<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-21179
QUEEN SAND RESOURCES, INC.
(Exact Name of Small Business Issuer 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, SUITE 380,
L.B. #31, DALLAS, TEXAS, 75219-4398
(Address of Principal Executive offices) (Zip Code)
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: (214) 521-9959
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
YES [ X ] NO [ ]
22,725,502 shares of the registrant's Common Stock were outstanding as of
February 13, 1998
Transitional Small Business Disclosure Format: YES [ ] NO [ X ]
<PAGE> 2
PART I - FINANCIAL INFORMATION
QUEEN SAND RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
------------ ------------
Assets
Current assets:
<S> <C> <C>
Cash $ 3,115,304 $ 309,695
Accounts receivable and other current assets 1,396,974 756,092
------------ ------------
Total current assets 4,512,278 1,065,787
Net property and equipment 26,084,907 16,187,209
Other assets 12,673 0
------------ ------------
$ 30,609,858 $ 17,252,996
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and other $ 1,620,685 $ 1,588,668
Current portion of long-term debt 2,144,156 2,080,897
------------ ------------
Total current liabilities 3,764,841 3,669,565
Long-term obligations, net of current portion 7,280,935 7,151,881
------------ ------------
Total liabilities 11,045,776 10,821,446
------------ ------------
Commitments
Stockholders' equity:
Preferred stock, $.01 par value, authorized 96,104 96,000
50,000,000 shares: issued and outstanding
9,610,400 and 9,600,000 at December 31 and
June 30 respectively
Common shares stock, $.0015 par value 48,185 45,635
Additional paid-in capital 29,042,681 14,474,844
Accumulated deficit (4,629,888) (3,184,929)
Treasury stock (5,000,000) (5,000,000)
------------ ------------
Total stockholders' equity 19,564,082 6,431,550
------------ ------------
$ 30,609,858 $ 17,252,996
============ ============
</TABLE>
See accompanying notes to unaudited interim period consolidated condensed
financial statements.
2
<PAGE> 3
QUEEN SAND RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
December 31 December 31
------------------------------ ------------------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Oil & Gas Revenues $ 1,748,362 $ 966,410 $ 3,341,894 $ 1,779,843
Expenses:
Oil and gas production expenses 969,415 509,657 2,073,908 983,811
Depreciation, depletion and amortization 423,750 244,500 870,750 457,000
General & administrative expenses 694,660 329,268 1,218,168 549,018
Interest and financing costs 337,941 169,966 639,156 403,510
----------- ----------- ----------- -----------
2,425,766 1,253,391 4,801,982 2,393,339
----------- ----------- ----------- -----------
Net Operating Loss (677,404) (286,981) (1,460,088) (613,496)
Interest income 15,129 0 15,129 0
----------- ----------- ----------- -----------
Net Loss $ (662,275) $ (286,981) $(1,444,959) $ (613,496)
=========== =========== =========== ===========
Net Loss per Common Share $ (0.02) $ (0.01) $ (0.07) $ (0.02)
</TABLE>
See accompanying notes to unaudited interim period consolidated
condensed financial statements.
3
<PAGE> 4
QUEEN SAND RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended December 31
----------------------------
1997 1996
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (1,444,959) $ (613,496)
Depletion, depreciation and amortization 870,750 457,000
Issuance of common stock for services rendered 300,000 0
Unrealized gains on foreign exchange obligations (61,169) (18,603)
Net changes in operating assets and liabilities (608,230) 74,611
------------ ------------
Net cash used in operating activities (943,608) (100,488)
------------ ------------
Cash flows from investing activities - additions to property and (7,656,121) (1,875,190)
equipment
Cash flows from financing activities:
Proceeds from collection of stock subscriptions receivable 0 500,000
Proceeds from long-term obligations 12,176,415 602,966
Payments on long-term obligations (11,949,888) 0
Payments on capital lease obligations (34,849) (29,064)
Proceeds from the sale of preferred and common stock 11,152,492 1,189,940
------------ ------------
Net cash provided by financing activities 11,344,169 2,263,842
------------ ------------
Effect of foreign currency exchange rate changes on cash 61,169 18,603
------------ ------------
Net increase in cash 2,805,609 306,767
Cash at beginning of period 309,695 599,621
------------ ------------
Cash at end of period $ 3,115,304 $ 906,388
============ ============
</TABLE>
See accompanying notes to unaudited interim period consolidated condensed
financial statements.
4
<PAGE> 5
QUEEN SAND RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
December 31, 1997
(unaudited)
(1) General
The information furnished reflects all adjustments which are, in the
opinion of management, necessary to a fair presentation of the results of
the interim periods presented. The results of operations for the three
and six months ended December 31, 1997 are not necessarily indicative of
the operating results for the full fiscal year ending June 30, 1998.
Moreover, these financial statements do not purport to contain complete
disclosure in conformity with generally accepted accounting principles
and should be read in conjunction with the Company's audited financial
statements at, and for the fiscal year ended June 30, 1997.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, Reporting Comprehensive Income
("SFAS 130"). SFAS 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. SFAS 130 is effective for fiscal years ending after
December 15, 1997. The adoption of SFAS 130 will require additional
disclosures in the Company's financial statements, but the Company
believes that it will not have any material impact on the financial
position or results of operations of the Company.
(2) Common Stock
Loss per common share is based on the weighted average number of common
shares outstanding (27,285,783 and 22,031,259 for the three and six
months ended December 31, 1997, respectively, and 27,123,739 and
27,204,761 for the three and six months ended December 31 1996,
respectively).
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share. Statement 128
replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings
per share, basic earnings per share excludes any dilutive effects of
options, warrants, and convertible securities. Diluted earnings per share
is very similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods have been
presented, and where necessary, restated to confirm to the Statement 128
requirements.
During the six months ended December 31, 1997 the Company issued 350,000
and 200,000 restricted shares of common stock pursuant to Regulation S
for $1,067,500 and $700,000 $(3.05 and $3.50 per share), respectively.
The Company issued 1,000,000 restricted shares of common stock valued at
$3,125,000 $(3.125 per share) as partial consideration for the
acquisition of oil and natural gas producing properties in New Mexico,
Oklahoma and Texas (see Note 3). The Company issued 150,000 restricted
shares of common stock in consideration of services rendered, which it
valued at $2.00 per share $(300,000).
5
<PAGE> 6
QUEEN SAND RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
December 31, 1997
(unaudited)
(3) Acquisitions
On August 1, 1997 the Company acquired from Collins & Ware, Inc. 77
productive wells (12.35 net productive wells) located in various
counties in New Mexico, Oklahoma and Texas. In consideration for these
properties the Company paid, subject to standard industry adjustments
at closing, approximately $6,000,000 in cash and issued 1,000,000
restricted shares of its common stock which it valued, for purposes of
this transaction, at $3.125 per share $(3,125,000).
(4) Subsequent Events
On January 8, 1998 the Company repaid two notes payable issued in
February 1997 in partial consideration for an acquisition of oil and
natural gas producing properties in the face amount of $2 million. The
funds to retire these notes were drawn under the Company's senior
secured credit agreement with the the Bank of Montreal ("the Senior
Credit Agreement").
The Company has entered into a subordinated revolving credit agreement
("the Subordinated Credit Agreement") with an affiliate of the Company.
The Company can borrow, subject to certain restrictions, the lesser of
$10,000,000 and 40% of the borrowing base of the Senior Credit
Agreement. At this time the borrowing base under this Subordinated
Credit Agreement is $6,000,000.
On January 29, 1998 the Company issued 200,000 shares of its common
stock for $500,000 $(2.50 per share) pursuant to the exercise of
200,000 Class A Warrants.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
All statements in this document concerning the Company other than purely
historical information (collectively "Forward-Looking Statements") reflect the
current expectation of management and are based on the Company's historical
operating trends, estimates of proved reserves and other information currently
available to management. These statements assume, among other things, (i) that
no significant changes will occur in the operating environment for the Company's
oil and gas properties, gas plants and gathering systems, and (ii) that there
will be no material acquisitions or divestitures. The Company cautions that the
Forward-Looking Statements are subject to all the risks and uncertainties
incident to the acquisition, development and marketing of, and exploration for,
oil and gas reserves. These risks include, but are not limited to, commodity
price risk, environmental risk, drilling risk, reserve, operations, and
production risks, regulatory risks and counterparty risk. Many of these risks
are described in the Company's Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1997 filed with the Securities and Exchange Commission in
September 1997. The Company may make material acquisitions or dispositions,
enter into new or terminate existing oil and gas sales or hedging contracts, or
enter into financing transactions. None of these can be predicted with any
certainty and, accordingly, are not taken into consideration in the
Forward-Looking Statements made herein. For all of the foregoing reasons, actual
results may vary materially from the Forward-Looking Statements and there is no
assurance that the assumptions used are necessarily the most likely.
SELECTED FINANCIAL DATA
The following tables set forth selected financial data for the Company. The
financial data was derived from the consolidated financial statements of the
Company and should be read in conjunction with the Consolidated Financial
Statements and related Notes thereto included herein. The consolidated financial
statements for the three and six month periods ended December 31, 1997 and 1996
reflect all adjustments which, in the opinion of the Company, are necessary for
a fair presentation of the results of operations and the financial position of
the Company. The results of operations for the three and six months ended
December 31, 1997 will not necessarily be indicative of the operating results
for the full fiscal year ending June 30, 1998.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31 December 31
------------------------------ ------------------------------
1997 1996 1997 1996
OPERATIONS DATA:
<S> <C> <C> <C> <C>
Oil and Gas Sales $ 1,748,362 $ 966,410 $ 3,341,894 $ 1,779,843
Oil and Gas Production Expenses 969,415 509,657 2,073,908 983,811
----------- ----------- ----------- -----------
Net Oil and Gas Revenues 778,947 456,753 1,267,986 796,032
Depreciation, Depletion and Amortization 423,750 244,500 870,750 457,000
General and Administrative Expenses 694,660 329,268 1,218,168 549,018
Interest and Financing Expense 337,941 169,966 639,156 403,510
Interest and Other Income (15,129) 0 (15,129) 0
----------- ----------- ----------- -----------
Net Loss $ (662,275) $ (286,981) $(1,444,959) $ (613,496)
=========== =========== =========== ===========
Net Loss per Common Share $ (0.02) $ (0.01) $ (0.07) $ (0.02)
=========== =========== =========== ===========
</TABLE>
7
<PAGE> 8
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31 December 31
---------------------------- ------------------------------
1997 1996 1997 1996
AVERAGE SALES PRICE
<S> <C> <C> <C> <C>
Oil (per Bbl) $ 17.96 $ 22.62 $ 18.14 $ 22.36
Gas (per Mcf) $ 2.07 $ 2.34 $ 2.41 $ 2.33
Per BOE $ 17.27 $ 19.55 $ 16.66 $ 19.29
PRODUCTION DATA
Oil (Bbls) 59,018 31,669 119,549 58,466
Gas (Mcf) 242,097 106,639 486,467 202,921
Oil and Gas (BOE) 99,368 49,442 200,627 92,286
AVERAGE COST $(/BOE) DATA:
Production and operating costs 8.47 8.78 9.23 9.59
Production and severance taxes 1.10 1.52 1.10 1.44
Depreciation, Depletion and Amortization 4.18 4.95 4.34 4.95
General and Administrative Expenses 6.86 6.66 6.07 5.95
Interest and Financing Expense 3.34 3.44 3.19 4.37
</TABLE>
The following discussion of the results of operations and financial condition
should be read in conjunction with the Consolidated Financial Statements and
related Notes thereto included herein.
THE THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THE THREE MONTHS ENDED
DECEMBER 31, 1996
REVENUES The Company's total revenues rose by $782,000 (81%) to $1,748,000 for
the three months ended December 31, 1997, from $966,000 for the comparable
period in 1996. This increase is a result of an increase in the BOE's produced
offset by a 12.7% decrease in selling prices.
The Company produced 59,018 barrels of crude oil during the three months ended
December 31, 1997, an increase of 28,862 barrels (91%) over the 31,669 barrels
produced during the comparable period in 1996. This increase was comprised of a
decrease of 7,673 (28%) barrels from the properties that the Company owned
during both periods and an increase of 36,535 barrels from the properties
acquired during the period October 1, 1996 to September 30, 1997. The decrease
in production of crude oil from the properties owned during the comparative
quarters is primarily a reflection of natural depletion of the crude oil
producing reservoirs, and the temporary loss of production from certain
properties due to work overs during the three months ended December 31, 1997.
The Company produced 242,097 Mcf of natural gas during the three months ended
December 31, 1997, an increase of 137,731 Mcf (132%) over the 106,639 Mcf
produced during the comparable period in 1996. This increase consists of an
increase of 16,351 Mcf (15%) from the properties that the Company owned during
both periods and an increase of 121,380 Mcf from the properties acquired during
the period from October 1, 1996 to September 30, 1997. The increase in
production from the properties owned during the comparative quarters is a result
of the successful drilling of four new wells and the work over of certain
producing and non-producing wells, off-set by the natural depletion of the
natural gas producing reservoirs'.
The average selling price of oil was $17.96 per bbl for the three months ended
December 31, 1997, compared to $22.62 per bbl in the comparable period in 1996.
This decrease of $4.66 per bbl (21%) is a result of general decreases in oil
prices. The average selling price of natural gas was $2.07 per Mcf for the three
months ended December 31, 1997, compared to $2.34 per Mcf in the comparable
period in 1996. This decrease of $0.27 per Mcf (11%) is a result of general
decreases in natural gas prices during the three months ended December 31, 1997.
8
<PAGE> 9
The Company entered into agreements with Enron Capital & Trade Resources Corp.
("Enron"), an affiliate of Joint Energy Development Investments Limited
Partnership ("JEDI"), the holder of 9.6 million shares of the Company's Series A
Participating Convertible Preferred Stock, to hedge 50,000 MMBtu of natural gas
production and 10,000 barrels of oil production monthly. The agreements, which
are effective September 1, 1997, and terminate August 31, 1998, call for a gas
and oil ceiling and floor price of $2.66 and $1.90 per MMBtu of natural gas and
$20.40 and $18.00 per barrel of crude oil, respectively. If the average market
price of oil and gas per month, as defined in the agreements, exceeds the
ceiling price, the Company must pay Enron an amount equal to one-half of the
amount of the hedged quantities multiplied by the difference between the ceiling
price and the market price. If the average market price, as defined, falls below
the floor price, Enron will pay the Company an amount equal to the amount of the
hedged quantities multiplied by the difference in the floor price and the market
price. Pursuant to these hedging agreements, the Company made cumulative net
payments to Enron of $5,700 and $7,683 as a result of crude oil and natural gas
prices exceeding the ceiling prices in the agreements during the three months
ended December 31, 1997.
PRODUCTION EXPENSES The Company's lease operating expenses ("LOE's") rose to
$858,000 for the three months ended December 31, 1997, an increase of $423,000
(97%) from the comparable period in 1996. The increase is a combination of the
105% (based on BOE produced) increase in production offset by a decrease in the
LOE per BOE. The average LOE per BOE was $8.47 per BOE during the three months
ended December 31, 1997, a decrease of $0.32 (4%) over the average LOE per BOE
of $8.79 for the comparable period in 1996. Recurring LOE's, those costs
incurred in the normal operations of the Company, were $695,000 during the three
months ended December 31, 1997, or $6.85 per BOE, as compared to $419,000, or
$8.48 per BOE, during the comparable period in 1996. This represents a $1.63 per
BOE (19%) improvement. The Company believes that this improvement is a result of
improved efficiencies at an operating level and the acquisition of properties
with lower average operating costs per BOE than those the Company has owned
during the preceding years. Non-recurring LOE's, which are work over costs
incurred to increase production from existing producing reservoirs and thus are
arguably more capital in nature, but must be treated as expenses under the
Securities and Exchange Commission accounting rules, were $164,000 $(1.62 per
BOE) during the three months ended December 31, 1997, as compared to only
$15,000 $(0.30 per BOE) during the comparable period in 1996. This $149,000
(992%) increase in non-recurring LOE's is consistent with the Company's strategy
of redeveloping its properties to increase production, the objective of which is
to increase production and reduce the LOE per BOE. Early indications are that
this program will have the desired effect on production and LOE's over the long
term.
SEVERANCE AND PRODUCTION TAXES Severance and production related taxes were
$112,000 for the three months ended December 31, 1997, compared to $75,000
incurred in the comparable period in 1996. This increase of $36,000 (48%) is a
function of the 105% (based on BOE produced) increase in production offset by
the decrease in oil and natural gas prices (12% based on BOE produced).
DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE Depreciation, depletion, and
amortization (DDA) costs were $424,000 for the three months ended December 31,
1997, an increase of $179,000 (73%) over the $244,000 recognized during the
comparable period in 1996. This increase relates primarily to the 105% increase
in BOE produced. The DDA cost per BOE was $4.18 during the three months ended
December 31, 1997, a decrease of $0.76 per BOE (15%) over the $4.95 per BOE for
the comparable period in 1996. This decrease in DDA per BOE is primarily the
result of a reduction in the expected future capital costs required to bring the
Company's reserves into production.
GENERAL AND ADMINISTRATIVE COSTS The general and administrative costs of the
Company were $695,000 during the three months ended December 31, 1997, as
compared to $329,000 for the comparable period in 1996. This increase of
$365,000 (111%) consists of an unusually high, one-time expense of $300,000 for
financial public relations services. The Company issued 150,000 restricted
shares of its common stock in consideration of these services. After adjusting
for this item, general and administrative expenses rose only $65,000 (20%). On a
cost per BOE produced basis, general and administrative expenses were $6.86 per
BOE, an increase of $0.20 per BOE from the $6.66 per BOE for the comparable
period in 1996. After adjusting for the unusual item described above, general
and administrative expenses were only $3.90 per BOE.
9
<PAGE> 10
INTEREST EXPENSE The Company incurred interest charges of $338,000 during the
three months ended December 31, 1997, compared to $170,000 for the comparable
period in 1996. This increase of $168,000 (99%) is a reflection of the increase
in the average interest bearing debt of the Company, from $8.1 million for the
three months ended December 31, 1996 to $13.8 million during the three months
ended December 31, 1997. This increase in the average interest bearing debt of
$5.7 million in debt was used primarily to finance the acquisition of more than
$9 million of oil and gas producing properties.
THE SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THE SIX MONTHS ENDED DECEMBER
31, 1996
REVENUES The Company's total revenues rose by $1,562,000 (88%) to $3,342,000 for
the six months ended December 31, 1997, from $1,780,000 for the comparable
period in 1996. This increase is a result of increases in both the BOE produced
offset by a decrease in selling prices.
The Company produced 119,549 barrels of crude oil during the six months ended
December 31, 1997, an increase of 61,083 barrels (104%) over the 58,466 barrels
produced during the comparable period in 1996. This increase was comprised of a
decrease of 11,226 barrels (20%) from the properties that the Company owned
during both periods and an increase of 35,774 barrels from the properties
acquired during the period from October 1, 1996 to June 30, 1997. The decrease
in production of crude oil from the properties owned during the comparative
quarters is primarily a reflection of natural depletion of the crude oil
producing reservoirs, and the temporary loss of production from certain
properties due to work overs during the six months ended December 31, 1997.
The Company produced 486,467 Mcf of natural gas during the six months ended
December 31, 1997, an increase of 283,546 Mcf (140%) over the 202,921 Mcf
produced during the comparable period in 1996. This increase was comprised of an
increase of 37,926 Mcf (19%) from the properties the Company owned during both
periods and an increase of 245,620 Mcf from the properties acquired during the
period from October 1, 1996 to September 30, 1997. The increase in production
from the properties owned during the comparative six months is a result of the
successful drilling of four wells and the work over of certain producing and
non-producing wells, off-set by the natural depletion of the natural gas
producing reservoirs.
The average selling price of oil was $18.14 per bbl for the six months ended
December 31, 1997, compared to $22.36 per bbl in the comparable period in 1996.
This decrease of $4.22 per bbl (19%) is a result of general decreases in oil
prices. The average selling price of natural gas was $2.41 per Mcf for the six
months ended December 31, 1997, compared to $2.33 per Mcf in the comparable
period in 1996. This increase of $0.08 per Mcf is a result of general increases
in natural gas prices during the six months ended December 31, 1997.
The Company entered into agreements with Enron Capital & Trade Resources Corp.
("Enron"), an affiliate of Joint Energy Development Investments Limited
Partnership ("JEDI"), the holder of 9.6 million shares of the Company's Series A
Participating Convertible Preferred Stock, to hedge 50,000 MMBtu of natural gas
production and 10,000 barrels of oil production monthly. The agreements, which
are effective September 1, 1997, and terminate August 31, 1998, call for a gas
and oil ceiling and floor price of $2.66 and $1.90 per MMBtu of natural gas and
$20.40 and $18.00 per barrel of crude oil, respectively. If the average market
price of oil and gas per month, as defined in the agreements, exceeds the
ceiling price, the Company must pay Enron an amount equal to one-half of the
amount of the hedged quantities multiplied by the difference between the ceiling
price and the market price. If the average market price, as defined, falls below
the floor price, Enron will pay the Company an amount equal to the amount of the
hedged quantities multiplied by the difference in the floor price and the market
price. Pursuant to these hedging agreements, the Company made cumulative net
payments to Enron of $5,700 and $21,708 as a result of crude oil and natural gas
prices exceeding the ceiling prices in the agreements during the six months
ended December 31, 1997.
PRODUCTION EXPENSES The Company's lease operating expenses ("LOE's") rose to
$1,853,000 for the six months ended December 31, 1997, an increase of $969,000
(109%) from the comparable period in 1996. The increase is a combination of the
117% (based on BOE produced) increase in production offset by a decrease in the
LOE per BOE. The average LOE per BOE was $9.23 per BOE during the six months
ended December 31, 1997, a decrease of $0.36 (4%) over the average LOE per BOE
of $9.59 for the comparable period in 1996. Recurring
10
<PAGE> 11
LOE's, those costs incurred in the normal operations of the Company, were
$1,447,000 during the six months ended December 31, 1997, or $7.21 per BOE, as
compared to $851,000, or $9.22 per BOE, during the comparable period in 1996.
This represents a $2.01 per BOE (22%) improvement. The Company believes that
this improvement is a result of improved efficiencies at an operating level and
the acquisition of properties with lower average operating costs per BOE than
those the Company has owned during the preceding years. Non-recurring LOE's,
which are work over costs incurred to increase production from existing
producing reservoirs and thus are arguably more capital in nature, but must be
treated as expenses under the Securities and Exchange Commission accounting
rules, were $406,000 $(2.02 per BOE) during the six months ended December 31,
1997, as compared to only $34,000 $(0.37 per BOE) during the comparable period
in 1996. This $372,000 (1,094%) increase in non-recurring LOE's is consistent
with the Company's strategy of redeveloping its properties to increase
production, the objective of which is to increase production and reduce the LOE
per BOE. Early indications are that this program will have the desired effect on
production and LOE's over the long term.
SEVERANCE AND PRODUCTION TAXES Severance and production related taxes were
$221,000 for the six months ended December 31, 1997, compared to $133,000
incurred in the comparable period in 1996. This increase of $88,000 (66%) is a
function of the 117% (based on BOE produced) increase in production offset by
the decrease in oil and natural gas prices (14% based on BOE produced).
DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE Depreciation depletion, and
amortization (DDA) costs were $871,000 for the six months ended December 31,
1997, an increase of $414,000 (91%) over the $457,000 recognized during the
comparable period in 1996. This increase relates primarily to the 117% increase
in BOE produced. The DDA cost per BOE was $4.34 during the six months ended
December 31, 1997, a decrease of $0.61 per BOE (12%) over the $4.95 per BOE for
the comparable period in 1996. This decrease in DDA per BOE is primarily the
result of a reduction in the expected future capital costs required to bring the
Company's reserves into production.
GENERAL AND ADMINISTRATIVE COSTS The general and administrative costs of the
Company were $1,218,000 during the six months ended December 31, 1997, as
compared to $549,000 for the comparable period in 1996. This increase of
$669,000 (122%) consists of an unusually high, one-time expense of $300,000 for
financial public relations services.. The Company issued 150,000 restricted
shares of its common stock in consideration of these services. After adjusting
for this item, general and administrative expenses rose by $369,000 (67%). On a
cost per BOE produced basis, general and administrative expenses were $6.07 per
BOE, an increase of $0.12 per BOE from the $5.95 per BOE (2%) for the comparable
period in 1996. After adjusting for the unusual item described above, general
and administrative expenses were only $4.58 per BOE.
INTEREST EXPENSE The Company incurred interest charges of $639,000 during the
six months ended December 31, 1997 compared to $404,000 for the comparable
period in 1996. This increase of $236,000 (58%) is a reflection of the increase
in the average interest bearing debt of the Company, from $7.3 million for the
six months ended December 31, 1996 to $13.8 million during the six months ended
December 31, 1997. This increase in the average interest bearing debt of $6.5
million in debt was used primarily to finance the acquisition of more than $9
million of oil and gas producing properties.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL The Company's general financial strategy is to use cash from operations
to service interest on the Company's indebtedness, to pay ongoing operating
expenses, and to contribute limited amounts toward further development of the
Company's existing proved reserves as well as additional acquisitions. There can
be no assurance that cash from operations will be sufficient in the future to
cover all of those purposes.
The Company will continue to be dependent on external funding sources to carry
out its planned redevelopment and acquisition program. If such additional funds
are not available, the Company will be required to delay or reduce substantially
both of such activities.
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<PAGE> 12
INDEBTEDNESS
SENIOR CREDIT FACILITY The Company has a secured revolving loan facility (the
"Senior Credit Facility") which provides for borrowings up to $75 million with
the Bank of Montreal, Houston, Texas ("Bank of Montreal") to, among other
things, fund working capital and make additional acquisitions as and if
appropriate opportunities are identified. On January 13, 1998 the Company
received approval from the Bank of Montreal to borrow up to $15,000,000 under
this revolving loan facility of which $5 million was outstanding as of February
13, 1998. The loan under this Senior Credit Facility matures on August 1, 2003.
In the event of a default on the bank indebtedness, not subsequently waived by
the bank, it is unlikely that the Company would be able to continue its
business. In addition, the Company is subject to certain financial and operating
covenants that are usual and customary for transactions of this nature,
including, but not limited to, requirements to provide annual audited and
unaudited interim financial information, prohibitions on additional debt,
restrictions on certain payments and distributions to affiliates and others,
restrictions on changes in the nature of the business, and maintenance of
minimum, cash flow, and operating ratios. The Company was to maintain a minimum
interest coverage ratio and maintain positive working capital, after adding to
the current assets the unutilized portion of the revolving loan. The loan
agreement also contains usual and customary events of default and provides
remedies to the Bank of Montreal in the event of default. Although the Company
believes that its cash flows and available sources of financing will be
sufficient to satisfy the interest payments on its debt at currently prevailing
interest rates and oil and gas prices, the Company's level of debt may adversely
affect the Company's ability: (i) to obtain additional financing for working
capital, capital expenditures or other purposes, should it need to so do; or
(ii) to acquire additional oil and gas properties or to make acquisitions
utilizing new borrowings. There can be no assurances that the Company will be
able to obtain additional financing, if required, or that such financing, if
obtained, will be on terms favorable to the Company.
On September 30, 1997 and December 31, 1997 the Company was not in compliance
with its interest coverage ratio. The Bank of Montreal waived the September 30,
1997 covenant violation solely with respect to these specific defaults. On
February 10, 1998 the Bank of Montreal waived the Company's December 31, 1997
noncompliance with the interest coverage ratio. On the same date the Senior
Credit Facility was amended to reduce the interest coverage ratio to 1.75:1 for
the quarter ending March 31, 1998 and 3.0:1 thereafter. In addition, the Company
and its subsidiaries agreed that during calendar 1998, they would not incur,
without the prior written consent of the Bank of Montreal, in aggregate, capital
expenditures in excess of those disclosed to the Bank of Montreal in the
Company's operating forecast $(2.6 million). The Company believes, but cannot
assure, that it will be able to comply with all restrictive covenants in the
future or obtain waivers from the bank with respect to noncompliance.
From time to time in the future, the Company may submit information to the Bank
of Montreal in accordance with the procedures provided in the loan agreement to
support the Company's request to increase the maximum borrowing base as the
Company believes appropriate. All such applications will be subject to bank
approval. If available, these funds would be allocated toward future development
and acquisition programs.
On January 8, 1998 the Company repaid two notes totaling $2 million. The Company
increased its debt outstanding on the Senior Credit Facility by $2 million to
fund this repayment.
SUBORDINATED CREDIT FACILITY Effective December 29, 1997, the Company
established a Subordinated Revolving Credit Facility (the "Subordinated Credit
Facility") with Enron Capital & Trade Resources Corp. ("Enron"), as a lender and
as agent for the lenders thereto, to fund capital costs incurred with future
development projects and to fund further acquisitions. The Subordinated Credit
Facility is subordinate to the Senior Credit Facility. The Subordinated Credit
Facility provides for borrowings up to $10.0 million, subject to borrowing base
limitations, which has been initially set at an amount equal to forty percent
(40%) of the borrowing base established from time to time under the Senior
Credit Facility. This facility is intended to provide bridge financing for
development projects and acquisitions to be completed on relatively short notice
or until the affected assets are eligible to be included in the borrowing base
for the Senior Credit Facility or financed with longer-term indebtedness or
equity capital; provided, that the availability for acquisitions under the
facility is limited to the lesser of $5,000,000 or the borrowing base as in
effect from time to time. The Company may currently borrow up
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<PAGE> 13
to $6,000,000 under the Subordinated Credit Facility. The Company has not
borrowed any money as of February 13, 1998 under this facility. Borrowings in
excess of certain amounts under the Subordinated Credit Facility will reduce the
available borrowing base under the Senior Credit Facility. The loan is secured
by a second priority lien and security interest (behind the first lien position
of the Senior Credit Facility) in approximately eighty-five percent (85%) of the
oil and gas properties of the Company.
The Subordinated Credit Facility is subject to payment of interest at a
fluctuating rate per annum equal to (i) the rate of one percent (1%) above the
then highest rate of interest being paid on any portion of the indebtedness owed
under the Senior Credit Facility or (ii) the rate of fifteen percent (15%),
depending upon whether there is any indebtedness owed under the Senior Credit
Facility outstanding or whether there has been a certain amount of indebtedness
owed to Enron for certain time periods
The maturity date for the Subordinated Credit Facility is the earlier of
December 30, 2002 or the date that is 60 days after the Company receives written
notice that the lenders and their affiliates beneficially own in the aggregate
less than ten percent (10%) of the capital stock of the Company entitled to vote
in the election of directors. From March 31, 1998 through the maturity date, the
Company will pay interest on the outstanding loans at quarterly intervals, on
the last business day of every March, June, September and December. In addition,
the Subordinated Credit Facility provides for certain voluntary prepayments and
certain mandatory prepayments of amounts borrowed under the facility.
The Company paid an affiliate of Enron a fee of $200,000 in connection with the
arrangement of the Subordinated Credit Facility. In addition, commencing March
31, 1998, and on each payment date thereafter, the Company is obligated to pay
Enron, for the account of each lender under the Subordinated Credit Facility, a
fee of 3/8% per annum on the daily average of the unadvanced portion of the
facility for the period since January 12, 1998 or the previous payment date to
such payment date.
The Company is subject to various covenants under the Subordinated Credit
Facility, which covenants are substantially similar to the covenants described
above with respect to the Senior Credit Facility. In addition to the covenants,
the Subordinated Credit Facility contains representations, warranties, covenants
and default provisions customary for a facility of this type.
REGULATION S BOND Through February 13, 1998 the Company was engaged in the
distribution in Europe of Deutschemark denominated (DEM) 12% Bonds ("12% Bonds")
totaling DEM 3.95 million $(2.2 million). Under Regulation S of the Securities
Act, the Company is prohibited from selling these Bonds to U.S. persons (as
defined in Regulation S). The Company has discontinued its efforts to sell any
additional 12% Bonds.
The Company is obligated to make periodic interest payments (January 15 and July
15 of each year) and to repay the principal when it comes due on July 15, 2000
in DEM. All interest payments have been paid in full at the time they came due.
The funds generated by the Company from operations, which form the primary
source of funds to pay the interest, are denominated in $US. The source of funds
required to repay the principal outstanding on these bonds has not yet been
identified, since the bonds do not mature until July 15, 2000. The Company is
exposed to the risk that, upon repayment, the exchange rate between DEM and $US
may be less favorable than that which existed at the time that the bonds were
issued. This would result in the Company having to repay a larger number of $US
than it received initially. Changes in the $US equivalent of the DEM bonds
arising from changes to the DEM:$US exchange rate are recognized monthly. At
December 31, 1997 the Company had recorded unrealized exchange rate gains of
approximately $361,000 (at June 30, 1997 $300,000). However, there are no
assurances that the Company will continue to realize gains related to favorable
changes in the DEM:$US exchange rates in the future. Unfavorable changes to the
DEM:$US exchange rate will result in the Company recording unrealized exchange
rate losses related to the changes as they occur. The Company believes it has
the opportunity to enter into arrangements to manage its DEM:$US exchange rate
risk. At this time, the Company has not entered into any such arrangements.
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<PAGE> 14
SUBORDINATED NOTES TO SELLERS Pursuant to the Frymire Purchase in November 1996,
the Company issued three notes to the seller. The first two notes plus accrued
interest were retired on their respective due dates. The third note, initially
in the amount of $227,500, is payable monthly with principal and interest
amortized over two years, bearing interest at ten percent (10%). All payments
relating to the third note have been made as they came due. The principal
outstanding on this note, at February 13, 1998 approximated $55,300 (at December
31, 1997 $75,504). This note is fully subordinated to the Senior Credit
Facility. The Company has and continues to intend to use funds from operations
to retire the remainder of this note and related interest. There can be no
assurances that the Company can generate the funds to redeem the note and
related interest that matures on July 1, 1998.
REGULATION D SHARES The Company issued 150,000 shares of Common Stock pursuant
to Regulation D in December 1997, in consideration for services rendered, which
it valued at $2.00 per share $(300,000) for purposes of this transaction. In
December 1997 the Company issued 10,000 shares of Series "C" preferred stock for
$10,000,000, and 400 shares of Series "C" preferred stock as partial
consideration for services rendered in the placement of this Series "C"
preferred stock. The aggregate liquidation preference is $10,400,000. This
Series "C" preferred stock is convertible into the Common Stock of the Company
on the basis of a formula that is a function of the market price of the Common
Stock at the time of the conversion (See "Part II, Item 2"). With the issuance
of the Series "C" preferred stock, both the Bank of Montreal and Joint Energy
Development Investments Limited Partnership have acknowledged that the Company's
covenants to each of them to raise $5.4 million of net cash equity by December
31, 1997 from the issuance of Common Stock of the Company have been met.
REGULATION S SHARES In January 1998 the Company issued 200,000 shares of its
common stock to a "non-U.S. person" pursuant to the exercise of 200,000 Class A
Warrants for $2.50 per share $(500,000).
WARRANTS In December 1997 the Company issued 340,138 warrants in conjunction
with the issuance of the Series "C" preferred stock. These warrants are
exercisable at a strike price on the basis of a formula that is a function of
the market price of the Common Stock at the time of exercise of the warrants.
These warrants may be exercised commencing December 24, 1997 and ending on
December 24, 2001 (See Part II, Item 2).
In February 1998 the Company issued 1,145,134 warrants ("maintenance warrants")
to JEDI pursuant to a Securities Purchase Agreement dated March 27, 1997. A
total of 1,554,973 maintenance warrants have been issued to JEDI. These
maintenance warrants are exercisable at strike prices ranging from $1.85 to
$3.50 per common share for total proceeds of approximately $4 million. All of
the maintenance warrants are currently exercisable and expire at various times
prior to December 31, 1998.
In addition, there are 1,800,000 Class A warrants and 1,000,000 Class B warrants
outstanding. These "A" and "B" warrants can be exercised at a strike price of
$2.50 per common share and expire on December 31, 1998.
EXCHANGE RIGHTS The Subordinated Credit Facility provides that, commencing
January 1999, during certain periods, any indebtedness of Queen Sand Resources,
Inc., a Nevada corporation and a wholly-owned subsidiary of the Company, 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 (See "Part II, Item 2").
OTHER SOURCES The Company does not have sufficient liquidity or capital to
undertake all potential acquisition prospects or to fund fully the development
of any prospect. Therefore, the Company will continue to be dependent on raising
substantial amounts of additional capital through any one or a combination of
institutional or bank debt financing, equity offerings, debt offerings and
internally generated cash flow, or by forming sharing arrangements with industry
participants. Although the Company has been able to obtain such financings and
to enter into such sharing arrangements in certain of its projects to date,
there can be no assurance that it will continue to be able to do so.
Alternatively, the Company may consider issuing additional securities in
exchange for producing properties. There can be no assurance that any such
financings or sharing arrangement can be obtained. Therefore, notwithstanding
the Company's need for substantial amounts of additional capital, there can be
no assurance that it can be obtained.
Further acquisitions and development activities in addition to those for which
the Company is contractually obligated are discretionary and depend exclusively
on cash availability from outside sources such as bank debt and the sale of
securities or properties.
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<PAGE> 15
YEAR 2000 COMPUTER ISSUE The Company has reviewed its computer systems in order
to evaluate necessary modifications for the year 2000. The Company does not
currently anticipate that it will incur material expenditures to complete any
such modifications.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
ISSUANCE OF SERIES C PREFERRED STOCK AND WARRANTS On December 24, 1997, in
reliance on Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act"), and on Regulation D promulgated pursuant to the Securities
Act, the Company issued 10,000 shares of Series C Convertible Preferred Stock,
par value $0.01 per share, of the Company (the "Series C Preferred Stock") to
certain institutional investors (collectively, the "Purchasers") and warrants to
purchase an aggregate of 340,138 shares of the Company's Common Stock (the
"Warrants") to the Purchasers in exchange for aggregate cash consideration of
$10,000,000. In addition, in reliance on Section 4(2) of the Securities Act, and
on Regulation D promulgated pursuant to the Securities Act, the Company issued
400 shares of Series C Preferred Stock to Palisades Holdings, Inc. in exchange
for its services as the placement agent for the transaction. The Warrants may be
exercised in full or in part by means of payment of the exercise price which is
equal to a fixed conversion price in effect on the exercise date; provided,
however, that if the ADTV (as defined in the Certificate of Designation of the
Series C Preferred Stock (the "Series C Certificate of Designation")) for the
Common Stock during the period of six (6) months following the closing date is
less than five hundred and forty thousand dollars $(540,000), the exercise price
shall be the lesser of (i) the fixed conversion price and (ii) the average of
the closing bid prices (as defined in the Series C Certificate of Designation)
for the Common Stock during the twenty-two (22) trading days occurring prior to
the last day of such six-month period.
DESCRIPTION OF SERIES C PREFERRED STOCK The Series C Certificate of Designation
authorizes the issuance of up to 10,400 shares of Series C Preferred Stock. The
following description of the rights, preferences and limitations of the Series C
Preferred Stock is a summary only and is qualified in its entirety by reference
to the entire text of the Series C Certificate of Designation which is an
exhibit to a Current Report on Form 8-K dated December 24, 1997 filed by the
Company with the Securities and Exchange Commission.
Voting The holders of shares of Series C Preferred Stock are not entitled to
vote with the holders of the Company's 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;
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<PAGE> 16
(iv) re-issue any shares of Series C Preferred Stock which have
been converted in accordance with the terms hereof;
(v) issue any Senior Securities (other than the Company's Series B
Participating Convertible Preferred Stock pursuant to the
terms of the Company's Series A Participating Convertible
Preferred Stock) or Pari Passu Securities (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 hereof 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. 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.
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 of the Series C
Preferred Stock shares in an amount equal to the stated value of such share
multiplied by five percent (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 ("Liquidation Preference").
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 eighty percent (80%)
("Optional Redemption Price"), to the extent permitted by law and so long as (i)
the Company has
16
<PAGE> 17
sufficient cash available at the time; (ii) the Company delivers prior 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 occurs (as
defined in the Series C Preferred Stock Certificate of Designation).
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 one hundred and twenty five percent (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 dated and
multiplying the resulting quotient by the average closing bid price for the
Common Stock on the five (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 one percent (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 fifty percent
(50%).
ISSUANCE OF EXCHANGEABLE NOTE Effective December 29, 1997, Queen Sand Resources,
Inc., a Nevada corporation and wholly-owned subsidiary of the Company, entered
into the Subordinated Credit Facility with Enron. The Subordinated Credit
Facility provides that commencing January 1, 1999, during certain periods under
the facility, the lenders may exchange any debt outstanding under the facility
into the Company's Common Stock. The exchangeable debt was issued in reliance on
Section 4(2) of the Securities Act. The exchange ratio is based on a formula
that is a function of the market price of the Common Stock at the time of the
exchange.
ISSUANCE OF COMMON STOCK In reliance on Regulation D promulgated pursuant to the
Securities Act, the Company issued 150,000 shares of Common Stock in December
1997 to a consulting firm as partial consideration for services rendered, which
the Company valued at $2.00 per share $(300,000).
In reliance on Regulation S promulgated pursuant to the Securities Act, the
Company issued 200,000 shares of Common Stock in January 1998 pursuant to the
exercise of 200,000 Class A Warrants for $2.50 per share $(500,000).
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company was held on November 20, 1997,
at which the election of five directors, the appointment of Ernst & Young LLP as
the Company's independent public accountants for 1997 and the adoption of the
Company's 1997 Incentive Equity Plan were considered. Edward J. Munden was
re-elected as a
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<PAGE> 18
director and received 24,511,384 votes for his election, with 0 votes withheld.
Bruce I. Benn was re-elected as a director and received 24,511,384 votes for his
election, with 0 votes withheld. Robert P. Lindsay was re-elected as a director
and received 24,511,384 votes for his election, with 0 votes withheld. Ted
Collins, Jr. was re-elected as a director and received 24,511,384 votes for his
election, with 0 votes withheld. Eli Rebich was re-elected as a director and
received 24,511,384 votes for his election, with 0 votes withheld. Ernst & Young
LLP was ratified as independent accountants for the Company for the fiscal year
ending June 30, 1998 and received 24,510,684 votes for their ratification, 700
votes against and 0 votes abstaining. The adoption of the Company's 1997
Incentive Equity Plan was approved with 24,087,644 votes in favor of approval,
13,050 votes against and 50 votes abstaining.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
[A]
The following exhibits are included herein:
10.1 Subordinated Revolving Credit Loan Agreement dated as of
December 29, 1997 among Queen Sand Resources, Inc., a Nevada
corporation, Enron Capital & Trade Resources Corp., as agent,
and the lenders named therein.
10.2 Guaranty dated as of December 29, 1997 executed by Corrida
Resources, Inc. and Northland Operating Co. for the benefit of
Enron Capital & Trade Resources Corp., as agent.
10.3 Guaranty dated as of December 29, 1997 executed by the Company
for the benefit of Enron Capital & Trade Resources Corp., as
agent.
10.4 Registration Rights Agreement dated as of December 29, 1997
among the Company, Enron Capital & Trade Resources Corp. and
Joint Energy Development Investments Limited Partnership.
10.5 Second Amendment, dated December 29, 1997, to Credit
Agreement, dated as of August 1, 1997, among Queen Sand
Resources, Inc., a Nevada corporation, and Bank of Montreal,
as agent.
10.6 Third Amendment, dated February 10, 1998, to Credit Agreement,
dated as of August 1, 1997 among Queen Sand Resources, Inc. a
Nevada corporation, and Bank of Montreal, as agent.
[B] Reports on Form 8-K
1. Current Report on Form 8-K dated December 24, 1997 disclosing
certain matters under Item 5.
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<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
QUEEN SAND RESOURCES, INC.
By: /s/ Edward J. Munden
Edward J. Munden
Chairman of the Board, President and Chief
Executive Officer
By: /s/ Ronald I. Benn
Ronald I. Benn
Chief Financial Officer
Date:
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<PAGE> 20
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
10.1 Subordinated Revolving Credit Loan Agreement dated as of
December 29, 1997 among Queen Sand Resources, Inc., a Nevada
corporation, Enron Capital & Trade Resources Corp., as agent,
and the lenders named therein.
10.2 Guaranty dated as of December 29, 1997 executed by Corrida
Resources, Inc. and Northland Operating Co. for the benefit of
Enron Capital & Trade Resources Corp., as agent.
10.3 Guaranty dated as of December 29, 1997 executed by the Company
for the benefit of Enron Capital & Trade Resources Corp., as
agent.
10.4 Registration Rights Agreement dated as of December 29, 1997
among the Company, Enron Capital & Trade Resources Corp. and
Joint Energy Development Investments Limited Partnership.
10.5 Second Amendment, dated December 29, 1997, to Credit
Agreement, dated as of August 1, 1997, among Queen Sand
Resources, Inc., a Nevada corporation, and Bank of Montreal,
as agent.
10.6 Third Amendment, dated February 10, 1998, to Credit Agreement,
dated as of August 1, 1997 among Queen Sand Resources, Inc. a
Nevada corporation, and Bank of Montreal, as agent.
<PAGE> 1
SUBORDINATED REVOLVING CREDIT
LOAN AGREEMENT
AMONG
QUEEN SAND RESOURCES, INC.,
AS BORROWER
THE LENDERS NAMED IN THIS AGREEMENT,
AS LENDERS
AND
ENRON CAPITAL & TRADE RESOURCES CORP.,
AS AGENT
$10,000,000 SUBORDINATED REVOLVING CREDIT FACILITY DECEMBER 29, 1997
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE 1
GENERAL TERMS
Section 1.1 Certain Definitions.........................................1
Section 1.2 Accounting Principles......................................13
ARTICLE 2
AMOUNT AND TERMS OF LOANS
Section 2.1 The Loans and Commitments..................................13
Section 2.2 Use of Proceeds............................................14
Section 2.3 Funding of Capital Costs and Acquisitions..................14
Section 2.4 Borrowing Base.............................................14
Section 2.5 Interest...................................................16
Section 2.6 Fees.......................................................17
Section 2.7 Notice and Manner of Borrowing.............................17
Section 2.8 Notes......................................................18
Section 2.9 Voluntary Prepayments......................................19
Section 2.10 Mandatory Prepayments......................................19
Section 2.11 Exchange of Indebtedness...................................20
Section 2.12 Repayment of Loans.........................................21
Section 2.13 Payment Procedure..........................................22
Section 2.14 Business Days..............................................22
Section 2.15 Illegality.................................................22
Section 2.16 Mortgaged Property.........................................23
Section 2.17 Setoff.....................................................23
Section 2.18 Production Proceeds........................................23
Section 2.19 Sharing of Payments, Etc...................................24
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
Section 3.1 Corporate Existence........................................24
Section 3.2 Financial Condition........................................25
Section 3.3 Litigation.................................................25
Section 3.4 No Breach..................................................25
Section 3.5 Authority..................................................26
Section 3.6 Approvals..................................................26
Section 3.7 Use of Borrowings..........................................26
Section 3.8 ERISA......................................................26
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Section 3.9 Taxes......................................................27
Section 3.10 Titles, etc................................................28
Section 3.11 No Material Misstatements..................................28
Section 3.12 Investment Company Act.....................................29
Section 3.13 Public Utility Holding Company Act.........................29
Section 3.14 Subsidiaries and Partnerships..............................29
Section 3.15 Location of Business and Offices...........................29
Section 3.16 Defaults...................................................29
Section 3.17 Environmental Matters......................................29
Section 3.18 Compliance with the Law....................................31
Section 3.19 Insurance..................................................31
Section 3.20 Hedging Agreements.........................................32
Section 3.21 Restriction on Liens.......................................32
Section 3.22 Gas Imbalances.............................................32
Section 3.23 Material Contracts.........................................32
ARTICLE 4
AFFIRMATIVE COVENANTS
Section 4.1 Financial Statements.......................................33
Section 4.2 Litigation.................................................35
Section 4.3 Maintenance, Etc...........................................35
Section 4.4 Environmental Matters......................................36
Section 4.5 Further Assurances.........................................37
Section 4.6 Performance of Obligations.................................37
Section 4.7 Engineering Reports........................................37
Section 4.8 Title Information..........................................39
Section 4.9 Additional Collateral......................................39
Section 4.10 ERISA Information and Compliance...........................40
ARTICLE 5
NEGATIVE COVENANTS
Section 5.1 Debt.......................................................40
Section 5.2 Liens......................................................41
Section 5.3 Investments, Loans and Advances............................42
Section 5.4 DEM Subordinated Debt......................................43
Section 5.5 Sales and Leasebacks.......................................43
Section 5.6 Nature of Business.........................................43
Section 5.7 Limitation on Leases.......................................43
Section 5.8 Distributions..............................................44
Section 5.9 Mergers, Etc...............................................44
Section 5.10 Proceeds of Note...........................................45
Section 5.11 ERISA Compliance...........................................45
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Section 5.12 Sale or Discount of Receivables............................46
Section 5.13 Current Ratio..............................................46
Section 5.14 Accounts Payable...........................................46
Section 5.15 Interest Coverage Ratio....................................47
Section 5.16 Sale of Oil and Gas Properties.............................47
Section 5.17 Environmental Matters......................................47
Section 5.18 Transactions with Affiliates...............................47
Section 5.19 Subsidiaries and Partnerships..............................48
Section 5.20 Negative Pledge Agreements.................................48
Section 5.21 Gas Imbalances, Take-or-Pay or Other Prepayments...........48
Section 5.22 Material Contracts.........................................49
Section 5.23 Senior Loan Agreement......................................49
ARTICLE 6
EVENTS OF DEFAULT
Section 6.1 Events.....................................................49
Section 6.2 Remedies...................................................51
ARTICLE 7
CONDITIONS OF LENDING
Section 7.1 Initial Loans..............................................52
Section 7.2 All Loans..................................................54
ARTICLE 8
Section 8.1 Authorization and Action...................................55
Section 8.2 Agent's Reliance, Etc......................................55
Section 8.3 The Agent and Its Affiliates...............................56
Section 8.4 Lender Loan Decision.......................................56
Section 8.5 Indemnification............................................56
Section 8.6 Successor Agent............................................57
ARTICLE 9
MISCELLANEOUS
Section 9.1 Notices....................................................57
Section 9.2 Amendments, Etc............................................58
Section 9.3 No Waiver; Remedies........................................58
Section 9.4 Indemnities................................................58
Section 9.5 Invalidity.................................................60
Section 9.6 Survival of Agreements.....................................60
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Section 9.7 Lender Assignments and Participations......................61
Section 9.8 Renewal, Extension or Rearrangement........................63
Section 9.9 Waivers....................................................63
Section 9.10 Cumulative Rights..........................................63
Section 9.11 Singular and Plural........................................63
Section 9.12 Construction...............................................63
Section 9.13 Interest...................................................63
Section 9.14 References.................................................64
Section 9.15 Taxes, etc.................................................65
Section 9.16 Governmental Regulation....................................65
Section 9.17 Entire Agreement...........................................65
Section 9.18 Exhibits...................................................65
Section 9.19 Titles of Articles, Sections and Subsections...............65
Section 9.20 Satisfaction Requirement...................................65
Section 9.21 Counterparts...............................................65
Section 9.22 Subordinated Debt..........................................65
Section 9.23 Designated Senior Indebtedness.............................66
EXHIBITS
Exhibit A - Form of Note
Exhibit B - Borrowing Request
Exhibit C - Form of Compliance Certificate
Exhibit D - Legal Opinion
Exhibit E - Assignment and Acceptance
SCHEDULES
Schedule 3.2 - Liabilities
Schedule 3.3 - Litigation
Schedule 3.10 - Titles, etc.
Schedule 3.14 - Subsidiaries and Partnerships
Schedule 3.17 - Environmental Matters
Schedule 3.19 - Insurance
Schedule 3.20 - Hedging Agreements
Schedule 3.22 - Gas Imbalances
Schedule 3.23 - Material Contracts
Schedule 5.1 - Debt
Schedule 5.2 - Liens
Schedule 5.3 - Investments, Loans and Advances
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LOAN AGREEMENT
THIS SUBORDINATED REVOLVING CREDIT LOAN AGREEMENT is made and entered
into as of December 29, 1997, among QUEEN SAND RESOURCES, INC., a Nevada
corporation (the "Borrower"), the Lenders (as defined below), and ENRON CAPITAL
& TRADE RESOURCES CORP., a Delaware corporation, as Agent for the Lenders.
In consideration of the mutual covenants and agreements herein
contained and of the loans and commitment hereinafter referred to, the Borrower,
the Lenders, and the Agent agree as follows:
ARTICLE 1
GENERAL TERMS
Section 1.1 Certain Definitions. As used in this Agreement, the
following terms shall have the following meanings:
"Acquisition" means the direct or indirect purchase or acquisition,
whether in one or more related transactions, of any Oil and Gas Properties (or
the Person or group of Persons owning such Oil and Gas Properties).
"AFE" shall mean an authority for expenditure of the type customarily
used in the oil and gas industry in form and substance satisfactory to the
Agent.
"AFE Expenditures Report" shall mean a report, reasonably satisfactory
in form and substance to the Agent, prepared by the Borrower, setting forth on a
comparison basis the actual Capital Costs incurred versus the estimated amounts
budgeted for such Capital Costs pursuant to the most recent Plan of Development
submitted to the Agent, in connection with the applicable Development Project
and, if requested by the Agent, including the underlying invoices or other
documentation supporting such AFE Expenditures Report to the extent such
information is available.
"Affiliate" of any Person shall mean (i) any Person directly or
indirectly controlled by, controlling or under common control with such first
Person, (ii) any director or officer of such first Person or of any Person
referred to in clause (i) above and (iii) if any Person in clause (i) above is
an individual, any member of the immediate family (including parents, spouse and
children) of such individual and any trust whose principal beneficiary is such
individual or one or more members of such immediate family and any Person who is
controlled by any such member or trust. For the purposes of this definition,
"control" (including, with its correlative meanings, "controlled by", and "under
common control with") shall mean any Person which owns directly or indirectly
10% or more of the securities having ordinary voting power for the election of
directors or other governing body of a corporation or 10% or more of the
partnership or other ownership interests of any other Person (other than as a
limited partner of such other Person) will be deemed to control such corporation
or other Person.
<PAGE> 7
"Agent" shall mean Enron Capital & Trade Resources Corp. in its
capacity as agent pursuant to Article 8, and includes any successor agent
pursuant to Section 8.6.
"Agent's Account" shall have the meaning specified in Section 2.13.
"Agreement" shall mean this Subordinated Revolving Credit Loan
Agreement, as the same may from time to time be amended or supplemented.
"Approval Period" shall mean any Mezzanine Period that has been
continuing for more than 60 days.
"Assignment and Acceptance" shall mean an assignment and acceptance
entered into by a Lender and an Eligible Assignee, and accepted by the Agent, in
substantially the form of the attached Exhibit E.
"Borrower" shall mean Queen Sand Resources, Inc., a Nevada corporation.
"Borrower's Account" shall have the meaning specified in Section 2.7.
"Borrowing" shall mean any borrowing consisting of simultaneous Loans
made by each Lender pursuant to the facility created in this Agreement.
"Borrowing Base" shall mean, at any time, the amount determined in
accordance with Section 2.4 to be the Borrowing Base hereunder.
"Borrowing Request" shall mean a request for a Borrowing pursuant to
Section 2.7 in substantially the form attached as Exhibit B.
"Business Day" shall mean a day other than a Saturday, Sunday or legal
holiday for commercial banks under the laws of the State of New York.
"Capital Costs" shall have the meaning assigned to such term in Section
2.3(a).
"Capital Stock" shall mean with respect to any corporation, any and all
shares, interests, participations or other equivalents (however designated) of,
or rights, warrants or options to purchase, corporate stock or any other equity
interest (however designated) of or in such corporation.
"CERCLA" shall have the meaning set forth in the definition of
"Environmental Laws."
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time and any successor statute.
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"Commitment" shall mean for any Lender, such Lender's commitment to
make Loans pursuant to the terms of this Agreement in an aggregate outstanding
amount not to exceed the lesser of (a) such Lender's Maximum Commitment or (b)
such Lender's Pro Rata Share of the Borrowing Base, as the same may be reduced
or increased from time to time in accordance with the terms of this Agreement.
"Consolidated Subsidiaries" shall mean each Subsidiary of the Parent
Company or such other Person, whether now existing or hereafter created or
acquired, the financial statements of which shall be (or should have been)
consolidated with the financial statements of the Parent Company in accordance
with GAAP.
"Debt" shall mean, for any Person, the sum of the following (without
duplication): (a) all obligations of such Person for borrowed money evidenced by
bonds, debentures, notes or other similar instruments (including principal,
interest, fees and charges); (b) all obligations of such Person (whether
contingent or otherwise) in respect of bankers' acceptances, letters of credit,
surety or other bonds and similar instruments; (c) all obligations of such
Person to pay the deferred purchase price of Property or services (other than
for borrowed money); (d) all obligations under leases which shall have been, or
should have been, in accordance with GAAP, recorded as capital leases in respect
of which such Person is liable (whether contingent or otherwise); (e) all Debt
and other obligations of others secured by a Lien on any asset of such Person,
whether or not such Debt is assumed by such Person; (f) all Debt and other
obligations of others guaranteed by such Person or in which such Person
otherwise assures a creditor against loss of the debtor or obligations of
others; (g) all obligations or undertakings of such Person to maintain or cause
to be maintained the financial position or covenants of others or to purchase
the Debt or Property of others (other than the purchase of Property in the
ordinary course of business); (h) the undischarged balance of any production
payment created by such Person or for the creation of which such Person directly
or indirectly received payment; and (i) the net mark to market value of all
obligations of such Person under Hedging Agreements.
"Default" shall mean an Event of Default or an event which with notice
or lapse of time or both would become an Event of Default.
"Default Rate" shall have the meaning specified in Section 2.5(b).
"DEM Subordinated Debt" shall mean the Series A DEM $5,000,000 12%
notes issued by the Parent Company and being due and payable on July 15, 2000,
and any renewals, extensions or replacements (but not increases in principal
amount) thereof.
"Development Project" shall mean each project for the development of
proved non-producing reserves of any of the Mortgaged Properties set out in a
Project Summary or a Plan of Development.
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"Eligible Assignee"shall mean (a) any Affiliate of Enron Capital &
Trade Resources Corp. or (b) any other Person approved by the Borrower (such
approval shall not be unreasonably withheld).
"Environmental Laws" shall mean any and all Governmental Requirements
pertaining to health, safety or the environment in effect in any and all
jurisdictions in which the Parent Company, the Borrower or any of its
Subsidiaries is conducting or at any time has conducted business, or where any
Property of any such Person is located, including without limitation, the Oil
Pollution Act of 1990, as amended ("OPA"), the Clean Air Act, as amended, the
Comprehensive Environmental, Response, Compensation, and Liability Act of 1980,
as amended ("CERCLA"), the Federal Water Pollution Control Act, as amended, the
Occupational Safety and Health Act of 1970, as amended, the Resource
Conservation and Recovery Act of 1976, as amended ("RCRA"), the Safe Drinking
Water Act, as amended, the Toxic Substances Control Act, as amended, the
Superfund Amendments and Reauthorization Act of 1986, as amended, the Hazardous
Materials Transportation Act, as amended, and other environmental conservation
or protection laws. The term "oil" shall have the meaning specified in the OPA,
the terms "hazardous substance" and "release" (or "threatened release") shall
have the meanings specified in CERCLA, and the terms "solid waste" and
"disposal" (or "disposed") shall have the meanings specified in RCRA; provided,
however, that (i) in the event either OPA, CERCLA or RCRA is amended so as to
broaden the meaning of any term defined thereby, such broader meaning shall
apply subsequent to the effective date of such amendment and (ii) to the extent
the laws of the state in which any Property of the Parent Company, the Borrower
or any of its Subsidiaries is located establish a meaning for "oil", "hazardous
substance," "release," "solid waste" or "disposal" which is broader than that
specified in either OPA, CERCLA or RCRA, such broader meaning shall apply.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time and any successor statute.
"ERISA Affiliate" shall mean each trade or business (whether or not
incorporated) which together with the Parent Company would be deemed to be a
"single employer" within the meaning of Section 4001(b)(1) of ERISA or
subsections (b), (c), (m) or (o) of Section 414 of the Code.
"ERISA Event" shall mean (a) a "Reportable Event" described in Section
4043 of ERISA and the regulations issued thereunder, (b) the withdrawal of the
Parent Company, the Borrower or any of its Subsidiaries or ERISA Affiliates from
a Plan during a plan year in which it was a "substantial employer" as defined in
Section 4001(a)(2) of ERISA, (c) the filing of a notice of intent to terminate a
Plan or the treatment of a Plan amendment as a termination under Section 4041 of
ERISA, (d) the institution of proceedings to terminate a Plan by the PBGC or (e)
any other event or condition which might constitute grounds under Section 4042
of ERISA for the termination of, or the appointment of a trustee to administer,
any Plan.
"Event of Default" shall have the meaning specified in Section 6.1.
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"Excepted Liens" shall mean: (a) Liens for taxes, assessments or other
governmental charges or levies not yet due or which are being contested in good
faith by appropriate action and for which appropriate reserves have been
maintained; (b) Liens in connection with workmen's compensation, unemployment
insurance or other social security, old age pension or public liability
obligations not yet due or which are being contested in good faith by
appropriate action and for which appropriate reserves have been maintained in
accordance with GAAP; (c) operators', vendors', carriers', warehousemen's,
repairmen's, mechanics', workmen's, materialmen's, construction or other like
Liens arising by operation of law in the ordinary course of business or incident
to the exploration, development, operation and maintenance of Oil and Gas
Properties or statutory landlord's liens, each of which is in respect of
obligations that have not been outstanding more than 90 days or which are being
contested in good faith by appropriate proceedings and for which appropriate
reserves have been maintained in accordance with GAAP; (d) any Liens reserved in
leases or farmout agreements for rent and for compliance with the terms of the
farmout agreements or leases in the case of leasehold estates, to the extent
that any such Lien referred to in this clause does not materially impair the use
of the Property covered by such Lien for the purposes for which such Property is
held by the Parent Company, the Borrower or any of its Subsidiaries or
materially impair the value of such Property subject thereto; (e) encumbrances
(other than to secure the payment of borrowed money or the deferred purchase
price of Property or services), easements, restrictions, servitudes, permits,
conditions, covenants, exceptions, or reservations, in any rights of way or
other Property of the Parent Company, the Borrower or any of its Subsidiaries
for the purpose of roads, pipelines, transmission lines, transportation lines,
distribution lines for the removal of gas, oil, coal or other minerals or
timber, and other like purposes, or for the joint or common use of real estate,
rights of way, facilities and equipment, and defects, irregularities, zoning
restrictions and deficiencies in title of any rights of way or other Property
which in the aggregate do not materially impair the use of the such rights of
way and other Property for the purposes of which such rights of way and other
Property are held by any such Person or materially impair the value of such
Property subject thereto; and (f) Liens securing payment of the Senior Debt.
"Federal Funds Rate" means, for any period, a fluctuating interest rate
per annum equal for each day during such period to the weighted average of the
rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for any such day on
such transactions received by the Agent from three Federal funds brokers of
recognized standing selected by it.
"Fee Letter" shall mean that certain letter of even date herewith from
ECT Securities Corp. to the Borrower regarding certain fees payable by the
Borrower in connection with this Agreement.
"Financial Statements" shall mean the financial statement or statements
of the Parent Company described or referred to in Section 3.2(a).
"Financing Statements" shall mean the financing statements referred to
in Section 7.1(e)(ii).
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"GAAP" shall mean generally accepted accounting principles, applied on
a consistent basis, as set forth in Opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants and/or in statements
of the Financial Accounting Standards Board and/or their respective successors,
or other generally accepted industry practice or accounting principles, and
which are applicable in the circumstances as of the date in question. Accounting
principles are applied on a "consistent basis" when the accounting principles
observed in a current period are comparable in all material respects to those
accounting principles applied in a preceding period.
"Governmental Authority" shall include the country, the state, county,
parish, city and political subdivisions in which any Person or such Person's
Property is located or which exercises valid jurisdiction over any such Person
or such Person's Property, and any court, agency, department, commission, board,
bureau or instrumentality of any of them including monetary authorities which
exercises valid jurisdiction over any such Person or such Person's Property.
Unless otherwise specified, all references to Governmental Authority herein
shall mean a Governmental Authority having jurisdiction over, where applicable,
the Parent Company, the Borrower, its Subsidiaries or any of their Properties,
or the Agent or the Lenders.
"Governmental Requirement" shall mean any law, statute, code,
ordinance, order, determination, rule, regulation, judgment, decree, injunction,
franchise, permit, certificate, license, authorization or other directive or
requirement (whether or not having the force of law), including, without
limitation, Environmental Laws, energy regulations and occupational, safety and
health standards or controls, of any Governmental Authority.
"Guaranties" means (a) the Guaranties dated as of even date hereof made
by each of the Parent Company and the Guarantors in favor of the Agent for the
benefit of the Lenders guaranteeing payment of the Indebtedness and (b) any
other present or future guaranties of any Indebtedness.
"Guarantors" shall mean each of Northland Operating Co., a Nevada
corporation, Corrida Resources, Inc., a Nevada corporation, and all future
Subsidiaries of the Parent Company other than the Borrower and Non-Recourse
Subsidiaries.
"Hedging Agreement" shall mean any commodity, interest rate or currency
swap, rate cap, rate floor, rate collar, forward agreement or other exchange,
price or rate protection agreements or any option with respect to any such
transaction.
"Highest Lawful Rate" shall mean the maximum nonusurious interest rate,
if any, that at any time or from time to time may be contracted for, taken,
reserved, charged or received on the Note or on other Indebtedness under
applicable laws which are presently in effect or, to the extent allowed by law,
under such applicable laws which may hereafter be in effect and which allow a
higher maximum nonusurious interest rate than applicable laws now allow.
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"Hydrocarbons" shall mean oil, gas, casinghead gas, drip gasoline,
natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous
hydrocarbons and all products refined or separated therefrom.
"Hydrocarbon Interests" shall mean all rights, titles, interests and
estates in and to oil and gas leases, oil, gas and mineral leases, or other
liquid or gaseous hydrocarbon leases, mineral fee interests, overriding royalty
and royalty interests, net profit interest and production payment interests,
including any reserved or residual interests of whatever nature.
"Indebtedness" shall mean any and all amounts owing or to be owing by
the Borrower to the Agent or any Lender in connection with this Agreement, the
Notes, or the other Loan Documents, and all renewals, extensions and/or
rearrangements of any of the above.
"Indemnity Matters" shall have the meaning specified in Section 9.4.
"Lenders" means the lenders listed on the signature pages of this
Agreement and each Eligible Assignee that shall become a party to this Agreement
pursuant to Section 9.7.
"Lender's Account" shall mean for any Lender, the account specified by
such Lender as its Lender's Account by notice in writing to the Agent.
"Lien" shall mean any interest in Property securing an obligation owed
to, or a claim by, a Person other than the owner of the Property, whether such
interest is based on the common law, statute or contract, and whether such
obligation or claim is fixed or contingent, and including but not limited to (a)
the lien or security interest arising from a mortgage, charge, encumbrance,
pledge, lien (statutory or otherwise), security agreement, conditional sale or
trust receipt or a lease, consignment or bailment for security purposes, or
preferential arrangement of any kind or nature whatsoever (including, any
agreement to give or grant a lien), or (b) production payments and the like
payable out of Oil and Gas Properties. The term "Lien" shall include
reservations, exceptions, encroachments, easements, rights of way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting Property. For the purposes of this Agreement, the Parent Company, the
Borrower or any of its Subsidiaries shall be deemed to be the owner of any
Property which it has acquired or holds subject to a conditional sale agreement,
or leases under a financing lease or other arrangement pursuant to which title
to the Property has been retained by or vested in some other Person in a
transaction intended to create a financing.
"Loan" shall mean each loan made pursuant to Section 2.1.
"Loan Documents" shall mean this Agreement, the Note, the Security
Instruments, the Guaranties, the Borrowing Requests, the Registration Rights
Agreement, the Subordination Agreement, and all other certificates, documents,
instruments, and agreements executed by the Borrower, the Parent Company, or any
Guarantor and delivered pursuant to this Agreement, as the same may be amended,
supplemented, modified, renewed, or extended from time to time.
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"Majority Lenders" shall mean, at any time, Lenders holding more than
50% of the then aggregate unpaid principal amount of the Notes held by the
Lenders at such time, or, if no such principal amount is then outstanding,
Lenders having at least 50% of the aggregate amount of the Commitments at such
time.
"Material Adverse Effect" shall mean any material and adverse effect on
(a) the assets, liabilities, financial condition, business, operations,
prospects or affairs of the Parent Company and its Consolidated Subsidiaries
taken as a whole different from those reflected in the financial statements most
recently delivered pursuant to Section 3.2(a) or 4.1 hereof, or from the facts
represented or warranted in this Agreement or any Security Instrument, or (b)
the ability of the Parent Company and its Consolidated Subsidiaries to carry out
its business as at the date of this Agreement or as proposed at the date of this
Agreement to be conducted, or to meet its obligations under the Loan Documents
on a timely basis.
"Material Contracts" shall mean each of the instruments, contracts or
agreements described in Schedule 3.23, as the same may be amended, modified or
replaced from time to time in accordance of the terms of Section 5.22.
"Maturity Date" shall mean the earlier of (a) December 30, 2002 or (b)
the date 60 days after the Borrower's receipt of written notice from the Agent
that the Lenders and their Affiliates beneficially own, in the aggregate, less
than 10% of the Capital Stock of the Parent Company entitled to vote generally
in the election of directors.
"Maximum Commitment" shall mean for any Lender, the amount set opposite
such Lender's name on the signature pages hereof as its "Maximum Commitment".
"Mezzanine Period" shall mean any period of time in which the Loans are
bearing interest at the rate determined by Section 2.5(a)(ii).
"Monthly Net Cash Flow" shall mean on a cash basis, the amount by which
the Net Production Revenues received by the Borrower during such month from the
Oil and Gas Property covered thereby exceeds the Operating Costs paid by the
Borrower during such month with respect to such Oil and Gas Property covered
thereby.
"Mortgage" shall mean (a) each of the Mortgage, Line of Credit
Mortgage, Deed of Trust, Assignment of Production, Security Agreement and
Financing Statements (Subordinated Revolving Credit Loan Agreement) dated as of
even date hereof from the Borrower to the Agent for the benefit of the Lenders,
covering certain Oil and Gas Properties of the Borrower, and (b) each and every
additional mortgage or deed of trust which the Borrower, the Parent Company, or
any Guarantor may hereafter execute granting to the Agent for the benefit of the
Lenders a Lien on the Property covered thereby and securing the Indebtedness.
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"Mortgaged Properties" shall mean all of the Borrower's, the Parent
Company's, or any Guarantor's interest in (a) any Oil and Gas Property owned by
the Borrower, the Parent Company, or any Guarantor and subject to a Mortgage;
and (b) any other Property that is subjected to Liens in favor of the Agent for
the benefit of the Lenders securing the Indebtedness.
"Multiemployer Plan" shall mean a Plan which is a multiemployer plan as
defined in Section 3(37) or 4001 (a)(3) of ERISA.
"Net Production Revenues" shall mean, with respect to any Oil and Gas
Property, the amounts realized by the Borrower from the sale of Hydrocarbons
produced from such Oil and Gas Property, less royalties, overriding royalties,
net profits interests and other burdens set forth in the most current
engineering report covering such production, payable by the Borrower on such
production.
"Non-Recourse Debt" shall mean Debt of any Non-Recourse Subsidiary (i)
as to which neither the Parent Company, the Borrower nor any Guarantor is
directly or indirectly liable (by virtue of such Person or any Guarantor being
the primary obligor on, guarantor of, or otherwise liable in any respect to,
such Debt); (ii) which, upon the occurrence of a default with respect thereto,
does not result in, or permit any holder of any Debt of the Parent Company, the
Borrower or any Guarantor to declare a default on such Debt of such Person or
cause the payment thereof to be accelerated or payable prior to its stated
maturity; and (iii) that is not secured by a Lien upon any Property of the
Parent Company, the Borrower or any Guarantor other than the stock of a
Non-Recourse Subsidiary or any guarantee by another Non-Recourse Subsidiary.
"Non-Recourse Subsidiary" shall mean any Subsidiary of the Parent
Company organized, reorganized, or acquired after August 1, 1997, as to which
all of the following conditions apply: (i) neither such Subsidiary nor any of
its Subsidiaries provides credit support for any of the Indebtedness or any
other Debt of the Parent Company, the Borrower, or any Guarantor; (ii) neither
the Parent Company, the Borrower, nor any Guarantor is liable, directly or
indirectly, with respect to any Debt of such Subsidiary; and (iii) the board of
directors of the Parent Company shall have designated such Subsidiary to be a
Non-Recourse Subsidiary on or prior to the date of its organization,
reorganization, or acquisition. Any such designation by the board of directors
of the Parent Company shall be evidenced to the Agent by delivering to it a
resolution giving effect to such designation and an officer's certificate
certifying that such designation complies with the foregoing conditions. Any
Subsidiary of a Non-Recourse Subsidiary shall be a Non-Recourse Subsidiary for
the purposes of this Agreement.
"Notes" shall mean the promissory notes of the Borrower described in
Section 2.8, and being in the form of the note attached as Exhibit A, together
with any and all renewals, extensions for any period, increases, amendments, or
rearrangements thereof or thereto.
"Oil and Gas Properties" shall mean the Hydrocarbon Interests; the
Properties now or hereafter pooled or unitized with Hydrocarbon Interests; all
presently existing or future unitization,
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pooling agreements and declarations of pooled units and the units created
thereby (including without limitation all units created under orders,
regulations and rules of any Governmental Authority) which may affect all or any
portion of the Hydrocarbon Interests; all operating agreements, contracts and
other agreements which relate to any of the Hydrocarbon Interests or the
production, sale, purchase, exchange or processing of Hydrocarbons from or
attributable to such Hydrocarbon Interests; all Hydrocarbons in and under and
which may be produced and saved or attributable to the Hydrocarbon Interests,
including all oil in tanks, the lands covered thereby and all rents, issues,
profits, proceeds, products, revenues and other incomes from or attributable to
the Hydrocarbon Interests; all tenements, hereditaments, appurtenances and
Properties in anyway appertaining, belonging, affixed or incidental to the
Hydrocarbon Interests; and all Properties, rights, titles, interests and estates
described or referred to above, including any Property, real or personal, now
owned or hereinafter acquired and situated upon, and used, held for use or
useful in connection with the operating, working or development of any of such
Hydrocarbon Interests or Property (excluding drilling rigs, automotive equipment
or other personal property which may be on such premises for the purpose of
drilling a well or for other similar temporary uses) and including any and all
oil wells, gas wells, injection wells or other wells, buildings, structures,
fuel separators, liquid extraction plants, plant compressors, pumps, pumping
units, field gathering systems, tanks and tank batteries, fixtures, valves,
fittings, machinery and parts, engines, boilers, meters, apparatus, equipment,
appliances, tools, implements, cables, wires, towers, casing, tubing and rods,
surface leases, rights-of-way, easements and servitudes together with all
additions, substitutions, replacements, accessions and attachments to any and
all of the foregoing.
"OPA" shall have the meaning set forth in the definition of
"Environmental Laws."
"Operating Costs" for any month and with regard to any Oil and Gas
Property, shall mean all direct costs paid by the Borrower to operate, maintain
and produce such Oil and Gas Property, excluding any non-recurring development
or other non-recurring capital expenditures incurred with respect to such Oil
and Gas Property.
"Parent Company" shall mean Queen Sand Resources, Inc., a Delaware
corporation.
"Payment Date" shall mean the last Business Day of each March, June,
September, and December during the term of this Agreement.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
entity succeeding to any or all of its functions.
"Person" shall mean any individual, corporation, limited liability
company, voluntary association, partnership, joint venture, trust,
unincorporated organization or government or any agency, instrumentality or
political subdivision thereof, or any other form of entity.
"Plan" shall mean any employee pension benefit plan, as defined in
Section 3(2) of ERISA, which (a) is currently or hereafter sponsored, maintained
or contributed to by the Borrower or any
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of its Subsidiaries or an ERISA Affiliate or (b) was at any time during the six
calendar years preceding the date of this Agreement, sponsored, maintained or
contributed to, by the Parent Company, the Borrower or any of its Subsidiaries
or an ERISA Affiliate.
"Plan of Development" shall mean a general plan for the development of
any Mortgaged Property, approved by the Agent (with the consent of the Majority
Lenders) in its sole discretion which shall include Capital Cost estimates and,
if available, AFE's, plus other development information, including, by way of
example (a) an overall program strategy and timing, (b) drilling and completion
prognosis including bottom-hole well locations for any well or wells covered
thereby, (c) pipelines, platforms and facility requirements, and (d) engineering
reports on the projected volumes and related Monthly Net Cash Flows of natural
gas and oil from the well or wells covered thereby.
"Preferred Stock" shall mean the Parent Company's Series C Convertible
Preferred Stock issued pursuant to the Certificate of Designation of Series C
Convertible Preferred Stock adopted as of December 23, 1997, together with any
and all amendments and modifications thereto.
"Pro Rata Share" means, with respect to any Lender, either (a) the
ratio (expressed as a percentage) of such Lender's Maximum Commitment at such
time to the aggregate Maximum Commitments at such time or (b) if the Commitments
have been terminated, the ratio (expressed as a percentage) of such Lender's
aggregate outstanding Loans at such time to the aggregate outstanding Loans of
all Lenders at such time.
"Project Summary" shall have the meaning specified in Section 2.7.
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Proved Reserves" shall mean those Oil and Gas Properties designated as
"proved" (in accordance with the Definitions for Oil and Gas Reserves
established by the Society for Petroleum Engineers from time to time) in the
Reserve Report and used in establishing the Borrowing Base.
"Quarterly Date" shall mean the last day of each March, June, September
and December, in each year, the first of which shall be March 31, 1998;
provided, however, that if any such day is not a Business Day, such Quarterly
Date shall be the next succeeding Business Day.
"RCRA" shall have the meaning set forth in the definition of
"Environmental Laws."
"Redetermination Date" shall mean the date that the redetermined
Borrowing Base becomes effective subject to the notice requirements specified in
Sections 2.4(d) and 2.4(e) both for scheduled redeterminations and unscheduled
redeterminations.
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"Registration Rights Agreement" shall mean the Registration Rights
Agreement dated as of December 29, 1997, among the Parent Company, the Agent and
Joint Energy Development Investments Limited Partnership, a Delaware limited
partnership, as the same may from time to time be amended or supplemented.
"Reserve Report" shall mean a report, in form and substance
satisfactory to the Agent, setting forth, as of each June 30 or December 31, as
applicable (or such other date in the event of an unscheduled redetermination);
(a) the oil and gas reserves attributable to Oil and Gas Properties that
comprise the Borrowing Base together with a projection of the rate of production
and future net income, taxes, operating expenses and capital expenditures with
respect thereto as of such date, based upon the pricing assumptions consistent
with SEC reporting requirements at the time and (b) such other information as
the Agent may reasonably request. The term "Reserve Report" shall also include
the information to be provided by the Borrower by February 15 of each year
pursuant to Section 4.7(a).
"Responsible Officer" shall mean, as to any Person, the Chief Executive
Officer, the President or any Vice President of such Person and, with respect to
financial matters, the term "Responsible Officer" shall include the Chief
Financial Officer of such Person. Unless otherwise specified, all references to
a Responsible Officer herein shall mean a Responsible Officer of the Parent
Company or the Borrower, as applicable.
"Robertson Notes" shall mean (a) that certain $375,000 promissory note
issued by Corrida Resources, Inc. as of February 5, 1997 in favor of Robertson's
Oil & Gas, Inc., a Louisiana corporation, Pelican Resources, Inc., a Louisiana
corporation, and Allan K. Robertson, as modified and amended pursuant to that
certain Modification of Note and Agreement on Substitution of Collateral dated
July 31, 1997; and (b) that certain $1,625,000 promissory note issued by Corrida
Resources, Inc. as of February 5, 1997 in favor of D&R Petroleum, Inc., a
Louisiana corporation, Black Gold Productions Services, Inc., a Louisiana
corporation, and David Robertson, as modified and amended pursuant to that
certain Modification of Note and Agreement on Substitution of Collateral dated
July 31, 1997, as the same may be amended, supplemented or modified in
accordance with Section 5.22.
"Scheduled Redetermination Date" shall have the meaning specified in
Section 2.4(c).
"SEC" shall mean the Securities and Exchange Commission or any
successor Governmental Authority.
"SEC Value" shall mean the future net revenues before income taxes from
Proved Reserves, estimated assuming that oil and natural gas prices and
production costs remain constant, then discounted at the rate of 10% per year to
obtain the present value.
"Security Instruments" shall mean this Agreement, the agreements or
instruments described or referred to in Section 7.1(e) and any and all other
agreements or instruments now or hereafter
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executed and delivered by the Borrower as security for the payment or
performance of, the Indebtedness, as such agreements may be amended or
supplemented from time to time.
"Senior Debt" shall mean the obligations of the Borrower pursuant to
the Senior Loan Agreement.
"Senior Loan Agreement" shall mean the Credit Agreement dated as of
August 1, 1997, among the Borrower, the Bank of Montreal, as agent, and the
other lenders signatory thereto as amended by the First Amendment to Credit
Agreement dated as of December 3, 1997, and the Second Amendment to Credit
Agreement dated as of December 29, 1997, and as the same be further amended and
supplemented in accordance with this Agreement.
"Senior Loan Borrowing Base" shall mean, at any time, the amount
determined in accordance with Section 2.08 of the Senior Loan Agreement to be
the "Borrowing Base" under the Senior Loan Agreement.
"Subordination Agreement" shall mean the Subordination Agreement dated
as of December 29, 1997, made by the Agent and the Lenders in favor of the Bank
of Montreal, as Agent and the Senior Lenders described therein, as the same may
be amended or supplemented from time to time.
"Subsidiary" shall mean, for any Person, any Person of which at least a
majority of the outstanding shares of stock or other equity interests having by
the terms thereof ordinary voting power to elect the majority of the board of
directors or manager of such Person (irrespective of whether or not at the time
stock or other interests of any other class or classes of such Person shall have
or might have voting power by reason of the happening of any contingency) is at
the time directly or indirectly owned or controlled by such Person or one or
more of its Subsidiaries or by such Person and one or more of its Subsidiaries.
Section 1.2 Accounting Principles. Unless otherwise specified herein,
all accounting terms used herein shall be interpreted, all determinations with
respect to accounting matters hereunder shall be made, and all financial
statements and certificates and reports as to financial matters required to be
furnished to the Agent hereunder shall be prepared in accordance with GAAP,
applied on a basis consistent with the audited financial statements of the
Borrower referred to in Section 3.2 (except for changes concurred with by the
Borrower's independent public accountants).
ARTICLE 2
AMOUNT AND TERMS OF LOANS
Section 2.1 The Loans and Commitments. Subject to the terms and
conditions and relying on the representations and warranties contained in this
Agreement, each Lender agrees to make Loans to the Borrower on any Business Day
during the period from the date hereof until the Maturity Date, in such amounts
as the Borrower may request pursuant to a Borrowing Request in an aggregate
outstanding amount not to exceed the lesser of (a) such Lender's Maximum
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Commitment and (b) such Lender's Pro Rata Share of the Borrowing Base. The
Borrower may make prepayments as permitted or required in Sections 2.9 and 2.10
and reborrowings in respect thereof; provided, however, that the aggregate
principal amount of all such Loans at any one time outstanding shall not exceed
the aggregate amount of the Lenders' Commitments; and provided further, that no
individual Borrowing shall be less than $100,000, unless the availability on the
aggregate amount of the Lenders' Commitments is less than $100,000, in which
event the Borrowing may be for such available amount. The Loans made by the
Lenders to the Borrower pursuant to this Agreement shall be evidenced by the
Notes.
Section 2.2 Use of Proceeds. The Borrower shall use the proceeds
of Borrowings made hereunder solely for the following purposes:
(a) Capital Costs. To pay the Capital Costs incurred in
connection with any proposed Development Projects.
(b) Acquisitions. To fund the cost of Acquisitions by the
Borrower.
Section 2.3 Funding of Capital Costs and Acquisitions.
(a) No Loans for the costs incurred by the Borrower for any
Development Project (Borrower's share of such costs being referred to herein as
the "Capital Costs") shall be made by the Lenders unless the Borrower shall have
submitted a Project Summary or Plan of Development for such project to the Agent
in advance.
(b) No Lender shall have any obligation to provide any Loan
which will be used to fund an Acquisition, if the making of such Loan would
cause the aggregate outstanding amount of Loans made by such Lender used to fund
Acquisitions to exceed the lesser of (I) such Lender's Pro Rata Share of
$5,000,000 or (II) such Lender's Pro Rata Share of 50% of the Borrowing Base.
Section 2.4 Borrowing Base.
(a) So long as the Bank of Montreal remains the agent under
the Senior Loan Agreement and there is no change of control (as used in the
definition of "Affiliate") in the Bank of Montreal, or until such time as the
Agent determines (with the concurrence of the Majority Lenders) in its sole
discretion, that the Senior Loan Borrowing Base is not the amount that the Agent
would have established as the Senior Loan Borrowing Base if the Agent were the
"Agent" under the Senior Loan Agreement, the Borrowing Base shall be an amount
equal to forty percent (40%) of the Senior Loan Borrowing Base and shall change
as and when Senior Loan Borrowing Base changes. Should the Bank of Montreal
cease to be the agent under the Senior Loan Agreement or there is a change of
control (as used in the definition of "Affiliate") in the Bank of Montreal, or
the Agent determines (with the concurrence of the Majority Lenders), in its sole
discretion, that the Senior Loan Borrowing Base is not the amount that the Agent
would have established as the Senior Loan Borrowing Base if the Agent were the
"Agent" under the Senior Loan Agreement, the Borrowing
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Base shall thereafter be determined in accordance with Section 2.4(b) by the
Agent (with the concurrence of the Majority Lenders) and shall be subject to
redetermination in accordance with Section 2.4(c). Without limiting the Agent's
discretion to make redeterminations of the Borrowing Base for other reasons, the
Borrower acknowledges that upon any amendment or other modification to the terms
of the Senior Debt, the Agent (with the consent of the Majority Lenders) may
redetermine the Borrowing Base in accordance with Section 2.4(b). Upon any
redetermination of the Borrowing Base by the Agent, such redetermination shall
remain in effect until the next successive Redetermination Date.
(b) In the event any of the conditions set forth in the second
sentence of Section 2.4(a) should occur, the Agent shall give written notice
thereof to the Borrower and the Borrowing Base shall thereafter be determined as
provided in this Section 2.4(b). Upon receipt of the most recent Reserve Reports
and accompanying production reports required to be delivered pursuant to Section
4.7 and such other reports, data and supplemental information as may from time
to time be reasonably required by the Agent, including Plans of Development, the
Agent will evaluate the Reserve Reports and such other reports, data and
supplemental information and redetermine the Borrowing Base. Each
redetermination of the Borrowing Base will be made in good faith in accordance
with the Agent's normal and customary procedures for evaluating oil and gas
reserves and other related assets and information as such exist at that
particular time. The Agent, in its sole discretion, may make adjustments to the
rates, volumes and prices and other assumptions set forth in the Reserve Reports
and such other reports, data and supplemental information provided to the Agent.
The Borrower acknowledges that, in determining the Borrowing Base, (i) the Agent
may utilize any prices established in any relevant price risk management
agreements of the Borrower, and that prices used by the Agent for any non-hedged
reserve production may not necessarily reflect the then market price for such
Hydrocarbons and (ii) the quantity and terms of the Senior Debt shall be a
factor in any such determination. The Agent may exclude any Oil and Gas Property
or portion of production therefrom or any income from any other Property from
the Borrowing Base, at any time, because title information is not reasonable
satisfactory or such Property is not Mortgaged Property.
(c) So long as the Commitment is in effect and until payment
in full of all Loans hereunder, on or around the 15th Business Day of each March
and September, commencing March 15, 1998 (each being a "Scheduled
Redetermination Date"), the Agent shall redetermine the amount of the Borrowing
Base in accordance with Sections 2.4(a) or 2.4(b), as applicable. After the
March 15, 1998, Scheduled Redetermination Date, the Majority Lenders may
initiate a redetermination of the Borrowing Base by the Agent at the Borrower's
expense at any time as the Majority Lenders may require including without
limitation at any time that the Borrower materially changes the completion date
of any Development Project, fails to fund any shortfall in Capital Costs as
required pursuant to Section 2.7(d) or the Majority Lenders believe events or
conditions have occurred which would decrease the then current Borrowing Base by
ten percent (10%) or more.
(d) In connection with any redetermination of the Borrowing
Base pursuant to 2.4(b) or 2.4(c), the Agent shall propose to the Lenders a new
Borrowing Base by no later than the
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earlier of (i) 30 days following receipt by the Agent of the Reserve Reports to
be used in connection with such redetermination or (ii) 10 days prior to the
next Scheduled Redetermination Date, in each case assuming receipt of the
Reserve Reports in a timely and complete manner. After having received notice of
such proposal by the Agent, the Lenders shall have 10 days to agree or disagree
with such proposal. If at the end of such 10 days, the Majority Lenders have not
communicated their approval or disapproval, such silence shall be deemed to be
an approval and the Agent's proposal shall be the new Borrowing Base. If
however, the Majority Lenders notify Agent within 10 days of their disapproval,
the Borrowing Base shall be set at the lower of the Agent's proposal or the
amount of the then current Borrowing Base; and the Borrowing Base shall remain
at such level until the Majority Lenders agree on a new Borrowing Base.
(e) The Agent shall promptly notify the Borrower of any
redetermination of the Borrowing Base. Any redetermination of the Borrowing Base
and any changes in the amounts available for Capital Costs or for Acquisitions
resulting from such redetermination shall not be in effect until written notice
is received by the Borrower.
Section 2.5 Interest.
(a) The outstanding principal amount of the Loans made
pursuant to the Notes and this Agreement shall bear interest from the date made
until due at a fluctuating interest rate per annum that is equal to the lesser
of the Highest Lawful Rate or the following:
(i) Except as provided in subsection (ii) below, the
rate of one percent (1%) above the then highest rate of interest being
paid on any portion of the Senior Debt; provided that if no Senior Debt
is outstanding, the rate of fifteen percent (15%).
(ii) If the aggregate outstanding principal balance
of the Loans exceeds $2,000,000 during each day of any continuous
period of 120 days, the outstanding principal amount of the Loans shall
bear interest at the rate equal to the greater of (I) the rate provided
in subparagraph (i) of this section or (II) fifteen percent (15%). Such
rate change shall be effective as of the first day following such 120
day period and shall remain in effect until the first day on which the
aggregate outstanding principal balance of the Loans has not exceeded
$2,000,000 at any time during the thirty (30) day period immediately
preceding such day.
(b) Past due interest, principal and other amounts hereunder
shall bear interest at a fluctuating interest rate per annum that is equal to
the lesser of (i) eighteen percent (18%) per annum or (ii) the Highest Lawful
Rate from the date due until paid ("Default Rate").
(c) Each change in the fluctuating interest rate set forth in
subsection 2.5(a)(i) shall be effective simultaneously with the corresponding
change in the rate of interest being paid on the Senior Debt. Interest shall be
computed (i) for payments of interest based upon the Senior Debt, on the per
annum basis provided for in the Senior Loan Agreement and (ii) for all other
payments of interest under the Loan Documents, on the per annum basis of a year
of 365 or 366 days, as the
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case may be, and for the actual number of days (including the first day but
excluding the last day) elapsed.
(d) Within two (2) Business Days after the last day of each
month, the Borrower shall provide the Agent with a certificate (certified by the
chief financial officer of the Borrower) detailing the highest rate of interest
paid on account of the Senior Debt for each day of such month.
Section 2.6 Fees.
(a) Upon execution of this Agreement, the Borrower shall pay
the fees described in the Fee Letter.
(b) Commencing March 31, 1998, and on each Payment Date
thereafter, the Borrower agrees to pay to the Agent for the account of each
Lender a facility fee ("Facility Fee") of three-eights of one percent (3/8%) per
annum on the daily average of the unadvanced portion of such Lender's Commitment
for the period since January 12, 1998, or the previous Payment Date, as the case
may be, to such Payment Date.
Section 2.7 Notice and Manner of Borrowing.
(a) The amount and date of each Borrowing shall be designated
by the Borrower's execution of a Borrowing Request, accompanied by the
documentation required in Sections 2.7(b) and (c), to be received by the Agent
at least five (5) Business Days prior to the requested date of such Loan, which
date must be a Business Date, except for the initial Loan which may be requested
on the date of this Agreement. The Agent shall give to each Lender prompt notice
of such proposed Borrowing by telecopy or telex. Each Lender shall, before 12:00
p.m. (New York, New York time) on the date of such Borrowing, make available to
the Agent at the Agent's Account, in same day funds, such Lender's Pro Rata
Share of such Borrowing. After the Agent's receipt of such funds and upon
fulfillment of the applicable conditions set forth in Article 7, the Agent will
make such funds available to the Borrower at such account as the Borrower shall
designate to the Agent in writing.
(b) Except as provided in Section 2.7(c), in connection with
each Borrowing Request, the Borrower shall deliver a project/acquisition summary
description ("Project Summary") in form and substance reasonably satisfactory to
the Agent describing the Acquisition or Development Project for which the
proceeds of the requested Borrowing shall be used. Each Project Summary shall
contain (i) in the case of Acquisitions, a description of the Oil and Gas
Properties being purchased, the total consideration for such Acquisition, and
the sources of funds to be used in connection therewith, (ii) in the case of
Development Projects, an estimate of the Capital Costs of such Development
Project, and (iii) such other information and documentation as the Agent may
reasonably request.
(c) During any Approval Period, (i) the Lenders shall not be
required to fund any Borrowing for an Acquisition unless the Agent (with the
consent of the Majority Lenders) shall have
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approved such Acquisition in its sole discretion, (ii) the Lenders shall not be
required to fund any Borrowing for Capital Costs until the Borrower shall have
submitted and the Agent (with the consent of the Majority Lenders) shall have
approved in its sole discretion a Plan of Development for the applicable
Development Project in advance and (iii) each Borrowing Request for Capital
Costs shall be accompanied by an AFE and an AFE Expenditures Report for all
Capital Costs to be advanced pursuant to the requested Loan.
(d) The Borrower covenants and agrees that the Borrower shall
fund any and all Capital Costs for any Development Project that exceed the
amounts advanced pursuant to any Borrowing Request and all Capital Costs which
in the aggregate with all other Loans hereunder would exceed the Commitments of
the Lenders, necessary to complete any proposed Development Project, and that
the Lenders' obligation to fund any Capital Costs is subject to the Agent's
satisfaction that the Borrower has sufficient funds available to fund such
excess.
(e) Unless the Agent shall have received notice from a Lender
before the date of any Borrowing that such Lender will not make available to the
Agent such Lender's Pro Rata Share of such Borrowing, the Agent may assume that
such Lender has made its Pro Rata Share of such Borrowing available to the Agent
on the date of such Borrowing in accordance with this Section 2.7, and the Agent
may, in reliance upon such assumption, make available to the Borrower on such
date a corresponding amount. If and to the extent that such Lender shall not
have so made its Pro Rata Share of such Borrowing available to the Agent, such
Lender and the Borrower severally agree to immediately repay to the Agent on
demand such corresponding amount, together with interest on such amount, for
each day from the date such amount is made available to the Borrower until the
date such amount is repaid to the Agent at (i) in the case of the Borrower, the
interest rate applicable on such day to Loans comprising such Borrowing and (ii)
in the case of such Lender, the Federal Funds Rate for such day. If such Lender
shall repay to the Agent such corresponding amount and interest as provided
above, such corresponding amount so repaid shall constitute such Lender's Loan
as part of such Borrowing for purposes of this Agreement even though not made on
the same day as the other Loans comprising such Borrowing. The failure of any
Lender to make the Loan to be made by it as part of any Borrowing shall not
relieve any other Lender of its obligation, if any, to make its Loan on the date
of such Borrowing. No Lender shall be responsible for the failure of any other
Lender to make the Loan to be made by such other Lender on the date of any
Borrowing.
Section 2.8 Notes. To evidence the Loans made by each Lender pursuant
to this Agreement, the Borrower will issue, execute and deliver to each Lender a
Note in the principal amount of such Lender's Maximum Commitment, each dated as
of the date of this Agreement. Each time a Loan is made hereunder or payment
(including, without limitation, prepayments) is made on the Note, each Lender is
hereby irrevocably authorized by the Borrower to make an appropriate notation on
a ledger forming a part of its Note reflecting the amount loaned or paid and the
date thereof; provided however, the failure of any Lender to do so shall not
relieve the Borrower or any other liable party of its liability hereunder or
under the Note or subject the Borrower or any other liable party to additional
liability under the Note. Furthermore, each Lender is hereby irrevocably
authorized by the Borrower to attach to and to make a part of its Note a
continuation of any such
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schedule of Loans and payments, as and when required, reflecting the amount paid
and the date of such payment. The aggregate unpaid amount of Loans reflected by
the notations by any Lender or the Agent on the records or a ledger sheet or
sheets affixed to the Note shall be deemed rebuttably presumptive evidence of
the principal amount owing on such Lender's Note. Interest provided for in this
Agreement and in the Notes shall be calculated on the unpaid sums actually
loaned and outstanding pursuant to the terms of this Agreement and only for the
period from the date or dates advanced until repaid. The liability for payment
of principal and interest evidenced by the Notes shall be limited to the
principal amounts actually loaned and outstanding pursuant to this Agreement and
interest on such amounts calculated in accordance with this Agreement.
Section 2.9 Voluntary Prepayments. The Borrower may at its option
prepay the principal amount of the Notes outstanding hereunder on any Business
Day in whole or from time to time in part (but no voluntary partial prepayment
shall be less than $100,000, provided that no voluntary prepayment shall be made
if after giving effect to such prepayment the aggregate outstanding principal
amount under the Note would be less than $100,000) without premium or penalty,
upon giving the Agent at least three (3) Business Days' prior written notice of
the aggregate principal amount to be prepaid, and in the event of any such
notice being given, the amount so notified shall be due and payable on the day
so notified, together with accrued interest thereon to the date of prepayment.
The Borrower shall not have any right to voluntarily prepay amounts owing under
the Notes other than those specifically provided in this Section 2.9.
Section 2.10 Mandatory Prepayments. Upon any redetermination of the
amount of the Borrowing Base in accordance with Section 2.4, (i) if the
aggregate outstanding principal amount of the Loans exceeds the redetermined
Borrowing Base or (ii) the aggregate outstanding amount of Loans used for
Acquisitions exceeds the lesser of (I) $5,000,000 or (II) 50% of the
redetermined Borrowing Base, then the Borrower shall within thirty (30) days of
receipt of written notice thereof, either (A) prepay the Loans in an aggregate
principal amount equal to such excess, together with accrued interest thereon to
the date of prepayment, or (B) in the Majority Lenders' discretion, subject to a
Security Instrument satisfactory to the Agent, additional Property of the
Borrower satisfactory to the Agent having a loan value (determined by the Agent
in good faith in accordance with Section 2.4(b)) in an amount such that the sum
of such loan value amount plus the aggregate principal amount of prepayments
made pursuant to this Section 2.10 in respect of such Borrowing Base deficiency
equals or exceeds the amount of such Borrowing Base deficiency, and deliver to
the Agent such additional reports, information, and financing statements
covering all of such additional Property as the Agent may reasonably request,
and other legal opinions in form, scope and substance reasonably acceptable to
the Agent opining favorably as to, among such other matters as may be required
by the Agent, (x) the Borrower's ownership of such additional Property, and (y)
the existence of a Lien and security interest on such additional Property,
subject only to Excepted Liens, in favor of the Agent for the benefit of the
Lenders, securing the Indebtedness. Prepayments required under this Section 2.10
shall be without premium or penalty.
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Section 2.11 Exchange of Indebtedness.
(a) Beginning January 14, 1999, during any Approval Period, by
written notice (the "Exchange Notice") to the Borrower, the Lenders shall have
the right, at their option (any election to exercise such option shall require
the consent of each Lender), to acquire shares of the Parent Company Common
Stock (as defined below) by (i) exchanging all or any portion of the outstanding
principal balance of the Borrowings and accrued but unpaid interest thereon (the
"Exchange Amount") for that number of fully-paid and nonassessable shares
(calculated as to such exchange to the nearest 1/100th of a share) of the common
stock of the Parent Company ("Parent Company Common Stock") obtained by dividing
(A) the principal amount of the Borrowings and accrued but unpaid interest
thereon to be converted as specified in the Exchange Notice (the "Exchange
Amount") by (B) the Exchange Price (as defined below), determined in accordance
with paragraph (b) below and (ii) if required by applicable law, paying to the
Parent Company, in cash, the aggregate par value of the Parent Company Common
Stock to be issued in accordance with clause (i) above (such payment to be due
upon the receipt by the Lenders of such Parent Company Common Stock). Such
exchange shall be deemed to have been made 30 days after Borrower's receipt of
the Exchange Notice (the Exchange Date") unless the Borrower shall have paid to
the Agent for the account of the Lenders the entire Exchange Amount prior to the
Exchange Date, in which case there shall be no exchange of the Exchange Amount.
Any exchange made hereunder shall be deemed to have been made at the close of
business on the Exchange Date, so that each Lender shall be treated for all
purposes as having become the record holder of its Pro Rata Share of such shares
of Parent Company Common Stock at and as of such time and a payment of the
Exchange Amount on account of the Indebtedness shall be deemed to have occurred
at such time.
(b) The "Exchange Price" shall be the product of (i) the
Average Closing Price (as defined below) as of the Exchange Date and (ii) (A) if
the Average Closing Price as of the Exchange Date is less than or equal to the
Average Closing Price as of the date of this Agreement, 0.95 or (B) if the
Average Closing Price as of the Exchange Date is greater than the Average
Closing Price as of the date of this Agreement, 0.85. The "Average Closing
Price" as of any given date shall be the average (arithmetic mean) of the prices
at which of the Parent Company Common Stock is last sold on the NASDAQ National
Market (if the Parent Company Common Stock is listed thereon) or the NASDAQ
SmallCap Market for the 21 consecutive trading days prior to such date. In the
event that the Parent Company Common Stock is not listed on either the NASDAQ
National Market or the NASDAQ SmallCap Market at the time of a exchange pursuant
to this Section 2.11, then the Average Closing Price shall be determined using
the last reported sale prices of the Parent Company Common Stock on the
principal market for the Parent Company Common Stock. If no such principal
market exists, the Average Closing Price shall be the per share value of the
Parent Company Common Stock determined in good faith by the Board of Directors
of the Parent Company. In calculating the Average Closing Price, an appropriate
adjustment shall be made for any stock split (including a reverse split) of the
Parent Company Common Stock or any dividend paid in shares of Parent Company
Common Stock that occurs during the 21 trading day period prior to the
applicable date.
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(c) As promptly as practicable after the Exchange Date, the
Borrower shall, or shall cause the Parent Company to, deliver to the Agent
certificates issued to each Lender representing the number of fully paid and
nonassessable shares of Parent Company Common Stock into which the Exchange
Amount has been converted in accordance with this Section 2.11. No fractional
shares of Parent Company Common Stock shall be issued upon a exchange pursuant
to this Section 2.11, and instead of any fractional share of Parent Company
Common Stock which would otherwise be issuable upon such exchange, the Borrower
shall pay to the Agent for the account of the Lenders a cash adjustment in
respect of such fraction in an amount equal to (i) such fraction multiplied by
(ii) the Exchange Price.
(d) Each Lender covenants and agrees with the Borrower that
the Parent Company Common Stock that may be acquired by such Lender hereunder
will be acquired for its own account and with no intention of distributing or
reselling the Parent Company Common Stock in any transaction in violation of the
securities laws of the United States of America or any state, without prejudice,
however, to such Lender's right at all times to sell or otherwise dispose of all
or any part of the Parent Company Common Stock under a registration statement
under the Securities Act of 1933, as amended ("Securities Act"), and applicable
state securities laws or under an exemption from such registration available
thereunder (including, without limitation, if available, Rule 144A promulgated
thereunder). Each Lender represents that it is and will be at all times an
"accredited investor" as such term is defined in Rule 501(a)(1) or 501(a)(3) of
Regulation D of the Securities Act. If any Lender should in the future decide to
dispose of any of the Parent Company Common Stock, such Lender understands and
agrees that it may do so only(a) in compliance with the Securities Act of 1933,
as amended, and applicable state securities law, as then in effect, and (b) in
the manner contemplated by any registration statement pursuant to which such
Parent Company Common Stock is being offered. Each Lender agrees to the
imprinting, so long as appropriate, of a legend on each certificate representing
Parent Company Common Stock with respect to the limitations on transfers set
forth herein and to the entry of stop-transfer instructions to the effect set
forth above. The breach by any Lender of any of its obligations under this
Section 2.11(d) shall not act as a defense to the payment when due by the
Borrower or any Guarantor of any of the Indebtedness.
Section 2.12 Repayment of Loans.
(a) All accrued interest on the Loans shall be due and payable
in arrears on each Payment Date.
(b) All unpaid principal of the Loans shall be due and payable
in full on the Maturity Date.
Following the occurrence of an Event of Default, and as long as such Event of
Default has not been cured, all payments made by the Borrower shall be applied
to the Indebtedness in accordance with Section 6.2(d).
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Section 2.13 Payment Procedure.
(a) All payments and prepayments made by the Borrower under
the Notes or this Agreement shall be made to the Agent by wire transfer in
immediately available funds before 2:00 P.M., New York, New York, time on the
date such payment is required to be made to the account of the Agent to such
account in New York, New York, as the Agent may from time to time designate by
notice in writing to the Borrower (the "Agent's Account"). All amounts payable
with respect to this Agreement and the Notes shall be payable only in New York,
New York. Any payment received and accepted by the Agent after such time shall
be considered for all purposes (including the calculation of interest, to the
extent permitted by law) as having been made on the next following Business Day.
The Agent will promptly thereafter cause to be distributed like funds relating
to the payment of principal, interest or fees ratably (other than amounts
payable solely to the Agent or a specific Lender pursuant Section 9.2 or the
fees payable pursuant to Section 2.6(a)), to the Lenders at their respective
Lender Account. If and to the extent that the Agent receives any payment or
prepayment from the Borrower and fails to distribute such payment or prepayment
to the Lenders ratably on the basis of their respective Pro Rata Shares on the
day the Agent receives such payment or prepayment (if received prior to 2:00
P.M. (New York, New York time) on such day) or the next Business Day (if
received after 2:00 P.M. New York, New York time) on such day), then the Agent
shall pay to each Lender such Lender's Pro Rata Share of such payment or
prepayment together with interest thereon at the Federal Funds Rate for each day
from the date such amount should have been distributed by the Agent until such
payment or prepayment is actually distributed to the Lenders.
All payments and prepayments received shall be applied first to accrued
interest, second to the reduction of principal on account of Loans used for
Acquisitions, and then to the reduction of principal on account of Loans used
for Capital Costs.
(b) Unless the Agent shall have received written notice from
the Borrower prior to the date on which any payment is due to the Lenders that
the Borrower will not make such payment in full, the Agent may assume that the
Borrower has made such payment in full to the Agent on such date and the Agent
may, in reliance upon such assumption, cause to be distributed to each Lender on
such date an amount equal to the amount then due such Lender. If and to the
extent the Borrower shall not have so made such payment in full to the Agent,
each Lender shall repay to the Agent forthwith on demand such amount distributed
to such Lender, together with interest, for each day from the date such amount
is distributed to such Lender until the date such Lender repays such amount to
the Agent, at the Federal Funds Rate for such day.
Section 2.14 Business Days. If the date for any mandatory prepayment or
any other payment provided hereunder or in any other Loan Document falls on a
day which is not a Business Day, then for all purposes of this Agreement and the
other Loan Documents, the same shall be deemed to have fallen on the next
following Business Day, and such extension of time shall in such case be
included in the computation of payments of interest applicable thereto.
Section 2.15 Illegality. If, after the date hereof, any law, regulation
or treaty or any change therein or in the interpretation thereof by any
authority or agency charged with the administration
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thereof or by any court will make it, in the reasonable opinion of any Lender,
unlawful for such Lender to maintain the Loans or to give effect to its
obligations as contemplated hereby, such Lender will so notify the Agent and the
Borrower, and the aggregate outstanding principal amount of the Loans made by
such Lender, together with the interest accrued thereon and any other amounts
payable to such Lender under the Note, this Agreement or the other Loan
Documents will be paid or prepaid as provided in such notice and such Lender
shall have no further obligation to make Loans under this Agreement.
Section 2.16 Mortgaged Property. To secure full and complete payment of
all Indebtedness, the Borrower shall execute and deliver to the Agent for the
benefit of the Lenders the Security Instruments creating a second priority lien
(second only to the lien identified in clause (f) of the definition of "Excepted
Liens") and security interest in the Mortgaged Property, subject to Excepted
Liens. Borrower shall execute and deliver or cause to be executed and delivered
such further documents and instruments, including, without limitation, Uniform
Commercial Code financing statements, as the Agent, in its sole discretion,
deems necessary or desirable to evidence and perfect the Liens in the Mortgaged
Property.
Section 2.17 Setoff. In addition to a right of setoff against (without
prior notice), and as further security for the Indebtedness, the Borrower hereby
grants to the Agent and each Lender a security interest in, all deposits
(general or special, time or demand, provisional or final), money, instruments,
accounts, and other Property of the Borrower now or hereafter on deposit with or
held by such Lender and all other sums at any time credited by or owing from the
Agent or such Lender to the Borrower. Furthermore, should the Agent, any Lender
or any Affiliate thereof enter into one or more Hedging Agreements with the
Borrower at any time, such Agent, Lender or such Affiliate, during the
continuation of any Event of Default, may exercise a right of setoff for any sum
or sums due the Agent or such Lender hereunder against any sum or sums which the
Agent, such Lender or any Affiliate thereof may owe the Borrower under such
Hedging Agreement(s); provided however, that if such Lender or the applicable
Affiliate are in a proceeding of the type described in Section 6.1(g), the right
of setoff under this Section 2.17 shall not be available. Any amounts setoff
pursuant to this Section 2.17 shall be applied to the Indebtedness in accordance
with the terms of this Agreement. The rights and remedies of the Agent, each
Lender and any Affiliate thereof hereunder are in addition to other rights and
remedies (including, without limitation, other rights of setoff) which the
Agent, such Lender or such Affiliate may have.
Section 2.18 Production Proceeds. From and after the occurrence of a
Default which has not been cured, and subject to the rights of the lenders under
the Senior Loan Agreement and the Subordination Agreement, the Borrower at the
request of the Agent shall direct and cause all purchasers of Hydrocarbons
produced from the Mortgaged Properties to deposit all payments of any nature
whatsoever due and owing by such Persons to the Borrower directly into the
Agent's Account. Funds deposited in the Agent's Account in accordance with the
terms hereof shall be credited when collected to the payment of the Indebtedness
in accordance with Section 6.2(d). In the event that the Borrower cures the
Default, the Agent shall deliver written notice to such purchasers that the
Default has been cured, and instruct them to deliver all future payments to the
Borrower, as
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applicable, in accordance with the Borrower's instructions until such time as
the purchaser receives further notice from the Agent that a Default has occurred
which has not been cured.
Section 2.19 Sharing of Payments, Etc. If any Lender shall obtain any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off or otherwise) on account of the Loans made by it in excess of its Pro
Rata Share of payments on account of the obtained by all the Lenders, such
Lender shall notify the Agent and forthwith purchase from the other Lenders such
participations in the Loans made by them as shall be necessary to cause such
purchasing Lender to share the excess payment ratably with each of them;
provided, however, that if all or any portion of such excess payment is
thereafter recovered from such purchasing Lender, such purchase from each Lender
shall be rescinded and such Lender shall repay to the purchasing Lender the
purchase price to the extent of such Lender's ratable share (according to the
proportion of (a) the amount of the participation sold by such Lender to the
purchasing Lender as a result of such excess payment to (b) the total amount of
such excess payment) of such recovery, together with an amount equal to such
Lender's ratable share (according to the proportion of (a) the amount of such
Lender's required repayment to the purchasing Lender to (b) the total amount of
all such required repayments to the purchasing Lender) of any interest or other
amount paid or payable by the purchasing Lender in respect of the total amount
so recovered. The Borrower agrees that any Lender so purchasing a participation
from another Lender pursuant to this Section 2.19 may, to the fullest extent
permitted by law, exercise all its rights of payment (including the right of
set-off) with respect to such participation as fully as if such Lender were the
direct creditor of the Borrower in the amount of such participation.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Agent and each Lender that
(each representation and warranty herein is given as of the date hereof and
shall be deemed repeated and reaffirmed on the dates of each Borrowing and,
except that the representations contained in Section 3.2 shall be deemed to be
made with respect to the most recent financial statements delivered to the Agent
pursuant to Section 4.1):
Section 3.1 Corporate Existence. Each of the Parent Company, the
Borrower and each of its Subsidiaries: (i) is a corporation duly organized,
legally existing and in good standing under the laws of the jurisdiction of its
incorporation; (ii) has all requisite corporate power, and has all material
governmental licenses, authorizations, consents and approvals necessary to own
its assets and carry on its business as now being or as proposed to be
conducted; and (iii) is qualified to do business in all jurisdictions in which
the nature of the business conducted by it makes such qualification necessary
and where failure so to qualify would have a Material Adverse Effect.
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Section 3.2 Financial Condition.
(a) The audited consolidated balance sheet of the Parent
Company and its Consolidated Subsidiaries, as of June 30, 1997 and the related
consolidated statement of operations, stockholders' equity and cash flow of the
Parent Company and its Consolidated Subsidiaries, for the fiscal year ended on
said date, with the opinion thereon of Ernst & Young, LLP heretofore furnished
to the Agent, and the unaudited consolidated balance sheet of the Parent Company
and its Consolidated Subsidiaries as of September 30, 1997 and their related
consolidated statements of operations, stockholders' equity and cash flow of the
Parent Company and its Consolidated Subsidiaries for the 3 month period ended on
such date heretofore furnished to the Agent are complete and correct and fairly
present the consolidated financial condition of the Parent Company and its
Consolidated Subsidiaries as at said dates and the results of its operations for
the fiscal year and the 3 month period on said dates, all in accordance with
GAAP, as applied on a consistent basis (subject, in the case of the interim
financial statements, to normal year-end adjustments).
(b) The financial statements referred to in Section 3.2(a)
present fairly, in all material respects, the financial position of the Parent
Company and its Consolidated Subsidiaries of such date, in conformity with GAAP,
except as otherwise noted therein.
(c) Neither the Parent Company, the Borrower nor any of its
Subsidiaries has on the date hereof any material Debt, contingent liabilities,
liabilities for taxes, unusual forward or long-term commitments or unrealized or
anticipated losses from any unfavorable commitments, except as referred to or
reflected or provided for in the financial statements referred to in Section
3.2(a) or in Schedule 3.2 which could reasonably be expected to have a Material
Adverse Effect. Since September 30, 1997, there has been no change or event
having a Material Adverse Effect. Since September 30, 1997, neither the business
nor the Properties of the Parent Company, the Borrower or any of its
Subsidiaries have been materially and adversely affected as a result of any
fire, explosion, earthquake, flood, drought, windstorm, accident, strike or
other labor disturbance, embargo, requisition or taking of Property or
cancellation of contracts, permits or concessions by any Governmental Authority,
riot, activities of armed forces or acts of God or of any public enemy.
Section 3.3 Litigation. Except as disclosed to the Agent in Schedule
3.3 hereto, there is no litigation, legal, administrative or arbitral
proceeding, investigation or other action of any nature pending or, to the
knowledge of the Borrower threatened against or affecting the Parent Company,
the Borrower or any of its Subsidiaries which involves the possibility of any
judgment or liability against the Parent Company, Borrower or any of its
Subsidiaries not fully covered by insurance (except for normal deductibles), and
which would have a Material Adverse Effect.
Section 3.4 No Breach. Neither the execution and delivery of the Loan
Documents, nor compliance with the terms and provisions hereof will conflict
with or result in a breach of, or require any consent which has not been
obtained as of the date hereof or which if not obtained would have a Material
Adverse Effect under, the respective charter or by-laws of the Parent Company,
the Borrower or any of its Subsidiaries, or any Governmental Requirement or any
agreement or
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instrument to which the Parent Company, the Borrower or any of its Subsidiaries
is a party or by which it is bound or to which it or its Properties are subject,
or constitute a default under any such agreement or instrument, or result in the
creation or imposition of any Lien upon any of the revenues or assets of the
Parent Company, the Borrower or any of its Subsidiaries pursuant to the terms of
any such agreement or instrument other than the Liens created by the Loan
Documents.
Section 3.5 Authority. The Parent Company, the Borrower and each of its
Subsidiaries have all necessary corporate power and authority to execute,
deliver and perform its obligations under the Loan Documents to which it is a
party; and the execution, delivery and performance by the Parent Company, the
Borrower and each of its Subsidiaries of the Loan Documents to which it is a
party, have been duly authorized by all necessary corporate action on its part;
and the Loan Documents constitute the legal, valid and binding obligations of
the Parent Company, the Borrower and each Subsidiary, enforceable in accordance
with their terms, subject to applicable bankruptcy, insolvency or similar laws
and general principles of equity.
Section 3.6 Approvals. No authorizations, approvals or consents of, and
no filings or registrations with, any Governmental Authority are necessary for
the execution, delivery or performance by the Parent Company, the Borrower or
any of its Subsidiaries of the Loan Documents or for the validity or
enforceability thereof, except for (a) the recording and filing of the Security
Instruments as required by this Agreement, (b) the listing of the Parent Company
Stock issuable pursuant to Section 2.11 with NASDAQ (or such other market upon
which the Parent Company Stock is then traded), (c) the post-closing filing of a
notice on Form D under the Securities Act of 1993, as amended, with respect to
the issuance of the Notes, (d) a post-closing report on Form 10-QSB under the
Securities Exchange Act of 1934, as amended, with respect to the issuance of the
Notes, and (e) with respect to the Registration Rights Agreement only, those
filings required under applicable securities laws in order to perform under the
Registration Rights Agreement.
Section 3.7 Use of Borrowings. The proceeds of the Borrowings shall be
used solely for the purposes described in Section 2.2. The Borrower is not
engaged principally, or as one of its important activities, in the business of
extending credit for the purpose, whether immediate, incidental or ultimate, of
buying or carrying margin stock (within the meaning of Regulation G, U or X of
the Board of Governors of the Federal Reserve System) and no part of the
proceeds of any Borrowing hereunder will be used to buy or carry any margin
stock.
Section 3.8 ERISA.
(a) The Parent Company, the Borrower and each of its
Subsidiaries and ERISA Affiliates have complied in all material respects with
ERISA and, where applicable, the Code regarding each Plan.
(b) Each Plan is, and has been, maintained in substantial
compliance with ERISA and, where applicable, the Code.
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(c) To the best knowledge of the Borrower, no act, omission or
transaction has occurred which could result in imposition on the Parent Company,
the Borrower or any of its Subsidiaries or ERISA Affiliates (whether directly or
indirectly) of (i) either a civil penalty assessed pursuant to section 502(c),
(i) or (1) of ERISA or a tax imposed pursuant to Chapter 43 of Subtitle D of the
Code or (ii) breach of fiduciary duty liability damages under section 409 of
ERISA.
(d) No Plan (other than a defined contribution plan) or any
trust created under any such Plan has been terminated since September 2, 1974.
No liability to the PBGC (other than for the payment of current premiums which
are not past due) by the Parent Company, the Borrower or any of its Subsidiaries
or ERISA Affiliates has been or is expected by the Parent Company, the Borrower
or any of its Subsidiaries or ERISA Affiliates to be incurred with respect to
any Plan. No ERISA Event with respect to any Plan has occurred.
(e) Full payment when due has been made of all amounts which
the Parent Company, the Borrower or any of its Subsidiaries or ERISA Affiliates
is required under the terms of each Plan or applicable law to have paid as
contributions to such Plan, and no accumulated funding deficiency (as defined in
section 302 of ERISA and section 412 of the Code), whether or not waived, exists
with respect to any Plan.
(f) The actuarial present value of the benefit liabilities
under each Plan which is subject to Title IV of ERISA does not, as of the end of
the Parent Company's most recently ended fiscal year, exceed the current value
of the assets (computed on a plan termination basis in accordance with Title IV
of ERISA) of such Plan allocable to such benefit liabilities. The term
"actuarial present value of the benefit liabilities" shall have the meaning
specified in section 4041 of ERISA.
(g) None of the Parent Company, the Borrower or any of its
Subsidiaries or ERISA Affiliates sponsors, maintains, or contributes to an
employee welfare benefit plan, as defined in section 3(1) of ERISA, including,
without limitation, any such plan maintained to provide benefits to former
employees of such entities, that may not be terminated by the Parent Company,
the Borrower or any of its Subsidiaries or ERISA Affiliates in its sole
discretion at any time without any material liability.
(h) None of the Parent Company, the Borrower or any of its
Subsidiaries or ERISA Affiliates sponsors, maintains or contributes to, or has
at any time in the preceding six calendar years, sponsored, maintained or
contributed to, any Multiemployer Plan.
(i) None of the Parent Company, the Borrower or any of its
Subsidiaries or ERISA Affiliates is required to provide security under section
401(a) (29) of the Code due to a Plan amendment that results in an increase in
current liability for the Plan.
Section 3.9 Taxes. Each of the Parent Company, the Borrower and its
Subsidiaries has filed all United States Federal income tax returns and, to the
best of the Borrower's knowledge, all
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other tax returns which are required to be filed by them and have paid all
material taxes due pursuant to such returns or pursuant to any assessment
received by the Parent Company, the Borrower or any of its Subsidiaries, except
for those being contested in good faith by appropriate proceedings and for which
adequate reserves have been provided in accordance with GAAP. The charges,
accruals and reserves on the books of the Parent Company, the Borrower and its
Subsidiaries in respect of taxes and other governmental charges are, in the
opinion of the Borrower, adequate. No tax Lien has been filed and, to the
knowledge of the Borrower, no claim is being asserted with respect to any such
tax, fee or other charge which could reasonably be expected to have a Material
Adverse Effect.
Section 3.10 Titles, etc.
(a) Except as set out in Schedule 3.10, each of the Parent
Company, the Borrower and its Subsidiaries has good and defensible title to its
material (individually or in the aggregate) Properties, free and clear of all
Liens except Liens permitted by Section 5.2. Except as set forth in Schedule
3.10, after giving full effect to the Excepted Liens, the Parent Company, the
Borrower and its Subsidiaries, as applicable, owns the net interests in
production attributable to the lands and leases reflected in the most recently
delivered Reserve Report and the ownership of such Properties shall not in any
material respect obligate such Person to bear the costs and expenses relating to
the maintenance, development and operations of each such Property in an amount
in excess of the working interest of each Property set forth in the most
recently delivered Reserve Report. All information contained in the most
recently delivered Reserve Report is true and correct in all material respects
as of the date thereof.
(b) All material leases and agreements necessary for the
conduct of the business of the Parent Company, the Borrower and its Subsidiaries
are valid and subsisting and are in full force and effect. There exists no
default or event or circumstance which with the giving of notice or the passage
of time or both would give rise to a default under any such lease or leases
which would affect in any material respect the conduct of the business of the
Parent Company, the Borrower and its Subsidiaries taken as a whole or which
would have a Material Adverse Effect.
(c) The rights, properties and other assets presently owned,
leased or licensed by the Parent Company, the Borrower and its Subsidiaries
including, without limitation, all easements and rights of way, include all
rights, Properties and other assets reasonably necessary to permit the Parent
Company, the Borrower and its Subsidiaries to conduct their business in all
material respects in the same manner as its business has been conducted prior to
the date hereof.
(d) All of the assets and Properties of the Parent Company,
the Borrower and its Subsidiaries which are reasonably necessary for the
operation of its business are in good working condition and are maintained in
accordance with prudent business standards.
Section 3.11 No Material Misstatements. No written information,
statement, exhibit, certificate, document or report furnished to the Agent by
the Parent Company, the Borrower or any of its Subsidiaries in connection with
the negotiation of this Agreement contained any material
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misstatement of fact or omitted to state a material fact misleading in the light
of the circumstances in which made. There is no fact known to the Borrower which
has a Material Adverse Effect or in the future is reasonably likely to have (so
far as the Borrower can now foresee) a Material Adverse Effect and which has not
been set forth in this Agreement or the other documents, certificates and
statements furnished to the Agent by or on behalf of the Parent Company, the
Borrower or any of its Subsidiaries prior to, or on, the date hereof in
connection with the transactions contemplated hereby. The Borrower has delivered
to the Agent a true and complete copy of the Offering Memorandum dated July 15,
1995, regarding the DEM Subordinated Debt ("Offering Memorandum"). There has
been no amendment or modification to the terms and provisions of the DEM
Subordinated Debt, as described in the Offering Memorandum.
Section 3.12 Investment Company Act. Neither the Parent Company, the
Borrower nor any of its Subsidiaries is an "investment company" or a company
"controlled" by an "investment company," within the meaning of the Investment
Company Act of 1940, as amended.
Section 3.13 Public Utility Holding Company Act. Neither the Parent
Company, the Borrower nor any of its Subsidiaries is a "holding company," or a
"subsidiary company" of a "holding company," or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company," or a public
utility" within the meaning of the Public Utility Holding Company Act of 1935,
as amended.
Section 3.14 Subsidiaries and Partnerships. Except as set forth on
Schedule 3.14, the Borrower has no Subsidiaries and has no interest in any
partnerships. Schedule 3.14 sets forth the principal place of business of each
such Subsidiary and the ownership interest of the Borrower in such Subsidiary.
Section 3.15 Location of Business and Offices. The Borrower's principal
place of business and chief executive offices are located at the address stated
in Section 8.1(a). The principal place of business and chief executive office of
each Subsidiary are located at the addresses stated on Schedule 3.14.
Section 3.16 Defaults. Neither the Parent Company, the Borrower nor any
of its Subsidiaries is in default nor has any event or circumstance occurred
which, but for the expiration of any applicable grace period or the giving of
notice, or both, would constitute a default under any material agreement or
instrument to which any such Person is a party or by which any such Person is
bound which default would have a Material Adverse Effect. No Default hereunder
or under the Senior Loan Agreement has occurred and is continuing.
Section 3.17 Environmental Matters. Except (i) as provided in Schedule
3.17 or (ii) as would not have a Material Adverse Effect (or with respect to
(c), (d) and (e) below, where the failure to take such actions would not have a
Material Adverse Effect):
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(a) Neither any Property of the Parent Company, the Borrower
or any of its Subsidiaries nor the operations conducted thereon violate any
order or requirement of any court or Governmental Authority or any Environmental
Laws.
(b) Without limitation of clause (a) above, no Property of the
Parent Company, the Borrower or any of its Subsidiaries nor the operations
currently conducted thereon or, to the best knowledge of the Borrower, by any
prior owner or operator of such Property or operation, are in violation of or
subject to any existing, pending or (to the knowledge of the Borrower)
threatened action, suit, investigation, inquiry or proceeding by or before any
court or Governmental Authority or to any remedial obligations under
Environmental Laws.
(c) All notices, permits, licenses or similar authorizations,
if any, required to be obtained or filed in connection with the operation or use
of any and all Property of the Parent Company, the Borrower and each of its
Subsidiaries, including without limitation past or present treatment, storage,
disposal or release of a hazardous substance or solid waste into the
environmental, have been duly obtained or filed, and the Parent Company, the
Borrower and each of its Subsidiaries are in compliance with the terms and
conditions of all such notices, permits, licenses and similar authorizations.
(d) All hazardous substances, solid waste, and oil and gas
exploration and production wastes, if any, generated at any and all Property of
the Parent Company, the Borrower or any of its Subsidiaries have in the past
been transported, treated and disposed of in accordance with Environmental Laws
and so as not to pose an imminent and substantial endangerment to public health
or welfare or the environment, and, to the best knowledge of the Borrower, all
such transport carriers and treatment and disposal facilities have been and are
operating in compliance with Environmental Laws and so as not to pose an
imminent and substantial endangerment to public health or welfare or the
environment, and are not the subject of any existing, pending or (to the
knowledge of the Borrower) threatened action, investigation or inquiry by any
Governmental Authority in connection with any Environmental Laws.
(e) The Borrower has taken all steps reasonably necessary to
determine and has determined that no hazardous substances, solid waste, or oil
and gas exploration and production wastes, have been disposed of or otherwise
released and there has been no threatened release of any hazardous substances on
or to any Property of the Parent Company, the Borrower or any of its
Subsidiaries except in compliance with Environmental Laws and so as not to pose
an imminent and substantial endangerment to public health or welfare or the
environment.
(f) To the extent applicable, all Property of the Parent
Company, the Borrower and each of its Subsidiaries currently satisfies all
design, operation, and equipment requirements imposed by OPA or scheduled as of
the date hereof to be imposed by OPA during the term of this Agreement, and the
Parent Company, the Borrower does not have any reason to believe that such
Property, to the extent subject to OPA, will not be able to maintain compliance
with OPA requirements during the term of this Agreement.
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(g) Neither the Parent Company, the Borrower nor any of its
Subsidiaries has any known contingent liability in connection with any release
or threatened release of any oil, hazardous substance or solid waste into the
environment.
Section 3.18 Compliance with the Law. Neither the Parent Company, the
Borrower nor any of its Subsidiaries has violated any Governmental Requirement
or failed to obtain any license, permit, franchise or other governmental
authorization necessary for the ownership of any of its Properties or the
conduct of its business, which violation or failure would have (in the event
such violation or failure were asserted by any Person through appropriate
action) a Material Adverse Effect. Except for such acts or failures to act as
would not have a Material Adverse Effect, the Mortgaged Properties have been
maintained, operated and developed in a good and workmanlike manner and in
substantial conformity with all applicable laws and all rules, regulations and
orders of all duly constituted authorities having jurisdiction and in
substantial conformity with the provisions of all leases, subleases or other
contracts comprising a part of the Hydrocarbon Interests and other contracts and
agreements forming a part of the Mortgaged Properties; specifically in this
connection, (a) after the date hereof, no Mortgaged Property is subject to
having allowable production reduced below the full and regular allowable
(including the maximum permissible tolerance) because of any overproduction
(whether or not the same was permissible at the time) prior to the date hereof
and (b) none of the wells comprising a part of the Mortgaged Properties are
deviated from the vertical more than the maximum permitted by applicable laws,
regulations, rules and orders, and such wells are, in fact, bottomed under and
are producing from, and the well bores are wholly within, the Mortgaged
Properties (or in the case of wells located on properties unitized therewith,
such unitized properties).
Section 3.19 Insurance. Schedule 3.19 attached hereto contains an
accurate and complete description of all material policies of fire, liability,
workmen's compensation and other forms of insurance owned or held by the Parent
Company, the Borrower and each of its Subsidiaries. All such policies are in
full force and effect, all premiums with respect thereto covering all periods up
to an including the date of the closing have been paid, and no notice of
cancellation or termination has been received with respect to any such policy.
Such policies are sufficient for substantial compliance with all requirements of
law and of all agreements to which the Parent Company, the Borrower or any of
its Subsidiaries is a party; are valid, outstanding and enforceable policies;
provide adequate insurance coverage in at least such amounts and against at
least such risks (but including in any event public liability) as are usually
insured against in the same general area by companies engaged in the same or a
similar business for the assets and operations of the Parent Company, the
Borrower and each of its Subsidiaries; will remain in full force and effect
through the respective dates set forth in Schedule 3.19 without the payment of
additional premiums; and will not in any way be affected by, or terminate or
lapse by reason of, the transactions contemplated by this Agreement. Schedule
3.19 identifies all material risks, if any, which the Parent Company, the
Borrower and its Subsidiaries and their respective Board of Directors or
officers have designated as being self insured. Neither the Parent Company, the
Borrower nor any of its Subsidiaries has been refused any insurance with respect
to its assets or operations, nor has its coverage been limited
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below usual and customary policy limits, by an insurance carrier to which it has
applied for any such insurance or with which it has carried insurance during the
last three years.
Section 3.20 Hedging Agreements. Schedule 3.20 sets forth, as of the
date hereof, a true and complete list of all Hedging Agreements (including
commodity price swap agreements, forward agreements or contracts of sale which
provide for prepayment for deferred shipment or delivery of oil, gas or other
commodities) of the Parent Company, the Borrower and each of its Subsidiaries,
the material terms thereof (including the type, term, effective date,
termination date and notional amounts or volumes), the net mark to market value
thereof, all credit support agreements relating thereto (including any margin
required or supplied), and the counterparty to each such agreement.
Section 3.21 Restriction on Liens. Neither the Parent Company, the
Borrower nor any of its Subsidiaries (other than Non-Recourse Subsidiaries) is a
party to any agreement or arrangement (other than this Agreement and the
Security Instruments), or subject to any order, judgment, writ or decree, which
either restricts or purports to restrict its ability to grant Liens to other
Persons on or in respect of their respective assets or Properties, except for
such restrictions as are contained in the documents and agreements evidencing
the DEM Subordinated Debt and the Senior Debt; provided that such restrictions
do not impair the ability of the Parent Company, the Borrower, or any of its
Subsidiaries (other than Non-Recourse Subsidiaries) to grant Liens to the Agent
and the Banks except as provided in the Senior Loan Agreement and the
Subordination Agreement.
Section 3.22 Gas Imbalances. As of the date hereof, except as set forth
on Schedule 3.22 or on the most recent certificate delivered pursuant to Section
4.7(c), on a net basis there are no gas imbalances, take or pay or other
prepayments with respect to the Parent Company, the Borrower's or its
Subsidiaries' Oil and Gas Properties which would require such Person to delivery
Hydrocarbons produced from the Oil and Gas Properties at some future time
without then or thereafter receiving full payment therefor, exceeding 4,000 mcf
of gas in the aggregate.
Section 3.23 Material Contracts. Set forth on Schedule 3.23 hereto is a
complete and correct list of all material credit agreements, indentures,
purchase agreements, obligations in respect of letters of credit, guarantees,
joint venture agreements, and other instruments in effect or to be in effect as
of the date hereof (other than Hedging Agreements) provided for, evidencing,
securing or otherwise relating to any Debt of the Parent Company, the Borrower
or any of its Subsidiaries, and such list correctly sets forth the names of the
debtor or lessee and creditor or lessor with respect to the Debt or lease
obligations outstanding or to be outstanding and the property subject to any
Lien securing such Debt or lease obligation. Also set forth on Schedule 3.23
hereto is a complete and correct list of all material agreements and other
instruments of the Parent Company, the Borrower and its Subsidiaries relating to
the purchase, transportation by pipeline, gas processing, marketing, sale and
supply of natural gas and other Hydrocarbons, but in any event, any such
agreement or other instrument that will account for more than 20% of the sales
of the Parent Company, the Borrower and its Subsidiaries during the Parent
Company's fiscal year.
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ARTICLE 4
AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that, so long as the Commitment is in
effect and until payment in full of the Loans, all interest thereon, and all
other amounts payable by the Borrower hereunder:
Section 4.1 Financial Statements. The Borrower shall deliver, or shall
cause to be delivered, to the Agent:
(a) As soon as available and in any event within 120 days
after the end of each fiscal year of the Parent Company, the audited
consolidated statements of operations, stockholders' equity, changes in
financial position and cash flow of the Parent Company and its Consolidated
Subsidiaries for such fiscal year, and the related consolidated and
consolidating balance sheets of the Parent Company and its Consolidated
Subsidiaries as at the end of such fiscal year, and setting forth in each case
in comparative form the corresponding figures for the preceding fiscal year, and
accompanied by the related opinion of an independent public accountant of
recognized national standing acceptable to the Agent which opinion shall state
that said financial statements fairly present, in all material respects, the
consolidated financial condition and results of operations of the Parent Company
and its Consolidated Subsidiaries as at the end of, and for, such fiscal year
and that such financial statements have been prepared in accordance with GAAP
except for such changes in such principles with which the independent public
accountants shall have concurred and such opinion shall not contain a "going
concern" or like qualification or exception.
(b) As soon as available and in any event within 60 days after
the end of each of the first three fiscal quarterly periods of each fiscal year
of the Parent Company, consolidated statements of operations, stockholders'
equity, changes in financial position and cash flow of the Parent Company and
its Consolidated Subsidiaries for such period and for the period from the
beginning of the respective fiscal year to the end of such period, and the
related consolidated balance sheets as at the end of such period, and setting
forth in each case in comparative form the corresponding figures for the
corresponding period in the preceding fiscal year, accompanied by the
certificate of a Responsible Officer, which certificate shall state that said
financial statements fairly present the consolidated financial condition and
results of operations of the Parent Company and its Consolidated Subsidiaries in
accordance with GAAP, as at the end of, and for, such period (subject to normal
year-end audit adjustments).
(c) Promptly after the Parent Company or the Borrower knows
that any Default or any Material Adverse Effect has occurred, a notice of such
Default or Material Adverse Effect, describing the same in reasonable detail and
the action the Parent Company or the Borrower proposes to take with respect
thereto.
(d) Promptly upon receipt thereof, a copy of each other
material report or letter submitted to the Parent Company by its independent
accountants in connection with any annual,
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interim or special audit made by them of the books of the Parent Company or its
Board of Directors to such letter or report.
(e) Promptly upon its becoming available, each financial
statement, report, notice or proxy statement sent by the Parent Company or the
Borrower to stockholders generally and each regular or periodic report and any
registration statement, prospectus or written communication (other than
transmittal letters) in respect thereof filed by the Parent Company with or
received by the Parent Company in connection therewith from any securities
exchange or the SEC or any successor agency.
(f) From time to time such other information regarding the
business, affairs or financial condition of the Parent Company, the Borrower or
any of its Subsidiaries (including, without limitation, any Plan or
Multiemployer Plan and any reports or other information required to be filed
under ERISA) as the Agent may reasonably request.
(g) As soon as available and in any event within ten (10)
Business Days after each Quarterly Date, a report, in form and substance
satisfactory to the Agent, setting forth as of the last Business Day of such
Quarterly Date, a summary of its hedging positions under all Hedging Agreements
(including commodity price swap agreements, forward agreements or contracts of
sale which provide for prepayment for deferred shipment or delivery of oil, gas
or other commodities) of the Parent Company, the Borrower and each of its
Subsidiaries, including the type, term, effective date, termination date and
notional principal amounts or volumes, the hedged price(s), interest rate(s) or
exchange rates(s), as applicable, and any new credit support agreements relating
thereto not listed on Schedule 3.20.
(h) Promptly after the Borrower knows that any default or
event of default in respect of the Senior Debt has occurred, a notice thereof,
describing the same in reasonable detail and the action the Borrower proposes to
take with respect thereto; and if any notices of a default or an event of
default are given or received in respect of the Senior Debt, a copy thereof.
(i) Promptly after the Parent Company or the Borrower knows
that any "mandatory redemption event" in respect of the Preferred Stock has
occurred, a notice thereof, describing the same in reasonable detail and the
action the Parent Company or the Borrower proposes to take with respect thereto;
and if any mandatory redemption notices are given or received in respect of the
Preferred Stock, a copy thereof.
The Parent Company and the Borrower will furnish to the Agent, at the
time it furnishes each set of financial statements pursuant to subsection (a) or
(b) above, a certificate substantially in the form of Exhibit C hereto executed
by a Responsible Officer (i) certifying as to the matters set forth therein and
stating that no Default has occurred and is continuing (or, if any Default has
occurred and is continuing, describing the same in reasonable detail, and (ii)
setting forth in reasonable detail the computations necessary to determine
whether the Parent Company and the Borrower are in
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compliance with Sections 5.13, 5.14 and 5.15 as of the end of the respective
fiscal quarter or fiscal year.
Section 4.2 Litigation. The Borrower shall promptly give to the Agent
notice of all legal or arbitral proceedings, and of all proceedings before any
Governmental Authority affecting the Parent Company, the Borrower or any of its
Subsidiaries, except proceedings which, if adversely determined, would not have
a Material Adverse Effect. The Borrower will, and will cause each of its
Subsidiaries to, promptly notify the Agent if the value of the claim, judgment,
Lien, or other encumbrance affecting such Property shall exceed $250,000.
Section 4.3 Maintenance, Etc.
(a) The Borrower shall and shall cause each of its
Subsidiaries to: preserve and maintain its corporate existence and all of its
material rights, privileges and franchises; keep books of record and account in
which full, true and correct entries will be made of all dealings or
transactions in relation to its business and activities in accordance with GAAP;
comply with all Governmental Requirements if failure to comply with such
requirements will have a Material Adverse effect; pay and discharge all taxes,
assessments and governmental charges or levies imposed on it or on its income or
profits or on any of its Property prior to the date on which penalties attach
thereto, except for any such tax, assessment, charge or levy the payment of
which is being contested in good faith and by proper proceedings and against
which adequate reserves are being maintained; upon reasonable notice, permit
representatives of the Agent and any Lender, during normal business hours, to
examine, copy and make extracts from its books and records, to inspect its
Properties, and to discuss its business and affairs with its officers, all to
the extent reasonably requested by the Agent or such Lender and keep, or cause
to be kept, insured by financially sound and reputable insurers all Property of
a character usually insured by Persons engaged in the same or similar business
similarly situated against loss or damage of the kinds and in the amounts
customarily insured against by such Persons and carry such other insurance as is
usually carried by such Persons including, without limitation, environmental
risk insurance to the extent reasonably available.
(b) Contemporaneously with the delivery of the financial
statements required by Section 4.1(a) to be delivered for each year, the
Borrower will furnish or cause to be furnished to the Agent a certificate of
insurance coverage from the insurer in form and substance satisfactory to the
Agent and, if requested, will furnish the Agent copies of the applicable
policies.
(c) The Parent Company and the Borrower will and will cause
each of its subsidiaries to operate its Properties or cause such Properties to
be operated in a careful and efficient manner in accordance with the usual and
customary practices of the industry and in substantial compliance with all
applicable contracts and agreements and in compliance in all material respects
with all Governmental Requirements.
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(d) The Parent Company and the Borrower will and will cause
each of its Subsidiaries to, at its own expense, do or cause to be done all
things reasonably necessary to preserve and keep in good repair, working order
and efficiency all of its Oil and Gas Properties and other material Properties
including, without limitation, all equipment, machinery and facilities, and from
time to time will make all the reasonably necessary repairs, renewals and
replacements so that at all times the state and condition of its Oil and Gas
Properties and other material Properties will be fully preserved and maintained,
except to the extent a portion of such Properties is no longer capable of
producing Hydrocarbons in economically reasonable amounts. The Parent Company
and the Borrower will and will cause each of its Subsidiaries to promptly: (a)
pay and discharge, or make reasonable and customary efforts to cause to be paid
and discharged, all delay rentals, royalties, expense and indebtedness accruing
under the leases or other agreements affecting or pertaining to its Oil and Gas
Properties, (b) perform or make reasonable and customary efforts to cause to be
performed, in accordance with usual and customary industry standards, the
obligations required by each and all of the assignments, deeds, leases,
sub-leases, contracts and agreements affecting its interests in its Oil and Gas
Properties and other material Properties, (c) will and will cause each of its
Subsidiaries to do all other things necessary to keep unimpaired, except for
Liens described in Section 5.2, its rights with respect thereto and prevent any
forfeiture thereof or a default thereunder, except to the extent a portion of
such Properties is no longer able of producing Hydrocarbons in economically
reasonable amounts. The Parent Company and the Borrower will and will cause each
of its Subsidiaries to operate its Oil and Gas Properties and other material
Properties or cause to make reasonable and customary efforts to cause such Oil
and Gas Properties and other material Properties to be operated in a careful and
efficient manner in accordance with the usual and customary practices of the
industry and in substantial compliance with all applicable contracts and
agreements and in compliance in all material respects with all Governmental
Requirements.
Section 4.4 Environmental Matters.
(a) The Parent Company and the Borrower will and will cause
each of its Subsidiaries to establish and implement such procedures as may be
reasonably necessary to continuously determine and assure that any failure of
the following does not have a Material Adverse Effect: (a) all Property of such
Persons and the operations conducted thereon are in compliance with and do not
violate the requirements of any Environmental Laws, (b) no oil, hazardous
substances or solid wastes are disposed of or otherwise released on or to any
Property owned by any such party except in compliance with Environmental Laws,
(c) no hazardous substance will be released on or to any Property in a quantity
equal to or exceeding that quantity which requires reporting pursuant to Section
103 of CERCLA, and (d) no oil, oil and gas exploration and production wastes or
hazardous substance is released on or to any such Property so as to pose an
imminent and substantial endangerment to public health or welfare or the
environment.
(b) The Borrower will promptly notify the Agent in writing of
any threatened action, investigation or inquiry by any Governmental Authority of
which the Borrower has knowledge in connection with any Environmental Laws,
excluding routine testing and corrective action.
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(c) The Parent Company and the Borrower will and will cause
each of its Subsidiaries to provide environmental audits and tests in accordance
with American Society of Testing and Mechanics standards as reasonably requested
by the Agent or as otherwise required to be obtained by the Agent or by any
Governmental Authority in connection with any future acquisitions of Oil and Gas
Properties or other material Properties.
Section 4.5 Further Assurances. The Borrower will and will cause each
of its Subsidiaries to cure promptly any defects in the creation and issuance of
the Note and the execution and delivery of the Security Instruments and this
Agreement. The Borrower at its expense will and will cause each of its
Subsidiaries to promptly execute and deliver to the Agent upon request all such
other documents, agreements and instruments to comply with or accomplish the
covenants and agreements of the Borrower or any of its Subsidiaries, as the case
may be, in the Security Instruments and this Agreement, or to further evidence
and more fully describe the collateral intended as security for the Note, or to
correct any omissions in the Security Instruments, or to state more fully the
security obligations set out herein or in any of the Security Instruments, or to
perfect, protect or preserve any Liens created pursuant to any of the Security
Instruments, or to make any recordings, to file any notices or obtain any
consents, all as may be reasonably necessary or appropriate in connection
therewith.
Section 4.6 Performance of Obligations. The Borrower will pay the Note
according to the reading, tenor and effect thereof; and the Borrower will and
will cause each of its Subsidiaries to do and perform every act and discharge
all of the obligations to be performed and discharged by them under the Security
Instruments and this Agreement, at the time and in the manner specified.
Section 4.7 Engineering Reports.
(a) No later than 30 days prior to each Scheduled
Redetermination Date, commencing with the Scheduled Redetermination Date to
occur on March 15, 1998, the Borrower shall furnish to the Agent a Reserve
Report. The June 30 Reserve report of each year shall be prepared by certified
independent petroleum engineers or other independent petroleum consultant(s)
acceptable to the Agent and the December 31 Reserve Report of each year shall be
prepared by or under the supervision of the chief engineer of the Borrower who
shall certify such Reserve Report to be true and accurate and to have been
prepared in accordance with the procedures used in the immediately proceeding
June 30 Reserve Report; provided that the Agent reserves the right to require
that the Reserve Report prepared for the Scheduled Redetermination Date to occur
on March 15, 1998 be prepared by certified independent petroleum engineers or
other independent petroleum consultant(s) acceptable to the Agent.
(b) In the event of an unscheduled redetermination, the
Borrower shall, at the Agent's request, furnish to the Agent a Reserve Report
prepared by or under the supervision of the chief engineer of the Borrower who
shall certify such Reserve Report to be true and accurate and to have been
prepared in accordance with the procedures used in the immediately preceding
Reserve Report. For any unscheduled redetermination requested by the Agent, the
Borrower shall provide
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such Reserve Report with an "as of" date as required by the Agent as soon as
possible, but in any event no later than 45 days following the receipt of the
request by the Agent.
(c) With the delivery of each Reserve Report, the Borrower
shall provide to the Agent, a certificate from a Responsible Officer certifying
that, to the best of his knowledge and in all material respects: (i) the
information contained in the Reserve Report and any other information delivered
in connection therewith is true and correct, (ii) the Parent Company, the
Borrower, or any Guarantor, as applicable, owns good and defensible title to its
Oil and Gas Properties evaluated in such Reserve Report and such Properties are
free of all Liens except for Liens permitted by Section 5.2, (iii) except as set
forth on an exhibit to the certificate, on a net basis there are no gas
imbalances, take or pay or other prepayments with respect to its Oil and Gas
Properties evaluated in such Reserve Report which would require the Parent
Company, the Borrower, or any Guarantor, as applicable, to deliver Hydrocarbons
produced from such Oil and Gas Properties at some future time without then or
thereafter receiving full payment thereof, (iv) none of the Oil and Gas
Properties of the Parent Company, the Borrower, or any Guarantor have been sold
since the date of the last Borrowing Base determination except as set forth on
an exhibit to the certificate, which certificate shall list all of such Oil and
Gas Properties sold and in such detail as reasonably required by the Agent, (v)
attached to the certificate is a list of its Oil and Gas Properties added to and
deleted from the immediately prior Reserve Report and a list of all Persons
disbursing proceeds to the Parent Company, the Borrower, or any Guarantor, as
applicable, from such Person's Oil and Gas Properties, (vi) except as set forth
on a schedule attached to the certificate all of the Oil and Gas Properties
evaluated by such Reserve report are Mortgaged Property and (vii) any change in
working interest or net revenue interest in its Oil and Gas Properties occurring
and the reason for such change.
(d) As soon as available and in any event within 45 days after
the end of the fiscal quarter, the Borrower shall provide (i) a production
report, in the form currently prepared internally by the Borrower and which has
been approved by the Agent, and (ii) a summary of all general and administrative
costs of the Parent Company and its Consolidated Subsidiaries for such quarter
which are not reflected in the Consolidated Net Income for such quarter, for its
Oil and Gas Properties, which reports shall include quantities or volume of
production, revenue realized product prices, operating expenses, taxes capital
expenditures and lease operating costs which have accrued to the account of the
Parent Company or the Borrower in such period, and such other information with
respect thereto as the Agent may reasonably require.
(e) With the delivery of the December 31, 1997 Reserve Report,
the Borrower shall also provide projections and budgets of the Borrower and its
Subsidiaries for the forthcoming fiscal year, which shall include, on a monthly
basis for the forthcoming fiscal year, an operating and capital budget, income
and cash flow statements and balance sheets, in each case together with the
analysis and discussion of management of such projections, all certified by a
Responsible Officer of the Borrower as being prepared based on the assumptions
and assessments believed by the Borrower to be reasonable and appropriate both
as of the date of such projections and as of the date of submission thereof to
the Agent.
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Section 4.8 Title Information.
(a) On or before the delivery to the Agent of each Reserve
Report required by Section 4.7(a), the Borrower will deliver title information
in form and substance reasonably satisfactory to the Agent covering the Oil and
Gas Properties evaluated by such Reserve Report and included in the Borrowing
Base that were not included in the immediately preceding Borrowing Base
evaluation, so that the Agent shall have received together with title
information previously delivered to the Agent, satisfactory title information on
at least 85% of the SEC Value of the Oil and Gas Properties evaluated by such
Reserve Report and included in the Borrowing Base. The Borrower shall cure any
title defects or exceptions which are not Excepted Liens raised by the title
information within 60 days after a request by the Agent to cure such defects or
exceptions.
(b) If the Borrower is unable to cure any title defect
requested by the Agent to be cured within the 60 day period, such default shall
not be a Default or an Event of Default, but instead the Agent shall have the
right to exercise the following remedy in its sole discretion from time to time,
and any failure to so exercise this remedy at any time shall not be a waiver as
to future exercise of the remedy by the lender. To the extent that the Agent is
not satisfied with title to any Mortgaged Property after the time period in
Section 4.8(a) has elapsed, such unacceptable Mortgaged Property shall not count
towards the 85% requirement, and the Agent may send a notice to the Borrower
that the then outstanding Borrowing Base shall be reduced by an amount as
determined by the Agent to cause the Borrower to be in compliance with the
requirement to provide acceptable title information on 85% of the SEC Value of
the Oil and Gas Properties included in the Borrowing Base. The new Borrowing
Base shall become effective immediately after receipt of such notice.
Section 4.9 Additional Collateral.
(a) The Borrower shall grant, and shall cause the Parent
Company and each Guarantor to grant, to the Agent for the benefit of the Lenders
as security for the Indebtedness a second-priority Lien interest (subject only
to Excepted Liens) on such Person's interest in any Oil and Gas Properties not
already subject to a Lien of the Security Instruments such that the Mortgaged
Property shall include at least 85% of the SEC Value of each of proved producing
and the total Proved Reserves at all times, which Lien will be created and
perfected by and in accordance with the provisions of deeds of trust, security
agreements and financing statements, or other Security Instruments, all in form
and substance satisfactory to the Agent in its sole discretion and in sufficient
executed (and acknowledged where necessary or appropriate) counterparts for
recording purposes.
(b) If the agent under the Senior Loan Agreement requests the
Parent Company, the Borrower, or any Guarantor to grant as security for the
Senior Debt additional Liens in such Person's interest in any Oil and Gas
Properties, the Borrower shall promptly deliver to the Agent a copy of such
request. Within 10 days of the granting of any Liens in any Oil and Gas
Properties as security for the Senior Debt, the Parent Company and the Borrower
will, and will cause each Guarantor, to grant to the Agent for the benefit of
the Lenders as security for the Indebtedness a
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second-priority Lien (subject only to Excepted Liens) on any such Oil and Gas
Properties not already subject to a Lien of the Security Instruments.
(c) Concurrently with the granting of the Lien or other action
referred to in Sections 4.9(a) and 4.9(b) above, the Borrower will (i) provide
to the Agent title information in form and substance satisfactory to the Agent
in its sole discretion with respect to the appropriate Person's interests in
such Oil and Gas Properties; and (ii) promptly after the filing of any new
Security Instrument in any state, upon the reasonable request of the Agent,
provide to the Agent an opinion addressed to the Agent in form and substance
satisfactory to the Agent in its sole discretion from counsel acceptable to
Agent, stating that the Security Instrument is valid, binding and enforceable in
accordance with its terms and in legally sufficient form for such jurisdiction.
Section 4.10 ERISA Information and Compliance. The Parent Company and
the Borrower will promptly furnish and will cause its Subsidiaries and ERISA
Affiliates to promptly furnish to the Agent (a) promptly after the filing
thereof with the United States Secretary of Labor, the Internal Revenue Service
or the PBGC, copies of each annual and other report with respect to each Plan or
any trust created thereunder, (b) immediately upon becoming aware of the
occurrence of any ERISA Event or of any "prohibited transaction," as described
in section 406 of ERISA or in section 4975 of the Code, in connection with any
Plan or any trust created thereunder, a written notice signed by a Responsible
Officer specifying the nature thereof, what action the Parent Company, the
Borrower, its Subsidiaries or ERISA Affiliate is taking or proposes to take with
respect thereto, and, when known, any action taken or proposed by the Internal
Revenue Service, the Department of Labor or the PBGC with respect thereto, and
(c) immediately upon receipt thereof, copies of any notice of the PBGC's
intention to terminate or to have a trustee appointed to administer any Plan.
With respect to each Plan (other than a Multiemployer Plan), the Parent Company
and the Borrower will, and will cause each of its Subsidiaries and ERISA
Affiliates to, (i) satisfy in full and in a timely manner, without incurring any
late payment or underpayment charge or penalty and without giving rise to any
lien, all of the contribution and funding requirements of section 412 of the
Code (determined without regard to subsections (d), (e), (f) and (k) thereof)
and of section 302 of ERISA (determined without regard to sections 303, 304 and
306 of ERISA), and (ii) pay, or cause to be paid, to the PBGC in a timely
manner, without incurring any late payment or underpayment charge or penalty,
all premiums required pursuant to sections 4006 and 4007 or ERISA.
ARTICLE 5
NEGATIVE COVENANTS
The Borrower covenants and agrees that, so long as the Commitment is in
effect and until payment in full of Loan, all interest thereon and all other
amounts payable by the Borrower hereunder, without the prior written consent of
the Majority Lenders:
Section 5.1 Debt. Neither the Borrower, the Parent Company, nor any of
its Subsidiaries will incur, create, assume or suffer to exist any Debt, except:
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(a) the Note or other Indebtedness or any guaranty of or
suretyship arrangement for the Note or other Indebtedness;
(b) the Robertson Notes and the Debt of the Borrower existing
on and not repaid on the date hereof which is disclosed in Schedule 5.1, and any
renewals or extensions (but not increases) thereof;
(c) accounts payable (for the deferred purchase price of
Property or services) from time to time incurred in the ordinary course of
business which, if greater than 90 days past the invoice or billing date, are
being contested in good faith by appropriate proceedings if reserves adequate
under GAAP shall have been established therefor;
(d) Debt under capital leases (as required to be reported on
the financial statements of the Borrower pursuant to GAAP) and other Debt not
otherwise permitted under this Section 5.1 in an aggregate principal amount not
to exceed $500,000 at any one time outstanding;
(e) Debt of the Borrower under Hedging Agreements either with
any Lender, any Affiliate of any Lender, any lender under the Senior Loan
Agreement, any investment grade counterparty, or as disclosed in Section 3.20;
(f) Debt associated with bonds or surety obligations required
by Governmental Requirements in connection with the operation of the Oil and Gas
Properties;
(g) the DEM Subordinated Debt;
(h) the Senior Debt;
(i) intercompany Debt to the extent permitted by Section 5.3;
(j) Debt arising from or related to any of the Liens described
in clauses (c) to (e) of the definition of "Excepted Liens"; and
(k) Non-Recourse Debt of any Subsidiary of the Borrower which
is a Non- Recourse Subsidiary.
Section 5.2 Liens. Neither the Borrower, the Parent Company, nor any of
its Subsidiaries will create, incur, assume or permit to exist any Lien on any
of its Properties (now owned or hereafter acquired), except:
(a) Liens securing the payment of any Indebtedness;
(b) Excepted Liens;
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(c) Liens securing capital leases (but not other Debt) allowed
under Section 5.1(d) but only on the Property under lease;
(d) Liens disclosed on Schedule 5.2;
(e) Liens securing the Senior Debt; and
(f) Liens on cash or securities of the Borrower securing the
Debt described in Section 5.1(f).
Section 5.3 Investments, Loans and Advances. Neither the Borrower nor
any of its Subsidiaries will make or permit to remain outstanding any loans or
advances to or investments in any Person, except that the foregoing restriction
shall not apply to:
(a) investments, loans or advances reflected in the Financial
Statements or which are disclosed to the Agent in Schedule 5.3.
(b) accounts receivable arising in the ordinary course of
business;
(c) direct obligations of the United States or any agency
thereof, or obligations guaranteed by the United States or any agency thereof,
in each case maturing within one year from the date of creation thereof;
(d) commercial paper maturing within 180 days from the date of
creation thereof rated in the highest grade by Standard & Poors Ratings Group or
Moody's Investors Service, Inc.;
(e) deposits maturing within one year from the date of
creation thereof with, including certificates of deposit issued by, any bank or
trust company which is organized under the laws of the United States or any
state thereof, has capital, surplus and undivided profits aggregating at least
$100,000,000.00 (as of the date of such bank or trust company's most recent
financial reports) and has a short term deposit rating of no lower than A2 or
P2, as such rating is set forth from time to time, by Standard & Poors
Corporation or Moody's Investors Service, Inc., respectively;
(f) deposits in money market funds investing exclusively in
investments described in Section 5.3(c), 5.3(d) or 5.3(e);
(g) investments, loans or advances made by (i) the Borrower in
or to any Guarantor or the Parent Company or (ii) any Subsidiary of the Parent
Company in or to any Guarantor, the Parent Company, or the Borrower;
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(h) investments by the Borrower in direct ownership interests
in additional Oil and Gas Properties and gas gathering systems related thereto
in an amount not to exceed 10% of the amount of the Senior Borrowing Base at the
time of such investment;
(i) advances to operators under operating agreements entered
into by the Borrower or any of its Subsidiaries in the ordinary course of
business;
(j) expenditures for fixed or capital assets; provided that
during the "Term Loan Period" under the Senior Loan Agreement, the aggregate
amount of all capital expenditures shall not to exceed $500,000 during any
twelve month period;
(k) investments, loans or advances made by (i) the Borrower or
any Guarantor to any Non-Recourse Subsidiary not to exceed at any one time
outstanding $100,000 in the aggregate, or (ii) a Non-Recourse Subsidiary to any
other Non-Recourse Subsidiary; and
(l) loans or advances to officers and employees of the
Borrower or any Subsidiary in the ordinary course of business not to exceed
$100,000 in the aggregate outstanding at any time.
Section 5.4 DEM Subordinated Debt. Neither the Parent Company nor the
Borrower shall, in any material respect, amend, supplement or modify or prepay
the DEM Subordinated Debt.
Section 5.5 Sales and Leasebacks. Neither the Parent Company, the
Borrower nor any of its Subsidiaries will enter into any arrangement, directly
or indirectly, with any Person whereby the Parent Company, the Borrower or any
of its Subsidiaries shall sell or transfer any of its Property, whether now
owned or hereafter acquired, and whereby the Parent Company, the Borrower or any
of its Subsidiaries shall then or thereafter rent or lease as lessee such
Property or any part thereof or other Property which the Parent Company, the
Borrower or any of its Subsidiaries intends to use for substantially the same
purpose or purposes as the Property sold or transferred.
Section 5.6 Nature of Business. Neither the Parent Company, the
Borrower nor any of its Subsidiaries will allow any material change to be made
in the character of its business as an independent oil and gas exploration and
production company.
Section 5.7 Limitation on Leases. Neither the Parent Company, the
Borrower nor any of its Subsidiaries will create, incur, assume or suffer to
exist any obligation for the payment of rent or hire of Property of any kind
whatsoever (real or personal, including capital leases but excluding leases of
Hydrocarbon Interests and leases directly related to oil and gas field
operations), under leases or lease agreements which would cause the aggregate
amount of all payments made by such Persons pursuant to such leases or lease
agreements to exceed $500,000 in any period of twelve consecutive calendar
months in the aggregate. Neither the Parent Company, the Borrower nor any of its
Subsidiaries will create, incur, assume or suffer to exists any obligation for
the payment of rent or hire of Property of any kind whatsoever (real or
personal, including capital leases but excluding
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royalty payments under leases of Hydrocarbon Interests), for oil and gas field
operations under leases or lease agreements (other than leases for any drilling,
workover or other rig related activities) which would cause the aggregate amount
of all payments made by such Persons pursuant to such leases or lease agreements
to exceed $8,000,000 in any period of twelve consecutive calendar months.
Section 5.8 Distributions. Without the written approval of the Majority
Lenders, the Parent Company shall not (i) declare or pay any cash dividends
other than cash dividends on account of common stock; (ii) purchase, redeem,
retire, or otherwise acquire for value any of the Parent Company's Capital Stock
now or hereafter outstanding; or make any distribution of assets to the Parent
Company's stockholders as such, whether in cash, assets, or in obligations of
the Parent Company; (iii) allocate or otherwise set apart any sum for the
payment of any dividend or distribution on, or for the purchase, redemption, or
retirement of, any shares of the Parent Company's Capital Stock; or (iv) make
any other distribution by reduction of capital or otherwise in respect of any
shares of the Parent Company's Capital Stock; provided that the Parent Company
may make dividends and distributions in accordance with the terms and provisions
of the Earn Up Agreement dated May 6, 1997, between the Parent Company and Joint
Energy Development Investments Limited Partnership and the Earn Up Agreement
dated May 6, 1997, between the Parent Company and Forseti Investments Ltd., so
long as (A) no Default or Event of Default has occurred at the time such
dividends are declared or paid or would result from such declaration or payment
and (B) no net change in the Parent Company's cash balance shall result (except
to the extent of related out-of-pocket transaction costs associated therewith)
as a result of any such dividends, redemptions, or distributions pursuant to
either Earn Up Agreement; and provided further, without limiting the Agent's and
Lenders' rights under Sections 6.1(k) and 6.2, the Parent Company may, after
giving written notice the Agent 5 Business Days' prior written notice thereof,
effect mandatory redemptions and cash payments payable upon Parent Company
defaults pursuant to the Certificate of Designation governing the Preferred
Stock.
Section 5.9 Mergers, Etc.
(a) Neither the Borrower nor any of its Subsidiaries will merge into or
with or consolidate with any other Person, or sell, lease or otherwise dispose
of (whether in one transaction or in a series of transactions) all or
substantially all of its Property or assets to any other Person; provided that
(i) any Guarantor may merge with any other Guarantor or may merge with the
Borrower so long as the Borrower is the surviving entity, (ii) the Borrower or
any Guarantor may merge with the Parent Company, and (iii) any Non-Recourse
Subsidiary may merge with any Person; provided that if such Non-Recourse
Subsidiary merges with the Parent Company, the Borrower or any Guarantor, no
Default or Event of Default would occur or be continuing after giving effect to
such merger and the Parent Company, the Borrower or such Guarantor, as the case
may be, shall be the surviving entity.
(b) The Parent Company will not merge into or with or consolidate with
any other Person, or sell, lease or otherwise dispose of (whether in one
transaction or in a series of
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transactions) all or substantially all of its Property or assets to any other
Person; provided that the Parent Company may merge with any of its Subsidiaries
(other than a Non-Recourse Subsidiary) so long as the Parent Company is the
surviving entity.
Section 5.10 Proceeds of Note. The Borrower will not permit the
proceeds of the Note to be used for any purpose other than those permitted by
Section 2.2. Neither the Borrower nor any Person acting on behalf of he Borrower
has taken or will take any action which might cause any of the Loan Documents to
violate Regulation G, U or X or any other regulation of the Board of Governors
of the Federal Reserve System or to violate Section 7 of the Securities Exchange
Act of 1934 or any rule or regulation thereunder, in each case as now in effect
or as the same may hereinafter be in effect.
Section 5.11 ERISA Compliance. The Parent Company and the Borrower will
not at any time:
(a) Engage in, or permit any of its Subsidiaries or ERISA
Affiliates to engage in, any transaction in connection with which the Parent
Company, the Borrower or any of its Subsidiaries or ERISA Affiliates could be
subjected to either a civil penalty assessed pursuant to section 502(c), (i) or
(1) of ERISA or a tax imposed by Chapter 43 of Subtitle D of the Code;
(b) Terminate, or permit any of its Subsidiaries or ERISA
Affiliates to terminate, any Plan in a manner, or take any other action with
respect to any Plan, which could reasonably be expected to result in any
liability to the Parent Company, the Borrower or any of its Subsidiaries or
ERISA Affiliates to the PBGC in excess of $100,000;
(c) Fail to make, or permit any of its Subsidiaries or ERISA
Affiliates to fail to make, full payment when due of all amounts which, under
the provisions of any Plan, agreement relating thereto or applicable law, the
Parent Company, the Borrower or any of its Subsidiaries or ERISA Affiliates is
required to pay as contributions thereto;
(d) Permit to exist, or allow any of its Subsidiaries or ERISA
Affiliates to permit to exist, any accumulated funding deficiency within the
meaning of Section 302 of ERISA or section 412 of the Code in excess of
$100,000, whether or not waived, with respect to any Plan;
(e) Permit, or allow any of its Subsidiaries or ERISA
Affiliates to permit, the actuarial present value of the benefit liabilities
under any Plan maintained by the Parent Company, the Borrower or any of its
Subsidiaries or ERISA Affiliates which is regulated under Title IV of ERISA to
exceed the current value of the assets (computed on a plan termination basis in
accordance with Title IV of ERISA) of such Plan allocable to such benefit
liabilities in an amount which exceeds $100,000. The term "Actuarial present
value of the benefit liabilities" shall have the meaning specified in section
4041 of ERISA;
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(f) Contribute to or assume an obligation to contribute to, or
permit any of its Subsidiaries or ERISA Affiliates to contribute to or assume an
obligation to contribute to, any Multiemployer Plan;
(g) Acquire, or permit any of its Subsidiaries or ERISA
Affiliates to acquire, an interest in any Person that causes such Person to
become an ERISA Affiliate with respect to the Parent Company, the Borrower, any
of its Subsidiaries or ERISA Affiliates if such Person sponsors, maintains or
contributes to, or at any time in the six-year period preceding such acquisition
has sponsored, maintained, or contributed to, (1) any Multiemployer Plan, or (2)
any other Plan that is subject to Title IV of ERISA under which the actuarial
present value of the benefit liabilities under such Plan exceeds the current
value of the assets (computed on a plan termination basis in accordance with
Title IV of ERISA) of such Plan allocable to such benefit liabilities in an
amount which exceeds $100,000;
(h) Incur, or permit any of its Subsidiaries or ERISA
Affiliates to incur, a liability to or on account of a Plan under sections 515,
4062, 4063, 4064, 4201 or 4204 of ERISA in an amount which exceeds $100,000;
(i) Contribute to or assume an obligation to contribute to, or
permit any of its Subsidiaries or ERISA Affiliates to contribute to or assume an
obligation to contribute to, any employee welfare benefit plan, as defined in
section 3(1) of ERISA, including, without limitation, any such plan maintained
to provide benefits to former employees of such entities, that may not be
terminated by such entities in their sole discretion at any time without any
material liability; or
(j) Amend or permit any of its Subsidiaries or ERISA
Affiliates to amend, a Plan resulting in an increase in current liability such
that the Parent Company, the Borrower, any of its Subsidiaries or ERISA
Affiliates is required to provide security to such Plan under section 401(a)(29)
of the Code.
Section 5.12 Sale or Discount of Receivables. Neither the Parent
Company, the Borrower nor any of its Subsidiaries will discount or sell (with or
without recourse) any of its notes receivable or accounts receivable.
Section 5.13 Current Ratio. The Parent Company's ratio of (i)
consolidated current assets plus unused availability under the "Aggregate
Commitments" under the Senior Loan Agreement to (ii) consolidated current
liabilities (excluding (a) the Indebtedness so long as the Indebtedness does not
mature within 1 year of the date of calculation and (b) current maturities of
the Senior Debt) shall not be less than 1.0 to 1.0 at any time.
Section 5.14 Accounts Payable. The Parent Company, the Borrower and its
Subsidiaries will pay their respective trade account payables when due in
accordance with their terms and usual and customary industry practices (which
shall not, in any event exceed 90 days from the date of invoice), except for
such payables which are being contested in good faith by appropriate
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proceedings diligently pursued and for which adequate reserves under GAAP are
being maintained. The Parent Company, the Borrower and its Subsidiaries will not
permit the weighted average maturity of their trade accounts payables (excluding
payables being contested pursuant to the foregoing sentence) to exceed 75 days
(measured quarterly as of the last day of each fiscal quarter).
Section 5.15 Interest Coverage Ratio. The Parent Company's Interest
Coverage Ratio as of the end of any fiscal quarter shall be at not less than the
following for the period then applicable:
(i) for the three month period ending on December 31, 1997,
2.0 to 1.0;
(ii) for the three month period ending on March 31, 1998, 4.0
to 1.0;
(iii) for the six month period ending on June 30, 1998, 4.0 to
1.0;
(iv) for the nine month period ending on September 30, 1998,
4.0 to 1.0;
(v) for the twelve month period ending on December 31, 1998,
4.0 to 1.0; and
(vi) for each rolling four fiscal quarters thereafter, 4.0 to
1.0.
For the purposes of this Section 5.15, "Interest Coverage Ratio" shall mean the
ratio of "EBITDA" to "Interest Expense" each as defined in the Senior Loan
Agreement.
Section 5.16 Sale of Oil and Gas Properties. The Parent Company and the
Borrower will not, and will not permit any Subsidiary to, sell, assign,
farm-out, convey or otherwise transfer any Oil and Gas Property or any interest
in any Oil and Gas Property except for (i) sales of Hydrocarbons in the ordinary
course of business, (ii) sales of assets which are worn-out or obsolete and are
not material to the continuation of its business, (iii) sales or other
dispositions from the Parent Company, the Borrower or any of its Subsidiaries to
the Parent Company or any other Subsidiary of the Borrower or the Parent Company
(other than Non-Recourse Subsidiaries), (iv) dispositions of equipment when
substantially similar equipment has been or will be acquired, and (v) sales of
Oil and Gas Properties or other assets which shall not exceed $500,000 in the
aggregate in any fiscal year.
Section 5.17 Environmental Matters. Neither the Parent Company, the
Borrower nor any of its Subsidiaries will cause or permit any of its Property to
be in violation of, or do anything or permit anything to be done which will
subject any such Property to any remedial obligations under any Environmental
Laws, assuming disclosure to the applicable Governmental Authority of all
relevant facts, conditions and circumstances, if any, pertaining to such
Property where such violations or remedial obligations would have a Material
Adverse Effect.
Section 5.18 Transactions with Affiliates. Neither the Parent Company,
the Borrower nor any Subsidiary will enter into any transaction, including,
without limitation, any purchase, sale, lease
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or exchange of Property or the rendering of any service, with any Affiliate
(other than the Parent Company, the Borrower or any Guarantor) unless such
transactions are in the ordinary course of its business and are upon fair and
reasonable terms no less favorable to it than it would obtain in a comparable
arm's length transaction with a Person not an Affiliate.
Section 5.19 Subsidiaries and Partnerships.
(a) The Borrower shall not, and shall not permit any of its
Subsidiaries to, create any additional Subsidiaries, unless such Subsidiary or
partnership executes a Guaranty or is designated to be a Non-Recourse
Subsidiary. The Borrower shall not and shall not permit any of its Subsidiaries
to sell any stock of one of its Subsidiaries or any interest in a partnership
except to the Parent Company or any of its Subsidiaries (other than Non-Recourse
Subsidiaries). The Borrower shall not permit any of its Subsidiaries to issue
any stock except to the Parent Company or any of its Subsidiaries (other than
Non-Recourse Subsidiaries) and except in compliance with Section 5.3. In
connection with the execution of any Guaranty hereunder, the Borrower shall
provide corporate documentation and opinion letters reasonably satisfactory to
the Agent reflecting the corporate status of such new Subsidiary and the
enforceability of such Guaranty.
(b) The Parent Company shall not create, acquire or suffer to
exist any Subsidiaries other than the Borrower and Queen Sand Resources
(Canada), Inc. which are not also Subsidiaries of the Borrower; provided that
the Parent Company may create Non-Recourse Subsidiaries which are not also
Subsidiaries of the Borrower. The Parent Company shall not invest, loan, or
advance at any one time an aggregate amount of more than $100,000 to or in Queen
Sand Resources (Canada), Inc. or any of its Non-Recourse Subsidiaries; provided
that the Parent Company may make loans, advances, or investments to Queen Sand
Resources (Canada), Inc. to satisfy its obligations under any employment
agreements to which it is a party and for normal general and administrative
expenses incurred in the ordinary course of its business and for which Queen
Sand Resources (Canada), Inc. is ultimately entitled to reimbursement from the
Parent Company and/or its Subsidiaries.
Section 5.20 Negative Pledge Agreements. Neither the Parent Company,
the Borrower nor any of its Subsidiaries will create, incur, assume or suffer to
exist any contract, agreement or understanding (other than this Agreement, the
Security Instruments, the documents evidencing the Senior Debt and the documents
and agreements evidencing the DEM Subordinated Debt) which in any way prohibits
or restricts the granting, conveying, creation or imposition of any Lien on any
of its Property or restricts any of its Subsidiaries from paying dividends to
the Borrower, or which requires the consent of to other Persons in connection
therewith.
Section 5.21 Gas Imbalances, Take-or-Pay or Other Prepayments. The
Parent Company and the Borrower will not, and will not permit any Guarantor to,
enter into any contracts or agreements which warrant production of Hydrocarbons
(other than Hedging Agreements otherwise permitted hereunder) and will not
hereafter allow gas imbalances, take-or-pay or other prepayments with respect to
their Oil and Gas Properties which would require such Person to deliver
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Hydrocarbons produced on Oil and Gas Properties at some future time without then
or thereafter receiving full payment therefor to exceed, during any monthly
period, five percent (5%) of the current aggregate monthly gas production for
such monthly period from the Mortgaged Properties.
Section 5.22 Material Contracts. The Parent Company and the Borrower
shall not, and shall not permit any Subsidiary to, amend or modify in any
material respect or terminate any of the Material Contracts (other than the
Senior Loan Agreement or any other agreement or document executed in connection
with Senior Debt, any of which may be amended, modified, or terminated without
the consent of the Agent or the Lenders).
Section 5.23 Senior Loan Agreement. Within three (3) Business Days
thereof, the Borrower shall give the Agent written notice of any material
discussions or negotiations with the Senior Debt agent or lenders regarding any
amendment to or other modification of the Senior Debt, such notice shall include
a summary of the terms of such proposed amendment or modification. Within three
(3) Business Days of its receipt thereof, the Borrower shall deliver to the
Agent a copy of any term sheet, draft documentation, or executed documentation
regarding the amendment or modification of the Senior Debt.
ARTICLE 6
EVENTS OF DEFAULT
Section 6.1 Events. An "Event of Default" shall exist if any of the
following events shall occur and be continuing:
(a) The Borrower, the Parent Company, or any Guarantor shall
default in the payment or prepayment when due of (i) any interest on any Loan or
any fees or other amount payable by it hereunder or under any other Loan
Document and such default shall continue for a period of three (3) Business Days
or (ii) any principal payable on any Loan made hereunder; or
(b) Any representation, warranty or certification made or
deemed made herein or in any Loan Document by the Borrower, the Parent Company,
or any Guarantor shall prove to have been false or misleading in any material
respect as of the time made or furnished; or
(c) The Borrower, the Parent Company, or any Guarantor shall
default in the due observance or performance of any of the covenants or
agreements contained herein or in any other Loan Document, provided that, with
the exception of the payment obligations set forth in Section 6.1(a) and the
covenants set forth in Article 5 (for which there shall be no cure period),
should any such default be capable of being cured within thirty (30) days, the
Borrower shall not be in default hereunder if such breach is cured within the
longer of (i) thirty (30) days after the earlier to occur of (A) notice thereof
to the Borrower by the Agent, or (B) the Borrower otherwise becoming aware of
such default or (ii) any applicable grace period as may be expressly allowed in
such Loan Document; or
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(d) The Security Instruments after delivery thereof shall for
any reason, except to the extent permitted by the terms thereof, cease to be in
full force and effect and valid, binding and enforceable in accordance with
their terms, or cease to create a valid and perfected Lien of the priority
required thereby on any of the collateral purported to be covered thereby,
except to the extent permitted by the terms of this Agreement, or the Parent
Company, the Borrower, any Guarantor or any Person on their behalf shall so
state in writing; or
(e) The Borrower, the Parent Company, or any Guarantor shall
admit in writing its inability to, or be generally unable to, pay its debts as
such debts become due; or
(f) The Borrower, the Parent Company, or any Guarantor shall
(i) apply for or consent to the appointment of, or the taking of possession by,
a receiver, custodian, trustee or liquidator of itself or of all or a
substantially all of its property, (ii) make a general assignment for the
benefit of its creditors, (iii) commence a voluntary case under the Federal
Bankruptcy Code (as now or hereafter in effect), (iv) file a petition seeking to
take advantage of any other law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or readjustment of debts, (v) fail to
controvert in a timely and appropriate manner, or acquiesce in writing to, any
petition filed against it in an involuntary case under the Federal Bankruptcy
Code, or (vi) take any corporate action for the purpose of effecting any of the
foregoing; or
(g) A proceeding or case shall be commenced, without the
application or consent of the Borrower, the Parent Company, or any Guarantor in
any court of competent jurisdiction, seeking (i) its liquidation,
reorganization, dissolution or winding-up, or the composition or readjustment of
its debts, (ii) the appointment of a trustee, receiver, custodian, liquidator,
or the like of the Borrower, the Parent Company, or any Guarantor or of all or
any substantially all of its assets, or (iii) similar relief in respect of the
Borrower, the Parent Company, or any Guarantor under any law relating to
bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment
of debts, and such proceeding or case shall continue undismissed, or an order,
judgment or decree approving or ordering any of the foregoing shall be entered
and continue unstayed and in effect, for a period of 60 days; or an order for
relief against the Borrower, the Parent Company, or any Guarantor shall be
entered in an involuntary case under the Federal Bankruptcy Code; or
(h) The Parent Company, the Borrower or any Guarantor shall
default in the payment when due of any principal of or interest on any of its
Debt (including the DEM Subordinated Debt) aggregating $100,000 or more, or any
event specified in any note, agreement, indenture or other document evidencing
or relating to any such Debt shall occur if the effect of such event is to
cause, or (with the giving of any notice or the lapse of time or both) to permit
the holder or holders of such Debt (or a trustee or agent on behalf of such
holder or holders) to cause, such Debt to become due prior to its stated
maturity;
(i) A judgment for the payment of money in excess of
$250,000.00 be rendered by a court against the Borrower, the Parent Company, or
any Guarantor and the same shall not be discharged (or provision shall not be
made for such discharge), or a stay of execution thereof shall
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not be procured, within 30 days from the date of entry thereof and the Borrower,
the Parent Company, or any Guarantor shall not, within said period of 30 days,
or such longer period during which execution of the same shall have been stayed,
appeal therefrom and cause the execution thereof to be stayed during such
appeal;
(j) There shall occur an Event of Default as such term is
defined in the Senior Loan Agreement or any document executed in connection
therewith; or
(k) There shall occur a default, an event of default, a
"mandatory redemption event," or any other similar express circumstance under
the Preferred Stock which would obligate the Parent Company to effect a
mandatory redemption or other cash payment in respect of the Preferred Stock.
Section 6.2 Remedies.
(a) In the case of an Event of Default other than one referred
to in clause (e), (f) or (g) of Section 6.1, the Agent shall at the request, or
may with the consent of the Majority Lenders, by written notice to the Borrower,
cancel the Commitment and/or declare the principal amount then outstanding of
and the accrued interest on the Loans and all other amounts payable by the
Borrower hereunder and under the Note to be immediately due and payable,
whereupon such amounts shall be immediately due and payable without presentment,
demand, protest, notice of intent to accelerate, notice of acceleration or other
formalities of any kind, all of which are hereby expressly waived by the
Borrower.
(b) In the case of the occurrence of an Event of Default
referred to in clause (e), (f) or (g) of Section 6.1, the Commitment shall be
automatically canceled and the principal amount then outstanding of, and the
accrued interest on, the Loans and all other amounts payable by the Borrower
hereunder and under the Note shall become automatically immediately due and
payable without presentment, demand, protest, notice of intent to accelerate,
notice of acceleration or other formalities of any kind, all of which are hereby
expressly waived by the Borrower.
(c) Upon the occurrence of any Event of Default, the Agent
shall at the request, or may with the consent of the Majority Lenders, exercise
any and all rights and remedies available to the Agent or the Lenders in law or
in equity under the Loan Documents, or otherwise.
(d) After the occurrence of any Event of Default, any amounts
received by the Agent or the Lenders on account of the Indebtedness (whether by
setoff or otherwise) shall be applied as follows: first, to reimbursement of
expenses and indemnities provided for in this Agreement and the other Loan
Documents; second, to the ratable payment of accrued but unpaid interest on the
Notes; third, to the ratable payment of unpaid fees; fourth, to the ratable
repayment of the outstanding principal amounts of the Notes; fifth, to any other
unpaid Indebtedness; and sixth, any excess shall be paid to the Borrower except
as otherwise required by any Governmental Requirement.
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ARTICLE 7
CONDITIONS OF LENDING
The obligations of the Lenders to make Loans pursuant to this Agreement are
subject to the conditions precedent stated in this Article 7.
Section 7.1 Initial Loans. The obligation of each Lender to fund the
Loan comprising its Pro Rata Share of the initial Borrowing under this Agreement
is, in addition to the conditions precedent specified in Section 7.2 hereof,
subject to the following conditions precedent wherein each document to be
delivered to the Agent shall be in form and substance reasonably satisfactory to
the Agent:
(a) Closing. All instruments, certificates and opinions
referred to in this Section 7.1 and Section 7.2 shall have been executed and
delivered.
(b) Note. The Borrower shall have duly and validly issued,
executed and delivered to the Agent, the Notes.
(c) Secretary's Certificates.
(i) The Agent shall have received certificates
of the Secretary or Assistant Secretary of each of the Borrower, the Parent
Company, and the Guarantors setting forth (A) resolutions of its board of
directors in form and substance reasonably satisfactory to the Agent with
respect to the authorization of the Loan Documents to which such Person is a
party and the Responsible Officers of such Person authorized to sign such
instruments, and (B) specimen signatures of the Responsible Officers so
authorized.
(ii) The Agent shall also have received a copy,
certified as true by the Secretary or Assistant Secretary of the Borrower, of
the articles or certificate of incorporation and the bylaws of each of the
Borrower, the Parent Company, and the Guarantors.
(d) Opinions of Counsel. The Agent shall have received from
counsel or counsels for the Borrower reasonably acceptable to Agent,
(i) a favorable written opinion or opinions in form
and substance reasonably satisfactory to Agent as to the matters contained in
Exhibit D and as to such other matters incident to the transactions herein
contemplated as the Agent may reasonably request; and
(ii) written opinions of counsels licensed to
practice in Louisiana and New Mexico, in form and substance reasonably
satisfactory to Agent, regarding the enforceability of the Security Instruments
to be filed in such states and such other matters incident to the transactions
herein contemplated as the Agent may reasonably request.
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(e) Security Instruments. The Agent shall have received each
of the following instruments, each duly and validly executed and delivered by
the respective parties thereto (other than the Agent), and in sufficient
executed counterparts for recording purposes when applicable, as security for
the Indebtedness:
(i) Mortgages covering 85% (based upon SEC Value as
reflected in the Reserve Reports delivered pursuant to Section 7.1(j)) of the
Borrower's Oil and Gas Properties; and
(ii) Financing statements collectively covering
all the Borrower's personal Property in which the Agent for the benefit of the
Lenders shall have Liens pursuant to the Loan Documents referred to in clause
(i) of this Section 7.1(e).
(f) Guaranties. The Agent shall have received a duly and
validly executed Guaranty from each of the Guarantors and the Parent Company.
(g) Recordings. The Loan Documents mentioned in subsections
7.1(e)(i) and (ii) and other notices related thereto, if necessary or
appropriate, shall have been duly delivered to the appropriate offices for
filing or recording, and the Agent shall have received confirmations of receipt
thereof by the appropriate filing or recording offices.
(h) Title. The Borrower shall have provided to the Agent, in
form and substance reasonably satisfactory to the Agent, title opinions and
other title information covering the Mortgaged Properties, as to both the
Borrower's ownership of the property covered thereby, and the priority of the
Liens created by the Security Instruments.
(i) Material Contracts. The Agent shall have received and
approved all Material Contracts affecting any of the Mortgaged Property.
(j) Reserve Reports. The Agent shall have received the most
current Reserve Reports covering the Mortgaged Properties and accompanying
production reports as of the end of the fiscal quarter ending September 30,
1997.
(k) Insurance Certificate. The Agent shall have received a
certificate satisfactory to the Agent evidencing that all insurance policies
required by Section 4.3 are in full force and effect and that loss payable
endorsements in favor of the Agent have been added thereto with respect to all
insurance policies covering damage or loss to the Mortgaged Property.
(l) Fees. All parties entitled thereto shall have received the
fees required by Section 2.6.
(m) Registration Rights Agreement. The Agent shall have
received the Registration Rights Agreement duly executed by the Parent Company
and in form and substance
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satisfactory to the Agent covering the shares of the Parent Company's common
stock which may be issued pursuant to Section 2.11 of this Agreement
(n) Second Amendment of the Senior Loan Agreement. The Agent
shall have received and approved the Second Amendment of the Senior Loan
Agreement duly and validly executed by all parties thereto.
(o) DEM Documents. The Agent shall have received a copy of the
documentation evidencing the DEM Subordinated Debt certified as accurate and
complete by the Secretary or Assistant Secretary of the Borrower.
(p) Other. The Agent shall have received such other documents
as it may reasonably have requested at any time at or prior to the closing
referred to in subsection 7.1(a) hereof.
Section 7.2 All Loans. The obligation of each Lender to fund any Loan
comprising its Pro Rata Share of the initial Borrowing or any subsequent
Borrowing pursuant to this Agreement is subject to the following further
conditions precedent:
(a) Project Summaries/Plan of Development.
(i) Except as provided in Section 7.2(a)(ii), the
Borrower shall have submitted to the Agent the Project Summary related to such
Borrowing in accordance with Section 2.7; and
(ii) During any Approval Period,
(A) with regard to any Borrowing for an
Acquisition, the Agent (with the consent of the Majority Lenders) shall have
approved such Acquisition in its sole discretion; and
(B) with regard to any Loan for Capital
Costs, (1) the Borrower shall have delivered to the Agent and the Agent (with
the consent of the Majority Lenders) shall have approved in its sole discretion,
a Plan of Development for the Development Project related to such Capital Costs
and (2) the Borrower shall have delivered to the Agent, an AFE related to such
Capital Costs and an AFE Expenditure Report.
(b) Borrowing Requests. At least five (5) but not more than
ten (10) Business Days before each Borrowing hereunder (except the initial
Borrowing which may be received on the date of this Agreement), the Agent shall
have received a Borrowing Request, which shall be true and correct and shall be
duly and properly executed and completed by the Borrower.
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(c) No Default. No Default shall have occurred and be
continuing or shall occur by virtue of making such Borrowing.
(d) Representations, Warranties and Covenants. All of the
representations and warranties of the Borrower contained in Article 3 of this
Agreement are true and correct on and as of the date of such Borrowing, and the
Borrower shall be in compliance with all covenants and other obligations of the
Borrower contained in this Agreement or any other Loan Document.
(e) No Material Adverse Effect. Since the date hereof, no
Material Adverse Effect shall have occurred and be continuing.
(f) Senior Loan. The Borrower shall have drawn down no less
than ninety percent (90%) of the lesser of (i) the Senior Borrowing Base or (ii)
the "Aggregate Maximum Credit Amount" then available under the Senior Loan
Agreement.
(g) Other. Such other information as the Agent may reasonably
request concerning the proposed Loan.
Each borrowing hereunder shall be deemed to be a representation and
warranty by the Borrower on the date of such borrowing as to the facts specified
in subsections (c), (d), (e) and (f) of this Section.
ARTICLE 8
THE AGENT
Section 8.1 Authorization and Action. Each Lender hereby appoints and
authorizes the Agent to take such action as agent on behalf of such Lender and
to exercise such powers under this Agreement as are delegated to the Agent by
the terms hereof and of the other Loan Documents, together with such powers as
are reasonably incidental thereto. As to any matters not expressly provided for
by this Agreement or any other Loan Document (including, without limitation,
enforcement or collection of the Notes), the Agent shall not be required to
exercise any discretion or take any action, but shall be required to act or to
refrain from acting (and shall be fully protected in so acting or refraining
from acting) upon the instructions of the Majority Lenders (or all the Lenders
where unanimity is required), and such instructions shall be binding upon all
Lenders and all holders of the Notes; provided, however, that the Agent shall
not be required to take any action which exposes the Agent to personal liability
or which is contrary to this Agreement, any other Loan Document, or applicable
law.
Section 8.2 Agent's Reliance, Etc. Neither the Agent nor any of the
Agent's directors, officers, agents or employees shall be liable for any action
taken or omitted to be taken (including the Agent's own negligence) by it or
them under or in connection with this Agreement or the other Loan Documents,
except for its or their own gross negligence or willful misconduct. Without
limitation of the generality of the foregoing, the Agent: (a) may treat the
payee of any Note as the
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holder thereof until the Agent receives written notice of the assignment or
transfer thereof signed by such payee and in form satisfactory to the Agent; (b)
may consult with legal counsel (including counsel for the Borrower), independent
public accountants and other experts selected by it and shall not be liable for
any action taken or omitted to be taken in good faith by it in accordance with
the advice of such counsel, accountants or experts; (c) makes no warranty or
representation to any Lender and shall not be responsible to any Lender for any
statements, warranties or representations made in or in connection with this
Agreement or the other Loan Documents; (d) shall not have any duty to ascertain
or to inquire as to the performance or observance of any of the terms, covenants
or conditions of this Agreement or any other Loan Document on the part of the
Parent Company, the Borrower, or its Subsidiaries or to inspect the property
(including the books and records) of such Persons; (e) shall not be responsible
to any Lender for the due execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Agreement or any other Loan Document;
and (f) shall incur no liability under or in respect of this Agreement or any
other Loan Document by acting upon any notice, consent, certificate or other
instrument or writing (which may be by telecopy, telegram, cable or telex)
reasonably believed by it to be genuine and signed or sent by the proper party
or parties.
Section 8.3 The Agent and Its Affiliates. With respect to its
Commitment, the Loans made by it and the Note issued to it, the Agent shall have
the same rights and powers under this Agreement as any other Lender and may
exercise the same as though it were not an Agent hereunder. The term "Lender" or
"Lenders" shall, unless otherwise expressly indicated, include the Agent in its
individual capacity. The Agent and its Affiliates may accept deposits from, lend
money to, act as trustee under indentures of, and generally engage in any kind
of business with, the Parent Company, the Borrower or any of its Subsidiaries,
and any Person who may do business with or own securities of the Parent Company,
the Borrower, or any such Subsidiary, all as if the Agent were not an agent
hereunder and without any duty to account therefor to the Lenders.
Section 8.4 Lender Loan Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Agent or any other Lender and based
on the financial statements referred to in Section 3.2 and such other documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it
will, independently and without reliance upon the Agent or any other Lender and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under this Agreement.
Section 8.5 Indemnification. The Lenders severally agree to indemnify
the Agent and each Affiliate thereof and their respective directors, officers,
employees and agents (to the extent not reimbursed by the borrower), according
to their respective pro rata shares from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by, or asserted against the Agent in any way relating to or arising
out of this Agreement or any action taken or omitted by the Agent under this
Agreement or any other Loan Document (INCLUDING THE AGENT'S OWN NEGLIGENCE),
provided that no Lender shall be liable for any portion of such
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liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from the Agent's gross negligence or
willful misconduct. Without limitation of the foregoing, each Lender agrees to
reimburse the Agent promptly upon demand for its ratable share of any
out-of-pocket expenses (including counsel fees) incurred by the agent in
connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement or any other Loan Document, to the extent
that the Agent is not reimbursed for such expenses by the Borrower.
Section 8.6 Successor Agent. The Agent may resign at any time by giving
written notice thereof to the Lenders and the Borrower and may be removed at any
time with cause by the Majority Lenders upon receipt of written notice from the
Majority Lenders to such effect. Upon receipt of notice of any such resignation
or removal, the Majority Lenders shall have the right to appoint a successor
Agent with, if no Default exists, the consent of the Borrower, which consent
shall not be unreasonably withheld. If no successor Agent shall have been so
appointed by the Majority Lenders with the consent of the Borrower, if required,
and shall have accepted such appointment, within 30 days after the retiring
Agent's giving of notice of resignation or the Majority Lenders' removal of the
retiring Agent, then the retiring Agent may, on behalf of the Lenders and the
Borrower, appoint a successor Agent, which shall be an Eligible Assignee. Upon
the acceptance of any appointment as Agent by a successor Agent, such successor
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations under this Agreement and the other
Loan Documents. After any retiring Agent's resignation or removal hereunder as
Agent, the provisions of this Article 8 shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent this Agreement and
the other Loan Documents.
ARTICLE 9
MISCELLANEOUS
Section 9.1 Notices. Any notices required or permitted to be given
under or in connection with this Agreement, the other Loan Documents (except as
may otherwise be expressly required therein) or the Note shall be in writing and
shall be mailed by first class or express mail, postage prepaid, or sent by
telex, telegram, telecopy or other similar form of rapid transmission, or
personally delivered to the receiving party. All such communications shall be
mailed, sent or delivered to the intended recipient at addresses set forth below
its signature block below (or to such other address as shall be designated by
such party in a notice to the other party).
Any communication so addressed and mailed shall be deemed to be given
when so mailed, except that Borrowing Requests or communications related to
Borrowing Requests shall not be effective until actually received by the Agent;
and any notice so sent by rapid transmission shall be deemed to be given when
receipt of such transmission is acknowledged or confirmed, and any communication
so delivered in person shall be deemed to be given when receipted for by, or
actually
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received by, an authorized officer of the Borrower, the Agent, or any applicable
Lender, as the case may be.
Section 9.2 Amendments, Etc. No amendment or waiver of any provision of
this Agreement, the Notes, or any other Loan Document (except for the
Registration Rights Agreement), nor consent to any departure by the Parent
Company, the Borrower or any of its Subsidiaries therefrom, shall in any event
be effective unless the same shall be in writing and signed by (i) the Majority
Lenders and (ii) the Parent Company, the Borrower, or its Subsidiaries, as
applicable, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given; provided,
however, that no amendment, waiver or consent shall, unless in writing and
signed by all the Lenders, do any of the following: (a) waive any of the
conditions specified in Article 7, (b) increase the Commitments of the Lenders
(other than increases of the Borrowing Base in accordance with the terms of this
Agreement), (c) reduce the principal of, or interest on, the Notes or any fees
or other amounts payable hereunder or under any other Loan Document, (d)
postpone any date fixed for any payment of principal of, or interest on, the
Notes or any fees or other amounts payable hereunder, (e) amend Sections 2.1,
2.3, or 2.11 or this Section 9.2, (f) release (1) any Mortgaged Property which
would cause the aggregate value (based upon SEC Value as reflected in the most
recent Reserve Reports) of all Mortgaged Property released without the consent
of all the Lenders to exceed $1,000,000 during any calendar year or (2) any
Guaranty, (g) amend the definitions of "Majority Lenders" and "Maturity Date",
or (h) changes any requirement for the consent or approval of all Lenders to a
lesser consent or approval threshold; and provided, further, that (1) no
amendment, waiver or consent shall, unless in writing and signed by the Agent in
addition to the Lenders required above to take such action, affect the rights or
duties of the Agent under this Agreement or any other Loan Document and (2)
amendments, waivers, and consents regarding the Registration Rights Agreement
shall be made in accordance with the terms thereof.
Section 9.3 No Waiver; Remedies. No failure on the part of any Lender
or the Agent to exercise, and no delay in exercising, any right hereunder or
under any Credit Document shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
Section 9.4 Indemnities.
(a) The Borrower agrees to:
(i) pay any and all present and future stamp and
other similar taxes with respect to the Note, Indebtedness and Loan Documents;
(ii) whether or not the transactions hereby
contemplated are consummated, to pay all reasonable third-party out-of-pocket
expenses of the Agent paid to any Person which is not an Affiliate of the Agent
(both before and after the execution hereof and including reasonable
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attorneys' fees) in connection with the negotiation, syndication, investigation,
preparation, execution and delivery of, recording or filing of, enforcement of,
and refinancing, renegotiation or restructuring of, the Loan Documents and any
amendment, waiver or consent relating thereto (including, without limitation,
cost of environmental audits and the reasonable fees and disbursements of
counsel for the Agent) and promptly reimburse the Agent for all amounts
expended, advanced or incurred by the Agent to satisfy any obligation of the
Borrower under this Agreement, any Security Instrument, or any other Loan
Document;
(iii) to pay all reasonable third-party out-of-pocket
expenses of each Lender paid to any Person which is not an Affiliate of such
Lender in connection with the enforcement of the Loan Documents (including,
without limitation, the reasonable fees and disbursements of counsel for such
Lender) and promptly reimburse each Lender for all amounts expended, advanced or
incurred by such Lender to satisfy any obligation of the Borrower under this
Agreement, any Security Instrument, or any other Loan Document;
(iv) indemnify the Agent, each Lender, and their
respective officers, directors, employees, representatives, agents, attorneys
and Affiliates from, hold each of them harmless against and promptly upon demand
pay or reimburse each of them for, any and all actions, suits, proceedings
(including any investigations, litigation or inquiries), claims, demands and
causes of action, and, in connection therewith, all reasonable costs, losses,
liabilities, damages or expenses of any kind or nature whatsoever (collectively
the "Indemnity Matters") which may be incurred by or asserted against or involve
any of them (whether or not any of them is designated a party thereto) as a
result of, arising out of or in any way related to (A) any actual or proposed
use by the Borrower of the proceeds of any of the Loans, (B) the operations of
the business of the Borrower, (C) any bodily injury or death or property damage
with respect to personnel or property other than personnel or property of the
Agent or any Lender occurring in or upon or in the vicinity of any Mortgaged
Property, (D) any claim by any third Person against any Hydrocarbons or the
proceeds of Hydrocarbons assigned to or paid to the Agent pursuant to any Loan
Document, (E) the failure of the Borrower to comply with any Governmental
Requirement, including, without limitation, the reasonable fees and
disbursements of counsel and all other expenses incurred in connection with
investigating, defending or preparing to defend any such action, suit,
proceeding (including any investigations, litigation or inquiries) or claim and
INCLUDING ALL INDEMNITY MATTERS ARISING BY REASON OF THE NEGLIGENCE OF ANY
INDEMNITEE; and
(v) indemnify and hold harmless from time to time the
Agent and each Lender, and their respective officers, directors, employees,
representatives, counsel, agents, attorneys and Affiliates from and against any
and all losses, claims, cost recovery actions, administrative orders or
proceedings, damages and liabilities to which any such Person may become subject
(A) under any Environmental Law applicable to the Parent Company, the Borrower,
its Subsidiaries or any of their Properties, (B) as a result of the breach or
non-compliance by the Parent Company, the Borrower or any of their Subsidiaries
with any Environmental Law applicable to such Person, (C) due to past ownership
by the Parent Company, the Borrower, its Subsidiaries of any of their Properties
or past activity on any of their Properties or past activity on any of their
Properties
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which, though lawful and fully permissible at the time, could result in present
liability, (D) the presence, use, release, storage, treatment or disposal of any
hazardous substances or solid wastes, on or at any of the Properties owned or
operated by the Borrower, the Parent Company, or its Subsidiaries including all
oil and gas exploration and production wastes that may present an endangerment
to public health or welfare or the environment, even if such wastes are
specifically exempt from classification as hazardous substances or solid wastes
pursuant to CERCLA or RCRA or the state analogues to those statutes, or (E) any
other environmental, health or safety condition in connection with this
Agreement, the Note or any other Loan Document, provided, however, no indemnity
shall be afforded under Sections 9.4(a)(v)(B) and 9.4(a)(v)(D) in respect of any
Property for any occurrence arising during the period after which the
indemnitee, its successors or assigns shall have acquired effective management
and control of such Property through receivership or foreclosure, deed in lieu
of foreclosure or otherwise.
(b) In the case of any indemnification hereunder, the Agent,
each Lender, or other Person indemnified hereunder shall give notice to the
Borrower within a reasonable period of time of any such claim or demand being
made against the Agent, such Lender or other indemnified Person and the Borrower
shall have the non-exclusive right to join in the defense against any such claim
or demand provided that if the Borrower provides a defense, the indemnitee shall
bear its own cost of defense unless there is a conflict of interest between the
Borrower and such indemnitee. The provisions of this paragraph shall survive the
final payment of all Indebtedness and the termination of this Agreement and
shall continue thereafter in full force and effect.
(c) No indemnitee may settle any claim to be indemnified
without the consent of the indemnitor, such consent not to be unreasonably
withheld; provided, that the indemnitor may not withhold consent to any
settlement that an indemnitee proposes, if the indemnitor does not have the
financial ability to pay all its obligations outstanding and asserted against
the indemnitee at that time, including the maximum amount for claims actually
asserted against the indemnitee to be indemnified pursuant to this Section 9.4.
(d) The Borrower's obligations under this Section 9.4 shall
survive any termination of this Agreement and the payment of the Notes.
Section 9.5 Invalidity. In the event that any one or more of the
provisions contained in the Note, this Agreement or in any other Loan Document
shall, for any reason, be held invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provision of the Note, this Agreement or any other Loan Document.
Section 9.6 Survival of Agreements. All representations and warranties
of the Borrower herein or in the other Loan Documents, and all covenants and
agreements herein not fully performed before the effective date or dates of this
Agreement and of the other Loan Documents, shall survive such date or dates. The
obligations of the Borrower under Section 9.4 shall survive the repayment of the
Loans and the termination of the Commitment. To the extent that any payments on
the Indebtedness or proceeds of any collateral are subsequently invalidated,
declared to be fraudulent
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or preferential, set aside or required to be repaid to a trustee, debtor in
possession, receiver or other Person under any bankruptcy law, common law or
equitable cause, then to such extent, the Indebtedness so satisfied shall be
revived and continue as if such payment or proceeds had not been received and
the Agent's and the Lenders' Liens, security interests, rights, powers and
remedies under this Agreement and each Security Instrument shall continue in
full force and effect. In such event, each Security Instrument shall be
automatically reinstated and the Borrower shall take such action as may be
reasonably requested by the Agent to effect such reinstatement.
Section 9.7 Lender Assignments and Participations.
(a) Assignments. Any Lender may assign to one or more Eligible
Assignees all or any portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Commitment, the Loans
owing to it, and the Note held by it; provided, however, that (i) each such
assignment shall be of a constant, and not a varying, percentage of all of such
Lender's rights and obligations under this Agreement, (ii) each such assignment
shall be to an Eligible Assignee, (iii) the parties to each such assignment
shall execute and deliver to the Agent, for its acceptance and recording in the
Register, an Assignment and Acceptance, together with the Note subject to such
assignment, and (iv) each Eligible Assignee (other than the Eligible Assignee of
the Agent) shall pay to the Agent a $2,500 administrative fee. Upon such
execution, delivery, acceptance and recording, from and after the effective date
specified in each Assignment and Acceptance, which effective date shall be at
least three Business Days after the execution thereof, (A) the assignee
thereunder shall be a party hereto for all purposes and, to the extent that
rights and obligations hereunder have been assigned to it pursuant to such
Assignment and Acceptance, have the rights and obligations of a Lender hereunder
and (B) such Lender thereunder shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such Assignment and Acceptance,
relinquish its rights and be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all or the remaining
portion of such Lender's rights and obligations under this Agreement, such
Lender shall cease to be a party hereto but all indemnification provisions
contained herein shall continue to inure for the benefit of such departing
Lender with respect to matters arising during the period such Lender was a party
hereto).
(b) Term of Assignments. By executing and delivering an
Assignment and Acceptance, the Lender thereunder and the assignee thereunder
confirm to and agree with each other and the other parties hereto as follows:
(i) other than as provided in such Assignment and Acceptance, such Lender makes
no representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency of value of this Agreement or any other instrument or document
furnished pursuant hereto; (ii) such Lender makes no representation or warranty
and assumes no responsibility with respect to the financial condition of the
Borrower or its Subsidiaries or the performance or observance by the Borrower or
its Subsidiaries of any of their obligations under this Agreement or any other
instrument or document furnished pursuant hereto; (iii) such assignee confirms
that it has received a copy of this Agreement, together with copies of the
Financial Statements (or its most recently furnished financial
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statements pursuant to Section 4.1) and such other documents and information as
it has deemed appropriate to make its own credit analysis and decision to enter
into such Assignment and Acceptance; (iv) such assignee will, independently and
without reliance upon the Agent, such Lender or any other Lender and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement; (v) such assignee appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers under this Agreement
as are delegated to the Agent by the terms hereof, together with such powers as
are reasonably incidental thereto; and (vi) such assignee agrees that it will
perform in accordance with their terms all of the obligations which by the terms
of this Agreement are required to be performed by it as a Lender.
(c) The Register. The Agent shall maintain at its address
referred to in Section 9.1 a copy of each Assignment and Acceptance delivered to
and accepted by it and a register for the recordation of the names and addresses
of the Lenders and the Commitment of, and principal amount of the Loans owing
to, each Lender from time to time (the "Register"). The entries in the Register
shall be conclusive and binding for all purposes, absent manifest error, and the
Borrower, the Agent and the Lenders may treat each Person whose name is recorded
in the Register as a Lender hereunder for all purposes of this Agreement. The
Register shall be available for inspection by the Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior notice.
(d) Procedures. Upon its receipt of an Assignment and
Acceptance executed by a Lender and an Eligible Assignee, together with the
Notes subject to such assignment, the Agent shall, if such Assignment and
Acceptance has been completed and is in substantially the form of the attached
Exhibit A, (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register, and (iii) give prompt notice
thereof to the Borrower. Within five Business Days after its receipt of such
notice, the Borrower, with its own attorney's fees being its own expense, shall
execute and deliver to the Agent in exchange for the surrendered Notes a new
Note to the order of such Eligible Assignee in an amount equal to the Commitment
assumed by it pursuant to such Assignment and Acceptance and, if such Lender has
retained any Commitment hereunder, a new Note to the order of such Lender in an
amount equal to the Commitment retained by it hereunder. Such new Notes shall be
dated the effective date of such Assignment and Acceptance.
(e) Participations. Each Lender may sell participations to one
or more Persons in or to all or a portion of its rights and obligations under
this Agreement (including, without limitation, all or a portion of its
Commitment, the Loans owing to it, and the Note held by it); provided, however,
that (i) such Lender's obligations under this Agreement (including, without
limitation, its Commitment to the Borrower hereunder) shall remain unchanged,
(ii) such Lender shall remain solely responsible to the other parties hereto for
the performance of such obligations, (iii) such Lender shall remain the holder
of any such Notes for all purposes of this Agreement, (iv) the Borrower, the
Agent, and the other Lenders shall continue to deal solely and directly with
such Lender in connection with such Lender's rights and obligations under this
Agreement, and (v) such Lender shall not require the participant's consent to
any matter under this Agreement,
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except for any increase in such Lender's Maximum Commitment, reductions in fees
or interest, or extending the Maturity Date. The Borrower hereby agrees that
participants shall have the same rights under Section 9.4 as a Lender to the
extent of their respective participations.
Section 9.8 Renewal, Extension or Rearrangement. All provisions of this
Agreement and of any other Loan Documents relating to the Note or other
Indebtedness shall apply with equal force and effect to each and all promissory
notes hereinafter executed which in whole or in part represent a renewal,
extension for any period, increase or rearrangement of any part of the
Indebtedness originally represented by the Notes or of any part of such other
Indebtedness.
Section 9.9 Waivers. No course of dealing on the part of the Agent, any
Lender, their officers, employees, consultants or agents, nor any failure or
delay by the Agent or any Lender with respect to exercising any right, power or
privilege of the Agent or such Lender under the Note, this Agreement or any
other Loan Document shall operate as a waiver thereof, except as otherwise
provided in Section 9.2 hereof nor shall any single or partial exercise of any
right, power or privilege under any of the Loan Documents preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
Section 9.10 Cumulative Rights. Rights and remedies of the Agent and
each Lender under the Notes, this Agreement and each other Loan Document shall
be cumulative, and the exercise or partial exercise of any such right or remedy
shall not preclude the exercise of any other right or remedy.
Section 9.11 Singular and Plural. Words used herein in the singular,
where the context so permits, shall be deemed to include the plural and vice
versa. The definitions of words in the singular herein shall apply to such words
when used in the plural where the context so permits and vice versa.
Section 9.12 Construction. The parties agree that this Agreement, the
Notes and the rights and obligations of the parties in connection with the loan
transactions evidenced in part by this Agreement shall be construed in
accordance with and governed by the laws of the State of New York, without
reference to conflicts of laws rules or principles of the State of New York;
provided that this choice of law provision shall not apply to the Registration
Rights Agreement.
Section 9.13 Interest. Notwithstanding anything herein or in the other
Loan Documents to the contrary, it is the intention of the parties hereto to
conform strictly to usury laws applicable to this transaction. Accordingly, if
the transactions contemplated hereby would be usurious under applicable law,
then, in that event, notwithstanding anything to the contrary in the Note, this
Agreement or in any other Loan Document or agreement entered into in connection
with or as security for the Note, it is agreed as follows: (a) the aggregate of
all consideration which constitutes interest under law applicable to the Lenders
that is contracted for, taken, reserved, charged or received under the Note,
this Agreement or under any of the other Loan Documents or agreements
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<PAGE> 69
or otherwise in connection with this transaction shall under no circumstances
exceed the maximum amount allowed by such applicable law, and any excess shall
be canceled automatically and, if already paid, shall be credited by the Lenders
on the principal amount of the Indebtedness (or, to the extent that the
principal amount of the Indebtedness shall have been or would thereby be paid in
full, refunded to the Borrower); and (b) in the event that the maturity of the
Notes is accelerated by reason of an election of the Majority Lenders resulting
from any Event of Default under this Agreement or otherwise, or in the event of
any required or permitted prepayment, then such consideration that constitutes
interest under law applicable to this transaction may never include more than
the maximum amount allowed by such applicable law, and (c) excess interest, if
any, provided for in this Agreement or otherwise in connection with the Loans
shall be canceled automatically and, if already paid, shall be credited by the
Lenders on the principal amount of the Indebtedness (or, to the extent that the
principal amount of the Indebtedness shall have been or would thereby be paid in
full, refunded by the Lenders to the Borrower). The right to accelerate the
maturity of the Notes does not include the right to accelerate any interest
which has not otherwise accrued on the date of such acceleration, and no Lender
intends to collect any unearned interest in the event of acceleration. All sums
paid or agreed to be paid to the Lenders for the use, forbearance or detention
of sums included in the Indebtedness shall, to the extent permitted by
applicable law, be amortized, prorated, allocated and spread throughout the full
term of the Notes until payment in full so that the rate or amount of interest
on account of the Indebtedness does not exceed the applicable usury ceiling, if
any. As used in this Section 9.13, the term "applicable law" shall mean the laws
which govern this Agreement as described in Section 9.12 (or the law of any
other jurisdiction whose laws may be mandatorily applicable notwithstanding
other provisions of this Agreement), or law of the United States of America
applicable to the Lenders and the Loans which would permit the Lenders to
contract for, charge, take, reserve or receive a greater amount of interest than
under any other applicable law. If the stated rate of interest under this
Agreement ever exceeds the Highest Lawful Rate, then the outstanding principal
amount of the Loans made hereunder shall bear interest at the Highest Lawful
Rate until the difference between the interest which would have been due at the
stated rates of interest and the amount due at the Highest Lawful Rate (the
"Lost Interest") has been recaptured by the Lenders. If the Loans made hereunder
are repaid in full and the Lost Interest has not been fully recaptured by the
Lenders pursuant to the preceding sentence, then the Loans made hereunder shall
be deemed to have accrued interest at the Highest Lawful Rate since the date the
initial Loans were made to the extent necessary to recapture the Lost Interest
not recaptured pursuant to the preceding sentence and, to the extent allowed by
law, the Borrower shall pay to the Lenders the amount of the Lost Interest
remaining to be recaptured by the Lenders.
Section 9.14 References. The words "herein," "hereof," "hereunder" and
other words of similar import when used in this Agreement refer to this
Agreement as a whole, and not to any particular article, section or subsection.
Any reference herein to a Section or subsection shall be deemed to refer to the
applicable Section or subsection of this Agreement unless otherwise stated
herein. Any reference herein to an exhibit shall be deemed to refer to the
applicable exhibit attached hereto unless otherwise stated herein.
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Section 9.15 Taxes, etc. Any taxes (excluding income taxes) payable or
ruled payable by federal or state authority in respect of the Note, this
Agreement or the other Loan Documents shall be paid by the Borrower, together
with interest and penalties, if any.
Section 9.16 Governmental Regulation. Anything contained in this
Agreement to the contrary notwithstanding, no Lender shall be obligated to
extend credit to the Borrower in an amount in violation of any limitation or
prohibition provided by any applicable statute or regulation.
Section 9.17 Entire Agreement. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS EMBODY THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE LENDER AND
THE BORROWER AND SUPERSEDE ALL OTHER AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH
PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF. THIS WRITTEN LOAN
AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
Section 9.18 Exhibits. The exhibits attached to this Agreement are
incorporated herein and shall be considered a part of this Agreement for the
purposes stated herein, except that in the event of any conflict between any of
the provisions of such exhibits and the provisions of this Agreement, the
provisions of this Agreement shall prevail.
Section 9.19 Titles of Articles, Sections and Subsections. All titles
or headings to articles, sections, subsections or other divisions of this
Agreement or the exhibits hereto are only for the convenience of the parties and
shall not be construed to have any effect or meaning with respect to the other
content of such articles, sections, subsections or other divisions, such other
content being controlling as to the agreement between the parties hereto.
Section 9.20 Satisfaction Requirement. If any agreement, certificate,
instrument or other writing, or any action taken or to be taken, is by the terms
of this Agreement required to be satisfactory to any party, the determination of
such satisfaction shall be made by such party in its sole and exclusive judgment
exercised in good faith.
Section 9.21 Counterparts. This Agreement may be executed in two or
more counterparts, and it shall not be necessary that the signatures of all
parties hereto be contained on any one counterpart hereof; each counterpart
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
Section 9.22 Subordinated Debt. The Loans advanced under this Agreement
and any other amounts due hereunder by Borrower are subordinate in right of
payment to the Senior Debt in accordance with the terms of the Subordination
Agreement.
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<PAGE> 71
Section 9.23 Designated Senior Indebtedness. The Borrower hereby
designates all Indebtedness outstanding under this Agreement, the Note and the
other Loan Documents to be "Designated Senior Indebtedness" (as defined in the
Offering Memorandum dated July 15, 1995 relating to the DEM Subordinated Debt)
for purposes of the DEM Subordinated Debt.
[The remainder of this page is intentionally blank.]
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<PAGE> 72
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be duly
executed as of the date first above written.
BORROWER:
QUEEN SAND RESOURCES, INC., a Nevada
corporation
By:
--------------------------------
Robert P. Lindsay
Vice President
Address for Notices:
Queen Sand Resources, Inc.
3500 Oak Lawn Drive, Suite 380
Dallas, Texas 75219
Attn: Robert P. Lindsay
Telephone: (214) 521-9959
Facsimile: (214) 521-9960
with a copy to:
Queen Sand Resources, Inc.
60 Queen Street, Suite 1400
Ottawa, Canada KIP 5Y7
Attn: Ronald Benn
Telephone: (613) 230-7211
Facsimile: (613) 230-6055
and
Haynes and Boone LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
Attn: William L. Boeing
Telephone: (214) 651-5553
Facsimile: (214) 651-5940
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<PAGE> 73
AGENT:
ENRON CAPITAL & TRADE RESOURCES CORP.,
a Delaware corporation, as Agent
By:
----------------------------------------
Steven M. Emshoff
Agent and Attorney-in-Fact
Address for Notices:
Enron Capital & Trade Resources Corp.
1400 Smith Street
Houston, Texas 77002
Attn: Donna Lowry
Telephone: (713) 853-1939
Facsimile: (713) 646-4039
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<PAGE> 74
LENDERS:
Maximum Commitment: ENRON CAPITAL & TRADE RESOURCES CORP.,
$10,000,000 a Delaware corporation
By:
-----------------------------------------
Steven M. Emshoff
Agent and Attorney-in-Fact
Address for Notices:
Enron Capital & Trade Resources Corp.
1400 Smith Street
Houston, Texas 77002
Attn: Donna Lowry
Telephone: (713) 853-1939
Facsimile: (713) 646-4039
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<PAGE> 75
WHEN RECORDED RETURN TO:
VINSON & ELKINS L.L.P.
First City Tower, Suite 3567
1001 Fannin Street
Houston, TX 77002-6760
Attn: Crystal L. Lightfield
FIRST SUPPLEMENT AND AMENDMENT TO MORTGAGE,
DEED OF TRUST, ASSIGNMENT OF PRODUCTION,
SECURITY AGREEMENT AND FINANCING STATEMENT
DATED AS OF DECEMBER 29, 1997
FROM
QUEEN SAND RESOURCES, INC.
TO
JAMES A. WHITMORE, AS TRUSTEE
FOR THE BENEFIT OF
BANK OF MONTREAL, AS AGENT
THIS IS DEEMED TO BE A LINE OF CREDIT MORTGAGE UNDER THE PROVISIONS OF
SECTION 48-7-4 N.M.S.A.
<PAGE> 76
FIRST SUPPLEMENT AND AMENDMENT TO MORTGAGE,
DEED OF TRUST, ASSIGNMENT OF PRODUCTION,
SECURITY AGREEMENT AND FINANCING STATEMENT
THIS FIRST SUPPLEMENT AND AMENDMENT TO MORTGAGE, DEED OF TRUST,
ASSIGNMENT OF PRODUCTION, SECURITY AGREEMENT AND FINANCING STATEMENT (this
"Supplement") entered into as of the 29th day of December, 1997, but effective
August 1, 1997 (the "Effective Date"), by and between QUEEN SAND RESOURCES,
INC., a Nevada Corporation , with offices at 3500 Oak Lawn Drive, Suite 380,
Dallas, Texas 75219, ("Mortgagor") and BANK OF MONTREAL, as Agent, with offices
at 700 Louisiana, Suite 4400, Houston, Texas 77002, as Administrative Agent (in
such capacity ("Mortgagee") for itself and such other financial institutions
(collectively called the "Lenders") which are or hereafter become a party to the
Credit Agreement (hereafter defined).
W I T N E S S E T H:
WHEREAS, as of August 1, 1997, Mortgagor and Mortgagee executed that
certain Credit Agreement (as may be amended and supplemented from time to time,
the "Credit Agreement") pursuant to which, upon the terms and conditions stated
therein, the Mortgagee agreed to make loans and extend certain credit to
Mortgagor; and
WHEREAS, Mortgagor executed and delivered to Mortgagee that certain
Mortgage, Deed of Trust, Assignment of Production, Security Agreement and
Financing Statement dated as of August 1, 1997 (as supplemented and amended from
time to time, the "Mortgage"), which Mortgage was duly filed for record in,
among other places, the jurisdictions listed on and as set forth on Schedule I
attached hereto and made a part hereof for all purposes; and
WHEREAS, by executing the Mortgage and delivering it to Mortgagee for
recording, Mortgagor did Grant, Bargain, Sell, Assign, Mortgage, Transfer and
Convey unto James A. Whitmore, as Trustee, all rights, titles, interests and
estates now owned or hereafter acquired by Mortgagor in and to the "Deed of
Trust Mortgaged Property" (as defined in the Mortgage) including, without
limitation, those properties more particularly described on Exhibit A attached
to the Mortgage and made a part thereof for all purposes; and
WHEREAS, Mortgagor hereby desires to supplement and amend the Mortgage
by adding to the Mortgaged Property described therein and covered thereby all
rights, titles, interests and estates now owned or hereafter acquired by
Mortgagor in and to the properties described on Exhibit A-1 attached hereto and
made a part hereof for all purposes;
NOW, THEREFORE, in consideration of the sum of Ten and No/100 Dollars
($10.00) and other good and valuable consideration in hand paid by Mortgagee to
Mortgagor and in consideration of the debts and trusts hereinafter mentioned,
the receipt and sufficiency of all of which is hereby acknowledged, Mortgagor
has GRANTED, BARGAINED, SOLD, ASSIGNED, MORTGAGED, TRANSFERRED and CONVEYED, and
does by these presents hereby GRANT, BARGAIN, SELL, ASSIGN, MORTGAGE, TRANSFER
and CONVEY unto James A. Whitmore, as Trustee, whose address for notice
hereunder is 700 Louisiana Street, Suite 4400, Houston, Texas 77002 ("Trustee")
and Trustee's successors and substitutes in trust hereunder, for the use and
benefit of Mortgagee, the real and personal property, rights, titles, interests
and estates described in the following paragraphs (a) through (g) (collectively
called the "Additional Mortgaged Property"):
(a) All rights, titles, interests and estates now owned or hereafter
acquired by Mortgagor in and to the oil and gas leases and/or oil, gas and other
mineral leases and other interests and estates and the
<PAGE> 77
lands and premises covered or affected thereby which are described on Exhibit
A-1 hereto (collectively called the "Additional Hydrocarbon Property") or which
Additional Hydrocarbon Property is otherwise referred to in this Supplement, and
specifically, but without limitation, the undivided interests of Mortgagor which
are more particularly described on attached Exhibit A-1.
(b) All rights, titles, interests and estates now owned or hereafter
acquired by Mortgagor in and to (i) the properties now or hereafter pooled or
unitized with the Additional Hydrocarbon Property; (ii) all presently existing
or future unitization, communitization, pooling agreements and declarations of
pooled units and the units created thereby (including, without limitation, all
units created under orders, regulations, rules or other official acts of any
Federal, State or other governmental body or agency having jurisdiction and any
units created solely among working interest owners pursuant to operating
agreements or otherwise) which may affect all or any portion of the Additional
Hydrocarbon Property including, without limitation, those units which may be
described or referred to on attached Exhibit A-1; (iii) all operating
agreements, production sales or other contracts, farmout agreements, farm-in
agreements, area of mutual interest agreements, equipment leases and other
agreements described or referred to in this Mortgage or which relate to any of
the Additional Hydrocarbon Property or interests in the Additional Hydrocarbon
Property described or referred to herein or on attached Exhibit A-1 or to the
production, sale, purchase, exchange, processing, handling, storage,
transporting or marketing of the Additional Hydrocarbons (hereinafter defined)
from or attributable to such Additional Hydrocarbon Property or interests; (iv)
all geological, geophysical, engineering, accounting, title, legal, and other
technical or business data concerning the Additional Mortgaged Property, the
Additional Hydrocarbons, or any other item of Property which are in the
possession of Mortgagor or in which Mortgagor can otherwise grant a security
interest, and all books, files, records, magnetic media, computer records, and
other forms of recording or obtaining access to such data; and (v) the
Additional Hydrocarbon Property described on attached Exhibit A-1 and covered by
this Mortgage even though Mortgagor's interests therein be incorrectly described
or a description of a part or all of such Additional Hydrocarbon Property or
Mortgagor's interests therein be omitted; it being intended by Mortgagor and
Mortgagee herein to cover and affect hereby all interests which Mortgagor may
now own or may hereafter acquire in and to the Additional Hydrocarbon Property
notwithstanding that the interests as specified on Exhibit A-1 may be limited to
particular lands, specified depths or particular types of property interests.
(c) All rights, titles, interests and estates now owned or hereafter
acquired by Mortgagor in and to all oil, gas, casinghead gas, condensate,
distillate, liquid hydrocarbons, gaseous hydrocarbons and all products refined
therefrom and all other minerals in and under and which may be produced and
saved from or attributable to the Additional Hydrocarbon Property (collectively
called the "Additional Hydrocarbons"), the lands pooled or unitized therewith
and Mortgagor's interests therein, including all oil in tanks and all rents,
issues, profits, proceeds, products, revenues and other income from or
attributable to the Additional Hydrocarbon Property, the lands pooled or
unitized therewith and Mortgagor's interests therein which are subjected or
required to be subjected to the liens and security interests of this Mortgage
and including specifically, but without limitation, all liens and security
interests in such Additional Hydrocarbons securing payment of proceeds resulting
from the sale of Additional Hydrocarbons.
(d) All tenements, hereditaments, appurtenances and properties in
anywise appertaining, belonging, affixed or incidental to the Additional
Hydrocarbon Property, rights, titles, interests and estates described or
referred to in paragraphs (a) and (b) above, which are now owned or which may
hereafter be acquired by Mortgagor, including, without limitation, any and all
property, real or personal, now owned or hereafter acquired and situated upon,
used, held for use, or useful in connection with the operating, working or
development of any of such Additional Hydrocarbon Property or the lands pooled
or unitized
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therewith (excluding drilling rigs, trucks, automotive equipment or other
personal property which may be taken to the premises for the purpose of drilling
a well or for other similar temporary uses) and including any and all oil wells,
gas wells, injection wells or other wells, buildings, structures, field
separators, liquid extraction plants, plant compressors, pumps, pumping units,
pipelines, sales and flow lines, gathering systems, field gathering systems,
salt water disposal facilities, tanks and tank batteries, fixtures, valves,
fittings, machinery and parts, engines, boilers, meters, apparatus, equipment,
appliances, tools, implements, cables, wires, towers, casing, tubing and rods,
surface leases, rights-of-way, easements, servitudes, licenses and other surface
and subsurface rights together with all additions, substitutions, replacements,
accessions and attachments to any and all of the foregoing properties.
(e) Any property that may from time to time hereafter, by delivery or
by writing of any kind, be subjected to the lien and security interest hereof by
Mortgagor or by anyone on Mortgagor's behalf; and the Trustee is hereby
authorized to receive the same at any time as additional security hereunder.
(f) All of the rights, titles and interests of every nature whatsoever
now owned or hereafter acquired by Mortgagor in and to the Additional
Hydrocarbon Property rights, titles, interests and estates and every part and
parcel thereof, including, without limitation, the Additional Hydrocarbon
Property rights, titles, interests and estates as the same may be enlarged by
the discharge of any payments out of production or by the removal of any charges
or Permitted Encumbrances (as defined in Section 3.01 of the Mortgage) to which
any of the Additional Hydrocarbon Property rights, titles, interests or estates
are subject, or otherwise; all rights of Mortgagor to liens and security
interests securing payment of proceeds from the sale of production from the
Additional Mortgaged Property, including, but not limited to, those liens and
security interests provided in Tex. Bus. & Com. Code Ann. Section 9.319 (Tex.
UCC) (Vernon Supp. 1989) ("Section 9.319 Tex. UCC"), as amended from time to
time; together with any and all renewals and extensions of any of the Additional
Hydrocarbon Property rights, titles, interests or estates; all contracts and
agreements supplemental to or amendatory of or in substitution for the contracts
and agreements described or mentioned above; and any and all additional
interests of any kind hereafter acquired by Mortgagor in and to the Additional
Hydrocarbon Property rights, titles, interests or estates.
(g) All accounts, contract rights, inventory, general intangibles,
insurance contracts and insurance proceeds, and any and all personal/movable
property of any kind or character as defined in and subject to the Uniform
Commercial Code of each jurisdiction applicable to all or any part of the
Additional Mortgaged Property (the "Applicable UCC") constituting a part of,
relating to or arising out of those portions of the Additional Mortgaged
Property which are described in paragraphs (a) through (f) above and all
proceeds and products of all such portions of the Additional Mortgaged Property
and payments in lieu of production (such as "take or pay" payments), whether
such proceeds or payments are goods, money, documents, instruments, chattel
paper, securities, accounts, general intangibles, fixtures, real property, or
other assets.
Any fractions or percentages specified on attached Exhibit A-1 in
referring to Mortgagor's interests are solely for purposes of the warranties
made by Mortgagor pursuant to Section 3.01 of the Mortgage and shall in no
manner limit the quantum of interest affected by this Supplement with respect to
any Additional Hydrocarbon Property or with respect to any unit or well
identified on said Exhibit A-1.
TO HAVE AND TO HOLD the Additional Mortgaged Property unto the Trustee
and to his successors and assigns in trust forever to secure the performance of
the covenants, agreements, and obligations of the Mortgagor contained in the
Mortgage, as amended and supplemented hereby, and to secure the full and prompt
payment as and when the same becomes due of all sums owing and to be owing
-3-
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on the following (all terms beginning with a capital letter, but not defined
herein, have the same meanings as used in the Credit Agreement):
(a) Payment of and performance of any and all indebtedness, obligations
and liabilities of Mortgagor pursuant to the Credit Agreement, whether now
existing or hereafter arising, including without limitation, (i) that certain
promissory note which is or may be executed by Mortgagor payable to the order of
Mortgagee and being in the principal amount of $75,000,000 with final maturity
on or before August 1, 2003, (ii) all other notes given in substitution therefor
or in modification, renewal or extension thereof, in whole or in part (such
notes, as from time to time supplemented, amended or modified and all other
notes given in substitution therefor or in modification, renewal or extension
thereof, in whole or in part, being hereafter called the "Notes").
(b) Any sums which may be advanced or paid by Mortgagee under the terms
hereof or of the Credit Agreement on account of the failure of Mortgagor to
comply with the covenants of Mortgagor contained herein or in the Credit
Agreement; and all other indebtedness of Mortgagor arising pursuant to the
provisions of this Mortgage.
(c) Any additional loans made by Mortgagee to Mortgagor. It is
contemplated that Mortgagee may lend additional sums to Mortgagor from time to
time, but shall not be obligated to do so, and Mortgagor agrees that any such
additional loans shall be secured by this Mortgage.
(d) Payment of and performance of any and all present or future
obligations of Mortgagor according to the terms of any present or future
interest rate or currency swap, rate cap, rate floor, rate collar, forward rate
agreement or other exchange or rate protection agreements or any option with
respect to any such transaction now existing or hereafter entered into between
Mortgagor and Mortgagee.
(e) Payment of and performance of any and all present or future
obligations of Mortgagor according to the terms of any present or future swap
agreements, cap, floor, collar, forward agreement or other exchange or
protection agreements relating to crude oil, natural gas or other hydrocarbons
or any option with respect to any such transaction now existing or hereafter
entered into between Mortgagor and Mortgagee.
(f) Payment of and performance of any and all other indebtedness,
obligations and liabilities of any kind of Mortgagor to the Mortgagee, now or
hereafter existing, arising directly between Mortgagor and the Mortgagee or
acquired outright, as a participation, conditionally or as collateral security
from another by the Mortgagee, absolute or contingent, joint and/or several,
secured or unsecured, due or not due, arising by operation of law or otherwise,
or direct or indirect, including indebtedness, obligations and liabilities to
the Mortgagee of Mortgagor as a member of any partnership, syndicate,
association or other group, and whether incurred by Mortgagor as principal,
surety, endorser, guarantor, accommodation party or otherwise.
The term "Indebtedness" as used herein and in the Mortgage shall mean
and include the Notes and all other indebtedness described, referred to or
mentioned in paragraphs (a) through (f), above, or in the Mortgage, as
supplemented and amended hereby, as if references to such Indebtedness were
fully made in the Mortgage at the time the Mortgage was executed.
1. To further secure the Indebtedness, Mortgagor hereby grants to
Mortgagee a security interest in and to the Additional Mortgaged Property
insofar as the Additional Mortgaged Property consists of equipment, inventory,
fixtures, chattel paper, documents, instruments, accounts, contracts, general
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<PAGE> 80
intangibles, goods and any and all other personal property of any kind or
character defined in and subject to the provisions of the Applicable UCC, and
the proceeds and products of and from any and all of such personal property. If
any Event of Default occurs Mortgagee is and shall be entitled to all of the
rights, powers and remedies afforded a Secured Party by the Applicable UCC with
reference to the personal property and fixtures in which Mortgagee has been
granted a security interest herein, or the Trustee or Mortgagee may proceed as
to both the real and personal property covered hereby in accordance with the
rights, powers and remedies granted under this instrument in respect of the real
property covered hereby.
2. Mortgagor and Mortgagee hereby agree that:
(a) the term "Mortgaged Property" as used in the Mortgage is hereby
supplemented and amended to include the Additional Mortgaged Property as defined
and described in this Supplement as if reference thereto were fully made in the
Mortgage at the time the Mortgage was executed and recorded;
(b) the term "Hydrocarbon Property" as used in the Mortgage is hereby
supplemented and amended to include the Additional Hydrocarbon Property as
defined and described in this Supplement as if reference thereto were fully made
in the Mortgage at the time the Mortgage was executed and recorded;
(c) the term "Hydrocarbons" as used in the Mortgage is hereby
supplemented and amended to include the Additional Hydrocarbons as defined and
described in this Supplement as if reference thereto were fully made in the
Mortgage at the time the Mortgage was executed and recorded;
(d) references to Exhibit A in the Mortgage shall include Exhibit A-1.
3. Except as supplemented and amended by this Supplement, the Mortgage
shall remain in full force and effect. None of the rights, titles and interests
existing and to exist under the Mortgage are hereby released, diminished or
impaired. Mortgagor hereby reaffirms all covenants, representations and
warranties made in the Mortgage and all such covenants, representations and
warranties are incorporated herein by reference.
4. Unless otherwise defined herein, all terms beginning with a capital
letter which are defined in the Mortgage shall have the same meaning herein as
therein, unless the context otherwise requires.
5. This Supplement may be executed in several counterparts, all of
which are identical. Each of such counterparts shall for all purposes be deemed
to be an original and all such counterparts shall together constitute but one
and the same instrument.
-5-
<PAGE> 81
WITNESS THE EXECUTION HEREOF as of the 14th day of January, 1998, to be
effective as of the 29th day of December, 1997.
MORTGAGOR: QUEEN SAND RESOURCES, INC., a Nevada
Corporation
By: /s/ Robert P. Lindsay
---------------------
Robert P. Lindsay
Vice President
The name and address of the Mortgagor/Debtor is:
QUEEN SAND RESOURCES, INC.
3500 Oak Lawn - Suite 380
Dallas, Texas 75219
The name and address of the Mortgagee/Secured Party is:
BANK OF MONTREAL, AS AGENT
700 Louisiana Street - Suite 4400
Houston, Texas 77002
-6-
<PAGE> 82
TEXAS
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
THIS INSTRUMENT was acknowledged before me on January 14, 1998 by
Robert P. Lindsay, Vice President of QUEEN SAND RESOURCES, INC., a Nevada
corporation.
[NOTARY SEAL] /s/ Glenda J. Johns
----------------------------
Notary Public in and for the
State of Texas
My Commission expires: 3-8-99
-7-
<PAGE> 83
EXHIBIT A-1
ADDITIONAL MORTGAGED PROPERTY
Howard County, Texas
<TABLE>
<CAPTION>
Lessor Lessee Date Volume/Page
- ------ ------ ---- -----------
<S> <C> <C> <C>
W. Miller Incorporated Dan O'Neill 06/25/97 751/I-9
</TABLE>
Recording reference as used herein is to the Oil and Gas Records, Howard County,
Texas.
<PAGE> 84
SCHEDULE I
<TABLE>
<CAPTION>
INSTRUMENT JURISDICTION BOOK/PAGE DATE FILED
- ---------- ------------ --------- ----------
<S> <C> <C> <C>
1. Mortgage, Deed of Howard 423/776 08/18/97
Trust, Assignment of County, TX
Production, Security
Agreement and Financing
Statement
</TABLE>
Recording reference as used herein is to the Records, Howard County, Texas.
S-2
<PAGE> 85
================================================================
FIRST OMNIBUS AMENDMENT
to
GUARANTY AGREEMENTS AND
SECURITY AGREEMENT
by
QUEEN SAND RESOURCES, INC.,
a Nevada corporation,
as the Borrower.
QUEEN SAND RESOURCES, INC.
a Delaware corporation,
as Guarantor and Pledgor,
CORRIDA RESOURCES, INC.,
as the Guarantor,
NORTHLAND OPERATING CO.,
as the Guarantor
BANK OF MONTREAL, AS AGENT
and
THE LENDERS SIGNATORY TO THE CREDIT AGREEMENT
Effective as of December 29, 1997
================================================================
<PAGE> 86
FIRST OMNIBUS AMENDMENT
This First Omnibus Amendment (this "First Amendment") executed effective
as of December 29, 1997 (the "Effective Date"), is among QUEEN SAND RESOURCES,
INC., a Nevada corporation (the "Borrower"), QUEEN SAND RESOURCES, INC., a
Delaware corporation (the "Parent Company"), Corrida Resources, Inc., a Nevada
corporation ("Corrida"), and Northland Operating Co., a Nevada corporation
("Northland"), the financial institutions the ("Lenders") currently party to
the Credit Agreement (herein defined) and Bank of Montreal, as agent for the
Lenders (in such capacity, the "Agent").
Recitals
A. As of August 1, 1997, the Borrower, the Lenders and the Agent
executed that certain Credit Agreement, as amended by the First Amendment to
Credit Agreement dated as of December 3, 1997, as amended by the Second
Amendment to Credit Agreement dated as of December 29, 1997 (the "Credit
Agreement") pursuant to which the Lenders may certain credit available to and
on behalf of the Borrower.
B. To secure the obligations of the Borrower under the Credit Agreement,
Parent Company, Corrida and Northland (collectively, the "Obligors") executed
those certain Guaranty Agreements dated of even date with the Credit Agreement
(collectively, the "Guaranty Agreements").
C. To further secure the obligations of the Borrower under the Credit
Agreement, the Borrower executed that certain Security Agreement dated of even
date with the Credit Agreement (the "Security Agreement").
D. The Borrower and the Obligors have requested, and the Agent and the
Lenders have agreed to amend the Guaranty Agreements and the Security
Agreement as set forth herein to further secure certain obligations of the
Borrower.
E. Now, therefore, in consideration of the promises and the mutual
covenants herein contained, for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
Section 1. Defined Terms. All capitalized terms which are defined in
the Credit Agreement but which are not defined in this First Amendment, shall
have the same meanings as defined in the Credit Agreement.
Section 2. Amendment to Guaranty Agreements.
2.1 The definition in Section 1.02 of "Obligations" is hereby deleted and
the following is hereby insert in lieu thereof;
1
<PAGE> 87
"Obligations" shall mean (a) the payment and performance of all
present and future indebtedness, obligations and liabilities of the
Borrower and/or the Guarantor to the Agent and the Lenders under the Credit
Agreement, including but not limited to, (i) the full and punctual payment
of the Notes issued thereunder, and any and all promissory notes given in
substitution for such Notes or in modification, renewal, extension or
rearrangement thereof in whole or in part, and (ii) the reimbursement and
other obligations of the Borrower under and with respect to Letters of
Credit and Letter of Credit Agreements now outstanding or hereafter issued
under the Credit Agreement; (b) all obligations of the Guarantor under this
Guaranty Agreement; (c) all interest (whether pre or post petition),
charges, expenses, reasonable attorneys' or other fees and any other sums
payable to or incurred by the Agent and, to the extent provided in the
Credit Agreement, the Lenders in connection with the execution or
enforcement of any of their rights and remedies hereunder or any other
Security Instrument; (d) payment of and performance of any and all present
or future obligations of the Borrower according to the terms of any present
or future interest rate or currency swap, rate cap, rate floor, rate
collar, forward rate agreement or other exchange or rate protection
agreements or any option with respect to any such transaction now existing
or hereafter entered into between the Borrower and any Lender or an
Affiliate of such Lender; and (e) payment of and performance of any and all
present or future obligations of the Borrower according to the terms of any
present or future swap agreements, cap, floor, collar, forward agreement or
other exchange or protection agreements relating to crude oil, natural gas
or other hydrocarbons or any option with respect to any such transaction
now existing or hereafter entered into between the Borrower and any Lender
or an Affiliate of such Lender.
2.2 Section 3.02(e) of the Guaranty Agreement executed by the Parent
Company is hereby deleted in its entirety and the following is inserted in lieu
thereof:
(e) Subsidiaries. The Guarantor shall not create, acquire or
otherwise suffer to exist any Subsidiaries other than the Borrower and
Queen Sand Resources (Canada), Inc. which are not also Subsidiaries of the
Borrower; provided that the Guarantor may create Non-Recourse
Subsidiaries which are not also Subsidiaries of the Borrower. The
Guarantor will not invest, loan or advance at any one time an aggregate
amount of more than $100,000 to or in Queen Sand Resources (Canada), Inc.
or any of its Non-Recourse Subsidiaries; provided that the Guarantor may
make loans, advances or investments to Queen Sand Resources (Canada), Inc.
to satisfy its obligations under any employment agreements to which it is
a party and for normal general and administrative expenses incurred in the
ordinary course of its business and for which Queen Sand Resources
(Canada), Inc. is ultimately entitled to reimbursement from the Guarantor
and/or its Subsidiaries.
2.3 Section 3.02(f) of the Guaranty Agreement executed by the Parent
Company is hereby deleted in its entirety and the following is inserted in lieu
thereof:
2
<PAGE> 88
(f) Dividends, Distributions and Redemptions. The Guarantor shall
not declare or pay any dividend, purchase, redeem or otherwise acquire for
value any of its capital stock now or hereafter outstanding, return any
capital to its stockholders or make any distribution of its assets to its
stockholders, except (i) for dividends and distributions in accordance with
the terms and provisions of the Earn Up Agreement dated May 6, 1997 between
the Parent Company and Joint Energy Development Investments Limited
Partnership and the Earn Up Agreement dated May 6, 1997 between the
Guarantor and Forseti Investments Ltd.; provided that as a result of any
dividends, redemptions or distributions pursuant to any transaction
contemplated thereby, no net change in the Guarantor's cash balance shall
result (except to the extent of related out-of-pocket transaction costs
associated therewith) and no Default or Event of Default has occurred at
the time such dividends are declared or paid or would result from such
declaration or payment; and (ii) dividends or distributions payable solely
in capital stock of the Guarantor.
Section 3. Amendment to Security Agreement. The definition in Section
1.02 of "Obligations" is hereby deleted and the following is hereby insert in
lieu thereof:
"Obligations" shall mean (a) the payment and performance of all
present and future indebtedness, obligations and liabilities of the Pledgor
to the Agent and the Lenders under the Credit Agreement, including but not
limited to, (i) the full and punctual payment of the notes issued
thereunder, and any and all promissory notes given in substitution for such
Notes or in modification, renewal, extension or rearrangement thereof in
whole or in part, and (ii) the reimbursement and other obligations of the
Pledgor under and with respect to Letters of Credit and Letter of Credit
Agreements now outstanding or hereafter issued under the Credit Agreement;
(b) all obligations of the Pledgor under this Pledgor Agreement; (c) all
interest (whether pre or post petition), charges, expenses, reasonable
attorneys' or other fees and any other sums payable to or incurred by the
Agent and, to the extent provided in the Credit Agreement, the Lenders in
connection with the execution or enforcement of any of their rights and
remedies hereunder or any other Security Instrument; (d) payment of and
performance of any and all present or future obligations of the Pledgor
according to the terms of any present or future interest rate or currency
swap, rate cap, rate floor, rate collar, forward rate agreement or other
exchange or rate protection agreements or any option with respect to any
such transaction now existing or hereafter entered into between the Pledgor
and any Lender or an Affiliate of such Lender; and (e) payment of and
performance of any and all present or future obligations of the Pledgor
according to the terms of any present or future swap agreements, cap,
floor, collar, forward agreement or other exchange or protection agreements
relating to crude oil, natural gas or other hydrocarbons or any option with
respect to any such transaction now existing or hereafter entered into
between the Pledgor and any Lender or an Affiliate of such Lender."
Section 4. Miscellaneous.
3
<PAGE> 89
4.1 Confirmation and Ratification. The Borrower and each Obligor hereby
affirms that as of the Effective Date of this Amendment, all of the
representations and warranties contained in the Credit Agreement, Guaranty
Agreements and the Security Agreement are true and correct as though made on
and as of the Effective Date, except as such representations and warranties are
modified to give effect to transactions expressly permitted by the Security
Instruments and that no Default or Event of Default exists. The Borrower and
each Obligor hereby agrees that its liabilities under the Guaranty Agreements
or the Security Agreement, as applicable, shall remain enforceable against it
in accordance with its terms and shall not be reduced, altered, limited,
lessened or in any way affected by the execution and delivery of this First
Amendment. The Borrower and each Obligor hereby confirms and ratifies its
liabilities under the Security Instruments to which it is a party in all
respects.
4.2 Continuation of Agreements. The provisions of the Guaranty Agreements
and the Security Agreement (as amended by this First Amendment) shall remain in
full force and effect in accordance with its terms following the effectiveness
of this First Amendment.
4.3 No Oral Agreements. THIS WRITTEN FIRST AMENDMENT, THE CREDIT
AGREEMENT, THE GUARANTY AGREEMENTS, THE SECURITY AGREEMENT AND THE OTHER
DOCUMENTS EXECUTED IN CONNECTION THEREWITH REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS,
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
4.4 Governing Law. This First Amendment (including, but not limited to,
the validity and enforceability hereof and thereof) shall be governed by, and
construed in accordance with, the laws of the State of Texas.
4.5 Counterparts. This First Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this First Amendment by
signing any such counterpart.
4
<PAGE> 90
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be duly executed effective as of the date first written above.
BORROWER: QUEEN SAND RESOURCES, INC., a Nevada corporation
By: /s/ Robert P. Lindsay
----------------------------------
Robert P. Lindsay
Vice President
PARENT COMPANY: QUEEN SAND RESOURCES, INC., a Delaware corporation
By: /s/ Robert P. Lindsay
----------------------------------
Robert P. Lindsay
Chief Operating Officer
and Executive Vice President
GUARANTORS: CORRIDA RESOURCES, INC.
NORTHLAND OPERATING CO.
By: /s/ Robert P. Lindsay
----------------------------------
Robert P. Lindsay
Vice President
5
<PAGE> 91
AGENT AND SOLE LENDER: BANK OF MONTREAL, as Agent and Lender
By: /s/ Robert L. Roberts
----------------------------------
Robert L. Roberts
Director, U.S. Corporate Banking
6
<PAGE> 92
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT (the "Subordination Agreement") is made as of
December 29, 1997, by and among the undersigned (the "Subordinated Lenders"),
in favor of each of the lenders that is a signatory thereto or which becomes a
signatory thereto as provided in Section 12.06 of the herein defined Senior
Credit Agreement (collectively, the "Senior Lenders"), and BANK OF MONTREAL, as
agent for the Senior Lenders (in such capacity, the "Agent").
RECITALS
A. Queen Sand Resources, Inc., a Nevada corporation, as the borrower
(the "Borrower"), Queen Sand Resources, Inc., a Delaware corporation, as the
parent guarantor (the "Parent Company"), the Agent and the Senior Lenders are
parties to that certain Credit Agreement dated as of August 1, 1997, as amended
by that certain First Amendment to Credit Agreement dated as of December 3,
1997, and as amended by that certain Second Amendment to Credit Agreement dated
as of December 29, 1997 (such agreement, as the same may be from time to time
further amended, supplemented or replaced, the "Senior Credit Agreement"),
pursuant to which the Senior Lenders have made certain credit available to and
on behalf of the Borrower.
B. Corrida Resources, Inc., a Nevada corporation ("Corrida"), and
Northland Operating Co., a Nevada corporation ("Northland", Corrida and
Northland collectively being the "Obligors"), each executed a Guaranty
Agreement dated as of August 1, 1997 (such agreements, as the same may be from
time to time further amended, supplemented or replaced, the "Senior Subsidiary
Guaranty Agreements") in favor of the Agent and the Senior Lenders to secure,
inter alia, the obligations of the Borrower under the Senior Credit Agreement.
C. The Borrower and Corrida each executed a Mortgage, Deed of Trust,
Assignment of Production, Security Agreement and Financing Statement (such
agreements, as the same may be from time to time further amended, supplemented
or replaced, the "Senior Mortgages") dated as of August 1, 1997 in favor of the
Agent to secure, inter alia, the obligations outstanding under the Credit
Agreement.
D. The Parent Company executed a Guaranty Agreement dated as of August
1, 1997 (such agreement, as the same may be from time to time further amended,
supplemented or replaced, the "Senior Parent Guaranty Agreement") in favor of
the Agent and the Senior Lenders to secure, inter alia, the obligations of the
Borrower under the Senior Credit Agreement. (The Senior Credit Agreement, the
Senior Subsidiary Guaranty Agreements, the Senior Mortgages, the Senior Parent
Guaranty Agreement and the other documents or instruments given in connection
therewith being collectively referred to herein as the "Senior Loan Documents").
E. Of even date herewith, the Borrower, the Parent Company and the
Obligors are executing the documents described on Exhibit A hereto (such
agreements, as the same may be from time to time further amended, supplemented
or replaced in accordance with the terms hereof, the "Subordinated Loan
Documents") with and in favor of the Subordinated Lenders and Enron Trade &
Capital Resources Corp., as agent for the Subordinated Lenders (the
"Subordinated Agent").
<PAGE> 93
F. One of the conditions to the Agent and the Senior Lenders executing
the Second Amendment to Credit Agreement referred to above is the execution and
delivery of this Subordination Agreement, and Subordinated Agent and the
Subordinated Lenders have agreed to enter into this Subordination Agreement.
G. Therefore, (i) in order to comply with the terms and conditions of
the Second Amendment to Credit Agreement, (ii) at the special insistence and
request of the Agent and the Senior Lenders, and (iii) for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Subordinated Agent and the Subordinated Lenders hereby agree
as follows:
ARTICLE I
Definitions
Section 1.01 Terms Defined Above. As used in this Subordination
Agreement, the terms defined above shall have the meanings respectively assigned
to them.
Section 1.02 Certain Definitions. As used in this Subordination
Agreement the following terms shall have the following meanings, unless the
context otherwise requires:
"Hedging Agreements" shall mean any commodity, interest rate or
currency swap, rate cap, rate floor, rate collar, forward agreement or other
exchange, price or rate protection agreements or any option with respect to any
such transaction.
"Lien" shall mean any interest in Property securing an obligation owed
to, or a claim by, a Person other than the owner of the Property, whether such
interest is based on the common law, statute or contract, and whether such
obligation or claim is fixed or contingent, and including but not limited to (i)
the lien or security interest arising from a mortgage, charge, encumbrance,
pledge, lien (statutory or otherwise), security agreement, conditional sale or
trust receipt or a lease, consignment or bailment for security purposes, or
preferential arrangement of any kind or nature whatsoever (including, any
agreement to give or grant a lien), or (ii) production payments and the like
payable out of oil and gas Properties.
"Person" shall mean any individual, corporation, limited liability
company, voluntary association, partnership, joint venture, trust,
unincorporated organization or governmental authority, or any other form of
entity.
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Subordinated Debt" shall mean any and all indebtedness, liabilities
and obligations owed by the Borrower, the Parent Company and/or any Obligor to
the Subordinated Agent and/or the Subordinated Lenders, whether (i) absolute or
contingent, direct or indirect, joint, several or independent, (ii) now
outstanding or owing or hereafter existing or incurred, (iii) arising by
operation of law or otherwise, (iv) due or to become due, or (v) held or to be
held by the Subordinated Agent or any Subordinated Lender; including all
indebtedness, obligations and liabilities of the Borrower, the Parent Company
and/or the Obligors to the Subordinated Agent and/or any Subordinated Lender
arising out of the Subordinated Loan Documents (described in greater detail on
Exhibit A hereto), and all renewals, extensions, rearrangements, refundings and
modifications thereof permitted by the terms
2
<PAGE> 94
hereof; provided the foregoing shall not include (A) any Hedging Agreement
between the Borrower, the Parent Company or any Obligor with the Subordinated
Agent or any Subordinated Lender or any affiliate of a Subordinated Lender, and
(B) any liabilities or obligations in respect of shares of stock or other equity
interests that are subordinated to all Superior Indebtedness of the Borrower,
the Parent Company or an Obligor to at least the same extent as the Subordinated
Debt.
"Superior Indebtedness" shall mean any and all indebtedness,
liabilities and obligations owed by the Borrower, the Parent Company and/or any
Obligor to the Agent and/or any Senior Lender under the Credit Agreement, any
Hedging Agreement between the Borrower, the Parent Company or any other Obligor
and any Senior Lender, or any Senior Loan Document, whether (i) absolute or
contingent, direct or indirect, joint, several or independent, (ii) now
outstanding or owing or which may hereafter be existing or incurred, (iii)
arising by operation of law or otherwise, (iv) due or to become due, or (v) held
or to be held by the Agent or any Senior Lender, including without limitation
all indebtedness, obligations and liabilities of the Borrower, the Parent
Company and/or the Obligors arising out of the Senior Loan Documents. The
Superior Indebtedness shall include amounts accruing subsequently to the filing
of any bankruptcy, receivership, insolvency or similar petition. Without
limiting the generality of the foregoing, Superior Indebtedness shall include
all obligations for fees, all indemnity and reimbursement payments (whether for
expenses or for advances) to the Agent or any Senior Lender.
ARTICLE II
Subordination
Section 2.01 Agreement to Subordinate. The payment of any and all
Subordinated Debt is expressly subordinated to the extent and in the manner set
forth in Sections 2.02 through 2.07 hereof to Superior Indebtedness.
Section 2.02 Payment Subordination upon Default.
(a) If any principal, interest or other amounts due in respect of the
Superior Indebtedness is not paid when due (including at maturity) or a
borrowing base deficiency under Section 2.07(c) of the Senior Credit Agreement
and as a result thereof, either the Agent or any Senior Lender shall give the
Subordinated Agent notice (which may be oral, provided that it is promptly
confirmed in writing or by facsimile transmission) that an "Event of Default"
has occurred under any Senior Loan Document, then, unless and until such Event
of Default shall have been cured or the Superior Indebtedness shall have been
paid in full, the Subordinated Agent and the Subordinated Lenders will not take,
receive or accept from the Borrower, the Parent Company or any other Obligor, by
set-off or in any other manner, any payment or distribution on account of the
Subordinated Debt nor present any instrument evidencing the Subordinated Debt
for payment (other than such presentment as may be necessary to prevent
discharge of other liable parties on such instrument).
(b) If any Event of Default on the Senior Indebtedness occurs other
than one described under Section 2.02(a), and as a result thereof, either the
Agent or any Senior Lender shall give the Subordinated Agent notice (which may
be oral, provided that it is promptly confirmed in writing or by facsimile
transmission) that an "Event of Default" has occurred under any Senior Loan
Document, then, unless and until such Event of Default shall have been cured or
the Superior Indebtedness shall have been paid in full, the Subordinated Agent
and the Subordinated Lenders will not, for a period of 135 days following its
receipt of such notice, take, receive or accept from the Borrower, the Parent
3
<PAGE> 95
Company or any other Obligor, by set-off or in any other manner, any payment or
distribution on account of the Subordinated Debt nor present any instrument
evidencing the Subordinated Debt for payment (other than such presentment as may
be necessary to prevent discharge of other liable parties on such instrument).
Section 2.03 Payments Received or Made in Violation of Subordination
Agreement.
(a) In the event the Subordinated Agent or any Subordinated Lender
shall receive any payment or distribution on account of the Subordinated Debt
which it is not entitled to receive under the provisions of Section 2.02, the
Subordinated Agent or such Subordinated Lender will hold any amount so received
in trust for the Senior Lenders and will forthwith turn over such payment to the
Agent in the form received by it (together with any necessary endorsement) to be
applied to the Superior Indebtedness. In the event of any failure by the
Subordinated Agent or any Subordinated Lender to make any such endorsement, the
Agent is hereby irrevocably authorized and granted a power of attorney (which is
irrevocable and coupled with interest) to make the same.
(b) The Borrower, the Parent Company or any Obligor hereby acknowledge
and agree to follow the payment priorities established in Section 2.02. If the
Borrower, the Parent Company or any Obligor shall become aware that an "Event of
Default" has occurred under any Senior Loan Document, then such Person shall
give the Agent, the Senior Lenders and the Subordinated Agent prompt written
notice thereof.
(c) This Subordination Agreement defines the relative rights of Agent
and the Senior Lenders and the Subordinated Agent and Subordinated Lenders.
Nothing in this Subordination Agreement shall: (i) impair, as between the
Borrower, the Parent Company or any Obligor, the Subordinated Agent and the
Subordinated Lenders, the obligation of the Borrower, the Parent Company and the
Obligors, which are absolute and unconditional, to pay principal of and interest
on the Subordinated Debt in accordance with the terms of the Subordinated Loan
Documents; or (ii) prevent the Subordinated Agent or any Subordinated Lender
from exercising its available remedies, subject to the terms of Section 2.05 and
the rights of the Agent and the Senior Lenders to receive distributions
otherwise payable to the Subordinated Agent and the Subordinated Lenders.
Section 2.04 Liens Subordinated.
(a) The Subordinated Agent and the Subordinated Lenders agree that any
Liens, upon the Property of any of the Borrower, the Parent Company or any
Obligor securing payments of the Subordinated Debt are and shall be and remain
inferior and subordinated to any Liens securing payments of the Superior
Indebtedness regardless of whether such encumbrances in favor of the
Subordinated Agent or any Subordinated Lender or the Agent and the Senior
Lenders presently exist or are hereafter created or attached.
(b) Other than the Liens taken on or about the date hereof for which
the Subordinated Agent has already given notice, the Subordinated Agent and each
Subordinated Lender agree to give the Agent written notice at least fifteen (15)
days prior to the time that it takes a Lien on any Property of the Parent
Company, the Borrower or any Obligor, such notice to specify the Property to be
encumbered by the proposed Lien. If the Subordinated Agent or any Subordinated
Lender shall obtain a Lien on Property of any of the Borrower, the Parent
Company or any Obligor which is not subject to a Lien in favor of the Agent and
the Senior Lenders, then Subordinated Agent and the Subordinated
4
<PAGE> 96
Lenders agree to exercise their respective rights under the instruments
evidencing such Lien in accordance with the terms of this Subordination
Agreement.
(c) The Subordinated Agent and the Subordinated Lenders covenant and
agree not to contest or dispute, whether in any proceeding or otherwise, the
validity, enforceability, attachment, priority or perfected status of any Lien
granted in favor of the Agent or any Senior Lender or take any steps or actions,
including the institution of any proceedings, to enjoin or restrain the Agent or
any Senior Lender from the exercise of the remedies afforded them under the
Senior Loan Documents or applicable law.
(d) If the Borrower, the Parent Company or any Obligor shall, after the
date hereof, acquire any Oil and Gas Properties (or a Person owning Oil and Gas
Properties), then the Subordinated Agent and the Subordinated Lenders covenant
and agree not to take or perfect any Lien against such Properties until the
earlier of (i) 30 days following the date of such acquisition or (ii) the date
the Agent and the Senior Lenders have been granted and have perfected a Lien in
their favor on such Properties.
Section 2.05 Agreement Not to Pursue Actions.
(a) If the Agent or the Senior Lenders have given the Subordinated
Agent notice under Section 2.02 that an Event of Default under the Senior Loan
Documents has occurred, the Subordinated Agent and each Subordinated Lender
covenants that it will not, for a period of 180 days following its receipt of
such notice, do any of the following unless the Agent shall also join in such
action or commence a similar action: (i) commence any action or proceeding
against the Borrower, the Parent Company or any Obligor to recover all or any
part of the Subordinated Debt or join with any other creditor in bringing any
proceedings against such Person under any bankruptcy, reorganization,
readjustment of debt, arrangement of debt, receivership, liquidation or
insolvency law or statute of the Federal or any state government or (ii)
foreclose, repossess, sequester or otherwise take steps or institute any action
or proceeding to enforce any Lien, collateral right, judgment or other
encumbrances on any Property of the Borrower, the Parent Company or any Obligor
held by the Subordinated Agent or any Subordinated Lender; provided the
foregoing will not prohibit such presentment as may be necessary to prevent
discharge of other liable parties an instrument.
(b) If the Subordinated Agent and the Subordinated Lenders shall not
file a proper claim or proof of debt in the form required in any insolvency,
bankruptcy or liquidation proceeding prior to 30 days before the expiration of
the time to file such claim or claims, then the Agent shall have the right to
file an appropriate claim for and on behalf of the Subordinated Agent or such
Subordinated Lender. Nothing herein contained shall be deemed to authorize or
consent to or accept or adopt on behalf of the Subordinated Agent or any
Subordinated Lender any plan of reorganization, arrangement, adjustment or
composition affecting the Subordinated Debt or the rights of the Subordinated
Agent and the Subordinated Lenders, or to authorize the Agent or any Senior
Lender to vote in respect of the claim of the Subordinated Agent or any
Subordinated Lender in any such proceeding.
Section 2.06 Rights of the Agent and the Senior Lenders. The Agent and
the Senior Lenders may, at any time, and from time to time, without the consent
of or notice to the Subordinated Agent or any Subordinated Lender, without
incurring responsibility to the Subordinated Agent and/or any Subordinated
Lender, without impairing or releasing any of the Agent or the Senior Lenders'
rights or any of the obligations of the Subordinated Agent and the Subordinated
Lenders under this Subordination Agreement:
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<PAGE> 97
(a) change the amount, manner, place or terms of payment, or change or
extend for any period the time of payment of, or renew, increase or otherwise
alter the Superior Indebtedness or any Senior Loan Document or any other
instrument or agreement now or hereafter executed or evidencing any of the
Superior Indebtedness in any manner, or enter into or amend in any manner any
other agreement relating to the Superior Indebtedness (including provisions
restricting or further restricting payments of the Subordinated Debt);
(b) sell, exchange, release or otherwise deal with all or any part of
any Property by whomsoever at any time pledged or mortgaged to secure, howsoever
securing, the Superior Indebtedness;
(c) release any Person liable in any manner for payment or collection
of the Superior Indebtedness;
(d) exercise or refrain from exercising any rights against the
Borrower, the Parent Company or any other Obligor or others, including the
Subordinated Agent and the Subordinated Lenders; and
(e) apply any sums received by the Senior Lenders, paid by any Person
and however realized, to payment of the Superior Indebtedness in such a manner
as the Agent and the Senior Lenders, in their sole discretion, may deem
appropriate.
Section 2.07 Payments within 90 Days of Default. The obligations under
the Subordinated Loan Documents are revolving in nature and, except as set forth
in Section 2.02, this Subordination Agreement will not prohibit certain payments
made prior to the occurrence of an "Event of Default" under the Senior Loan
Documents. To effect the subordinations intended hereby, the Subordinated Agent
and each Subordinated Lender agree that if (i) it receives a payment in any
manner on account of the Subordinated Debt and within 90 days following its
receipt of such payment the Agent or any Senior Lender shall give a notice under
Section 2.02 that an Event of Default under the Senior Loan Documents has
occurred (other than an Event of Default: (1) for which the Agent or the Senior
Lenders have previously given notice and instituted a payment blockage pursuant
to Section 2.02(b) and (2) which has continued for over 135 days), and (ii) the
Superior Indebtedness has not been paid in full, then such payment will be
treated as if it had been made after the giving of a notice that an Event of
Default under the Senior Loan Documents has occurred and the Subordinated Agent
and the Subordinated Lenders will hold such amount in trust and pay to the
Agent, for its benefit and the benefit of the Senior Lenders, any amount equal
to the amount so received during such 90 day period. The foregoing provisions
shall apply without regard to whether the payments would or would not constitute
preferential payments under the Federal Bankruptcy Code or other applicable
insolvency laws. The Subordinated Agent and the Subordinated Lenders acknowledge
and agree that for purposes of clause (i) above, any subsequent action, failure
to act or any breach of a financial covenant for a period commencing after the
date of the commencement of a payment blockage under Section 2.02(b) that would
give rise to a new Event of Default pursuant to any provision under which a
payment blockage previously existed or was continuing shall constitute a new
Event of Default for purposes of Section 2.02(b) and this Section 2.07. The
Subordinated Agent and the Subordinated Lenders shall be subrogated to the
claims and rights of the Agent and the Senior Lenders to the extent of the
Superior Indebtedness so acquired; provided that the Subordinated Agent and the
Subordinated Lenders shall have no rights until such time as the Superior
Indebtedness shall have been paid in full.
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Section 2.08 Conversions Not Affected. Nothing in this Subordination
Agreement is intended or shall be construed to prevent: (a) the exercise by the
Subordinated Agent or any Subordinated Lender (or an affiliate of it) of
conversion rights contained in the Subordinated Loan Documents, (b) the receipt
by the Subordinated Agent or any Subordinated Lender of shares of stock and debt
securities that are subordinated to all Superior Indebtedness of the Borrower,
the Parent Company or an Obligor to at least the same extent as the Subordinated
Debt, and (c) the presentment of an instrument to prevent discharge of other
liable parties on such instrument.
ARTICLE III
Representations, Warranties and Covenants
Section 3.01 Representations of Subordinated Agent and Subordinated
Lenders. The Subordinated Agent and each Subordinated Lender represent and
warrant that:
(a) neither the execution nor delivery of this Subordination Agreement
nor fulfillment of or compliance with the terms and provisions hereof will
conflict with, or result in a breach of the terms, conditions or provisions of,
or constitute a default under, any agreement or instrument which it is now
subject to;
(b) it has all requisite authority to execute, deliver and perform its
obligations under this Subordination Agreement; and
(c) this Subordination Agreement constitutes it legal, valid, and
binding obligation in accordance to its terms, subject to applicable bankruptcy,
insolvency or similar laws and general principles of equity.
Section 3.02 Covenants. The Subordinated Agent and each Subordinated
Lender covenant that so long as any of the Superior Indebtedness remains
outstanding and until the termination of the "Aggregate Commitments" (as defined
in the Senior Credit Agreement), it will:
(a) cause all Subordinated Debt to be evidenced by a note, debenture or
other instrument evidencing the Subordinated Debt;
(b) cause any such note, debenture, or instrument evidencing the
Subordinated Debt to contain a statement or legend to the effect that such note,
debenture, or other instrument is subordinated to the Superior Indebtedness in
the manner and to the extent set forth in this Subordination Agreement;
(c) not assign or transfer to others the Subordinated Debt or any claim
it has or may have against the Borrower, the Parent Company or any other Obligor
as long as any of the Superior Indebtedness remains outstanding, unless such
assignment or transfer is expressly made subject to this Subordination
Agreement;
(d) not ask for, sue for, take, demand, receive or accept any principal
or interest on any of the Subordinated Debt except in accordance with the terms
of this Subordination Agreement;
(e) not amend, supplement or otherwise modify the terms of the
Subordinated Debt without the express written consent of the Agent and the
Senior Lenders, which consent will not be unreasonably withheld, which has the
effect of (i) increasing the "Commitment" under the Subordinated
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<PAGE> 99
Loan Agreement (provided that the foregoing shall not affect the Subordinated
Agent and the Subordinated Lenders' ability to increase its borrowing base),
(ii) increasing the rate of interest charged on the Subordinated Debt (provided
that the foregoing shall not prohibit changes in the rate of interest
contemplated by the terms of the Subordinated Loan Agreement), (iii) changes the
fees charged under the Subordinated Loan Documents, or (iv) modifies or deletes
the terms of Section 9.22 of the Subordinated Loan Agreement or the
subordination language contained in the note issued pursuant to the Subordinated
Loan Agreement;
(f) promptly upon either receipt or delivery, forward to the Agent and
the Senior Lenders a true and complete copy of any material notices or
communications either received or delivered to or from the Parent Company, the
Borrower or any Obligor with respect to the Subordinated Debt; and
(g) execute any and all other instruments necessary as reasonably
required by the Agent or the Senior Lenders to effect the subordinations
intended hereby.
ARTICLE IV
Miscellaneous
Section 4.01 Acceptance by the Agent and the Senior Lenders. The
foregoing subordination provisions are, and are intended to be, an inducement
and a consideration to the Agent and each Senior Lender, whether such Senior
Lender's Superior Indebtedness is created or acquired before or after the
issuance of Subordinated Debt, to acquire and continue to hold, or to continue
to hold, such Superior Indebtedness and each such Senior Lender shall be deemed
conclusively to have relied on such subordination provisions in acquiring and
continuing to hold, or in continuing to hold, such Superior Indebtedness. Notice
of acceptance of this Subordination Agreement is waived, acceptance on the part
of the Agent and the Senior Lenders being conclusively presumed by their request
for this Subordination Agreement and delivery of the same to them.
Section 4.02 Assignment by the Agent and the Senior Lenders. This
Subordination Agreement may be assigned by the Agent and the Senior Lenders in
connection with any assignment or transfer of the Superior Indebtedness.
Section 4.03 Notices. All notices and other communications provided for
herein shall be given or made by telecopy, courier or U.S. Mail or in writing
and telecopied, mailed or delivered to the intended recipient at the "Address
for Notices" specified below its name on the signature pages hereof or at such
other address as shall be designated by such party in a notice to each other
party; and in the case of the Agent or any Senior Lender in care of the Agent at
the following address:
Bank of Montreal, as Agent
700 Louisiana, Suite 4400
Houston, Texas 77002
Telecopier No.: (713) 223-4007
Telephone No.: (713) 546-9700
Attention: Client Services Group
Except as otherwise provided in this Subordination Agreement, all such
communications shall be deemed to have been duly given when transmitted by
telecopier, delivered to the telegraph or cable
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office or personally delivered or, in the case of a mailed notice, three (3)
Business Days after the date deposited in the mails, postage prepaid, in each
case given or addressed as aforesaid.
Section 4.04 Amendments and Waivers. The Agent or any Senior Lender's
acceptance of partial or delinquent payments or any forbearance, failure or
delay by the Agent and the Senior Lenders in exercising any right, power or
remedy hereunder shall not be deemed a waiver of any obligation of the Borrower,
the Parent Company or any Obligor or the Subordinated Agent or any Subordinated
Lender, or of any right, power or remedy of the Agent and the Senior Lenders;
and no partial exercise of any right, power or remedy shall preclude any other
or further exercise thereof. The Subordinated Agent and the Subordinated Lenders
hereby agree that if the Agent and/or any Senior Lender agrees to a waiver of
any provision hereunder, or an exchange of or release of collateral, or the
addition or release of any Person as an Obligor, any such action shall not
constitute a waiver of any of the Agent's and/or any Senior Lender's other
rights or of the Subordinated Agent's or any Subordinated Lender's obligations
hereunder. This Subordination Agreement may be amended only by an instrument in
writing executed jointly by Subordinated Agent and the Agent and may be
supplemented only by documents delivered or to be delivered in accordance with
the express terms hereof.
Section 4.05 Parties to the Agreement. The provisions of this
Subordination Agreement are and are intended solely for the purpose of defining
the relative rights of the Subordinated Agent, the Subordinated Lenders, the
Agent and the Senior Lenders, and are solely for the benefit of the Agent, the
Senior Lenders, the Subordinated Agent and the Subordinated Lenders; and may not
be relied upon or enforced by any party other than the Agent, the Senior
Lenders, the Subordinated Agent or the Subordinated Lenders.
Section 4.06 Reinstatement. To the extent that any payments on the
Superior Indebtedness or proceeds of any collateral are subsequently
invalidated, declared to be fraudulent or preferential, set aside or required to
be repaid by the Agent or any Senior Lender to a trustee, debtor in possession,
receiver or other Person under any bankruptcy law, common law or equitable
cause, then to such extent, obligations hereunder with respect to the Superior
Indebtedness so satisfied shall be revived and continue as if such payment or
proceeds had not been received and the Agent's and the Senior Lenders' Liens,
interests, rights, powers and remedies under the Senior Loan Documents and this
Subordination Agreement shall continue in full force and effect. In such event,
each Senior Loan Document and this Subordination Agreement shall be
automatically reinstated and the Borrower, the Parent Company, the Obligors, the
Subordinated Agent and the Subordinated Lenders shall take such action as may be
reasonably requested by the Agent and the Senior Lenders to effect such
reinstatement.
Section 4.07 Governing Law. THIS SUBORDINATION AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
Section 4.08 ENTIRE AGREEMENT. THIS WRITTEN SUBORDINATION AGREEMENT
EMBODIES THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE AGENT AND THE SENIOR
LENDERS, THE SUBORDINATED AGENT AND THE SUBORDINATED LENDER AND SUPERSEDES ALL
OTHER AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT
MATTER HEREOF AND THEREOF. THIS WRITTEN SUBORDINATION AGREEMENT REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
9
<PAGE> 101
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 4.09 References and Titles. All references in this
Subordination Agreement to articles, sections, subsections and other
subdivisions refer to the articles, sections, subsections and other subdivisions
of this Subordination Agreement unless expressly provided otherwise. Titles
appearing at the beginning of any subdivisions are for convenience only and do
not constitute any part of such subdivisions and shall be disregarded in
construing the language contained in such subdivisions.
Section 4.10 Severability. All rights, remedies and powers provided
herein may be exercised only to the extent that the exercise thereof does not
violate any applicable provision of law; and all the provisions hereof are
intended (a) to be subject to all applicable mandatory provisions of law which
may be controlling and (b) to be limited to the extent necessary so that they
will not render this Subordination Agreement invalid under the provisions of any
applicable law. If any term or provision of this Subordination Agreement shall
be determined to be illegal or unenforceable, all other terms and provisions of
this Subordination Agreement shall nevertheless remain effective and shall be
enforced to the fullest extent permitted by applicable law and the parties agree
to promptly meet and negotiate in good faith to establish new arrangements which
have the effect of preserving in the economic and commercial benefits
established by this Subordination Agreement.
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WITNESS THE EXECUTION HEREOF, as of this the 29th day of December 1997.
Subordinated Agent and Subordinated Lender:
Enron Capital & Trade Resources Corp., as Subordinated Agent
and as sole Subordinated Lender
By: /s/ Steven M. Emshoff
---------------------------------
Name: Steven M. Emshoff
Title: Agent and Attorney-in-Fact
Address for the Subordinated Agent and Lender:
1400 Smith
Houston, Texas 77002
Attention: Donna Lowry
Telephone: (713) 853-1939
Telecopy: (713) 646-4039
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<PAGE> 103
The Borrower, the Parent Company and the Obligors hereby execute this
Subordination Agreement to evidence their agreement that:
1. each shall be bound by all of the terms and provisions of the
Subordination Agreement.
2. each acknowledge and agree that the terms of the Subordination
Agreement shall control over the terms of the Senior Loan
Documents and the Subordinated Loan Documents, any notes
issued pursuant thereto, and the instruments evidencing any of
the foregoing to the extent of any conflict relating to the
relative rights of the Agent and the Senior Lenders, the
Subordinated Agent or the Subordinated Lenders.
3. the terms and provisions of the Subordination Agreement shall
inure solely to the benefit of the Agent, the Senior Lenders,
the Subordinated Agent, the Subordinated Lenders and their
respective successors and assigns and the terms and provisions
of this Subordination Agreement shall not inure to the benefit
of nor be enforceable by the Borrower, the Parent Company or
any Obligor or their successors or assigns.
4. each at its expense will execute, acknowledge and deliver all
such agreements and instruments and take all such action as
any party to this Subordination Agreement from time to time
may reasonably request in order further to effectuate the
purposes of this Subordination Agreement and to carry out the
terms hereof.
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<PAGE> 104
BORROWER: QUEEN SAND RESOURCES, INC., a Nevada corporation
By: /s/ Robert P. Lindsay
---------------------
Robert P. Lindsay
Vice President
Address for Notices:
Queen Sand Resources, Inc.
3500 Oak Lawn Drive, Suite 380
Dallas, Texas 75219
Attention: Robert P. Lindsay
Telephone: (214) 521-9959
Facsimile: (214) 521-9960
with copy to:
Queen Sand Resources, Inc.
60 Queen Street, Suite 1400
Ottawa, Canada KIP 5Y7
Attention: Mr. Ronald Benn
Telephone: (613) 230-7211
Facsimile: (613) 230-6055
and
Haynes & Boone LLP
901 Main Street, Suite 3100
Dallas, Texas 75202-3789
Attention: Mr. William L. Boeing
Telephone: (214) 651-5553
Facsimile: (214) 651-5940
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<PAGE> 105
PARENT COMPANY: QUEEN SAND RESOURCES, INC., a Delaware corporation
By: /s/ Robert P. Lindsay
----------------------------
Robert P. Lindsay
Chief Operating Officer
and Executive Vice President
Address for Notices:
Queen Sand Resources, Inc.
3500 Oak Lawn Drive, Suite 380
Dallas, Texas 75219
Attention: Robert P. Lindsay
Telephone: (214) 521-9959
Facsimile: (214) 521-9960
with copy to:
Queen Sand Resources, Inc.
60 Queen Street, Suite 1400
Ottawa, Canada KIP 5Y7
Attention: Mr. Ronald Benn
Telephone: (613) 230-7211
Facsimile: (613) 230-6055
and
Haynes & Boone LLP
901 Main Street, Suite 3100
Dallas, Texas 75202-3789
Attention: Mr. William L. Boeing
Telephone: (214) 651-5553
Facsimile: (214) 651-5940
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<PAGE> 106
GUARANTORS: NORTHLAND OPERATING CO.
By: /s/ Robert P. Lindsay
---------------------
Robert P. Lindsay
Vice President
CORRIDA RESOURCES, INC.
By: /s/ Robert P. Lindsay
---------------------
Robert P. Lindsay
Vice President
Address for Notices of each Guarantor: [same as Parent
Company]
15
<PAGE> 107
Exhibit A
Subordinated Loan Documents
1. Subordinated Revolving Credit Loan Agreement dated as of December 29,
1997 between the Borrower, the Subordinated Lenders party thereto and
the Subordinated Agent (the "Subordinated Loan Agreement").
2. Subordinated Note(s) in the aggregate principal amount of $10,000,000
issued by the Borrower in favor of the Subordinated Lender(s).
3. Mortgage, Line of Credit Mortgage, Deed of Trust, Assignment of
Production, Security Agreement and Financing Statement (Subordinated
Revolving Credit Loan Agreement) dated as of December 29, 1997 executed
by the Borrower in favor of the Subordinated Agent, for its benefit and
the benefit of Subordinated Lenders.
4. Financing Statement executed by the Borrower with respect to item 3
above.
5. Guaranty Agreement dated as of December 29, 1997 executed by the Parent
Company in favor of the Subordinated Agent and Subordinated Lenders.
6. Guaranty Agreement dated as of December 29, 1997 executed by Corrida
Resources, Inc. and Northland Operating Co. in favor of the
Subordinated Agent and Subordinated Lenders.
7. Fee Letter dated as of December 29, 1997 executed between the Borrower
and ECT Securities Corp.
8. Any other Security Instrument or Loan Document (as defined in the
Subordinated Revolving Credit Loan Agreement described in paragraph 1
above).
16
<PAGE> 1
GUARANTY
(Parent Company)
This Guaranty dated as of December 29, 1997 ("Agreement"), is made by
Queen Sand Resources, Inc., a Delaware corporation ("Guarantor"), in favor of
Enron Capital & Trade Resources Corp., a Delaware corporation, in its capacity
as agent for the lenders described below ("Agent").
INTRODUCTION
This Agreement is given in connection with the Subordinated Revolving
Credit Loan Agreement dated as of December 29, 1997 (as modified from time to
time, the "Loan Agreement"), among Queen Sand Resources, Inc., a Nevada
corporation ("Borrower"), the lenders who are or may become party thereto, and
the Agent, the defined terms of which are used herein unless otherwise defined
herein. It is a condition precedent to the effectiveness of the Loan Agreement
that the Guarantor executes and delivers this Agreement to the Agent. The
Borrower is a Subsidiary of the Guarantor. The Guarantor expects that, as a
result of its ownership of the Borrower, it will obtain substantial benefit from
the extensions of credit expected to be made to the Borrower under the Loan
Agreement.
Therefore, to induce the Agent and the Lenders to enter into the Loan
Agreement, the Guarantor agrees with the Agent as follows:
Section 1. Guaranty.
1.1 The Guarantor irrevocably guarantees to the Agent the full payment
when due of (a) all principal, interest, fees, reimbursements, indemnifications,
and other amounts now or hereafter owed by the Borrower to the Agent or any
Lender (and with respect to the Interest Hedge Agreements, any Affiliates of any
Lender) under the terms of the Loan Agreement and the other Loan Documents,
including amounts owed under the terms of the Loan Agreement and the other Loan
Documents for which the Borrower has obtained relief under bankruptcy or other
laws providing for relief from creditors, and (b) any increases, extensions, and
rearrangements of the foregoing obligations under any amendments, supplements,
and other modifications of the documents and agreements creating the foregoing
obligations (collectively, the "Guaranteed Obligations"). This is a guaranty of
payment and not merely a guaranty of collection, and the Guarantor is liable as
a primary obligor. If any of the Guaranteed Obligations are not punctually paid
when due, whether by maturity, acceleration, or otherwise, and the Agent shall
notify the Guarantor of such default and make demand for payment hereunder, the
Guarantor shall immediately pay to the Agent the full amount of the Guaranteed
Obligations which are due and payable. The Guarantor shall make each payment to
the Agent in U.S. Dollars in immediately available funds as directed by the
Agent. The Agent is hereby authorized at any time following any demand for
payment hereunder to set off and apply any indebtedness owed by the Agent to the
Guarantor against any and all of the obligations of the Guarantor under this
Agreement. The Agent agrees to promptly notify the Guarantor after any such
setoff and application, but the failure to give such notice shall not affect the
validity of such setoff and application.
<PAGE> 2
1.2 This Agreement is subordinate to the Senior Debt in accordance with
the terms of the Subordination Agreement.
Section 2. Guaranty Absolute.
2.1 This Agreement shall be deemed accepted by the Agent upon receipt,
and the obligations of the Guarantor under this Agreement are effective
immediately and are continuing and cover all Guaranteed Obligations arising
prior to and after the date hereof. This Agreement may not be revoked by the
Guarantor and shall continue to be effective with respect to Guaranteed
Obligations arising or created after any attempted revocation by the Guarantor.
2.2 The Guarantor guarantees that the Guaranteed Obligations will be
paid strictly in accordance with the terms of the Loan Agreement and the other
Loan Documents, regardless of any law, regulation, or order now or hereafter in
effect in any jurisdiction affecting any of such terms or the rights of the
Agent or the Lenders with respect thereto. The Guarantor agrees that the
Guarantor's obligations under this Agreement shall not be released, diminished,
or impaired by, and waives any rights which the Guarantor might otherwise have
which relate to:
(a) Any lack of validity or enforceability of the Guaranteed
Obligations, any Loan Document, or any other agreement or instrument relating
thereto; any increase, reduction, extension, or rearrangement of the Guaranteed
Obligations; any amendment, supplement, or other modification of the Loan
Documents; any waiver or consent granted under the Loan Documents, including
waivers of the payment and performance of the Guaranteed Obligations; or any
sale, assignment, delegation, or other transfer of the Guaranteed Obligations or
the Loan Documents;
(b) Any grant of any security or support for the Guaranteed
Obligations or any impairment of any security or support for the Guaranteed
Obligations, including any full or partial release, exchange, subordination, or
waste of any collateral for the Guaranteed Obligations or any full or partial
release of the Borrower, the Guarantor, or any other Person liable for the
payment or performance of the Guaranteed Obligations; any change in the
organization or structure of the Borrower, the Guarantor, or any other Person
liable for the payment or performance of the Guaranteed Obligations; or the
insolvency, bankruptcy, liquidation, or dissolution of the Borrower, the
Guarantor, or any other Person liable for the payment or performance of the
Guaranteed Obligations;
(c) The manner of applying payments on the Guaranteed
Obligations or the proceeds of any security or support for the Guaranteed
Obligations against the Guaranteed Obligations;
(d) The failure to give notice of the occurrence of any of the
events or actions referred to in this Section 2.2, notice of any default or
event of default, however denominated, under the Loan Documents, notice of
intent to demand, notice of demand, notice of presentment for payment, notice of
nonpayment, notice of intent to protest, notice of protest, notice of grace,
notice of dishonor, notice of intent to accelerate, notice of acceleration,
notice of bringing of action to enforce the payment or performance of the
Guaranteed Obligations, notice of any sale or foreclosure
2
<PAGE> 3
of any collateral for the Guaranteed Obligations, notice of any transfer of the
Guaranteed Obligations, notice of the financial condition of or other
circumstances regarding the Borrower, the Guarantor, or any other Person liable
for the Guaranteed Obligations, or any other notice of any kind relating to the
Guaranteed Obligations (and the parties intend that no Guarantor by execution of
this Agreement shall be considered a "Debtor" as defined in Section 9.105 of the
UCC for the purpose of notices required to be given to a Debtor thereunder); or
(e) Any other action taken or omitted which affects the
Guaranteed Obligations, whether or not such action or omission prejudices the
Guarantor or increases the likelihood that the Guarantor will be required to pay
the Guaranteed Obligations pursuant to the terms hereof--it is the unambiguous
and unequivocal intention of the Guarantor that the Guarantor shall be obligated
to pay the Guaranteed Obligations when due, notwithstanding any occurrence,
circumstance, event, action, or omission whatsoever, whether contemplated or
uncontemplated, and whether or not particularly described herein.
2.3 This Agreement shall continue to be effective or be reinstated, as
the case may be, if any payment on the Guaranteed Obligations must be refunded
for any reason including any bankruptcy proceeding. In the event that the Agent
or any Lender must refund any payment received against the Guaranteed
Obligations, any prior release from the terms of this Agreement given to the
Guarantor by the Agent shall be without effect, and this Agreement shall be
reinstated in full force and effect. It is the intention of the Guarantor that
the Guarantor's obligations hereunder shall not be discharged except by final
payment of the Guaranteed Obligations.
Section 3. Unimpaired Collection.
3.1 There are no conditions precedent to the enforcement of this
Agreement, except as expressly contained herein. It shall not be necessary for
the Agent, in order to enforce payment by the Guarantor under this Agreement, to
show any proof of the Borrower's default, to exhaust the Agent's remedies
against the Borrower, the Guarantor, or any other Person liable for the payment
or performance of the Guaranteed Obligations, to enforce any security or support
for the payment or performance of the Guaranteed Obligations, or to enforce any
other means of obtaining payment or performance of the Guaranteed Obligations.
The Guarantor waives any statutory or common law procedural or substantive
rights related to the foregoing. Neither the Agent nor any Lender shall be
required to mitigate damages or take any other action to reduce, collect, or
enforce the Guaranteed Obligations.
3.2 With respect to the Guarantor, all Subordinated Obligations of the
Guarantor (as defined below) shall be subordinate and junior in right of payment
and collection to the payment and collection in full of all Guaranteed
Obligations as described below:
(a) As used herein, the term "Subordinated Obligations" for
the Guarantor means: (i) all present and future indebtedness, liabilities, and
obligations of any kind owed by the Borrower, any other Guarantor (as defined in
the Loan Agreement), or any other Person liable for the payment or performance
of the Guaranteed Obligations to the Guarantor, including (A) debt obligations,
equity obligations, and other contractual obligations requiring payments of any
kind to be made to
3
<PAGE> 4
the Guarantor and including (B) any right of subrogation (including any
statutory rights of subrogation under Section 509 of the Bankruptcy Code, 11
U.S.C. Section 509, or under state statutes), contribution, indemnification,
reimbursement, exoneration, or any right to participate in any claim or remedy
of the Agent against the Borrower, the Guarantor, or any Person liable for the
payment or performance of the Guaranteed Obligations, or any collateral which
the Agent now has or may acquire, and (ii) any increases, extensions, and
rearrangements of the foregoing obligations under any amendments, supplements,
and other modifications of the documents and agreements creating the foregoing
obligations.
(b) Until all Guaranteed Obligations have been irrevocably
paid in full (and therefore the payment thereof is no longer subject to being
set aside or returned under the law), the Guarantor agrees not to take any
action to enforce payment of the Subordinated Obligations of the Guarantor, but
this standstill is not intended as a permanent waiver of the subrogation,
contribution, indemnification, reimbursement, exoneration, participation, or
other rights of the Guarantor.
(c) Upon any receivership, insolvency proceeding, bankruptcy
proceeding, assignment for the benefit of creditors, reorganization, arrangement
with creditors, sale of assets for creditors, dissolution, liquidation, or
marshaling of the assets of the Borrower, the Guarantor, or any other Person
liable for the payment or performance of the Guaranteed Obligations, (i) all
amounts due with respect to the Guaranteed Obligations shall be paid in full
before the Guarantor shall be entitled to collect or receive any payment with
respect to the Subordinated Obligations of the Guarantor, and (ii) all payments
to which the Guarantor would be entitled to collect or receive on the
Subordinated Obligations of the Guarantor shall be paid over to the Agent for
application to the Guaranteed Obligations.
(d) Following notice from the Agent to the Borrower that an
Event of Default exists and that no further payments shall be made on the
Subordinated Obligations of the Guarantor, all amounts due with respect to the
Guaranteed Obligations shall be paid in full before the Guarantor shall be
entitled to collect or receive any payment with respect to the Subordinated
Obligations of the Guarantor.
(e) Any lien, security interest, or assignment securing the
repayment of the Subordinated Obligations of the Guarantor shall be fully
subordinate to any lien, security interest, or assignment in favor of the Agent
or any Lender which secures the Guaranteed Obligations. At the request of the
Agent, the Guarantor will take any and all steps necessary to fully evidence the
subordination granted hereunder, including amending or terminating financing
statements and executing and recording subordinations of liens.
(f) This is an absolute and irrevocable agreement of
subordination and the Agent may, without notice to the Guarantor, take any
action described in Section 2.2 without impairing or releasing the obligations
of the Guarantor hereunder.
(g) Except for assignments made pursuant to guaranties of the
Senior Debt, the Guarantor shall not assign or otherwise transfer to any other
Person any interest in the Subordinated Obligations of the Guarantor without the
prior written permission of the Lender and except for
4
<PAGE> 5
assignments made pursuant to guaranties of the Senior Debt, unless the Guarantor
causes the assignee or other transferee to execute and deliver to the Agent a
subordination agreement in substantially the form of the subordination
provisions in this Agreement.
(h) If any amount shall be paid to the Guarantor in violation
of this Section 3.2, such amount shall be held in trust for the benefit of the
Agent and immediately turned over to the Agent, with any necessary endorsement,
to be applied to the Guaranteed Obligations.
Section 4. Miscellaneous.
4.1 The Guarantor hereby affirms and shall comply with the
representations, warranties, and covenants made by the Borrower in the Loan
Agreement to the extent that such representations, warranties, and covenants are
applicable to the Guarantor, including all of the covenants in Articles 4 and 5
of the Loan Agreement.
4.2 The Guarantor shall take all actions necessary to comply with the
Borrower's obligations under Section 2.11 of the Loan Agreement and to
effectuate any exchange made thereunder. The Guarantor shall at all times
reserve and keep available, free from preemptive rights, as part of the
authorized but unissued common stock of the Guarantor ("Parent Company Common
Stock"), solely for the purpose of issuance upon an exchange pursuant to Section
2.11 of the Loan Agreement, such number of shares of Parent Company Common Stock
as shall then be issuable upon the exchange of the entire amount of the
outstanding principal balance of the Note and accrued but unpaid interest
thereon. The Guarantor covenants that all shares of Parent Company Common Stock
which shall be so issuable shall, upon issuance, be duly and validly issued,
fully paid and nonassessable. The Guarantor shall from time to time, in
accordance with applicable law, increase the authorized amount of Parent Company
Common Stock if at any time the authorized amount of Parent Company Common Stock
remaining unissued shall not be sufficient to permit the exchange of the entire
amount of the outstanding principal balance of the Note and accrued but unpaid
interest thereon. The Guarantor covenants that it shall not permit the par value
of the Parent Company Common Stock to be increased from $0.0015 per share. The
issuance of certificates representing shares of Parent Company Common Stock upon
an exchange pursuant to Section 2.11 of the Loan Agreement shall be made without
charge to the Lenders for any tax in respect of the issuance of such
certificates, and such certificates shall be issued in the name of, or in such
names as may be directed by, the Agent; provided that in no event shall the
Guarantor be required to pay or reimburse any Lender or the holder of any such
certificate for any income tax payable by such Lender or such holder as a result
of such issuance. The Guarantor agrees that any Parent Company Common Stock
issued pursuant to Section 2.11 of the Loan Agreement shall be "Registrable
Securities" for the purposes of the Registration Rights Agreement.
4.3 The Guarantor agrees that this Agreement shall be governed by the
laws of the State of New York. If any provision in this Agreement is held to be
unenforceable, such provision shall be severed and the remaining provisions
shall remain in full force and effect. All representations, warranties, and
covenants of the Guarantor in this Agreement shall survive the execution of this
Agreement and any other contract or agreement. If a due date for an amount
payable is not specified in this Agreement, the due date shall be the date on
which the Agent demands payment therefor.
5
<PAGE> 6
The Agent's and the Lenders' remedies under this Agreement and the Loan
Documents to which the Guarantor is a party shall be cumulative, and no delay in
enforcing this Agreement and the Loan Documents to which the Guarantor is a
party shall act as a waiver of the Agent's or any Lenders' rights thereunder.
The provisions of this Agreement may be waived or amended only in a writing
signed by the party against whom enforcement is sought. This Agreement shall
bind and inure to the benefit of the Guarantor and the Lender and their
respective successors and assigns. The Guarantor may not assign its rights or
delegate its duties under this Agreement. The Agent and the Lenders may assign
their rights and delegate its duties under this Agreement in accordance with the
terms of the Loan Agreement. This Agreement may be executed in multiple
counterparts each of which shall constitute one and the same agreement. Unless
otherwise specified, all notices and other communications between the Guarantor
and the Agent provided for in this Agreement and the Loan Documents to which the
Guarantor is a party shall be in writing and shall be mailed by first class or
express mail, postage prepaid, or sent by telex, telegram, telecopy or other
similar form of rapid transmission, or personally delivered to the receiving
party. Any communication so addressed and mailed shall be deemed to be given
when so mailed and any notice so sent by rapid transmission shall be deemed to
be given when receipt of such transmission is acknowledged or confirmed, and any
communication so delivered in person shall be deemed to be given when receipted
for by, or actually received by, an authorized officer of the Borrower or the
Agent, as the case may be. All such communications shall be mailed, sent or
delivered,
If to the Guarantor:
Queen Sand Resources, Inc.
3500 Oak Lawn Drive, Suite 380
Dallas, Texas 75219
Attn: Robert P. Lindsay
Telephone: (214) 521-9959
Facsimile: (214) 521-9960
with a copy to:
Queen Sand Resources, Inc.
60 Queen Street, Suite 1400
Ottawa, Canada KIP 5Y7
Attn: Ronald Benn
Telephone: (613) 230-7211
Facsimile: (613) 230-6055
and
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<PAGE> 7
Haynes and Boone LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
Attn: William L. Boeing
Telephone: (214) 651-5553
Facsimile: (214) 651-5940
If to the Agent:
Enron Capital & Trade Resources Corp.
1400 Smith Street
Houston, Texas 77002
Attn: Donna Lowry
Telephone: (713) 853-1939
Facsimile: (713) 646-4039
4.4 The Guarantor hereby designates all Indebtedness outstanding under
this Agreement, the Loan Agreement, the Note and the other Loan Documents to be
"Designated Senior Indebtedness" (as defined in the Offering Memorandum dated
July 15, 1995 relating to the DEM Subordinated Debt) for purposes of the DEM
Subordinated Debt.
THIS WRITTEN AGREEMENT AND THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
EXECUTED as of the date first above written.
QUEEN SAND RESOURCES, INC., a
Delaware corporation
By:
Robert P. Lindsay
Chief Operating Officer & Executive
Vice President
7
<PAGE> 1
GUARANTY
(Subsidiaries)
This Guaranty dated as of December 29, 1997 ("Agreement"), is made by
the undersigned subsidiaries of Queen Sand Resources, Inc., a Nevada corporation
(each a "Guarantor"), in favor of Enron Capital & Trade Resources Corp., a
Delaware corporation in its capacity as agent for the lenders described below
("Agent").
INTRODUCTION
This Agreement is given in connection with the Subordinated Revolving
Credit Loan Agreement dated as of December 29, 1997 (as modified from time to
time, the "Loan Agreement"), among Queen Sand Resources, Inc., a Nevada
corporation ("Borrower"), the lenders who are or may become party thereto, and
the Agent, the defined terms of which are used herein unless otherwise defined
herein. It is a condition precedent to the effectiveness of the Loan Agreement
that the Guarantors execute and deliver this Agreement to the Agent. Because
each Guarantor is a Subsidiary of the Borrower, each Guarantor receives and
expects to continue to receive financial and management support from the
Borrower, and thus, each Guarantor will obtain substantial benefit from the
extensions of credit expected to be made to the Borrower under the Loan
Agreement.
Therefore, to induce the Agent and the Lenders to enter into the Loan
Agreement, the Guarantors jointly and severally agree with the Agent as follows:
Section 1. Guaranty.
1.1 The Guarantors irrevocably and jointly and severally guarantee to
the Agent the full payment when due of (a) all principal, interest, fees,
reimbursements, indemnifications, and other amounts now or hereafter owed by the
Borrower to the Agent or any Lender (and with respect to the Interest Hedge
Agreements, any Affiliates of any Lender) under the terms of the Loan Agreement
and the other Loan Documents, including amounts owed under the terms of the Loan
Agreement and the other Loan Documents for which the Borrower has obtained
relief under bankruptcy or other laws providing for relief from creditors, and
(b) any increases, extensions, and rearrangements of the foregoing obligations
under any amendments, supplements, and other modifications of the documents and
agreements creating the foregoing obligations (collectively, the "Guaranteed
Obligations"). This is a guaranty of payment and not merely a guaranty of
collection, and each Guarantor is liable as a primary obligor. If any of the
Guaranteed Obligations are not punctually paid when due, whether by maturity,
acceleration, or otherwise, and the Agent shall notify any Guarantor of such
default and make demand for payment hereunder, such Guarantor shall immediately
pay to the Agent the full amount of the Guaranteed Obligations which are due and
payable. Each Guarantor shall make each payment to the Agent in U.S. Dollars in
immediately available funds as directed by the Agent. The Agent is hereby
authorized at any time following any demand for payment hereunder to set off and
apply any indebtedness owed by the Agent to any Guarantor against any and all of
the obligations of such Guarantor under this Agreement. The Agent
<PAGE> 2
agrees to promptly notify such Guarantor after any such setoff and application,
but the failure to give such notice shall not affect the validity of such setoff
and application.
1.2 This Agreement is subordinate to the Senior Debt in accordance with
the terms of the Subordination Agreement.
Section 2. Guaranty Absolute.
2.1 This Agreement shall be deemed accepted by the Agent upon receipt,
and the obligations of the Guarantors under this Agreement are effective
immediately and are continuing and cover all Guaranteed Obligations arising
prior to and after the date hereof. This Agreement may not be revoked by any
Guarantor and shall continue to be effective with respect to Guaranteed
Obligations arising or created after any attempted revocation by any Guarantor.
2.2 Each Guarantor guarantees that the Guaranteed Obligations will be
paid strictly in accordance with the terms of the Loan Agreement and the other
Loan Documents, regardless of any law, regulation, or order now or hereafter in
effect in any jurisdiction affecting any of such terms or the rights of the
Agent with respect thereto. Each Guarantor agrees that such Guarantor's
obligations under this Agreement shall not be released, diminished, or impaired
by, and waives any rights which such Guarantor might otherwise have which relate
to:
(a) Any lack of validity or enforceability of the Guaranteed
Obligations, any Loan Document, or any other agreement or instrument relating
thereto; any increase, reduction, extension, or rearrangement of the Guaranteed
Obligations; any amendment, supplement, or other modification of the Loan
Documents; any waiver or consent granted under the Loan Documents, including
waivers of the payment and performance of the Guaranteed Obligations; or any
sale, assignment, delegation, or other transfer of the Guaranteed Obligations or
the Loan Documents;
(b) Any grant of any security or support for the Guaranteed
Obligations or any impairment of any security or support for the Guaranteed
Obligations, including any full or partial release, exchange, subordination, or
waste of any collateral for the Guaranteed Obligations or any full or partial
release of the Borrower, any Guarantor, or any other Person liable for the
payment or performance of the Guaranteed Obligations; any change in the
organization or structure of the Borrower, any Guarantor, or any other Person
liable for the payment or performance of the Guaranteed Obligations; or the
insolvency, bankruptcy, liquidation, or dissolution of the Borrower, any
Guarantor, or any other Person liable for the payment or performance of the
Guaranteed Obligations;
(c) The manner of applying payments on the Guaranteed
Obligations or the proceeds of any security or support for the Guaranteed
Obligations against the Guaranteed Obligations;
(d) The failure to give notice of the occurrence of any of the
events or actions referred to in this Section 2.2, notice of any default or
event of default, however denominated, under the Loan Documents, notice of
intent to demand, notice of demand, notice of presentment for
2
<PAGE> 3
payment, notice of nonpayment, notice of intent to protest, notice of protest,
notice of grace, notice of dishonor, notice of intent to accelerate, notice of
acceleration, notice of bringing of action to enforce the payment or performance
of the Guaranteed Obligations, notice of any sale or foreclosure of any
collateral for the Guaranteed Obligations, notice of any transfer of the
Guaranteed Obligations, notice of the financial condition of or other
circumstances regarding the Borrower, any Guarantor, or any other Person liable
for the Guaranteed Obligations, or any other notice of any kind relating to the
Guaranteed Obligations (and the parties intend that no Guarantor by execution of
this Agreement shall be considered a "Debtor" as defined in Section 9.105 of the
UCC for the purpose of notices required to be given to a Debtor thereunder); or
(e) Any other action taken or omitted which affects the
Guaranteed Obligations, whether or not such action or omission prejudices any
Guarantor or increases the likelihood that any Guarantor will be required to pay
the Guaranteed Obligations pursuant to the terms hereof--it is the unambiguous
and unequivocal intention of each Guarantor that such Guarantor shall be
obligated to pay the Guaranteed Obligations when due, notwithstanding any
occurrence, circumstance, event, action, or omission whatsoever, whether
contemplated or uncontemplated, and whether or not particularly described
herein.
2.3 This Agreement shall continue to be effective or be reinstated, as
the case may be, if any payment on the Guaranteed Obligations must be refunded
for any reason including any bankruptcy proceeding. In the event that the Agent
or any Lender must refund any payment received against the Guaranteed
Obligations, any prior release from the terms of this Agreement given to any
Guarantor by the Agent shall be without effect, and this Agreement shall be
reinstated in full force and effect. It is the intention of each Guarantor that
such Guarantor's obligations hereunder shall not be discharged except by final
payment of the Guaranteed Obligations.
2.4 (a) Each Guarantor is a Subsidiary of the Borrower and
receives and, because of its ownership by the Borrower, expects to continue to
receive business opportunities, financial support, and management support from
the Borrower. Each Guarantor has agreed to enter into this Agreement so that the
Borrower can receive the benefits of the Guaranteed Obligations and continue to
provide these services to such Guarantor.
(b) In consummating the transactions contemplated by the Loan
Documents, no Guarantor intends to disturb, delay, hinder, or defraud either
present or future creditors of such Guarantor. Each Guarantor is familiar with,
and has independently reviewed books and records regarding, the financial
condition of the Borrower and is familiar with the value of the security and
support for the payment and performance of the Guaranteed Obligations. Based
upon such examination, and taking into account the fairly discounted value of
such Guarantor's contingent obligations under this Agreement and the value of
the subrogation and contribution claims such Guarantor could make in connection
with this Agreement, and assuming each of the transactions contemplated by the
Loan Documents is consummated and the Borrower makes full use of the credit
facilities thereunder, the present realizable fair market value of the assets of
such Guarantor exceeds the total obligations of such Guarantor, and such
Guarantor is able to realize upon its assets and pay its obligations as such
obligations mature in the normal course of business.
3
<PAGE> 4
(c) If notwithstanding the foregoing it is judicially
determined with respect to any Guarantor that entering into this Agreement would
violate Section 548 of the United States Bankruptcy Code or any comparable
provisions of any state law, then such Guarantor shall be liable under this
Guaranty only for amounts aggregating up to the largest amount that would not
render such Guarantor's obligations hereunder subject to avoidance under Section
548 of the United States Bankruptcy Code or any comparable provisions of any
state law.
(d) Each Guarantor agrees that each Guarantor shall have
rights of contribution and subrogation against each other Guarantor with respect
to any payments made in connection with the Guaranteed Obligations.
Section 3. Unimpaired Collection.
3.1 There are no conditions precedent to the enforcement of this
Agreement, except as expressly contained herein. It shall not be necessary for
the Agent, in order to enforce payment by any Guarantor under this Agreement, to
show any proof of the Borrower's default, to exhaust the Agent's remedies
against the Borrower, any Guarantor, or any other Person liable for the payment
or performance of the Guaranteed Obligations, to enforce any security or support
for the payment or performance of the Guaranteed Obligations, or to enforce any
other means of obtaining payment or performance of the Guaranteed Obligations.
Each Guarantor waives any statutory or common law procedural or substantive
rights related to the foregoing. Neither the Agent nor any Lender shall be
required to mitigate damages or take any other action to reduce, collect, or
enforce the Guaranteed Obligations.
3.2 With respect to each Guarantor, all Subordinated Obligations of
such Guarantor (as defined below) shall be subordinate and junior in right of
payment and collection to the payment and collection in full of all Guaranteed
Obligations as described below:
(a) As used herein, the term "Subordinated Obligations" for
such Guarantor means: (i) all present and future indebtedness, liabilities, and
obligations of any kind owed by the Borrower, any other Guarantor, or any other
Person liable for the payment or performance of the Guaranteed Obligations to
such Guarantor, including (A) debt obligations, equity obligations, and other
contractual obligations requiring payments of any kind to be made to such
Guarantor and including (B) any right of subrogation (including any statutory
rights of subrogation under Section 509 of the Bankruptcy Code, 11 U.S.C.
Section 509, or under state statutes), contribution, indemnification,
reimbursement, exoneration, or any right to participate in any claim or remedy
of the Agent against the Borrower, any Guarantor, or any Person liable for the
payment or performance of the Guaranteed Obligations, or any collateral which
the Agent now has or may acquire, and (ii) any increases, extensions, and
rearrangements of the foregoing obligations under any amendments, supplements,
and other modifications of the documents and agreements creating the foregoing
obligations.
(b) Until all Guaranteed Obligations have been irrevocably
paid in full (and therefore the payment thereof is no longer subject to being
set aside or returned under the law), such Guarantor agrees not to take any
action to enforce payment of the Subordinated Obligations of such
4
<PAGE> 5
Guarantor, but this standstill is not intended as a permanent waiver of the
subrogation, contribution, indemnification, reimbursement, exoneration,
participation, or other rights of such Guarantor.
(c) Upon any receivership, insolvency proceeding, bankruptcy
proceeding, assignment for the benefit of creditors, reorganization, arrangement
with creditors, sale of assets for creditors, dissolution, liquidation, or
marshaling of the assets of the Borrower, any Guarantor, or any other Person
liable for the payment or performance of the Guaranteed Obligations, (i) all
amounts due with respect to the Guaranteed Obligations shall be paid in full
before such Guarantor shall be entitled to collect or receive any payment with
respect to the Subordinated Obligations of such Guarantor, and (ii) all payments
to which such Guarantor would be entitled to collect or receive on the
Subordinated Obligations of such Guarantor shall be paid over to the Agent for
application to the Guaranteed Obligations.
(d) Following notice from the Agent to the Borrower that an
Event of Default exists and that no further payments shall be made on the
Subordinated Obligations of such Guarantor, all amounts due with respect to the
Guaranteed Obligations shall be paid in full before such Guarantor shall be
entitled to collect or receive any payment with respect to the Subordinated
Obligations of such Guarantor.
(e) Any lien, security interest, or assignment securing the
repayment of the Subordinated Obligations of such Guarantor shall be fully
subordinate to any lien, security interest, or assignment in favor of the Agent
or any Lender which secures the Guaranteed Obligations. At the request of the
Agent, such Guarantor will take any and all steps necessary to fully evidence
the subordination granted hereunder, including amending or terminating financing
statements and executing and recording subordinations of liens.
(f) This is an absolute and irrevocable agreement of
subordination and the Agent may, without notice to such Guarantor, take any
action described in Section 2.2 without impairing or releasing the obligations
of such Guarantor hereunder.
(g) Except for assignments made pursuant to guaranties of the
Senior Debt, such Guarantor shall not assign or otherwise transfer to any other
Person any interest in the Subordinated Obligations of such Guarantor without
the prior written permission of the Agent and except for assignments made
pursuant to guaranties of the Senior Debt, unless such Guarantor causes the
assignee or other transferee to execute and deliver to the Agent a subordination
agreement in sub stantially the form of the subordination provisions in this
Agreement.
(h) If any amount shall be paid to such Guarantor in violation
of this Section 3.2, such amount shall be held in trust for the benefit of the
Agent and immediately turned over to the Agent, with any necessary endorsement,
to be applied to the Guaranteed Obligations.
Section 4. Miscellaneous.
4.1 Each Guarantor hereby affirms and shall comply with the
representations, warranties, and covenants made by the Borrower in the Loan
Agreement to the extent that such representations,
5
<PAGE> 6
warranties, and covenants are applicable to such Guarantor, including all of the
covenants in Articles 4 and 5 of the Loan Agreement.
4.2 Each Guarantor agrees that this Agreement shall be governed by the
laws of the State of New York. If any provision in this Agreement is held to be
unenforceable, such provision shall be severed and the remaining provisions
shall remain in full force and effect. All representations, warranties, and
covenants of any Guarantor in this Agreement shall survive the execution of this
Agreement and any other contract or agreement. If a due date for an amount
payable is not specified in this Agreement, the due date shall be the date on
which the Agent demands payment therefor. The Agent's and the Lenders' remedies
under this Agreement and the Loan Documents to which any Guarantor is a party
shall be cumulative, and no delay in enforcing this Agreement and the Loan
Documents to which such Guarantor is a party shall act as a waiver of the
Agent's or any Lenders' rights thereunder. The provisions of this Agreement may
be waived or amended only in a writing signed by the party against whom
enforcement is sought. This Agreement shall bind and inure to the benefit of
each Guarantor and the Lender and their respective successors and assigns. No
Guarantor may assign its rights or delegate its duties under this Agreement. The
Agent and the Lenders may assign their rights and delegate its duties under this
Agreement in accordance with the terms of the Loan Agreement. This Agreement may
be executed in multiple counterparts each of which shall constitute one and the
same agreement. Unless otherwise specified, all notices and other communications
between such Guarantor and the Agent provided for in this Agreement and the Loan
Documents to which such Guarantor is a party shall be in writing and shall be
mailed by first class or express mail, postage prepaid, or sent by telex,
telegram, telecopy or other similar form of rapid transmission, or personally
delivered to the receiving party. Any communication so addressed and mailed
shall be deemed to be given when so mailed and any notice so sent by rapid
transmission shall be deemed to be given when receipt of such transmission is
acknowledged or confirmed, and any communication so delivered in person shall be
deemed to be given when receipted for by, or actually received by, an authorized
officer of the Borrower or the Agent, as the case may be. All such
communications shall be mailed, sent or delivered,
If to any Guarantor:
[Guarantor]
c/o Queen Sand Resources, Inc.
3500 Oak Lawn Drive, Suite 380
Dallas, Texas 75219
Attn: Robert P. Lindsay
Telephone: (214) 521-9959
Telecopier: (214) 521-9960
6
<PAGE> 7
with a copy to:
Queen Sand Resources, Inc.
60 Queen Street, Suite 1400
Ottawa, Canada KIP 5Y7
Attn: Ronald Benn
Telephone: (613) 230-7211
Facsimile: (613) 230-6055
and
Haynes and Boone LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
Attn: William L. Boeing
Telephone: (214) 651-5553
Facsimile: (214) 651-5940
If to the Agent:
Enron Capital & Trade Resources Corp.
1400 Smith Street
Houston, Texas 77002
Attn.: Donna Lowry
Telephone: (713) 853-1939
Telecopier: (713) 646-4039
4.3 Any present or future Subsidiary of the Borrower may become a
Guarantor under and a party to this Agreement by assuming in writing in favor of
the Agent the liabilities of a Guarantor under this Agreement. Upon assuming the
liabilities of a Guarantor under this Agreement such Subsidiary shall be deemed
to be a Guarantor under this Agreement and a party to this Agreement for all
purposes hereunder.
THIS WRITTEN AGREEMENT AND THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
7
<PAGE> 8
EXECUTED as of the date first above written.
CORRIDA RESOURCES, INC.
By:
Robert P. Lindsay
Vice President
NORTHLAND OPERATING CO.
By:
Robert P. Lindsay
Vice President
8
<PAGE> 1
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement ("Agreement") is made and
entered into as of December 29, 1997, by and among Queen Sand Resources, Inc., a
Delaware corporation ("Company"), Enron Capital & Trade Resources Corp., a
Delaware corporation, as Agent for the Lenders described below ("Agent"), and,
solely for the purpose of the matters set forth in Section 3.12 hereof, Joint
Energy Development Investments Limited Partnership, a Delaware limited
partnership ("JEDI").
This Agreement is made in connection with the Subordinated
Revolving Credit Loan Agreement dated as of December 29, 1997 (as the same may
be amended or supplemented from time to time, "Loan Agreement") among Queen Sand
Resources, Inc., a Nevada corporation ("Borrower"), and the lenders who are or
may become party thereto ("Lenders"), and the Agent. In order to induce the
Lender to enter into the Loan Agreement, the Company has executed a Guaranty and
agreed to provide the registration and other rights set forth in this Agreement.
The execution and delivery of this Agreement is a condition precedent to the
Initial Loans (as defined in the Loan Agreement).
The parties agree as follows:
ARTICLE I
Section 1.01. Definitions. Capitalized terms used and not
otherwise defined herein which are defined in the Loan Agreement are used herein
as so defined. The terms set forth below are used herein as so defined:
"Common Stock" means the common stock, par value $0.0015 per
share, of the Company.
"Exchange Shares" means any shares of Common Stock issued
pursuant to Section 2.11 of the Loan Agreement (or any other securities issued
or issuable in respect of such shares of Common Stock pursuant to any dividend,
distribution, recapitalization, merger or consolidation or otherwise) excluding
any such shares which have ceased to be Registrable Securities pursuant to
Section 1.02 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Holder" means the record holder of any Exchange Shares.
"Registrable Securities" means, subject to Section 1.02
hereof, the Exchange Shares and any other shares of Common Stock held by a
Holder that have not ceased to be Registrable Securities pursuant to Section
1.02 hereof.
"Securities Act" means the Securities Act of 1933, as amended
from time to time, and the rules and regulations of the Commission promulgated
thereunder.
<PAGE> 2
"Selling Holder" means a Holder who is selling Registrable
Securities pursuant to a Registration Statement (as defined herein).
"Voting Securities" of any Person means capital stock or other
equity interests of such Person which ordinarily is entitled (without regard to
the occurrence of any additional event or contingency) to vote for the election
of directors (or persons performing similar functions) of such Person.
Section 1.02. Registrable Securities. Any Registrable Security
will cease to be a Registrable Security when (i) a Registration Statement
covering such Registrable Security has been declared effective by the Commission
and such Registrable Security has been issued, sold or disposed of pursuant to
such effective Registration Statement or (ii) such Registrable Security is
disposed of pursuant to Rule 144 (or any similar provision then in force) under
the Securities Act, (iii) such Registrable Security is eligible to be disposed
of pursuant to paragraph (k) of Rule 144 (or any similar provision then in
force) under the Securities Act or (iv) such Registrable Security is held by the
Company or one of its Subsidiaries.
ARTICLE II
Section 2.01. Demand Registration. (a) Any time after the date
of this Agreement, any Holder or Holders who collectively beneficially own at
least a majority of the Exchange Shares outstanding at such time may request (a
"Request Notice") the Company to register under the Securities Act all or any
portion (provided that such portion will have an aggregate offering price of at
least $1,000,000) of the Registrable Securities that are held for sale in the
manner specified in the Request Notice; provided that the Company shall be
obligated to register Registrable Securities pursuant to this Section 2.01 on
one occasion only.
(b) Promptly following receipt of a Request Notice, the
Company shall immediately notify any Person who is a Holder (except the Holder
or Holders who gave the Request Notice) of the receipt of a Request Notice and
shall use its best efforts to file a registration statement under the Securities
Act (each such registration statement is hereinafter referred to as a
"Registration Statement") effecting the registration under the Securities Act,
for public sale in accordance with the method of disposition specified in such
Request Notice, the Registrable Securities specified in the Request Notice (and
in any notices received from other Holders no later than the 10th Business Day
after receipt of the notice sent by the Company) (such other Holders and the
Holder or Holders who gave the Request Notice are hereinafter referred to as the
"Requesting Holders"). If such method of disposition shall be an underwritten
public offering, the Company may designate the managing underwriter of such
offering, subject to the approval of the Requesting Holders holding a majority
of the Registrable Securities to be registered, which approval shall not be
withheld unreasonably. A request pursuant to this Section 2.01 shall be counted
only when (i) all the Registrable Securities requested to be included in any
such registration have been so included, (ii) the corresponding Registration
Statement has become effective under the Securities Act, and (iii) the public
offering has been consummated and the Registrable Securities have been sold on
the terms and conditions specified therein. Notwithstanding anything to the
contrary contained herein,
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<PAGE> 3
the Company may delay the filing or effectiveness of a Registration Statement
after receipt of a Request Notice (i) for up to 90 days if at the time of such
request, the Company is engaged in a firm commitment underwritten public
offering of its securities in which Holders may include Registrable Securities
and for which the Company has delivered the notice to Holders required by the
first sentence of Section 2.02 or (ii) for up to 60 days if at the time of such
request, the Board of Directors of the Company determines in its reasonable
judgment and in good faith that the filing of such a Registration Statement or
the making of any required disclosure in connection therewith would have a
material adverse effect on the Company or substantially interfere with a
significant transaction in which the Company is then engaged; provided that the
Company may not delay the filing of a Registration Statement in reliance on this
clause (ii) more than once during any period of twelve consecutive calendar
months.
(c) The Company shall be entitled to include in any
Registration Statement filed pursuant to this Section 2.01, for sale in
accordance with the method of disposition specified by the Requesting Holders,
Voting Securities to be sold by the Company for its own account, except as and
to the extent that, in the opinion of the managing underwriter (if such method
of disposition shall be an underwritten public offering), such inclusion would
materially jeopardize the successful marketing of the Registrable Securities to
be sold. Any Person other than a Holder entitled to piggyback registration
rights with respect to a Registration Statement filed pursuant to this Section
2.01 may include Voting Securities of the Company with respect to which such
rights apply in such Registration Statement for sale in accordance with the
method of disposition specified by the Requesting Holder, except and to the
extent that, in the opinion of the managing underwriter (if such method of
disposition shall be an underwritten public offering) such inclusion would
materially jeopardize the successful marketing of the Registrable Securities to
be sold. Except as provided in this subsection (c), the Company will not effect
any other registration of its Voting Securities (except with respect to
Registration Statements on Form S-4 or S-8 for purposes permissible under such
forms as of the date hereof, or any successor forms for comparable purposes that
may be adopted by the Commission), whether for its own account or that of any
other security holder, from the date of receipt of a Request Notice requesting
the registration of an underwritten public offering until the completion of the
distribution by the underwriters of all securities thereunder.
Section 2.02. Piggy-Back Registration. If the Company proposes
to register any equity securities under the Securities Act for sale to the
public for cash, whether for its own account or for the account of other
security holders or both (except with respect to Registration Statements on
Forms S-4 or S-8 for purposes permissible under such forms as of the date
hereof, or any successor forms for comparable purposes that may be adopted by
the Commission), each such time it will give written notice to all Holders of
its intention to do so no less than 15 Business Days prior to the anticipated
filing date. Upon the written request of any Holder, received by the Company no
later than the 10th Business Day after receipt by such Holder of the notice sent
by the Company, to register, on the same terms and conditions as the securities
otherwise being sold pursuant to such registration, any of its Registrable
Securities (which request shall state the intended method of disposition
thereof), the Company will use its best efforts to cause the Registrable
Securities as to which registration shall have been so requested to be included
in the securities to be covered by the Registration Statement proposed to be
filed by the Company, on the same terms and conditions as any similar securities
included therein, all to the extent requisite to permit the sale or other
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<PAGE> 4
disposition by each Holder (in accordance with its written request) of such
Registrable Securities so registered; provided, however, that the Company may at
any time prior to the effectiveness of any such Registration Statement, in its
sole discretion and without the consent of any Holder, abandon the proposed
offering in which any Holder had requested to participate. The number of
Registrable Securities to be included in such a registration may be reduced or
eliminated if and to the extent, in the case of an underwritten offering, the
managing underwriter shall render to the Company its opinion that such inclusion
would materially jeopardize the successful marketing of the securities
(including the Registrable Securities) proposed to be sold therein; provided,
however, that (a) no Exchange Shares shall be excluded from such registration
unless all other Registrable Securities held by any Holder which are not
Exchange Shares have been excluded from such registration (except to the extent
that such other Registrable Securities may be included in the registration
pursuant to registration rights other than those granted hereunder) and (b) such
number of shares of Registrable Securities shall not be reduced (i) if any
securities included in such registration are included other than for the account
of (x) the Company or (y) persons exercising registration rights granted
pursuant to the agreements listed on Schedule I hereto (as in effect as of the
date hereof) (the "Schedule I Agreements") and (ii) except as provided below,
unless the shares included in the registration pursuant to piggy-back
registration rights granted pursuant to the Schedule I Agreements are also
reduced on a pro rata basis; provided further that, notwithstanding clause (ii)
above, the piggy-back registration rights granted hereby shall be subject to the
prior right of holders of registrable securities under the Registration Rights
Agreement dated May 6, 1997 between the Company and JEDI (the "JEDI Rights
Agreement") to include any or all of such registrable securities before any
Holder includes any or all of its Registrable Securities in any registration
relating to an underwritten public offering with respect to which, in the
opinion of the managing underwriter, the inclusion in the offering of all shares
requested to be registered by all Persons holding registration rights would
materially jeopardize the successful marketing of the securities to be sold.
From and after the date of this Agreement and until no Registrable Securities
remain outstanding, the Company shall not grant any piggy-back registration
rights to any Person unless such rights are expressly made subject to the prior
right of Holders to include any or all of their Registrable Securities before
such other Person includes any shares in any registration relating to an
underwritten public offering with respect to which, in the opinion of the
managing underwriter, the inclusion in the offering of all shares requested to
be registered by all Persons holding registration rights would materially
jeopardize the successful marketing of the securities (including the Registrable
Securities) to be sold. In the event that the number of Registrable Securities
to be included in a registration is to be reduced as provided above, within 10
Business Days after receipt by each Holder proposing to sell Registrable
Securities pursuant to the registered offering of the opinion of such managing
underwriter, all such Selling Holders may allocate among themselves the number
of shares of such Registrable Securities which such opinion states may be
distributed without adversely affecting the distribution of the securities
covered by the Registration Statement, and if such Holders are unable to agree
among themselves with respect to such allocation, such allocation shall be made
in proportion to the respective numbers of shares specified in their respective
written requests. Notwithstanding anything to the contrary contained in this
Section 2.02, in the event that there is a firm underwriting commitment offer of
securities of the Company pursuant to a Registration Statement covering
Registrable Securities and a Person does not elect to sell its Registrable
Securities to the underwriters of the Company's securities in connection with
such offering, such Person shall not offer for sale, sell, grant any option for
the sale of, or otherwise
4
<PAGE> 5
dispose of, directly or indirectly, any shares of Common Stock, or any
securities convertible into or exchangeable into or exercisable for any shares
of Common Stock during the period of distribution of the Company's securities by
such underwriters, which shall be specified in writing by the underwriters,
shall not exceed any period during which management of the Company and others
are similarly prohibited from disposing of shares of Common Stock and shall not
exceed 180 days following the date of effectiveness under the Securities Act of
the Registration Statement relating thereto if the net proceeds to the Company
from such offering will be $25,000,000 or greater and shall not exceed 60 days
following the date of effectiveness under the Securities Act of the Registration
Statement relating thereto if the net proceeds to the Company from such offering
will be less than $25,000,000.
Section 2.03. Registration Procedures. If and whenever the Company is
required pursuant to this Agreement to effect the registration of any of the
Registrable Securities under the Securities Act, the Company will, as
expeditiously as possible:
(a) prepare and file as promptly as possible with the
Commission a Registration Statement, on a form available to the
Company, with respect to such securities (which filing shall be made
within 45 days after the receipt by the Company of a Request Notice)
and use its best efforts to cause such Registration Statement to become
and remain effective for the period of the distribution contemplated
thereby (determined pursuant to subparagraph (g) below);
(b) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in
connection therewith as may be necessary to keep such Registration
Statement effective for the period specified in subsection (g) below
and as may be necessary to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
Registration Statement in accordance with the sellers' intended method
of disposition set forth in such Registration Statement for such
period;
(c) furnish to each Selling Holder and to each underwriter
such number of copies of the Registration Statement and the prospectus
included therein (including each preliminary prospectus and each
document incorporated by reference therein to the extent then required
by the rules and regulations of the Commission) as such Persons may
reasonably request in order to facilitate the public sale or other
disposition of the Registrable Securities covered by such Registration
Statement;
(d) use its best efforts to register or qualify the
Registrable Securities covered by such Registration Statement under the
securities or blue sky laws of such jurisdictions as the Selling
Holders or, in the case of an underwritten public offering, the
managing underwriter, shall reasonably request, provided, however, that
the Company will not be required to subject itself to taxation in any
such jurisdiction or to consent to general service of process in any
such jurisdiction;
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<PAGE> 6
(e) immediately notify each Selling Holder and each
underwriter, at any time when a prospectus relating thereto is required
to be delivered under the Securities Act, of the happening of any event
as a result of which the prospectus contained in such Registration
Statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing and as promptly as
practicable amend the Registration Statement or supplement the
prospectus or take other appropriate action so that the prospectus does
not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances
then existing; provided, however, that, in the case of a shelf
registration, the Company, on one occasion during each such
registration, may delay taking such action for a period of 45 days,
during which time the Selling Holders shall not sell any Registrable
Securities, if the Board of Directors determines in its reasonable
judgment and in good faith that the making of any required disclosure
in connection therewith would have a material adverse effect on the
Company or substantially interfere with a significant transaction in
which the Company is then engaged;
(f) in the case of an underwritten public offering, furnish,
(i) on the date that Registrable Securities are delivered to the
underwriters for sale pursuant to such Registration Statement, an
opinion of counsel for the Company dated as of such date and addressed
to the underwriters and to the Selling Holders, stating that such
Registration Statement has become effective under the Securities Act
and that (A) to the best knowledge of such counsel, no stop order
suspending the effectiveness thereof has been issued and no proceedings
for that purpose have been instituted or are pending or contemplated
under the Securities Act, (B) the Registration Statement, the related
prospectus, and each amendment or supplement thereof, comply as to form
in all material respects with the requirements of the Securities Act
and the applicable rules and regulations thereunder of the Commission
(except that such counsel need express no opinion as to the financial
statements or any engineering report contained or incorporated therein)
and (C) to such other effects as may reasonably be requested by counsel
for the underwriters, and (ii) on the effective date of the
Registration Statement and on the date that Registrable Securities are
delivered to the underwriters for sale pursuant to such Registration
Statement, a letter dated such dates from the independent accountants
retained by the Company, addressed to the underwriters and to the
Selling Holders, stating that they are independent public accountants
within the meaning of the Securities Act and that, in the opinion of
such accountants, the financial statements of the Company and the
schedules thereto that are included or incorporated by reference in the
Registration Statement or the prospectus, or any amendment or
supplement thereof, comply as to form in all material respects with the
applicable requirements of the Securities Act and the published rules
and regulations thereunder, and such letter shall additionally address
such other financial matters (including information as to the period
ending no more than five Business Days prior to the date of such
letter) included in the Registration Statement in respect of which such
letter is being given as the underwriters may reasonably request;
(g) make available for inspection by one representative of the
Selling Holders designated by a majority thereof, any underwriter
participating in any distribution pursuant
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<PAGE> 7
to such Registration Statement, and any attorney, accountant or other
agent retained by such representative of the Selling Holders or
underwriter (the "Inspectors"), all financial and other records,
pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all
information reasonably requested by any such Inspector in connection
with such Registration Statement. For purposes of subsections (a) and
(b) above and of Section 2.01(c) of this Agreement, the period of
distribution of Registrable Securities in a firm commitment
underwritten public offering shall be deemed to extend until each
underwriter has completed the distribution of all securities purchased
by it, and the period of distribution of Registrable Securities in any
other registration shall be deemed to extend until the earlier of the
sale of all Registrable Securities covered thereby or one year,
excluding any period of time during which Selling Holders are
prohibited from selling Registrable Securities pursuant to Section 2.02
or Section 2.03(e);
(h) use its best efforts to keep effective and maintain for
the period specified in subparagraph (g) a registration, qualification,
approval or listing obtained to cover the Registrable Securities as may
be necessary for the Selling Holders to dispose thereof and shall from
time to time amend or supplement any prospectus used in connection
therewith to the extent necessary in order to comply with applicable
law;
(i) use its best efforts to cause the Registrable Securities
to be registered with or approved by such other governmental agencies
or authorities as may be necessary by virtue of the business and
operations of the Company to enable the Selling Holders to consummate
the disposition of such Registrable Securities; and
(j) enter into customary agreements (including, if requested,
an underwriting agreement in customary form) and take such other
actions as are reasonably requested by the Selling Holders or the
underwriters, if any, in order to expedite or facilitate the
disposition of such Registrable Securities.
In connection with each registration hereunder, each Selling Holder
will furnish promptly to the Company in writing such information with respect to
itself and the proposed distribution by it as shall be reasonably necessary in
order to ensure compliance with federal and applicable state securities laws.
In connection with each registration hereunder with respect to an
underwritten public offering, the Company and each Selling Holder agrees to
enter into a written agreement with the managing underwriter or underwriters
selected in the manner herein provided in such form and containing such
provisions as are customary in the securities business for such an arrangement
between underwriters and companies of the Company's size and investment stature,
provided that such agreement shall not contain any such provision applicable to
the Company or the Selling Holders that is inconsistent with the provisions
hereof; and further provided, that the time and place of the closing under said
agreement shall be as mutually agreed upon among the Company, the Selling
Holders and such managing underwriter.
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<PAGE> 8
Section 2.04. Expenses. (a) All expenses incident to the
Company's performance under or compliance with this Agreement, including without
limitation, all registration and filing fees, blue sky fees and expenses,
printing expenses, listing fees, fees and disbursements of counsel and
independent public accountants for the Company, fees of the National Association
of Securities Dealers, Inc., transfer taxes, fees of transfer agents and
registrars and costs of insurance and reasonable out-of-pocket expenses
(including, without limitation, legal fees of one counsel for all Selling
Holders) of the Selling Holders, but excluding any Selling Expenses (as defined
below), are herein called "Registration Expenses." All underwriting fees,
discounts and selling commissions allocable to the sale of the Registrable
Securities are herein called "Selling Expenses."
(b) The Company will pay all Registration Expenses in
connection with each Registration Statement filed pursuant to this Agreement,
whether or not the Registration Statement becomes effective, and the Selling
Holders shall pay Selling Expenses in connection with any Registrable Securities
registered pursuant to this Agreement.
Section 2.05. Indemnification. (a) In the event of a
registration of any Registrable Securities under the Securities Act pursuant to
this Agreement, the Company will indemnify and hold harmless each Selling Holder
thereunder and each underwriter of Registrable Securities thereunder and each
Person, if any, who controls such Selling Holder or underwriter within the
meaning of the Securities Act and the Exchange Act, against any losses, claims,
damages or liabilities (including reasonable attorneys' fees) ("Losses"), joint
or several, to which such Selling Holder or underwriter or controlling Person
may become subject under the Securities Act, the Exchange Act or otherwise,
insofar as such Losses, (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact
contained in any Registration Statement under which such Registrable Securities
were registered under the Securities Act pursuant to this Agreement, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse each
such Selling Holder, each such underwriter and each such controlling Person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such Loss or actions; provided, however, that the
Company will not be liable in any such case if and to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by such Selling Holder, such underwriter
or such controlling Person in writing specifically for use in such Registration
Statement or prospectus.
(b) Each Selling Holder agrees to indemnify and hold harmless
the Company, its directors, officers, employees and agents and each Person, if
any, who controls the Company within the meaning of the Securities Act or of the
Exchange Act to the same extent as the foregoing indemnity from the Company to
such Selling Holder, but only with respect to information regarding such Selling
Holder furnished in writing by or on behalf of such Selling Holder expressly for
inclusion in any Registration Statement or prospectus relating to the
Registrable Securities, or any amendment or supplement thereto; provided,
however, that the liability of such Selling Holder shall not be greater in
amount than the dollar amount of the proceeds (net of any Selling Expenses)
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<PAGE> 9
received by such Selling Holder from the sale of the Registrable Securities
giving rise to such indemnification.
(c) Promptly after receipt by an indemnified party hereunder
of notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to any indemnified party other than under this Section 2.05. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel reasonably satisfactory to such
indemnified party and, after notice from the indemnifying party to such
indemnified party of its election so to assume and undertake the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under this Section 2.05 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected; provided,
however, that, (i) if the indemnifying party has failed to assume the defense
and employ counsel or (ii) if the defendants in any such action include both the
indemnified party and the indemnifying party and counsel to the indemnified
party shall have concluded that there may be reasonable defenses available to
the indemnified party that are different from or additional to those available
to the indemnifying party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the indemnifying
party, then the indemnified party shall have the right to select a separate
counsel and to assume such legal defense and otherwise to participate in the
defense of such action, with the expenses and fees of such separate counsel and
other expenses related to such participation to be reimbursed by the
indemnifying party as incurred, provided that such fees and expenses shall be
reimbursed for only one counsel for all indemnified parties.
(d) If the indemnification provided for in this Section 2.05
is available to the Company or the Selling Holders or is insufficient to hold
them harmless in respect of any losses, claims, damages, liabilities or expenses
referred to herein, then each such indemnifying party, in lieu of indemnifying
such indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities and
expenses as between the Company on the one hand and each Selling Holder on the
other, in such proportion as is appropriate to reflect the relative fault of the
Company on the one hand and of each Selling Holder on the other in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities, as well as any other relevant equitable considerations. The
relative fault of the Company on the one hand and each Selling Holder on the
other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statements of a material fact or the omission or
alleged omission to state a material fact has been made by, or relates to,
information supplied by such party, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
No person of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who is not guilty of such fraudulent misrepresentation.
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ARTICLE III
Section 3.01. Communications. All notices and other
communications provided for or permitted hereunder shall be made in writing by
telecopy, courier service or personal delivery:
(i) if to a Holder, (A) if such Holder is a Lender,
initially, at the address of such Lender set forth in the Loan
Agreement, (B) if such Holder is not a Lender, initially, at
such address delivered to the Company pursuant to Section 3.11
hereof, and (C) for any Holder, at such other address, notice
of which is given by such Holder in accordance with the
provisions of this Section 3.01, and
(ii) if to the Company, initially at its address set
forth in the Guaranty and thereafter at such other address,
notice of which is given in accordance with the provisions of
this Section 3.01.
All such notices and communications shall be deemed to have
been received at the time delivered by hand, if personally delivered; when
receipt acknowledged, if telecopied; and on the next Business Day if timely
delivered to an air courier guaranteeing overnight delivery.
Section 3.02. Successor and Assigns. This Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties.
Section 3.03. Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original and all of which counterparts, taken together, shall
constitute but one and the same Agreement.
Section 3.04. Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
Section 3.05. Governing Law. The laws of the State of Texas
shall govern this Agreement without regard to principles of conflict of laws.
Section 3.06. Severability of Provisions. Any provision of
this Agreement which is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting or impairing the validity or enforceability of such provision in any
other jurisdiction.
Section 3.07. Entire Agreement. This Agreement, together with
the Loan Agreement and the other Loan Documents is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted by the Company with respect to
the securities transferred pursuant to the Loan Agreement. This Agreement, the
Loan Agreement and the other
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Loan Documents supersede all prior agreements and understandings between the
parties with respect to such subject matter.
Section 3.08. Attorneys' Fees. In any action or proceeding
brought to enforce any provision of this Agreement, the successful party shall
be entitled to recover reasonable attorneys' fees in addition to its costs and
expenses and any other available remedy.
Section 3.09. Amendment. This Agreement may be amended only by
written amendment signed by (a) while no Exchange Shares are issued and
outstanding, the Agent (with the consent of the Majority Lenders) and the
Company and (b) while Exchange Shares are issued and outstanding, the Agent
(with the consent of the Majority Lenders), the Holders of a majority of the
Exchange Shares, and the Company.
Section 3.10. Registrable Securities Held by the Company or
Its Affiliates. In determining whether the Holders of the required amount of
Registrable Securities have concurred in any direction, amendment, supplement,
waiver or consent, Registrable Securities owned by the Company or one of its
Affiliates shall be disregarded.
Section 3.11. Assignment of Rights. (a) The rights of any
Holder under this Agreement may be assigned (i) to any Person who acquires
Exchange Shares or (ii) in connection with any assignment of any Lender's rights
under the Loan Agreement permitted thereunder. Any assignment of registration
rights pursuant to this Section 3.11(a) shall be effective only upon receipt by
the Company of written notice from such assigning Holder stating the name and
address of any assignee.
(b) The rights of an assignee under Section 3.11(a) shall be
the same rights granted to the assigning Holder under this Agreement. In
connection with any such assignment, the term "Holder" as used herein shall,
where appropriate to assign the rights and obligations of the assigning Holder
hereunder to such assignee, be deemed to refer to the assignee.
Section 3.12. JEDI Consent Pursuant to Section 2.01(d) of the
JEDI Rights Agreement, JEDI hereby consents to the grant of demand registration
rights pursuant to Section 2.01 of this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
QUEEN SAND RESOURCES, INC., a Delaware
corporation
By:
--------------------------------------------
Robert P. Lindsay
Chief Operating Officer and Executive
Vice President
ENRON CAPITAL & TRADE RESOURCES CORP.,
a Delaware corporation, as Agent
By:
--------------------------------------------
Steven M. Emshoff
Agent and Attorney-in-Fact
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JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP
(solely for the purpose of the matters set forth in
Section 3.12 hereof)
By: Enron Capital Management Limited
Partnership, its General Partner
By: Enron Capital Corp., its General
Partner
By:
-------------------------------------
Name:
-------------------------------------
Agent and Attorney-in-Fact
13
<PAGE> 14
SCHEDULE I
OTHER REGISTRATION RIGHTS
[BORROWER TO PROVIDE]
14
<PAGE> 1
SECOND AMENDMENT
TO
CREDIT AGREEMENT
Among
QUEEN SAND RESOURCES, INC.
as Borrower,
BANK OF MONTREAL,
as Agent,
and
The Lenders Signatory Hereto
Effective as of December 29, 1997
<PAGE> 2
SECOND AMENDMENT TO CREDIT AGREEMENT
This SECOND AMENDMENT TO CREDIT AGREEMENT (this "Second Amendment")
executed effective as of the 29th of December, 1997 (the "Effective Date") is
among QUEEN SAND RESOURCES, INC., a corporation formed under the laws of the
State of Nevada (the "Borrower"); Northland Operating Co., a Nevada corporation
("Northland"), Corrida Resources, Inc., a Nevada corporation ("Corrida"), Queen
Sand Resources, Inc., a Delaware corporation (the "Parent Company"), each of the
lenders that is a signatory hereto or which becomes a signatory hereto as
provided in Section 12.06 (individually, together with its successors and
assigns, a "Lender" and, collectively, the "Lenders"); and BANK OF MONTREAL, as
agent for the Lenders (in such capacity, together with its successors in such
capacity, the "Agent").
RECITALS
A. The Borrower, the Agent and the Banks are parties to that certain
Credit Agreement dated as of August 1, 1997, as amended by that certain First
Amendment to Credit Agreement dated as of December 3, 1997 (the "Credit
Agreement"), pursuant to which the Banks have made certain credit available to
and on behalf of the Borrower.
B. The Borrower has requested and the Agent and the Banks have agreed
to amend certain provisions of the Credit Agreement.
C. NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
Section 1. Defined Terms. All capitalized terms which are defined in
the Credit Agreement, but which are not defined in this Second Amendment, shall
have the same meanings as defined in the Credit Agreement. Unless otherwise
indicated, all section references in this Second Amendment refer to the Credit
Agreement.
Section 2. Amendments to Credit Agreement.
2.1 Amendments to Section 1.01.
(a) The definition of "Agreement" is hereby amended to read as follows:
"Agreement" shall mean this Credit Agreement, as amended by
the First Amendment, as amended by the Second Amendment, and as further
amended from time to time.
(b) The following definition of "ECT Subordinated Debt" is hereby added
where alphabetically appropriate:
1
<PAGE> 3
"ECT Subordinated Debt" shall mean collectively, (i) the
Subordinated Revolving Credit Loan Agreement dated as of December 29,
1997 among the Borrower, Enron Capital & Trade Resources Corp., as
agent for itself and the other lenders now or hereafter parties
thereto, and such lenders, (ii) the promissory note(s) in the aggregate
principal amount of $10,000,000 issued by the Borrower thereunder,
(iii) all agreements, instruments and documents given by the Borrower,
the Parent Company or any Obligor to secure the obligations of the
Borrower under the agreement and instrument described in clauses (i)
and (ii).
(c) The following definition of "Preferred Stock" is hereby added where
alphabetically appropriate:
"Preferred Stock" shall mean the Parent Company's Series C
Convertible Preferred Stock issued pursuant to the Certificate of
Designation of Series C Convertible Preferred Stock adopted as of
December 23, 1997, together with any and all amendments and
modifications thereto.
(d) The following definitions of "Second Amendment" and "Second
Amendment Effective Date" are hereby added where alphabetically appropriate:
"Second Amendment" shall mean that certain Second Amendment to
Credit Agreement dated as of December 29, 1997 among the Obligors, the
Agent and the Banks.
"Second Amendment Effective Date" shall mean the "Effective
Date" as such term is defined in the Second Amendment.
(e) The following definition of "Subordinated Debt" is hereby added
where alphabetically appropriate:
"Subordinated Debt" shall mean, collectively, DEM Subordinated
Debt and ECT Subordinated Debt.
2.2 Section 2.08. Section 2.08(b) is hereby amended by adding a new
phrase to the end of the second sentence thereof which reads in its entirety as
follows:
and assessing the interest expense associated with the Subordinated
Debt.
2.3 Section 7.21. Section 7.21 is hereby deleted in its entirety and
the following is inserted in lieu thereof:
Section 7.21 Restriction on Liens. Neither the Parent Company,
the Borrower nor any of its Subsidiaries (other than Non-Recourse
Subsidiaries) is a party to any agreement or arrangement (other than
this Agreement and the Security Instruments), or subject to any order,
judgment, writ or decree, which either restricts or purports to
restrict its ability to grant Liens to other Persons on or in respect
of their respective assets of Properties, except for such restrictions
as are contained in the documents and agreements evidencing the
Subordinated Debt; provided that such restrictions do not
2
<PAGE> 4
impair the ability of the Parent Company, the Borrower or any of its
Subsidiaries (other than Non-Recourse Subsidiaries) to grant Liens to
the Agent and the Banks.
2.4 Section 8.01(i) and (j). Sections 8.01(i) and (j) are hereby added
which read in their entirety as follows:
(i) Promptly after the Parent Company or the Borrower knows
that any "mandatory redemption event" in respect of the Preferred Stock
has occurred, a notice thereof, describing the same in reasonable
detail and the action the Parent Company or the Borrower proposes to
take with respect thereto; and if any mandatory redemption notices are
given or received in respect of the Preferred Stock, a copy thereof.
(j) If the event described in Section 2.5(a)(ii) of the
Subordinated Revolving Credit Loan Agreement described in clause (i) of
the definition of ECT Subordinated Debt shall occur, the Borrower shall
promptly give the Agent written notice thereof.
2.5 Section 8.09(a). Section 8.09(a) is hereby amended by adding the
following new sentence at the end thereof, which reads in its entirety as
follows:
If the Agent so requests in writing, the Parent Company and the
Borrower will, and will cause each Guarantor to, within 25 days
following such request (and in any event prior to the granting of any
Liens in favor of the holder(s) of the ECT Subordinated Debt), grant to
the Agent as security for the Indebtedness a first-priority Lien
interest (subject only to Excepted Liens) on such Person's interest in
any Oil and Gas Properties not already subject to a Lien of the
Security Instruments such that the Mortgaged Property shall include a
percentage requested by the Agent (not to exceed 98%) of its and such
Subsidiaries' SEC Value of each of proved producing and the total
Proved Reserves at all times.
2.6 Section 8.12(b). Section 8.12(b) is hereby amended to delete the
word "common" in the third line thereof.
2.7 Section 9.01(g). Section 9.01(g) is hereby deleted in its entirety
and the following is inserted in lieu thereof:
(g) the Subordinated Debt;
2.8 Section 9.02. Section 9.02 is hereby amended by deleting the "and"
which is the last word of Section 9.02(d), deleting the "." at the end of
Section 9.02(e) and inserting a "; and" in lieu thereof and by adding the
following new Section 9.02(f), which reads in its entirety as follows:
(f) Liens to secure the ECT Subordinated Debt; provided that
such Liens are subordinated to the Liens in favor of the Agent and the
Lenders on terms reasonably satisfactory to the Agent.
2.9 Section 9.03(g). Section 9.03(g) is hereby deleted in its entirety
and the following is inserted in lieu thereof:
3
<PAGE> 5
(g) investments, loans or advances made by (i) the Borrower in
or to any Guarantor or the Parent Company or (ii) any Subsidiary of the
Parent Company in or to any Guarantor, the Parent Company or the
Borrower;
2.10 Section 9.04. Section 9.04 is hereby deleted in its entirety and
the following is inserted in lieu thereof:
Section 9.04 Subordinated Debt. Neither the Parent Company nor
the Borrower will, in any material respect, (i) amend, supplement,
modify or prepay the DEM Subordinated Debt without the prior written
consent of the Majority Lenders, or (ii) amend, supplement, modify,
repay or prepay the ECT Subordinated Debt without the prior written
consent of the Majority Lenders, except for amendments or modifications
to and payments on the ECT Subordinated Debt as contemplated by that
certain Subordination Agreement dated as of December 29, 1997 by the
holder of the ECT Subordinated Debt in favor of the Agent and the
Lenders.
2.11 Section 9.12. Section 9.12 is hereby deleted in its entirety and
the following is inserted in lieu thereof:
Section 9.12 Current Ratio. The Parent Company's ratio of (i)
consolidated current assets plus unused availability under the
Aggregate Commitments to (ii) consolidated current liabilities
(excluding (A) current maturities of the Notes and (B) the ECT
Subordinated Debt so long as the ECT Subordinated Debt is fully
revolving and does not mature within one (1) year of the date of
determination) shall not be less than 1.0 to 1.0 at any time.
2.12 Section 9.14. Clause (ii) of Section 9.14 is hereby deleted in its
entirety and the following is inserted in lieu thereof:
(ii) for the three month period ending on December 31, 1997,
2.0 to 1.0;
2.13 Section 9.19. Section 9.19 is hereby deleted in its entirety and
the following is inserted in lieu thereof:
Section 9.19 Negative Pledge Agreements. Neither the Parent
Company, the Borrower nor any of its Subsidiaries will create, incur,
assume or suffer to exist any contract, agreement or understanding
(other than this Agreement, the Security Instruments and the documents
and agreements evidencing the Subordinated Debt) which in any way
prohibits or restricts the granting, conveying, creation or imposition
of any Lien on any of its Property or restricts any of its Subsidiaries
from paying dividends to the Borrower, or which requires the consent of
other Persons in connection therewith.
2.14 Section 9.20. Section 9.20 is hereby deleted in its entirety and
the following in inserted in lieu thereof:
Section 9.20 Gas Imbalances, Take-or-Pay or Other Prepayments.
The Parent Company and the Borrower will not, and will not permit any
Guarantor to, enter into
4
<PAGE> 6
any contracts or agreements which warrant production of Hydrocarbons
(other than Hedging Agreements otherwise permitted hereunder) and will
not hereafter allow gas imbalances, take-or-pay or other prepayments
with respect to their Oil and Gas Properties which would require such
Person to deliver Hydrocarbons produced on Oil and Gas Properties at
some future time without then or thereafter receiving full payment
therefor to exceed, during any monthly period, five percent (5%) of the
current aggregate monthly gas production for such monthly period from
the Mortgaged Properties.
2.15 Section 10.01. Section 10.01(b) is hereby deleted in its entirety
and the following is inserted in lieu thereof:
(b) the Parent Company, the Borrower or any Guarantor shall
default in the payment when due of any principal of or interest on any
of its Debt (including the DEM Subordinated Debt) aggregating $100,000
or more, or any event specified in any note, agreement, indenture or
other document evidencing or relating to any such Debt shall occur if
the effect of such event is to cause, or (with the giving of any notice
or the lapse of time or both) to permit the holder or holders of such
Debt (or a trustee or agent on behalf of such holder or holders) to
cause, such Debt to become due prior to its stated maturity; or the
Parent Company shall become obligated to mandatorily redeem any of the
Preferred Stock or a "mandatory redemption event" shall occur under the
Certificate of Designation for the Preferred Stock.
Section 3. Conditions Precedent. The effectiveness of this Second
Amendment is subject to the receipt by the Agent of the following documents and
satisfaction of the other conditions provided in this Section 3, each of which
shall be reasonably satisfactory to the Agent in form and substance:
3.1 Loan Documents. The Agent shall have received multiple counterparts
as requested of the following:
(i) this Second Amendment,
(ii) the First Omnibus Amendment to Guaranty Agreements and Security
Agreement executed by the Obligors,
(iii) such supplemental Security Instruments as the Agent may
reasonably request for filing and recordation in the appropriate
offices to establish and perfect the Liens such that the Security
Instruments create valid and perfected, first priority Liens on not
less than 98% of each of proved producing and the total proved SEC
Value of the Oil and Gas Properties included in the most recently
delivered Reserve Report, and
(iv) a Subordination Agreement executed by each holder of the ECT
Subordinated Debt, in each case, executed and delivered by a duly
authorized officer of each party,
3.2 No Default. No Default or Event of Default shall have occurred and
be continuing as of the Effective Date.
5
<PAGE> 7
3.3 Copy of Preferred Stock and Subordinated Debt. The Borrower shall
have delivered to the Agent copies of each of the agreements evidencing the
Preferred Stock and the ECT Subordinated Debt, which shall be certified by a
responsible officer of the Borrower or the Parent Company as true and complete,
and which agreements shall each be in form and substance reasonably satisfactory
to the Agent.
3.4 Closing Certification. The Agent shall have received a certificate
of the Borrower or the Parent Company certifying that all initial transactions
contemplated in connection with the Preferred Stock and the ECT Subordinated
Debt are being or have been consummated.
Section 4. Representations and Warranties; Etc. Each Obligor hereby
affirms: (a) that as of the date of execution and delivery of this Second
Amendment, all of the representations and warranties contained in each Loan
Document to which such Obligor is a party are true and correct in all material
respects as though made on and as of the Effective Date; and (b) that after
giving effect to this Second Amendment and to the transactions and waivers
contemplated hereby, no Defaults exist under the Loan Documents or will exist
under the Loan Documents.
Section 5. Miscellaneous.
5.1 Confirmation. The provisions of the Credit Agreement (as amended by
this Second Amendment) shall remain in full force and effect in accordance with
its terms following the effectiveness of this Second Amendment.
5.2 Ratification and Affirmation of Obligors. Each of the Obligors
hereby expressly (i) acknowledges the terms of this Second Amendment, (ii)
ratifies and affirms its obligations under its respective Guaranty Agreement and
the other Security Instruments to which it is a party, (iii) acknowledges,
renews and extends its continued liability under its respective Guaranty
Agreement and the other Security Instruments to which it is a party and agrees
that its respective Guaranty Agreement and the other Security Instruments to
which it is a party remains in full force and effect with respect to the
Indebtedness as amended hereby.
5.3 Counterparts. This Second Amendment may be executed by one or more
of the parties hereto in any number of separate counterparts, and all of such
counterparts taken together shall be deemed to constitute one and the same
instrument.
5.4 No Oral Agreement. THIS WRITTEN SECOND AMENDMENT, THE CREDIT
AGREEMENT AND THE OTHER LOAN DOCUMENTS EXECUTED IN CONNECTION HEREWITH AND
THEREWITH REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR UNWRITTEN ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES.
5.5 GOVERNING LAW. THIS SECOND AMENDMENT (INCLUDING, BUT NOT LIMITED
TO, THE VALIDITY AND ENFORCEABILITY HEREOF) SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
[SIGNATURES BEGIN NEXT PAGE]
6
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be duly executed effective as of the date first written above.
BORROWER: QUEEN SAND RESOURCES, INC., a Nevada corporation
By: /s/ Robert P. Lindsay
---------------------------------
Robert P. Lindsay
Vice President
PARENT COMPANY: QUEEN SAND RESOURCES, INC., a Delaware corporation
By: /s/ Robert P. Lindsay
---------------------------------
Robert P. Lindsay
Chief Operating Officer
and Executive Vice President
GUARANTORS: NORTHLAND OPERATING CO.
By: /s/ Robert P. Lindsay
---------------------------------
Robert P. Lindsay
Vice President
CORRIDA RESOURCES, INC.
By: /s/ Robert P. Lindsay
---------------------------------
Robert P. Lindsay
Vice President
7
<PAGE> 9
AGENT: BANK OF MONTREAL, as Agent
By: /s/ Robert L. Roberts
-------------------------------------
Robert L. Roberts
Director, U.S. Corporate Banking
LENDER: BANK OF MONTREAL
By: /s/ Robert L. Roberts
-------------------------------------
Robert L. Roberts
Director, U.S. Corporate Banking
8
<PAGE> 1
THIRD AMENDMENT
TO
CREDIT AGREEMENT
Among
QUEEN SAND RESOURCES, INC.
as Borrower,
BANK OF MONTREAL,
as Agent,
and
The Lenders Signatory Hereto
Effective as of February 10, 1998
<PAGE> 2
THIRD AMENDMENT TO CREDIT AGREEMENT
This THIRD AMENDMENT TO CREDIT AGREEMENT (this "Third Amendment")
executed effective as of the 10th of February, 1998 (the "Effective Date") is
among QUEEN SAND RESOURCES, INC., a corporation formed under the laws of the
State of Nevada (the "Borrower"); Northland Operating Co., a Nevada corporation
("Northland"), Corrida Resources, Inc., a Nevada corporation ("Corrida"), Queen
Sand Resources, Inc., a Delaware corporation (the "Parent Company"), each of the
lenders that is a signatory hereto or which becomes a signatory hereto as
provided in Section 12.06 (individually, together with its successors and
assigns, a "Lender" and, collectively, the "Lenders"); and BANK OF MONTREAL, as
agent for the Lenders (in such capacity, together with its successors in such
capacity, the "Agent").
RECITALS
A. The Borrower, the Agent and the Banks are parties to that certain
Credit Agreement dated as of August 1, 1997, as amended by that certain First
Amendment to Credit Agreement dated as of December 3, 1997, as amended by that
certain Second Amendment to Credit Agreement dated as of December 31, 1997 (such
agreement, as amended, the "Credit Agreement"), pursuant to which the Banks have
made certain credit available to and on behalf of the Borrower.
B. The Borrower has requested and the Agent and the Banks have agreed
to amend certain provisions of the Credit Agreement.
C. NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
Section 1. Defined Terms. All capitalized terms which are defined in
the Credit Agreement, but which are not defined in this Third Amendment, shall
have the same meanings as defined in the Credit Agreement. Unless otherwise
indicated, all section references in this Third Amendment refer to the Credit
Agreement.
Section 2. Amendments to Credit Agreement.
2.1 Amendments to Section 1.01.
(a) The definition of "Agreement" is hereby amended to read as follows:
"Agreement" shall mean this Credit Agreement, as amended by the
First Amendment, the Second Amendment, the Third Amendment, and as
further amended from time to time.
(b) The following definitions of "Third Amendment" and "Third Amendment
Effective Date" are hereby added where alphabetically appropriate:
"Third Amendment" shall mean that certain Third Amendment to Credit
Agreement dated as of February 10, 1998 among the Obligors, the Agent
and the Banks.
1
<PAGE> 3
"Third Amendment Effective Date" shall mean the "Effective Date" as
such term is defined in the Third Amendment.
2.2 Section 9.14. Section 9.14 is hereby deleted in its entirety and
the following is inserted in lieu thereof:
Section 9.14 Interest Coverage Ratio. The Parent Company's
Interest Coverage Ratio as of the end of any fiscal quarter shall be at
not less than the following for the period then applicable:
(i) for the three month period ending on March 31, 1998, 1.75 to 1.0;
(ii) for the six month period ending on June 30, 1998, 3.0 to 1.0;
(iii) for the nine month period ending on September 30, 1998, 3.0 to
1.0;
(iv) for the twelve month period ending on December 31, 1998, 3.0 to
1.0; and
(v) for each rolling four fiscal quarters thereafter, 3.0 to 1.0.
For the purposes of this Section 9.14, "Interest Coverage Ratio" shall
mean the ratio of EBITDA to Interest Expense.
2.3 Section 9.22. Section 9.22 is hereby added, which reads in its
entirety as following:
Section 9.22 Capital Expenditure Budget. During the 1998 calendar
year, the Parent Company and the Borrower shall not, and shall not
permit any of its Subsidiaries to, incur capital expenditures in an
aggregate amount in excess of $2,600,000 as disclosed in writing to the
Agent on or about February 6, 1998 in its operating forecast, without
the prior written consent of the Agent.
2.4 Exhibit B. Exhibit B to the Credit Agreement is hereby deleted in
its entirety and Exhibit B to this Third Amendment is hereby inserted in lieu
thereof.
Section 3. Waivers.
3.1 Limitations on Waivers. The following waiver granted in Section 3.2
of this Third Amendment is hereby granted to the extent and only to the extent
specifically stated therein and for no other purpose or period. Granting the
waiver set forth herein does not and should not be construed to be an assurance
or promise that waivers will be granted in the future, whether or the matters
herein stated or on other unrelated matters.
3.2 Waiver of Interest Coverage Ratio. The Obligors have (i) informed
the Agent and the Lenders that the Parent Company was not in compliance with the
Interest Coverage Ratio as required by Section 9.14 for the three month period
ending on December 31, 1997, and (ii) requested that the Agent and the Lenders
waive such noncompliance. The Agent and the Lenders hereby waive such
noncompliance.
2
<PAGE> 4
Section 4. Conditions Precedent. The effectiveness of this Third
Amendment is subject to the receipt by the Agent of the following documents and
satisfaction of the other conditions provided in this Section 4, each of which
shall be reasonably satisfactory to the Agent in form and substance:
4.1 Loan Documents. The Agent shall have received multiple counterparts
as requested of this Third Amendment, each executed and delivered by a duly
authorized officer of each party.
4.2 No Default. No Default or Event of Default shall have occurred and
be continuing as of the Effective Date.
Section 5. Representations and Warranties; Etc. Each Obligor hereby
affirms: (a) that as of the date of execution and delivery of this Third
Amendment, all of the representations and warranties contained in each Loan
Document to which such Obligor is a party are true and correct in all material
respects as though made on and as of the Effective Date; and (b) that after
giving effect to this Third Amendment and to the transactions and waivers
contemplated hereby, no Defaults exist under the Loan Documents or will exist
under the Loan Documents.
Section 6. Miscellaneous.
6.1 Confirmation. The provisions of the Credit Agreement (as amended by
this Third Amendment) shall remain in full force and effect in accordance with
its terms following the effectiveness of this Third Amendment.
6.2 Ratification and Affirmation of Obligors. Each of the Obligors
hereby expressly (i) acknowledges the terms of this Third Amendment, (ii)
ratifies and affirms its obligations under its respective Guaranty Agreement and
the other Security Instruments to which it is a party, (iii) acknowledges,
renews and extends its continued liability under its respective Guaranty
Agreement and the other Security Instruments to which it is a party and agrees
that its respective Guaranty Agreement and the other Security Instruments to
which it is a party remains in full force and effect with respect to the
Indebtedness as amended hereby.
6.3 Counterparts. This Third Amendment may be executed by one or more
of the parties hereto in any number of separate counterparts, and all of such
counterparts taken together shall be deemed to constitute one and the same
instrument.
6.4 No Oral Agreement. THIS WRITTEN THIRD AMENDMENT, THE CREDIT
AGREEMENT AND THE OTHER LOAN DOCUMENTS EXECUTED IN CONNECTION HEREWITH AND
THEREWITH REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR UNWRITTEN ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES.
6.5 GOVERNING LAW. THIS THIRD AMENDMENT (INCLUDING, BUT NOT LIMITED TO,
THE VALIDITY AND ENFORCEABILITY HEREOF) SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
[SIGNATURES BEGIN NEXT PAGE]
3
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment
to be duly executed effective as of the date first written above.
BORROWER: QUEEN SAND RESOURCES, INC., a Nevada corporation
By:
------------------------------------------
Robert P. Lindsay
Vice President
By:
------------------------------------------
Edward J. Munden
President
PARENT COMPANY: QUEEN SAND RESOURCES, INC., a Delaware corporation
By:
------------------------------------------
Robert P. Lindsay
Chief Operating Officer
By:
------------------------------------------
Edward J. Munden
President and Chief Executive Officer
4
<PAGE> 6
GUARANTORS: NORTHLAND OPERATING CO.
By:
-------------------------------------
Robert P. Lindsay
Vice President
By:
-------------------------------------
Edward J. Munden
President
CORRIDA RESOURCES, INC.
By:
-------------------------------------
Robert P. Lindsay
Vice President
By:
-------------------------------------
Edward J. Munden
President
AGENT: BANK OF MONTREAL, as Agent
By:
-------------------------------------
Donald G. Warmington
Director, U.S. Corporate Banking
LENDER: BANK OF MONTREAL
By:
-------------------------------------
Donald G. Warmington
Director, U.S. Corporate Banking
5
<PAGE> 7
EXHIBIT B
FORM OF BORROWING, CONTINUATION AND CONVERSION REQUEST
_____ ___, 199_
Queen Sand Resources, Inc., a Nevada corporation (the "Borrower"),
pursuant to the Credit Agreement dated as of August 1, 1997 among the Borrower,
Bank of Montreal, as Agent and the Lenders which are or become parties thereto
(as amended or modified, the "Credit Agreement"), hereby makes the requests
indicated below (unless otherwise defined herein, capitalized terms are defined
in the Credit Agreement):
1. Loans:
(a) Aggregate amount of new Loans to be $______________________;
(b) Requested funding date is ______, 199__;
(c) $_____________________ of such borrowings are to be Eurodollar
Loans;
$_____________________ of such borrowings are to be Base Rate
Loans; and
(d) Length of Interest Period for Eurodollar Loans is:
_________________________.
2. Eurodollar Loan Continuation for Eurodollar Loans maturing on
___________________:
(a) Aggregate amount to be continued as Eurodollar Loans is
$____________________;
(b) Aggregate amount to be converted to Base Loans is
$____________________;
(c) Length of Interest Period for continued Eurodollar Loans is
______________________.
3. Conversion of Outstanding Base Loans to Eurodollar Loans:
Convert $__________________ of the outstanding Base Loans to
Eurodollar Loans on ____________________ with an Interest
Period of ______________________.
4. Conversion of outstanding Eurodollar Loans to Base Loans:
Convert $__________________ of the outstanding Eurodollar
Loans with Interest Period maturing on ______________________,
199__, to Base Loans.
As of the date of this request, there is $____________________ in
outstanding ECT Subordinated Debt and the borrowing base under the ECT
Subordinated Debt is $__________________. The undersigned certifies that,
including the Loans requested herein, the aggregate Loans under the
Exhibit B - 1
<PAGE> 8
Credit Agreement do not exceed the effective Borrowing Base which governs the
maximum availability under the Credit Agreement and is dependent upon the
current amount of ECT Subordinated Debt.
The undersigned certifies that they are the _____________________ and
the _____________________ of the Borrower, and that as such he is authorized to
execute this certificate on behalf of the Borrower. The undersigned further
certifies, represents and warrants on behalf of the Borrower that the Borrower
is entitled to receive the requested borrowing, continuation or conversion under
the terms and conditions of the Credit Agreement.
Queen Sand Resources, Inc., a Nevada corporation
By:_________________________________
Name:
Title:
By:
Name:
Title:
[attach certificate regarding Interest Coverage Ratio if necessary]
Exhibit B - 2
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,115,304
<SECURITIES> 0
<RECEIVABLES> 1,396,974
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,512,278
<PP&E> 26,084,097
<DEPRECIATION> 0
<TOTAL-ASSETS> 30,609,858
<CURRENT-LIABILITIES> 3,764,841
<BONDS> 7,280,935
0
96,104
<COMMON> 48,185
<OTHER-SE> 29,042,681
<TOTAL-LIABILITY-AND-EQUITY> 30,609,858
<SALES> 3,341,894
<TOTAL-REVENUES> 3,341,894
<CGS> 0
<TOTAL-COSTS> 2,073,908
<OTHER-EXPENSES> 2,088,918
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<INTEREST-EXPENSE> 639,156
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