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EXHIBIT 1.2
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of December
22, 1997, by and among Queen Sand Resources, Inc., a Delaware corporation (the
"Company"), and each of the entities whose names appear on the signature pages
hereof. Such entities are each referred to herein as a "Purchaser" and,
collectively, as the "Purchasers".
The Company wishes to sell to each Purchaser, and each Purchaser
wishes to buy, on the terms and subject to the conditions set forth in this
Agreement, (i) shares (the "Preferred Shares") of the Company's Series C
Convertible Preferred Stock, par value $0.01 per share (the "Preferred Stock"),
and (ii) a warrant in the form of Exhibit A hereto (a "Warrant" and, when taken
together with all of the warrants issued or issuable hereunder, the "Warrants")
entitling the holder thereof to purchase shares (the "Warrant Shares") of the
Company's Common Stock, par value $0.0015 per share (the "Common Stock"). The
Preferred Shares are convertible pursuant to the terms of a Certificate of
Designation relating to the Preferred Stock, the form of which is attached
hereto as Exhibit B (the "Certificate of Designation") into shares (the
"Conversion Shares") of the Common Stock. Dividends on the Preferred Shares are
payable, subject to the terms and conditions of the Certificate of Designation,
in shares of Common Stock (the "Dividend Payment Shares"). The Preferred
Shares, the Warrants, the Conversion Shares, the Warrant Shares and the
Dividend Payment Shares are collectively referred to herein as the
"Securities".
The Company has agreed to effect the registration of the Conversion
Shares, the Warrant Shares and the Dividend Payment Shares under the Securities
Act of 1933, as amended (the "Securities Act"), pursuant to a Registration
Rights Agreement of even date herewith by and among the Company and the
Purchasers (the "Registration Rights Agreement"). The sale of the Preferred
Shares and the Warrants by the Company to the Purchasers will be effected in
reliance upon the exemption from securities registration afforded by the
provisions of Regulation D ("Regulation D"), as promulgated by the Securities
and Exchange Commission (the "Commission") under the Securities Act.
The Company and the Purchasers hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES.
1.1 Agreement to Purchase and Sell. Upon the terms and subject to
the satisfaction of the conditions set forth herein, the Company agrees to sell
at the Closing (as defined below), and each Purchaser agrees to purchase, (i)
the number of Preferred Shares set forth below such Purchaser's name on the
signature pages hereof and (ii) a Warrant entitling the holder thereof to
purchase the number of shares of Common Stock set forth below such Purchaser's
name on the signature pages hereof, at a purchase price equal to one thousand
dollars ($1,000) times the number of Preferred Shares purchased by such
Purchaser (the "Purchase Price").
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1.2 Closing. Subject to the satisfaction or waiver of the
conditions set forth herein, the closing of the purchase and sale of the
Preferred Shares and the Warrants (the "Closing") will be deemed to occur when
this Agreement and the other Transaction Documents (as defined below) have been
executed and delivered by the Company and each Purchaser (which delivery may be
effected by facsimile transmission), and full payment of the Purchase Price has
been made by each Purchaser by wire transfer of immediately available funds
against physical delivery by the Company of duly executed certificates
representing the Preferred Shares and the Warrant purchased by such Purchaser
hereunder. The date on which the Closing is deemed to occur is referred to
herein as the "Closing Date".
1.3 Certain Definitions. When used herein, (A) "business day"
shall mean any day on which the New York Stock Exchange and commercial banks in
the city of New York are open for business, (B) an "affiliate" of a party shall
mean any person or entity controlling, controlled by or under common control
with that party and (C) "control" shall mean, with respect to an entity, the
ability to direct the business, operations or management of such entity,
whether through an equity interest therein or otherwise.
2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Each Purchaser, solely with respect to it, hereby makes the following
representations and warranties to the Company and agrees with the Company that,
as of the date of this Agreement and as of the Closing Date:
2.1 Authorization; Enforceability. Such Purchaser is duly and
validly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization with full power and authority
to purchase the Preferred Shares and the Warrant and to execute and deliver
this Agreement. This Agreement constitutes such Purchaser's valid and legally
binding obligation, enforceable in accordance with its terms, except as such
enforcement may be limited by (i) applicable bankruptcy, insolvency,
reorganization or other laws of general application relating to or affecting
the enforcement of creditors' rights generally and (ii) general principles of
equity.
2.2 Accredited Investor; Investment Intent. Such Purchaser is an
accredited investor as that term is defined in Rule 501(a)(3) of Regulation D,
and is acquiring the Preferred Shares and the Warrant solely for its own
account for investment purposes as a principal and not with a present view to
the public resale or distribution of all or any part thereof, except pursuant
to sales that are exempt from the registration requirements of the Securities
Act and/or sales registered under the Securities Act; provided, however that in
making such representation, such Purchaser does not agree to hold the
Securities for any minimum or specific term and reserves the right to sell,
transfer or otherwise dispose of the Securities at any time in accordance with
the provisions of this Agreement and with Federal and state securities laws
applicable to such sale, transfer or disposition.
2.3 Information. The Company has provided such Purchaser with
information regarding the business, operations and financial condition of the
Company, and has granted to such Purchaser the opportunity to ask questions of
and receive answers from representatives of the Company, its officers,
directors, employees and agents concerning the Company and materials relating
to the terms and conditions of the purchase and sale of the Preferred Shares
and the Warrants hereunder. Neither such
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information nor any other investigation conducted by such Purchaser or any of
its representatives shall modify, amend or otherwise affect such Purchaser's
right to rely on the Company's representations and warranties contained in this
Agreement.
2.4 Limitations on Disposition. Such Purchaser acknowledges that,
except as provided in the Registration Rights Agreement, the Securities have
not been and are not being registered under the Securities Act and may not be
transferred or resold without registration under the Securities Act or unless
pursuant to an exemption therefrom.
2.5 Legend. Such Purchaser understands that the certificates
representing the Securities may bear at issuance a restrictive legend in
substantially the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act"), or the securities laws of any state, and
may not be offered or sold unless a registration statement
under the Securities Act and applicable state securities laws
shall have become effective with regard thereto, or an
exemption from registration under the Securities Act and
applicable state securities laws is available in connection
with such offer or sale. Such securities are issued subject to
the provisions of (i) the Certificate of Designation relating
to the Series C Convertible Preferred Stock of Queen Sand
Resources, Inc. (the "Company"), as amended, (ii) a Securities
Purchase Agreement, dated December 22, 1997, by and among the
Company and the purchasers named therein, and (iii) a
Registration Rights Agreement, dated December 22, 1997, by and
among the Company and such purchasers."
Notwithstanding the foregoing, it is agreed that, as long as
(A) the resale or transfer (including without limitation a pledge) of any of
the Securities is registered pursuant to an effective registration statement,
(B) such Securities can be sold pursuant to Rule 144 under the Securities Act
("Rule 144") and a registered broker dealer provides to the Company a customary
broker's Rule 144 letter and such Purchaser delivers to the Company 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
Securities are eligible for resale under Rule 144(k), such Securities shall be
issued without any legend or other restrictive language and, with respect to
Securities upon which such legend is stamped, the Company shall issue new
certificates without such legend to the holder upon request.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby makes the following representations and warranties
to each Purchaser and agrees with such Purchaser that, as of the date of this
Agreement and as of the Closing Date:
3.1 Organization, Good Standing and Qualification. Each of the
Company and its subsidiaries is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization and has all requisite corporate power and authority to carry on
its business as now conducted. Each of the Company and its subsidiaries is
duly qualified to transact business and is in good standing in each
jurisdiction in which the failure so to qualify would have a
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material adverse effect on the consolidated business or financial condition of
the Company and its subsidiaries taken as a whole. The term "subsidiaries"
shall mean entities in which the Company has an equity interest of 50% or
greater.
3.2 Authorization; Consents. The Company has the requisite
corporate power and authority to enter into and perform its obligations under
(i) this Agreement, (ii) the Registration Rights Agreement and (iii) all other
agreements, documents, certificates or other instruments delivered by the
Company at the Closing (the instruments described in (i), (ii) and (iii) being
collectively referred to herein as the "Transaction Documents"), to execute and
perform its obligations under the Certificate of Designation, to execute and
perform its obligations under the Warrants, to issue and sell the Preferred
Shares and the Warrants to such Purchaser in accordance with the terms hereof,
to issue the Conversion Shares upon conversion of the Preferred Shares in
accordance with the Certificate of Designation, to issue the Warrant Shares
upon exercise of the Warrants and to issue the Dividend Payment Shares in
accordance with the Certificate of Designation. All corporate action on the
part of the Company by its officers, directors and stockholders necessary for
(A) the authorization, execution and delivery of, and the performance by the
Company of its obligations under, the Transaction Documents, (B) the
authorization, execution and filing of, and the performance by the Company of
its obligations under, the Certificate of Designation, and (C) the
authorization and execution, and the performance by the Company of its
obligations under, the Warrants has been taken, and no further consent or
authorization of the Company, its Board of Directors, its stockholders, any
governmental agency or organization (other than such approval as may be
required under the Securities Act and applicable state securities laws in
respect of the Registration Rights Agreement), or any other person or entity is
required (pursuant to any rule of the National Association of Securities
Dealers, Inc., other than with respect to the listing of the Conversion Shares
on the Nasdaq Small Cap Market, or otherwise).
3.3 Enforcement. The Transaction Documents and the Certificate of
Designation constitute, and the Warrants upon issuance will constitute, valid
and legally binding obligations of the Company, enforceable in accordance with
their respective terms, except as such enforcement may be limited by (i)
applicable bankruptcy, insolvency, reorganization or other laws of general
application relating to or affecting the enforcement of creditors' rights
generally, (ii) general principles of equity and (iii) as to indemnification
under the Securities Act or Exchange Act, principles of public policy.
3.4 Disclosure Documents; Agreements; Financial Statements; Other
Information. The Company has filed with the Commission: (i) the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1996, (ii)
Quarterly Reports on Form 10-QSB for the quarters ended March 31, 1997, June
30, 1997 and September 30, 1997, (iii) all Current Reports on Form 8-K required
to be filed with the Commission since December 31, 1996 and (iv) the Company's
definitive Proxy Statement for its 1997 Annual Meeting of Stockholders
(collectively, the "Disclosure Documents"). The Company is not aware of any
event occurring on or prior to the Closing (other than the transactions
effected hereby) that would require the filing of, or with respect to which the
Company intends to file, a Form 8-K after the Closing. Each Disclosure
Document, as of the date of the filing thereof with the Commission, conformed
in all material respects to the requirements of the Exchange Act, and the rules
and regulations thereunder and, as of the date of such filing, such Disclosure
Document did not contain an untrue statement of material fact or omit to state
a material fact required to be stated therein or
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necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. All material agreements required to be
filed as exhibits to the Disclosure Documents have been filed as required.
Neither the Company nor any of its subsidiaries is in breach of any agreement
to which it is a party or by which it is bound where such breach is reasonably
likely to have a material adverse effect on the consolidated business or
financial condition of the Company and its subsidiaries taken as a whole.
Except as set forth in the Disclosure Documents or any schedule or exhibit
attached hereto, the Company has no liabilities, contingent or otherwise, other
than liabilities incurred in the ordinary course of business which, under
generally accepted accounting principles, are not required to be reflected in
such financial statements and which, individually or in the aggregate, are not
material to the consolidated business or financial condition of the Company and
its subsidiaries taken as a whole. As of their respective dates, the financial
statements of the Company included in the Disclosure Documents complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the Commission with respect thereto. Such
financial statements have been prepared in accordance with generally accepted
accounting principles consistently applied at the times and during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto, or (ii) in the case of unaudited interim statements, to
the extent they may exclude footnotes or may be condensed or summary
statements) and fairly present in all material respects the financial position
of the Company as of the dates thereof and the results of its operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end adjustments). The written information described
in paragraph 2.3 above does not contain an untrue statement of material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading, and does not include any material, non-public
information.
3.5 Capitalization. The capitalization of the Company as of the
date hereof, including its authorized capital stock, the number of shares
issued and outstanding, the number of shares issuable and reserved for issuance
pursuant to the Company's stock option plans, the number of shares issuable and
reserved for issuance pursuant to securities (other than the Preferred Stock)
exercisable for, or convertible into or exchangeable for any shares of Common
Stock and the number of shares initially to be reserved for issuance upon
conversion of the Preferred Shares and exercise of the Warrants is set forth on
Schedule 3.5 hereto. All of such outstanding shares of capital stock have
been, or upon issuance will be, validly issued, fully paid and non-assessable.
No shares of the capital stock of the Company are subject to preemptive rights
or any other similar rights of the stockholders of the Company or any liens or
encumbrances created by or through the Company. Except as disclosed on
Schedule 3.5, or as contemplated herein, as of the date of this Agreement and
as of the Closing, there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into or exercisable or exchangeable for, any
shares of capital stock of the Company or any of its subsidiaries, or
arrangements by which the Company or any of its subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
subsidiaries.
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3.6 Valid Issuance.
3.6.1 The Preferred Shares are duly authorized and, when
issued, sold and delivered in accordance with the terms hereof, (i) will be
duly and validly issued, fully paid and nonassessable, free and clear of any
taxes, liens, claims, preemptive or similar rights or encumbrances imposed by
or through the Company, (ii) based in part upon the representations of such
Purchaser in this Agreement, will be issued, sold and delivered in compliance
with all applicable Federal and state securities laws and (iii) will be
entitled to all of the rights, preferences and privileges set forth in the
Certificate of Designation. The Conversion Shares are duly authorized and
reserved for issuance and, when issued upon conversion of the Preferred Shares
in accordance with the terms of the Certificate of Designation, will be duly
and validly issued, fully paid and nonassessable, free and clear of any taxes,
liens, claims, preemptive or similar rights or encumbrances imposed by or
through the Company. The Dividend Payment Shares are duly authorized and, upon
the issuance thereof in accordance with the terms of the Certificate of
Designation, will be duly and validly issued, fully paid and nonassessable,
free and clear of any taxes, liens, claims, preemptive or similar rights or
encumbrances imposed by or through the Company.
3.6.2 The Warrants are duly authorized and, when issued, sold
and delivered in accordance with the terms hereof, will be duly and validly
issued, fully paid and nonassessable, free and clear of any taxes, liens,
claims, preemptive or similar rights or encumbrances imposed by or through the
Company. The Warrant Shares are duly authorized and reserved for issuance and,
when issued upon exercise of the Warrants in accordance with the terms thereof,
will be duly and validly issued, fully paid and nonassessable, free and clear
of any taxes, liens, claims, preemptive or similar rights or encumbrances
imposed by or through the Company.
3.7 No Conflict with Other Instruments. Neither the Company nor
any of its subsidiaries is in violation of any provisions of its charter,
Bylaws or any other governing document as amended and in effect on and as of
the date hereof or in default (and no event has occurred which, with notice or
lapse of time or both, would constitute a default) under any provision of any
instrument or contract to which it is a party or by which it is bound, or of
any provision of any Federal or state judgment, writ, decree, order, statute,
rule or governmental regulation applicable to the Company, which would have a
material adverse effect on the consolidated business or financial condition of
the Company and its subsidiaries taken as a whole. Except as described on
Schedule 3.7, the (i) execution, delivery and performance of this Agreement and
the other Transaction Documents, (ii) execution and filing of the Certificate
of Designation, and (iii) consummation of the transactions contemplated hereby
and thereby (including without limitation, the issuance of the Preferred
Shares, the issuance of the Warrants and the reservation for issuance and
issuance of the Conversion Shares, the Warrant Shares and the Dividend Payment
Shares) will not result in any such violation or be in conflict with or
constitute, with or without the passage of time and giving of notice, either a
default under any such provision, instrument or contract or an event which
results in the creation of any lien, charge or encumbrance upon any assets of
the Company or of any of its subsidiaries or the triggering of any preemptive
or anti-dilution rights or rights of first refusal or first offer on the part
of holders of the Company's securities.
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3.8 Financial Condition; Taxes; Litigation.
3.8.1 The Company's financial condition is, in all material
respects, as described in the Disclosure Documents, except for changes in the
ordinary course of business and normal year-end adjustments that are not, in
the aggregate, materially adverse to the consolidated business or financial
condition of the Company and its subsidiaries taken as a whole. Except as
otherwise described in the Disclosure Documents, as of the date hereof and as
of the Closing there has been no material adverse change to the Company's
business, operations, properties, financial condition, prospects or results of
operations since the date of the Company's most recent audited financial
statements contained in the Disclosure Documents.
3.8.2 The Company has filed all tax returns required to be
filed by it and paid all taxes which are due, except for taxes which it
reasonably disputes or which could not reasonably be expected to have a
material adverse effect on the consolidated business or financial condition of
the Company and its subsidiaries taken as a whole.
3.8.3 Each of the Company and its subsidiaries is not the
subject of any pending or, to the Company's knowledge, threatened inquiry,
investigation or administrative or legal proceeding by the Internal Revenue
Service, the taxing authorities of any state or local jurisdiction, the
Commission or any state securities commission or other governmental or
regulatory entity which could reasonably be expected to have a material adverse
effect on the consolidated business or financial condition of the Company and
its subsidiaries taken as a whole.
3.8.4 There is no material claim, litigation or
administrative proceeding pending, or, to the Company's knowledge, threatened
or contemplated, against the Company or any of its subsidiaries, or against any
officer, director or employee of the Company or any such subsidiary in
connection with such person's employment therewith. Neither the Company nor
any of its subsidiaries is a party to or subject to the provisions of, any
order, writ, injunction, judgment or decree of any court or government agency
or instrumentality which could reasonably be expected to have a material
adverse effect on the consolidated business or financial condition of the
Company and its subsidiaries taken as a whole.
3.9 Reporting Company; Form S-3. The Company is subject to the
reporting requirements of the Exchange Act, has a class of securities
registered under Section 12 of the Exchange Act, and has filed all reports
required thereby. The Company is eligible to register for resale shares of its
Common Stock on a registration statement on Form S-3 under the Securities Act.
3.10 Acknowledgement of Dilution. The Company acknowledges that
the issuance of (i) the Conversion Shares upon conversion of the Preferred
Shares in accordance with the terms of the Certificate of Designation, (ii) the
Warrant Shares upon exercise of the Warrants, and (iii) the Dividend Payment
Shares in accordance with the terms of the Certificate of Designation may
result in dilution of the outstanding shares of Common Stock, which dilution
may be substantial under certain market conditions. The Company further
acknowledges that its obligation (x) to issue Conversion Shares upon conversion
of the Preferred Shares in accordance with the terms of the Certificate of
Designation, (y) to issue Warrant Shares upon exercise of the Warrants and (z)
to issue Dividend Payment Shares in accordance with the terms of the
Certificate of Designation is unconditional and absolute regardless of the
effect of any such dilution.
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3.11 Intellectual Property. The Company and its subsidiaries each
owns or possesses adequate trademarks, trade names and other rights to
inventions, know-how, patents, copyrights, confidential information and other
intellectual property rights necessary to conduct the business now operated by
it, and is not aware of any infringement by a third party with respect to such
rights or of any infringement by it or conflict with asserted rights of others
that, in any such case, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a material adverse
effect on the consolidated business or financial condition of the Company and
its subsidiaries taken as a whole.
3.12 Registration Rights; Rights of Participation. Except as
described on Schedule 3.12 hereto, (A) the Company has not granted or agreed to
grant to any person or entity any rights (including "piggy-back" registration
rights) to have any securities of the Company registered with the Commission or
any other governmental authority which has not been satisfied and (B) no person
or entity, including, but not limited to, current or former stockholders of the
Company, underwriters, brokers, agents or other third parties, has any right of
first refusal, preemptive right, right of participation, or any similar right
to participate in the transactions contemplated by this Agreement, the other
Transaction Documents or the Certificate of Designation which has not been
waived.
3.13 Trading on Nasdaq. The Common Stock is authorized for
quotation on the Nasdaq Small Cap Market, and trading in the Common Stock on
Nasdaq has not been suspended. The Company is in full compliance with the
designation criteria of the Nasdaq Small Cap Market, and does not reasonably
anticipate that the Common Stock will lose its designation as a Nasdaq Small
Cap Market Security, whether by reason of the transactions contemplated by this
Agreement, the other Transaction Documents or the Certificate of Designation.
3.14 Solicitation. Neither the Company nor any of its subsidiaries
or affiliates, nor any person acting on its or their behalf, (i) has engaged in
any form of general solicitation or general advertising (within the meaning of
Regulation D) in connection with the offer or sale of the Preferred Shares or
the Warrants or (ii) has, directly or indirectly, made any offers or sales of
any security or solicited any offers to buy any security, under any
circumstances that would require registration of the Preferred Shares or the
Warrants under the Securities Act.
3.15 Fees. Except as described on Schedule 3.15 hereto, the
Company is not obligated to pay any compensation or other fee, cost or related
expenditure to any underwriter, broker, agent or other representative in
connection with the transactions contemplated hereby.
3.16 Foreign Corrupt Practices. To the knowledge of the Company,
neither the Company, nor any of its subsidiaries nor any director, officer,
agent, employee or other person acting on behalf of the Company or any
subsidiary, has (i) used any corporate funds for any unlawful contribution,
gift, entertainment or other unlawful expenses relating to political activity,
(ii) made any direct or indirect unlawful payment to any foreign or domestic
government official or employee, (iii) violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended, or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.
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3.17 Other Issuances of Securities. The Company has not issued
(and will not issue) any shares of Common Stock or shares of any series of
preferred stock or other securities or instruments convertible into,
exchangeable for or otherwise entitling the holder thereof to acquire shares of
Common Stock which would be integrated with the sale of the Preferred Shares to
such Purchaser, or the issuance of the Conversion Shares upon conversion
thereof, for purposes of determining whether stockholder approval is required
under the designation criteria of the Nasdaq Small Cap Market.
3.18 Title. The Company and its subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its subsidiaries, in each case free and clear of all liens,
encumbrances and defects, except for liens, claims or encumbrances as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company and its
subsidiaries. Any real property and facilities held under lease by the Company
and its subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with the
use made and proposed to be made of such property and buildings by the Company
and its subsidiaries.
3.19 Regulatory Permits. The Company and its subsidiaries possess
all certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any such subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit.
4. COVENANTS OF THE COMPANY.
4.1 Corporate Existence. The Company shall, so long as any
Purchaser or any affiliate of such Purchaser beneficially owns any Securities,
maintain its corporate existence in good standing and shall pay all taxes owed
by it when due except for taxes which the Company reasonably disputes or as to
which the failure to pay could not reasonably be expected to have a material
adverse effect on the consolidated business or financial condition of the
Company and its subsidiaries taken as a whole.
4.2 Provision of Information. The Company shall provide each
Purchaser with copies of its annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K and proxy statements and other materials
sent to stockholders, in each such case promptly after the filing thereof with
the Commission, until the conversion or redemption of all of the Preferred
Shares and exercise in full of all of the Warrants held by such Purchaser.
4.3 Form D; Blue-Sky Qualification. The Company agrees to file a
Form D with respect to the Securities as required under Regulation D and to
provide a copy thereof to each Purchaser promptly after such filing. The
Company shall, on or before the Closing, take such action as is necessary to
qualify the Preferred Shares and Warrants for sale under applicable state or
"blue-sky" laws or obtain an exemption therefrom, and shall provide evidence of
any such action to each Purchaser at or prior to the Closing.
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4.4 Reporting Status. As long as any Purchaser or any affiliate
of such Purchaser beneficially owns any Securities and until the date on which
any of the foregoing may be sold to the public pursuant to Rule 144(k) (or any
successor rule or regulation), (i) the Company shall timely file with the
Commission all reports required to be so filed pursuant to the Exchange Act and
(ii) the Company shall not terminate its status as an issuer required by the
Exchange Act to file reports thereunder even if the Exchange Act or the rules
or regulations thereunder would permit such termination. The Company agrees to
file with the Commission a Form 8-K describing the terms of the transactions
contemplated by this Agreement and the other Transaction Documents, with the
Transaction Documents attached to such Form 8-K as an exhibit thereto, on or
before the tenth (10th) day following the Closing Date in the form required by
the Exchange Act.
4.5 Reservation of Common Stock. The Company shall at all times
have authorized and reserved for issuance, free from any preemptive rights,
solely for the purpose of effecting conversions of the Preferred Shares
hereunder and the exercise of the Warrants, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
of the Preferred Shares and the exercise of the Warrants in full (the "Reserved
Amount"). As of the Closing Date, the Reserved Amount shall be equal to no
less than 200% of the number of shares of Common Stock issuable upon (i)
conversion of all of the Preferred Shares to be issued at the Closing (assuming
for such purpose that such conversion were to occur as of the Closing Date) and
(ii) exercise of all of the Warrants to be issued at the Closing. If on any
date the Reserved Amount is less than 175% of the number of shares of Common
Stock then issuable upon conversion of all of the Preferred Shares then
outstanding (assuming for such purpose that such conversion were to occur as of
such date) and (ii) exercise of all of the Warrants then outstanding, the
Company shall take action (including without limitation seeking stockholder
authorization for the reservation of additional shares of Common Stock) as soon
as practicable (but in no event longer than thirty (30) days) to increase the
Reserved Amount to no less than 200% of the number of shares of Common Stock
into which such outstanding Preferred Shares are then convertible and such
outstanding Warrants are exercisable. The Company shall not reduce the number
of shares reserved for issuance hereunder without the written consent of the
holders of two-thirds of the Preferred Shares then outstanding. No Purchaser
shall be issued, upon conversion of Preferred Shares or exercise of the
Warrants, shares of Common Stock in an amount greater than the product of (A)
the Reserved Amount in effect on the date on which notice of such conversion or
exercise is delivered to the Company pursuant to the terms of the Certificate
of Designation times (B) a fraction, the numerator of which is the number of
Preferred Shares purchased by such Purchaser hereunder and the denominator of
which is the aggregate amount of all of the Preferred Shares purchased by the
Purchasers hereunder.
4.6 Use of Proceeds. The Company shall use the proceeds from the
sale of the Preferred Shares and the Warrants for general corporate purposes
only, in the ordinary course of its business and consistent with past practice
and shall not use such proceeds to make a loan to any employee, officer or
director of the Company or to repurchase or pay a dividend on shares of Common
Stock.
4.7 Quotation on Nasdaq. The Company shall (i) promptly following
the Closing, take such action as may be necessary to include the Conversion
Shares, the Warrant Shares and the Dividend Payment Shares on the Nasdaq Small
Cap Market, and (ii) use its best efforts to maintain the
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designation and quotation, or listing, of the Common Stock on the Nasdaq Small
Cap Market, the Nasdaq National Market, the New York Stock Exchange or the
American Stock Exchange.
4.8 Use of Purchaser Name. Except as may be required by
applicable law, the Company shall not use, directly or indirectly, any
Purchaser's name in any advertisement, announcement, press release or other
similar communication unless it has received the prior written consent of such
Purchaser for the specific use contemplated or as otherwise required by
applicable law or regulation.
4.9 Company's Instructions to Transfer Agent. On or prior to the
Closing, the Company shall execute and deliver irrevocable instructions to its
transfer agent (the "Transfer Agent") (i) to issue certificates representing
Conversion Shares upon conversion of the Preferred Shares in accordance with
the terms of the Certificate of Designation and receipt of a valid Conversion
Notice (as defined in the Certificate of Designation) from a Purchaser, in the
amount specified in such Conversion Notice, in the name of such Purchaser or
its nominee, (ii) to issue certificates representing Warrant Shares upon
exercise of the Warrants in accordance with their terms and receipt of a valid
Exercise Notice (as defined in the Warrants) from a Purchaser, in the amount
specified in such Exercise Notice in the name of such Purchaser or its nominee,
(iii) to issue certificates representing the Dividend Payment Shares upon the
issuance thereof in accordance with the Certificate of Designation and (iv) to
deliver such certificates to such Purchaser no later than the close of business
on the later to occur of (A) the third (3rd) business day following the related
Conversion Date or the Dividend Payment Date (each as defined in the
Certificate of Designation) or Exercise Date (as defined in the Warrant), as
the case may be and (B) in the case of conversion of Preferred Shares or
exercise of the Warrant, the first business day following the date of delivery
of the original certificates, duly endorsed, representing the Preferred Shares
being converted or the Warrant being exercised, as the case may be. As long as
the Company shall instruct the transfer agent that, in lieu of delivering
physical certificates representing shares of Common Stock to a Purchaser upon
conversion of the Preferred Shares, exercise of the Warrant, or issuance of the
Dividend Payment Shares, and as long as the Transfer Agent is a participant in
the Depository Trust Company ("DTC") Fast Automated Securities Transfer
program, and such Purchaser has not informed the Company that it wishes to
receive physical certificates therefor, the transfer agent may effect delivery
of Conversion Shares, Warrant Shares or Dividend Payment Shares, as the case
may be, by crediting the account of such Purchaser or its nominee at DTC for
the number of shares for which delivery is required hereunder within the time
frame specified above for delivery of certificates. The Company represents to
and agrees with each Purchaser that it will not give any instruction to the
Transfer Agent that will conflict with the foregoing instruction or otherwise
restrict such Purchaser's right to convert the Preferred Shares or exercise the
Warrant or to receive Conversion Shares, Warrants or Dividend Payment Shares in
accordance with the terms of the Certificate of Designation or to receive
Warrant Shares in accordance with the terms of the Warrants. In the event that
the Company's relationship with the Transfer Agent should be terminated for any
reason, the Transfer Agent shall continue acting as transfer agent pursuant to
the terms hereof until such time that a successor transfer agent is appointed
by the Company and receives the instructions described above.
4.10 Capital Raising Limitation. The Company will not, during the
six (6) month period following the Closing Date (the "Limitation Period"),
offer for sale or sell any Common Stock (or any security convertible into, or
exercisable or exchangeable for, Common Stock) (the "Capital Raising
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Limitation"). The Capital Raising Limitation shall not apply to any
transaction involving issuances of securities as consideration in a merger,
consolidation, acquisition or sale of assets (in each case, the primary purpose
of which is not to raise equity capital) or pursuant to a strategic partnership
or joint venture which is formed for a bona fide commercial purpose, or as
consideration for the acquisition of a business, product or license by the
Company or in connection with the exercise of options by employees, directors
or consultants. The Capital Raising Limitation also shall not apply to (i) the
issuance of Common Stock in a transaction pursuant to (x) a public offering, or
(y) an offering pursuant to Regulation D or Regulation S under the Securities
Act upon the following terms: (aa) such offering does not exceed, individually
or in the aggregate, ten million dollars ($10,000,000), (bb) the purchaser
thereof is required to hold such Common Stock for at least one (1) year from
the date of issuance before selling or otherwise disposing of such Common
Stock, (cc) such Common Stock is issued at a discount of no more than fifteen
percent (15%) from the Closing Bid Price (as defined in the Certificate) of the
Common Stock on the date of issuance thereof, and (dd) no warrants or other
instruments exercisable or convertible into Common Stock are issued by the
Corporation in connection with such offering, (ii) the issuance of warrants
exercisable into Common Stock at a price no less than the Closing Bid Price (as
defined in the Certificate) of the Common Stock on the date of the issuance of
such warrants as an incentive or compensation (upon customary terms applicable
to an arms' length transaction) for up to two (2) investment banking firms
located in North America and up to two (2) investment banking firms located in
Europe in connection with services rendered to the Corporation, (iii) the
issuance of warrants exercisable into Common Stock at a price no less than the
Closing Bid Price (as defined in the Certificate) of the Common Stock on the
date of the issuance of such warrants to a person or entity as compensation
(upon customary terms applicable to an arms' length transaction) for raising
debt or equity financing for the Corporation, (iv) the issuance of up to ten
million dollars ($10,000,000) of revolving subordinated debt, convertible into
Common Stock not less than one year from the issuance date thereof and only
with respect to principal thereof (and interest accrued thereon) which is
outstanding at least one hundred and eighty (180) days, to Joint Energy
Development Investments L.P. or any affiliate of Enron Corporation, (v) the
issuance of securities upon exercise or conversion of the Company's options,
warrants or other convertible securities outstanding as of the date hereof, or
(vi) the grant of additional options or warrants, or the issuance of additional
securities, under any Company stock option or restricted stock plan for the
benefit of the Company's employees, directors or consultants or under any
rights pursuant to Section 7.01 of the Securities Purchase Agreement between
the Company and Joint Energy Development Investments L.P.
4.11 Right of First Offer. Prior to any offer or sale by the
Company of Common Stock (or any securities convertible into or exchangeable for
Common Stock) during the one hundred and eighty (180) day period following the
last day of the Limitation Period, the Company must first deliver to each
Purchaser written notice describing the proposed issuance, including the terms
and conditions thereof, and provide such Purchaser with an option during the
five (5) business day period following delivery of such notice to purchase up
to its proportionate share (based on the number of Preferred Shares purchased
by such Purchaser hereunder relative to the number of Preferred Shares
purchased by the Purchasers hereunder) of the securities being offered on the
same terms as contemplated by such issuance ("Right of First Offer"); provided,
however, that the Right of First Offer shall not apply to (i) the issuance of
up to ten million dollars ($10,000,000) of revolving subordinated debt,
convertible into Common Stock not less than one year from the issuance date
thereof and only with respect to principal
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thereof (and interest accrued thereon) which is outstanding at least one
hundred and eighty (180) days, to Joint Energy Development Investments L.P. or
any affiliate of Enron Corporation, (ii) the issuance of securities upon
exercise or conversion of the Company's options, warrants or other convertible
securities outstanding as of the date hereof, or (iii) the grant of additional
options or warrants, or the issuance of additional securities, under any
Company stock option or restricted stock plan for the benefit of the Company's
employees, directors or consultants or under any rights pursuant to Section
7.01 of the Securities Purchase Agreement between the Company and Joint Energy
Development Investments L.P.. In the event that such Purchaser exercises the
foregoing option to purchase such securities, the Company may, at its option,
either sell such securities to such Purchaser as part of the proposed issuance
or, in lieu thereof, sell such securities to such Purchaser pursuant to a
separate issuance which the Company will effect within thirty (30) days of the
closing of such proposed issuance. In the event that such Purchaser either
does not give notice within such five business day period that it intends to
exercise its option or informs the Company in writing that it does not intend
to participate in such issuance, the Company may offer to a third party the
option to purchase, in the aggregate, the amount of securities which were
declined by such Purchaser, on the same terms as were offered to such
Purchaser, without any further obligation to such Purchaser.
4.12 No Adverse Action. The Company shall refrain, while any
Preferred Shares or Warrants are outstanding, from taking any action or
entering into any arrangement which in any way adversely affects the rights,
privileges or benefits available to a holder thereof pursuant to the terms of
the Certificate of Designation or the Warrants, respectively.
5. CONDITIONS TO CLOSING.
5.1 Conditions to Purchaser's Obligations at Closing. Each
Purchaser's obligations at the Closing, including without limitation its
obligation to purchase the Preferred Shares and the Warrant, are conditioned
upon the fulfillment of each of the following events:
5.1.1 the representations and warranties of the
Company set forth in this Agreement shall be
true and correct in all material respects as
of the Closing Date as if made on such date;
5.1.2 the Company shall have complied with or
performed in all material respects all of the
agreements, obligations and conditions set
forth in this Agreement that are required to
be complied with or performed by the Company
on or before the Closing;
5.1.3 the Company shall have delivered to such
Purchaser a certificate, signed by an officer
of the Company, certifying that the
conditions specified in paragraphs 5.1.1 and
5.1.2 above have been fulfilled as of the
Closing;
5.1.4 the Company shall have filed the Certificate
of Designation with the Secretary of State of
the State of Delaware and shall have
furnished such Purchaser with a file- stamped
copy thereof;
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5.1.5 the Company shall have delivered to such
Purchaser an opinion of counsel for the
Company, dated as of the Closing Date, in
substantially the form set forth on Exhibit
5.1.5 hereto, and covering such additional
matters as may reasonably be requested by
such Purchaser;
5.1.6 the Company shall have delivered duly
executed certificates representing the
Preferred Shares being so purchased;
5.1.7 the Company shall have executed and delivered
the Registration Rights Agreement;
5.1.8 the Common Stock shall be designated for
quotation and actively traded on the Nasdaq
Small Cap Market;
5.1.9 there shall have been no material adverse
changes in the Company's consolidated
business or financial condition since the
date of the Company's most recent audited
financial statements contained in the
Disclosure Documents;
5.1.10 the Company shall have authorized and reserved for
issuance 200% of the aggregate number of shares of
Common Stock issuable upon conversion of all of the
Preferred Shares (such number to be determined using
the Conversion Price in effect on the Closing Date)
and exercise of all of the Warrants, to be issued at
the Closing;
5.1.11 each of Bruce Benn, Ed Munden and Robert Lindsay
shall have executed and delivered a letter agreement
addressed to the Purchasers regarding such person's
agreement to refrain from selling such person's
holdings of Common Stock until the Registration
Statement (as defined in the Registration Rights
Agreement) is declared effective;
5.1.12 the Company shall have delivered a letter to the
Purchasers from Joint Energy Development Investments
L.P. consenting to the transactions contemplated
hereby and by the Certificate and waiving any rights
it may otherwise have pursuant thereto; and
5.1.13 the other Purchasers shall have purchased at the
Closing the aggregate number of Preferred Shares and
Warrants such that, when added to the Preferred
Shares and Warrants to be purchased by such Purchaser
hereunder, the aggregate Purchase Price therefor
shall be equal to at least ten million dollars
($10,000,000); provided, that, if a Purchaser fails
to purchase all or any portion of the Preferred
Shares and Warrant to be purchased by it hereunder,
the other Purchasers shall have the option, but not
the obligation, to purchase such Preferred Shares and
Warrant.
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5.2 Conditions to Company's Obligations at Closing. The Company's
obligations at the Closing are conditioned upon the fulfillment of each of the
following events:
5.2.1 the representations and warranties of each
Purchaser shall be true and correct in all
material respects as of the Closing Date as
if made on such date;
5.2.2 each Purchaser shall have complied with or
performed all of the agreements, obligations
and conditions set forth in this Agreement
that are required to be complied with or
performed by such Purchaser on or before the
Closing; and
5.2.3 each Purchaser shall have executed and
delivered the Registration Rights Agreement.
6. MISCELLANEOUS.
6.1 Survival; Severability. The representations,
warranties, covenants and indemnities made by the parties herein shall survive
the Closing notwithstanding any due diligence investigation made by or on
behalf of the party seeking to rely thereon, provided that the representations
and warranties contained herein shall survive for two (2) years following the
Closing Date. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that in such case the parties shall negotiate in good faith
to replace such provision with a new provision which is not illegal,
unenforceable or void, as long as such new provision does not materially change
the economic benefits of this Agreement to the parties.
6.2 Successors and Assigns. The terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the respective
successors and permitted assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and permitted assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement. The Purchaser may assign its
rights and obligations hereunder, in connection with any private sale or
transfer of the Preferred Shares or the Warrants in accordance with the terms
hereof, as long as, as a condition precedent to such transfer, the transferee
executes an acknowledgment agreeing to be bound by the applicable provisions of
this Agreement, in which case the term "Purchaser" shall be deemed to refer to
such transferee as though such transferee were an original signatory hereto.
The Company may not assign it rights or obligations under this Agreement.
6.3 Independent Nature of Purchasers' Obligations and
Rights. The obligations of each Purchaser hereunder are several and not joint
with the obligations of the other Purchasers hereunder, and no Purchaser shall
be responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at the Closing, and no action taken by any Purchaser
pursuant hereto or thereto, shall be
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deemed to constitute the Purchasers as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert with respect to such obligations or
the transactions contemplated by this Agreement. Each Purchaser shall be
entitled to protect and enforce its rights, including without limitation the
rights arising out of the Certificate of Designation, this Agreement or the
other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose.
6.4 No Reliance; Representations by Purchasers. Each
party acknowledges that (i) it has such knowledge in business and financial
matters as to be fully capable of evaluating this Agreement, the other
Transaction Documents and the transactions contemplated hereby and thereby,
(ii) it is not relying on any advice or representation of the other party in
connection with entering into this Agreement, the other Transaction Documents
or such transactions (other than the representations made in this Agreement or
the other Transaction Documents), (iii) it has not received from such party any
assurance or guarantee as to the merits (whether legal, regulatory, tax,
financial or otherwise) of entering into this Agreement or the other
Transaction Documents or the performance of its obligations hereunder and
thereunder, and (iv) it has consulted with its own legal, regulatory, tax,
business, investment, financial and accounting advisors to the extent that it
has deemed necessary, and has entered into this Agreement and the other
Transaction Documents based on its own independent judgment and on the advice
of its advisors as it has deemed necessary, and not on any view (whether
written or oral) expressed by such party.
6.5 Injunctive Relief. The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to each
Purchaser and that the remedy or remedies at law for any such breach will be
inadequate and agrees, in the event of any such breach, in addition to all
other available remedies, to an injunction restraining any breach and requiring
immediate and specific performance of such obligations without the necessity of
showing economic loss.
6.6 Governing Law; Jurisdiction. This Agreement shall be
governed by and construed under the laws of the State of New York without
regard to the conflict of laws provisions thereof. Each party hereby
irrevocably submits to the non-exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address in effect for notices to it under this Agreement and
agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit
in any way any right to serve process in any manner permitted by law.
6.7 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.
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6.8 Headings. The headings used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.
6.9 Notices. Any notice, demand or request required or
permitted to be given by any party to any other party pursuant to the terms of
this Agreement shall be in writing and shall be deemed given (i) when delivered
personally or by verifiable facsimile transmission (with an original to follow)
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 a nationally-recognized 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 Company:
Queen Sand Resources, Inc.
3500 Oak Lawn, Suite 380
Dallas, Texas 75219-4398
Attn.: Chief Executive Officer
Fax: 214-521-9960
with a copy to:
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
Attn: William L. Boeing
Tel: 214-651-5553
Fax: 214-651-5940
and if to any Purchaser, to such address for such Purchaser as shall appear on
the signature page hereof executed by such Purchaser, or as shall be designated
by such Purchaser in writing to the Company.
6.10 Expenses. The Company and each Purchaser shall pay
all costs and expenses that it incurs in connection with the negotiation,
execution, delivery and performance of this Agreement, provided, however, that
the Company shall reimburse Proprietary Convertible Investment Group, Inc. for
all out-of-pocket expenses (including without limitation legal fees and
expenses) incurred by it in connection the negotiation, preparation, execution,
delivery and performance of the Certificate of Designation, this Agreement, the
Warrant and the other Transaction Documents in an amount not to exceed thirty
thousand dollars ($30,000).
6.11 Entire Agreement; Amendments. This Agreement and the
other Transaction Documents constitute the entire agreement between the parties
with regard to the subject matter hereof and thereof, superseding all prior
agreements or understandings, whether written or oral, between or among the
parties. Except as expressly provided herein, neither this Agreement nor any
term hereof may be amended except pursuant to a written instrument executed by
the Company and the holders of
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at least two-thirds (2/3) of the Preferred Shares then outstanding, and no
provision hereof may be waived other than by a written instrument signed by the
party against whom enforcement of any such waiver is sought.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first-above written.
QUEEN SAND RESOURCES, INC.
By: /s/ Duly Authorized Officer
-----------------------------------
Name:
Title:
PURCHASER NAME:
By: /s/ Duly Authorized Officer
-----------------------------------
Name:
Title:
ADDRESS:
Tel:
Fax:
Number of Shares of Series C Preferred Stock to be Purchased:
Number of Shares of Common Stock
into which the Warrant is Exercisable:
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