<PAGE>   1
As filed with the Securities and Exchange Commission on August 13, 1998
                                                     Registration No. 333-
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                              -----------------

                                    FORM S-3
            REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

                              -----------------

                           QUEEN SAND RESOURCES, INC.
             (Exact name of registrant as specified in its charter)

           DELAWARE                                           75-2615565
(State or other jurisdiction of                            (I.R.S. Employer
incorporation or organization)                            Identification No.)

                              3500 OAK LAWN AVENUE
                                   SUITE 380
                            DALLAS, TEXAS 75219-4398
                                 (214) 521-9959
         (Address, including zip code, and telephone number, including
            area code, of registrant's principal executive offices)

                              -----------------

                               ROBERT P. LINDSAY
                            CHIEF OPERATING OFFICER
                              3500 OAK LAWN AVENUE
                                   SUITE 380
                            DALLAS, TEXAS 75219-4398
                           TELEPHONE: (214) 521-9959
                              FAX: (214) 521-9960
           (Name, address, including zip code, and telephone number,
                   including area code, of agent for service)

                              -----------------

                                    COPY TO:
                               WILLIAM L. BOEING
                             HAYNES AND BOONE, LLP
                                   SUITE 3100
                                901 MAIN STREET
                           DALLAS, TEXAS  75202-3789
                           TELEPHONE: (214) 651-5000
                              FAX: (214) 651-5940

                              -----------------

        APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
   From time to time after the effective date of this Registration Statement.

     If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box.  [ ]

     If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box.  [x]

    If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.  [ ]

    If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.  [ ]

    If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.  [ ]

                        CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
=============================================================================================================================
                                                              Proposed Maximum        Proposed Maximum          Amount of
         Title of Each Class             Amount to be        Offering Price Per      Aggregate Offering       Registration
   of Securities to be Registered       Registered (1)           Share (2)                Price (2)                Fee
-----------------------------------------------------------------------------------------------------------------------------
 <S>                                   <C>                         <C>                   <C>                     <C>
 Common Stock, par value $0.0015
 per share  . . . . . . . . . . .      9,656,438 shares            $7.44                 $71,843,899             $21,194
=============================================================================================================================
</TABLE>

(1)      Pursuant to Rule 416, the Registration Statement also covers such
         indeterminate additional shares of Common Stock as may become issuable
         (i) to prevent dilution resulting from stock splits, stock dividends
         or similar events, or (ii) by reason of changes in the repricing rate
         of repricing rights, or the exercise price of certain warrants in
         accordance with the terms thereof.

(2)      Estimated solely for purposes of calculating the registration fee
         pursuant to Rule 457(c) based on the average of the high and low
         prices reported on the Nasdaq SmallCap Market on August 10, 1998.

                              -----------------

    THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
================================================================================
                                                                       
<PAGE>   2

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.

                  Subject to Completion Dated August 13, 1998

                           QUEEN SAND RESOURCES, INC.

                        9,656,438 SHARES OF COMMON STOCK

         This Prospectus relates to 9,656,438 shares of Common Stock, par value
$0.0015 per share (the "Common Stock"), of Queen Sand Resources, Inc., a
Delaware corporation ("Queen Sand Resources" and, together with its
subsidiaries, the "Company") to be sold by certain stockholders of the Company
(each a "Selling Stockholder" and collectively, the "Selling Stockholders") from
time to time. See "Selling Stockholders."  In addition, pursuant to Rule 416 of
the Securities Act of 1933, as amended (the "Securities Act"), this Prospectus
also relates to such additional number of shares of Common Stock as may become
issuable upon exercise of the repricing rights for shares of Common Stock (the
"Repricing Rights") or exercise of the warrants to purchase shares of Common
Stock (the "Warrants") issued in connection with the sale of the Common Stock as
a result of, among other events, stock splits, stock dividends and anti-dilution
adjustment provisions (including by reason of any change in the repricing rate
of the Repricing Rights or the exercise price of the Warrants). Under the terms
of the Amended and Restated Securities Purchase Agreement dated as of July 8,
1998 among the Company and the Selling Stockholders (the "Purchase Agreement")
beginning on November 6, 1998 the Repricing Rights may be exercised for shares
of Common Stock (the "Repricing Shares").  In order to account for the fact that
the number of Repricing Shares issuable is based in part upon the market price
of the Common Stock, the Registration Rights Agreement among the Company and the
Selling Stockholders requires the Company to register for resale 5,357,144
shares of Common Stock issuable upon exercise of the Repricing Rights.  The
number of shares covered by this Prospectus also represents 3,428,574 shares of
Common Stock originally issued to the Selling Stockholders under the Purchase
Agreement, plus 1,085,000 shares issuable upon exercise of the Warrants, plus
150% of the shares actually issued to cover the exercise of the Repricing
Rights. See " Description of Capital Stock -- Repricing Rights."

         All of the shares covered hereby will be sold only by the Selling
Stockholders. This Prospectus does not purport to cover the initial issuance by
the Company of the shares of Common Stock or the shares of Common Stock upon
exercise of the Repricing Rights or the Warrants, but only the reoffer and
resale of  such shares by the Selling Stockholders or following the exercise,
if ever, of Repricing Rights to purchase shares of Common Stock or the
exercise, if ever, of Warrants to purchase shares of Common Stock. The Company
will not receive any of the proceeds from the sale of the shares of Common
Stock by the Selling Stockholders (other than the exercise price payable upon
exercise of any Warrants if a non-cashless exercise).

         The Selling Stockholders may without limitation from time to time sell
the shares of Common Stock covered by this Prospectus to or through one or more
underwriters, and may also sell shares of Common Stock directly to other
purchasers or through agents, on the Nasdaq SmallCap Market in ordinary
brokerage transactions, in negotiated transactions, or otherwise, at market
prices prevailing at the time of sale, at prices related to the then prevailing
market price or at negotiated prices. See "Plan of Distribution."

         The Company's Common Stock is traded on the Nasdaq SmallCap Market
under the symbol "QSRI."

         SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.

                              -----------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

                              -----------------

          The date of this Prospectus is                        , 1998
<PAGE>   3
         NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT ITS DATE.

                              -----------------

                               TABLE OF CONTENTS

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Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Incorporation of Certain Documents by Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Risk Factors  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  21
Selling Stockholders  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  21
Description of Capital Stock  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  22
Plan of Distribution  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  34
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  35
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  35
Disclosure of Commission Position on Indemnification for Securities Act Liabilities . . . . . . . . . . . . . . . . .  36
Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  37
</TABLE>

                              -----------------

                             AVAILABLE INFORMATION

         The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). In accordance
with the Exchange Act, the Company files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). The
reports, proxy statements and other information can be inspected and copied at
the public reference facilities that the Commission maintains at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices located at 7 World Trade Center, 13th Floor, New York, New York 10048,
and Suite 1400, 500 West Madison Street, Chicago, Illinois 60661. Copies of
these materials can be obtained at prescribed rates from the Public Reference
Section of the Commission at the principal offices of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549.  The Commission also maintains a Web site
at http: / / www.sec.gov containing reports, proxy and information statements
and other information regarding registrants, including the Company, that file
electronically with the Commission.  In addition, the Common Stock of the
Company is traded on the Nasdaq SmallCap Market under the symbol "QSRI" and
reports, proxy statements and other information concerning the Company can be
inspected and copied at the offices of the National Association of Securities
Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.

         The Company has filed with the Commission a registration statement on
Form S-3 (the "Registration Statement") under the Securities Act, with respect
to the Common Stock. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all the information set forth in the
Registration Statement, certain items of which are contained in schedules and
exhibits to the Registration Statement as permitted by the rules and
regulations of the





                                       2
<PAGE>   4
Commission. Statements made in the Prospectus concerning the contents of any
documents referred to herein are not necessarily complete. With respect to each
such document filed with the Commission as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description,
and each such statement shall be deemed qualified in its entirety by such
reference.  The Registration Statement, including exhibits thereto, can be
inspected and copied at the Commission's public reference facilities and
regional offices and at the offices of the National Association of Securities
Dealers, Inc. referred to above in Washington, D.C., at prescribed rates.

                INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

         The following documents, which have been filed by the Company with the
Commission pursuant to the Exchange Act, are hereby incorporated by reference
in this Prospectus:  (i) Annual Report on Form 10-KSB for the fiscal year ended
June 30, 1997,as amended by Annual Report on Form 10-KSB/A filed April 23,
1997, (ii) Quarterly Report on Form 10-QSB for the quarter ended September 30,
1997, (iii) Quarterly Report on Form 10-QSB for the quarter ended December 31,
1997, (iv) Quarterly Report on Form 10-QSB for the quarter ended March 31,
1998, (v) Current Report on Form 8-K dated February 20, 1997, as amended by
Current Report on Form 8-K/A-1 dated March 26, 1997, (vi) Current Report on
Form 8-K dated July 21, 1997, (vii) Current Report on Form 8-K dated August 14,
1997, (viii) Current Report on Form 8-K dated September 11, 1997, (ix) Current
Report on Form 8-K dated December 24, 1997, (x) Current Report on Form 8-K
dated March 3, 1998, (xi) Current Report on Form 8-K dated March 19, 1998, as
amended by Current Report on Form 8-K/A filed April 27, 1998, and Current
Report on Form 8-K/A-2 filed June 8, 1998, (xii) Current Report on Form 8-K
dated May 18, 1998, (xiii) Current Report on Form 8-K dated July 8, 1998 and
(xiv) the description of the Common Stock contained in the Company's
Registration Statement on Form 10-SB/A, filed January 23, 1997, including any
amendments or reports filed hereafter for the purpose of updating such
description.

         All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of shares of Common Stock made hereby
shall be deemed to be incorporated by reference herein. Any statement contained
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed superseded or modified for purposes of this Prospectus to the
extent that a statement contained herein (or in any other subsequently filed
document which also is incorporated by reference herein) modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.

         The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, on the written or oral
request of any such person, a copy of any or all of the documents incorporated
by reference (other than exhibits to such documents which are not specifically
incorporated by reference in such documents). Written requests for such copies
should be directed to the Company, 3500 Oak Lawn, Suite 380, Dallas, Texas
75219-4398, Attention: Corporate Secretary. Telephone requests may be directed
to William W. Lesikar, Vice President-Finance of the Company, at (214)
521-9959.





                                       3
<PAGE>   5
                                  THE COMPANY

         The following summary is qualified in its entirety by the more
detailed information and financial statements (including the notes thereto) and
pro forma condensed consolidated financial information incorporated by
reference in this Prospectus.  Except as otherwise indicated, each reference
herein to "pro forma" or "pro forma basis" shall mean that the results for the
stated period or other data have been adjusted to reflect (i) the Morgan
Property Acquisition (defined herein),(ii) the NASGAS Property Acquisition
(defined herein), (iii) the Collins and Ware Property Acquisition (defined
herein) (together with the Morgan Property Acquisition and the NASGAS Property
Acquisition, the "Property Acquisitions"), (iv) the Offerings (defined herein)
and the application of the estimated net proceeds therefrom, and (iv) the
termination of $125.0 million of a LIBOR interest rate swap agreement at a cost
to the Company of approximately $3.5 million. Certain terms used in this
Prospectus are defined in the section "Certain Definitions" included herein.

         Queen Sand Resources is an independent energy company which emphasizes
growth in oil and natural gas reserves and production volumes through the
acquisition, exploitation and development of on-shore oil and natural gas
properties located in the United States. Since August 1994 through the date of
this Prospectus, the Company has grown primarily through 19 acquisitions of oil
and natural gas properties for aggregate consideration of approximately $160.0
million. As a result of the Company's activities to date, it has assembled a
geographically and geologically diverse property base, characterized by
long-lived production and multiple opportunities for further development,
exploitation and exploration. As of July 31, 1998, the officers and directors
of the Company collectively had a beneficial interest in approximately 26.6% of
the Company's voting capital stock, and Joint Energy Development Investments
Limited Partnership ("JEDI"), an affiliate of Enron Corp. ("Enron"), holds
approximately 30.3% of the Company's voting capital stock.

         The Company's objective is to increase its reserves, production,
earnings, cash flow and net asset value through a growth strategy that seeks to
maintain a diversified portfolio of oil and natural gas reserves with stable
production and operating characteristics. The Company seeks to achieve this
objective through a balanced mix of oil and natural gas property acquisitions
coupled with the development and exploitation of its reserve base. The Company
evaluates potential acquisition properties based on their particular impact
upon the Company's portfolio of reserves.  The Company focuses on low reserve
replacement costs, long reserve life, an inventory of attractive development
and exploitation projects, and the potential for reserve and production growth.
For instance, in the April 1998 Morgan Property Acquisition, the Company
acquired certain oil and natural gas property interests representing proved
reserves of 149.5 Bcfe, of which 76% was classified as proved developed
producing. This acquisition provided the Company with stable, long-lived
production and cash flow to develop and exploit its inventory of non-producing
reserves. In the March 1998 NASGAS Property Acquisition, the Company acquired
certain natural gas properties with attractive development potential and
approximately 36.8 Bcfe of proved reserves, of which 91% was classified as
non-producing. The Company intends to fully develop these reserves by drilling
primarily low-risk development wells.

         The Company's properties are diversified across 114 producing fields
which are located principally in the southwestern United States. The Company's
interests in the Gilmer Field in East Texas, the J.C. Martin and the
Lopeno/Volpe Fields in South Texas, and the Caprock Field in New Mexico
represent approximately 58% of its pro forma proved reserves (on a SEC PV-10
basis). In addition, the Company has substantial operations in Oklahoma,
Kentucky and Louisiana.

                               BUSINESS STRATEGY

         The Company's strategy is to increase its reserves, production,
earnings, cash flow and net asset value by (i) acquiring strategic oil and
natural gas properties in a disciplined manner, (ii) developing, exploiting and
exploring its properties, (iii) achieving low operating costs and (iv)
maintaining financial flexibility.





                                       4
<PAGE>   6
         o       Strategic Acquisitions. The Company has a successful track
                 record of increasing its reserves through acquisitions, having
                 added an estimated 257.4 Bcfe of proved reserves from 19
                 acquisitions for aggregate consideration of $160.0 million or
                 $0.62 per Mcfe since commencing operations in August 1994
                 through the date of this Prospectus. The Company seeks to
                 expand its diversified, long-lived portfolio of oil and
                 natural gas properties by acquiring producing properties with
                 (i) identified development and exploitation potential, (ii)
                 controlled-risk exploration potential, (iii) historically low
                 operating expenses, or the opportunity to reduce operating
                 expenses, and (iv) geological, geophysical and other technical
                 and operating characteristics with which management of the
                 Company has expertise. The Company applies strict economic and
                 reserve risk criteria in evaluating acquisitions of oil and
                 natural gas properties.

         o       Development, Exploitation and Exploration. The Company seeks
                 to maximize the value and cash flow of its oil and natural gas
                 properties through development drilling, workovers,
                 recompletions, enhanced recovery techniques and reductions in
                 operating costs. The Company has identified over 234
                 potential development and exploitation locations on its
                 existing portfolio of properties. The Company currently plans
                 to spend approximately $21.4 million to drill or participate
                 in the drilling of approximately 160 wells through June 30,
                 1999. The Company also continually evaluates and pursues
                 exploitation opportunities, including workover and
                 recompletion projects. The Company expects to spend
                 approximately $4.8 million on these exploitation projects
                 through June 30, 1999. Although the Company could increase its
                 exploration drilling activity in the future, its current
                 strategy includes only limited investments in exploratory
                 projects.

         o       Low Operating Costs. The Company's goal is to achieve a lower
                 operating expense on a per unit (Mcfe) basis than that of its
                 peers. The Company is pursuing this objective by emphasizing
                 cost controls in its field operating expenses and acquiring
                 properties with low operating costs while increasing existing
                 production through development drilling and effective workover
                 and well maintenance programs.

         o       Financial Flexibility. The Company is committed to maintaining
                 financial flexibility, which management believes is important
                 for the successful implementation of its growth strategy. In
                 implementing this strategy, the Company intends to continue
                 using a mixture of debt and equity. Consistent with this
                 financial strategy, the Company raised an aggregate of
                 approximately $65.2 million in equity capital from August 9,
                 1994 through June 30, 1998.  On July 8, 1998 and July 20, 1998
                 the Company issued an aggregate of 3,428,574 shares of Common
                 Stock for $24 million cash and two holders of warrants
                 exercised their warrants and certain maintenance rights to
                 purchase an aggregate of 3,074,236 shares of stock for an
                 aggregate exercise and purchase price of $8.5 million. As of
                 July 31, 1998, the Company had approximately $14.7 million
                 available under its Amended and Restated Credit Agreement (the
                 "Credit Agreement") and $10.0 million available under its
                 revolving credit facility (the "ECT Revolving Credit
                 Agreement") with Enron Capital & Trade Resources Corp.
                 ("ECT").  In general, the Company strives to maintain a
                 balanced asset/liability management program by matching
                 long-lived reserves with extended maturity liabilities.
                 Furthermore, the Company seeks to mitigate the effect of
                 decreases in commodity prices by utilizing hedging
                 instruments. The Company has also entered into, and may in the
                 future utilize, interest rate hedges.





                                       5
<PAGE>   7
         The Company's principal executive offices and mailing address are 3500
Oak Lawn Avenue, Suite 380, Dallas, Texas 75219-4398 and its telephone number at
that address is (214) 521-9959.

                           FORWARD-LOOKING STATEMENTS

         This Prospectus includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act, which can be identified by the use of forward-looking terminology such as,
"may," "believe," "expect," "intend," "plan," "seek," "anticipate," "estimate"
or "continue" or the negative thereof or other variations thereon or comparable
terminology. All statements other than statements of historical fact included
or incorporated by reference in this Prospectus, including without limitation,
statements regarding the financial position and liquidity of the Company, the
volume or discounted present value of its oil and natural gas reserves, its
ability to service its indebtedness, its strategic plans including its ability
to locate and complete acquisitions of, and to develop, oil and natural gas
assets and other matters, are forward-looking statements. Although the Company
believes that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct. Important factors with respect to any such forward-looking
statements, including certain risks and uncertainties that could cause actual
results to differ materially from the Company's expectations ("Cautionary
Statements") are disclosed in this Prospectus, including, without limitation,
in conjunction with the forward-looking statements included in this Prospectus.
Important factors that could cause actual results to differ materially from
those in the forward-looking statements herein include, but are not limited to,
the timing and extent of changes in commodity prices for oil and natural gas,
the need to develop and replace reserves, environmental risks, drilling and
operating risks, risks related to exploitation and development, uncertainties
about the estimates of reserves, competition, government regulation and the
ability of the Company to meet its stated business goals. All subsequent
written and oral forward-looking statements attributable to the Company or
persons acting on its behalf are expressly qualified in their entirety by the
Cautionary Statements.





                                       6
<PAGE>   8
                              RECENT DEVELOPMENTS

RECENT PROPERTY ACQUISITIONS

Morgan Property Acquisition

         On April 20, 1998, the Company acquired certain non-operated, net
profits interests ("NPIs") and royalty interests revenues ("RIs"; together with
the NPIs, the "Morgan Properties") for gross cash consideration of $150.0
million (net consideration is currently estimated to be approximately $133.3
million after adjustments for net profits interests and royalty interests
revenues and capital expenditures since October 1, 1997, the effective date of
the purchase) from pension funds managed by J.P. Morgan Investments (the
"Morgan Property Acquisition"). The Morgan Property Acquisition was financed
with borrowings under the Amended and Restated Credit Agreement dated as of
April 17, 1998, as amended (the "Credit Agreement") with Bank of Montreal, as
Agent, and certain lenders thereunder and two subordinated bridge credit
facilities (the "Debt Bridge Facility" and the "Equity Bridge Facility" and
collectively, the "Bridge Facilities") arranged by Bank of Montreal. The oil
and natural gas properties burdened by the Morgan Properties (collectively, the
"Underlying Properties") are primarily located in East Texas, South Texas and
the mid-continent region of the United States. According to Ryder Scott Company
("Ryder Scott"), independent petroleum engineers, as of December 31, 1997, the
Morgan Properties contained proved reserves of 124.1 Bcf of natural gas and 3.6
MMBbls of oil (aggregating 145.6 Bcfe), of which approximately 76% was
classified as proved developed producing.  The Company estimates that as of the
effective date of the Morgan Property Acquisition, the proved reserves
attributed to the Morgan Properties were 149.5 Bcfe.

         The Company believes that the Morgan Property Acquisition provides it
with certain benefits, including (i) the enhancement of the Company's portfolio
of high quality reserves with long production histories and low operating
costs, (ii) additional cash flow to fund development and exploitation projects,
(iii) the enhancement of its operational base to grow through further
acquisitions, (iv) significant additional development and exploitation
opportunities and (v) additional geographic core concentration of the Company's
existing properties and operational capabilities. Although the Company did not
acquire direct working interests in the wells located on the Underlying
Properties, the Company believes that its significant interests in certain key
Underlying Properties will enable the Company to influence the timing and
manner of development and exploitation of such key properties.

NASGAS Property Acquisition

         On March 9, 1998 (with an effective date of January 1, 1998), the
Company purchased certain operated natural gas properties in western Kentucky
for net cash consideration of $450,000 and 337,500 shares of the Company's
Common Stock (the "NASGAS Property Acquisition"). The acquired properties are
comprised of interests in 21 gross wells (12.6 net) and 61,421 gross acres
(36,858 net) (the "NASGAS Properties"). According to H.J. Gruy and Associates,
Inc. ("H.J.  Gruy"), independent petroleum engineers, the proved reserves
attributed to the NASGAS Properties as of December 31, 1997, were 36.8 Bcf,
100% of which was natural gas, and 9% proved developed producing.  The Company
believes the NASGAS Property Acquisition provides it with certain benefits,
including a large inventory of low-cost, low-risk development drilling
opportunities.

Collins and Ware Property Acquisition

         On August 1, 1997, the Company purchased certain operated oil and
natural gas properties for cash consideration (net of production subsequent to
the February 1, 1997 effective date) of approximately $6.0 million and
1,000,000 shares of the Company's Common Stock (the "Collins and Ware Property
Acquisition"). The acquired properties were comprised of interests in 77 gross
(12.4 net) wells located in New Mexico, Texas and Oklahoma (the "Collins and
Ware Properties").  The Company





                                       7
<PAGE>   9
estimates that as of February 1, 1997, the proved reserves attributed to the
Collins and Ware Properties were 7.3 Bcfe.

THE OFFERINGS

         On July 8, 1998, the Company completed a private placement (the "Note
Offering") of $125,000,000 principal amount of its 12 1/2% Senior Notes due
2008 (the "Notes").  In addition, on July 8, 1998 and July 20, 1998, the
Company completed private placements of Common Stock (collectively, the
"Private Equity Placements," and, together with the Note Offering, the
"Offerings").

         Pursuant to the Note Offering, the Company issued and sold the Notes
to certain institutional buyers pursuant to Rules 144A and Regulation D
promulgated under the Securities Act.  The Notes mature on July 1, 2008, and
interest on the Notes is payable semiannually on January 1 and July 1 of each
year, commencing January 1, 1999 at the rate of 12 1/2% per annum.  The payment
of the Notes is guaranteed (the "Subsidiary Guarantees") by the Company's three
operating subsidiaries (the "Subsidiary Guarantors").

         The net proceeds received by the Company from the Offerings completed
on July 8, 1998 of approximately $144.5 million and on July 20, 1998 of
approximately $6.9 million were used to repay indebtedness outstanding under
the Company's Credit Agreement and to repay indebtedness outstanding under the
Bridge Facilities.  Substantially all of this indebtedness was incurred to fund
the Morgan Property Acquisition.  As of July 31, 1998, the amount of
indebtedness outstanding under the Credit Agreement was $10.3 million.





                                       8
<PAGE>   10
                                  RISK FACTORS

         Prospective investors should carefully consider, among other things,
the following factors in evaluating the Company and its business before
purchasing shares of the Common Stock offered hereby.

EFFECTS OF LEVERAGE

         On a pro forma basis (which also reflects a non-cash full cost ceiling
writedown of $21.0 million) giving effect to the Offerings, at March 31, 1998,
the Company's ratio of total indebtedness to total capitalization would have
been 84%.  On a pro forma basis for the nine months ended March 31, 1998,
giving effect to the Offerings and the Property Acquisitions, the Company's
consolidated total interest coverage ratio would have been 1.7:1.0. The Company
intends to incur additional indebtedness in the future as it executes its
acquisition and exploitation strategy. See "-- Substantial Capital
Requirements."

         The Company's ability to meet its debt service obligations will be
dependent upon the Company's future performance, which will be subject to oil
and natural gas prices, the Company's level of production, general economic
conditions and to financial, business and other factors affecting the
operations of the Company, many of which are beyond its control. There can be
no assurance that the Company's future performance will not be adversely
affected by some or all of these factors.

         The Company's level of indebtedness will have several important
effects on its future operations, including (i) a substantial portion of the
Company's cash flow from operations must be dedicated to the payment of
interest on its indebtedness and will not be available for other purposes, (ii)
covenants contained in the Company's debt obligations will require the Company
to meet certain financial tests, and other restrictions will limit its ability
to borrow additional funds or to dispose of assets and may affect the Company's
flexibility in planning for, and reacting to, changes in its businesses,
including possible acquisition activities and (iii) the Company's ability to
obtain additional financing in the future may be impaired. The Company has
experienced financial covenant defaults under the Credit Agreement, which
defaults were waived by its lender. While the Credit Agreement reflects revised
financial covenant terms which the Company believes it can meet for the
foreseeable future, there can be no assurance that the Company will not default
on its financial covenants under the Credit Agreement or the ECT Revolving
Credit Agreement or that the lenders will waive any such defaults. A default
under the Credit Agreement or the ECT Revolving Credit Agreement would permit
the lenders to accelerate repayments of their loans and to foreclose on the
collateral securing the loans, including the Company's oil and natural gas
properties.

HOLDING COMPANY STRUCTURE

         Queen Sand Resources is a holding company, the principal assets of
which consist of equity interests in its subsidiaries. Accordingly, Queen Sand
Resources derives all of its revenues from the operations of its subsidiaries.
As a result, Queen Sand Resources will be dependent on the earnings and cash
flow of, and dividends and distributions or advances from, its subsidiaries to
provide the funds necessary to meet its debt service obligations.  The payment
of dividends from the subsidiaries to Queen Sand Resources and the payment of
any interest on or the repayment of any principal of any loans or advances made
by Queen Sand Resources to any of its subsidiaries may be subject to statutory
restrictions and are contingent upon the earnings of such subsidiaries.

         The Notes issued pursuant to the Note Offering are senior unsecured
obligations of Queen Sand Resources. The Notes rank pari passu with any existing
and future unsubordinated indebtedness of Queen Sand Resources, but are
effectively subordinated to the rights of holders of secured unsubordinated
indebtedness of Queen Sand Resources to the extent of the value of the
collateral securing such indebtedness. The Notes rank senior to all unsecured
subordinated indebtedness of Queen Sand Resources.  The Notes are jointly,
severally and unconditionally guaranteed by each of the existing and future
Restricted Subsidiaries of the Company. The Subsidiary Guarantees are senior
unsecured obligations





                                       9
<PAGE>   11
of the Subsidiary Guarantors and rank pari passu with any existing and future
unsubordinated indebtedness of the Subsidiary Guarantors, but are effectively
subordinated to the rights of holders of secured unsubordinated indebtedness of
the Subsidiary Guarantors to the extent of the value of the collateral securing
such indebtedness. As of June 30, 1998, on a pro forma basis after giving effect
to the Offerings and the application of the net proceeds therefrom, there would
have been approximately $3.1  million of unsubordinated indebtedness for money
borrowed by Queen Sand Resources and the Subsidiary Guarantors, all of which was
secured indebtedness, and approximately $4.5 million of general unsecured trade
indebtedness and other liabilities of Queen Sand Resources and the Subsidiary
Guarantors (excluding approximately $31.9 million of available borrowings and
letters of credit under the Company's credit facilities). The indenture
governing the Notes limits the ability of Queen Sand Resources and the
Subsidiary Guarantors to incur additional indebtedness. The Company intends to
incur additional indebtedness, including secured indebtedness, in the future as
it executes its business strategy. In the event of a liquidation, dissolution,
reorganization, bankruptcy or any similar proceeding regarding the Company, or
upon acceleration of any Company indebtedness due to an event of default, the
assets of Queen Sand Resources will be available for distribution to holders of
Common Stock only after all indebtedness of Queen Sand Resources has been paid
in full in cash, and the assets of each subsidiary will be available for
distribution to Queen Sand Resources only after all indebtedness of such
subsidiary has been paid in full in cash. Accordingly, there may not be
sufficient assets remaining for distribution to holders of Common Stock.

         The ability of Queen Sand Resources to comply with the provisions of
the Credit Agreement and the ECT Revolving Credit Agreement or any other secured
indebtedness may be affected by events beyond Queen Sand Resource's control. The
breach of any such provisions could result in a default under the Credit
Agreement and the ECT Revolving Credit Agreement or any other secured
indebtedness, in which case, depending on the actions taken by the lenders
thereunder, or their successors or assignees, such lenders could elect to
declare all amounts borrowed under the Credit Agreement and the ECT Revolving
Credit Agreement or any other secured indebtedness, together with accrued
interest, to be due and payable. Such lenders could then proceed to foreclose
against any collateral securing the payment of such indebtedness, which
collateral would constitute a significant portion or all of the Company's
assets.

VOLATILITY OF OIL AND NATURAL GAS PRICES

         The Company's financial condition, operating results and future growth
are substantially dependent upon commodity prices and demand for oil and
natural gas. Historically, the markets for oil and natural gas have been
volatile and are likely to continue to be volatile in the future. Prices for
oil and natural gas are subject to wide fluctuation in response to market
uncertainty, changes in supply and demand and a variety of additional factors,
all of which are beyond the control of the Company. These factors include
domestic and foreign political conditions, the overall supply of, and demand
for, oil and natural gas, the price of imports of oil and natural gas, weather
conditions, the price and availability of alternative fuels and overall
economic conditions. The Company's future financial condition and results of
operations will be dependent, in part, upon the prices received for the
Company's oil and natural gas production, as well as the costs of acquiring,
finding, developing and producing reserves. In order to reduce its exposure to
price risks in the sale of its oil and natural gas, the Company has entered
into and may in the future enter into hedging contracts. See "-- Risks of
Hedging Activities." Furthermore, the prices paid for the Company's share of
oil and natural gas production depends in part upon the availability, proximity
and capacity of gathering systems. The Company's current production is
predominantly weighted toward natural gas, making earnings and cash flow more
sensitive to natural gas price fluctuations. On a pro forma basis giving effect
to the Property Acquisitions for fiscal 1997, the Company has estimated that a
$0.10 per Mcf change in natural gas prices would have resulted in a $1.4
million difference in the Company's EBITDA, and a $1.00 per Bbl change in oil
prices would have resulted in a $690,000 difference in the Company's EBITDA.
The Company's ability to repay outstanding amounts under the Credit Agreement,
the ECT Revolving Credit Agreement and the Notes, as well as the Company's
ability to maintain or increase





                                       10
<PAGE>   12
its borrowing capacity and to obtain additional capital on attractive terms,
are also substantially dependent upon oil and natural gas prices. See "--
Substantial Capital Requirements."

REPLACEMENT AND EXPANSION OF RESERVES

         The Company's financial condition and results of operations depend
substantially upon its ability to acquire or find and successfully develop
additional oil and natural gas reserves. The proved reserves of the Company
will generally decline as its reserves are produced, except to the extent that
the Company acquires properties containing proved reserves or conducts
successful development, exploitation or exploration activities. The decline
rate varies depending upon reservoir characteristics and other factors. Without
reserve additions in excess of production through acquisition or exploitation
and development activities, the Company's reserves and production will decline
over time. There can be no assurance that the Company will be able to
economically find and develop or acquire additional reserves to replace its
current and future production.

ACQUISITION RISKS

         The Company expects to continue to evaluate and pursue acquisition
opportunities, primarily in the mid-continent and southwest regions of the
United States. The successful acquisition of producing properties requires an
assessment of recoverable reserves, future oil and natural gas prices,
operating costs, potential environmental and other liabilities and other
factors beyond the Company's control. This assessment is necessarily inexact
and its accuracy is inherently uncertain. In connection with such an
assessment, the Company performs a review it believes to be generally
consistent with industry practices. This review, however, will not reveal all
existing or potential problems, nor will it permit the Company to become
sufficiently familiar with the properties to fully assess their deficiencies
and capabilities. Inspections generally are not performed on every well, and
structural and environmental problems are not necessarily observable even when
an inspection is undertaken. Even when problems are identified, the seller may
not be willing or financially able to give contractual protection against such
problems, and the Company may decide to assume environmental and other
liabilities in connection with acquired properties. There can be no assurance
that the Company's acquisitions will be successful. Any unsuccessful
acquisition could have a material adverse effect on the Company's financial
condition and results of operations.

         The Morgan Property Acquisition represents the largest acquisition
undertaken by the Company to date and represents a major step in the Company's
growth strategy. However, the increased size of the Company and its scope of
operations will present significant challenges to the Company due to the
increased time and resources required in the management effort. Accordingly,
there can be no assurance that the future operations of the Company can be
effectively managed to realize the goals anticipated of the Property
Acquisitions. In addition, the management of the existing asset base and the
continued growth and expansion of the Company will depend, among other factors,
on the Company's ability to recruit and retain skilled and experienced
management and technical personnel. There can be no assurance that the Company
will be successful in such efforts.

DRILLING AND OPERATING RISKS

         The Company's oil and natural gas business is also subject to all of
the operating risks associated with the drilling for and production and
secondary recovery of oil and natural gas, including, but not limited to,
uncontrollable flows of oil, natural gas, brine or well fluids (including
fluids used in waterflood activities) into the environment (including
groundwater contamination), fires, explosions, pollution and other risks, any
of which could result in substantial losses to the Company. Drilling activities
are subject to many risks, including the risk that no commercially productive
oil or natural gas reservoirs will be encountered. The Company anticipates
drilling or participating in the drilling of a substantially greater number of
wells over the next 12 to 18 months than it has in the past. There can be no
assurance that new wells drilled or participated in by the Company will be
productive or that the Company will recover all or any portion of its
investment. Drilling for oil and





                                       11
<PAGE>   13
natural gas may involve unprofitable efforts, not only from dry wells, but from
wells that are productive but do not produce sufficient net revenues to return
a profit after drilling, operating and other costs. The cost of drilling,
completing and operating wells is often uncertain. The Company's drilling
operations may be curtailed, delayed or canceled as a result of a variety of
factors, many of which are beyond its control, including economic conditions,
mechanical problems, pressure or irregularities in formations, title problems,
weather conditions, compliance with governmental requirements and shortages in
or delays in the delivery of equipment and services. The Company's future
drilling activities may not be successful. Lack of drilling success could have
a material adverse effect on the Company's financial conditions and results of
operations.

         In addition to the substantial risk that wells drilled will not be
productive, hazards such as unusual or unexpected geologic formations,
pressures, downhole fires, mechanical failures, blowouts, cratering,
explosions, uncontrollable flows of oil, natural gas or wells fluids, pollution
and other environmental risks are inherent in oil and natural gas development,
exploitation, exploration, production and gathering. These hazards could result
in substantial losses to the Company due to injury and loss of life, severe
damage to and destruction of property and equipment, pollution and other
environmental damage and suspension of operations. The Company carries
insurance that it believes is in accordance with customary industry practices,
but, as is common in the oil and natural gas industry, the Company does not
fully insure against all risks associated with its business either because such
insurance is not available or because the cost thereof is considered
prohibitive. The occurrence of an event that is not covered, or not fully
covered by insurance, could have a material adverse effect on the Company's
financial condition and results of operations.

         There are certain risks associated with secondary recovery operations,
especially the use of waterflooding techniques, and drilling activities in
general. Waterflooding involves significant capital expenditures and
uncertainty as to the total amount of secondary reserves that can be recovered.
In waterflood operations, there is generally a delay between the initiation of
water injection into a formation containing hydrocarbons and any increase in
production that may result. The unit production costs per barrel of waterflood
projects are generally higher during the initial phases of such projects due to
the purchase of injection water and related costs, as well as during the later
stages of the life of the project. The degree of success, if any, of any
secondary recovery program depends on a large number of factors, including the
porosity and permeability of the formation, the technique used and the location
of injection wells.

SUBSTANTIAL CAPITAL REQUIREMENTS

         The Company's strategy of acquiring, developing and exploiting oil and
natural gas properties is dependent upon its ability to obtain financing for
any such expenditures. The Company expects to utilize its Credit Agreement and
the ECT Revolving Credit Agreement to borrow a significant portion of the funds
required. The Credit Agreement limits the amounts the Company may borrow
thereunder to amounts, determined by the lenders in their sole discretion,
based upon projected net revenues from the Company's oil and natural gas
properties and restricts the amounts the Company may borrow under other credit
facilities.  As of June 30, 1998, after giving effect to the Offerings and the
application of the net proceeds thereof, the Company believes it would be able
to borrow up to approximately $25.0 million (of which approximately $3.1
million will be outstanding on a pro forma basis) under the Credit Agreement.
The lenders can adjust the borrowings permitted to be outstanding under the
Credit Agreement and under the ECT Revolving Credit Agreement semi-annually.
The lenders require that outstanding borrowings in excess of the borrowing
limit be repaid ratably over a period no longer than six months. No assurances
can be given that the Company will be able to make any such mandatory principal
payments required by the lenders.  The Company could, under certain
circumstances, borrow under the ECT Revolving Credit Agreement up to the lesser
of $10.0 million or 40% of the borrowing base established under the Credit
Agreement.





                                       12
<PAGE>   14
         Any future acquisition by the Company requiring financing in excess of
the amount then available under the Credit Agreement or the ECT Revolving
Credit Agreement will depend upon the lenders' evaluations of the properties
proposed to be acquired.

UNCERTAINTY OF ESTIMATES OF PROVED RESERVES AND FUTURE NET REVENUES

         There are numerous uncertainties in estimating quantities of proved
reserves and in projecting future rates of production and the timing of
development expenditures, including many factors beyond the control of the
Company. The reserve data set forth in this Prospectus are only estimates.
Although the Company believes such estimates to be reasonable, reserve
estimates are imprecise and may be expected to change as additional information
becomes available.  Estimates of oil and natural gas reserves, of necessity,
are projections based on engineering data, and there are uncertainties inherent
in the interpretation of such data, as well as the projection of future rates
of production and the timing of development expenditures. Reservoir engineering
is a subjective process of estimating underground accumulations of oil and
natural gas that cannot be exactly measured. Therefore, estimates of the
economically recoverable quantities of oil and natural gas attributable to any
particular group of properties, classifications of such reserves based on risk
of recovery and such estimate is a function of the quality of available data
and of engineering and geological interpretation and judgment and the future
net cash flows expected therefrom, prepared by different engineers or by the
same engineers at different times may vary substantially. There also can be no
assurance that the reserves set forth herein will ultimately be produced or
that the proved undeveloped reserves will be developed within the periods
anticipated. Actual production, revenues and expenditures with respect to the
Company's reserves will likely vary from estimates, and such variances may be
material. In addition, the estimates of future net revenues from proved
reserves of the Company and the present value thereof are based upon certain
assumptions about future production levels, prices and costs that may not be
correct. The Company emphasizes with respect to the estimates prepared by
independent petroleum engineers that SEC PV-10 should not be construed as
representative of the fair market value of the proved oil and natural gas
properties belonging to the Company since discounted future net cash flows are
based upon projected cash flows which do not provide for changes in oil and
natural gas prices or for escalation of expenses and capital costs. The
meaningfulness of such estimates is highly dependent upon the accuracy of the
assumptions upon which they are based. Actual future prices and costs may
differ materially from those estimated.

NATURE OF THE NET PROFITS INTERESTS AND ROYALTY INTERESTS

         General.  As a result of the Morgan Property Acquisition, a
substantial portion of the Company's oil and natural gas property interests are
in the Form of NPIs and RIs. The NPIs were conveyed by various assignors
(collectively, the "Assignors") to the Company from such Assignor's net revenue
interest (generally, a leasehold working interest less lease burdens) in the
Underlying Properties. These various conveyances (collectively, the
"Conveyances") were designed to be conveyances of interests in real property.
As the owner of NPIs, the Company does not have the direct right to drill or
operate wells or to cause third parties to propose or drill wells on the
Underlying Properties.  If an Assignor or any other working interest owner
proposes to drill a well on the Underlying Properties, then each respective
Assignor is obligated to give the Company notice of such proposal. Under the
applicable ancillary agreements pertaining to each Conveyance of a NPI (the
"Ancillary Agreements"), the Company will then have the option to pay the
Applicable Percentage (as defined in the Ancillary Agreement) of the respective
Assignor's working interest share of the expenses of any well that is proposed,
and thereby become entitled to a NPI equal to the Applicable Percentage
multiplied by the Assignor's net revenue interest in that well. However, if an
Assignor elects not to participate in the drilling of a well, the Company will
be denied the opportunity to participate in that well. Moreover, if an Assignor
owns less than a 100% working interest in a proposed well, and the other owners
of working interests with respect to such well elect not to participate in the
well, the well will not be drilled unless a means of funding the costs
allocable to the working interest owners who do not elect to participate in the
well is effectuated. The financial strength and the competence of the various
Assignors, and to a lesser extent the financial strength and the competence of
other parties





                                       13
<PAGE>   15
owning working interests in the Underlying Properties, may have an effect on
when and whether wells get drilled on the Underlying Properties, and on whether
operations are conducted in a prudent and competent manner. Finally, the NPIs
were created subsequent and subject to the various operating agreements that
cover and govern operations on the properties.  Possible consequences of the
NPIs being subject to the applicable operating agreements include: (i) if an
Assignor elects not to participate in a major operation, the entire original
interest of the Assignor (including the NPI) will be relinquished to the
consenting parties under the "non-consent penalty" provisions of the standard
Form operating agreements that govern operations on most of the Underlying
Properties and (ii) if an Assignor fails to pay its share of costs arising
under an operating agreement, the entire original interest of the Assignor
(including the NPIs) will be encumbered by the operator's lien. Because the NPI
may not burden every well covered by an operating agreement, the NPI could
arguably be encumbered by the operator's lien securing obligations incurred by
an Assignor on wells in which the Company does not own a NPI. See "Recent
Developments -- Recent Property Acquisitions."

         In the past, certain of the operators and/or Assignors on the Morgan
Properties have experienced financial difficulties, including bankruptcy.
Further, in at least one instance an operator has claimed a right to setoff
against the Company's revenue stream from certain properties for unpaid bills
arising from the nonpayment by a bankrupt Assignor.

         The RIs are comprised largely of term royalty interests, the duration
of which is the same as the oil and natural gas lease to which it pertains. A
smaller group of RIs are perpetual royalty interests which entitle the owner
thereof to a share of production from the Underlying Properties under both the
current oil and gas lease and any replacement or successor oil and natural gas
lease. In all cases, the RIs are non-operating interests, have little or no
influence over oil and natural gas development or operation on the lands they
burden and should be free of costs or liabilities arising from operations by
the working interest owners.

         Sale and Abandonment of Underlying Properties.   An Assignor (and any
subsequent transferee of an Assignor) has the right to abandon any well or
working interest included in the Underlying Properties if, in its opinion, such
well or property ceases to produce or is not capable of producing in
commercially paying quantities. The Company may not control the timing of
plugging and abandoning wells. The Conveyances provide that Assignor's working
interest share of the costs of plugging and abandoning uneconomic wells will be
deducted in calculating net cash flow from the property.

         The Assignor may sell the Underlying Properties, subject to and
burdened by the RIs, without the consent of the Company. Accordingly, there
exists the risk that the Underlying Properties could be transferred to a party
with a weaker financial profile.

         Litigation.  The landowner royalty on the J.C. Martin Field is
currently subject to a lawsuit that may create uncertainty regarding the
Company's title to its royalty interest. The Company believes the suit is
without merit and a favorable order of summary judgment has been rendered in
favor of the pension funds managed by J.P. Morgan Investments.  However, that
order may be appealed. The purchase agreement for the purchase of the Morgan
Properties provides for the escrow of $8.0 million of the purchase price. In
the event the summary judgment is later overturned and a judgment is later
entered against the pension funds managed by J.P. Morgan Investments (or the
Company as successor owner) rescinding the original transaction whereby the
pension funds managed by J.P. Morgan Investments acquired their interest, the
escrowed monies would be returned to the Company and the Company would convey
its property interest to the plaintiff. 

         Certain Bankruptcy Issues.  Although the matter is not entirely free
from doubt, the Company believes that the Morgan Properties should constitute
real property interests under applicable state law. Consistent therewith, the
Conveyances state that the NPIs constitute real property interests and were
recorded in the appropriate real property records of the states in which the
Underlying Properties are located. If, during the term of the NPIs, an Assignor
becomes involved as a debtor in bankruptcy proceedings, it is not entirely
clear that all of the NPIs would be treated as real property interests





                                       14
<PAGE>   16
under the laws of such states. If in such a proceeding a determination were
made that the NPIs constitute real property interests, the NPIs should be
unaffected in any material respect by such bankruptcy proceeding. If in such a
proceeding a determination were made that the NPIs constitute an executory
contract (a term used, but not defined, in the United States Bankruptcy Code to
refer to a contract under which the obligations of both the debtor and the
other party to such contract are so unsatisfied that the failure of either to
complete performance would constitute a material breach excusing performance by
the other) and not a real property interest under applicable state law, and if
such contract were not to be assumed in a bankruptcy proceeding involving an
Assignor, the Company would be treated as an unsecured creditor of such
Assignor with respect to such NPI in the pending bankruptcy.

FINANCIAL REPORTING IMPACT OF FULL COST METHOD OF ACCOUNTING

         The Company uses the full cost method of accounting for its investment
in oil and natural gas properties. Under the full cost method of accounting,
all costs of acquisition, exploration and development of oil and natural gas
reserves are capitalized into a "full cost pool" as incurred, and properties in
the pool are depleted and charged to operations using the unit-of-production
method based on the ratio of current production to total proved oil and natural
gas reserves. To the extent that such capitalized costs (net of accumulated
depreciation, depletion and amortization) less deferred taxes exceed the SEC
PV-10 of estimated future net cash flow from proved reserves of oil and natural
gas, and the lower of cost or fair value of unproved properties after income
tax effects, such excess costs are charged to operations. Once incurred, a
write-down of oil and natural gas properties is not reversible at a later date
even if oil or natural gas prices increase. Significant downward revisions of
quantity estimates or declines in oil and natural gas prices from those in
effect on December 31, 1997 which are not offset by other facts could result in
a write-down for impairment of oil and natural gas properties.

         On a pro forma basis at March 31, 1998, the Company's oil and natural
gas properties had a carrying value, net of accumulated depreciation, depletion
and amortization charges of approximately $163.7 million. The pro forma
Standardized Measure of oil and natural gas properties at March 31, 1998 was
approximately $142.7 million. This would have caused the Company to take a pro
forma provision for non-cash impairment of value at March 31, 1998 of
approximately $21.0 million. The amount of the writedown, if any, which will be
recorded will be largely dependent upon the prevailing market prices of oil and
natural gas at June 30, 1998.

COMPETITION

         The Company encounters substantial competition in acquiring
properties, marketing oil and natural gas, securing equipment and personnel,
and operating its properties. The competitors in acquisitions, development,
exploration and production include major oil companies, numerous independent
oil and natural gas companies, individual proprietors and others. Many of these
competitors have financial and other resources which substantially exceed those
of the Company and have been engaged in the energy business for a much longer
time than the Company. Therefore, competitors may be able to pay more for
desirable leases and to evaluate, bid for and purchase a greater number of
properties or prospects than the financial or personnel resources of the
Company will permit.

GOVERNMENT LAWS AND REGULATIONS

         The Company's operations are affected from time to time in varying
degrees by political developments and federal and state laws and regulations.
In particular, oil and natural gas production, operations and economics are or
have been affected by price controls, taxes and other laws relating to the oil
and natural gas industry, by changes in such laws and by changes in
administrative regulations. The Company cannot predict how existing laws and
regulations may be interpreted by enforcement agencies or court rulings,
whether additional laws and regulations will be adopted, or the





                                       15
<PAGE>   17
effect such changes may have on its business or financial condition. See "--
Regulations -- General Federal and State Regulation."

         The Company's operations are subject to complex and constantly
changing environmental laws and regulations adopted by federal, state and local
governmental authorities. The Company believes that compliance with such laws
has had no material adverse effect upon the Company's operations to date, and
that the cost of such compliance has not been material. Nevertheless, the
discharge of oil, natural gas or other pollutants into the air, soil or water
may give rise to liabilities on the part of the Company to the government and
third parties and may require the Company to incur costs of remediation.
Additionally, from time to time the Company has agreed to indemnify both
sellers of producing properties from whom the Company acquires reserves and
purchasers of properties from the Company against certain liabilities for
environmental claims associated with the properties being purchased or sold by
the Company. No assurance can be given that existing environmental laws or
regulations, as currently interpreted or reinterpreted in the future, or future
laws or regulations, will not materially adversely affect the Company's
operations and financial condition or that material indemnity claims will not
arise against the Company with respect to properties acquired or sold by the
Company.  See "-- Regulations -- Environmental Regulation."

RISKS OF HEDGING ACTIVITIES

         In order to reduce its exposure to price risks in the sale of its oil
and natural gas, the Company has entered into and may in the future enter into
hedging contracts. The Company's hedging contracts apply to only a portion of
its production and provide only limited price protection against fluctuations
in the oil and natural gas markets. If the Company's reserves are not produced
at rates equivalent to the hedged position, the Company would be required to
satisfy its obligations under its hedging contracts on potentially unfavorable
terms without the ability to hedge that risk through sales of comparable
quantities of its own production. Further, the terms under which the Company
enters into hedging contracts are based on assumptions and estimates of
numerous factors such as cost of production and pipeline and other
transportation costs to delivery points. Substantial variations between the
assumptions and estimates used by the Company and actual results experienced
could materially adversely affect the Company's anticipated profit margins and
its ability to manage the risks associated with fluctuations in oil and natural
gas prices. See "-- Uncertainty of Estimates of Proved Reserves and Future Net
Revenues." Additionally, to the extent that the Company enters into hedging
contracts, it may be prevented from realizing the benefits of price increases
above the level of the hedges. Such hedging contracts are also subject to the
risk that the other party may prove unable or unwilling to perform its
obligations under such contracts. Any significant nonperformance could have a
material adverse effect on the Company's financial condition and results of
operations.

SIGNIFICANT NUMBER OF AUTHORIZED BUT UNISSUED SHARES

         The Board of Directors has total discretion in the issuance of any
shares of Common Stock and Preferred Stock which may be issued in the future.
The Company is authorized to issue 100,000,000 shares of its Common Stock
(30,826,527 shares were issued and outstanding as at July 31, 1998). The
Company is authorized to issue 50,000,000 shares of its Preferred Stock
(9,610,400 shares of preferred stock were issued and outstanding as at July 31,
1998).

POTENTIAL CONFLICTS OF INTEREST

         JEDI, an affiliate of Enron, owns 9,600,000 shares of the Company's
Series A Participating Convertible Preferred Stock, par value $0.01 per share
(the "Series A Preferred Stock"), warrants to acquire an aggregate of 1,725,947
shares of the Company's Common Stock and 2,634,951 shares of Common Stock (as
of July 31, 1998: 8.6% of the outstanding Common Stock; 30.3% of the undiluted,
voting power; and 33.1% of the fully diluted voting stock).  In addition, upon
the occurrence of certain defaults under the Certificate of Designation
governing the Series A Preferred Stock, JEDI would have the right to appoint a
majority of the Company's Board of Directors. As the holder of a significant





                                       16
<PAGE>   18
portion of the Company's voting stock, JEDI, as well as its affiliates
(including Enron), may have the ability to exercise significant influence over
the management of the Company.  Enron and certain of its subsidiaries and other
affiliates collectively participate in nearly all phases of the oil and natural
gas industry and are, therefore, competitors of the Company.  Effective
December 29, 1997, the Company entered into the ECT Revolving Credit Agreement
with ECT, a wholly-owned subsidiary of Enron.  In addition, Enron and certain
of its affiliates have provided, or assisted in providing, and may in the
future provide or assist in arranging, financing to or for non-affiliated
participants in the oil and natural gas industry who are or may become
competitors of the Company.

CONTROL BY CERTAIN STOCKHOLDERS

         As of July 31, 1998, after giving effect to the Private Equity
Placement, the current officers and directors of the Company as a group will
have a beneficial interest in or hold a proxy for approximately 26.6% of the
undiluted voting power, and JEDI will possess approximately 30.3% of the
undiluted voting power, of the Company's voting equity.  Consequently, these
stockholders, should they determine to act together, may be in a position to
effectively control the affairs of the Company, including the election of all
of the Company's directors and the approval or prevention of certain corporate
transactions which require majority stockholder approval.

DEPENDENCE ON KEY PERSONNEL

         The Company is dependent upon Edward J. Munden, Chairman of the Board,
President and Chief Executive Officer, Robert P. Lindsay, Chief Operating
Officer and Executive Vice President, Ronald I. Benn, Chief Financial Officer
and Treasurer, Bruce I. Benn, Executive Vice President and Secretary, and other
key personnel, including V. Ed Butler, Vice President, Operations and Ronald
Idom, Vice President, Acquisitions, for its various activities, and the loss of
any one of these individuals for any reason may adversely affect the Company.
The Company holds key man insurance on the lives of each of Edward J. Munden,
Robert P. Lindsay, Bruce I. Benn and Ronald I. Benn. The Company also has
employment agreements with each of these officers (other than Mr. Idom) through
2002.

REGULATIONS

General Federal and State Regulation

         The Company's oil and natural gas exploration, production and related
operations are subject to extensive rules and regulations promulgated by
federal and state agencies. Failure to comply with such rules and regulations
can result in substantial penalties. The regulatory burden on the oil and
natural gas industry increases the Company's cost of doing business and affects
its profitability. Because such rules and regulations are frequently amended or
reinterpreted, the Company is unable to predict the future cost or impact of
complying with such laws.

         The State of Texas and many other states require permits for drilling
operations, drilling bonds and reports concerning operations and impose other
requirements relating to the exploration and production of oil and natural gas.
Such states also have statutes or regulations addressing conservation matters,
including provisions for the unitization or pooling of oil and natural gas
properties, the establishment of maximum rates of production from wells, and
the regulation of spacing, plugging and abandonment of such wells. Many states
restrict production to the market demand for oil and natural gas. Some states
have enacted statutes prescribing ceiling prices for natural gas sold within
their states.

         FERC regulates interstate natural gas transportation rates and service
conditions, which affect the revenues received by the Company for sales of its
production. Since the mid-1980s, FERC has issued a series of orders,
culminating in Order Nos. 636, 636-A and 636-B ("Order 636"), that have
significantly altered the marketing and transportation of natural gas. Order
636 mandates a





                                       17
<PAGE>   19
fundamental restructuring of interstate pipeline sales and transportation
service, including the unbundling by interstate pipelines of the sale,
transportation, storage and other components of the city-gate sales services
such pipelines previously performed. One of FERC's purposes in issuing the
orders is to increase competition within all phases of the natural gas
industry. Order 636 and subsequent FERC orders on rehearing have been appealed
and are pending judicial review. Because these orders may be modified as a
result of the appeals, it is difficult to predict the ultimate impact of the
orders on the Company. Generally, Order 636 has eliminated or substantially
reduced the interstate pipelines' traditional role as wholesalers of natural
gas, and has substantially increased competition and volatility in natural gas
markets.

         The price the Company receives from the sale of oil and natural gas
liquids is affected by the cost of transporting products to market. Effective
January 1, 1995, FERC implemented regulations establishing an indexing system
for transportation rates for oil pipelines, which, generally, would index such
rates to inflation, subject to certain conditions and limitations. The Railroad
Commission of the State of Texas is considering adopting rules to prevent
discriminatory transportation practices by intrastate gas gatherers and
transporters by requiring the disclosure of rate information under varying
conditions of service. The Company is not able to predict with certainty the
effects, if any, of these regulations on its operations. However, the
regulations may increase transportation costs or reduce wellhead prices for oil
and natural gas liquids.

         Finally, from time to time regulatory agencies have imposed price
controls and limitations on production by restricting the rate of flow of oil
and natural gas wells below natural production capacity in order to conserve
supplies of oil and natural gas. See "-- Government Laws and Regulations."

Environmental Regulation

         The Company's exploration, development and production of oil and
natural gas, including its operation of saltwater injection and disposal wells,
are subject to various federal, state and local environmental laws and
regulations. Such laws and regulations can increase the costs of planning,
designing, installing and operating oil and natural gas wells. The Company's
domestic activities are subject to a variety of environmental laws and
regulations, including but not limited to, the Oil Pollution Act of 1990
("OPA"), the Clean Water Act ("CWA"), the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), the Resource Conservation and
Recovery Act ("RCRA"), the Clean Air Act ("CAA"), and the Safe Drinking Water
Act ("SDWA"), as well as state regulations promulgated under comparable state
statutes. The Company also is subject to regulations governing the handling,
transportation, storage and disposal of naturally occurring radioactive
materials that are found in its oil and natural gas operations. Civil and
criminal fines and penalties may be imposed for non-compliance with these
environmental laws and regulations.  Additionally, these laws and regulations
require the acquisition of permits or other governmental authorizations before
undertaking certain activities, limit or prohibit other activities because of
protected areas or species, and impose substantial liabilities for cleanup of
pollution.

         Under the OPA, a release of oil into water or other areas designated
by the statute could result in the Company being held responsible for the costs
of remediating such a release, certain OPA specified damages, and natural
resource damages. The extent of that liability could be extensive, as set forth
in the statute, depending on the nature of the release. A release of oil in
harmful quantities or other materials into water or other specified areas could
also result in the Company being held responsible under the CWA for the costs
of remediation, and civil and criminal fines and penalties.

         CERCLA and comparable state statutes, also known as "Superfund" laws,
can impose joint and several retroactive liability, without regard to fault or
the legality of the original conduct, on certain classes of persons for the
release of a "hazardous substance" into the environment. In practice, cleanup
costs are usually allocated among various responsible parties. Potentially
liable parties include site owners or operators, past owners or operators under
certain conditions, and entities that arrange for the disposal or treatment of,
or transport hazardous substances found at the site. Although CERCLA,





                                       18
<PAGE>   20
as amended, currently exempts petroleum, including but not limited to, crude
oil, natural gas and natural gas liquids from the definition of hazardous
substance, the Company's operations may involve the use or handling of other
materials that may be classified as hazardous substances under CERCLA.
Furthermore, there can be no assurance that the exemption will be preserved in
future amendments of the act, if any.

         RCRA and comparable state and local requirements impose standards for
the management, including treatment, storage, and disposal of both hazardous
and nonhazardous solid wastes. The Company generates hazardous and nonhazardous
solid waste in connection with its routine operations. From time to time,
proposals have been made that would reclassify certain oil and natural gas
wastes, including wastes generated during pipeline, drilling, and production
operations, as "hazardous wastes" under RCRA which would make such solid wastes
subject to much more stringent handling, transportation, storage, disposal, and
clean-up requirements. This development could have a significant impact on the
Company's operating costs. While state laws vary on this issue, state
initiatives to further regulate oil and natural gas wastes could have a similar
impact.

         Because oil and natural gas exploration and production, and possibly
other activities, have been conducted at some of the Company's properties by
previous owners and operators, materials from these operations remain on some
of the properties and in some instances require remediation. In addition, the
Company has agreed to indemnify sellers of producing properties from whom the
Company has acquired reserves against certain liabilities for environmental
claims associated with such properties. While the Company does not believe that
costs to be incurred by the Company for compliance and remediating previously
or currently owned or operated properties will be material, there can be no
guarantee that such costs will not result in material expenditures.

         Additionally, in the course of the Company's routine oil and natural
gas operations, surface spills and leaks, including casing leaks, of oil or
other materials occur, and the Company incurs costs for waste handling and
environmental compliance. Moreover, the Company is able to control directly the
operations of only those wells for which it acts as the operator.
Notwithstanding the Company's lack of control over wells owned by the Company
but operated by others, the failure of the operator to comply with the
applicable environmental regulations may, in certain circumstances, be
attributable to the Company.

         Is it not anticipated that the Company will be required in the near
future to expend amounts that are material in relation to its total capital
expenditures program by reason of environmental laws and regulations, but
inasmuch as such laws and regulations are frequently changed, the Company is
unable to predict the ultimate cost of compliance.  There can be no assurance
that more stringent laws and regulations protecting the environment will not be
adopted or that the Company will not otherwise incur material expenses in
connection with environmental laws and regulations in the future. See "--
Government Laws and Regulations."

REPURCHASE OBLIGATIONS IN CONNECTION WITH PRIVATE EQUITY PLACEMENT

         In connection with the Private Equity Placement, the Company granted
to those purchasers acquiring shares pursuant to the Purchase Agreement
(defined herein) (the "Buyers") the right to require the Company to repurchase
such Buyer's shares of Common Stock and rights to acquire additional shares of
Common Stock after the occurrence of certain major transactions or triggering
events, including, without limitation, certain consolidations or mergers, the
sale or transfer of all or substantially all of the Company's assets, a tender
offer for more than 40% of the outstanding shares of Common Stock, and certain
defaults by the Company under its covenants to the Buyers. The Company would be
required to obtain the consent of the lenders under the Credit Agreement and
the ECT Revolving Credit Agreement and the consent of the holders of the Notes
before repurchasing such shares and rights. If the Company could not obtain
such consents, the Company would be in default under its agreement with the
Buyers, and such default could trigger cross defaults under the Credit
Agreement or the ECT Revolving Credit Agreement. In addition, if the Company
fails to repurchase





                                       19
<PAGE>   21
the shares of Common Stock and repricing rights as required, the Company could
be liable to the Buyers for damages.  See "Description of Capital Stock--
Private Equity Placements --Put Rights of Buyers."

PREFERRED STOCK; ANTI-TAKEOVER PROVISIONS

         The Common Stock is subordinate to all outstanding classes of
Preferred Stock of the Company in the payment of dividends and other
distributions made with respect to the stock, including distributions upon
liquidation or dissolution of the Company. The Board of Directors of the
Company is authorized to issue up to 30,789,600 additional shares of Preferred
Stock (excluding 9,610,400 shares currently outstanding and 9,600,000 reserved
for issuance in exchange for shares of Series A Participating Convertible
Preferred Stock) without first obtaining stockholder approval except in limited
circumstances. The designation and issuance of other series of Preferred Stock
will create additional securities that will have dividend and liquidation
preferences over the Common Stock or, in the case of convertible preferred
stock, may have the effect of diluting the current stockholders' interest in
the Company upon conversion.

         The Company's Restated Certificate of Incorporation and Amended and
Restated Bylaws include certain provisions that may have the effect of
encouraging persons considering unsolicited tender offers or other unilateral
takeover proposals to negotiate with the Board of Directors rather than pursue
non-negotiated takeover attempts. These provisions include authorized "blank
check" Preferred Stock, and the availability of authorized but unissued Common
Stock. The issuance of Preferred Stock may have the effect of delaying or
preventing a change in control of the Company without further stockholder
action and may adversely affect the rights and powers, including voting rights,
of the holders of Common Stock. In certain  circumstances the issuance of
Preferred Stock could depress the market price of the Common Stock.





                                       20
<PAGE>   22
                                USE OF PROCEEDS

         The Company will not receive any proceeds from any sale of shares of
Common Stock by a Selling Stockholder (other than the exercise price payable
upon exercise of any Warrants).  Assuming the warrants for the 1,085,000 shares
of Common Stock (the resale of which shares of covered by this Prospectus) are
exercised in a non-cashless exercise the Company would receive an aggregate of
up to $8,354,500 of proceeds.  The Company anticipates that it will use any
such proceeds to repay indebtedness then outstanding under the Credit Agreement
(or any successor thereto) or for general corporate purposes in the execution
of its business strategy.                  

                              SELLING STOCKHOLDERS

         This Prospectus covers offers and sales from time to time by each
Selling Stockholder of the Common Stock owned by such person. The Selling
Stockholders currently hold shares of Common Stock and will hold additional
shares of Common Stock issued or issuable upon the exercise of the Repricing
Rights and the Warrants.  Pursuant to Rule 416 of the Securities Act, the
Selling Stockholders may also offer and sell shares of Common Stock issued as a
result of, among other events, stock splits, stock dividends and anti-dilution
adjustment provisions (including by reason of any change in the repricing rate
of the Repricing Rights, or the exercise price of the Warrants).  The
registration of the shares of Common Stock offered for resale hereby is
pursuant to a Registration Rights Agreement dated July 8, 1998, entered into in
connection with the original issuance of the Common Stock, the Repricing Rights
and the Warrants (the "Registration Rights Agreement").

         The Common Stock, the Repricing Rights and the Warrants were issued to
the Selling Stockholders pursuant to an Amended and Restated Securities
Purchase Agreement dated July 8, 1998 among the Company and certain of the
Selling Stockholders (the "Purchase Agreement").  In exchange for aggregate
cash consideration of $24.0 million the Company issued an aggregate of
3,428,574 shares of Common Stock to certain of the Selling Stockholders,
Repricing Rights to acquire additional shares of Common Stock and Warrants to
purchase an aggregate of 605,000 shares of Common Stock.

         In addition, the Company paid $1.8 million cash and issued warrants to
purchase 480,000 shares of the Company's Common Stock in consideration for
Jesup & Lamont Securities Corp., Phillip Louis Trading Co., Inc. and Laidlaw &
Co.  acting as the placement agents in connection with the Private Equity
Placements to the Buyers.  The resale of the shares issuable upon the exercise
of these warrants are also covered by this Prospectus.

         The following table lists the name of each Selling Stockholder, the
number of shares of Common Stock owned by each Selling Stockholder before this
Offering, the number of shares of Common Stock that may be offered by each
Selling Stockholder pursuant to this Prospectus and the number of shares of
Common Stock to be owned by each Selling Stockholder upon completion of the
Offering if all shares registered hereby are sold. None of the Selling
Stockholders has held any position or office or had any other material
relationship with the Company or any of its predecessors or affiliates in the
last three years. The information below is as of the date of this Prospectus
and has been furnished by the respective Selling Stockholders.  Under the terms
of the Purchase Agreement beginning on November 6, 1998 the Repricing Rights
may be exercised for shares of Common Stock (the "Repricing Shares").  Because
the number of Repricing Shares issuable is determined in part upon the market
price of the Common Stock prior to the determination of the repricing rate
pursuant to the repricing rate mechanism, the Registration Rights Agreement
among the Company and the Selling Stockholders requires the Company to register
for resale 5,142,864 shares of Common Stock (which represents 150% of the
shares.  The number of shares covered by this Prospectus represents the
3,428,574 shares of Common Stock originally issued to the Selling Stockholders
under the Purchase Agreement, plus 1,085,000 shares issuable upon exercise of
the Warrants, plus 5,142,864 shares issuable upon exercise of the Repricing
Rights.





                                       21
<PAGE>   23

<TABLE>
<CAPTION>
                                                          Number of
                                                          Shares Owned
                                                          Before This
                                        Number of         Offering Plus    Number of
                                        Shares Owned      Shares for the   Shares Being      Number of Shares
                Name of                 Before this       Repricing        Registered for    Owned After this
          Selling Stockholder           Offering (1)      Rights (2)       Resale (2)        Offering (3)
          -------------------           -------------     ------------     ------------      ------------
 <S>                                       <C>               <C>               <C>                  <C>
 Advantage (Bermuda) Fund, LTD. . . .          81,429          188,573           188,573            -0-
                                               
 Canadian Advantage, L.P. . . . . . .          81,429          188,573           188,573            -0-

 Diversified Strategies Fund, L.P. . .         60,500          135,500           135,500            -0-
                                            
 Dominion Capital Fund LTD.. . . . . .        407,143          942,858           942,858            -0-

 JNC Opportunity Fund Ltd. . . . . . .      2,200,215        4,703,788         4,703,788            -0-  
                                              
 KA Investments LDC . . . . . . . . .         651,429        1,508,573         1,508,573            -0-

 Sovereign Partners LP . . . . . . . .        651,429        1,508,573         1,508,573            -0-

 Jesup & Lamont Securities Corp. . . .        480,000          480,000           480,000            -0-
                                            ---------        ---------         ---------      ---------------
         TOTAL                              4,613,574        9,656,438         9,656,438            -0-      
                                            =========        =========         =========      ===============
</TABLE>

-------------------

(1)    Represents the shares currently held by such holder plus the shares
       currently issuable to such holder upon exercise of the Warrants.

(2)    Represents the shares currently held by such holder plus the shares
       currently issuable to such holder upon exercise of the Warrants, plus
       150% of the shares currently issuable to such holder upon exercise of
       the Repricing Rights (computed without regard to the covenant in the
       Purchase Agreement limiting any individual holder to not greater than
       4.99% of the outstanding shares of Common Stock).

(3)    Assumes all shares currently held by such holder and all shares acquired
       upon exercise of the Repricing Rights and exercise of the Warrants will
       be offered and sold.

                          DESCRIPTION OF CAPITAL STOCK

         The authorized capital of the Company consists of (i) 100,000,000
shares of Common Stock and 50,000,000 shares of Preferred Stock. At July 31,
1998, the Company had (i) 30,826,527 shares of Common Stock outstanding, (ii)
one holder of record and beneficial owner of Series A Participating Convertible
Preferred Stock (the "Series A Preferred Stock") with 9,600,000 shares
outstanding, (iii) no shares of Series B Participating Convertible Preferred
Stock (the "Series B Preferred Stock") issued or outstanding and (iv)
approximately six holders of record and beneficial owners of Series C
Convertible Preferred Stock (the "Series C Preferred Stock") with 10,400 shares
outstanding.

COMMON STOCK

         The holders of shares of Common Stock possess full voting power for
the election of directors and for all other purposes, each holder of Common
Stock being entitled to one vote for each share of Common Stock held of record
by such holder. The shares of Common Stock do not have cumulative voting
rights.

         As described below, the holders of Series A Preferred Stock are
generally entitled to vote (on an as-converted basis) as a single class with
the holders of the Common Stock, together with all other





                                       22
<PAGE>   24
classes and series of stock of the Company that are entitled to vote as a
single class with the Common Stock, on all matters coming before the Company's
stockholders. Holders of a majority of the shares of Common Stock and Series A
Preferred Stock represented at a meeting may approve most actions submitted to
the stockholders except for certain corporate actions (e.g. mergers, sale of
assets and charter amendments) which require the approval of holders of a
majority of the total outstanding shares of Common Stock and the Series A
Preferred Stock or other matters that require a class vote of the Preferred
Stock.

         Subject to the right of holders of any outstanding shares of Preferred
Stock, dividends may be paid on the Common Stock as and when declared by the
Company's Board of Directors out of any funds of the Company legally available
for the payment thereof. Holders of Common Stock have no subscription,
redemption, sinking fund, conversion or preemptive rights. The outstanding
shares of Common Stock are fully paid and nonassessable. After payment is made
in full to the holders of any outstanding shares of Preferred Stock in the
event of any liquidation, dissolution or winding up of the affairs of the
Company, the remaining assets and funds of the Company will be distributed to
the holders of Common Stock according to their respective shares.

PREFERRED STOCK

General

         The Board of Directors may, without further action by the Company's
stockholders (subject to the terms of the Series A Preferred Stock and the
Series C Preferred Stock described below), from time to time, direct the
issuance of fully authorized shares of Preferred Stock, in classes or series
and may, at the time of issuance, determine the powers, rights, preferences and
limitations of each class or series. Satisfaction of any dividend preferences
on outstanding shares of Preferred Stock would reduce the amount of funds
available for the payment of dividends on Common Stock. Also, holders of
Preferred Stock would be entitled to receive a preference payment in the event
of any liquidation, dissolution or winding up of the Company before any payment
is made to the holders of Common Stock. Under certain circumstances, the
issuance of such Preferred Stock may render more difficult or tend to
discourage a merger, tender offer or proxy contest, the assumption of control
by a holder of a large block of the Company's securities or the removal of
incumbent management.

Description of Series A Preferred Stock

         General.  The Certificate of Designation of the Series A Preferred
Stock authorizes the issuance of up to 9,600,000 shares of Series A Preferred
Stock.

         Voting.  The holders of shares of Series A Preferred Stock are
generally entitled to vote (on an as-converted basis) together with the holders
of the Common Stock, together with all other classes and series of stock of the
Company that are entitled to vote as a single class with the Common Stock, on
all matters coming before the Company's stockholders. In any vote with respect
to which the Series A Preferred Stock shall vote with the holders of Common
Stock as a single class, each share of Series A Preferred Stock shall entitle
the holder thereof to cast the number of votes equal to the number which could
be cast in such vote by a holder of the number of shares of Common Stock into
which such shares of Series A Preferred Stock is convertible on the date of
such vote. With respect to any matter for which class voting is required by law
or the Company's Restated Certificate of Incorporation, except as otherwise
described herein, the holders of the Series A Preferred Stock will vote as a
class and each holder shall be entitled to one vote for each share held. For so
long as at least 960,000 shares of Series A Preferred Stock are outstanding,
the following matters will require the approval of a majority of the holders of
shares of Series A Preferred Stock, voting together as a separate class:

                 (i)      the amendment of any provision of the Company's
         Restated Certificate of Incorporation or bylaws;





                                       23
<PAGE>   25
                 (ii)     the creation, authorization or issuance, or the
         increase in the authorized amount of, any class or series of shares
         ranking on a parity with or prior to the Series A Preferred Stock
         either as to dividends or upon liquidation, dissolution or winding up;

                 (iii)    the merger or consolidation of the Company with or
         into any other corporation or other entity or the sale of all or
         substantially all of the Company's assets; or

                 (iv)     the reorganization, recapitalization, or
         restructuring or similar transaction that requires the approval of the
         stockholders of the Company.

         Election of Directors.  The holders of shares of Series A Preferred
Stock have the right, acting separately as a class, to elect a number of
members to the Company's Board of Directors in proportion to the percentage of
the outstanding voting power represented by the Series A Preferred Stock
(currently, such holders have the right to elect two directors). As of the date
hereof, JEDI has not elected to exercise its right to elect directors to the
Company's Board of Directors.

         Conversion.  A holder of shares of Series A Preferred Stock has the
right, at the holder's option, to convert all or a portion of its shares into
shares of Common Stock at any time at an initial rate, subject to antidilution
adjustments, of one share of Series A Preferred Stock for one share of Common
Stock.

         Concurrently with the transfer of any shares of Series A Preferred
Stock to any person (other than a direct or indirect affiliate of JEDI or other
entity managed by Enron or any of its affiliates), the shares of Series A
Preferred Stock so transferred will automatically convert into a like number of
shares of Series B Preferred Stock.

         Dividends.  The holders of the shares of Series A Preferred Stock are
entitled to receive dividends, when, and as if declared by the Board of
Directors, out of funds legally available therefor, any dividend (other than a
dividend or distribution paid in shares of, or warrants, rights or options
exercisable for or convertible into or exchangeable for, Common Stock) payable
on the Common Stock, as and when paid, in an amount equal to the amount each
such holder would have received if such holder's shares of Series A Preferred
Stock had been converted into Common Stock immediately prior to the record
date, or if there is no record date, the date of payment thereof. The holders
of Series A Preferred Stock will also have the right to certain dividends upon
and during the continuance of an Event of Default (as described below).

         Liquidation.  Upon the liquidation, dissolution or winding up of the
Company, the holders of the shares of Series A Preferred Stock, before any
distribution to the holders of Common Stock, will be entitled to receive an
amount per share equal to (A) the lesser of (i) $1.50 and (ii) the sum of
$0.521 and the quotient obtained by dividing (I) the aggregate amount of all
payments made by JEDI pursuant to the Earn Up Agreement dated as of May 6, 1997
between the Company and JEDI and (II) 9,600,000 plus (B) all accrued and unpaid
dividends thereon ("Series A Liquidation Preference"). The holders of the
shares of Series A Preferred Stock will not be entitled to participate further
in the distribution of the assets of the Company.

         Events of Default; Remedies.  The Certificate of Designation of the
Series A Preferred Stock provides that an Event of Default will be deemed to
have occurred if the Company fails to comply with any of its covenants in the
Securities Purchase Agreement, dated as of March 27, 1997, between the Company
and JEDI; provided, that the Company will have a 30-day cure period with
respect to the non-compliance with certain covenants.

         Upon the occurrence but only during the continuance of an Event of
Default, the holders of Series A Preferred Stock will be entitled to receive,
in addition to other dividends payable to holders of Series A Preferred Stock,
when, as, and if declared by the Board of Directors, out of funds legally
available therefor, cumulative preferential cash dividends accruing from the
date of the Event of





                                       24
<PAGE>   26
Default in an amount per share per annum equal to 6% of the Series A
Liquidation Preference in effect at the time of accrual of such dividends,
payable quarterly in arrears on or before the 15th day after the last day of
each calendar quarter during which such dividends are payable. Unless full
cumulative dividends accrued on shares of Series A Preferred Stock have been or
contemporaneously are declared and paid, no dividend may be declared or paid or
set aside for payment on the Common Stock or any other junior securities (other
than a dividend or distribution paid in shares of, or warrants, rights or
options exercisable for or convertible into or exchangeable for, Common Stock
or any other junior securities), nor shall any Common Stock nor any other
junior securities be redeemed, purchased or otherwise acquired for any
consideration nor may any monies be paid to or made available for a sinking
fund for the redemption of any shares of any such securities.

         Upon the occurrence and during the continuance of an Event of Default
resulting from the failure to comply with certain covenants, the holders of
shares of Series A Preferred Stock will have the right, acting separately as a
class, to elect a number of persons to the Board of Directors of the Company,
that along with any members of the Board of Directors who are serving at the
time of such action, will constitute a majority of the Board of Directors.

         Upon the occurrence of an Event of Default resulting from the failure
to comply with certain covenants, each holder of shares of Series A Preferred
Stock will have the right, by written notice to the Company, to require the
Company to repurchase, out of funds legally available therefor, such holder's
shares of Series A Preferred Stock for an amount in cash equal to the Series A
Liquidation Preference in effect at the time of the Event of Default.

Description of Series B Preferred Stock

         The Certificate of Designation of the Series B Preferred Stock
authorizes the issuance of up to 9,600,000 shares of Series B Preferred Stock.
The terms of the Series B Preferred Stock are substantially similar to those of
the Series A Preferred Stock except that the holders of Series B Preferred
Stock will not (i) have class voting rights except as required under Delaware
corporate law, (ii) be entitled to any remedies upon an event of default or
(iii) be entitled to elect any directors of the Company, voting separately as a
class.

Description of Series C Preferred Stock

         General.  The Certificate of Designation of the Series C Preferred
Stock (the "Series C Certificate of Designation") authorizes the issuance of up
to 10,400 shares of Series C Preferred Stock.

         Voting.  The holders of shares of Series C Preferred Stock are not
entitled to vote with the holders of the Common Stock except as required by law
or as set forth below. For so long as any shares of Series C Preferred Stock
are outstanding, the following matters will require the approval of the holders
of at least two-thirds of the then outstanding shares of Series C Preferred
Stock, voting together as a separate class:

                 (i)      alter or change the rights, preferences or privileges
         of the Series C Preferred Stock or any other capital stock of the
         Company so as to affect adversely the Series C Preferred Stock;

                 (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 (as defined in the
         Series C Certificate of Designation) or any other liquidation,
         dissolution or winding up of the Company;

                 (iii)    increase the authorized number of shares of Preferred
         Stock of the Company;





                                       25
<PAGE>   27
                 (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 Preferred Stock pursuant to the terms of the Company's Series
         A Preferred Stock) or Pari Passu Securities (each, as defined in the
         Series C Certificate of Designation); or

                 (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 Company ranking junior to the Series C Preferred Stock as
         to dividends or as to the distribution of assets upon liquidation,
         dissolution or winding up of the Company.

         In the event that the holders of at least two-thirds ( 2/3) of the
then outstanding shares of Series C Preferred Stock agree to allow the Company
to alter or change the rights, preferences or privileges of the shares of
Series C Preferred Stock pursuant to the terms hereof, or to waive any rights
of the holders hereunder, then the Company will deliver notice of such approved
change to the holders of the Series C Preferred Stock that did not agree to
such alteration or change (the "Dissenting Holders") and the Dissenting Holders
shall have the right for a period of thirty (30) days following such delivery
to convert their Series C Preferred Stock pursuant to the terms of the Series C
Preferred Stock as they existed prior to such alteration or change, or to
continue to hold such shares. No such change shall be effective to the extent
that, by its terms, it applies to less than all of the holders of Series C
Preferred Stock then outstanding.

         Conversion.  Subject to certain limitations set forth in the Series C
Certificate of Designation, a holder of shares of Series C Preferred Stock has
the right, at the holder's option, to convert all or a portion of its shares
into shares of Common Stock at any time. The number of shares of Common Stock
into which a share of Series C Preferred Stock may be converted will be
determined as of the conversion date according to a formula set forth in the
Series C Certificate of Designation. Generally, if the conversion date is on or
before June 22, 1998, the conversion rate is equal to the aggregate stated
value of the shares to be converted (the stated value is $1,000 per share)
divided by a fixed conversion price of $7.35 (or approximately 136 shares of
Common Stock for each share of Series C Preferred Stock). If the conversion
date is after June 22, 1998, the conversion rate is equal to the aggregate
stated value of the shares to be converted divided by a floating conversion
price that is the lesser of (i) $7.35 and (ii) (A) the average of the three
lowest closing bid prices for the Common Stock during the 10 trading days prior
to the conversion date if the average daily trading volume for the Common Stock
on the Nasdaq SmallCap Market during the calender month of the conversion date
is equal to or greater than $540,000, or (B) the three lowest closing bid
prices for the Common Stock during the 20 days trading days prior to the
conversion date if the average daily trading volume for the Common Stock on the
Nasdaq SmallCap Market during the calender month of the conversion date is
equal to or greater than $360,000 but less than $540,000, or (C) the lowest
closing bid price for the Common Stock during the 15 trading days prior to the
conversion date if the average daily trading volume for the Common Stock on the
Nasdaq SmallCap Market during the calender month of the conversion date is less
than $360,000. By way of example only, if the effective conversion price was
$6.00 per share, each share of Series C Preferred Stock would be convertible
into approximately 167 shares of Common Stock (or 1,733,333 shares if all
outstanding shares of Series C Convertible Preferred Stock were converted). If
the effective conversion price was $4.00 per share, each share of Series C
Preferred Stock would be convertible into approximately 250 shares of Common
Stock (or 2,600,000 shares if all outstanding shares of Series C Preferred
Stock were converted). If the Company fails to deliver shares of Common Stock
to a holder following a conversion in accordance with the Series C Certificate
of Designation, then the Company will be liable to the holder for certain cash
default payments set forth in the Series C Certificate of Designation.

         On December 24, 2001, all shares of Series C Preferred Stock that are
then outstanding shall be automatically converted into the number of shares of
Common Stock determined in accordance with the formula set forth in the Series
C Certificate of Designation.





                                       26
<PAGE>   28
         The Series C Certificate of Designation provides for customary
adjustments to the number of shares issuable upon conversion in the event of
certain dividends and distributions to holders of Common Stock, certain
reclassifications of the Common Stock, stock splits, combinations and mergers
and similar transactions and certain changes of control.

         Dividends.  The holders of the shares of Series C Preferred Stock are
entitled to receive dividends, when, and as if declared by the Board of
Directors, out of funds legally available therefor, subject to the prior
payment of any accumulated and unpaid dividends to holders of Senior
Securities, but before payment of dividends to holders of Junior Securities (as
defined in the Series C Certificate of Designation), cumulative dividends on
each share of Series C Preferred Stock in an amount equal to the stated value
of such share multiplied by 5%.

         Liquidation.  Upon the liquidation, dissolution or winding up of the
Company, the holders of the shares of Series C Preferred Stock, before any
distribution to the holders of Junior Securities, and after payment to holders
of Senior Securities, will be entitled to receive an amount equal to the stated
value of the Series C Preferred Stock (subject to ratable adjustment in the
event of reclassification of the Series C Preferred Stock or other similar
event) plus any accrued and unpaid dividends thereon.

         Optional Redemption.  The Company has the right to redeem all of the
outstanding Series C Preferred Stock at a price equal to the Liquidation
Preference of the Series C Preferred Stock then held by the holder divided by
80% ("Optional Redemption Price"), to the extent permitted by law and so long
as (i) the Company has sufficient cash available at the time; (ii) the Company
delivers written notice at least thirty trading days' prior to the redemption,
specifying both the date of the redemption and the amount payable to the
holder; and (iii) the Common Stock is actively traded on the NASDAQ Stock
Market, the New York Stock Exchange or the American Stock Exchange.

         Mandatory Redemption.  The Series C Certificate of Designation
provides for mandatory redemption by the Company when a Mandatory Redemption
Event (as defined in the Series C Certificate of Designation) occurs.

         Upon the occurrence of a Mandatory Redemption Event, each holder of
Series C Preferred Stock will have the right to require the Company to redeem
its Series C Preferred Stock at a redemption price equal to the greater of (i)
the Liquidation Preference of the Series C Preferred Stock being redeemed
multiplied by 125% and (ii) an amount determined by dividing the Liquidation
Preference of the Series C Preferred Stock being redeemed by the conversion
price in effect on the mandatory redemption date and multiplying the resulting
quotient by the average closing bid price for the Common Stock on the 5 trading
days preceding the mandatory redemption date ("Mandatory Redemption Price").

         If the Mandatory Redemption Price is not paid within five business
days of the redemption date and the holder has tendered its Series C Preferred
Stock to the Company, the holder is entitled to interest thereon, from the
redemption date until the Mandatory Redemption Price has been paid in full.

         If the Mandatory Redemption Price is not paid within ten business days
of the redemption date, each holder of shares of Series C Preferred Stock will
have the right, by written notice to the Company, to require the Company to
issue, in lieu of the Mandatory Redemption Price, the number of shares of
Common Stock of the Company equal to the Mandatory Redemption Price divided by
the conversion price in effect on such conversion date as specified by the
holder, with the conversion price to be reduced by 1% for each day beyond the
10th business day in which the Company fails to pay the Mandatory Redemption
Price, but with the maximum reduction of the conversion price to be 50%.





                                       27
<PAGE>   29
WARRANTS

         As of July 31, 1998, JEDI held warrants to purchase an aggregate of
1,725,947 shares of Common Stock at prices ranging from $5.00 to $7.00.  The
warrants held by JEDI expire at various times from March 9, 1999 through July
8, 1999.  As of July 31, 1998 certain institutional investors hold warrants to
purchase an aggregate of 1,440,138 shares of Common Stock at prices ranging
from $2.50 to a floating rate based on market price at the time of exercise.
The warrants held by the institutional investors expire at various times from
December 31, 1998 through December 24, 2001.

         Pursuant to the Purchase Agreement, on July 8, 1998 the Company issued
the Warrants to the Buyers.  The Warrants are exercisable for three years
commencing July 8, 1998.  The Warrants are exercisable for an aggregate of up
to 1,085,000 shares of Common Stock at an exercise price equal to 110% of the
Purchase Price.  The Warrants provide for customary adjustments to the exercise
price and number of shares to be issued in the event of certain dividends and
distributions to holders of Common Stock, stock splits, combinations and
mergers.  The Warrants also include customary provisions with respect to, among
other things, transfer of the Warrants, mutilated or lost warrant certificates,
and notices to holder(s) of the Warrants.

PRIVATE EQUITY PLACEMENTS

         The following summary of certain terms and provisions of the
Securities Purchase Agreement, the Warrants and the Registration Rights
Agreement does not purport to be complete and is qualified in its entirety by
reference to the actual agreements incorporated by reference herein.

General.  The Company raised $25 million of equity on July 8, 1998 and an
additional $7.5 million on July 20, 1998 (collectively, the "Private Equity
Placement").  Pursuant to the Purchase Agreement, dated as of June 25, 1998,
among the Company and the buyers signatory thereto (the "Buyers"), as amended
and restated pursuant to the Amended and Restated Securities Purchase Agreement
dated as of July 8, 1998 (as amended and restated, the "Purchase Agreement"),
the Company issued (i) 2,357,144 shares of the Company's Common Stock on July
8, 1998 and issued an additional 1,071,430 shares of the Company's Common Stock
on July 20, 1998 to the Buyers (the "Common Shares"), (ii) certain repricing
rights (the "Repricing Rights") to acquire additional shares of Common Stock
(the "Repricing Common Shares") and (iii) warrants (the "Warrants") to purchase
an aggregate of up to 605,000 shares of Common Stock (the "Warrant Common
Shares").  The aggregate gross consideration for the issuances was $24 million,
$16.5 million of which was received by the Company on July 8, 1998 and $7.5
million of which was received by the Company on July 20, 1998.  The Company
also agreed to register for resale the Common Shares, Repricing Common Shares
and Warrant Common Shares pursuant to the terms of a registration rights
agreement (the "Registration Rights Agreement").  Initially capitalized terms
used but not defined in this section "Private Equity Placement" have the
meanings ascribed to such terms in the Purchase Agreement filed as an Exhibit
to this Registration Statement on Form S-3.

         On July 8, 1998, JEDI exercised certain warrants to acquire an
aggregate of 980,935 shares of Common Stock for an aggregate exercise price of
approximately $3.3 million and exercised certain antidilution rights to
purchase 693,301 shares of the Company's Common Stock for an aggregate purchase
price of $1.67 million.  A second holder of warrants exercised warrants on July
8, 1998 to acquire an aggregate of 1,400,000 shares of Common Stock.  The
Company received approximately $3.5 million for the exercise of these warrants.

Repricing Rights.  Pursuant to the Purchase Agreement, the Company granted
certain Repricing Rights to the Buyers, pursuant to which each of the Buyers
(or their permitted assignees or successors) may exercise its Repricing Rights
and acquire shares of Common Stock in accordance with the following formula
(the "Repricing Rate"):





                                       28
<PAGE>   30
                       (Repricing Price -- Market Price)     
                       ---------------------------------
                                  Market Price

         Capitalized terms used but not defined herein have the meanings
ascribed to such terms in the Purchase Agreement.

         The "Repricing Price" means, (i) during the period beginning on and
including the date which is 121 days after July 8, 1998 and ending on and
including the date which is 150 days after July 8, 1998, 124% of the Purchase
Price, (ii) during the period beginning on and including the date which is 151
days after July 8, 1998 and ending on and including the date which is 180 days
after July 8, 1998, 125% of the Purchase Price, (iii) during the period
beginning on and including the date which is 181 days after July 8, 1998 and
ending on and including the date which is 210 days after July 8, 1998, 126% of
the Purchase Price, (iv) during the period beginning on and including the date
which is 211 days after July 8, 1998 and ending on and including the date which
is 240 days after July 8, 1998, 127% of the Purchase Price and (v) after the
date which is 240 days after July 8, 1998, 128% of the Purchase Price.

         The "Market Price" means, as of any date of determination, the lowest
closing bid price during the fifteen consecutive trading days immediately
preceding such date of determination.

         The Repricing Rate is multiplied by the number of Common Shares the
Buyer has chosen to reprice in order to determine the number of shares to be
issued to the Buyer.

         If the Company fails to issue a stock certificate for the number of
shares of Common Stock to which the holder is entitled or to credit the
holder's balance account with The Depository Trust Company for such number of
shares of Common Stock to which the holder is entitled upon such holder's
exercise of the Repricing Rights within three trading days after the Company's
or the transfer agent's receipt of the exercise notice, the Company shall pay
damages to such holder on each day after the third trading day that such
exercise is not effected. The amount of damages shall equal 0.5% of the product
of (i) the sum of the number of shares of Common Stock not issued to the holder
on a timely basis and (ii) the closing bid price of the Common Stock on the
last possible date which the Company could have issued such Common Stock
without violating its delivery requirements. In addition, if the Buyer to whom
the Company has failed to timely deliver the shares is forced to purchase other
outstanding shares of Common Stock of the Company in order to cover a sale
order by such Buyer (a "Buy-In"), then the Company will be required to pay to
such Buyer the positive difference between the price at which the Buyer bought
its covering shares and the sale price in respect of the shares sold by it.

         The right of a holder of Repricing Rights to exercise such Repricing
Rights is limited as set forth below.

                 (i)      Without the prior written consent of the Company, a
         holder of Repricing Rights shall not be entitled to exercise an
         aggregate number of Repricing Rights in excess of the number of
         Repricing Rights which when divided by the number of Repricing Rights
         purchased by such holder would exceed (A) 0.00 for the period
         beginning on July 8, 1998 and ending on and including the 120th day
         thereafter, (B) 0.25 for the period beginning on the 121st day after
         July 8, 1998 and ending on and including the 150th day after July 8,
         1998, (C) 0.50 for the period beginning on and including the 151st day
         after July 8, 1998 and ending on and including the 180th day after
         July 8, 1998, (D) 0.75 for the period beginning on the 181st day after
         July 8, 1998 and ending on and including the 210th day after July 8,
         1998, and (E) 1.00 for the period beginning on and including the 211th
         day after July 8, 1998. This exercise restriction shall cease to apply
         if a Major Transaction (as defined below) or Triggering Event (as
         defined below) shall have occurred or been publicly announced or if a
         registration statement meeting the requirements of the Registration
         Rights Agreement shall not have been declared effective by the 120th
         day after July 8, 1998.





                                       29
<PAGE>   31
                 (ii)     As more fully described in the Purchase Agreement, a
         holder of Repricing Rights shall not be entitled to exercise Repricing
         Rights in excess of that number of Repricing Rights which, upon giving
         effect to such exercise, would cause the aggregate number of shares of
         Common Stock beneficially owned by the holder and its affiliates to
         exceed 4.99% of the outstanding number of shares of the Common Stock
         following such exercise.  Such restriction is waivable by a holder
         upon at least 61 days notice.

         In addition to the exercise restrictions, a Buyer's right to exercise
its Repricing Right terminates automatically on the earlier to occur of (i) if
the Initial Common Share with respect to which such Repricing Right was
acquired is sold prior to the date which is 121 days after the date on which
such Repricing Right was acquired, (ii) if the Initial Common Share with
respect to which such Repricing Right was acquired is sold on or after the date
which is 121 days after the Closing Date on which such Repricing Right was
acquired at a price equal to or greater than the Repricing Price in effect on
the date of such sale, (iii) on the date immediately following the date which
is one year after the date of the sale of the Initial Common Share with respect
to which such Repricing Right was acquired and (iv) if the Buyer elects to
terminate the Repricing Right in lieu of the Company repurchasing such Buyer's
related Initial Common Share.

Company Repurchase Rights.  Pursuant to the Purchase Agreement, the Company may
elect to repurchase Repricing Rights exercised in lieu of issuing Repricing
Common Shares upon such exercise if the average closing bid price of the Common
Stock for the five day trading period immediately preceding the exercise date
of the Repricing Rights is not greater than $5.30.  The repurchase price per
Repricing Right shall be equal to the product of (i) the Repricing Rate of the
Repricing Right on the exercise date and (ii) the last reported sale price of
the Common Stock on the exercise date.

         Pursuant to the Purchase Agreement, the Company may also elect to
repurchase any or all of the Common Shares issued to the Buyers and the
Repricing Rights associated with such Common Shares at any time prior to the
Repricing Rights being exercised. The repurchase price per Repricing Right
shall be an amount per Common Share and associated Repricing Right equal to (i)
119% of the Purchase Price, if the repurchase date is prior to the date which
is 120 days after July 8, 1998 and (ii) 128% of the Purchase Price, if the
repurchase date is on or after the date which is 120 days after July 8, 1998.

Put Rights of Buyers.  Pursuant to the Purchase Agreement, each holder of
Common Shares or Repricing Rights, has the right to require the Company to
repurchase all or a portion of such holder's Common Shares or Repricing Rights
upon the occurrence of a Major Transaction or a Triggering Event.  The
repurchase price is equal to (i) for each Common Share with an associated
Repricing Right, the greater of (A) 130% of the Purchase Price and (B) the sum
of (I) the Purchase Price and (II) the product of (x) the Repricing Rate of the
Repricing Right on the date of such holder's delivery of a notice of repurchase
and (y) the last reported sale price of the Common Stock on the delivery date
of a notice of repurchase, (ii) for each Repricing Right without the associated
Common Share, the product of (A) the Repricing Rate of the Repricing Right on
the date such holder's delivery of a notice of repurchase and (B) the last
reported sale price of the Common Stock on the date of such holder's delivery
of notice of repurchase and (iii) for each Common Share without an associated
Repricing Right, 130% of the Purchase Price.

         A "Major Transaction" is deemed to have occurred at such time as any
of the following events:

                 (i)      the consolidation, merger or other business
         combination of the Company with or into another person (other than (A)
         a consolidation, merger or other business combination in which holders
         of the Company's voting power immediately prior to the transaction
         continue after the transaction to hold, directly or indirectly, the
         voting power of the surviving entity or entities necessary to elect a
         majority of the members of the board of directors (or their equivalent
         if other than a corporation) of such surviving entity or entities, or
         (B) pursuant to





                                       30
<PAGE>   32
         a migratory merger effected solely for the purpose of changing the
         jurisdiction of incorporation of the Company);

                 (ii)     the sale or transfer of all or substantially all of
         the Company's assets; or

                 (iii)    a purchase, tender or exchange offer made to and
         accepted by the holders of more than 40% of the outstanding shares of
         Common Stock.

         A "Triggering Event" is deemed to have occurred at such time as any of
the following events:

                 (i)      a registration statement in respect of the resale of
         the Common Shares, Repricing Common Shares and Warrant Common Shares
         (the "Resale Registration Statement") has not been deemed effective by
         the Commission on or prior to the 210th day after July 8, 1998;

                 (ii)     during the Effectiveness Period the effectiveness of
         the Resale Registration Statement lapses for any reason or is
         unavailable for sale of the Registrable Securities (as defined in the
         Registration Rights Agreement) in accordance with the terms of the
         Registration Rights Agreement, and such lapse or unavailability
         continues for a period of ten trading days in aggregate (excluding any
         "blackout" periods permitted by the terms of the Registration Rights
         Agreement);

                 (iii)    the Common Stock is suspended from listing or is
         delisted from The Nasdaq SmallCap Market or on any subsequent market
         for a period of five consecutive days, unless such delisting is due to
         the Company having the Common Stock relisted on a subsequent market
         within such five day period;

                 (iv)     the Company notifies any holder of Repricing Rights,
         including by way of public announcement, at any time, of its intention
         not to comply or inability to comply with proper requests for exercise
         of any Repricing Rights into shares of Common Stock;

                 (v)      the Company fails to deliver shares of Common Stock
         pursuant to the exercise of Repricing Rights within ten days of an
         exercise date or to pay the amount due in respect of a Buy-In within
         ten days after notice of such Buy-In is delivered to the Company;

                 (vi)     the Company is not required to issue any Repricing
         Common Shares pursuant to the exercise of Repricing Rights due to
         certain restrictions imposed under the rules and regulations of The
         Nasdaq Stock Market or the Company is otherwise unable to issue shares
         of Common Stock upon delivery of an exercise notice for any reason;

                 (vii)    if stockholder approval of the issuance of the
         securities is required, the Company's stockholders fail to approve the
         issuance of the shares of Common Stock upon the exercise of Repricing
         Rights within 135 days of a Proxy Statement Trigger Date (as defined
         in the Purchase Agreement);

                 (viii)   the Company breaches any representation, warranty,
         covenant or other material term or condition of the Purchase
         Agreement, the Warrants, the Registration Rights Agreement or the
         irrevocable transfer agent instructions or any other agreement,
         document, certificate or other instrument delivered in connection with
         the transactions contemplated thereby or hereby, and such breach, if
         curable, continues for a period of at least ten days after written
         notice thereof to the Company; or

                 (ix)     a voluntary or involuntary case or proceeding is
         commenced by or against the Company or a subsidiary under any
         applicable federal or state bankruptcy, insolvency,





                                       31
<PAGE>   33
         reorganization or other similar proceeding (excluding any involuntary
         proceeding that is dismissed within thirty days of the filing
         thereof).

         At any time after receipt of a notice from the Company that a Major
Transaction is to occur (or, in the event a notice is not delivered at least
ten days prior to a Major Transaction), any holder of Common Shares, Repricing
Common Shares or Repricing Rights then outstanding may require the Company to
repurchase all or a portion of the holder's Common Shares, Repricing Common
Shares or Repricing Rights.  At any time after the earlier of a holder's
receipt of a notice from the Company that a Triggering Event has occurred and
such holder becoming aware of a Triggering Event, but in no event later than
fifteen business days after a holder's receipt of such notice, any holder of
Common Shares, Repricing Common Shares or Repricing Rights then outstanding may
require the Company to repurchase all or a portion of the holder's Common
Shares, Repricing Common Shares or Repricing Rights.  The repurchase price upon
the occurrence of a Major Transaction or a Triggering Event is equal to (i) for
each Common Share with an associated Repricing Right, the greater of (A) 130%
of the Purchase Price and (B) the sum of (I) the Purchase Price and (II) the
product of (x) the Repricing Rate of the Repricing Right on the date of such
holder's delivery of notice of repurchase and (y) the last reported sale price
of the Common Stock on the date of such holder's delivery of a notice of
repurchase, (ii) for each Repricing Right without the associated Common Share,
the product of (x) the Repricing Rate of the Repricing Right on the date of
such holder's delivery of a notice to repurchase and (y) the last reported sale
price of the Common Stock on the date of such holder's delivery of notice of
repurchase and (iii) for each Common Share without an associated Repricing
Right, 130% of the Purchase Price.

         The Company shall deliver the applicable repurchase price, in the case
of a repurchase pursuant to the occurrence of a Triggering Event, to such
holder within five business days after the Company's receipt of a notice of
repurchase from the holder and, in the case of a repurchase pursuant to the
occurrence of a Major Transaction, the Company shall deliver the applicable
repurchase price immediately prior to the consummation of the Major
Transaction; provided that if Common Shares are being repurchased, the holder's
stock certificates shall have been delivered to the Company; provided further
that if the Company is unable to repurchase all of the Common Shares or the
Repricing Rights to be repurchased, the Company shall repurchase an amount from
each holder on a pro rata basis.

Other Terms of the Purchase Agreement.  The Purchase Agreement contains
customary representations and warranties of the Company for transactions of
this type.

         Pursuant to the Purchase Agreement, the Company has agreed, among
other things, to abide by certain limitations on the Company's ability to raise
equity (the "Capital Raising Limitation").  The Capital Raising Limitation
prohibits the Company and its subsidiaries from negotiating with any party for
any equity financing or issue any equity securities of the Company or any
subsidiary or securities convertible or exchangeable into or for equity
securities of the Company or any subsidiary during the period beginning on July
8, 1998 and ending on and including the 365th day after the Closing Date unless
it first delivers a written notice of the future offering to each Buyer and
provides each Buyer an option to purchase up to its pro rata portion of the
shares to be offered in the future offering.

         In addition, on or before November 4, 1998, the Company must provide
stockholders of the Company with a proxy statement relating to the next meeting
of stockholders of the Company, which meeting shall be not later than 60 days
after November 4, 1998, which proxy statement solicits the affirmative vote of
the stockholders for approval of the Company's issuance of all of the
Securities described in the Purchase Agreement (including the approval of
issuances as may be required by the Rules of the Nasdaq Stock Market, Inc.).
Certain holders of capital stock having voting power aggregating over 50% of
the total current outstanding voting capital stock have executed a letter
agreement agreeing to vote in favor of the issuance. If the Company fails to
hold the meeting by the deadline described above, then the Company shall pay to
each Buyer an amount in cash equal to the product of (i) the aggregate Purchase
Price paid by such Buyer multiplied by (ii) .025; multiplied by





                                       32
<PAGE>   34
(iii) the quotient of (x) the number of days after the deadline that a meeting
is not held, divided by (y) 30.

Warrants.  Pursuant to the Purchase Agreement, on July 8, 1998 the Company
issued the Warrants to the Buyers.  The Warrants are exercisable for three
years commencing July 8, 1998.  The Warrants are exercisable for an aggregate
of up to 925,000 shares of Common Stock at an exercise price equal to 110% of
the Purchase Price.  The Warrants provide for customary adjustments to the
exercise price and number of shares to be issued in the event of certain
dividends and distributions to holders of Common Stock, stock splits,
combinations and mergers.  The Warrants also include customary provisions with
respect to, among other things, transfer of the Warrants, mutilated or lost
warrant certificates, and notices to holder(s) of the Warrants.

Registration Rights Agreement.  At the time of sale none of the Common Shares,
the Repricing Common Shares or the Warrant Common Shares will be registered
under the Securities Act and therefore, will be, when issued, "restricted
securities."  Effective July 8, 1998, the Company entered into a Registration
Rights Agreement with the Buyers pursuant to which the Buyers are entitled to
certain rights with respect to the registration under the Securities Act of the
Common Shares, the Repricing Common Shares and the Warrant Common Shares (the
"Registrable Securities").

         Pursuant to the Registration Rights Agreement, the Company agreed to
file a registration statement on Form S-3 on or before September 5, 1998,
covering the resale of all of the Registrable Securities.  The Company is
required to use its best efforts to cause such registration statement to become
effective as soon as practicable following the filing thereof; but in no event
later than the earlier of (i) November 4, 1998 and (ii) the fifth business day
after the Company learns that the Commission will not review the registration
statement or that the Commission has no further comments on the registration
statement. If the registration statement does not become effective by this
date, then the Company is required to make cash payments to the holders of the
Registrable Securities equal to 2.0% of the aggregate Purchase Price paid by
each holder on the first day of each month during the default.  The
Registration Rights Agreement also provides for unlimited piggyback
registration rights prior to the expiration of the registration period for the
Registrable Securities.  The Company generally bears the expense of any
registration statement, while selling holders generally bear selling expenses
such as underwriting fees and discounts.  The Registration Rights Agreement
also includes customary indemnification provisions.  In addition, under the
Purchase Agreement, the Company cannot file a registration statement (other
than a registration statement filed pursuant to the Registration Rights
Agreement, a registration statement filed pursuant to a demand registration
right or a registration statement on Form S-8) covering the sale or resale of
shares of Common Stock with the Securities and Exchange Commission beginning on
July 8, 1998 and ending on the 60th trading day after the date that the
registration statement filed on behalf of the holders has been declared
effective by the Securities and Exchange Commission.

Placement Agents.  The Company paid $1.8 million cash and issued warrants to
purchase 480,000 shares of the Company's Common Stock in consideration for
Jesup & Lamont Securities Corp., Phillip Louis Trading Co., Inc. and Laidlaw &
Co.  acting as the placement agents in connection with the Private Equity
Placements to the Buyers.

EXCHANGE RIGHTS

         The ECT Revolving Credit Agreement provides that, commencing January
1999, during certain periods, any indebtedness of Queen Sand Resources, Inc., a
Nevada corporation ("QSRn"), may be exchanged by the lenders for shares of the
Company's Common Stock. The exchange ratio is based on a formula that is a
function of the market price of the Common Stock at the time of exchange.





                                       33
<PAGE>   35
                              PLAN OF DISTRIBUTION

         The Selling Stockholders, their pledgees, donees, transferees or other
successors-in-interest, may, from time to time, sell all or a portion of the
shares of Common Stock being registered hereunder in privately negotiated
transactions or otherwise, at fixed prices that may be changed, at market
prices prevailing at the time of sale, at prices related to such market prices
or at negotiated prices.  The shares of Common Stock may be sold by the Selling
Stockholders by one or more of the following methods, without limitation: (a)
block trades in which the broker or dealer so engaged will attempt to sell the
shares of Common Stock as agent but may position and resell a portion of the
block as principal to facilitate the transaction, (b) purchases by a broker or
dealer as principal and resale by such broker or dealer for its account
pursuant to this Prospectus, (c) an exchange distribution in accordance with
the rules of the applicable exchange, (d) ordinary brokerage transactions and
transactions in which the broker solicits purchasers, (e) privately negotiated
transactions, (f) short sales, (g) a combination of any such methods of sale
and (h) any other method permitted pursuant to applicable law.

         From time to time the Selling Stockholders may engage in short sales,
short sales against the box, puts and calls and other transactions in
securities of the Company or derivatives thereof, and may sell and deliver the
shares of Common Stock in connection therewith or in settlement of securities
loans.  If the Selling Stockholders engage in such transactions, the applicable
conversion price may be affected.  From time to time the Selling Stockholders
may pledge their shares of Common Stock pursuant to the margin provisions of
its customer agreements with its brokers.  Upon a default by the Selling
Stockholders, the broker may offer and sell the pledged shares of Common Stock
from time to time.

         In effecting sales, brokers and dealers engaged by the Selling
Stockholders may arrange for other brokers or dealers to participate in such
sales.  Brokers or dealers may receive commissions or discounts from the
Selling Stockholders (or, if any such broker-dealer acts as agent for the
purchaser of such shares, from such purchaser) in amounts to be negotiated
which are not expected to exceed those customary in the types of transactions
involved.  Broker-dealers may agree with the Selling Stockholders to sell a
specified number of such shares of Common Stock at a stipulated price per
share, and, to the extent such broker-dealer is unable to do so acting as agent
for a Selling Stockholder, to purchase as principal any unsold shares of Common
Stock at the price required to fulfill the broker- dealer commitment to the
Selling Stockholders.  Broker-dealers who acquire shares of Common Stock as
principal may thereafter resell such shares of Common Stock from time to time
in transactions (which may involve block transactions and sales to and through
other broker-dealers, including transactions of the nature described above) in
the over-the- counter market or otherwise at prices and on terms then
prevailing at the time of sale, at prices then related to the then-current
market price or in negotiated transactions and, in connection with such
resales, may pay to or receive from the purchasers of such Shares commissions
as described above.  The Selling Stockholders may also sell the shares of
Common Stock in accordance with Rule 144 under the Securities Act, rather than
pursuant to this Prospectus.

         The Selling Stockholders and any broker-dealers or agents that
participate with the Selling Stockholders in sales of the shares of Common
Stock may be deemed to be "underwriters" within the meaning of the Securities
Act in connection with such sales.  In such event, any commissions received by
such broker-dealers or agents and any profit on the resale of the shares of
Common Stock purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.

         The Company is required to pay all fees and expenses incident to the
registration of the shares of Common Stock, including fees and disbursements of
one counsel (not to exceed $7,500) to the Selling Stockholders.  The Company
has agreed to indemnify the Selling Stockholders against certain losses,
claims, damages and liabilities, including liabilities under the Securities
Act.





                                       34
<PAGE>   36
         In order to comply with certain states' securities laws, if
applicable, the shares of Common Stock will be sold in such jurisdictions only
through registered or licensed brokers or dealers.  In addition, in certain
states the Common Stock may not be sold unless the Common Stock has been
registered or qualified for sale in such state or an exemption from
registration or qualification is available and is satisfied.

                                 LEGAL MATTERS

         The validity of the shares of Common Stock offered hereby will be
passed upon for the Company by its counsel, Haynes and Boone, LLP, Dallas,
Texas.


                                    EXPERTS

         The consolidated balance sheet of the Company as of June 30, 1997 and
the related consolidated statements of operations, stockholders' equity and cash
flows for the year ended June 30, 1997 and the statements of operating revenues
and direct operating expenses of Collins and Ware Properties for the years ended
June 30, 1996 and 1997 appearing in the Company's Annual Report (Form 10-KSB)
for the year ended June 30, 1997, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such financial statements are incorporated
herein by reference in reliance upon such reports given upon the authority of
such firm as experts in accounting and auditing.         

         The statements of net profits interests and royalty interests revenues
of certain oil and gas producing properties acquired from pension funds managed
by J.P. Morgan Investments for the years ended June 30, 1997, 1996 and 1995
appearing in the Company's Current Report on Form 8-K dated March 19, 1998, as
amended by Current Report on Form 8-K/A-2 dated June 8, 1998, have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. Such financial statements
are incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.

         The consolidated balance sheet of the Company as of June 30, 1996, and
the related consolidated statements of operations, stockholders' equity and cash
flows for the year ended June 30, 1996, have been incorporated by reference
herein and in the registration statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, incorporated herein
by reference and upon the authority of said firm as experts in accounting and
auditing.

         The estimates relating to the Company's proved oil and natural gas
reserves and future net revenues of oil and natural gas reserves as of June 30,
1997 (other than with respect to the Property Acquisitions) and at December 31,
1997 (other than with respect to the Morgan Properties) incorporated in this
Prospectus by reference from the Company's Annual Report on Form 10-KSB for the
year ended June 30, 1997, as amended by Form 10-KSB/A filed April 23, 1998 and
in the Company's Quarterly Report on Form 10-QSB for the quarter ended December
31, 1997 are based upon estimates of such reserves prepared by H.J. Gruy in
reliance upon its reports and upon the authority of this firm as experts in
petroleum engineering.

         The estimates relating to the Company's proved oil and natural gas
reserves and future net revenues of oil and natural gas reserves as of June 30,
1995 and 1996 and estimates relating to the NASGAS Properties at June 30, 1997
incorporated in this Prospectus by reference from the Company's Annual Report
on Form 10-KSB for the year ended June 30, 1997, as amended by Form 10-KSB/A
filed April 23, 1998 are based upon estimates of such reserves prepared by
Harper & Associates, Inc. in reliance upon its reports and upon the authority
of this firm as experts in petroleum engineering.





                                       35
<PAGE>   37
         The estimates relating to the Company's proved oil and natural gas
reserves and future net revenues of oil and natural gas reserves at June 30,
1997 with respect to the Collins and Ware Properties incorporated in this
Prospectus by reference from the Company's Annual Report on Form 10-KSB for the
year ended June 30, 1997, as amended by Form 10-KSB/A filed April 23, 1998 are
based upon estimates of such reserves prepared by Joe C. Neal & Associates,
independent consulting petroleum engineers, in reliance upon its report and
upon the authority of this firm as experts in petroleum engineering.

         The estimates relating to the Company's proved oil and natural gas
reserves and future net revenues of oil and natural gas reserves at December
31, 1997 with respect to the Morgan Properties incorporated in this prospectus
by reference from the Company's Current Report on Form 8-K dated March 19,
1998, as amended by Current Report on Form 8- K/A-1 filed on April 27, 1998 are
based upon estimates of such reserves prepared by Ryder Scott, independent
consulting petroleum engineers, in reliance upon its report and upon the
authority of this firm as experts in petroleum engineering.


            DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
                           SECURITIES ACT LIABILITIES

         Pursuant to the Registration Rights Agreement between the Company and
the Selling Stockholders, the Company has agreed to indemnify each Selling
Stockholder and its officers, directors, agents, brokers, investment advisors,
employees and any person who controls such Selling Stockholder against any
losses, claims, damages, liabilities, costs and expenses arising out of or
relating to (i) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement or any Prospectus, including any
amendments or supplements thereto, or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein (in the case of any Prospectus or form of
prospectus or supplement thereto, in light of of the circumstances under which
they were made) not misleading, except to the extent that such liabilities
arise out of or are based upon and in conformity with any information furnished
in writing to the Company by each respective Selling Stockholder expressly for
use in the Registration Statement or and amendment or supplement thereto.  In
addition,  each Selling Stockholder, acting severally and not jointly, under
the Registration Rights Agreement has agreed to indemnify the Company and its
officers, directors, employees, agents and any person who controls the Company
against any losses, claims, damages, liabilities, costs or expenses arising out
of or based upon and in conformity with written information furnished by such
Selling Stockholder expressly for use in the Registration Statement or an
amendment or supplement thereto.  However, the foregoing indemnity shall not
apply to amounts paid in settlement of any such liability if the settlement is
effected without the consent of such Selling Stockholder.

         Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the issuer pursuant to the foregoing provisions, or otherwise, the
issuer has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.





                                       36
<PAGE>   38
                              CERTAIN DEFINITIONS

         The following are certain defined terms used in this Prospectus:

"Bbl." One stock tank barrel, or 42 US gallons liquid volume, used herein in
reference to crude oil or other liquid hydrocarbons.

"Bcf." One billion cubic feet of natural gas.

"Bcfe." One billion cubic feet of natural gas equivalents, converting one Bbl
of oil to six Mcf of gas.

"behind-the-pipe." Hydrocarbons in a potentially producing horizon penetrated
by a well bore the production of which has been postponed pending the
production of hydrocarbons from another formation penetrated by the well bore.
The hydrocarbons are classified as proved but non-producing reserves.

"BOE." Barrels of oil equivalent (converting six Mcf of natural gas to one Bbl
of oil).

"Capital Lease Obligation." It means any obligation which is required to be
classified and accounted for as a capital lease obligation in accordance with
GAAP, and the amount of indebtedness represented by such obligation shall be
the capitalized amount of such obligation determined in accordance with GAAP,
and the Stated Maturity thereof shall be the date of the last payment date of
rent or any other amount due in respect of such obligation.

"Capital Stock." It means any and all shares, interests, participations or
other equivalents in the equity interest (however designated) in such Person
and any rights (other than debt securities convertible into an equity interest),
warrants or options to subscribe for or to acquire an equity interest in such 
Person.

"Consolidated Interest Expense." It means with respect to any Person for any
period, without duplication, (i) the sum of (a) the aggregate amount of cash
and noncash interest expense (including capitalized interest) of such Person
and its Restricted Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP in respect of indebtedness (including, without
limitation, (1) any amortization of debt discount, (2) net costs associated
with Interest Rate Protection Agreements (including any amortization of
discounts), (3) the interest portion of any deferred payment obligation, (4)
all accrued interest and (5) all commissions, discounts, commitment fees,
origination fees and other similar fees and charges owed with respect to the
Senior Credit Facilities and other indebtedness) paid, accrued or scheduled to
be paid or accrued during such period; (b) Redeemable Stock dividends of such
Person (and of its Restricted Subsidiaries if paid to a Person other than such
Person or its Restricted Subsidiaries) declared and payable other than in kind;
(c) the portion of any rental obligation of such Person or its Restricted
Subsidiaries in respect of any Capital Lease Obligation allocable to interest
expense in accordance with GAAP; (d) the portion of any rental obligation of
such Person or its Restricted Subsidiaries in respect of any Sale and Leaseback
Transaction that is indebtedness allocable to interest expense (determined as if
such obligation were treated as a Capital Lease Obligation); and (e) to the
extent any indebtedness of any other Person (other than Restricted Subsidiaries)
is Guaranteed by such Person or any of its Restricted Subsidiaries, the
aggregate amount of interest paid, accrued or scheduled to be paid or accrued by
such other Person during such period attributable to any such indebtedness; less
(ii) to the extent included in (i) above, amortization or write-off of deferred
financing costs of such Person and its Restricted Subsidiaries during such
period; in the case of both (i) and (ii) above, after elimination of
intercompany accounts among such Person and its Restricted Subsidiaries and as
determined in accordance with GAAP.





                                       37
<PAGE>   39
"Consolidated Net Income." For any Person for any period, the aggregate net
income (or net loss, as the case may be) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided that there shall be excluded therefrom, without
duplication, (i) the amount of non-cash writedowns attributable to any period
ending on or before January 1, 1999 if in compliance with GAAP or Commission
guidelines, and plus or minus, as appropriate, foreign currency translation
adjustments, all determined on a consolidated basis; (ii) items classified as
extraordinary gains or losses net of tax (less all fees and expenses relating
thereto); (iii) any gain or loss, net of taxes, on the sale or other
disposition of assets (less all fees and expenses relating thereto and
including the Capital Stock of any other Person) (but in no event shall this
clause (iv) apply to the sale in the ordinary course of business of oil, gas or
other hydrocarbons produced or manufactured or other personal property other
than oil and gas in place); (v) the net income of any Subsidiary of such
specified Person to the extent the transfer to that Person of that income is
restricted by contract or otherwise, except for any cash dividends or cash
distributions actually paid by such Subsidiary to such Person during such
period; (vi) the net income (or loss) of any other Person in which such
specified Person or any of its Restricted Subsidiaries has an interest (which
interest does not cause the net income of such other Person to be consolidated
with the net income of such specified Person in accordance with GAAP or is an
interest in a consolidated Unrestricted Subsidiary), except to the extent of
the amount of cash dividends or other cash distributions actually paid to such
Person or its Restricted Subsidiaries by such other Person during such period;
(vii) the net income of any Person acquired by such specified Person or any of
its Restricted Subsidiaries in a pooling-of-interests transaction for any
period prior to the date of such acquisition; (viii) any gain or loss, net of
taxes, realized on the termination of any employee pension benefit plan; (ix)
any adjustments of a deferred tax liability or asset pursuant to Statement of
Financial Accounting Standards No. 109 which result from changes in enacted tax
laws or rates; and (x) the cumulative effect of a change in accounting
principles.

"development well." A well drilled within the proved boundaries of an oil and
natural gas reservoir to the depth of a stratigraphic horizon known to be
productive.

"dry well." A development or exploratory well found to be incapable of
producing either oil or natural gas in sufficient quantities to justify
completion as an oil or natural gas well.

"EBITDA." With respect to any Person for any period, the Consolidated Net
Income of such Person for such period, plus (i) the sum of, to the extent
reflected in the consolidated income statement of such Person and its
Restricted Subsidiaries for such period from which Consolidated Net Income is
determined and deducted in the determination of such Consolidated Net Income,
without duplication, (a) income tax expense (but excluding income tax expense
relating to sales or other disposition of assets (including the Capital Stock
of any other Person) the gains and losses from which are excluded in the
determination of such Consolidated Net Income), (b) Consolidated Interest
Expense, (c) depreciation and depletion expense, (d) amortization expense, (e)
exploration expense, and (f) any other noncash charges including, without
limitation, unrealized foreign exchange losses; less (ii) the sum of, to the
extent reflected in the consolidated income statement of such Person and its
Restricted Subsidiaries for such period from which Consolidated Net Income is
determined and added in the determination of such Consolidated Net Income,
without duplication (a) income tax recovery (but excluding income tax recovery
relating to sales or other dispositions of assets (excluding the Capital Stock
of any other Person) the gains and losses from which are included in the
determination of such Consolidated Net Income) and (b) unrealized foreign
exchange gains.

"GAAP." It means United States generally accepted accounting principles as in
effect on the date of Purchase Agreement.





                                       38
<PAGE>   40
"gross acres" or "gross wells." The total number of acres or wells, as the case
may be, in which a working interest is owned.

"Interest Rate Protection Agreement." It means, with respect to any Person, any
interest rate swap agreement, forward rate agreement, interest rate cap or
collar agreement or other financial agreement or arrangement entered into for
the purpose of limiting or managing interest rate risks, to or under which such
Person is a party or otherwise obligated.

"Lien." With respect to any property, any mortgage or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, security interest, lien
(statutory or other), charge, easement, encumbrance, preference, priority or
other security or similar agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property (including, without
limitation, any conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing).

"MBbl." One thousand Bbl.

"MMBbl." One million Bbl.

"Mcf." One thousand cubic feet.

"Mcfe." One thousand cubic feet of natural gas equivalents, converting one Bbl
of oil to six Mcf of gas.

"net profits interest." A share of the gross oil and natural gas production
from a property, measured by net profits from the operation of the property,
that is carved out of the working interest.  This is a non-operated interest.

"Obligation." Any principal, interest, premium, penalty, fee and any other
liability payable under the documentation governing any indebtedness.

"Person." Any individual, corporation, partnership, joint venture, limited
liability company, unlimited liability company, trust, estate, unincorporated
organization or government or any agency or political subdivision thereof.

"Preferred Stock." Capital Stock of any Person of any class or classes (however
designated) that ranks prior, as to the payment of dividends or as to the
distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of Capital Stock of any
other class of such Person.

"proved developed reserves," "proved developed producing" OR "PDP."  Proved
developed reserves are oil and gas reserves that can be expected to be
recovered through existing wells with existing equipment and operating methods.
Additional oil and gas expected to be obtained through the application of fluid
injection or other improved recovery techniques for supplementing the natural
forces and mechanisms of primary recovery should be included as "proved 
developed reserves" only after testing by a pilot project or after the operation
of an installed program has confirmed through production response that increased
recovery will be achieved.

"proved reserves." The estimated quantities of crude oil, natural gas and gas
liquids which geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under
existing economic and operating conditions.

"proved undeveloped reserves" or "PUD." Reserves are oil and gas reserves that
are expected to be recovered from new wells on undrilled acreage, or from
existing wells where a relatively





                                       39
<PAGE>   41
major expenditure is required for recompletion.  Reserves on undrilled acreage
shall be limited to those drilling units offsetting productive units that are
reasonably certain of production when drilled.  Proved reserves for other
undrilled units can be claimed only where it can be demonstrated with certainty
that there is continuity of production from the existing productive formation.
Under no circumstances should estimates for proved undeveloped reserves be
attributable to any acreage for which an application of fluid injection or
other improved recovery techniques is contemplated, unless such techniques have
been proved effective by actual tests in the area and in the same reservoir.

"Redeemable Stock." It means any equity security of a Person that by its terms
(or by the terms of any security into which it is convertible or for which it
is exchangeable), or otherwise (including on the happening of an event), is or
could become required to be redeemed for cash or other property or is or could
become redeemable for cash or other property at the option of the holder
thereof, in whole or in part, on or prior to the first anniversary of the
Stated Maturity of the Notes; or is or could become exchangeable at the option
of the holder thereof for indebtedness at any time in whole or in part, on or
prior to the first anniversary of the Stated Maturity of the Notes; provided,
however, that Redeemable Stock shall not include the Series A Preferred Stock,
the Series B Preferred Stock, the Series C Preferred Stock or any security by
virtue of the fact that it may be exchanged or converted at the option of the
holder for Capital Stock of the Company having no preference as to dividends or
liquidation over any other Capital Stock of the Company.

"Restricted Subsidiary." Any Subsidiary of the Company that has not been
designated an Unrestricted Subsidiary.

"royalty interest." An interest in an oil and natural gas property entitling
the owner to a share of oil and natural gas production, free of costs of
production.

"Sale and Leaseback Transaction." It means, with respect to any Person, any
direct or indirect arrangement (excluding, however, any such arrangement
between such Person and a Wholly Owned Restricted Subsidiary of such Person or
between one or more Wholly Owned Restricted Subsidiaries of such Person)
pursuant to which Property is sold or transferred by such Person or a
Restricted Subsidiary of such Person and is thereafter leased back from the
purchaser or transferee thereof by such Person or one of its Restricted
Subsidiaries.

"SEC PV-10." The present value of proved reserves is an estimate of the
discounted future net cash flows from each of the properties at December 31,
1997, or as otherwise indicated. Net cash flow is defined as net revenues less,
after deducting production and ad valorem taxes, future capital costs and
operating expenses, but before deducting federal income taxes. As required by
rules of the Commission, the future net cash flows have been discounted at an
annual rate of 10% to determine their "present value." The present value is
shown to indicate the effect of time on the value of the revenue stream and
should not be construed as being the fair market value of the properties. In
accordance with Commission rules, estimates have been made using constant oil
and natural gas prices and operating costs, at December 31, 1997, or as
otherwise indicated.

"secondary recovery." A method of oil and natural gas extraction in which
energy sources extrinsic to the reservoir are utilized.

"Senior Credit Facilities." Collectively, one or more senior credit facilities
or commercial paper facilities with banks or other institutional lenders
(including, without limitation, the credit facility pursuant to the Credit
Agreement and the ECT Revolving Credit Agreement), together with any guarantees,
security and related documents, as all such credit facilities and documents may
be amended, supplemented, extended, increased, refinanced or replaced from time
to time.





                                       40
<PAGE>   42
"Stated Maturity" When used with respect to any security or any installment of
principal thereof or interest thereon, it means the date specified in such
security as the fixed date on which the principal of such security or such
installment of principal or interest is due and payable, including pursuant to
any mandatory redemption provision (but excluding any provision providing for
the repurchase of such security at the option of the holder thereof upon the
happening of any contingency unless such contingency has occurred).

"Subordinated Indebtedness." Any Indebtedness of the Company or a Subsidiary
Guarantor (whether outstanding on the issue date or thereafter incurred) which
is subordinate or junior in right of payment to the Notes or the relevant
Subsidiary Guarantor pursuant to a written agreement to that effect.

"Subsidiary." It means (i) another Person which is a corporation a majority of
whose Voting Stock is at the time, directly or indirectly, owned or controlled
by (a) the first Person, (b) the first Person and one or more of its
Subsidiaries or (c) one or more of the first Person's Subsidiaries or (ii)
another Person which is not a corporation (x) at least 50% of the ownership
interest of which and (y) the power to elect or direct the election of a
majority of the directors or other governing body of which are controlled by
Persons referred to in clause (a), (b) or (c) above.

"Standardized Measure." Under the Standardized Measure, future cash flows are
estimated by applying year-end prices, adjusted for fixed and determinable
escalations, to the estimated future production of year-end proved reserves.
Future cash inflows are reduced by estimated future production and development
costs based on period-end costs to determine pretax cash inflows. Future income
taxes are computed by applying the statutory tax rate to the excess of pretax
cash inflows over the Company's tax basis in the associated properties. Tax
credits, net operating loss carryforwards, and permanent differences are also
considered in the future tax calculation. Future net cash inflows after income
taxes are discounted using a 10% annual discount rate to arrive at the
Standardized Measure.

"Subsidiary." The subsidiary of a Person means (i) another Person which is a
corporation a majority of whose voting stock is at the time, directly or
indirectly, owned or controlled by (a) the first Person, (b) the first Person
and one or more of its Subsidiaries or (c) one or more of the first Person's
Subsidiaries or (ii) another Person which is not a corporation (x) at least 50%
of the ownership interest of which and (y) the power to elect or direct the
election of a majority of the directors or other governing body of which are
controlled by Persons referred to in clause (a), (b) or (c) above.

"Unrestricted Subsidiary." It means (i) each Subsidiary of the Company that the
Company has designated pursuant to the indenture for the Notes Offering and
(ii) any Subsidiary of an Unrestricted Subsidiary.

"Voting Stock." It means the Capital Stock of any Person which ordinarily has
voting power for the election of directors (or persons performing similar
functions) of such Person whether at all times or only so long as no senior
class of securities has such voting power by reason of any contingency.

"Wholly Owned Restricted Subsidiary." Any Restricted Subsidiary to the extent
all of the Capital Stock or other ownership interests in such Restricted
Subsidiary, other than any directors' qualifying shares mandated by applicable
law, is owned directly or indirectly by the Company.

"Wholly Owned Subsidiary." Any Subsidiary of the Company to the extent all of
the Capital Stock or other ownership interests in such Subsidiary, other than
any directors' qualifying shares mandated by applicable law, is owned directly
or indirectly by the Company.





                                       41
<PAGE>   43

"working interest." The operating interest which gives the owner the right to
drill, produce and conduct operating activities on the property and a share of
production, subject to all royalties, overriding royalties and other burdens
and to all costs of exploration, development and operations and all risks in
connection therewith.





                                       42
<PAGE>   44
                                    PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14.     OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

<TABLE>
      <S>                                                                                                    <C>
      Securities and Exchange Commission Registration Fee . . . . . . . . . . . . . . . . . . . . . . .      $21,194
      Nasdaq SmallCap Market Listing Fee  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        7,500
      Transfer Agent Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        5,000
      Printing Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        1,000
      Accounting Fees and Expenses  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        5,000
      Legal Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       25,000
      Engineer Fees and Expenses  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          500
      Blue Sky Fees and Expenses  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          500
      Miscellaneous Expenses  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          306
                                                                                                             -------
         Total  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      $66,000
                                                                                                             =======
</TABLE>

         All of the above expenses except the Securities and Exchange
Commission registration fee and the Nasdaq SmallCap Market listing fee are
estimated. All of such expenses will be borne by the Company.

ITEM 15.     INDEMNIFICATION OF DIRECTORS AND OFFICERS

         The Company's Restated Certificate of Incorporation, as amended (the
"Certificate of Incorporation"), provides that no director of the Company will
be personally liable to the Company or any of its stockholders for monetary
damages arising from the director's breach of fiduciary duty as a director.
However, this does not apply with respect to any action in which the director
would be liable under Section 174 of the General Corporation Law of the State
of Delaware ("Delaware Code") nor does it apply with respect to any liability
in which the director (i) breached his duty of loyalty to the Company or its
stockholders; (ii) did not act in good faith or, in failing to act, did not act
in good faith; (iii) acted in a manner involving intentional misconduct or a
knowing violation of law or, in failing to act, shall have acted in a manner
involving intentional misconduct or a knowing violation of law; or (iv) derived
an improper personal benefit.

         The Certificate of Incorporation of the Company provides that the
Company shall indemnify its directors and officers and former directors and
officers to the fullest extent permitted by the Delaware Code. Pursuant to the
provisions of Section 145 of the Delaware Code, the Company has the power to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending, or completed action, suit, or proceeding (other
than an action by or in the right of the Company) by reason of the fact that he
is or was a director, officer, employee, or agent of the Company, against any
and all expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred in connection with such action, suit, or proceeding. The
power to indemnify applies only if such person acted in good faith and in a
manner he reasonably believed to be in the best interest, or not opposed to the
best interest, of the Company and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.

         The power to indemnify applies to actions brought by or in the right
of the Company as well, but only to the extent of defense and settlement
expenses and not to any satisfaction of a judgment or settlement of the claim
itself and with the further limitation that in such actions no indemnification
shall be made in the event of any adjudication of negligence or misconduct
unless the court, in its discretion, believes that in light of all the
circumstances indemnification should apply.





                                      II-1
<PAGE>   45

         The statute further specifically provides that the indemnification
authorized thereby shall not be deemed exclusive of any other rights to which
any such officer or director may be entitled under any bylaws, agreements, vote
of stockholders or disinterested directors, or otherwise.

         Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Company pursuant to the foregoing provisions, the Company has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.

ITEM 16.     EXHIBITS

<TABLE>
<CAPTION>
        EXHIBIT NO.                                               EXHIBIT
        -----------                                               -------
         <S>           <C>
         3.1           Restated Certificate of Incorporation, filed as Exhibit 4.5 to the Company's Registration
                       Statement on Form S-3 filed with the Securities and Exchange Commission on March 9, 1998,
                       which Exhibit is incorporated herein by reference.

         3.2           Certificate of Designation of Series C Convertible Preferred Stock, filed as an exhibit to
                       the Company's Current Report on Form  8-K dated December 24, 1997,  which Exhibit is
                       incorporated herein by reference.

         3.3           Amended and Restated Bylaws, filed as an Exhibit to the Company's  Current Report on Form 8-
                       K dated May 6, 1997, which Exhibit is incorporated herein by reference.

         4.1           Amended and Restated Securities Purchase Agreement, filed as Exhibit 10.1 to the Company's
                       Current Report on Form  8-K dated July 8, 1998,  which Exhibit is incorporated herein by
                       reference.

         4.2           Registration Rights Agreement, filed as Exhibit 10.3 to the Company's Current Report on
                       Form 8-K dated July 8, 1998, which Exhibit is incorporated herein by reference.
                       Form of Common Stock Purchase Warrant, filed as Exhibit 4.2 to the Company's Current Report

         4.3           on Form 8-K dated July 8, 1998, which Exhibit is incorporated herein by reference.

         *5.1          Opinion of Haynes and Boone, LLP.

         *23.1         Consent of Ernst & Young LLP.

         *23.2         Consent of KPMG Peat Marwick LLP.

         *23.3         Consent of Haynes and Boone, LLP, contained in the opinion filed as Exhibit 5.1.

         *23.4         Consent of H.J. Gruy and Associates, Inc.

         *23.5         Consent of Harper & Associates, Inc.

         *23.6         Consent of Joe C. Neal & Associates.

         *23.7         Consent of Ryder Scott Company.

         *24.1         Power of Attorney, included as part of signature page of this Registration Statement.
</TABLE>

--------------

*   Filed herewith.                                                      

ITEM 17.     UNDERTAKINGS

         The undersigned Registrant hereby undertakes:

         (1)     to file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:

                 (i)      to include any prospectus required by Section
                          10(a)(3) of the Securities Act of 1933;

                 (ii)     to reflect in the prospectus any facts or events
                          arising after the effective date of the registration
                          statement (or the most recent post-effective
                          amendment





                                      II-2
<PAGE>   46
                          thereof) which, individually or in the aggregate,
                          represent a fundamental change in the information set
                          forth in the Registration Statement.  Notwithstanding
                          the foregoing, any increase or decrease in volume of
                          securities offered (if the total dollar value of
                          securities offered would not exceed that which was
                          registered) and any deviation from the low or high
                          end of the estimated maximum offering range may be
                          reflected in the form of prospectus filed with the
                          Commission pursuant to Rule 424(b) if, in the
                          aggregate, the changes in volume and price represent
                          no more than a 20 percent change in the maximum
                          aggregate offering price set forth in the
                          "Calculation of Registration Fee" table in the
                          effective Registration Statement;

                 (iii)    to include any material information with respect to
                          the plan of distribution not previously disclosed in
                          the Registration Statement or any material change to
                          such information in the registration statement;

         provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this Registration Statement.

         (2)     that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof; and

         (3)     to remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.

         Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.  In
the event a claim for indemnification against such liabilities (other than the
payment by the small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.

         The undersigned Registrant hereby undertakes that:

         (1)     For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of Prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.

         (2)     For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.





                                      II-3
<PAGE>   47
                        SIGNATURES AND POWER OF ATTORNEY

         Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Dallas, State of Texas, on the 13th day of
August, 1998.

                                   QUEEN SAND RESOURCES, INC.

                                   By:    /s/ Edward J. Munden                
                                          -------------------------------------
                                   Name:  Edward J. Munden
                                   Title: Chairman of the Board, 
                                          President and Chief Executive Officer

         KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints each of Robert P. Lindsay and Bruce I.
Benn, his or her true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him or her and in his or her name,
place and stead, in any and all capacities, to sign, execute and file with the
Securities and Exchange Commission and any state securities regulatory board or
commission any documents relating to the proposed issuance and registration of
the securities offered pursuant to this Registration Statement on Form S-3
under the Securities Act of 1933, including any amendment or amendments
relating thereto, with all exhibits and any and all documents required to be
filed with respect thereto with any regulatory authority, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises in order to effectuate the same as fully to all intents
and purposes as he or she might or could do if personally present, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or either
of them, or their or his substitute or substitutes, may lawfully do or cause to
be done.

         Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-3 has been signed by the following persons on
behalf of the Registrant in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
Signature                                  Title                                               Date
---------                                  -----                                               ----
<S>                               <C>                                                          <C>
/s/ Edward J. Munden                       Chairman of the Board, President                    August 13, 1998
--------------------------                 Chief Executive Officer, Director
Edward J. Munden                           (principal executive officer)


/s/ Bruce I. Benn                          Executive Vice President, Secretary                 August 13, 1998
--------------------------                 and Director                                                                   
Bruce I. Benn                              


/s/ Ronald I. Benn                         Chief Financial Officer (principal                  August 13, 1998
--------------------------                 financial officer and accounting officer)
Ronald I. Benn                    


/s/ Robert P. Lindsay                      Chief Operating Officer, Executive Vice             August 13, 1998
--------------------------                 President and Director                                                                   
Robert P. Lindsay                          
</TABLE>




                                      II-4
<PAGE>   48
<TABLE>
<S>                                        <C>                                                 <C>
/S/ TED COLLINS, JR.                       Director                                            August 13, 1998
----------------------------------                                                                             
Ted Collins, Jr.


/s/ Eli Rebich                             Director                                            August 13, 1998
--------------------------                                                                                    
Eli Rebich
</TABLE>





                                      II-5
<PAGE>   49
                                 EXHIBIT INDEX


<TABLE>
<CAPTION>
                                                                                                                    SEQUENTIALLY
                                                                                                                      NUMBERED
        EXHIBIT NO.                                               EXHIBIT                                               PAGE
        -----------                                               -------                                           ------------
         <S>           <C>                                                                                          <C>
         3.1           Restated Certificate of Incorporation, filed as Exhibit 4.5 to the Company's Registration
                       Statement on Form S-3 filed with the Securities and Exchange Commission on March 9, 1998,
                       which Exhibit is incorporated herein by reference.

         3.2           Certificate of Designation of Series C Convertible Preferred Stock, filed as an exhibit to
                       the Company's Current Report on Form  8-K dated December 24, 1997,  which Exhibit is
                       incorporated herein by reference.

         3.3           Amended and Restated Bylaws, filed as an Exhibit to the Company's  Current Report on Form 8-
                       K dated May 6, 1997, which Exhibit is incorporated herein by reference.

         4.1           Amended and Restated Securities Purchase Agreement, filed as Exhibit 10.1 to the Company's
                       Current Report on Form  8-K dated July 8, 1998,  which Exhibit is incorporated herein by
                       reference.

         4.2           Registration Rights Agreement, filed as Exhibit 10.3 to the Company's Current Report on
                       Form 8-K dated July 8, 1998, which Exhibit is incorporated herein by reference.
                       Form of Common Stock Purchase Warrant, filed as Exhibit 4.2 to the Company's Current Report

         4.3           on Form 8-K dated July 8, 1998, which Exhibit is incorporated herein by reference.

         *5.1          Opinion of Haynes and Boone, LLP.

         *23.1         Consent of Ernst & Young LLP.

         *23.2         Consent of KPMG Peat Marwick LLP.

         *23.3         Consent of Haynes and Boone, LLP, contained in the opinion filed as Exhibit 5.1.

         *23.4         Consent of H.J. Gruy and Associates, Inc.

         *23.5         Consent of Harper & Associates, Inc.

         *23.6         Consent of Joe C. Neal & Associates.

         *23.7         Consent of Ryder Scott Company.

         *24.1         Power of Attorney, included as part of signature page of this Registration Statement.
</TABLE>

--------------

*   Filed herewith.                                                      




                                      II-6