be expressed in United States Dollars) may be entered
in any court having jurisdiction thereof. In any award, the arbitrators shall
assess the arbitration costs and expenses, including, without limitation,
attorneys fees of the parties, in a manner deemed equitable by the arbitrators,
taking into account the arbitration decision. Notwithstanding anything to the
contrary in this Agreement, if a Dispute involves the determination of Price,
the Price, as determined by arbitration under this Section 5, shall not (i) (a)
exceed the higher or Price1 and Price2, or (b) be lower than the lower of
Price1 and Price2, or (ii) exceed the Price as determined under the Forseti
Earn Up Agreement, including a Price as determined by arbitration under the
provisions of the Forseti Earn Up Agreement.
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6.0 MISCELLANEOUS
(a) Governing Law. This Agreement shall be governed by the
substantive laws of the State of Texas.
(b) Invalid Provisions. If any provision of this Agreement is
held to be illegal, invalid or unenforceable, such provision shall be
fully severable.
(c) Entirety and Amendments. This Agreement embodies the entire
agreement and understanding relating to the subject matter hereof,
supersedes all prior understandings between the parties relating to
the subject matter hereof, and may be amended only by an instrument in
writing executed by the Company and JEDI.
(d) Parties Bound. This Agreement shall be binding upon and inure
to the benefit of the Company and JEDI, and their respective
successors and permitted assigns. Neither the Company nor JEDI may
assign its rights or delegate its obligations hereunder (whether
voluntarily, involuntarily, or by operation of law) without the prior
written consent of the other party.
(e) Notices. Unless otherwise specified, whenever this Agreement
requires or permits any consent, approval, notice, request, or demand
from one party to another, that communication must be in writing
(which may be by telecopy) to be effective and is deemed to have been
given (a) if by telecopy, when transmitted to the appropriate telecopy
number (and all communications sent by telecopy must be confirmed
promptly by telephone; but any requirement in this parenthetical does
not affect the date when the telecopy is deemed to have been
delivered), or (b) if by any other means, including by internationally
acceptable courier or hand delivery, when actually delivered. Until
changed by notice pursuant to this Agreement, the address (and
telecopy number) for the Company and JEDI are:
If to JEDI: Joint Energy Development Investments
Limited Partnership
c/o Enron Corp.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇ - Director,
28th Floor
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
If to Company: Queen Sand Resources, Inc.
▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇.▇.#▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
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143
With copies to: Queen Sand Resources, Inc.
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇▇ and ▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. Boeing
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(f) Section and Other Headings. The headings contained in this
Agreement are for reference purposes only and will not affect in any
way the meaning or interpretation of this Agreement.
(g) Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original and all of
which together will constitute one instrument.
(h) Termination. This Agreement shall terminate automatically,
and JEDI shall have no obligation to pay any Earn Up Amount, (a) in
the event the "Election Date" under the Forseti Earn Up Agreement is
after September 30, 1998 or the "Payment Date" under the Forseti Earn
Up Agreement is after October 15, 1998, (b) upon the Transfer of any
Warrants in violation of the restrictions on Transfer of Warrants
under the Forseti Purchase Agreement, (c) upon the election by Forseti
to retain the Warrants under Section 2(a)(ii) of the Forseti Earn Up
Agreement, (d) upon the Transfer by Forseti of all of the Warrants,
(e) upon the Transfer of any ownership interest in Forseti or any
entity controlling Forseti where the purpose of the transfer is to
realize or receive cash, securities or any other property as
consideration for the Warrants without transferring the Warrants, (f)
in the event that, on the Election Date or the Payment Date, the
individual who, as of the date hereof owned, directly or indirectly,
all of the Forseti Interests does not own, directly or indirectly, all
of the Forseti Interests, or (g) the termination of the Forseti Earn
Up Agreement for any reason.
(i) Currency. All dollar amounts in this Agreement shall mean
United States dollars.
* * * * *
-9-
144
IN WITNESS WHEREOF, JEDI and the Company have executed this Agreement
as of the day and year first stated above.
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP
By: Enron Capital Management Limited
Partnership, its General Partner
By: Enron Capital Corp., its General
Partner
By:
-----------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Agent and Attorney-in-Fact
QUEEN SAND RESOURCES, INC.
By:
-----------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
President and Chief Executive
Officer
and
By:
----------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Chief Operating Officer
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145
EXHIBIT E
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (the "Escrow Agreement") is made as of this __
day of __________, 1997, among Queen Sand Resources, Inc., a Delaware
corporation ("QSR"), Forseti Investments Ltd., a Barbados corporation
("Forseti"), and _________________ in its capacity as escrow agent hereunder
("Escrow Agent").
WHEREAS, QSR and Joint Energy Development Investments Limited
Partnership, a Delaware limited partnership ("JEDI"), are parties to a
Securities Purchase Agreement (the "JEDI Purchase Agreement"), pursuant to
which JEDI has purchased 9,600,000 shares of Series A Participating Convertible
Preferred Stock, par value $0.01 per share, of QSR (the "Preferred Stock"); and
WHEREAS, QSR and Forseti have entered into a Securities Purchase
Agreement (the "Forseti Agreement") whereby QSR has agreed to purchase
9,600,000 shares of its common stock, par value $.0015 per share (the "Common
Stock"), from Forseti in exchange for, among other things, Class A Common Stock
Purchase Warrants to purchase 1,000,000 shares of Common Stock (the "Class A
Warrants") and Class B Common Stock Purchase Warrants to purchase 2,000,000
shares of Common Stock (the "Class B Warrants", and, together with the Class A
Warrants, the "Warrants"); and
WHEREAS, pursuant to the Forseti Agreement, the Warrants are to be
held by an escrow agent subject to an escrow agreement; and
WHEREAS, QSR and Forseti have agreed to deposit the Warrants in escrow
pursuant to the terms hereof.
NOW THEREFORE, FOR AND IN CONSIDERATION of the mutual covenants and
agreements herein set forth, the parties hereto agree as follows:
1. Terms of Escrow. QSR herewith deposits with the Escrow Agent,
and the Escrow Agent hereby acknowledges receipt of, the Warrants. From time
to time after the date of this Agreement, a proposed purchaser of Warrants, the
Company and/or Forseti may deliver to the Escrow Agent consideration for a
proposed transfer of Warrants ("Transfer Consideration"), in each case against
delivery of a written receipt by the Escrow Agent to the Company and Forseti
acknowledging such delivery. The Escrow Agent shall hold the Warrants [in its
vault located at _________________] (the "Escrow Depository") until such time
as the Escrow Agent is properly authorized to transfer the Warrants pursuant to
Section 2. The Escrow Agent shall establish an account (the "Escrow Account")
which shall be credited with any Transfer Consideration deposited with the
Escrow Agent and which shall be increased by the income interest or earnings
earned and received with respect thereto (collectively, the "Interest") and
decreased by distributions made pursuant to this Escrow Agreement. All funds
held by the Escrow Agent shall be invested by the Escrow Agent in accordance
with the written directives received from time to time by Forseti.
2. Release of Warrants. The Escrow Agent is authorized and
directed to deliver the Warrants and the funds in the Escrow Account as
provided below:
146
(a) At any time and from time to time prior to the
termination of this Escrow Agreement, upon delivery to the Escrow
Agent by QSR and Forseti of written notice, such notice to be
delivered in accordance with the terms of the Forseti Agreement and to
be in the form attached hereto as Exhibit A (the "Form"), the Escrow
Agent shall immediately deliver a copy of such notice to JEDI and
shall thereafter immediately deliver the number of Warrants referred
to in the notice and/or the funds in the Escrow Account from the
Escrow Depository to such place or agent as set forth in the notice.
Though QSR and Forseti shall deliver such notice in accordance with
the Agreement, the Escrow Agent shall not have any duty to determine
proper provision of notice, but, rather need only consider whether
receipt of the notice conforms to the Form.
(b) Upon the termination of this Escrow Agreement by the
mutual agreement of QSR, Forseti and the Escrow Agent, the Escrow
Agent shall deliver the Warrants and the funds in the Escrow Account
held by it to such place or agent as specified by Forseti in writing,
whereupon the duties of the Escrow Agent shall cease.
3. Indemnity; Interpleader; Resignation. To the extent permitted
by law, QSR and Forseti shall indemnify the Escrow Agent, its directors,
officers and employees (collectively, "Indemnitees") and hold such Indemnitees
harmless against, any loss, liability or expense incurred without negligence or
bad faith on such Indemnitees' part, arising out of or in connection with the
acceptance or administration of the Escrow Agent's duties hereunder, including
the cost and expense against any claim or liability in connection with the
exercise or performance of any of its powers or duties under this Agreement.
Further, QSR and Forseti agree as follows:
(a) The Escrow Agent shall be protected in acting upon
any written notice, request, waiver, consent, certificate, receipt,
authorization, or other paper or document which the Escrow Agent
believes to be genuine and what it purports to be.
(b) The Escrow Agent may confer with independent legal
counsel in the event of any dispute or question as to the construction
of any of the provisions hereof, or the Escrow Agent's duties
hereunder, and to the extent permitted by law, the Escrow Agent shall
incur no liability hereunder and shall be fully protected in acting in
accordance with the opinions and instructions of such counsel as to
the construction of any of the provisions hereof.
(c) In the event of any disagreement resulting in adverse
claims or demands being made in connection with the subject matter of
this Escrow Agreement, or in the event that the Escrow Agent is in
doubt as to what action the Escrow Agent should take hereunder, the
Escrow Agent may, at the Escrow Agent's sole and exclusive option,
refuse to comply with any claims or demands on the Escrow Agent, or
refuse to take any other action hereunder, so long as such
disagreement continues or such doubt exists, and in any such event,
the Escrow Agent shall not be or become liable in any way to any
person for the Escrow Agent's failure or refusal to act, and the
Escrow Agent shall be entitled to continue to so refrain from acting
until (i) the rights of all parties (including, but not limited to,
the Escrow Agent) have been fully and finally adjudicated by a court
of competent jurisdiction or determined by arbitration; or (ii) all
differences shall have been adjudged and all doubt resolved by
agreement among all of the interested parties, and the Escrow Agent
shall have been
147
notified thereof in writing signed by all such parties. In addition
to the foregoing remedies, the Escrow Agent is hereby authorized, in
the event of any doubt as to the course of action the Escrow Agent
should take under this Escrow Agreement, to petition any court of
competent jurisdiction (the "Court") of Dallas County, Texas, for
instructions or to interplead this Escrow Agreement and the Warrants
so held into such Court. QSR and Forseti agree to the jurisdiction of
said Court over QSR and Forseti as well as this Escrow Agreement and
the Warrants and any funds in the Escrow Account, waive personal
service of process, and agree that service of process as set forth in
Section 10(a) shall constitute adequate service.
(d) The Escrow Agent may resign for any reason
whatsoever, upon thirty (30) days written notice to QSR and Forseti.
Upon the expiration of such thirty (30) day notice period, the Escrow
Agent may deliver the Warrants and any funds in the Escrow Account,
this Escrow Agreement and any and all other documents in the Escrow
Agent's possession under this Escrow Agreement to any successor Escrow
Agent appointed by QSR and Forseti hereto, or if no successor Escrow
Agent has been appointed, to any court of competent jurisdiction in
Dallas County, Texas. Upon either such delivery, the Escrow Agent
shall be released from any future performance under this Escrow
Agreement. A termination under this Section 3(d) shall in no way
change the terms of Section 3 affecting reimbursement of the Escrow
Agent's attorneys fees, costs and expenses and the indemnity specified
therein.
(e) In the event of a conflict between this Section 3 and
any other section of this Escrow Agreement, the terms and provisions
of this Section 3 shall prevail and control.
4. Further Instruments. Each of QSR and Forseti shall, whenever
and as often as such party shall be reasonably requested to so do by the Escrow
Agent, execute, acknowledge and deliver or cause to be executed, acknowledged
and delivered, any and all instruments and documents as may be reasonably
necessary in order to complete the transaction herein provided and to carry out
the intent and purposes hereof.
5. Reliance. Each of QSR, Forseti and the Escrow Agent have
relied upon their own examination of the terms and provisions contained in this
Escrow Agreement and the counsel of their own advisors.
6. Fees. Forseti hereby agrees to pay to the Escrow Agent
reasonable compensation for the services to be rendered by it hereunder and to
pay or to reimburse the Escrow Agent for all expenses, disbursements and
advances (including reasonable attorneys' fees) incurred or made by it in
connection with its joining this Escrow Agreement and with the carrying out of
its duties hereunder.
7. Termination. This Escrow Agreement shall terminate on the
date the Escrow Agent no longer holds any Warrants or any funds in the Escrow
Account under this Escrow Agreement and the payment of all fees and expenses
due to the Escrow Agent pursuant to this Escrow Agreement. Prior to such date,
this Escrow Agreement may be terminated only by an instrument in writing duly
executed by QSR and Forseti and delivered to the Escrow Agent.
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148
8. Discharge. In the event that QSR and Forseti desire to choose
another Escrow Agent, the successor Escrow Agent shall be chosen by QSR and
Forseti by mutual agreement. Any successor Escrow Agent hereunder shall have
all the rights, title, privileges, duties, obligations and protection of the
original Escrow Agent hereunder.
9. Notices. Unless otherwise specified, whenever this Escrow
Agreement requires or permits any consent, approval, notice, request, or demand
from one party to another, that communication must be in writing (which may be
by telecopy) to be effective and is deemed to have been given (a) if by
telecopy, when transmitted to the appropriate telecopy number (and all
communications sent by telecopy must be confirmed promptly by telephone; but
any requirement in this parenthetical does not affect the date when the
telecopy is deemed to have been delivered), or (b) if by any other means,
including by internationally acceptable courier or hand delivery, when actually
delivered. Until changed by notice pursuant to this Escrow Agreement, the
address (and telecopy number) for QSR, Forseti and the Escrow Agent are:
If to Forseti: Forseti Investments Ltd.
▇-▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
West Indies
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With copies to: ▇▇▇▇▇ Fresenius ▇▇▇▇▇ Scherzberg,
attorneys
▇▇▇▇-▇▇▇▇▇▇▇-Strasse 37-39
60596 Frankfurt-Am-Main
Attn: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇) ▇▇▇▇▇▇▇▇▇▇
If to QSR: Queen Sand Resources, Inc.
▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇.▇.#▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With copies to: Queen Sand Resources, Inc.
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇▇ and ▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. Boeing, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
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149
If to JEDI: Joint Energy Development Investments
Limited Partnership
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇, Director - 28th
Floor
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
10. Miscellaneous.
(a) Governing Law; Choice of Forum; Consent to
Service of Process. This Escrow Agreement shall be governed by the
substantive laws of the State of Texas. The parties hereto agree that
any suit, action or proceeding arising out of or relating to this
Escrow Agreement or any agreement or obligation delivered in
connection with this Escrow Agreement or any judgment entered by any
court in respect thereof shall be brought in the Courts of the State
of Texas, County of Dallas or in the United States District Court for
the Northern District of Texas and each such party hereby submits to
the exclusive jurisdiction of such courts for the purpose of any such
suit, action or proceeding relating to this Escrow Agreement or any
related agreement or obligation. Forseti hereby submits to the
jurisdiction of the State of Texas and agrees that service of all
writs, process and summonses in any such suit, action or proceeding
brought against Forseti in the United States may be made upon CT
Corporation System at its offices located at ▇▇▇ ▇▇▇▇▇ ▇▇. ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ (or any subsequent address of CT
Corporation System), and Forseti hereby irrevocably appoints CT
Corporation System at its offices located at ▇▇▇ ▇▇▇▇▇ ▇▇. ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ (or any subsequent address of CT
Corporation System) its true and lawful attorney-in-fact in their
name, place and stead to accept such service of any and all such
writs, process and summonses, and agree that the failure of CT
Corporation System to give to Forseti any notice of any such service
of process shall not impair or affect the validity of such service or
of any judgment based thereon. QSR and the Escrow Agent shall send,
within 5 days after service of process under this Section 10(a),
notice to Forseti in accordance with Section 9 of any service of
process under this Section 10(a). Service of process on the Company
may be made to the Company's registered agent in Delaware, Corporation
Trust Centre, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ of
New Castle.
Each party hereto hereby irrevocably waives any objection that
it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Escrow
Agreement or any agreement or obligation delivered in connection with
this Escrow Agreement, brought in the Courts of the State of Texas,
County of Dallas or the United States District Court for the Northern
District of Texas, and hereby further irrevocably waives any claim
that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum.
(b) Invalid Provisions. If any provision of this
Escrow Agreement is held to be illegal, invalid or unenforceable, such
provision shall be fully severable.
(c) Entirety and Amendments. This Escrow
Agreement (along with the Forseti Agreement, the JEDI Purchase
Agreement, the Warrants, the Earn Up Agreement dated the date hereof
between QSR and Forseti, and the Earn Up Agreement dated the date
hereof between QSR and JEDI) embodies the entire
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150
agreement and understanding relating to the subject matter hereof,
supersedes all prior understandings between the parties relating to
the subject matter hereof, and may be amended only by an instrument in
writing executed by the QSR, Forseti, and the Escrow Agent.
(d) Parties Bound. This Escrow Agreement shall
be binding upon and inure to the benefit of QSR, Forseti, the Escrow
Agent, and their respective successors and permitted assigns. None of
QSR, Forseti, or the Escrow Agent may assign its rights or delegate
its obligations hereunder (whether voluntarily, involuntarily, or by
operation of law) without the prior written consent of the other
parties.
(e) Section and Other Headings. The headings
contained in this Escrow Agreement are for reference purposes only and
will not affect in any way the meaning or interpretation of this
Escrow Agreement.
(f) Counterparts. This Escrow Agreement may be
executed in two or more counterparts, each of which will be deemed an
original and all of which together will constitute one instrument.
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151
IN WITNESS WHEREOF, the parties hereto have caused this Escrow
Agreement to be duly executed as of the date first written.
[SEAL] QUEEN SAND RESOURCES, INC.,
a Delaware corporation
By:
----------------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
[with notary attached]
and
By:
----------------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
[with notary attached]
FORSETI INVESTMENTS LTD.,
a Barbados corporation
By:
----------------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
[with notary attached]
[ESCROW AGENT]
By:
----------------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
[with notary attached]
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152
EXHIBIT A
FORM OF NOTICE
[Escrow Agent]
----------------------
----------------------
Attn:
-----------------
Gentlemen and Ladies:
Reference is made to that certain Escrow Agreement dated as of
__________, 1997 among Queen Sand Resources, Inc., a Delaware corporation
("QSR"), Forseti Investments Ltd., a Barbados corporation ("Forseti") and
__________________, as Escrow Agent (the "Escrow Agreement"). In accordance
with Section 2 of the Escrow Agreement, you are hereby directed to deliver a
copy of this notice to JEDI and thereafter to deliver immediately (i) [insert
number of Warrants] from the Escrow Depository to ____________________ and (ii)
$__________________ to ____________________. Initially capitalized terms used
but not defined herein shall have the meanings ascribed to such terms in the
Escrow Agreement.
Very truly yours,
QUEEN SAND RESOURCES, INC.,
a Delaware corporation
By:
----------------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
FORSETI INVESTMENTS LTD.,
a Barbados corporation
By:
----------------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
cc: Joint Energy Development
Investments Limited Partnership
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153
EXHIBIT F
FORM OF STOCK POWER
(TO BE SIGNED ONLY UPON THE TRANSFER OF THE SHARES)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto Queen Sand Resources, Inc. 9,600,000 Shares of Common Stock,
par value $.0015 per share, of Queen Sand Resources, Inc. represented by
Certificate Nos. 515 through 610 inclusive and does hereby irrevocably
constitute and appoint ____________________ Attorney to transfer the said stock
on the books of Queen Sand Resources, Inc. with full power of substitution in
the premises.
Dated: FORSETI INVESTMENTS, LTD.
------------------
By:
-----------------------------------------------------------------------------
Name:
---------------------------------------------------------------------------
Title:
--------------------------------------------------------------------------
[signature guaranty]
[confirm acceptable to transfer agent]
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154
EXHIBIT G
FORM OF RELEASE
THIS RELEASE is entered into as of __________ _____, 1997 by Forseti
Investments Ltd., a Barbados corporation ("Forseti").
WHEREAS, Forseti owns 9,600,000 shares (the "Shares") of common stock,
par value $0.0015 per share, of Queen Sand Resources, Inc., a Delaware
corporation (the "Company"); and
WHEREAS, Forseti and the Company have entered into a Securities
Purchase Agreement dated __________ _____, 1997 (the "Securities Purchase
Agreement"), pursuant to which Forseti has agreed to sell to the Company the
Shares pursuant to the terms and conditions of the Securities Purchase
Agreement; and
WHEREAS, it is a condition to the Company's obligations under the
Securities Purchase Agreement that Forseti execute and deliver a release to the
Company.
NOW, THEREFORE, for and in consideration of the above premises and
other good and valuable consideration, the sufficiency of which is hereby
acknowledged, Forseti hereby agrees as follows:
1. Forseti does hereby unconditionally and
irrevocably compromise, settle, remise, acquit and fully and forever release
and discharge the Company and its officers, employees, agents, attorneys,
principals, directors and stockholders, and its and their respective heirs,
legal representatives, successors and assigns (collectively, the "Company
Released Parties") from any and all claims, demands, causes of action,
obligations, remedies, suits, damages and liabilities (collectively, the
"Forseti Claims") of any nature whatsoever, whether now known, suspected or
claimed, whether arising under common law, in equity or under statute, which
Forseti ever had, now has, or in the future may claim to have against the
Company Released Parties or which may have arisen at any time on or prior to
the date hereof and are in any manner related to the Shares (other than claims
that arise under the Securities Purchase Agreement, the Earn Up Agreement, the
Escrow Agreement or the Warrants).
2. Forseti covenants and agrees never to commence,
voluntarily aid in any way, prosecute or cause to be commenced or prosecuted
against the Company Released Parties any action or other proceeding based upon
any of the Forseti Claims which may have arisen at any time on or prior to the
date hereof and are in any manner related to the Shares (other than claims that
arise under the Securities Purchase Agreement, the Earn Up Agreement, the
Escrow Agreement or the Warrants).
3. Forseti hereby acknowledges that it understands and
agrees that the execution of this Release does not constitute in any manner
whatsoever an admission of liability on the part of the Company for any matters
covered by this Release, but that such liability is specifically denied.
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155
4. This Release shall be governed by and construed in
accordance with the laws of the State of Texas in all respects.
5. Forseti has full power and lawful authority to
execute and deliver this Release. The execution, delivery and performance by
Forseti of this Release have been duly and validly authorized by all necessary
action by Forseti. The Release has been duly executed and delivered by Forseti
and is a legal, valid and binding obligation of Forseti, enforceable against
Forseti in accordance with its respective terms, except to the extent that its
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally and except that the availability of equitable remedies, including
specific performance, is subject to the discretion of the court before which
any proceedings therefor may be brought.
6. Initially capitalized terms used not defined in this
Release have the meanings ascribed to such terms in the Securities Purchase
Agreement.
28
156
EXECUTED by the undersigned as of the date first above written.
FORSETI INVESTMENTS LTD.
By:
--------------------------------------
Name:
--------------------------------
Title:
-------------------------------
[with notary attached]
29
157
EXHIBIT H
FORM OF LEGAL OPINION
[Note: We would deliver Accord opinion.]
Based upon the foregoing and subject to the limitations and
qualifications in this opinion letter, we are of the opinion that:
1. The Company is a corporation incorporated, validly
existing, and in good standing under the laws of the State of Delaware. Each
of the Company's Subsidiaries is a corporation incorporated, validly existing
and in good standing under the laws of the state of its incorporation.
2. The Company is qualified to do business as a foreign
corporation and is in good standing in the States of _________________, which
are the only jurisdictions in which the Company has certified to us that it is
required to be so qualified (other than any jurisdiction with respect to which
the failure to be so qualified would not have a material adverse effect on the
assets, liabilities, financial condition, operations or prospects of the
Company and its subsidiaries taken as a whole). [duplicate for Subsidiaries]
[Note: Will be based solely on state good standing certificates.]
3. Each of the Company and each of the Company's
Subsidiaries has the corporate power and authority to own its properties and to
conduct its business as currently conducted.
4. The Warrants have been duly authorized and validly
issued and are fully paid and nonassessable and, to our Actual Knowledge, the
Warrants has not been issued in violation of preemptive rights of the Company's
stockholders. The Warrant Shares have been duly authorized and reserved for
issuance upon exercise of the Warrants, and upon such exercise in accordance
with the Warrants, respectively, will be validly issued, fully paid,
nonassessable and to our Actual Knowledge, free of preemptive rights.
5. The Company has all corporate power and authority (i)
to execute, deliver and perform its obligations under the Forseti Purchase
Agreement, the Earn Up Agreement, the Escrow Agreement and the Warrants, (ii)
to issue the Warrants in the manner contemplated by the Forseti Purchase
Agreement, and (iii) to issue the Warrant Shares in the manner contemplated by
the Warrants.
6. The Securities Purchase Agreement, the Earn Up
Agreement, the Escrow Agreement and the Warrants have been duly executed and
delivered by the Company and constitute legal, valid, and binding obligations
of the Company enforceable against it in accordance with their respective
terms.
7. [Regulation S opinion to come.]
30