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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED):
MAY 6, 1997
QUEEN SAND RESOURCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
STATE OF DELAWARE 0-21179 75-2615565
(STATE OF INCORPORATION) (COMMISSION FILE NO.) (IRS EMPLOYER IDENTIFICATION NO.)
3500 OAK LAWN
SUITE 380, LB #31
DALLAS, TEXAS 75219-4398
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (214) 521-9959
NO CHANGE
(FORMER NAME OR FORMER ADDRESS, IF CHANGE SINCE LAST REPORT)
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ITEM 5. OTHER EVENTS.
ITEM 9. SALES OF EQUITY SECURITIES PURSUANT TO REGULATION S.
THE TRANSACTIONS
General. On May 6, 1997, the transactions contemplated under (i) the
Securities Purchase Agreement, dated March 27, 1997 (the "JEDI Purchase
Agreement") between Queen Sand Resources, Inc., a Delaware corporation (the
"Company"), and Joint Energy Development Investments Limited Partnership, a
Delaware limited partnership ("JEDI") and an affiliate of Enron Finance Corp.,
a Delaware corporation ("EFC"), and (ii) the Securities Purchase Agreement,
dated March 27, 1997 (the "Forseti Purchase Agreement") between the Company and
Forseti Investments Ltd., a company organized under the laws of Barbados
("Forseti") (the two transactions are herein referred to as the
"Transactions"), were consummated. The execution and delivery of the JEDI
Purchase Agreement and the Forseti Purchase Agreement were previously reported
in the Company's Current Report on Form 8-K, dated March 27, 1997.
Pursuant to the Transactions, (i) JEDI has become a significant
stockholder of the Company and (ii) the Company issued the Class A Warrants,
the Class B Warrants, and an option under the Forseti Earn Up Agreement (each,
as defined below) to Forseti in reliance upon Regulation S under the Securities
Act of 1933, as amended. See "JEDI Transaction Agreements" and "Forseti
Transaction Agreements."
To facilitate the consummation of the Transactions, on May 5, 1997,
the Company amended its Certificate of Incorporation to increase the number of
authorized shares of the Company's common stock, par value $0.0015 per share
(the "Common Stock"), from 40,000,000 to 100,000,000 shares and to authorize
the issuance of up to 50,000,000 shares of preferred stock, par value $0.01 per
share (the "Preferred Stock"), which shares of Preferred Stock may be issued in
one or more series at the discretion of the Board of Directors of the Company.
See "The Transactions -- The Charter Amendment." The amendment to the
Certificate of Incorporation of the Company (the "Charter Amendment") was
approved by Forseti and EIBOC Investments Ltd., a company organized under the
laws of Barbados ("EIBOC"), as the collective holders of approximately 54% of
the Company's Common Stock, by written consent in lieu of a meeting of
stockholders dated March 27, 1997 and effective May 5, 1997 and was approved
unanimously by the Board of Directors.
JEDI Transaction. JEDI has determined to make a substantial
investment in the Company, on the terms described herein, to provide the
Company with the capital to repurchase the Common Stock owned by Forseti.
Pursuant to the JEDI Purchase Agreement, on May 6, 1997, JEDI acquired
9,600,000 shares of Series A Participating Convertible Preferred Stock, par
value $0.01 per share, of the Company (the "Series A Preferred Stock"), certain
warrants to purchase Common Stock (the "JEDI Warrants") and warrants to
purchase 409,839 shares of Common Stock (the "Robertson Warrants"). The
Robertson Warrants were granted to JEDI as a form of maintenance right on the
part of JEDI to acquire Common Stock in the future and maintain JEDI's
proportionate ownership in the Company in relation to shares of Common Stock
issued in late February and late March 1997 to fund the Robertson acquisition.
See "JEDI Transaction Agreements -- Maintenance Rights" the Company's Current
Reports on Form 8-K dated February 20, 1997 and March 26, 1997 for a more
complete description of the
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Robertson acquisition. The aggregate consideration (excluding the exercise
price in respect of the JEDI Warrants and the Robertson Warrants) cannot exceed
$14,400,000 and consisted of (i) $5,000,000 ($0.521 per share) cash at closing
of the JEDI Purchase Agreement plus (ii) contingent cash payment obligations
(up to an aggregate of $9,400,000) to the Company under the JEDI Earn Up
Agreement, as defined and described below. All of the $5,000,000 cash
consideration was used, and all of the contingent consideration will be used,
by the Company to fund the Forseti transaction agreements. See "Forseti
Transaction Agreements." Based upon (i) a total of 20,625,502 shares of Common
Stock issued and outstanding immediately following the closing of the
Transactions on May 6, 1997, and (ii) 409,839 shares of Common Stock issuable
upon exercise of the Robertson Warrants, JEDI owns approximately 32.7% of the
voting capital stock of the Company.
In connection with the purchase by JEDI of the Series A Preferred
Stock, the JEDI Warrants and the Robertson Warrants, the Company has granted
JEDI certain maintenance rights and certain demand and piggyback registration
rights with respect to the shares of Common Stock issuable upon conversion of
the Series A Preferred Stock and the shares of Common Stock issuable upon
exercise of the JEDI Warrants and the Robertson Warrants. As a holder of
Series A Preferred Stock, JEDI may designate a number of directors to the
Company's Board of Directors, such that the percentage of the number of
directors that JEDI may designate approximates the percentage voting power JEDI
has with respect to the Company's Common Stock. In addition, upon certain
events of default (as defined in the Series A Certificate of Designation
described below), JEDI will have the right to elect a majority of the directors
of the Company and a put option to sell the Series A Preferred Stock to the
Company. See "JEDI Transaction Agreements."
Forseti Transaction. Pursuant to the Forseti Purchase Agreement, on
May 6, 1997, the Company repurchased 9,600,000 shares of Common Stock owned by
Forseti in exchange for (i) $5,000,000 ($0.521 per share) cash, (ii) the
issuance by the Company of Class A Common Stock Purchase Warrants to purchase
1,000,000 shares of Common Stock at an initial exercise price of $2.50 per
share (the "Class A Warrants") and Class B Common Stock Purchase Warrants to
purchase 2,000,000 shares of Common Stock at an initial exercise price of $2.50
per share (the "Class B Warrants," and together with the Class A Warrants, the
"Forseti Warrants"), and (iii) contingent obligations (up to an aggregate of
$9,400,000) to Forseti under the Forseti Earn Up Agreement, as described below.
However, pursuant to the terms of the Forseti Earn Up Agreement, Forseti can
not both sell or exercise the Forseti Warrants and receive full payment under
the Forseti Earn Up Agreement. Instead, Forseti has the option of either
selling or exercising the Forseti Warrants or receiving any payments due under
the Forseti Earn Up Agreement. The aggregate consideration paid or payable by
the Company to Forseti in respect of the repurchase of the Common Stock owned
by Forseti can not exceed $14,400,000. This consideration will be funded only
through the JEDI Purchase Agreement and the JEDI Earn Up Agreement. In
addition, Forseti reimbursed the Company $450,000 for fees and expenses
incurred by the Company in facilitating the Transactions. See "Forseti
Transaction Agreements."
The Charter Amendment. Effective May 5, 1997, the Certificate of
Incorporation of the Company was amended to authorize a class of preferred
stock and to authorize additional shares of Common Stock. The Charter
Amendment was approved by Forseti and EIBOC, as the collective holders of
approximately 54% of the Common Stock outstanding on March 27, 1997, by written
consent in lieu of a meeting of stockholders dated March 27, 1997 and effective
May 5, 1997, as described more particularly in an Information Statement dated
April 15, 1997 and previously disseminated to the stockholders of the Company.
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The Charter Amendment (i) authorizes the issuance of an aggregate of
50,000,000 shares of Preferred Stock, of which, following the closing of the
JEDI Purchase Agreement, 9,600,000 shares are issued and outstanding shares of
Series A Preferred Stock, 9,600,000 shares are authorized but unissued shares
of Series B Participating Convertible Preferred Stock, par value $0.01 per
share (the "Series B Preferred Stock"), and 30,800,000 shares are undesignated
preferred stock (the "Undesignated Preferred Stock") available for issuance by
the Company in the future and (ii) authorizes an additional 60,000,000 shares
of Common Stock (in addition to the 40,000,000 shares previously authorized
under the Certificate of Incorporation). See "JEDI Transaction Agreements --
Description of Series A Preferred Stock and Description of Series B Preferred
Stock." As of May 6, 1997, there were an aggregate of 9,600,000 shares held in
treasury and 69,774,498 shares of authorized and unissued shares of Common
Stock. Any authorized but unissued or unreserved Common Stock and Undesignated
Preferred Stock is available for issuance at any time, on such terms and for
such purposes as the Board of Directors may deem advisable in the future
without further action by stockholders of the Company, except as may be
required by law or the Series A Certificate of Designation. The Board of
Directors of the Company will have the authority to fix the rights, powers,
designations, and preferences of the Undesignated Preferred Stock and to
provide for one or more series of Undesignated Preferred Stock. The authority
will include, but not be limited to, determination of the number of shares to
be included in the series, dividend rates and rights, voting rights, if any,
conversion privileges and terms, redemption conditions, redemption values,
sinking funds and rights upon involuntary or voluntary liquidation. Except as
described herein, the Company currently has no plans to issue shares of
Undesignated Preferred Stock.
Effective May 5, 1997, the Company has filed with the Secretary of
State of the State of Delaware a Certificate of Designation to establish the
rights, powers, designations and preferences of the Series A Preferred Stock
(the "Series A Certificate of Designation"). In addition, effective May 5,
1997, the Company has filed a Certificate of Designation to establish the
rights, powers, designations and preferences of the Series B Preferred Stock
(the "Series B Certificate of Designation").
JEDI TRANSACTION AGREEMENTS
Description of the JEDI Purchase Agreement. The following summary of
the material provisions of the JEDI Purchase Agreement is not intended to be
complete and is subject to, and qualified in its entirety by reference to, all
of the provisions of such agreement, a copy of which is filed as an exhibit to
the Company's Current Report on Form 8-K dated March 27, 1997.
Purchase of Series A Preferred Stock, JEDI Warrants and
Robertson Warrants. Pursuant to the JEDI Purchase Agreement, JEDI purchased
9,600,000 shares of Series A Preferred Stock, the JEDI Warrants and the
Robertson Warrants in exchange for (i) the payment by JEDI to the Company of
$5,000,000 cash; and (ii) the execution and delivery by JEDI of the JEDI Earn
Up Agreement. See "JEDI Transaction Agreements -- Description of the Series A
Preferred Stock, Description of the JEDI Warrants, Description of the Robertson
Warrants and Description of the JEDI Earn Up Agreement."
Certain Representations and Warranties. Under the JEDI
Purchase Agreement, the Company has made certain representations and warranties
to JEDI regarding the Company and its business, including (i) due corporate
organization of the Company and its subsidiaries; (ii) the due authorization
and issuance of the Series A Preferred Stock, the JEDI
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Warrants and the Robertson Warrants and the shares of Common Stock issuable
upon conversion of the Series A Preferred Stock and the exercise of the JEDI
Warrants and the Robertson Warrants; (iii) the due authorization, execution,
delivery and performance by the Company of the JEDI Purchase Agreement and
related agreements and their enforceability; (iv) no conflict with or violation
of the Company's Certificate of Incorporation or bylaws, any of the Company's
agreements and applicable law; (v) required consents from governmental
authorities or other third parties; (vi) the capital structure of the Company
and its subsidiaries; (vii) employee benefit matters; (viii) the accuracy of
reports and other documents filed by the Company with the Securities and
Exchange Commission ("SEC"); (ix) the absence of certain changes to the
Company's or its subsidiaries' business, financial condition, properties,
liabilities, assets, results of operations or future business prospects; (x)
compliance with laws; (xi) disclosure of pending and threatened litigation;
(xii) payment of taxes; (xiii) environmental matters; (xiv) adequacy of
insurance; (xv) title to assets; (xvi) accuracy of books and records; (xvii)
certain regulatory matters; (xviii) accuracy of financial statements and
certain reserve reports; (xix) adequacy of permits and licenses; (xx) title to
intellectual property; (xxi) title to properties; (xxii) no undisclosed
interested director transaction; (xxiii) no payments owed to brokers and
finders; and (xxiv) no material misstatements in any disclosures to JEDI.
Under the JEDI Purchase Agreement, JEDI has made certain
representations and warranties to the Company, including (i) due organization;
(ii) the due authorization, execution, delivery and performance by JEDI of the
JEDI Purchase Agreement and related agreements and their enforceability; (v) no
conflict with or violation of the JEDI's organizational documents, any of
JEDI's agreements and applicable law; (vi) required consents from governmental
authorities or other third parties; (vii) pending and threatened litigation;
and (viii) certain investment representations.
Covenants. Pursuant to the JEDI Purchase Agreement, the
Company has covenanted to: (i) use the entire cash proceeds received under the
JEDI Purchase Agreement to repurchase the Common Stock owned by Forseti under
the Forseti Purchase Agreement; (ii) maintain its corporate existence and cause
its subsidiaries to maintain their corporate existence; (iii) comply with
applicable laws and cause its subsidiaries to do the same; (iv) maintain its
properties and cause its subsidiaries to maintain their properties; (v) not
materially change its accounting methods or permit its subsidiaries to change
their accounting methods; (vi) allow JEDI the right to have notice of, and
attendees at, the Company's Board of Directors' meetings; (vii) furnish to JEDI
certain reports and accounts furnished to the Company's Board of Directors;
(viii) effect the placement of Common Stock with net proceeds to the Company of
at least $5,400,000 commencing March 15, 1997 through December 31, 1997; (ix)
deliver an officer's certificate to JEDI annually regarding compliance with the
covenants; (x) provide JEDI with certain financial statements and reserve
reports; (xi) use its best efforts to cause the Common Stock to be listed on
THE NASDAQ Small Cap Market; (xii) use reasonable commercial efforts to cause
the Common Stock, including the Common Stock issuable upon conversion of the
Series A Preferred Stock and upon exercise of the JEDI Warrants and the
Robertson Warrants, to be listed on THE NASDAQ National Market no later than
March 15, 2003; (xiii) approve customary stock option and other benefit plans;
(xiv) no later than June 30, 1997, enter into an employment agreement with V.
Ed Butler or a person with comparable qualifications reasonably acceptable to
JEDI; (xv) not to amend the Forseti Purchase Agreement or related documents
without the prior written consent of JEDI; and (xvi) use its best efforts to
obtain the consent of Comerica Bank-Texas to the transactions contemplated by
the agreement.
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In addition, the Company has covenanted not, and not permit any of its
subsidiaries, to engage in asset sales not in the ordinary course of business
unless the asset sale is for not less than the fair market value of the assets
sold and the consideration received by the Company or its subsidiary is at
least 85% cash; provided, that the following are deemed to be cash for purposes
of the covenant: (i) the amount of liabilities of the Company or a subsidiary
assumed by the transferee; (ii) the amount of any notes or other obligations
received by the Company or a subsidiary from such transferee converted into
cash within 90 days of the closing of the sale and (iii) the fair market value
of certain oil and gas properties and permitted business investments received
by the Company or its subsidiaries from such transferee. Further, if the
Company engages in an asset sale that is not in the ordinary course of
business, then the Company shall repay indebtedness, if required, and if not so
required, then within 60 days after the receipt of proceeds from such sale, the
Company may apply the proceeds to reduce indebtedness, acquire a controlling
interest in another oil and gas business or permitted business investment, make
certain capital expenditures, purchase assets useful to the oil and gas
business or retain cash for working capital.
The Company has covenanted not, and not permit any of its
subsidiaries, to directly or indirectly enter into any transaction or series of
related transactions involving aggregate consideration equal to or greater than
$60,000 with any affiliate of the Company unless (i) the terms of the
transaction are no less favorable to the Company than those that could have
been obtained in a transaction with an unaffiliated party or an arms-length
basis and (ii) the transaction is approved by a majority of disinterested
directors of the Company; provided, that this covenant will not apply to
customary compensation to officers, directors, and employees in the ordinary
course of business, intercompany transactions, dividend payments, or the
transactions contemplated by the Letter Agreement. See "JEDI Transaction
Agreements -- Description of the Letter Agreement."
The Company has also covenanted to comply with substantially all of
the provisions of Rule 4460 of the National Association of Securities Dealers,
Inc.'s Bylaws. Pursuant to this covenant, the Company is required to (i)
distribute to its stockholders annual reports containing audited financial
statements and quarterly reports containing statements of operating results,
(ii) maintain a minimum of two independent directors of the Company's Board of
Directors, (iii) maintain an audit committee, a majority of the members of
which are independent directors, (iv) hold an annual meeting of stockholders,
(v) solicit proxies and provide proxy statements for all meetings of
stockholders, (vi) conduct an appropriate review of related party transactions
on an ongoing basis, (vii) require stockholder approval prior to the adoption
of certain stock option plans and prior to the issuance of designated
securities that will result in a change of control of the Company or certain
other issuances in connection with the acquisition of the stock or assets of
another company or in connection with a transaction other than a public
offering involving a significant amount of the Company's securities and (viii)
not take any action that will have the effect of nullifying, restricting or
disparately reducing the voting rights of the holders of the Company's Common
Stock; provided, that the Company is not required to appoint two outside
directors to the Company's Board of Directors until June 30, 1997 and is not
required to establish an Audit Committee until June 30, 1997.
Maintenance Rights. Pursuant to the JEDI Purchase Agreement,
the Company has granted JEDI the right to purchase its proportionate share of
capital stock of the Company at the same price and on the same terms as the
capital stock to be sold by the Company. From the date of the JEDI Purchase
Agreement until December 31, 1998, if JEDI is entitled to exercise its
maintenance rights, the Company shall issue to JEDI a warrant for
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the purchase of the capital stock that JEDI is entitled, but does not elect, to
purchase (a "Maintenance Warrant"). The exercise price of the Maintenance
Warrant will be the value of the capital stock as of the date of the issuance
of the Maintenance Warrant, and any Maintenance Warrant will be exercisable for
a period of one year. JEDI will not have maintenance rights with respect to
capital stock issued by the Company (i) pursuant to certain employee and
director stock plans; (ii) in connection with a stock split or dividend on the
Common Stock to all holders of Common Stock or (iii) pursuant to an offering
pursuant to a registration statement filed with, and declared effective by, the
Securities and Exchange Commission (the "SEC"). Subject to certain exceptions,
JEDI will not have maintenance rights with respect to the issuance of any
rights, warrants or options to purchase shares of the Company's capital stock
or other securities convertible into or exercisable or exchangeable for shares
of the Company's capital stock but will have maintenance rights if and when
capital stock is issued upon the conversion, exercise or exchange of such
securities. JEDI's maintenance rights will terminate upon the earlier to occur
of: (i) the date on which JEDI and its affiliates beneficially own less than
10 percent of the voting power of the outstanding voting capital stock of the
Company; (ii) the date on which the Company completes an underwritten public
offering of Common Stock that generates net proceeds to the Company of at least
$25,000,000; and (iii) the date on which all shares of Series A Preferred Stock
have been converted to Common Stock or otherwise are no longer outstanding.
Indemnification. The JEDI Purchase Agreement provides that
the Company will indemnify, defend and hold harmless JEDI to the fullest extent
lawful from and against all losses, expenses, damages, deficiencies,
liabilities, payments, penalties, litigation, demands, defenses, judgments,
proceedings, costs, obligations, settlement costs, and attorneys', accountants'
and other professional advisors' fees (including costs of investigation or
preparation) ("Losses") arising out of or resulting from the breach of any
representation, warranty, convent or agreement of the Company contained in the
JEDI Purchase Agreement.
The JEDI Purchase Agreement provides that JEDI will indemnify,
defend and hold harmless the Company to the fullest extent lawful from and
against all Losses arising out of or resulting from the breach of any
representation, warranty, covenant, obligation or agreement of JEDI contained
in the JEDI Purchase Agreement.
Dispute Resolution. The JEDI Purchase Agreement provides that
all disputes shall be submitted to non-binding mediation upon the request of
the Company or JEDI. If the non-binding mediation does not resolve the
disputes in question within 30 days after appointment of a mediator, the
dispute shall be resolved by arbitration governed by the Commercial Arbitration
Rules of the American Arbitration Association.
Expenses. The Company paid its own expenses of approximately
$317,662 and the out-of-pocket third party expenses reasonably incurred by
JEDI of approximately $156,512 in connection with the transactions
contemplated by the JEDI Purchase Agreement. The Company was reimbursed by
Forseti for $450,000 expenses paid by the Company in connection with the
Transaction.
Description of Series A Preferred Stock. The Series A Certificate of
Designation authorizes the issuance of up to 9,600,000 shares of Series A
Preferred Stock. The following description of the rights, preferences and
limitations of the Series A Preferred Stock is a summary only and is qualified
in its entirety by reference to the entire text of the Series A Certificate of
Designation which is an exhibit to the JEDI Purchase Agreement.
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Voting. The holders of shares of Series A Preferred Stock are
generally entitled to vote (on an as-converted basis) as a single class with
the holders of the Common Stock, together with all other classes and series of
stock of the Company that are entitled to vote as a single class with the
Common Stock, on all matters coming before the Company's stockholders. In any
vote with respect to which the Series A Preferred Stock shall vote with the
holders of Common Stock as a single class, each share of Series A Preferred
Stock shall entitle the holder thereof to cast the number of votes equal to the
number which could be cast in such vote by a holder of the number of shares of
Common Stock into which such shares of Series A Preferred Stock is convertible
on the date of such vote.
With respect to any matter for which class voting is required by law
or the Company's Certificate of Incorporation, except as otherwise described
herein, the holders of the Series A Preferred Stock will vote as a class and
each holder shall be entitled to one vote for each share held.
For so long as 960,000 shares of Series A Preferred Stock are
outstanding, the following matters will require the approval of the holders of
shares of Series A Preferred Stock, voting together as a separate class:
(i) the amendment of any provision of the Company's
Certificate of Incorporation or the bylaws;
(ii) the creation, authorization or issuance, or the
increase in the authorized amount of, any class or series of shares
ranking on a parity with or prior to the Series A Preferred Stock
either as to dividends or upon liquidation, dissolution or winding up;
(iii) the merger or consolidation of the Company with or
into any other corporation or other entity or the sale of all or
substantially all of the Company's assets; or
(iv) the reorganization, recapitalization, or
restructuring or similar transaction that requires the approval of the
stockholders of the Company.
Election of Directors. The holders of shares of Series A
Preferred Stock have the right, acting separately as a class, to elect a number
of members to the Company's Board of Directors. The number shall be a number
such that the quotient obtained by dividing such number by the maximum
authorized number of directors is as close as possible to being equal to the
percentage of the outstanding voting power of the Company entitled to vote
generally in the election of directors represented by the outstanding shares of
Series A Preferred Stock at the relevant time. As of the date hereof, JEDI has
not elected to exercise its right to elect directors to the Company's Board of
Directors.
Conversion. A holder of shares of Series A Preferred Stock
has the right, at the holder's option, to convert all or a portion of its
shares into shares of Common Stock at any time at an initial rate of one share
of Series A Preferred Stock for one share of Common Stock.
The Series A Certificate of Designation provides for customary
adjustments to the number of shares issuable upon conversion in the event of
certain dividends and distributions
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to holders of Common Stock, certain reclassifications of the Common Stock,
stock splits, and combinations and mergers and similar transactions.
Immediately following such conversion, the rights of the holders of
Series A Preferred Stock shall cease and the persons entitled to receive Common
Stock upon the conversion of Series A Preferred Stock shall be treated as the
owners of such Common Stock. The Company is required to maintain a reserve of
authorized but unissued shares of Common Stock to permit the conversion of the
Series A Preferred Stock in full.
Concurrently with the transfer of any shares of Series A Preferred
Stock to any person (other than a direct or indirect affiliate of JEDI or other
entity managed by Enron Corp. or any of its affiliates), the shares of Series A
Preferred Stock so transferred will automatically convert into a like number of
shares of Series B Preferred Stock. See "JEDI Transaction Agreements --
Description of Series B Preferred Stock."
Dividends. The holders of the shares of Series A Preferred
Stock are entitled to receive dividends, when, and as if declared by the Board
of Directors, out of funds legally available therefor, any dividend (other than
a dividend or distribution paid in shares of, or warrants, rights or options
exercisable for or convertible into or exchangeable for, Common Stock) payable
on the Common Stock, as and when paid, in an amount equal to the amount each
such holder would have received if such holder's shares of Series A Preferred
Stock had been converted into Common Stock immediately prior to the record
date, or if there is no record date, the date of payment thereof. The holders
of Series A Preferred Stock will also have the right to certain dividends upon
and during the continuance of an event of default. See "JEDI Transaction
Agreements -- Description of Series A Preferred Stock -- Events of Default;
Remedies."
Liquidation. Upon the liquidation, dissolution or winding up
of the Company, the holders of the shares of Series A Preferred Stock, before
any distribution to the holders of Common Stock, will be entitled to receive
(i) an amount per share equal to the lesser of (A) $1.50 and (B) the sum of (x)
$0.521 and (v) the quotient obtained by dividing (1) the aggregate amount of
all payments made, as of the date of the liquidation, dissolution or winding
up, to the Company by JEDI pursuant to the JEDI Earn Up Agreement by (2)
9,600,000, plus (ii) all accrued and unpaid dividends thereon ("Liquidation
Preference"). The holders of the shares of Series A Preferred Stock will not
be entitled to participate further in the distribution of the assets of the
Company.
Events of Default; Remedies. The Series A Certificate of
Designation provides that an Event of Default will be deemed to have occurred
if the Company fails to comply with any of its covenants in the JEDI Purchase
Agreement; provided, that the Company will have a 30-day cure period with
respect to the non-compliance with certain covenants. See "JEDI Transaction
Agreements -- Description of JEDI Purchase Agreement -- Covenants." JEDI may
waive any Event of Default.
Upon the occurrence but only during the continuance of an Event of
Default, the holders of Series A Preferred Stock will be entitled to receive,
in addition to other dividends payable to holders of Series A Preferred Stock,
when, as, and if declared by the Board of Directors, out of funds legally
available therefor, cumulative preferential cash dividends accruing from the
date of the Event of Default in an amount per share per annum equal to 6% of
the Liquidation Preference in effect at the time of accrual of such dividends,
payable quarterly in arrears on or before the 15th day after the last day of
each calendar quarter
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during which such dividends are payable. Unless full cumulative dividends
accrued on shares of Series A Preferred Stock have been or contemporaneously
are declared and paid, no dividend may be declared or paid or set aside for
payment on the Common Stock or any other junior securities (other than a
dividend or distribution paid in shares of, or warrants, rights or options
exercisable for or convertible into or exchangeable for, Common Stock or any
other junior securities), nor shall any Common Stock nor any other junior
securities be redeemed, purchased or otherwise acquired for any consideration
nor may any monies be paid to or made available for a sinking fund for the
redemption of any shares of any such securities.
Upon the occurrence and during the continuance of an Event of Default
resulting from the failure to comply with certain covenants, the holders of
shares of Series A Preferred Stock will have the right, acting separately as a
class, to elect a number of persons to the Board of Directors of the Company,
that along with any members of the Board of Directors who are serving at the
time of such action, will constitute a majority of the Board of Directors.
Upon the occurrence of an Event of Default resulting from the failure
to comply with certain covenants, each holder of shares of Series A Preferred
Stock will have the right, by written notice to the Company, to require the
Company to repurchase, out of funds legally available therefor, such holder's
shares of Series A Preferred Stock for an amount in cash equal to the
Liquidation Preference in effect at the time of the Event of Default.
Description of Series B Preferred Stock. The Series B Certificate
of Designation authorizes the issuance of up to 9,600,000 shares of Series B
Preferred Stock. The following description of the rights, preferences and
limitations of the Series B Preferred Stock is a summary only and is qualified
in its entirety by reference to the entire text of the Series B Certificate of
Designation which is an exhibit to the JEDI Purchase Agreement. The terms of
the Series B Preferred Stock are substantially similar to those of the Series A
Preferred Stock except that the holders of Series B Preferred Stock will not
(i) have class voting rights except as required under Delaware corporate law,
(ii) be entitled to any remedies upon an event of default or (iii) be entitled
to elect any directors of the Company, voting separately as a class.
Description of the JEDI Warrants. Pursuant to the JEDI Purchase
Agreement, on May 6, 1997, the Company issued the JEDI Warrants for the
purchase of Common Stock of the Company. The JEDI Warrants are exercisable
commencing on October 1, 1998 and ending on December 31, 1998. At the time of
exercisability, the JEDI Warrants will be exercisable for the number of shares
of Common Stock (or amount of other property) equal to the number of shares of
Common Stock (or amount of other property), as adjusted from time to time
pursuant to the JEDI Warrants, which would have been received upon the exercise
on the Election Date (as defined in the Forseti Earn Up Agreement) of the
Forseti Warrants that are deliverable by Forseti to the Company pursuant to the
Forseti Earn Up Agreement. The JEDI Warrants may be exercised in full or in
part by means of payment of the exercise price (initially $2.50 per share of
Common Stock in cash). The JEDI Warrants provide for customary adjustments to
the exercise price and number of shares to be issued in the event of certain
dividends and distributions to holders of Common Stock, stock splits,
combinations and mergers. The JEDI Warrants also include customary provisions
with respect to, among other things, reservation of shares of Common Stock for
issuance upon exercise of the JEDI Warrants, mutilated or lost warrant
certificates, and notices to holder(s) of the JEDI Warrants.
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Description of the Robertson Warrants. Pursuant to the JEDI Purchase
Agreement, on May 6, 1997, the Company issued the Robertson Warrants for the
purchase of 409,839 shares of Common Stock. The Robertson Warrants are
exercisable for a period of one year, commencing on the date of issuance. The
Robertson Warrants may be exercised in full or in part by means of payment of
the exercise price (initially $1.85 per share of Common Stock in cash). The
Robertson Warrants provide for customary adjustments to the exercise price and
number of shares to be issued in the event of certain dividends and
distributions to holders of Common Stock, stock splits, combinations and
mergers. The Robertson Warrants also include customary provisions with respect
to, among other things, reservation of shares of Common Stock for issuance upon
exercise of the Robertson Warrants, mutilated or lost warrant certificates, and
notices to holder(s) of the Robertson Warrants.
Description of the Stockholders Agreement. Pursuant to the JEDI
Purchase Agreement, on May 6, 1997, EIBOC, Bruce I. Benn, Ronald I. Benn,
Edward J. Munden, Robert P. Lindsay and JEDI entered into the Stockholders
Agreement. Bruce I. Benn and Edward J. Munden are directors and officers of
the Company and have a material beneficial interest in the shares of EIBOC.
Robert P. Lindsay is a director and officer of the Company. Ronald I. Benn is
an officer of the Company and has a material beneficial interest in the shares
of EIBOC. Pursuant to the Stockholders Agreement, each of EIBOC, Bruce I.
Benn, Ronald I. Benn, Edward J. Munden and Robert P. Lindsay agreed to certain
restrictions on the transfer of shares of the 6,600,000 shares of Common Stock
held by EIBOC, and JEDI agreed to certain restrictions on the transfer of
shares of Common Stock or securities convertible into or exercisable or
exchangeable for shares of Common Stock (including the Series A Preferred
Stock, the JEDI Warrants and the Robertson Warrants) held by JEDI.
Pursuant to the Stockholders Agreement, each of EIBOC and Bruce I.
Benn, Ronald I. Benn, Edward J. Munden and Robert P. Lindsay (collectively, the
"Management Stockholders") covenanted not to transfer, nor to authorize
transfer of, any of the 6,600,000 shares of Common Stock in which they have or
may acquire a beneficial interest except by will or the laws of descent and
distribution or otherwise by operation of law or judicial decree or as
permitted by the Stockholders Agreement.
The Stockholders Agreement permits EIBOC and the Management
Stockholders to make the following transfers of shares of Common Stock after
October 1, 1997: (i) EIBOC and the Management Stockholders in the aggregate
may transfer shares of Common Stock provided that the number of shares of
Common Stock to be transferred together with all shares of Common Stock
transferred by EIBOC and the Management Stockholders during the preceding 12
months does not exceed the lesser of (x) four percent of the outstanding shares
of Common Stock, (y) four times the average weekly reported volume of trading,
excluding any trades made by EIBOC or a Management Stockholder on all national
securities exchanges and/or reported through the automated quotation system of
a registered securities association during the four calendar weeks preceding
the date of transfer or (z) four times the average weekly volume of trading,
excluding any trades made by EIBOC or a Management Stockholder, in Common Stock
reported through the consolidated transaction reporting system, contemplated by
Rule 11Aa3-1 under the Securities Exchange Act of 1934, as amended, during the
four week period specified in clause (y); and (ii) EIBOC and the Management
Stockholders may transfer shares of Common Stock in a registered underwritten
public offering of Common Stock; provided, that neither EIBOC nor any
Management Stockholder may transfer shares of Common Stock if after the
transfer EIBOC and the Management Stockholders would beneficially own less than
4,950,000 shares of Common Stock in the aggregate, subject to certain
adjustments for stock splits, combinations,
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and stock dividends. In addition, the Stockholders Agreement permits EIBOC and
the Management Stockholders to transfer Common Stock to certain family members
and related entities and to make certain transfers of Common Stock upon the
death or disability of a Management Stockholder.
Pursuant to the Stockholders Agreement, JEDI agreed that until the
second anniversary of the date of the Stockholders Agreement, and except
pursuant to its registration rights under the Registration Rights Agreement,
JEDI will not transfer any shares of Common Stock or securities convertible
into or exercisable or exchangeable for shares of Common Stock (a "Common Stock
Equivalent") to any person that is not an affiliate of JEDI except in blocks of
at least 600,000 shares of Common Stock or blocks of Common Stock Equivalents
that are convertible into or exchangeable or exercisable for at least 600,000
shares of Common Stock.
Pursuant to the Stockholders Agreement, JEDI agreed that until the
second anniversary of the date of the Stockholders Agreement and except
pursuant to its registration rights under the Registration Rights Agreement,
JEDI will not transfer any shares of Common Stock or Common Stock Equivalents
to a person that is not an affiliate of JEDI without first giving the Company
and the Management Stockholders a right of first refusal to purchase the shares
of Common Stock or Common Stock Equivalents at the proposed sale price.
Pursuant to the right of first refusal, the Company will have the first right,
which must be exercised within 30 days after receipt of notice of the proposed
transfer, to purchase the shares of Common Stock or Common Stock Equivalents to
be transferred. If the Company does not elect to acquire the shares of Common
Stock or Common Stock Equivalents to be transferred, the Management
Stockholders (if the Management Stockholders own in the aggregate more than 10%
of the voting power of the Company's capital stock) will have the right to
purchase such securities if the Management Stockholders notify JEDI of such
election within 30 days after the Company's receipt of notice of the proposed
transfer.
Pursuant to the Stockholders Agreement, EIBOC and the Management
Stockholders made certain representations and warranties to JEDI, and EIBOC
covenanted not to issue any capital stock, permit its capital stock to be
transferred or enter into any agreement relating to the issuance of its capital
stock or engage in any business or activity other than the ownership of
6,600,000 shares of Common Stock.
Pursuant to the Stockholders Agreement, the 6,600,000 shares of Common
Stock owned by EIBOC and all of the outstanding shares of capital stock of
EIBOC (i) were deposited in escrow pursuant to escrow agreements mutually
acceptable to EIBOC, the Management Stockholders and JEDI, and (ii) will be
held in escrow until the earlier of the transfer of the 6,600,000 shares of
Common Stock owned by EIBOC in accordance with the Stockholders Agreement to a
person other than a Management Stockholder or related party and the termination
of the Stockholders Agreement.
Pursuant to the Stockholders Agreement, EIBOC granted to the
Management Stockholders an irrevocable proxy to vote the 6,600,000 shares of
Common Stock owned by EIBOC.
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The Stockholders Agreement will terminate on the earlier of (i) the
fifth anniversary of the date of the Stockholders Agreement or (ii) the date on
which JEDI and its affiliates beneficially own in the aggregate less than 10%
of the voting power of the Company's capital stock.
Description of the Registration Rights Agreement. The Common Stock
issuable upon conversion of the Series A Preferred Stock or upon exercise of
the JEDI Warrants or the Robertson Warrants will not be registered with the SEC
and therefore, will be, when issued, restricted securities. Pursuant to the
JEDI Purchase Agreement, on May 6, 1997, the Company entered into a
Registration Rights Agreement with JEDI pursuant to which JEDI will be entitled
to certain rights with respect to the registration under the Securities Act of
1933, as amended (the "Securities Act"), of shares of Common Stock issuable
upon conversion of Series A Preferred Stock or upon exercise of the JEDI
Warrants, the Robertson Warrants or the Maintenance Warrants (the "Registrable
Securities").
The Registration Rights Agreement provides for demand and piggyback
registration rights. A holder of Registrable Securities (a "Holder") or
Holders who hold at least a majority of the Registrable Securities may demand
registration up to 3 times; provided that the proposed aggregate offering
proceeds from the sale of such Holder or Holders portion of Registrable
Securities is at least $1,000,000. Generally, the Company bears the expense of
the demand registration statements, while the selling Holders bear selling
expenses such as underwriting fees and discounts. The Registration Rights
Agreement also provides for unlimited priority piggyback registration rights.
That is, in the event that the Company proposes to register the sale for cash
of any of its securities under the Securities Act for its own account, or for
the account of any other person, the holders will be entitled to include
Registrable Securities in any such registration, subject to the limited right
of the managing underwriter of any such offering under certain circumstances to
exclude some or all of such Registrable Securities from such registration. The
Company generally bears the expense of any piggyback registration statement,
while selling holders generally bear selling expenses such as underwriting fees
and discounts. The Registration Rights Agreement also includes customary
indemnification and contribution provisions, and with regard to demand
registration rights, a provision allowing the Company to postpone filing or the
declaration of effectiveness of an applicable registration statement for up to
an aggregate of 90 days if at the relevant time the Company is engaged in a
firm commitment underwritten public offering in which Registrable Securities
may be included or for up to an aggregate of 60 days if there exists
information the disclosure of which would be materially harmful to the Company.
The Company will no longer be obligated to register the Registrable Securities
upon disposition pursuant to Rule 144 under the Securities Act, the
eligibility of disposal under Rule 144(k) under the Securities Act or a
registration statement covering such Registrable Security has been declared
effective by the SEC and such Registrable Security has been issued, sold or
disposed of pursuant to such effective registration statement. JEDI may
transfer its registration rights (including demand registration rights that
JEDI has not exercised) to a third party but may not transfer more than one
demand registration right.
Description of the JEDI Earn Up Agreement. Pursuant to the JEDI
Purchase Agreement, on May 6, 1997, the Company and JEDI entered into an Earn
Up Agreement (the "JEDI Earn Up Agreement"). On or prior to October 15, 1998,
subject to the limitations in the JEDI Earn Up Agreement and against delivery
by Forseti to the Company of the Forseti Warrants and a statutory declaration
as to certain matters, JEDI shall pay the Company the Earn Up Amount. The Earn
Up Amount cannot exceed the amount defined as the "Earn Up Amount" under the
Forseti Earn Up Agreement.
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The "Earn Up Amount" is a dollar amount equal to the amount, if any,
by which (i) the sum of the Class A Amount and the Class B Amount exceeds (ii)
the Warrant Transfer Amount; provided, that in no event shall the Earn Up
Amount exceed $9,400,000.
The "Class A Amount" is a dollar amount equal to the product of (i)
the Value (not to exceed $1.50) less $1.25, multiplied by (ii) 9,600,000;
provided, that in no event shall the Class A Amount be greater than $2,400,000;
and if the Class A Amount is zero or a negative number, the Class A Amount
shall be deemed to be zero.
The "Class B Amount" is a dollar amount equal to the product of (i)
the Value (not to exceed $1.25) less $0.521, multiplied by (ii) 9,600,000;
provided, that in no event shall the Class B Amount be greater than $7,000,000;
and if the Class B Amount is zero or a negative number, the Class B Amount
shall be deemed to be zero.
The "Warrant Transfer Amount" is a dollar amount equal to the greatest
of (i) the product of (x) $3.50 multiplied by (y) the aggregate number of
Forseti Warrants transferred by Forseti before October 15, 1998; (ii) the
aggregate gross proceeds that Forseti has received or is entitled to receive
from the transfer of all of the Forseti Warrants transferred by Forseti before
October 15, 1998; and (iii) the difference between the average bid price of the
Company's shares of Common Stock for the 21-day period ending on September 30,
1998 less $2.50, multiplied by the number of Forseti Warrants transferred by
Forseti before October 15, 1998.
"Value" means the product of the Price, multiplied by 0.60; provided,
that if (i) the Common Stock is quoted on The Nasdaq National Market at the
Election Date and (ii) the average daily trading volume of the Common Stock for
the 21-day period ending on September 30, 1998 is at least 50,000 shares per
day (excluding trading of shares in any accounts controlled by the Company or
Forseti or their respective affiliates, and provided, that if on any of the 21
days the trading volume is greater than 300,000 shares, then only 300,000
shares on such days may be used in calculating the average), then Value means
the product of the Price, multiplied by 0.75.
"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
negotiated 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 the JEDI Earn Up Agreement.
Notwithstanding anything to the contrary in the JEDI Earn Up Agreement, under
no circumstances can the Price be higher than the higher of Price(1) and
Price(2) or be less than the lower of Price(1) and Price(2).
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"Price(1)" = (1.1 * SEC PV(10)) - Indebtedness + Consolidated Working Capital
------ ----------------------------------------------------------------
Outstanding Shares
"Price(2)" = (6.0 * EBITDA) - Indebtedness + Consolidated Working Capital
------ ----------------------------------------------------------------
Outstanding Shares
Terms used but not defined in the above definitions of Price(1) and
Price(2) are defined in the JEDI Earn Up Agreement.
The parties must first attempt to resolve disputes under the JEDI Earn
Up Agreement pursuant to non-binding mediation. Disputes that are not resolved
pursuant to non-binding mediation shall be settled by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association.
The JEDI Earn Up Agreement will terminate upon the earlier of (i) in
the event the "Election Date" under the Forseti Earn Up Agreement is after
September 30, 1998 or the "Payment Date" under the Forseti Earn Up Agreement is
after October 15, 1998, (ii) a transfer of any Forseti Warrants in violation of
the restrictions on transfer in the Forseti Purchase Agreement, (iii) the
election by Forseti to retain the Forseti Warrants pursuant to the Forseti Earn
Up Agreement, (iv) the transfer of all of the Forseti Warrants, (v) upon the
transfer of any ownership interest in Forseti or any entity controlling Forseti
where the purpose of the transfer is to realize or receive cash, securities or
any other property as consideration for the Forseti Warrants without
transferring the Forseti Warrants or (vi) as of September 30, 1998 or October
15, 1998, the individual, who as of the date of the Forseti Earn Up Agreement
owned directly or indirectly all of the ownership interests of Forseti and each
entity controlling Forseti does not own, directly or indirectly, all of the
ownership interests of Forseti and each entity controlling Forseti.
Description of the Letter Agreement. Pursuant to the JEDI Purchase
Agreement, on May 6, 1997, the Company and ECT Securities Corp., a Delaware
corporation and an affiliate of the general partner of JEDI ("ECT Securities
Corp."), entered into a letter agreement (the "Letter Agreement"). Pursuant to
the Letter Agreement, the Company retained ECT Securities Corp. to act as the
Company's advisor and provide consultation, assistance and advice to the
Company with respect to certain of its operations and properties. In
consideration for such services, the Company paid ECT Securities Corp. $100,000
at the closing of the transactions under the JEDI Purchase Agreement and will
pay an annual fee, payable quarterly in arrears, of $100,000 during the term of
the Letter Agreement. The term of the Letter Agreement is five years, subject
to earlier termination if JEDI's ownership of voting capital stock of the
Company should decrease to less than 10% of the Company's voting capital stock.
ECT Securities Corp. may terminate the Letter Agreement effective as of the end
of any calendar quarter of the Company upon written notice not less than 30
days before the date on which such termination is to be effective. The Letter
Agreement includes customary provisions for indemnification of ECT Securities
Corp.
Employment Agreements. Pursuant to the JEDI Purchase Agreement, on
May 6, 1997, the Company entered into an employment agreement (the "Employment
Agreement") with each of Bruce I. Benn, Ronald I. Benn and Edward J. Munden as
a condition to the closing under the JEDI Purchase Agreement. The term of each
Employment Agreement is six months. Pursuant to the Employment Agreement, each
of Messrs. Benn, Benn and
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Munden will be employed in his current position with the Company and will be
entitled to a base salary equal to $10,000 per month plus such other
compensation and employee benefit plans and programs implemented by the
Company after the date of the Employment Agreement. The Company has the right
to terminate employment under the Employment Agreement for cause (as defined)
or upon the death or disability of the employee. Each of Messrs. Benn, Benn
and Munden is entitled to terminate the Employment Agreement at any time for
any reason; provided, that none of Messrs. Benn, Benn or Munden will be
entitled to any compensation or benefits following such termination. The
Employment Agreement includes customary confidentiality and noncompetition
provisions.
FORSETI TRANSACTION AGREEMENTS
Description of the Forseti Purchase Agreement. The following summary
of the material provisions of the Forseti Purchase Agreement is not intended to
be complete and is subject to, and qualified in its entirety by reference to,
all of the provisions of such agreement, a copy of which is filed as an exhibit
to the Company's Current Report on Form 8-K dated March 27, 1997.
Repurchase of Common Stock; Issuance of Forseti Warrants.
Pursuant to the Forseti Purchase Agreement, on May 6, 1997, the Company
repurchased from Forseti 9,600,000 shares of the Company's Common Stock owned
by Forseti in exchange for (i) the payment by the Company to Forseti of
$5,000,000 cash; (ii) the issuance by the Company to Forseti of the Forseti
Warrants; and (iii) the execution and delivery by the Company of the Forseti
Earn Up Agreement. See "Forseti Transaction Agreements -- Description of the
Forseti Warrants and Description of the Forseti Earn Up Agreement."
Certain Representations and Warranties. Under the Forseti
Purchase Agreement, the Company made certain representations and warranties to
Forseti, including (i) due corporate organization; (ii) the due authorization,
issuance and enforceability of the Forseti Warrants and the shares of Common
Stock issuable upon exercise of the Forseti Warrants; (iii) the due
authorization, execution, delivery and performance by the Company of the
Forseti Purchase Agreement and related agreements and their enforceability;
(iv) no conflict with or violation of the Company's Certificate of
Incorporation or bylaws, any of the Company's agreements or applicable law; and
(v) required consents from governmental authorities or other third parties.
Under the Forseti Purchase Agreement, Forseti made certain
representations and warranties to the Company, including (i) due corporate
organization; (ii) title to the 9,600,000 shares of Common Stock; (iii) the due
authorization, execution, delivery and performance by Forseti of the Forseti
Purchase Agreement and related agreements and their enforceability; (iv) no
conflict with or violation of Forseti's organizational documents, any of
Forseti's agreements or applicable law or alternative dispute resolution; (v)
required consents from governmental authorities or other third parties; (vi) no
litigation; (vii) absence of brokers or finders; (viii) no interested director
transactions; and (ix) certain investment representations, including that
Forseti is not a U.S. person within the meaning of Regulation S, promulgated
under the Securities Act.
Restrictions on Transfer of the Forseti Warrants and Warrant
Shares. The Forseti Purchase Agreement provides that the holder of the Forseti
Warrants or the shares of Common Stock issuable upon the exercise of the
Forseti Warrants (the "Warrant
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Shares") may not transfer or exercise the Forseti Warrants or Warrant Shares
except in accordance with the Forseti Purchase Agreement and the Forseti
Warrants.
The agreement permits a transfer of the Forseti Warrants or
Warrant Shares (i) with the Company's prior written consent or (ii) the
transfer occurs after the first anniversary of the closing under the Forseti
Purchase Agreement, provided, that, in either case certain conditions are met,
including, without limitation, that (a) the transfer is in compliance with
Regulation S promulgated under the Securities Act, (b) Forseti delivers certain
notices to the Company, and (c) any transfer of the Forseti Warrants must
involve at least 100,000 warrants. To ensure compliance with the transfer
restrictions, at the closing under the Forseti Purchase Agreement, the Forseti
Warrants will be deposited in escrow pursuant to the Escrow Agreement among the
Company, Forseti, and an escrow agent acceptable to the Company and Forseti
(the "Escrow Agreement"). See "Forseti Transaction Agreements -- Description
of the Escrow Agreement." The Company and Forseti shall send a notice to the
escrow agent to release the Forseti Warrants if the Company and Forseti
determine that the proposed transfer is in compliance with the Forseti Purchase
Agreement.
If at any time on or before September 30, 1998 the Company
identifies a proposed transferee of the Forseti Warrants who is willing to
purchase for cash at least 100,000 of the Forseti Warrants at a price of at
least $2.40 per Class A Warrant and $3.50 per Class B Warrant and the Company
determines that the proposed transfer would be in compliance with the transfer
restrictions in the Forseti Purchase Agreement, then Forseti will be required
to transfer the Forseti Warrants to the transferee identified by the Company
upon notice by the Company.
Indemnification. The Forseti Purchase Agreement provides that
the Company will indemnify, defend and hold harmless Forseti and certain
related parties to the fullest extent lawful from and against all Losses
arising out of or resulting from the breach of any representation, warranty,
covenant or agreement of the Company contained in the Forseti Purchase
Agreement or related documents.
The Forseti Purchase Agreement provides that Forseti will
indemnify, defend and hold harmless the Company and certain related parties to
the fullest extent lawful from and against all Losses arising out of or
resulting from the breach of any representation, warranty, covenant or
agreement of Forseti contained in the Forseti Purchase Agreement or related
documents.
Dispute Resolution. The Forseti Purchase Agreement provides
that all disputes shall first be subject to non-binding mediation, and if such
disputes are not resolved by non-binding mediation, such disputes shall be
governed by arbitration governed by the Commercial Arbitration Rules of the
American Arbitration Association.
Expenses. Forseti will pay its own expenses and the
reasonable expenses of the Company in connection with the transactions
contemplated by the Forseti Purchase Agreement.
Description of the Forseti Warrants. Pursuant to the Forseti Purchase
Agreement, on May 6, 1997, the Company issued the Forseti Warrants to Forseti.
The Class A Warrants are exercisable for an aggregate of 1,000,000 shares of
Common Stock. The Class A Warrants are exercisable from their date of issuance
(subject to Regulation S and the Forseti Purchase Agreement) and will expire
December 31, 1998; provided, that any of the Class A Warrants
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held by Forseti on the Election Date will expire on the Election Date (as
defined in the Forseti Earn Up Agreement) unless Forseti elects to retain the
Class A Warrants under the Forseti Earn Up Agreement. The Class A Warrants may
be exercised in full or in part by means of payment of the exercise price
(initially $2.50 per share of Common Stock) in cash (the "Class A Warrant
Shares"). If the Class A Warrants are exercised only in part, they must be
exercised for the purchase of at least 100,000 shares of Common Stock. The
Class A Warrants provide for customary adjustments to the exercise price and/or
number of shares to be issued in the event of certain dividends and
distributions to holders of Common Stock, stock splits or combinations and
reclassifications. The Class A Warrants also make provision for warrant
holders to receive certain items in exchange for the Class A Warrants in the
event of certain combinations, mergers, consolidations, substantial asset sales
and similar transactions. The Class A Warrants also include customary
provisions with respect to, among other things, reservation of Class A Warrant
Shares, mutilated or lost warrant certificates, and notices to holder(s) of the
Class A Warrants. The Class A Warrants will be subject to transfer
restrictions as described above under "Forseti Transaction Agreements --
Forseti Purchase Agreement -- Restrictions on Transfer."
The Class B Warrants are exercisable for an aggregate of 2,000,000
shares of Common Stock. The Class B Warrants are exercisable from their date
of issuance (subject to Regulation S and the Forseti Purchase Agreement) and
shall expire on December 31, 1998; provided, that any Class B Warrants held by
Forseti on the Election Date (as defined in the Forseti Earn Up Agreement) will
expire on the Election Date unless Forseti elects to retain the Class B
Warrants under the Forseti Earn Up Agreement. The Class B Warrants may be
exercised in full or in part by means of payment of the exercise price
(initially $2.50 per share of Common Stock) in cash (the "Class B Warrant
Shares"). If the Class B Warrants are exercised only in part, they must be
exercised for the purchase of at least 100,000 shares of Common Stock. The
Class B Warrants provide for customary adjustments to the exercise price and/or
number of shares to be issued in the event of certain dividends and
distributions to holders of Common Stock, stock splits or combinations and
reclassifications. The Class B Warrants also make provision for warrant
holders to receive certain items in exchange for their Class B Warrants in the
event of certain combinations, mergers, consolidations, substantial asset sales
and similar transactions. The Class B Warrants also includes customary
provisions with respect to, among other things, reservation of Class B Warrant
Shares, mutilated or lost warrant certificates, and notices to holder(s) of the
Class B Warrants. The Class B Warrants will be subject to transfer
restrictions as described above under "Forseti Transaction Agreements --
Forseti Purchase Agreement -- Restrictions on Transfer."
Description of the Forseti Earn Up Agreement. Pursuant to the Forseti
Purchase Agreement, on May 6, 1997, the Company and Forseti entered into the
Forseti Earn Up Agreement. Pursuant to the Forseti Earn Up Agreement, on the
later of September 30, 1998 or the date that is 14 days after the date that the
Company notifies Forseti to request his election (the "Election Date"), Forseti
will elect whether to (i) accept payment of the Earn Up Amount (in which event
Forseti may not exercise or transfer the Forseti Warrants that have not been
previously exercised or transferred) or (ii) retain the Forseti Warrants that
have not been previously exercised or transferred (in which event the Company
is not obligated to pay Forseti the Earn Up Amount and the Company's
obligations under the Forseti Earn Up Agreement terminate). If Forseti elects
to accept payment of the Earn Up Amount, then subject to limitations in the
Forseti Earn Up Agreement and against delivery by Forseti of the Forseti
Warrants and a statutory declaration as to certain matters, the Company shall
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pay Forseti the Earn Up Amount on or before the later of October 15, 1998 or
the date that is 15 days after the date Forseti makes its election (the
"Payment Date").
The Company is obligated to pay Forseti under the Forseti Earn Up
Agreement only to the extent that the Company has received a like amount in
cash from JEDI under the JEDI Earn Up Agreement.
If the sum of (i) $5,000,000 and (ii) the aggregate amount received by
Forseti from the transfer of Warrants, exceeds the sum of (x) $14,400,000 plus
(y) a dollar amount equal to the sum of the expenses of the Company paid by
Forseti pursuant to the Forseti Purchase Agreement, the reasonable
out-of-pocket expenses up to a maximum of $50,000 incurred by Forseti in
connection with the Forseti Purchase Agreement, and the escrow agent fees
incurred by Forseti under the Escrow Agreement (the sum of subclauses (x) and
(y) being referred to as the "Net Proceeds"), then within 10 days of the date
(the "Excess Determination Date") the aggregate amount received by Forseti
exceeds the Net Proceeds, (x) Forseti shall deliver to the Company an amount in
cash or by wire transfer of immediately available funds equal to 75% of such
amount received by Forseti in excess of the Net Proceeds, and (y) Forseti shall
spend the remaining 25% of such excess amount to purchase from the Company,
subject to applicable securities laws, Common Stock at a price equal to the
average of the Nasdaq bid price over 21 trading days ending on the Excess
Determination Date.
Pursuant to the Forseti Earn Up Agreement, the Company granted to
Forseti an option to purchase from the Company a number of shares of Common
Stock equal to the quotient of (x) the amount by which the Earn Up Amount
exceeds $7,000,000 and (y) $2.50, at a price equal to $2.50. The option will
be exercisable in full or in part only from the date that the Earn Up Amount is
paid by the Company to Forseti through the fifth business day after the date of
payment of the Earn Up Amount. The Forseti Earn Up Agreement will provide for
customary adjustments to the exercise price and the number of shares to be
issued in the event of certain dividends and distributions to holders of Common
Stock, stock splits or combinations or reclassifications.
The parties must first attempt to resolve disputes under the Forseti
Earn Up Agreement pursuant to non-binding mediation. Disputes that are not
resolved pursuant to non-binding mediation shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association.
The Forseti Earn Up Agreement will terminate upon the earlier of (i) a
transfer of any Forseti Warrants in violation of the restrictions on transfer
in the Forseti Purchase Agreement, (ii) the election by Forseti to retain the
Forseti Warrants pursuant to the Forseti Earn Up Agreement, (iii) the transfer
of all of the Forseti Warrants, (iv) upon the transfer of any ownership
interest in Forseti or any entity controlling Forseti where the purpose of the
transfer is to realize or receive cash, securities or any other property as
consideration for the Forseti Warrants without transferring the Forseti
Warrants and (v) as of the Election Date or the Payment Date, the individual,
who as of the date of the Forseti Earn Up Agreement owned, directly or
indirectly, all of the ownership interests of Forseti and each entity
controlling Forseti does not own, directly or indirectly, all of the ownership
interests of Forseti and each entity controlling Forseti.
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Description of the Escrow Agreement. Pursuant to the Forseti Purchase
Agreement, on May 6, 1997, the Company, Forseti and Comerica Bank-Texas, as
escrow agent, entered into the Escrow Agreement. The Escrow Agreement governs
the deposit into escrow of the Forseti Warrants and the consideration for the
transfer of Warrants. The escrow agent may deliver the Forseti Warrants and
the consideration for the transfer of the Forseti Warrants to Forseti only upon
receipt of notice from the Company and Forseti to release the Forseti Warrants
and the consideration for the transfer of the Forseti Warrants. The Escrow
Agreement contains customary provisions regarding indemnification of the escrow
agent. Forseti will pay the fees of the escrow agent for its services under
the Escrow Agreement.
ITEM 7. EXHIBITS.
1.1 Certificate of Amendment of Certificate of Incorporation of
Queen Sand Resources, Inc., a Delaware corporation.
1.2 Amended and Restated Bylaws of Queen Sand Resources, Inc., a
Delaware corporation.
1.3 Certificate of Designation of Series A Participating
Convertible Preferred Stock of Queen Sand Resources, Inc., a
Delaware corporation.
1.4 Certificate of Designation of Series B Participating
Convertible Preferred Stock of Queen Sand Resources, Inc., a
Delaware corporation.
1.5 Securities Purchase Agreement dated as of March 27, 1997
between Joint Energy Investments Limited Partnership, a
Delaware limited partnership, and Queen Sand Resources, Inc.,
a Delaware corporation (incorporated by reference to Exhibit
1.1 to Current Report on Form 8-K dated March 27, 1997).
1.6 Securities Purchase Agreement dated as of March 27, 1997
between Forseti Investments Ltd, a Barbados corporation, and
Queen Sand Resources, Inc., a Delaware corporation
(incorporated by reference to Exhibit 1.2 to Current Report on
Form 8-K dated March 27, 1997).
1.7 Earn Up Agreement by and between Joint Energy Investments
Limited Partnership, a Delaware limited partnership, and Queen
Sand Resources, Inc., a Delaware corporation, dated May 6,
1997.
1.8 Common Stock Purchase Warrant Representing Right to Purchase
Shares of Common Stock of Queen Sand Resources, Inc., a
Delaware corporation, issued to Joint Energy Investments
Limited Partnership, a Delaware limited partnership, on May 6,
1997.
1.9 Common Stock Purchase Warrant Representing Right To Purchase
409,839 Shares of Common Stock of Queen Sand Resources, Inc.,
a Delaware corporation, issued to Joint Energy Investments
Limited Partnership, a Delaware limited partnership, on May 6,
1997.
1.10 Registration Rights Agreement by and between Queen Sand
Resources, Inc., a Delaware corporation, and Joint Energy
Investments Limited Partnership, a Delaware limited
partnership, dated May 6, 1997.
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1.11 Letter Agreement by and between Queen Sand Resources, Inc., a
Delaware corporation, and ECT Securities Corp., a Delaware
corporation, dated May 6, 1997
1.12 Earn Up Agreement between Queen Sand Resources, Inc., a
Delaware corporation, and Forseti Investments Ltd., a Barbados
corporation, dated May 6, 1997.
1.13 Class A Common Stock Purchase Warrant Representing Right To
Purchase Shares of Common Stock of Queen Sand Resources, Inc.,
a Delaware corporation, issued to Forseti Investments Ltd., a
Barbados corporation, on May 6, 1997.
1.14 Class B Common Stock Purchase Warrant Representing Right To
Purchase Shares of Common Stock of Queen Sand Resources, Inc.,
a Delaware corporation, issued to Forseti Investments Ltd., a
Barbados corporation, on May 6, 1997.
1.15 Termination of Management Services Agreement between Capital
House A Finance and Investment Corporation, a Canadian
corporation, and Queen Sand Resources, Inc., a Delaware
corporation, dated May 5, 1997.
1.16 Stockholders Agreement by and among Edward J. Munden, Ronald
I. Benn, Bruce I. Benn, Robert P. Lindsay, EIBOC Investments
Ltd., a Barbados corporation, Queen Sand Resources, Inc., a
Delaware corporation, and Joint Energy Developments
Investments Limited Partnership, a Delaware limited
partnership, dated May 6, 1997.
1.17 Executive Employment Agreement between Queen Sand Resources,
Inc., a Delaware corporation, and Ronald I. Benn, dated May 6,
1997.
1.18 Executive Employment Agreement between Queen Sand Resources,
Inc., a Delaware corporation, and Bruce I. Benn, dated May 6,
1997.
1.19 Executive Employment Agreement between Queen Sand Resources,
Inc., a Delaware corporation, and Edward J. Munden, dated May
6, 1997.
1.20 Consent and Amendment to Credit Agreement among Queen Sand
Resources, Inc., a Nevada corporation, Queen Sand Resources,
Inc., a Delaware corporation, and Comerica Bank-Texas, dated
May 2, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
QUEEN SAND RESOURCES, INC.
Date: May 21, 1997 By: /s/ Edward J. Munden
--------------------------------------------
Name: Edward J. Munden
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
1.1 Certificate of Amendment of Certificate of Incorporation of Queen Sand Resources, Inc., a Delaware
corporation.
1.2 Amended and Restated Bylaws of Queen Sand Resources, Inc., a Delaware corporation.
1.3 Certificate of Designation of Series A Participating Convertible Preferred Stock of Queen Sand Resources,
Inc., a Delaware corporation.
1.4 Certificate of Designation of Series B Participating Convertible Preferred Stock of Queen Sand Resources,
Inc., a Delaware corporation.
1.5 Securities Purchase Agreement dated as of March 27, 1997 between Joint Energy Investments Limited
Partnership, a Delaware limited partnership, and Queen Sand Resources, Inc., a Delaware corporation
(incorporated by reference to Exhibit 1.1 to Current Report on Form 8-K dated March 27, 1997).
1.6 Securities Purchase Agreement dated as of March 27, 1997 between Forseti Investments Ltd, a Barbados
corporation, and Queen Sand Resources, Inc., a Delaware corporation (incorporated by reference to Exhibit
1.2 to Current Report on Form 8-K dated March 27, 1997).
1.7 Earn Up Agreement by and between Joint Energy Investments Limited Partnership, a Delaware limited
partnership, and Queen Sand Resources, Inc., a Delaware corporation, dated May 6, 1997.
1.8 Common Stock Purchase Warrant Representing Right to Purchase Shares of Common Stock of Queen Sand
Resources, Inc., a Delaware corporation, issued to Joint Energy Investments Limited Partnership, a
Delaware limited partnership, on May 6, 1997.
1.9 Common Stock Purchase Warrant Representing Right To Purchase 409,839 Shares of Common Stock of Queen Sand
Resources, Inc., a Delaware corporation, issued to Joint Energy Investments Limited Partnership, a
Delaware limited partnership, on May 6, 1997.
1.10 Registration Rights Agreement by and between Queen Sand Resources, Inc., a Delaware corporation, and
Joint Energy Investments Limited Partnership, a Delaware limited partnership, dated May 6, 1997.
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1.11 Letter Agreement by and between Queen Sand Resources, Inc., a Delaware corporation, and ECT Securities
Corp., a Delaware corporation, dated May 6, 1997
1.12 Earn Up Agreement between Queen Sand Resources, Inc., a Delaware corporation, and Forseti Investments
Ltd., a Barbados corporation, dated May 6, 1997.
1.13 Class A Common Stock Purchase Warrant Representing Right To Purchase Shares of Common Stock of Queen
Sand Resources, Inc., a Delaware corporation, issued to Forseti Investments Ltd., a Barbados
corporation, on May 6, 1997.
1.14 Class B Common Stock Purchase Warrant Representing Right To Purchase Shares of Common Stock of Queen
Sand Resources, Inc., a Delaware corporation, issued to Forseti Investments Ltd., a Barbados
corporation, on May 6, 1997.
1.15 Termination of Management Services Agreement between Capital House A Finance and Investment
Corporation, a Canadian corporation, and Queen Sand Resources, Inc., a Delaware corporation, dated May
5, 1997.
1.16 Stockholders Agreement by and among Edward J. Munden, Ronald I. Benn, Bruce I. Benn, Robert P. Lindsay,
EIBOC Investments Ltd., a Barbados corporation, Queen Sand Resources, Inc., a Delaware corporation, and
Joint Energy Developments Investments Limited Partnership, a Delaware limited partnership, dated May 6,
1997.
1.17 Executive Employment Agreement between Queen Sand Resources, Inc., a Delaware corporation, and Ronald
I. Benn, dated May 6, 1997.
1.18 Executive Employment Agreement between Queen Sand Resources, Inc., a Delaware corporation, and Bruce I.
Benn, dated May 6, 1997.
1.19 Executive Employment Agreement between Queen Sand Resources, Inc., a Delaware corporation, and Edward
J. Munden, dated May 6, 1997.
1.20 Consent and Amendment to Credit Agreement among Queen Sand Resources, Inc., a Nevada corporation, Queen
Sand Resources, Inc., a Delaware corporation, and Comerica Bank-Texas, dated May 2, 1997.
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