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EXHIBIT 1.1
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STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE PAGE 1
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I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE,
DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE
CERTIFICATE OF DESIGNATION OF "QUEEN SAND RESOURCES, INC.", FILED IN THIS
OFFICE ON THE TWENTY-THIRD DAY OF DECEMBER, A.D. 1997, AT 8:30 O'CLOCK A.M.
/s/ Edward J. Freel
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Edward J. Freel, Secretary of State
2196071 8100 AUTHENTICATION: 8831035
971443458 DATE: 12-23-97
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CERTIFICATE OF DESIGNATION
OF
SERIES C CONVERTIBLE PREFERRED STOCK
OF
QUEEN SAND RESOURCES, INC.
Pursuant to Section 151 of the
Delaware General Corporation Law
Queen Sand Resources, Inc., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies that
the following resolutions were adopted by the Board of Directors of the
Corporation pursuant to authority of the Board of Directors as required by
Section 151 of the Delaware General Corporation Law.
RESOLVED, that pursuant to the authority granted to the Board of
Directors in accordance with the provisions of the Corporation's Restated
Certificate of Incorporation, the Board of Directors hereby authorizes a series
of the Corporation's previously authorized Preferred Stock, par value $.01 per
share (the "Preferred Stock"), and hereby states the designation and number of
shares, and fixes the relative rights, preferences, privileges and restrictions
thereof as follows:
1. DESIGNATION AND AMOUNT.
The designation of this series, which consists of ten thousand four
hundred (10,400) shares (each such share being referred to herein as a
"Preferred Share" and all such shares being collectively referred to as the
"Preferred Shares") of Preferred Stock, is the Series C Convertible Preferred
Stock (the "Series C Preferred Stock") and the face amount shall be One
Thousand Dollars ($1,000) per share (the "Stated Value"). The Preferred Shares
will be issued pursuant to the provisions of a Securities Purchase Agreement by
and among the Corporation and the purchasers named therein (the "Securities
Purchase Agreement").
2. DIVIDENDS.
(a) Dividend Rate; Payments. The holders (each, a "Holder" and
collectively, the "Holders") of Preferred Shares shall be entitled to receive,
to the extent permitted by applicable law, subject to the prior, full payment
of any accumulated and unpaid dividends on any class or series of Senior
Securities (as defined below) and in preference to the payment of any dividend
on any class or series of Junior Securities (as defined below), cumulative
dividends ("Dividends") on each Preferred Share in an amount equal to, on an
annualized basis, the Stated Value of such Preferred Share times five percent
(5%). Dividends shall accrue, whether or not earned or declared, on each
Preferred Share from the date of the original issuance thereof (the "Purchase
Date") through the earlier to occur of (A) the Maturity Date (as defined below)
and (B) the redemption or conversion thereof in accordance with the terms
hereof. Accrued Dividends on each outstanding Preferred Share shall be
payable, whether or not earned or declared, on the earlier to occur of (i) the
Conversion Date
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(as defined below) for such Preferred Share, (ii) the Redemption Date (as
defined below) for such Preferred Share, or (iii) the Maturity Date (as defined
below) for such Preferred Share (each, a "Dividend Payment Date"). If, on any
date, Dividends on any outstanding Preferred Shares have not been paid or
declared by the Board of Directors in accordance with applicable law and set
aside for payment with respect to all Dividend Payment Dates preceding such
date, the aggregate amount of such Dividends shall be fully paid or declared
and set aside for payment before any distribution, whether by way of dividend
or otherwise, shall be declared, paid or set apart with respect to any Junior
Securities on or after such date. Dividends shall be paid in shares (the
"Dividend Payment Shares") of the Corporation's common stock, par value $.0015
per share (the "Common Stock").
(b) Delivery of Dividend Payment Shares. The Corporation shall
deliver to each Holder, on or before the later to occur of (i) the third (3rd)
Business Day (as defined below) following the applicable Dividend Payment Date
and (ii) with respect to Dividend Payment Shares which are disputed as
described in paragraph 4(b) below, and required to be delivered by the
Corporation pursuant to the accountant's calculations described therein, the
date for delivery thereof specified in such paragraph 4(b) (the "Dividend
Payment Share Delivery Date"), the aggregate number of whole Dividend Payment
Shares that is determined by dividing (x) the amount of the Dividend to which
such Holder is entitled as of such Dividend Payment Date with respect to all of
such Holder's Preferred Shares by (y) the applicable Conversion Price (as
defined below) on such Dividend Payment Date. The Corporation shall effect
delivery of Dividend Payment Shares to a Holder by, as long as the
Corporation's transfer agent is participating in the Depository Trust Company
("DTC") Fast Automated Securities Transfer program, crediting the account of
such Holder or its nominee at DTC with the number of Dividend Payment Shares
required to be delivered, no later than the close of business on such Dividend
Payment Share Delivery Date. In the event that the conditions specified above
are not satisfied as of the applicable Dividend Payment Share Delivery Date, or
if a Holder specifies in the applicable Conversion Notice (as defined below) or
otherwise notifies the Corporation in writing prior to the applicable Dividend
Payment Date that such Holder wishes to receive physical certificates, the
Corporation shall effect delivery of Dividend Payment Shares by delivering to
the Holder or its nominee physical certificates representing such Dividend
Payment Shares, no later than the close of business on such Dividend Payment
Share Delivery Date. No fractional Dividend Payment Shares shall be issued;
the Corporation shall, in lieu thereof, at its sole discretion, either issue a
number of Dividend Payment Shares which reflects a rounding up to the next
whole number of shares or pay cash in an amount calculated by multiplying the
amount of the fractional share times the Closing Bid Price (as defined below)
used to calculate the Conversion Price for such Conversion. Dividend Payment
Shares shall be fully paid and non-assessable, free and clear of any liens,
claims, preemptive rights or encumbrances imposed by or through the
Corporation.
(c) Failure to Deliver Dividend Payment Shares. In the event that
the Corporation fails for any reason to deliver to a Holder certificates
representing the appropriate number of Dividend Payment Shares on or before the
Dividend Payment Share Delivery Date therefor, and such failure continues for
three (3) Business Days following the Dividend Payment Share Delivery Date,
such Holder shall send a written notice thereof to the Corporation, and the
Corporation shall pay to such Holder cash payments in the amount of (i) (N/365)
multiplied by (ii) the amount of such Dividend multiplied by (iii) the lower of
twenty-four percent (24%) and the maximum rate permitted by applicable law,
where "N" equals the number of days elapsed between the original Dividend
Payment Share Delivery Date for such Dividend Payment Shares and the date on
which all of such Dividend Payment Shares are issued and delivered to such
Holder. Amounts payable under this subparagraph
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(c) shall be paid to the Holder in immediately available funds on or before the
fifth (5th) Business Day of the calendar month immediately following the
calendar month in which such amounts have accrued. Each Holder shall have the
right to pursue actual damages for the Corporation's failure to issue and
deliver Dividend Payment Shares on the Dividend Payment Share Delivery Date for
a Dividend, including, without limitation, damages relating to any purchase of
shares of Common Stock by such Holder to make delivery on a sale effected in
anticipation of receiving Dividend Payment Shares, such damages to be in an
amount equal to (aa) the aggregate amount paid by such Holder for the shares of
Common Stock so purchased minus (bb) the aggregate amount of net proceeds, if
any, received by such Holder from the sale of the Dividend Payment Shares
issued by the Corporation with respect to such Dividend, and such Holder shall
have the right to pursue all other remedies available to it at law or in equity
(including, without limitation, a decree of specific performance and/or
injunctive relief).
3. PRIORITY.
(a) Payment upon Dissolution.
(i) Upon the occurrence of (x) any insolvency or
bankruptcy proceedings, or any receivership, liquidation, reorganization or
other similar proceedings in connection therewith, commenced by the Corporation
or by its creditors, as such, or relating to its assets or (y) the dissolution
or other winding up of the Corporation whether total or partial, whether
voluntary or involuntary and whether or not involving insolvency or bankruptcy
proceedings, or (z) any assignment for the benefit of creditors or any
marshalling of the material assets or material liabilities of the Corporation
(each, a "Liquidation Event"), no distribution shall be made to the holders of
any shares of Junior Securities (as defined below) unless, following the
payment of preferential amounts on all Senior Securities (as defined below),
each Holder shall have received the Liquidation Preference (as defined below)
with respect to each Preferred Share then held by such Holder. In the event
that upon the occurrence of a Liquidation Event, and following the payment of
preferential amounts on all Senior Securities (as defined below), the assets
available for distribution to the Holders and the holders of Pari Passu
Securities (as defined below) are insufficient to pay the Liquidation
Preference (as defined below) with respect to all of the outstanding Preferred
Shares and the preferential amounts payable to such holders, the entire assets
of the Corporation shall be distributed ratably among the outstanding Preferred
Shares and the shares of Pari Passu Securities in proportion to the ratio that
the preferential amount payable on each such share (which shall be the
Liquidation Preference in the case of a Preferred Share) bears to the aggregate
preferential amount payable on all such shares.
(ii) The "Liquidation Preference" with respect to a
Preferred Share shall mean an amount equal to the Stated Value of such
Preferred Share (subject to ratable adjustment in the event of any stock split
or combination of the Series C Preferred Stock and to equitable adjustment in
the event of a reclassification of the Series C Preferred Stock or other
similar event) plus any accrued and unpaid Dividends thereon. "Junior
Securities" shall mean the Common Stock and all other capital stock of the
Corporation that are not Pari Passu Securities or do not have a preference over
the Series C Preferred Stock in respect of dividends, redemption or
distribution upon liquidation. "Pari Passu Securities" shall mean any capital
stock ranking pari passu with the Series C Preferred Stock in respect of
dividends, redemption or distribution upon liquidation. "Senior Securities"
shall mean any capital stock of the Corporation which by its terms have a
preference over the Series C Preferred Stock in respect of dividends,
redemption or distribution upon liquidation, which
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shall include the Corporation's Series A Participating Convertible Preferred
Stock and the Corporation's Series B Participating Convertible Preferred Stock.
4. CONVERSION.
(a) Right to Convert. Subject to the limitations contained in
Section 5 below, each Holder shall have the right to convert, at any time and
from time to time from and after the Purchase Date, all or any part of the
Preferred Shares held by such Holder into such number of fully paid and
non-assessable shares of Common Stock ("Conversion Shares") as is computed in
accordance with the terms hereof (a "Conversion").
(b) Conversion Notice. In order to convert Preferred Shares, a
Holder shall send by facsimile transmission, at any time prior to 11:59 p.m.,
eastern time, on the date on which such Holder wishes to effect such Conversion
(the "Conversion Date"), (i) a notice of conversion (a "Conversion Notice"), in
substantially the form of Exhibit A hereto, to the Corporation and to its
designated transfer agent for the Common Stock (the "Transfer Agent") stating
the number of Preferred Shares to be converted, the applicable Conversion Price
(as defined below) and a calculation of the number of shares of Common Stock
issuable upon such Conversion and (ii) a copy of the certificate or
certificates representing the Preferred Shares being converted. The Holder
shall thereafter send the original of the Conversion Notice and of such
certificate or certificates to the Transfer Agent. The Corporation shall issue
a new certificate for Preferred Shares in the event that less than all of the
Preferred Shares represented by a certificate delivered to the Corporation in
connection with a Conversion are converted. Except as otherwise provided
herein, upon delivery of a Conversion Notice by a Holder in accordance with the
terms hereof, such Holder shall, as of the applicable Conversion Date, be
deemed for all purposes to be record owner of the Common Stock to which such
Conversion Notice relates. In the case of a dispute between the Corporation and
a Holder as to the calculation of the Conversion Price or the number of
Conversion Shares or Dividend Payment Shares issuable upon a Conversion, the
Corporation shall promptly issue to such Holder the number of Conversion Shares
and Dividend Payment Shares that are not disputed and shall submit the disputed
calculations to the Corporation's independent accountant within three (3)
Business Days of receipt of such Holder's Conversion Notice. The Corporation
shall cause such accountant to calculate the Conversion Price as provided
herein and to notify the Corporation and such Holder of the results in writing
no later than three (3) Business Days following the day on which it received
the disputed calculations. The Corporation shall deliver the Conversion Shares
and Dividend Payment Shares, if any, owed to a Holder pursuant to such
accountant's calculations on or before the close of business on the third (3rd)
Business Day following the Corporation's receipt of notice from such accountant
of the results of its calculations. Such accountant's calculation shall be
deemed conclusive absent manifest error. The fees of any such accountant shall
be borne by the party whose calculations were most at variance with those of
such accountant.
(c) Number of Conversion Shares; Conversion Price. The number of
Conversion Shares to be delivered by the Corporation pursuant to a Conversion
shall be determined by dividing the aggregate Stated Value of the Preferred
Shares to be converted by the Conversion Price (as defined herein) in effect on
the applicable Conversion Date. Subject to adjustment as provided in Section 6
below and to any adjustment pursuant to paragraph 2(d) of the Registration
Rights Agreement (as defined below), "Conversion Price" shall mean (i) during
the one hundred and eighty (180) day period following the Purchase Date (the
"Initial Conversion Period"), and if each of the Fixed Conversion Price
Conditions (as defined below) are satisfied as of the applicable Conversion
Date, seven dollars and thirty five cents ($7.35)
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(the "Fixed Conversion Price") and (ii) following the expiration of the Initial
Conversion Period, or if the Fixed Price Conversion Conditions are not
satisfied as of a Conversion Date occurring during the Initial Conversion
Period, the lesser of (A) the Fixed Conversion Price and (B) the Floating
Conversion Price (as defined below). The "Fixed Conversion Price Conditions"
are as follows: (x) there has been no material adverse change to the
Corporation's consolidated business, operations, properties, financial
condition, prospects or results of operations (a "Material Adverse Effect")
since the date of the audited financial statements contained in the
Corporation's most recently-filed Form 10-K; (y) the Corporation's credit
facility with the Bank of Montreal has not been terminated or become
unavailable in any material respect; and (z) the Corporation has not breached
any covenant contained in any agreement or loan document to which it is a
party, which breach is continuing as of the applicable Conversion Date and
which would have a Material Adverse Effect. The Company shall give written
notice to each Holder promptly following the failure by the Company to satisfy
any Fixed Conversion Price Condition. The "Floating Conversion Price" shall
mean (i) for any Conversion with a Conversion Date occurring during a calendar
month where the average daily trading volume for the Common Stock on the Nasdaq
Small Cap Market or, if the Common Stock is not designated for quotation on the
Nasdaq Small Cap Market, on the principal securities exchange or market located
in the United States on which the Common Stock is then traded for the twenty
(20) Trading Days immediately preceding the first day of such calendar month
(such volume to be expressed in U.S. dollars and provided that in no case
shall such volume include any transactions effected by or at the direction of
the Corporation) (the "ADTV") is equal to or exceeds five hundred and forty
thousand dollars ($540,000), the average of the three (3) lowest Closing Bid
Prices for the Common Stock during the ten (10) Trading Days occurring
immediately prior to (but not including) the applicable Conversion Date, (ii)
for any Conversion with a Conversion Date occurring during a calendar month
where the ADTV is equal to or greater than three hundred and sixty thousand
dollars ($360,000) but less than five hundred and forty thousand dollars
($540,000), the average of the three (3) lowest Closing Bid Prices for the
Common Stock during the twenty (20) Trading Days occurring immediately prior to
(but not including) the applicable Conversion Date, and (iii) for any
Conversion with a Conversion Date occurring during a calendar month where the
ADTV is less than three hundred and sixty thousand dollars ($360,000), the
lowest Closing Bid Price for the Common Stock during the fifteen (15) Trading
Days occurring immediately prior to (but not including) the applicable
Conversion Date.
(d) Certain Definitions. "Trading Day" shall mean any day on
which the Common Stock is traded on the Nasdaq Small Cap Market or on the
principal securities exchange or market located in the United States on which
the Common Stock is then traded. "Closing Bid Price" means, with respect to a
security, the closing bid price of such security on the principal securities
exchange or trading market located in the United States where such security is
listed or traded as reported by Bloomberg Financial Markets or, if Bloomberg
Financial Markets ("Bloomberg") is not then reporting closing bid prices of
such security, as reported by Nasdaq, or if neither Bloomberg nor Nasdaq is
reporting such prices, as reported by a reporting service of national
reputation comparable to Bloomberg selected by the Corporation and reasonably
acceptable to holders of a majority of the then outstanding Preferred Shares
(an "Alternative Reporting Service"), or if none of the foregoing apply, the
last reported bid price of such security in the U.S. over-the-counter market
on the electronic bulletin board for such security as reported by Bloomberg or
an Alternative Reporting Service or, if no bid price is reported for such
security by Bloomberg or an Alternative Reporting Service, the average of the
bid prices of all market makers for such security as reported in the "pink
sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price cannot
be calculated for such
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security on any of the foregoing bases, the Closing Bid Price of such security
shall be the fair market value as reasonably determined by an investment
banking firm selected by the Holders of a majority of the then outstanding
Preferred Shares and reasonably acceptable to the Corporation, with the costs
of such appraisal to be borne by the Corporation. "Business Day" means any day
on which the New York Stock Exchange and commercial banks located in the City
of New York are open for business.
(e) Delivery of Common Stock Upon Conversion. Upon receipt of a
Conversion Notice from a Holder pursuant to paragraph 4(b) above, the
Corporation shall, no later than the close of business on (A) the later to
occur of (i) the third (3rd) Business Day following the Conversion Date set
forth in such Conversion Notice and (ii) the first Business Day following
delivery of the original certificates, duly endorsed, representing the
Preferred Shares being converted pursuant thereto and (B) with respect to
Conversion Shares which are disputed as described in paragraph 4(b) above, and
required to be delivered by the Corporation pursuant to the accountant's
calculations described therein, the date for delivery thereof specified in such
paragraph 4(b) (the "Delivery Date"), issue and deliver or cause to be
delivered to such Holder the number of Conversion Shares as shall be determined
as provided herein. The Corporation shall effect delivery of Conversion Shares
to a Holder by, as long as the Corporation's transfer agent is participating in
the DTC Fast Automated Securities Transfer program, crediting the account of
such Holder or its nominee at DTC with the number of Conversion Shares required
to be delivered, no later than the close of business on such Delivery Date. In
the event that the conditions specified above are not satisfied as of the
applicable Delivery Date, or if a Holder so specifies in a Conversion Notice or
otherwise in writing, the Corporation shall effect delivery of Conversion
Shares by delivering to the Holder or its nominee physical certificates
representing such Conversion Shares, no later than the close of business on
such Delivery Date. If any Conversion would create a fractional Conversion
Share, such fractional Conversion Share shall be disregarded and, at the
Corporation's sole discretion, either the number of Conversion Shares issuable
upon such Conversion, in the aggregate, shall be the next higher number of
Conversion Shares or the Corporation shall pay cash in an amount calculated by
multiplying the amount of the fractional share times the Closing Bid Price used
to calculate the Conversion Price for such Conversion. Conversion Shares
delivered to the Holder shall not contain any restrictive legend as long as (A)
the sale or transfer of such Conversion Shares is covered by an effective
Registration Statement and the Holder holding or entitled to receive such
Conversion Shares has represented to the Corporation, in the related Conversion
Notice or otherwise in writing, that such Holder has resold or transferred such
Conversion Shares in accordance with the terms of the Prospectus relating to
such Registration Statement, (B) such Conversion Shares can be sold pursuant to
Rule 144 ("Rule 144") under the Securities Act of 1933, as amended (the
"Securities Act") and a registered broker dealer provides to the Corporation a
customary broker's Rule 144 letter and such Holder delivers to the Corporation
a customary seller's representation letter and a copy of any Form 144 which may
have been required to be filed by such Holder pursuant to Rule 144, or (C) such
Conversion Shares are eligible for resale under Rule 144(k) or any successor
rule or provision.
(f) Failure to Deliver Conversion Shares.
(i) In the event that the Corporation fails for any
reason (other than by operation of Section 5 below) to deliver to a Holder the
number of Conversion Shares specified in the applicable Conversion Notice on or
before the Delivery Date therefor (a "Conversion Default"), such Holder shall
notify the Corporation by facsimile of such Conversion Default (a "Default
Notice"). If, after the Holder has sent a Default Notice to the
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Corporation, the Corporation has not delivered such certificates, and such
failure continues for three (3) Business Days following the Delivery Date, the
Corporation shall pay to such Holder cash payments ("Conversion Default
Payments") in the amount of (i) (N/365) multiplied by (ii) the aggregate
Liquidation Preference of the Preferred Shares represented by the Conversion
Shares which remain the subject of such Conversion Default multiplied by (iii)
the lower of twenty-four percent (24%) and the maximum rate permitted by
applicable law, where "N" equals the number of days elapsed between the
original Delivery Date for such Conversion Shares and the earlier to occur of
(A) the date on which all of such Conversion Shares are issued and delivered to
such Holder, (B) the date on which such Preferred Shares are redeemed pursuant
to the terms hereof and (C) the date on which a Withdrawal Notice (as defined
below) is delivered to the Corporation. Amounts payable under this
subparagraph (f) shall be paid to the Holder in immediately available funds on
or before the fifth (5th) Business Day of the calendar month immediately
following the calendar month in which such amounts have accrued.
(ii) In the event that a Holder has not received
Conversion Shares by the tenth (10th) Business Day following a Conversion
Default, such Holder may, upon written notice (a "Withdrawal Notice") delivered
to the Corporation on such Business Day or on any Business Day thereafter
(unless, prior to the delivery of such notice, such Conversion Shares are
delivered to such Holder), withdraw its Conversion Notice with respect to such
Conversion Shares and regain its rights as a Holder of the Preferred Shares
that are the subject of such Conversion Default. In such event, the Conversion
Price that would otherwise be in effect when such Preferred Shares are
thereafter converted in accordance with the terms hereof shall be reduced by
one percent (1%) for each day occurring during the period immediately following
such 10th Business Day until the day on which the such Holder delivers a
Withdrawal Notice to the Corporation; provided, however, that the maximum
percentage by which such Conversion Price may be reduced hereunder shall be
fifty percent (50%). (For example, if such Conversion Default were to continue
for five days following such 10th Business Day, such Conversion Price would be
reduced by 5%; if for ten days, by 10%; and for fifty days or more, 50%, so
that the number of Conversion Shares deliverable upon conversion of such
Preferred Shares would be increased proportionately). Upon delivery by a
Holder of a Withdrawal Notice, such Holder shall retain all of such Holder's
rights and remedies with respect to the Corporation's failure to deliver such
Conversion Shares (including without limitation the right to receive the cash
payments specified in subparagraph 4(f)(i) above).
(iii) Nothing herein shall limit a Holder's right to pursue
actual damages for the Corporation's failure to issue and deliver Conversion
Shares on the applicable Delivery Date (including, without limitation, damages
relating to any purchase of shares of Common Stock by such Holder to make
delivery on a sale effected in anticipation of receiving Conversion Shares upon
Conversion, such damages to be in an amount equal to (A) the aggregate amount
paid by such Holder for the shares of Common Stock so purchased minus (B) the
aggregate amount of net proceeds, if any, received by such Holder from the sale
of the Conversion Shares issued by the Corporation pursuant to such
Conversion), and such Holder shall have the right to pursue all remedies
available to it at law or in equity (including, without limitation, a decree of
specific performance and/or injunctive relief).
(g) Conversion at Maturity. On the date which is four (4) years
following the Purchase Date (the "Maturity Date"), all Preferred Shares then
outstanding shall be automatically converted into the number of shares of
Common Stock equal to the Stated Value of such shares divided by the Conversion
Price then in effect (a "Mandatory
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Conversion"), such calculation to be made by the Corporation; provided,
however, that if, on the Maturity Date, (i) the number of shares of Common
Stock authorized, unissued and unreserved for all other purposes, or held in
the Corporation's treasury, is not sufficient to effect the issuance and
delivery of the aggregate of (x) the number of Conversion Shares into which all
outstanding Preferred Shares are then convertible, and (y) the number of
Warrant Shares (as defined in the Securities Purchase Agreement) into which all
outstanding Warrants (as defined in the Securities Purchase Agreement) are then
exercisable, (ii) the Common Stock is not designated for quotation on the
Nasdaq National Market or the Nasdaq Small Cap Market (together, the "Nasdaq
Stock Market") or listed on the New York Stock Exchange or American Stock
Exchange, or (iii) a Mandatory Redemption Event (as defined herein) has
occurred and is continuing, each Holder shall have the option, upon written
notice to the Corporation, to retain its rights as a holder of Preferred
Shares, including without limitation, the right to convert such Preferred
Shares in accordance with the terms of paragraphs 4(a) through 4(f) hereof and,
upon delivery of such notice, such Preferred Shares shall not be subject to a
Mandatory Conversion hereunder until the thirtieth (30th) day following the
later of (a) the date on which the event specified (i), (ii) or (iii) is no
longer continuing and (b) the date on which the Corporation delivers to each
Holder written notice to such effect, and in such event, such thirtieth day
shall be deemed to be the Maturity Date for purposes of this Certificate of
Designation. If a Mandatory Conversion occurs, the Corporation and each Holder
shall follow the procedures for Conversion set forth in this Section 4, with
the Maturity Date deemed to be the Conversion Date, except the Holder shall not
be required to send a Conversion Notice as contemplated by paragraph 4(b). In
the event that any Holder disputes the Corporation's calculation of the
applicable Conversion Price or the number of Conversion Shares or Dividend
Payment Shares issuable in connection with a Mandatory Conversion, such dispute
shall be resolved in accordance with the dispute resolution provisions
described in paragraph 4(b) above.
5. CONVERSION LIMITATIONS.
In no event shall a Holder be permitted to convert any Preferred
Shares in excess of the number of such shares, upon the Conversion of which:
(a) the number of Conversion Shares to be issued pursuant to such
Conversion, when added to the number of shares of Common Stock issued pursuant
to all prior Conversions of Preferred Shares and issuances of Dividend Payment
Shares would exceed 19.99% of the number of outstanding shares of Common Stock
on the Purchase Date (subject to equitable adjustments from time to time for
the events described in Section 6 below) (the "Cap Amount"), except that such
limitation shall not apply in the event that (i) the Corporation obtains the
approval of its stockholders for issuances of Common Stock in excess of such
amount (it being understood that any Holder which has converted Preferred
Shares into a number of Conversion Shares which equals or exceeds such Holder's
Allocation Amount (as defined below) shall have the right to require the
Corporation, upon written notice to such effect, to seek such approval as soon
as practicable following the Corporation's receipt of such notice) or (ii) the
Holders of a majority of the Preferred Shares then obtain an opinion of counsel
reasonably satisfactory to the Corporation that such approval is not required.
Until such approval or opinion is obtained, no purchaser of Preferred Shares
pursuant to the Securities Purchase Agreement (each, a "Purchaser" and,
collectively, the "Purchasers") shall be issued, upon Conversion of the
Preferred Shares, Conversion Shares in an amount greater than the product of
(A) the Cap Amount times (B) a fraction, the numerator of which is the number
of Preferred Shares issued to such Purchaser pursuant to the Securities
Purchase Agreement and the denominator of which is the aggregate amount of all
of the Preferred
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Shares issued to the Purchasers pursuant to the Securities Purchase Agreement
(the "Allocation Amount"). In the event that any Purchaser shall sell or
otherwise transfer any of such Purchaser's Preferred Shares, the transferee
shall be allocated a pro rata portion of such Purchaser's Allocation Amount.
In the event that any Holder shall convert all of such Holder's Preferred
Shares into a number of Conversion Shares which, in the aggregate, is less than
such Holder's Allocation Amount, then the difference between such Holder's
Allocation Amount and the number of Conversion Shares actually issued to such
Holder shall be allocated to the respective Allocation Amounts of the remaining
Holders of Preferred Shares on a pro rata basis in proportion to the number of
Preferred Shares then held by each such Holder; or
(b) (x) the number of shares of Common Stock beneficially owned by
such Holder (other than shares of Common Stock issuable upon conversion of such
Preferred Shares or which would otherwise be deemed beneficially owned except
for being subject to a limitation on conversion or exercise analogous to the
limitation contained in this paragraph 5(b)) plus (y) the number of shares of
Common Stock issuable upon the Conversion of such Preferred Shares, would be
equal to or exceed (z) 4.99% of the number of shares of Common Stock then
issued and outstanding. As used herein, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and the rules thereunder. To the extent that the limitation
contained in this paragraph 5(b) applies, the determination of whether
Preferred Shares are convertible (in relation to other securities owned by a
Holder) and of which Preferred Shares are convertible shall be in the sole
discretion of such Holder, and the submission of Preferred Shares for
Conversion shall be deemed to be such Holder's determination that such
Preferred Shares are convertible pursuant to the terms hereof, and the
Corporation shall have no obligation whatsoever to verify or confirm the
accuracy of such determination. This paragraph 5(b) may be amended (i) in
order to clarify an ambiguity or otherwise to give effect to such limitation,
by the Holders of two-thirds (2/3) of the Preferred Shares then outstanding and
(ii) for any other reason, with the further consent of the holders of a
majority of the shares of Common Stock then outstanding. Nothing contained
herein shall be deemed to restrict the right of a Holder to convert Preferred
Shares at such time as the Conversion thereof will not violate the provisions
of this paragraph 5(b). The restriction contained in this paragraph 5(b) shall
not apply in the event of a Mandatory Conversion.
6. ADJUSTMENTS TO CONVERSION PRICE.
(a) Adjustment to Fixed Conversion Price Due to Stock Split, Stock
Dividend, Etc. If, prior to the Conversion of all of the Preferred Shares, (A)
the number of outstanding shares of Common Stock is increased by a stock split,
a stock dividend on the Common Stock, a reclassification of the Common Stock,
the distribution to holders of Common Stock as a class of rights or warrants
entitling them to subscribe for or purchase Common Stock at less than the then
current market price thereof (based upon the subscription or exercise price of
such rights or warrants at the time of the issuance thereof) or other similar
event, the Fixed Conversion Price shall be proportionately reduced, or (B) the
number of outstanding shares of Common Stock is decreased by a reverse stock
split, combination or reclassification of shares or other similar event, the
Fixed Conversion Price shall be proportionately increased. In such event, the
Corporation shall notify the Transfer Agent of such change on or before the
effective date thereof. For purposes hereof, the market price per share of
Common Stock on any date shall be the average Closing Bid Price for the Common
Stock on the five (5) consecutive Trading Days occurring immediately prior to
but not including the earlier of such date and the Trading Day before the "ex"
date, if any, with respect to the issuance or
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distribution requiring such computation. The term "'ex' date", when used with
respect to any issuance or distribution, means the first Trading Day on which
the Common Stock trades regular way in the market from which such average
Closing Bid Price is then to be determined without the right to receive such
issuance or distribution.
(b) Adjustment to Conversion Price. If, prior to the Conversion
of all of the Preferred Shares, the number of outstanding shares of Common
Stock is increased or decreased by a stock split, a stock dividend on the
Common Stock, a combination, a reclassification of the Common Stock or other
similar event, and such event takes place during the reference period for the
determination of the Conversion Price for any Conversion thereof, the
Conversion Price shall be calculated giving appropriate effect to the stock
split, stock dividend, combination, reclassification or other similar event for
all Trading Days occurring during such reference period.
(c) Adjustment Due to Merger, Consolidation, Etc. If, prior to
the Conversion of all of the Preferred Shares, there shall be any merger,
consolidation, business combination, tender offer, exchange of shares,
recapitalization, reorganization, redemption or other similar event, as a
result of which shares of Common Stock shall be exchanged for or changed into
the same or a different number of shares of the same or another class or
classes of stock or securities of the Corporation or another entity (an
"Exchange Transaction"), then such Holder shall (A) upon the consummation of
such Exchange Transaction, have the right to receive, with respect to any
shares of Common Stock then held by such Holder, or which such Holder is then
entitled to receive pursuant to a Conversion Notice previously delivered by
such Holder, (and without regard to whether such shares contain a restrictive
legend or are freely-tradeable) the same amount and type of consideration
(including without limitation, stock, securities and/or other assets) and on
the same terms as a holder of shares of Common Stock would be entitled to
receive in connection with the consummation of such Exchange Transaction (the
"Exchange Consideration"), and (B) upon the Conversion of Preferred Shares
occurring subsequent to the consummation of such Exchange Transaction, the
Exchange Consideration which such Holder would have been entitled to receive in
connection with such Exchange Transaction had such shares been converted
immediately prior to such Exchange Transaction, and in any such case
appropriate provisions shall be made with respect to the rights and interests
of such Holder to the end that the provisions hereof (including, without
limitation, provisions for the adjustment of the Conversion Price and of the
number of shares issuable upon a Conversion) shall thereafter be applicable as
nearly as may be practicable in relation to any securities thereafter
deliverable upon the Conversion of such Preferred Shares. The Corporation shall
not effect any Exchange Transaction unless (i) it first gives to each Holder
twenty (20) days prior written notice of such Exchange Transaction (an
"Exchange Notice"), and makes a public announcement of such event at the same
time that it gives such notice and (ii) the resulting successor or acquiring
entity (if not the Corporation) assumes by written instrument the obligations
of the Corporation hereunder, including the terms of this subparagraph 6(c),
and under the Securities Purchase Agreement and the Registration Rights
Agreement described in the Securities Purchase Agreement (the "Registration
Rights Agreement").
(d) Distribution of Assets. If the Corporation shall declare or
make any distribution of cash, evidences of indebtedness or other securities or
assets (other than cash dividends or distributions payable out of earned
surplus or net profits for the current or the immediately preceding year), or
any rights to acquire any of the foregoing, to holders of Common Stock as a
partial liquidating dividend, by way of return of capital or otherwise,
including any dividend or distribution in shares of capital stock of a
subsidiary of the
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Corporation (collectively, a "Distribution"), then, upon a Conversion by a
Holder occurring after the record date for determining stockholders entitled to
such Distribution, the Fixed Conversion Price for Preferred Shares not
converted prior to the record date of a Distribution shall be reduced to a
price determined by decreasing the Fixed Conversion Price in effect immediately
prior to the record date of the Distribution by an amount equal to the fair
market value of the assets so distributed with respect to each share of Common
Stock, such fair market value to be determined by an investment banking firm
selected by the holders of at least two-thirds (2/3) of the Preferred Shares
then outstanding and reasonably acceptable to the Corporation.
(e) Adjustment Due to Major Announcement. If the Corporation (i)
makes a public announcement that it intends to enter into a Change of Control
Transaction (as defined below) or (ii) any person, group or entity (including
the Corporation) publicly announces a tender offer, exchange offer or other
transaction to purchase 50% or more of the Common Stock (such announcement
being referred to herein as a "Major Announcement" and the date on which a
Major Announcement is made, the "Announcement Date"), then, in the event that a
Holder seeks to convert Preferred Shares on or following the Announcement Date,
the Conversion Price shall, effective upon the Announcement Date and continuing
through the fifth (5th) Business Day following the earlier to occur of the
consummation of the proposed transaction or tender offer, exchange offer or
other transaction and the Abandonment Date (as defined below), be equal to the
lower of (x) the average Closing Bid Price for the Common Stock on the five (5)
Trading Days immediately preceding (but not including) the Announcement Date
and (y) the Conversion Price in effect on the Conversion Date for such
Preferred Shares. "Abandonment Date" means with respect to any proposed
transaction or tender offer, exchange offer or other transaction for which a
public announcement as contemplated by this paragraph 6(e) has been made, the
date upon which the Corporation (in the case of clause (i) above) or the
person, group or entity (in the case of clause (ii) above) publicly announces
the termination or abandonment of the proposed transaction or tender offer,
exchange offer or another transaction which caused this paragraph 6(e) to
become operative.
(f) No Fractional Shares. If any adjustment under this Section
would create a fractional share of Common Stock or a right to acquire a
fractional share of Common Stock, such fractional share shall be disregarded
and, at the Corporation's sole discretion, either the number of shares of
Common Stock issuable upon Conversion shall be the next higher number of shares
or the Corporation shall pay in cash an amount calculated by multiplying the
amount of the fractional share times the Closing Bid Price used to calculate
the Conversion Price for such Conversion.
7. OPTIONAL REDEMPTION BY CORPORATION.
(a) Optional Redemption. The Corporation shall have the right to
redeem all of the outstanding Preferred Shares at any time outstanding in same
day funds at the Optional Redemption Price (as defined below)(an "Optional
Redemption"), to the extent permitted by applicable law and so long as (A) the
Corporation shall have sufficient cash available on the Optional Redemption
Date to effect such Optional Redemption, (B) the Corporation shall have
delivered to each Holder at least thirty (30) Trading Days' prior written
notice (an "Optional Redemption Notice") specifying the date on which such
Optional Redemption is to be effected (the "Optional Redemption Date") and the
amount of the Optional Redemption Price payable to such Holder, and (C) the
Common Stock shall be actively traded on the Nasdaq Stock Market, the New York
Stock Exchange or the American Stock Exchange. Nothing contained
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herein shall limit a Holder's right to convert its Preferred Shares at any time
prior to the Optional Redemption Date.
(b) Optional Redemption Price. The "Optional Redemption Price" to
be paid by the Corporation to a Holder in the event of an Optional Redemption
shall be equal to the Liquidation Preference of the Preferred Shares then held
by such Holder divided by eighty percent (80%).
(c) Payment of Optional Redemption Price.
(i) The Corporation shall pay the Optional Redemption
Price to each Holder within five (5) Business Days following the Optional
Redemption Date. Upon the redemption of a Preferred Share, payment of the
Optional Redemption Price to the Holder thereof will be effected simultaneously
with the return of such share by such Holder to the Corporation.
(ii) If the Corporation fails to pay the Optional
Redemption Price to a Holder within five (5) Business Days of the Optional
Redemption Date and so long as such Holder has tendered its Preferred Shares to
the Corporation, such Holder shall be entitled to interest thereon, from and
after the Optional Redemption Date until the Optional Redemption Price has been
paid in full, at an annual rate equal to the lower of (x) the "prime" rate (as
published in the Wall Street Journal) on such fifth Business Day plus three
percent (3%) and (y) the highest rate permitted by applicable law, for the
number of days elapsed from such Dividend Payment Date until such amount is
paid in full (the "Default Interest Rate")
8. MANDATORY REDEMPTION BY HOLDER.
(a) Mandatory Redemption. In the event that a Mandatory
Redemption Event (as defined below) occurs, each Holder shall have the right,
to the extent permitted by applicable law and subject to the rights and
preferences of the Senior Securities, to have all or any portion of the
Preferred Shares held by such Holder redeemed by the Corporation (a "Mandatory
Redemption") at the Mandatory Redemption Price (as defined herein) in same day
funds. In order to exercise its right to effect a Mandatory Redemption, a
Holder must deliver a written notice (a "Mandatory Redemption Notice") to the
Corporation at any time on or before the Business Day following the day on
which such event is no longer continuing; provided, however, that, in the case
of subparagraph (b)(vi) below, the following procedure shall be followed in
lieu thereof: (a) no sooner than fifteen (15) days nor later than ten (10) days
prior to the Corporation's good faith estimate of the consummation of a Change
of Control Transaction (as defined below), but not prior to the public
announcement of such Change of Control Transaction, the Corporation shall
deliver a written notice (a "Notice of Change of Control Transaction") to each
Holder, and (b) within five (5) days of delivery by the Corporation of a Notice
of Change of Control Transaction, each Holder who wishes to exercise its right
to effect a Mandatory Redemption hereunder shall deliver a Mandatory Redemption
Notice to the Corporation. The Mandatory Redemption Notice shall specify the
effective date of such Mandatory Redemption (the "Mandatory Redemption Date")
and the number of such shares to be redeemed (an Optional Redemption Date and
the Mandatory Redemption Date are each sometimes referred to in this
Certificate as a "Redemption Date"). In the event that a Change of Control
Transaction occurs and the Corporation does not deliver to a Holder a Notice of
Change of Control Transaction, such Holder may exercise its right to a
Mandatory Redemption hereunder by delivering a Mandatory Redemption Notice
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to the Corporation (or to the surviving or successor entity) at any time on or
before the twentieth (20th) Business Day following such Change of Control
Transaction.
(b) Mandatory Redemption Event. Each of the following events
shall be deemed a "Mandatory Redemption Event":
(i) the Corporation fails for any reason (including
without limitation as a result of not having a sufficient number of shares of
Common Stock authorized and reserved for issuance, or as a result of the
limitation contained in Section 5(a) hereof) to issue shares of Common Stock to
a Holder and deliver certificates representing such shares to such Holder as
and when required by the provisions hereof upon Conversion of any Preferred
Shares, and such failure continues for ten (10) Business Days;
(ii) the Corporation breaches, in a material respect, any
covenant or other material term or condition of this Certificate, the
Securities Purchase Agreement, the Registration Rights Agreement, the Warrant
or any other agreement, document, certificate or other instrument delivered in
connection with the transactions contemplated thereby, and such breach (x) has
occurred as a result of voluntary action taken by the Company or its failure to
use its best efforts to take appropriate action and (y) continues for a period
of five (5) Business Days after written notice thereof to the Corporation from
a Holder;
(iii) any material representation or warranty made by the
Corporation in the Securities Purchase Agreement, the Registration Rights
Agreement, the Warrants or any other agreement, document, certificate or other
instrument delivered in connection with the transactions contemplated hereby or
thereby is inaccurate or misleading in any material respect as of the date such
representation or warranty was made;
(iv) the Registration Statement is not declared effective
by the one hundred and twentieth (120th) day following the Purchase Date or if
following the declaration of effectiveness of the Registration Statement and
while the effectiveness of the Registration Statement is required to be
maintained pursuant to the terms of the Registration Rights Agreement, the
effectiveness of the Registration Statement lapses for any reason (including
without limitation, the issuance of a stop order) or is unavailable to the
Holder for the sale of Conversion Shares in accordance with the terms of the
Registration Rights Agreement, and such lapse or unavailability continues for a
period of five (5) Business Days, provided that the cause of such failure to be
declared effective, lapse or unavailability results from voluntary action
undertaken by the Corporation or its failure to use its best efforts to take
appropriate action; and provided further that the Registration Statement shall
not be deemed to be unavailable to the Holder, for purposes of this
subparagraph (iv) only, during any Blackout Period (as defined in the
Registration Rights Agreement);
(v) the Common Stock is not quoted on the Nasdaq Stock
Market or listed on the New York Stock Exchange or the American Stock Exchange
and such failure to be so quoted or listed has occurred as a result of
voluntary action taken by the Company or its failure to use its best efforts to
take appropriate action; and
(vi) there occurs the sale, conveyance or disposition of
all or substantially all of the assets of the Corporation, or the effectuation
of a transaction or series of related transactions, in which more than 50% of
the voting power of the Corporation is disposed of, or the consolidation,
merger or other business combination of the Corporation with or into any other
entity, immediately following which the prior stockholders of the Corporation
fail
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to own, directly or indirectly, at least fifty percent (50%) of the surviving
entity (a "Change of Control Transaction") and the Corporation has agreed to
such Change of Control Transaction or its management has recommended to its
stockholders that such Change of Control Transaction be approved.
(c) Mandatory Redemption Price. The "Mandatory Redemption Price"
shall be equal to the greater of (i) Liquidation Preference of the Preferred
Shares being redeemed multiplied by one hundred and twenty five percent (125%)
and (ii) an amount determined by dividing the Liquidation Preference of the
Preferred Shares being redeemed by the Conversion Price in effect on the
Mandatory Redemption Date and multiplying the resulting quotient by the average
Closing Bid Price for the Common Stock on the five (5) Trading Days immediately
preceding (but not including) the Mandatory Redemption Date.
(d) Payment of Mandatory Redemption Price.
(i) The Corporation shall pay the Mandatory Redemption
Price to the Holder exercising its right to redemption within five (5) Business
Days following the Mandatory Redemption Date. Upon the redemption of a
Preferred Share, payment of the Mandatory Redemption Price to the Holder
thereof will be effected simultaneously with the return of such share by such
Holder to the Corporation.
(ii) If the Corporation fails to pay the Mandatory
Redemption Price to a Holder within five (5) Business Days of the Mandatory
Redemption Date and so long as such Holder has tendered its Preferred Shares to
the Corporation, such Holder shall be entitled to interest thereon, from and
after the Mandatory Redemption Date until the Mandatory Redemption Price has
been paid in full, at an annual rate equal to the Default Interest Rate.
(iii) If the Corporation fails to pay the Mandatory
Redemption Price within ten (10) Business Days of the Mandatory Redemption
Date, then the Holder shall have the right at any time, so long as the
Corporation remains in default, to require the Corporation, upon written
notice, to immediately issue, in lieu of the Mandatory Redemption Price, the
number of shares of Common Stock of the Corporation equal to the Mandatory
Redemption Price divided by the Conversion Price in effect on such Conversion
Date as is specified by the Holder in writing to the Corporation, such
Conversion Price to be reduced by one percent (1%) for each day beyond such
10th Business Day in which the failure to pay the Mandatory Redemption Price
continues; provided, however, that the maximum percentage by which such
Conversion Price may be reduced hereunder shall be fifty percent (50%).
9. MISCELLANEOUS.
(a) Transfer of Preferred Shares. A Holder may sell or transfer
all or any portion of the Preferred Shares to any person or entity as long as
such sale or transfer is the subject of an effective registration statement
under the Securities Act or is exempt from registration thereunder and
otherwise is made in accordance with the terms of the Securities Purchase
Agreement. From and after the date of such sale or transfer, the transferee
thereof shall be deemed to be a Holder. Upon any such sale or transfer, the
Corporation shall, promptly following the return of the certificate or
certificates representing the Preferred Shares that are the subject of such
sale or transfer, issue and deliver to such transferee a new certificate in the
name of such transferee.
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(b) Notices. Except as otherwise provided herein, any notice,
demand or request required or permitted to be given pursuant to the terms
hereof, the form or delivery of which notice, demand or request is not
otherwise specified herein, shall be in writing and shall be deemed given (i)
when delivered personally or by verifiable facsimile transmission on or before
5:00 p.m., eastern time, on a Business Day or, if such day is not a Business
Day, on the next succeeding Business Day, (ii) on the next Business Day after
timely delivery to an overnight courier and (iii) on the third Business Day
after deposit in the U.S. mail (certified or registered mail, return receipt
requested, postage prepaid), addressed to the parties as follows:
If to the Corporation:
Queen Sand Resources, Inc.
3500 Oak Lawn, Suite 380
Dallas, Texas 75219-4398
Attn.: Chief Executive Officer
Fax: 214-521-9960
and if to any Holder, to such address for such Holder as shall be designated by
such Holder in writing to the Corporation.
(c) Lost or Stolen Certificate. Upon receipt by the Corporation
of evidence of the loss, theft, destruction or mutilation of a certificate
representing Preferred Shares, and (in the case of loss, theft or destruction)
of indemnity or security reasonably satisfactory to the Corporation, and upon
surrender and cancellation of such certificate if mutilated, the Corporation
shall execute and deliver to the Holder a new certificate identical in all
respects to the original certificate.
(d) No Voting Rights. Except as provided by applicable law and
paragraph 8(g) below, the Holders of the Preferred Shares shall have no voting
rights with respect to the business, management or affairs of the Corporation.
The Corporation shall provide each Holder with prior notification of each
meeting of stockholders (and copies of proxy statements and other information
sent to such stockholders).
(e) Remedies, Characterization, Other Obligations, Breaches and
Injunctive Relief. The remedies provided to a Holder in this Certificate of
Designation shall be cumulative and in addition to all other remedies available
to such Holder under this Certificate of Designation, at law or in equity
(including without limitation a decree of specific performance and/or other
injunctive relief), no remedy contained herein shall be deemed a waiver of
compliance with the provisions giving rise to such remedy and nothing contained
herein shall limit such Holder's right to pursue actual damages for any failure
by the Corporation to comply with the terms of this Certificate of Designation.
The Corporation agrees with each Holder that there shall be no characterization
concerning this instrument other than as specifically provided herein. Amounts
set forth or provided for herein with respect to payments, conversion and the
like (and the computation thereof) shall be the amounts to be received by the
Holder hereof and shall not, except as expressly provided herein, be subject to
any other obligation of the Corporation (or the performance thereof). The
Corporation acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Holders and that the remedy at law for any such
breach may be inadequate. The Corporation agrees, in the event of any such
breach or threatened breach, each Holder shall be entitled, in addition to all
other available remedies, to an injunction restraining any
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breach, without the necessity of showing economic loss and without any bond or
other security being required.
(f) Failure or Delay not Waiver. No failure or delay on the part
of a Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege.
(g) Protective Provisions.
So long as shares of Series C Preferred Stock are outstanding,
the Corporation shall not, without first obtaining the approval of the Holders
of at least two-thirds (2/3) of the then outstanding shares of Series C
Preferred Stock:
(i) alter or change the rights, preferences or
privileges of the Series C Preferred Stock or any other capital stock of the
Corporation so as to affect adversely the Series C Preferred Stock;
(ii) create any new class or series of capital
stock having a preference over or ranking pari passu with the Series C
Preferred Stock as to redemption, the payment of dividends or distribution of
assets upon a Liquidation Event or any other liquidation, dissolution or
winding up of the Corporation;
(iii) increase the authorized number of shares of
Preferred Stock;
(iv) re-issue any shares of Series C Preferred
Stock which have been converted in accordance with the terms hereof;
(v) issue any Senior Securities (other than the
Company's Series B Participating Convertible Preferred Stock pursuant to the
terms of the Company's Series A Participating Convertible Preferred Stock) or
Pari Passu Securities; or
(vi) declare, pay or make any provision for any
dividend or distribution with respect to the Common Stock or any other capital
stock of the Corporation ranking junior to the Series C Preferred Stock as to
dividends or as to the distribution of assets upon liquidation, dissolution or
winding up of the Corporation.
In the event that Holders of at least two-thirds (2/3) of the then
outstanding shares of Series C Preferred Stock agree to allow the Corporation
to alter or change the rights, preferences or privileges of the shares of
Series C Preferred Stock pursuant to the terms hereof, or to waive any rights
of the Holders hereunder, then the Corporation will deliver notice of such
approved change to the holders of the Series C Preferred Stock that did not
agree to such alteration or change (the "Dissenting Holders") and the
Dissenting Holders shall have the right for a period of thirty (30) days
following such delivery to convert their Preferred Shares pursuant to the terms
hereof as they existed prior to such alteration or change, or to continue to
hold such Preferred Shares. No such change shall be effective to the extent
that, by its terms, it applies to less than all of the Holders of Preferred
Shares then outstanding.
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IN WITNESS WHEREOF, the Corporation has executed this Certificate of
Designation as of the 22nd day of December, 1997.
QUEEN SAND RESOURCES, INC.
By: /s/ Robert P. Lindsay
-----------------------------------
Name: Robert P. Lindsay
Title: Executive Vice President
and Chief Operating Officer
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EXHIBIT A
NOTICE OF CONVERSION
The undersigned hereby elects to convert shares of Series C Convertible
Preferred Stock (the "Preferred Stock"), represented by stock certificate
No(s). _______________ (the "Preferred Stock Certificates"), into shares of
common stock ("Common Stock") of Queen Sand Resources, Inc. (the "Company")
according to the terms and conditions of the Certificate of Designation
relating to the Preferred Stock (the "Certificate of Designation"), as of the
date written below. Capitalized terms used herein and not otherwise defined
shall have the respective meanings set forth in the Certificate of Designation.
[ ] (check box if shares of Common Stock have been resold) The undersigned
represents that the shares of Common Stock to be issued by the Company hereby
have been resold or transferred by the undersigned in accordance with the
provisions of the prospectus included in the Registration Statement.
Date of Conversion:
- ---------------------------------------- ----------------------------------------
Number of Shares of
Preferred Stock to be Converted:
- ---------------------------------------- ----------------------------------------
Applicable Conversion Price:
- ---------------------------------------- ----------------------------------------
Number of Shares of
Common Stock to be Issued:
- ---------------------------------------- ----------------------------------------
Amount of Dividend
Accrued through the
Conversion Date:
- ---------------------------------------- ----------------------------------------
Number of Shares of
Common Stock to be Issued
in Payment of Dividend:
- ---------------------------------------- ----------------------------------------
Name of Holder:
---------------------------------------------------------------
Address:
-------------------------------------------------------------
-------------------------------------------------------------
Signature:
-------------------------------------------------------------
Name:
Title:
20
Holder Requests Delivery to be made: (check one)
[ ] By Delivery of Physical Certificates to the Above Address
[ ] Through Depository Trust Corporation
(Account _______________________________________________________)