<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
---------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___ TO ___
COMMISSION FILE NO. 0-21179
QUEEN SAND RESOURCES, INC.
QUEEN SAND RESOURCES, INC.
QUEEN SAND OPERATING CO.
CORRIDA RESOURCES, INC.
(Exact name of registrants as specified in their charter)
DELAWARE 75-2615565
NEVADA 75-2564071
NEVADA 75-2593510
NEVADA 75-2691594
(State or Other Jurisdiction of (I.R.S. Employer Identification Nos.)
Incorporation or Organization)
13760 NOEL ROAD, SUITE 1030,
DALLAS, TEXAS 75240-7336
(Address of principal executive offices) (Zip code)
(REGISTRANTS' TELEPHONE NUMBER, INCLUDING AREA CODE) (972) 233-9906
Northland Operating Co. (n/k/a Queen Sand Operating Co.)
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) have been subject to such filing
requirements for the past 90 days. YES [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's (parent only) classes of common stock, as of May 14,
1999: 33,040,699
1
<PAGE> 2
PART I FINANCIAL INFORMATION
QUEEN SAND RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, June 30,
1999 1998
-------------- --------------
<S> <C> <C>
Assets
Current assets:
Cash $ 5,411,000 $ 1,029,000
Accounts receivable and other current assets 4,646,000 5,382,000
-------------- --------------
Total current assets 10,057,000 6,411,000
Net property and equipment 108,011,000 142,467,000
Other assets 11,705,000 4,797,000
-------------- --------------
$ 129,773,000 $ 153,675,000
============== ==============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and other $ 6,680,000 $ 6,751,000
Current portion of long-term debt 85,000 85,000
-------------- --------------
Total current liabilities 6,765,000 6,836,000
Long-term obligations, net of current portion 143,190,000 153,619,000
Commitments
Stockholders' deficit:
Preferred stock, $.01 par value, authorized 96,000 96,000
50,000,000 shares: issued and outstanding
9,605,238 and 9,610,400 at March 31 and
June 30, respectively
Common Stock, $.0015 par value, authorized 62,000 51,000
100,000,000 shares: issued and
Outstanding 32,553,940 and 24,323,767 at
March 31 and June 30 respectively
Additional paid-in capital 65,007,000 34,012,000
Accumulated deficit (78,096,000) (35,939,000)
Treasury stock (7,251,000) (5,000,000)
-------------- --------------
Total stockholders' equity (20,182,000) (6,780,000)
-------------- --------------
$ 129,773,000 $ 153,675,000
============== ==============
</TABLE>
See accompanying notes.
2
<PAGE> 3
QUEEN SAND RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31 March 31
-------- --------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Oil & gas revenues $ 785,000 $ 1,507,000 $ 3,533,000 $ 4,849,000
Net profits and royalties interests 5,818,000 -- 17,333,000 --
Interest and other income 131,000 65,000 197,000 80,000
------------ ------------ ------------ ------------
6,734,000 1,572,000 21,063,000 4,929,000
Expenses:
Oil and gas production expenses 719,000 1,108,000 2,573,000 3,182,000
General & administrative expenses 863,000 428,000 2,242,000 1,646,000
Interest and financing costs 4,518,000 260,000 13,605,000 899,000
Depreciation, depletion and amortization 2,700,000 469,000 9,628,000 1,340,000
Write-down of oil and gas properties -- -- 35,033,000 --
------------ ------------ ------------ ------------
Net loss $ (2,066,000) $ (693,000) $(42,018,000) $ (2,138,000)
============ ============ ============ ============
Net loss per common share $ (0.06) $ (0.03) $ (1.36) $ (0.09)
============ ============ ============ ============
Weighted average number of common shares
outstanding 32,170,000 22,400,000 30,829,000 23,611,000
============ ============ ============ ============
</TABLE>
See accompanying notes.
3
<PAGE> 4
QUEEN SAND RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended March 31
----------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Operating activities:
Net loss $ (42,018,000) $ (2,138,000)
Depreciation, depletion, amortization and write-down of oil
and gas properties 45,593,000 1,340,000
Issuance of common stock for services rendered -- 300,000
Unrealized gains on foreign exchange obligations (85,000) (51,000)
Net changes in operating assets and liabilities 664,000 (62,000)
-------------- --------------
Net cash provided (used) in operating activities 4,154,000 (611,000)
-------------- --------------
Investing activities
Additions to property and equipment (9,950,000) (25,789,000)
Financing activities:
Increase in deferred assets (7,933,000) --
Payments of term debt (142,385,000) (2,008,000)
Proceeds from long-term obligations 132,000,000 16,291,000
Payments on capital lease obligations (56,000) (52,000)
Proceeds from the sale of capital stock 30,803,000 12,996,000
Redemption of treasury stock (2,251,000) --
-------------- --------------
Net cash provided by financing activities 10,178,000 27,227,000
-------------- --------------
Net increase in cash 4,382,000 827,000
Cash at beginning of period 1,029,000 310,000
-------------- --------------
Cash at end of period $ 5,411,000 $ 1,137,000
============== ==============
</TABLE>
See accompanying notes.
4
<PAGE> 5
QUEEN SAND RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
(1) Basis of Presentation
The accompanying consolidated financial statements include the accounts
of Queen Sand Resources, Inc. and its wholly owned subsidiaries
(collectively, the "Company") after elimination of all significant
intercompany balances and transactions. The financial statements have
been prepared in conformity with generally accepted accounting
principles which require management to make estimates and assumptions
that affect the amounts reported in the financial statements and
accompanying notes. While management has based its assumptions and
estimates on the facts and circumstances currently known, final amounts
may differ from such estimates.
The interim financial statements contained herein are unaudited but, in
the opinion of management, include all adjustments (consisting only of
normal recurring entries) necessary for a fair presentation of the
financial position and results of operations of the Company for the
periods presented. The results of operations for the three and nine
months ended March 31, 1999 are not necessarily indicative of the
operating results for the full fiscal year ending June 30, 1999.
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 Annual Report filed
on Form 10KSB for the fiscal year ended June 30, 1998.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Account Standards ("FAS") No. 130, "Reporting
Comprehensive Income" ("FAS 130"), which established standards for
reporting and display of comprehensive income and its components in a
full set of general-purpose financial statements. Comprehensive income
is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from
non-owner sources. For the three and nine months ended March 31, 1999
and 1998, the Company's net income and comprehensive income were the
same.
In June 1998, the FASB issued FAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133") which established
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for
hedging activities. FAS 133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The
Company will adopt the provisions of FAS 133 at the beginning of the
fiscal year beginning July 1, 1999. The adoption of FAS 133 is not
expected to have a material impact on the Company's financial
statements.
(2) Debt Issuance
On July 8, 1998, the Company completed a private placement (the "Note
Offering") of $125,000,000 principal amount of its 12.5% Senior Notes
due 2008 (the "Notes"). In addition, on July 8, 1998 and July 20, 1998,
the Company completed a private equity placement (the "Private
Placement"). Pursuant to the Note Offering, the Company issued and sold
the Notes to certain institutional buyers pursuant to Rule 144A and
Regulation D promulgated under the Securities Act of 1933, as amended.
The Notes mature on July 1, 2008, and interest on the Notes is payable
semiannually on January 1 and July 1 of each year, commencing January 1,
1999, at the rate of 12.5% per annum.
The net proceeds received by the Company from the Note Offering and the
Private Placement completed on July 8, 1998 of approximately $144.5
million and on July 20, 1998 of approximately $6.9 million were used to
repay indebtedness outstanding under the Company's Credit Agreement, to
repay indebtedness outstanding under certain retired bridge facilities,
and to unwind an interest rate hedge contract at a cost of $3.5 million.
Substantially all of the retired indebtedness was incurred to fund the
acquisition of oil and natural gas properties from trusts managed by
J.P. Morgan Investments.
5
<PAGE> 6
The Company maintains a revolving credit agreement, which requires,
among other things, maintenance of a minimum interest coverage ratio of
1.5x. At March 31, 1999, the Company was in violation of this
requirement. The Company has received a waiver of this violation.
The Company's payment obligations under the Notes are fully,
unconditionally and jointly and severally guaranteed on a senior
subordinated basis by all of the current domestic subsidiaries and
future Restricted Subsidiaries. Such guarantees are subordinated to the
guarantees of Senior Debt issued by the Guarantors (as defined in the
Indenture) under the Credit Agreement and to other guarantees of Senior
Debt issued in the future. All of the Company's current subsidiaries are
wholly owned. There are currently no contractual restrictions on
distributions from the Guarantors to the Company.
Separate financial statements and other disclosures concerning the
Guarantors are not presented because management has determined they are
not material to investors. The combined condensed financial information
of the Company's current subsidiaries, the Guarantors, is as follows:
<TABLE>
<CAPTION>
MARCH 31, 1999 JUNE 30, 1998
-------------- --------------
<S> <C> <C>
Current assets $ 6,031,000 $ 6,172,000
Net property and equipment 107,909,000 142,421,000
Other assets, net 1,713,000 2,244,000
-------------- --------------
Total assets $ 115,653,000 $ 150,837,000
============== ==============
Current liabilities $ 2,832,000 $ 6,145,000
Intercompany payables 154,680,000 23,703,000
Long-term debt 17,307,000 151,423,000
Stockholder's deficit (59,166,000) (30,434,000)
-------------- --------------
Total liabilities and stockholder's deficit $ 115,653,000 $ 150,837,000
============== ==============
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
MARCH 31,
1999 1998
-------------- --------------
<S> <C> <C>
Oil and gas sales and net profits
interests $ 20,866,000 $ 4,849,000
Costs and expenses:
Production expenses 2,572,000 3,182,000
General and administrative 1,192,000 713,000
Depreciation, depletion and
amortization 9,614,000 1,312,000
Write-down of oil and gas
properties 35,033,000 --
Interest expense 1,342,000 684,000
Other (157,000) (13,000)
-------------- --------------
49,596,000 5,878,000
-------------- --------------
Net income (loss) $ (28,730,000) $ (1,029,000)
============== ==============
</TABLE>
6
<PAGE> 7
(3) Capital Stock
During the nine months ended March 31, 1999 the Company issued 6,319,476
shares of its common stock for $30,803,000, net of costs (at per share
prices ranging from $2.50 to $7.00). The Company also issued 1,073,046
shares of common stock for no additional consideration to stockholders who
exercised repricing rights included with the Private Placement of common
stock. Additionally, the Company issued 8,742 shares of its common stock
valued at $65,000 ($7.4375 per share) as partial consideration for the
acquisition of a natural gas property in Utah.
During the nine months ended March 31, 1999 the holders of 3,010 shares of
the Company's Series C preferred stock converted their Series C preferred
stock into 788,638 shares of common stock. In conjunction with these
conversions, the Company issued 40,320 shares of common stock in payment of
stock dividends. The value of these stock dividends was $139,000.
Additionally, during the nine months ended March 31, 1999 the Company
repurchased 2,152 shares of Series C preferred stock. The funds used to
complete this transaction were raised from the issuance of shares of the
Company's common stock pursuant to a private placement.
(4) Write-down of Oil and Gas Properties
The Company limits the capitalized costs of oil and gas properties, net of
accumulated depreciation, depletion and amortization, to the estimated
future net revenues from proved oil and gas reserves less estimated future
development costs and production expenditures, discounted at 10%, plus the
lower of cost or estimated fair value of unproved properties, as adjusted
for future income tax effects. If capitalized costs exceed this limit (the
full cost ceiling), the excess is charged to depreciation, depletion and
amortization expense. During the quarter ended December 31, 1998 the
Company recorded a full cost ceiling write-down of $35,033,000.
(5) Hedging Activities
During the three months ended March 31, 1999 the Company received $765,000
in cash settlements and amortized $27,000 of deferred hedging costs as a
result of its natural gas price hedging program. The Company paid $14,000
on its oil hedging program.
During the nine months ended March 31, 1999 the Company received $1,446,000
in cash settlements and amortized $94,000 deferred hedging costs, as a
result of its natural gas price hedging program. The Company received
$133,000 on its oil price hedging program.
7
<PAGE> 8
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, 1998 filed with the Securities and Exchange
Commission in September 1998. 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 were 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 nine month periods ended March 31, 1999
and 1998 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
nine months ended March 31, 1999 will not necessarily be indicative of the
operating results for the full fiscal year ending June 30, 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS DATA:
Oil and gas sales (1) $ 7,659,000 $ 1,507,000 $ 26,168,000 $ 4,849,000
Oil and gas production expenses (1) 1,935,000 1,108,000 7,968,000 3,182,000
------------ ------------ ------------ ------------
Net oil and gas revenues 5,724,000 399,000 18,200,000 1,667,000
General and administrative expenses 863,000 428,000 2,242,000 1,646,000
Interest and financing expense (2) 4,164,000 260,000 12,580,000 899,000
Depreciation, depletion and amortization (3) 2,894,000 469,000 10,560,000 1,340,000
Write-down of oil and gas properties -- -- 35,033,000 --
Interest and other income (131,000) (65,000) (197,000) (80,000)
------------ ------------ ------------ ------------
Net Loss $ (2,066,000) $ (693,000) $(42,018,000) $ (2,138,000)
============ ============ ============ ============
1. Oil and gas sales and production expenses related to net profits interests
have been presented as if such net profits interests were working
interests.
2. Interest charges payable on outstanding debt obligations.
3. Depreciation, depletion and amortization includes $355,000 and $1,026,000
of amortized deferred charges related to debt obligations for the three
and nine months ended March 31, 1999, respectively, and $27,000 and
$93,000 of amortized deferred charges related to the Company's gas price
hedging program for the three and nine months ended march 31, 1999,
respectively.
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
SALES DATA
Oil (Mbbls) 123.0 60.5 398.0 184.6
Gas (Mmcf) 3,105.0 244.4 10,154.5 736.1
Mmcfe 3,843.0 607.6 12,542.6 1,843.4
MBOE 640.5 101.3 2,090.4 307.2
AVERAGE SALES PRICE
Oil (per Bbl) $ 8.78 $ 16.60 $ 11.52 $ 17.19
Gas (per Mcf) $ 2.12 $ 2.06 $ 2.13 $ 2.28
Per Mcfe $ 1.99 $ 2.48 $ 2.09 $ 2.63
Per BOE $ 11.96 $ 14.88 $ 12.52 $ 15.78
AVERAGE COST DATA ($/MCFE):
Production and operating costs $ 0.50 $ 1.82 $ 0.64 $ 1.73
Depreciation, depletion and amortization of oil
and gas properties $ 0.64 $ 0.77 $ 0.75 $ 0.73
General and administrative expenses $ 0.22 $ 0.70 $ 0.18 $ 0.89
Interest and financing expense $ 1.08 $ 0.43 $ 1.00 $ 0.49
</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 MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 1998
RESULTS OF OPERATIONS
The following discussion and analysis reflects the operating results as if the
net profits interest were working interests. The Company believes that this
will provide the readers of the report a more meaningful understanding of the
underlying operating results and conditions for the period.
REVENUES: The Company's total revenues rose by $6.2 million (408%) to $7.7
million for the three months ended March 31, 1999, from $1.5 million during the
comparable period in 1998.
The Company produced 123,000 barrels of crude oil during the three months ended
March 31, 1999, an increase of 63,000 barrels (103%) over the 60,000 barrels
produced during the comparable period in 1998. This increase was comprised of
an overall decrease of 8,000 barrels (14%) from the properties that the Company
owned during both periods and an increase of 71,000 barrels from the properties
acquired during the period April 1, 1998 to December 31, 1998. The decrease in
production of crude oil from the properties owned during the comparative
quarters is a reflection of the natural depletion of the crude oil reservoirs,
offset by the successful development and exploitation efforts of the Company.
The Company produced 3,105,000 Mcf of natural gas during the three months ended
March 31, 1999, an increase of 2,861,000 Mcf (1,171%) over the 244,000 Mcf
produced during the comparable period in 1998. This increase consists of a
decrease of 14,000 Mcf (6%) from the properties that the Company owned during
both periods and an increase of 2,875,000 Mcf from the properties acquired
during the period April 1, 1998 to December 31, 1998. The decrease in
production of natural gas from the properties owned during the comparative
quarters is a reflection of the natural depletion of the natural gas reservoirs,
offset by the successful development and exploitation efforts of the Company.
9
<PAGE> 10
On a thousand cubic feet of gas equivalent (Mcfe) basis, production for the
three months ended March 31, 1999 was 3,843,000 Mcfe, up 3,235,000 Mcfe (532%)
over the 608,000 Mcfe produced during the comparable period in 1998.
The increase in revenues arising from the increased production has been
buffered by the significant industry-wide decline in oil and natural gas
prices, which has been mitigated by the Company's natural gas price management
program. The average price per barrel of crude oil sold by the Company during
the three months ended March 31, 1999 was $8.78, a decrease of $7.82 per barrel
(47%) from the $16.60 per barrel during the three months ended March 31, 1998.
The average price per Mcf of natural gas sold by the Company was $2.12 during
the three months ended March 31, 1999, an increase of $0.06 per Mcf (3%) from
the $2.06 per Mcf during the comparable period in 1998. Crude oil and natural
gas prices have increased subsequent to March 31, 1999. On an Mcfe basis, the
average price received by the Company during the three months ended March 31,
1999 was $1.99, a $0.49 decrease (20%) from the $2.48 the Company received
during the comparable period in 1998.
During the three months ended March 31, 1999 the Company received $765,000 in
cash settlements and amortized $27,000 of deferred hedging costs, as a result
of its natural gas price hedging program. The net positive effect on the
average natural gas prices received by the Company during the period was $0.24
per Mcf (13%). The Company paid $14,000 on its oil price hedging program. The
net negative effect on average oil prices received by the Company during the
period was $0.11 per barrel (1%). During the comparable period in 1998 the
Company neither received nor paid any cash on its natural gas price-hedging
program. The Company received $74,000 ($1.22 per barrel) on its oil
price-hedging program during the three months ended March 31, 1998.
SEVERANCE AND PRODUCTION TAXES: Severance and production taxes were $275,000
($0.07 per Mcfe) during the three months ended March 31, 1999, as compared to
$93,000 ($0.15 per Mcfe) during the comparable period in 1998. The increase of
$182,000 (195%) is a result of the 408% increase in revenues for the three
month period ended March 31, 1999, as compared to the same period for 1998.
This increase was buffered by the shift in revenues from 39% gas during the
three months ended March 31, 1998 to 85% gas during the three months ended
March 31, 1999. The reduction in severance and production taxes on a per Mcfe
basis relates to severance and production tax abatements on certain net profits
interests.
PRODUCTION EXPENSES: The Company's lease operating expenses rose to $1.7
million for the three months ended March 31, 1999, an increase of $645,000
(64%) over the $1.0 million incurred during the comparable period in 1998. This
increase is a result of the increased production of crude oil and natural gas
by the Company. Lease operating expenses were $0.43 per Mcfe during the three
months ended March 31, 1999; a decrease of $1.24 (74%) from the $1.67 per Mcfe
incurred during the comparable period in 1998. This improvement is a result of
the acquisition of properties with lower average operating costs per Mcfe than
those the Company has owned during the preceding years and improved
efficiencies at an operating level.
DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE: Depreciation, depletion and
amortization of oil and gas properties and related oil field equipment were
$2.5 million ($0.64 per Mcfe) during the three months ended March 31, 1999, an
increase of $2.2 million (932%) over the $240,000 ($0.77 per Mcfe) charged to
income during the comparable period in 1998. The increase in the provision is
primarily a result of the 532% Mcfe increase in production for the three month
period ended March 31, 1999, as compared to the same period for 1998. On a cost
per Mcfe basis, the decrease of $0.13 per Mcfe (16%) is primarily the result of
the write-down of oil and gas properties the Company recorded at December 31,
1998, offset by the increased average cost of reserves the Company acquired
during the period April 1,1998 to March 31, 1999.
GENERAL AND ADMINISTRATIVE EXPENSES: The Company incurred $863,000 ($0.22 per
Mcfe) in general and administrative costs during the three months ended March
31, 1999, an increase of $435,000 (102%) over the $428,000 ($0.70 per Mcfe)
incurred during the comparable period in 1998. This is a reflection of the
increased management support requirements of the Company as it continues to
acquire new properties, redevelop existing properties and raise the funds
necessary to accomplish these activities. Since inception the Company has been
growth oriented and has directed its efforts at acquiring and developing oil
and natural gas producing properties.
10
<PAGE> 11
This activity requires additional personnel and outside consultants, thereby
increasing general and administrative costs.
INTEREST EXPENSE: The interest expense of $4.5 million for the three months
ended March 31, 1999 is comprised of $4.2 million in cash interest charges and
$354,000 of amortized deferred costs. Interest expense increased by $4.2
million, to $4.5 million for the three months ended March 31, 1999, compared to
$260,000 for the three months ended March 31, 1998. This increase is a function
of the increased debt the Company incurred, primarily related to the acquisition
of the net profits and royalty interests in April 1998.
NET LOSS: The Company has incurred losses since its inception, including $2.1
million ($0.06 per common share) for the three months ended March 31, 1999
compared to $693,000 ($0.03/share) for the three months ended March 31, 1998.
The decline in oil and natural gas prices since December 31, 1997 caused the
Company to record non-cash write-downs of oil and gas properties of $28,166,000
and $35,033,000 for the year ended June 30, 1998 and during the nine months
ended March 31, 1999, respectively. Further declines in oil and natural gas
prices could lead to additional non-cash write-downs of the Company's oil and
gas properties. The Company currently believes, but cannot assure, that as a
result of the April 1998 acquisition of net profits and royalty interests from
J.P. Morgan that the Company's future revenues from crude oil and natural gas
will be sufficient to cover its production costs and operating expenses,
provided that the prevailing prices for crude oil and natural gas do not
decline further and production volume is maintained. The Company's revenues,
profitability and future rate of growth are substantially dependent upon
prevailing prices for crude oil and natural gas and the volumes of crude oil
and natural gas produced by the Company (see "-Changes in Prices and Hedging
Activities"). In addition, the Company's proved reserves will decline as crude
oil and natural gas are produced unless the Company is successful in acquiring
additional properties containing proved reserves or conducts successful
exploration and development activities.
THE NINE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE NINE MONTHS ENDED
MARCH 31, 1998
RESULTS OF OPERATIONS
The following discussion and analysis reflects the operating results as if the
net profits interests were working interests. The Company believes that this
will provide the readers of the report with a more meaningful understanding of
the underlying operating results and conditions for the period.
REVENUES: The Company's total revenues rose by $21.3 million (440%) to $26.2
million for the nine months ended March 31, 1999, from $4.8 million during the
comparable period in 1998.
The Company produced 398,000 barrels of crude oil during the nine months ended
March 31, 1999, an increase of 213,000 barrels (116%) over the 185,000 barrels
produced during the comparable period in 1998. This increase was comprised of a
decrease of 11,000 barrels (6%) from the properties that the Company owned
during both periods and an increase of 224,000 barrels from the properties
acquired during the period April 1, 1998 to December 31, 1998. The decrease in
production of crude oil from the properties owned during the comparative
quarters is a reflection of the natural depletion of the crude oil reservoirs,
offset by the development and exploitation efforts of the Company.
The Company produced 10,154,000 Mcf of natural gas during the nine months ended
March 31, 1999, an increase of 9,418,000 Mcf (1,280%) over the 736,000 Mcf
produced during the comparable period in 1998. This increase consists of an
increase of 25,000 Mcf (3%) from the properties that the Company owned during
both periods and an increase of 9,393,000 Mcf from the properties acquired
during the period April 1, 1998 to December 31, 1998. The increase in
production from the properties owned during the comparative quarters is a
result of the successful development and exploitation efforts of the Company,
offset by the natural depletion of the natural gas reservoirs.
On a thousand cubic feet of gas equivalent ("Mcfe") basis, production for the
nine months ended March 31, 1999 was 12,542,000 Mcfe, up 10,699,000 (580%) over
the 1,843,000 Mcfe produced during the comparable period in 1998.
11
<PAGE> 12
The increase in revenues arising from the increased production has been
buffered by the significant industry-wide decline in oil and natural gas
prices. The average price per barrel of crude oil sold by the Company during
the nine months ended March 31, 1999 was $11.52, a decrease of $5.67 per barrel
(33%) from the $17.19 per barrel during the nine months ended March 31, 1998.
The average price per Mcf of natural gas sold by the Company was $2.13 during
the nine months ended March 31, 1999, a decrease of $0.15 per Mcf (7%) from the
$2.28 per Mcf during the comparable period in 1998. Crude oil and natural gas
prices have increased subsequent to March 31, 1999. On an Mcfe basis, the
average price received by the Company during the nine months ended March 31,
1999 was $2.09, a $0.54 decrease (21%) from the $2.63 the Company received
during the comparable period in 1998.
During the nine months March 31, 1999 the Company received $1,446,000 in cash
settlements and amortized $94,000 of deferred hedging costs, as a result of its
natural gas price hedging program. The net positive effect on the average
natural gas prices received by the Company during the period was $0.13 per Mcf
(6%). An additional $133,000 was received on its oil price hedging program. The
net positive effect on average oil prices received by the Company during the
period was $0.33 per barrel (3%). During the comparable period in 1998 the
Company paid $36,000 ($0.05 per Mcf) on its natural gas price-hedging program.
The Company received $68,000 ($0.37 per barrel) on its oil price-hedging
program during the nine months ended March 31, 1998.
SEVERANCE AND PRODUCTION TAXES: Severance and production taxes were $1.1
million ($0.09 per Mcfe) during the nine months ended March 31, 1999, as
compared to $314,000 ($0.17 per Mcfe) during the comparable period in 1998. The
increase of $805,000 (256%) is a result of the 440% increase revenues for the
nine month period ended March 31, 1999, as compared to the same period for
1998. This increase was buffered by the shift in revenues from 35% gas during
the nine months ended March 31, 1998 to 82% gas during the nine months ended
March 31, 1999. The reduction in severance and production taxes on a per Mcfe
basis relates to severance and production tax abatements on certain net profits
interests.
PRODUCTION EXPENSES: The Company's lease operating expenses rose to $6.8
million for the nine months ended March 31, 1999, an increase of $4.0 million
(139%) over the $2.9 million incurred during the comparable period in 1998.
This increase is a result of the increased production of crude oil and natural
gas by the Company. Lease operating expenses were $0.55 per Mcfe during the
nine months ended March 31, 1999, a decrease of $1.01 (65%) from the $1.56 per
Mcfe incurred during the comparable period in 1998. This improvement is a
result of improved efficiencies at an operating level and the acquisition of
properties with lower average operating costs per Mcfe than those the Company
has owned during the preceding years.
DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE: Depreciation, depletion and
amortization of oil and gas properties and related oil field equipment were
$9.3 million ($0.75 per Mcfe) during the nine months ended March 31, 1999, an
increase of $8.3 million (777%) over the $1.1 million ($0.73 per Mcfe) charged
to income during the comparable period in 1998. The increase in the provision
is primarily a result of the 580% Mcfe increase in production for the nine
month period ended March 31, 1999, as compared to the same period for 1998. On
a cost per Mcfe basis, the increase of $0.02 per Mcfe (2%) is primarily the
result of the increased average cost of reserves the Company acquired during
the period April 1, 1998 to December 31, 1998 offset by the $35.0 million
writedown of oil and gas properties recorded at December 31,1998. The Company
was not required to record a similar write-down at March 31, 1998.
GENERAL AND ADMINISTRATIVE EXPENSES: The Company incurred $2.2 million ($0.18
per Mcfe) in general and administrative costs during the nine months ended
March 31, 1999, an increase of $596,000 (36%) over the $1.6 million ($0.89 per
Mcfe) incurred during the comparable period in 1998. This is a reflection of
the increased management support requirements of the Company as it continues to
acquire new properties, redevelop existing properties and raise the funds
necessary to accomplish these activities. Since inception the Company has been
growth oriented and has directed its efforts at acquiring and developing oil
and natural gas producing properties. This activity requires additional
personnel and outside consultants thereby increasing general and administrative
expenses.
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<PAGE> 13
INTEREST EXPENSE: The interest expense of $13.6 million for the nine months
ended March 31, 1999 is comprised of $12.6 million in cash interest charges and
$1.0 million of amortized deferred costs. Interest expense increased by $12.7
million, to $13.6 million for the nine months ended March 31, 1999, compared to
$899,000 for the nine months ended March 31, 1998. This increase is a function
of the increased debt the Company incurred, primarily related to the
acquisition of the net profits and royalty interests in April 1998.
NET LOSS: The Company has incurred losses since its inception, including $42.0
million ($1.36 per common share) for the nine months ended March 31, 1999
compared to $2.1 million ($0.09/share) for the nine months ended March 31,
1998. The decline in oil and natural gas prices since December 31, 1997 caused
the Company to record non-cash write-downs of oil and gas properties of
$28,166,000 and $35,033,000 for the year ended June 30, 1998 and during the
nine months ended March 31, 1999, respectively. Further declines in oil and
natural gas prices could lead to additional non-cash write-downs of the
Company's oil and gas properties. The Company currently believes, but cannot
assure, that as a result of the April 1998 acquisition of net profits and
royalty interests from J.P. Morgan that the Company's future revenues from
crude oil and natural gas will be sufficient to cover its production costs and
operating expenses, provided that the prevailing prices for crude oil and
natural gas do not decline and production volume is maintained. The Company's
revenues, profitability and future rate of growth are substantially dependent
upon prevailing prices for crude oil and natural gas and the volumes of crude
oil and natural gas produced by the Company (see "Changes in Prices and Hedging
Activities"). In addition, the Company's proved reserves will decline as crude
oil and natural gas are produced unless the Company is successful in acquiring
additional properties containing proved reserves or conducts successful
exploration and development activities.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
Consistent with the Company's strategy of acquiring and developing reserves,
the Company has an objective of maintaining as much financing flexibility as is
practicable. Since the Company commenced its oil and natural gas operations,
the Company has utilized a variety of sources of capital to fund its
acquisitions and development and exploitation programs, and to fund its
operations.
The Company's objective is to use the cash generated from operations to pay
operating costs and interest charges and to contribute to the costs of
developing and exploiting its oil and natural gas properties. There can be no
assurance that the cash from operations will be sufficient in the future to
cover such purposes.
The Company's objective is to use incremental debt, the proceeds from the
issuance of equity securities and the proceeds from the sale of non-core oil
and gas properties to fund a portion of its development and exploitation
program and to fund the acquisition of additional oil and natural gas
properties. The availability of funds under the Credit Agreement (as defined
below) is subject to periodic redeterminations by the bank and there can be no
assurance that such funds will be available to the Company to meet its budgeted
capital spending. Furthermore, the Company's ability to borrow other than under
the Amended and Restated Credit Agreement dated as of April 17, 1998 as amended
with Bank of Montreal, as agent for the Lenders thereunder (the "Credit
Agreement") is subject to restrictions imposed by such Credit Agreement. If the
Company cannot secure additional funds for its planned development and
exploitation activities, then the Company will be required to delay or reduce
substantially both of such activities.
SOURCES OF CAPITAL
The Company's principal sources of capital for funding its business activities
have been cash flow from operations, debt financings and the issuance of equity
securities. The Company's sources of funds from debt financings include funds
available under the Credit Agreement and the Company's Subordinated Revolving
Credit Agreement (the "ECT Revolving Credit Agreement") with Enron Capital and
Trade Resources Corporation.
On April 17, 1998, the Company amended and restated its Credit Agreement with
Bank of Montreal as agent for the lender parties thereto. The Credit Agreement
provides for borrowings up to $125.0 million (subject to borrowing
13
<PAGE> 14
base limitations) from such lenders to, among other things, fund development
and exploitation expenditures, acquisitions and general working capital. The
loan under the Credit Agreement is secured by a first lien on substantially all
of the Company's oil and natural gas properties. Pursuant to the Credit
Agreement the Company is subject to certain affirmative and negative financial
and operating covenants that are usual and customary for transactions of this
nature.
On March 31, 1999 the Company was not in compliance with a fixed charge
coverage ratio covenant of 1.5x, as required by the Credit Agreement. The
Company received a waiver under the Credit Agreement from the Bank regarding
this covenant breach.
On May 14, 1999 the Credit Agreement was amended to provide for a credit line
of $17.15 million, all of which is outstanding at May 14, 1999, interest is to
be charged at Bank Prime plus two percent (currently 9.75%) and payable monthly
and loans under the Credit Agreement are to mature on October 1, 2000 with no
scheduled amortization or repayment of principal. The fixed charge ratio
covenant has been reset to 1.15x. In the event of the sale of oil and natural
gas properties, the May 14, 1999 Amendment to the Credit Agreement provides
that a portion of the net proceeds received by the Company pursuant to the sale
of those properties will be applied to reduce the credit amount.
The Company periodically reviews its portfolio of oil and natural gas
properties with a view to identifying and divesting properties that no longer
fit the Company's strategic focus, including fitting within the Company's core
geographic areas of interest. The Company is actively pursuing the sale of
certain non-core properties. The Company intends to sell non-core oil and gas
properties and in the event such sales occur, has agreed that a portion of the
net proceeds received by the Company will be used to reduce the availability of
credit under the Credit Agreement. However, there can be no assurance the
Company will complete any divestment of non-core properties. Therefore, the
Company must rely primarily on the cash generated from operations to fund
operating expenses, general and administrative expenses and interest expense
and to contribute to its capital expenditure program, in conjunction with the
ECT Revolving Credit Agreement, until such time as the Credit Agreement is
either amended or replaced.
Effective December 29, 1997, the Company established the ECT Revolving Credit
Agreement with ECT, as a lender and as agent for the lenders thereto, to fund
on a revolving basis, capital costs incurred with future development projects
and to fund further acquisitions. The ECT Revolving Credit Agreement is
subordinate to the Credit Agreement. The ECT Revolving Credit Agreement
provides for borrowings up to $10.0 million, on a revolving basis and subject
to borrowing base limitations, which has been initially set at an amount equal
to 40% of the borrowing base established from time to time under the Credit
Agreement. This facility is designed 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 Credit Agreement or financed with longer-term
indebtedness or equity capital; provided, that the availability for
acquisitions under the facility is limited to the lesser of $5.0 million or 50%
of the borrowing base as in effect from time to time. Borrowings in excess of
certain amounts under the ECT Revolving Credit Agreement will reduce the
available borrowing base under the Credit Agreement. The loan is secured by a
second priority lien and security interest (behind the first lien position of
the Credit Agreement) in approximately 95% of the oil and natural gas
properties of the Company. There was no indebtedness outstanding under this
facility on May 14, 1999.
The ECT Revolving Credit Agreement is subject to payment of interest at a
fluctuating rate per annum equal to (i) the rate of 1% above the then highest
rate of interest being paid on any portion of the indebtedness owed under the
Credit Agreement or (ii) the rate of 15%, depending upon whether there is any
indebtedness owed under the Credit Agreement outstanding or whether there has
been a certain amount of indebtedness owed under the ECT Revolving Credit
Agreement for certain time periods.
On July 8, 1998, the Company completed a private placement (the "Note
Offering") of $125,000,000 principal amount of its 12.5% Senior Notes due 2008
(the "Notes"). In addition, on July 8, 1998 and July 20, 1998, the Company
completed a private equity placement (the "Private Placement"). Pursuant to the
Note Offering, the
14
<PAGE> 15
Company issued and sold the Notes to certain institutional buyers pursuant to
Rule 144A and Regulation D promulgated under the Securities Act of 1933, as
amended. The Notes mature on July 1, 2008, and interest on the Notes is payable
semiannually on January 1 and July 1 of each year, commencing January 1, 1999
at the rate of 12.5% per annum. The payment of the Notes is guaranteed by the
Company's three operating subsidiaries. The net proceeds received by the
Company from the Note Offering and the Private Placement completed on July 8,
1998 of approximately $144.5 million and on July 20, 1998 of approximately $6.9
million were used to repay indebtedness outstanding under the Company's Credit
Agreement, to repay indebtedness outstanding under the Company's bridge
facilities, and to unwind an interest rate hedge contract at a cost of $3.5
million. Substantially all of this indebtedness was incurred to fund the
acquisition of oil and natural gas properties from trusts managed by J. P.
Morgan Investments.
During the nine months ended March 31, 1999, the Company issued an aggregate of
1,073,046 shares of Common Stock to stockholders who exercised repricing rights
under the Amended and Restated Securities Purchase Agreement dated as of July
8, 1998 among the Company and the buyers signatory thereto. The repricing
rights were issued in connection with the July 1998 private placement and
permit the holders to acquire shares of Common Stock without the payment of
additional consideration if the Company's Common Stock does not achieve certain
price thresholds in excess of the original issuance of the shares purchased by
the holders in the July 1998 private placement. The resale of these shares of
Common Stock has been registered pursuant to a Registration Statement on Form
S-3 filed by the Company and declared effective by the Securities and Exchange
Commission.
During the nine months ended March 31, 1999, the Company issued an aggregate of
788,638 shares of Common Stock upon conversion of 3,010 shares of the Company's
Series C Convertible Preferred Stock by the holders thereof and 40,320 shares
of Common Stock as payment of dividends at the time of the conversion. The
resale of these shares of Common Stock has been registered pursuant to a
Registration Statement on Form S-3 filed by the Company and declared effective
by the Securities and Exchange Commission.
Due to the current market price of the Company's Common Stock, it is likely
that additional shares of Common Stock will be issued upon exercise of
Repricing Rights and upon conversion of the Series C Convertible Preferred
Stock.
Pursuant to a Securities Purchase Agreement dated November 10, 1998 among the
Company and the buyers signatory thereto, the Company issued on November 24,
1998, to the buyers, an aggregate of (i) 416,667 shares of Common Stock, (ii)
certain repricing rights to acquire additional shares of Common Stock and (iii)
warrants to purchase an aggregate of 50,000 shares of Common Stock at $6.00 per
common share in exchange for aggregate cash consideration of $2.5 million. The
Company used the net proceeds from this equity placement to repurchase an
aggregate of 2,152 shares of Series C Convertible Preferred Stock from two
holders thereof.
The November Share Purchase Agreement provides that the reset rights became
exercisable in stages beginning on March 11, 1999. To date none of the buyers
have exercised any reset rights under the Agreement.
Pursuant to the Securities Purchase Agreement dated March 27, 1997 (the
"Agreement") between the Company and Joint Energy Development Investments
Limited Partnership ("JEDI"), the Company granted certain maintenance rights to
JEDI to allow it to maintain its relative voting position in the event that the
Company issued additional shares of voting stock subsequent to the date of the
Agreement and up to December 31, 1999. For the period up to and including
December 31, 1998, the JEDI maintenance rights were to be manifested in share
purchase warrants exercisable within one year of the date of issuance of and at
the same effective price as the voting stock giving rise to the maintenance
right. Following that date no warrants are to be issued and JEDI must exercise
the maintenance rights within 30 days of being notified by the Company of
additional issuances of voting stock. Since January 1, 1999 JEDI has accrued
the right to purchase an aggregate of 334,135 shares of common stock pursuant
to the maintenance rights provisions at prices ranging from $1.00 to $3.50 but
has not exercised any of those maintenance rights.
On April 9 the Company issued 2,650,000 warrants to Northern Tier Asset
Management, Inc. in consideration for investment banking services to be
provided to the Company by Northern Tier. The warrants have an exercise price
15
<PAGE> 16
of $1.50 per share and expire at various times from July 31, 1999 to June 30,
2000. The warrants carry a cashless exercise feature that allows them to be
exercised for shares in proportion to the difference between the exercise price
and the market price at the time of exercise. The market price applicable to
the cashless exercise is capped at various levels between $2.00 and $3.00.
The Company believes that it can generate sufficient cash flow from operations
to pay the interest charges on all of its interest-bearing debt. The gas
price-hedging program currently in place provides a degree of protection
against significant decreases in gas prices. Furthermore, 87% of the Company's
interest-bearing debt is at fixed rates for extended periods, providing an
effective hedge against increases in prevailing interest rates.
USES OF CAPITAL
Since commencing its oil and natural gas operations in August 1994 the Company
has completed 20 acquisitions of oil and natural gas producing properties.
Through March 31, 1999, the Company had expended a total of $187 million in
acquiring, developing and exploiting oil and natural gas producing properties.
Initially, the operations of the Company represented a net use of funds. The
Company generated positive cash flow from operations during the nine months
ended March 31, 1999. The Company initially expected to spend $17 million on
the development and exploitation of its oil and natural gas properties during
the fiscal year ended June 30, 1999. During the nine months ended March 31,
1999 the Company spent $10 million on the development and exploitation of its
oil and natural gas properties. Due to low oil and natural gas prices the
Company has deferred some development and exploitation projects and has
extended others over a longer period of time. The Company exercises a fair
degree of control over the timing of the individual projects that comprise the
development and exploitation program. The Company now expects to spend between
$1 million and $3 million between April 1 and June 30, 1999. With the recent
improvements in oil and natural gas prices the Company is currently
re-evaluating its development and exploitation projects with a view of
increasing it capital expenditure budget.
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<PAGE> 17
The Company does not have sufficient liquidity or capital to undertake
significant potential acquisition prospects. 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 to a
significant degree on cash availability from outside sources such as bank debt
and the sale of securities or properties.
INFLATION
During the past several years, the Company has experienced moderate increases
in property acquisition and development costs. During the fiscal year ended
June 30, 1998, the Company received somewhat lower commodity prices for the
natural resources produced from its properties. Oil and gas prices have
decreased during the nine months ended March 31, 1999. However, late in March,
1999 prices started to rise. The results of operations and cash flow of the
Company have been, and will continue to be, affected to a certain extent by the
volatility in oil and natural gas prices. Should the Company experience a
significant increase in oil and natural gas prices that is sustained over a
prolonged period, it would expect that there would also be a corresponding
increase in oil and natural gas finding costs, lease acquisition costs, and
operating expenses.
CHANGES IN PRICES AND HEDGING ACTIVITIES
Annual average oil and natural gas prices have fluctuated significantly over
the past two years. The table below sets out the Company's weighted average
price per barrel and the weighted average price per Mcf, the impact of its
hedging programs and the NYMEX indices.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Gas (per mcf)
Price received at wellhead $ 1.88 $ 2.06 $ 2.00 $ 2.33
Effect of hedge contracts 0.24 0.00 0.13 (0.05)
-------- -------- -------- --------
Effective price received, including hedge contracts $ 2.12 $ 2.06 $ 2.13 $ 2.28
======== ======== ======== ========
Average NYMEX Henry Hub $ 1.75 $ 2.18 $ 1.97 $ 2.54
Average basis differential including hedge contracts $ 0.37 ($ 0.12) $ 0.16 ($ 0.26)
Average basis differential excluding hedge contracts $ 0.13 ($ 0.12) $ 0.03 ($ 0.21)
Oil (per barrel)
Average price received at wellhead per barrel $ 8.89 $ 15.38 $ 11.19 $ 16.82
Average effect of hedge contract (0.11) 1.22 0.33 0.37
-------- -------- -------- --------
Average price received, including hedge contracts $ 8.78 $ 16.60 $ 11.52 $ 17.19
======== ======== ======== ========
Average NYMEX Sweet Light Oil $ 13.06 $ 16.06 $ 13.38 $ 18.60
Average basis differential including hedge contracts $ (4.28) $ 0.54 $ (1.86) $ (1.41)
Average basis differential excluding hedge contracts $ (4.17) $ (0.68) $ (2.19) $ (1.78)
</TABLE>
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<PAGE> 18
The table below sets out volume of natural gas hedged with a floor price of
$1.90 per MMBtu with Enron. The volumes presented in this table are divided
equally over the months during the period:
<TABLE>
<CAPTION>
Volume
Period Beginning Period Ending (MMBtu)
---------------- ------------- -------
<S> <C> <C>
January 1, 1999 December 31, 1999 1,080,000
January 1, 2000 December 31, 2000 880,000
January 1, 2001 December 31, 2001 740,000
January 1, 2002 December 31, 2002 640,000
January 1, 2003 December 31, 2003 560,000
</TABLE>
The table below sets out volume of natural gas hedged with a swap at $2.40 per
MMBtu with Enron. The volumes presented in this table are divided equally over
the months during the period:
<TABLE>
<CAPTION>
Volume
Period Beginning Period Ending (MMBtu)
---------------- ------------- -------
<S> <C> <C>
January 1, 1999 December 31, 1999 2,710,000
January 1, 2000 December 31, 2000 2,200,000
January 1, 2001 December 31, 2001 1,850,000
January 1, 2002 December 31, 2002 1,600,000
January 1, 2003 December 31, 2003 1,400,000
</TABLE>
Effective May 1, 1998 through December 31, 2003 the Company has a contract
involving the hedging of a portion of its future natural gas production
involving floor and ceiling prices as set out in the table below. The volumes
presented in this table are divided equally over the months during the period.
<TABLE>
<CAPTION>
Volume Floor Ceiling
Period Ending Period Ending (MMBtu) Price Price
------------- ------------- ------- ----- -----
<S> <C> <C> <C> <C>
January 1, 9999 December 31, 1999 4,330,000 $2.00 $2.70
January 1, 2000 December 31, 2000 3,520,000 $2.00 $2.70
January 1, 2001 April 30, 2001 990,000 $2.00 $2.70
May 1, 2001 December 31, 2001 1,980,000 $2.00 $2.80
January 1, 2002 April 30, 2002 850,000 $2.00 $2.80
May 1, 2002 December 31, 2002 1,700,000 $2.00 $2.90
January 1, 2003 December 31, 2003 2,250,000 $2.00 $2.90
</TABLE>
Effective April 1, 1999 the Company entered into a swap agreement on 5,000
barrels of crude oil per month with Enron at $14.35 per barrel. This agreement
is for the 3 months ending June 1999 and is extendable for the three months of
July, August and September 1999 at the option of Enron.
Effective April 1, 1999 the Company entered into a swap agreement on 5,000
barrels of crude oil per month with Enron at $14.82 per barrel. This agreement
is for the 3 months ending June 1999 and is extendable for the three months of
July, August and September 1999 at the option of Enron.
Effective March 1, 1999 the Company entered into a swap agreement on 10,000
barrels of crude oil per month with Enron at $13.50 per barrel. This agreement
is for the 3 months ending May 1999 and is extendable for the three months of
June, July and August 1999 at the option of Enron.
Effective October 1, 1998 the Company entered into a swap agreement on 12,000
barrels of crude oil per month with Enron at $17.00 per barrel. This agreement
expired on December 31, 1998.
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<PAGE> 19
The Company was under contract with an affiliate of Enron for 10,000 Bbls of
oil per month with a floor of $18.00 per Bbl and a ceiling of $20.40 per Bbl
with the Company participating on 50% of the price of WTI Nymex over $20.40 for
the period from September 1, 1997 through August 31, 1998. The Company also had
a contract for 50,000 MMBtu of natural gas per month with an affiliate of
Enron, with a floor price of $1.90 per MMBtu and a ceiling price of $2.66 per
MMBtu, with the Company participating on 50% of the price of Henry Hub Nymex
Index over $2.66 per MMBtu for the period from September 1, 1997 through August
31, 1998.
INTEREST RATE HEDGING
The Company entered into a forward LIBOR interest rate swap effective for the
period June 30, 1998 through June 29, 2009 at a rate of 6.30% on $125.0
million. On July 9, 1998, the Company unwound this swap at a cost to the
Company of approximately $3.5 million with borrowings drawn under the Credit
Agreement.
YEAR 2000 COMPUTER ISSUE
GENERAL: The Company is addressing the potential impact of the Year 2000
("Y2K") issue on its operations. A review of internal systems has been
initiated and a review of the state of readiness of significant suppliers and
customers will be undertaken over the next few months. It is believed that
appropriate remedial action can be completed in advance of the year 2000 and
the costs of such action will not have a material affect on the financial
condition or results of operations of the Company.
STATE OF READINESS: The Company currently uses commercially available software
for its management information ("IT") systems including accounting, engineering
evaluation, acquisition analysis and word processing. This software is
warranted by the suppliers/manufacturers to be Y2K compliant. The Company has
not taken any steps to independently verify the truth of such warranties but
has no reason to believe that the software is not as warranted. The Company has
begun a review of non-IT systems, which it expects to complete in the next few
months.
COSTS OF COMPLIANCE: Management believes that the cost of compliance will be
minimal. As its IT systems were warranted to be compliant when purchased, the
Company has not incurred, nor does it expect to incur any significant
incremental costs to modify or replace such systems to make them compliant.
Non-IT systems are currently being evaluated to determine whether and to what
extent they may be non-compliant. Management does not currently believe that
the amount of non-compliant equipment will be found to be significant nor will
the cost to modify or replace such equipment be material.
The Company is seeking written verification from its major operators, suppliers
and customers that they will be Y2K compliant. The costs of seeking
verification are minimal. Management believes that it will not be practical to
independently verify the responses because it does not believe that the Company
would be given access to carry out such verification or that the costs of doing
so would be affordable. The cost of replacing non-compliant or non-responsive
suppliers and customers will not be possible to determine until the review
process has progressed.
RISK: Any Y2K problems that do occur will likely manifest themselves in reduced
production through equipment shut down or impaired liquidity through inability
of customers to take delivery or process payment.
CONTINGENCY: The Company plans to establish contingency plans once its
verification program is complete and the risks have been more fully quantified.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Item 2. "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Changes in Prices and Hedging Activities".
19
<PAGE> 20
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
ISSUANCE OF WARRANTS. Pursuant to a Consulting Agreement (the
"Consulting Agreement") dated April 9, 1999 between the Company and Northern
Tier Asset Management, Inc. ("Northern Tier"), the Company issued to Northern
Tier warrants to purchase an aggregate of 2,625,000 shares of the Company's
common stock (the "Northern Tier Warrants") in exchange for Northern Tier's
agreement to provide us certain consulting services. The consulting services to
be provided include advice and counsel regarding the Company's strategic
business and financial plans, strategy and negotiations with potential lenders
and investors and other involving financial and financially related
transactions. The term of the Consulting Agreement is from April 1, 1999 until
the earlier to occur of July 31, 2000 and the termination of the Consulting
Agreement.
The Northern Tier Warrants were issued in eleven series with
expiration dates ranging from July 31, 1999 to June 30, 2000 at an exercise
price of $1.50. The warrants provide for customary adjustments to the exercise
price and number of shares to be issued in the event of certain dividends and
distributions to holders of common stock, stock splits, combinations and
mergers. The warrants also include customary provisions with respect to, among
other things, transfer of the Northern Tier Warrants, mutilated or lost warrant
certificates, and notices to holder(s) of the warrants.
The issuance of the Northern Tier Warrants was made in reliance on
Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act").
The Company has filed a Registration Statement on Form S-3 with the Securities
and Exchange Commission to register the resale of the shares of Common Stock
issuable pursuant to the Northern Tier Warrants.
OTHER ISSUANCES OF COMMON STOCK. During the quarter ended March 31,
1999, pursuant to Section 3(a)(9) of the Securities Act, the Company issued an
aggregate of 258,427 shares of Common Stock to stockholders who exercised
repricing rights under the Amended and Restated Securities Purchase Agreement
dated as of July 8, 1998 among the Company and the buyers signatory thereto.
The repricing rights were issued in connection with the July 1998 private
placement and permit the holders to acquire shares of Common Stock without the
payment of additional consideration if the Company's Common Stock does not
achieve certain price thresholds in excess of the original issuance of the
shares purchased by the holders in the July 1998 private placement. The resale
of these shares of Common Stock is registered pursuant to a Registration
Statement on Form S-3 filed by the Company and declared effective by the
Securities and Exchange Commission.
During the quarter ended March 31, 1999, pursuant to Section 3(a)(9)
of the Securities Act, the Company issued an aggregate of 416,325 shares upon
conversion of 720 shares of the Company's Series C Convertible Preferred Stock
by the holders thereof. The resale of these shares of Common Stock is
registered pursuant to a Registration Statement on Form S-3 filed by the
Company and declared effective by the Securities and Exchange Commission.
Due to the current market price of the Company's Common Stock, it is
likely that additional shares of Common Stock will be issued upon exercise of
Repricing Rights and upon conversion of the Series C Convertible Preferred
Stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
4.1 Fourth Amendment to Amended Restated Credit Agreement among
the Company, Queen Sand Resources, Inc., a Nevada
corporation, Bank of Montreal, as Agent and the lenders
signatory thereto, effective as of May 14, 1999.
20
<PAGE> 21
4.37 Form of Common Stock Purchase Warrant issued to Northern Tier
Asset Management, Inc., filed as Exhibit 4.37 to the
Company's Registration Statement on form S-3 (No. 333-78001),
filed on May 7, 1999 (the "Form S-3") and incorporated by
reference herein.
4.38 Registration Rights Agreement, dated as of April 9, 1999,
between the Company and Northern Tier Asset Management, Inc.,
filed as Exhibit 4.38 to the Form S-3 and incorporated by
reference herein.
4.39 Consulting Agreement, dated as of April 9, 1999, between the
Company and Northern Tier Asset Management Asset Inc., filed
as Exhibit 4.39 to the Form S-3 and incorporated by reference
herein.
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K.
NONE
21
<PAGE> 22
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
President and Chief Executive Officer
By: /s/ Ronald Benn
-----------------------------------------
Ronald Benn
Chief Financial Officer
Date: May 17, 1999
22
<PAGE> 23
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
4.1 Fourth Amendment to Amended Restated Credit Agreement among
the Company, Queen Sand Resources, Inc., a Nevada
corporation, Bank of Montreal, as Agent and the lenders
signatory thereto, effective as of May 14, 1999.
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 4.1
FOURTH AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT, dated
as of May 14, 1999 (this "Fourth Amendment"), among Queen Sand Resources, Inc.,
a Nevada corporation (the "Borrower"), Queen Sand Resources, Inc., a Delaware
corporation ("QSRD"), Queen Sand Operating Co. (formerly known as Northland
Operating Co.), a Nevada corporation ("Northland"), Corrida Resources, Inc., a
Nevada corporation ("Corrida"), each of the lenders that is, or becomes, a
signatory to the Credit Agreement referred to below (individually, together
with its successors and assigns, a "Lender" and collectively, the "Lenders")
and Bank of Montreal, a foreign bank formed under the laws of Canada in its
individual capacity as a Lender and as agent for Lenders under the Credit
Agreement referred to below (in its capacity as agent, together with its
successors and assigns in such capacity, the "Agent").
RECITALS
WHEREAS, the Borrower, QSRD, the Lenders and the Agent are parties
to that certain Amended and Restated Credit Agreement, dated as of April 17,
1998, as amended by that certain First Amendment to Amended and Restated Credit
Agreement, dated as of July 1, 1998 and by that certain Second Amendment to
Amended and Restated Credit Agreement, dated as of November 10, 1998 and by
that certain Third Amendment to Amended and Restated Credit Agreement, dated as
of November 13, 1998 (as so amended, the "Credit Agreement"); and
WHEREAS, the Borrower has advised the Lenders and the Agent that
it desires to amend certain provisions of the Credit Agreement, and the
Borrower has requested that the Lenders and the Agent agree to amend certain
provisions of the Credit Agreement; and
WHEREAS, the Lenders and the Agent have agreed to so amend certain
provisions of the Credit Agreement upon the terms and subject to the conditions
and limitations of this Fourth Amendment;
NOW, THEREFORE, in consideration of the premises, covenants and
agreements contained herein, the parties hereto hereby agrees as follows:
Section 1. Definitions. Capitalized terms used and not otherwise
defined herein are used with the meanings ascribed thereto in the Credit
Agreement. The following capitalized terms shall have the following respective
meanings when used herein:
<PAGE> 2
A. "Divestment Properties" shall mean, collectively, those certain
Oil and Gas Properties identified in Annex I to that certain Letter Agreement
between the Borrower and the Agent dated May 13, 1999.
B. "Lending Relationship" shall refer to the Credit Agreement and
the other Loan Documents, including, without limitation, this Fourth Amendment,
together with any and all negotiations, discussions, acts, omissions, renewals,
extensions, and other agreements or events related to the Credit Agreement and
such other Loan Documents, the parties' obligations thereunder and the
transactions contemplated thereby, including, without limitation, any such
negotiations, discussions, acts, omissions, renewals, extensions, other
agreements or events that (a) occurred prior to the date hereof, (b) may occur
on the date hereof, or (c) occurred prior to the execution of this Fourth
Amendment and the instruments and documents executed and delivered in
connection herewith or relating hereto.
C. "O'Brien Transaction" shall mean the transaction contemplated
by that certain Amended Offer to Purchase dated April 27, 1999 from O'Brien
Energy Company to the Borrower.
D. "Released Claims" shall mean any and all claims (including
without limitation any liabilities, damages, demands and causes of action
arising therefrom), whether (a) at law or in equity, (b) on the alleged
commission of a tort, (c) on the alleged breach (or anticipatory breach or
repudiation) of any contract, duty, or warranty (whether oral or written,
express or implied), (d) on the alleged violation of any statute, tariff, or
regulation (whether promulgated by the United States, any state thereof, any
foreign state or country, or any other governmental agency or entity, wherever
located), or (e) on any other factual, legal or equitable theory, including,
without limitation, any claim for damages of any type or nature, for injunctive
or other relief, for attorneys' fees, interest or any other liability
whatsoever on any theory, including without limitation any loss, cost or damage
in connection with or based upon "lender liability", unfair dealing, duress,
coercion, control or undue influence, extortion or commercial bribery, breach
of an implied covenant or duty of good faith and fair dealing, material
misrepresentation or omission, overreaching, unconscionability, conflict of
interest, bad faith, malpractice, disparate bargaining position, detrimental
reliance, promissory estoppel, estoppel by deed, waiver, laches, or any other
equitable theory, equitable subordination, breach of fiduciary duty or any
other duty, or tortious inducement to commit such breach, tortious interference
with contract or prospective business relations, negligent performance of
contractual obligations, or other theories of negligence, negligent or
intentional infliction of emotional distress, slander, libel, other defamation,
fraudulent transfer, conversion, trespass to (or clouding the title of)
property, usury, violations of the Racketeer Influenced and Corrupt
Organizations Act, deceptive trade practices, conspiracy, or any theory of
liability as partners or joint venturers, that any Releasing Party may have as
of the date hereof against any Released Party with respect to the Lending
Relationship.
2
<PAGE> 3
E. "Released Party" shall mean each of the Agent, the Lenders and
their respective predecessors, successors, assigns, directors, officers,
partners, employees, agents, attorneys, principals and Affiliates and all other
Persons liable or who might be claimed to be liable on their behalf
(collectively, the "Released Parties").
F. "Releasing Party" shall mean each of QSRD, the Borrower,
Corrida and Northland and their respective predecessors, successors, assigns,
directors, officers, partners, employees, agents, attorneys, principals,
Affiliates (other than any Affiliate that is a Lender) and all other Persons
who might have a claim against any Released Party (collectively, the "Releasing
Parties").
Section 2. Amendments to Credit Agreement. The Credit Agreement is
amended hereby as follows:
A. Section 1.02 is amended hereby:
(i) by inserting the reference "and the Fourth Amendment"
after the reference "Third Amendment" in the definition of the term
"Agreement";
(ii) by inserting the following definitions where
alphabetically appropriate:
"Fourth Amendment" shall mean that certain Fourth Amendment to
Amended and Restated Credit Agreement dated as of May 14, 1999 among the
Borrower, QSRD, the Agent and the Lenders.
"Fourth Amendment Effective Date" shall mean May 14, 1999.
"O'Brien Transaction" shall mean, the transaction contemplated by
that certain Amended Offer to Purchase dated April 27, 1999 from O'Brien
Energy Company to the Borrower.";
(iii) by deleting the definition of the term "Aggregate
Maximum Credit Amounts" in its entirety and substituting the following
therefor:
"Aggregate Maximum Credit Amounts" at any time prior to the 15th
Business Day of September 1999 (or such earlier time as the Borrowing
Base is redetermined in accordance with Section 2.08(d) or Section 3B(i)
of the Fourth Amendment) shall equal $17,150,000 as reduced in accordance
with Section 2.03(b) and/or by prepayments made pursuant to Section
2.07(d), and thereafter shall equal the sum of the Maximum Credit Amounts
of the Lenders ($125,000,000), as the same may be reduced pursuant to
Section 2.03(b).";
3
<PAGE> 4
(iv) by deleting the reference "outstanding during the
Revolving Credit Period" in subsection (a) of the definition of the term
"Applicable Margin";
(v) by deleting all references to "0.00%" in the definition
of the term "Applicable Margin" and substituting for each such reference the
reference "2.00%";
(vi) by inserting a period after the reference "Base Rate
Loans" in subsection (b) of the definition of the term "Applicable Margin" and
deleting the remainder of the definition of such term in its entirety;
(vii) by deleting the definition of "Base Rate" in its
entirety and substituting the following therefor:
"Base Rate" shall mean, for any day, the Prime Rate for such day.
Each change in any interest rate provided for herein based upon the Base
Rate resulting from a change in the Base Rate shall take effect at the
time of such change in the Base Rate.";
(viii) by deleting the reference "and to participate in
the Letters of Credit as provided in Section 2.01(b)" in the definition of the
term "Commitment";
(ix) by deleting the definition of the term "Commitment
Fee Rate" in its entirety;
(x) by deleting the reference "or issuance of the initial
Letters of Credit" in the definition of the term "Initial Funding";
(xi) by deleting the second paragraph of the definition of
the term "Interest Period" in its entirety and substituting the following
therefor:
"Notwithstanding the foregoing: (i) no Interest Period may end
after June 7, 1999, (ii) each Interest Period that would otherwise end on
a day which is not a Business Day shall end on the next succeeding
Business Day (or, if such next succeeding Business day falls in the next
succeeding calendar month, on the next preceding Business Day) and (iii)
no Interest Period shall have a duration of less than one month and, if
the Interest Period for any Eurodollar Loans would otherwise be for a
shorter period, such Loans shall not be available hereunder.";
(xii) by deleting the definition of the term "LC
Commitment" in its entirety;
(xiii) by deleting the definition of the term "LC
Exposure" in its entirety;
4
<PAGE> 5
(xiv) by deleting the definition of the term "Letter of
Credit Agreements" in its entirety;
(xv) by deleting the definition of the term "Letters of
Credit" in its entirety;
(xvi) by deleting the reference "April 17, 2003" in the
definition of the term "Maturity Date" and substituting therefor the reference
"October 1, 2000";
(xvii) by deleting the reference "and the LC Exposure" in
the definition of the term "Percentage Usage";
(xviii) by deleting the reference "available Borrowing
Base" in the definition of the term "Percentage Usage" and substituting
therefor the reference "Aggregate Commitments";
(xix) by deleting the reference "(i) in the event a
Borrowing Base deficiency is being cured as permitted under Section
2.07(c)(ii), or (ii)", the reference "the first day of such deficiency period
or", the reference ", as applicable," and the reference "such Borrowing Base
deficiency is cured or" in the definition of the term "Post-Default Rate";
(xx) by deleting the definition of the term "Revolving
Credit Period" in its entirety;
(xxi) by deleting the definition of the term "Revolving
Credit Termination Date" in its entirety;
(xxii) by deleting the reference "the Letters of Credit,
the Letter of Credit Agreement," and the reference "or the LC Exposure" in the
definition of the term "Security Instruments"; and
(xxiii) by deleting the definition of the term "Term Loan
Period" in its entirety.
B. Section 2.01 of the Credit Agreement is amended hereby as
follows:
(i) by deleting the reference "and Letters of Credit" in
the section title;
(ii) by deleting the text of subsection (a) in its
entirety and substituting the following therefor:
"Loans. Each Lender severally agrees, on the terms of this
Agreement, to make Loans to the Borrower from time to time until the
Maturity Date in an aggregate principal amount at any one time
outstanding up to but not exceeding
5
<PAGE> 6
the amount of such Lender's Commitment as then in effect; provided,
however, that the sum of the aggregate principal amount of all Loans by
all Lenders hereunder at any one time outstanding shall not exceed the
Aggregate Commitments. Subject to the terms and conditions of this
Agreement, the Borrower may borrow, repay and reborrow the amounts
described in this Section 2.01(a)."; and
(iii) by deleting the text of subsection (b) in its
entirety and substituting therefor the reference "Intentionally left blank.".
C. Section 2.02 of the Credit Agreement is amended hereby as
follows:
(i) by deleting the reference "and Letters of Credit" in
the section title; and
(ii) by deleting subsection (g) in its entirety.
D. Section 2.03 of the Credit Agreement is amended hereby as
follows:
(i) by deleting the reference ", after adjustments
resulting from reductions pursuant to Sections 2.03(b)," in subsection (a); and
(ii) by inserting the reference "pursuant to subsection
(b) above" after the reference "or reduced" in subsection (c).
E. Section 2.04 of the Credit Agreement is amended hereby as
follows:
(i) by deleting the text of subsection (a) in its entirety
and substituting the following therefor:
"The Borrower shall pay to the Agent for the account of each
Lender a commitment fee on the daily average unused amount of the
Aggregate Commitments at a rate per annum equal to .425%. Accrued
commitment fees shall be payable quarterly on each Quarterly Date in
arrears and on the date the Aggregate Commitments are terminated.";
(ii) by deleting the text of subsection (b) in its
entirety and substituting therefor the reference "Intentionally left blank.";
(iii) by deleting the text of subsection (c) in its
entirety and substituting therefor the reference "Intentionally left blank.";
(iv) by deleting the text of subsection (d) in its
entirety and substituting therefor the reference "Intentionally left blank.";
and
6
<PAGE> 7
(v) by deleting the text of subsection (e) in its entirety
and substituting therefor the reference "Intentionally left blank.".
F. Section 2.05 of the Credit Agreement is amended hereby by
deleting the text of such section in its entirety and substituting the
following therefor:
"The failure of any Lender to make any Loan to be made by it on
the date specified therefor shall not relieve any other Lender of its
obligation to make its Loan on such date, but no Lender shall be
responsible for the failure of any other Lender to make a Loan to be made
by such other Lender.".
G. Section 2.07 of the Credit Agreement is amended hereby as
follows:
(i) by deleting the reference "plus the LC Exposure" and
clause (ii) in its entirety in subsection (b);
(ii) by deleting the reference "and the LC Exposure" in
subsection (c);
(iii) by deleting the references ": either (i)", "(and/or
provide cash collateral)" and "or (ii) notify the Agent of its election to
eliminate such Borrowing Base deficiency by making six (6) consecutive monthly
payments equal to such excess divided by six (6), the first of such payments
being due and payable immediately and each subsequent payment being due at
thirty (30) day intervals thereafter" in subsection (c);
(iv) by deleting the text of subsection (d) in its
entirety and substituting the following therefor:
"Following Asset Sales. Until the Borrowing Base is redetermined
on or about the 15th Business Day of September 1999 (or such earlier time
as the Borrowing Base is redetermined in accordance with Section
2.08(d)), following any sale of assets the Borrower shall make
prepayments as set forth below:
(1) Upon consummation of the O'Brien Transaction, the
Borrower shall prepay the Loans in an aggregate principal amount
equal to the first $7,150,000 of the net cash proceeds of the
O'Brien Transaction, plus 100% of the net cash proceeds in excess
of $8,150,000 of the O'Brien Transaction. The Aggregate Maximum
Credit Amounts shall be reduced by the entire amount of such
prepayment pro rata to each Lender based on its Percentage Share.
(2) Subject to subsection (d)(1) of this Section 2.07,
until such time as the outstanding principal of the Loans is less
than or equal to $10,000,000, upon the sale of any asset(s), the
Borrower shall prepay the
7
<PAGE> 8
Loans in an aggregate principal amount equal to 100% of the net
cash proceeds of such sale. The Aggregate Maximum Credit Amounts
shall be reduced by the entire amount of any such prepayment pro
rata to each Lender based on its Percentage Share.
(3) Subject to subsection (d)(1) of this Section 2.07, so
long as the outstanding principal of the Loans is less than or
equal to $10,000,000, upon the sale of any asset(s), the Borrower
shall prepay the Loans as follows: (A) with respect to the sale of
any asset(s) for an amount less than the value that would be
attributable to such asset(s) in the Borrowing Base (as determined
by the Lenders in their sole discretion), the Borrower shall
prepay the Loans in an aggregate principal amount equal to 70% of
the net cash proceeds of such sale and (B) with respect to the
sale of any asset(s) for an amount greater than the value that
would be attributable to such asset(s) in the Borrowing Base (as
determined by the Lenders in their sole discretion) the Borrower
shall prepay the Loans in an aggregate principal amount equal to
the sum of (x) the value that would be attributable to such
asset(s) in the Borrowing Base (as determined by Lenders in their
sole discretion) and (y) 50% of the net cash proceeds in excess of
(x). The Aggregate Maximum Credit Amounts shall be reduced by the
entire amount of any prepayments made pursuant to this Section
2.07(d)(3) pro rata to each Lender based on its Percentage
Share."; and
(v) by deleting the reference "during the Revolving Credit
Period" in subsection (e) and substituting therefor the reference "prior to the
Maturity Date".
H. Section 2.08 of the Credit Agreement is amended hereby by
deleting the reference "LC Exposure or" in subsection (a).
I. Section 2.09 of the Credit Agreement is amended hereby by
deleting the title and text of such section in its entirety and substituting
therefor the reference "Intentionally left blank.".
J. Section 2.10 of the Credit Agreement is amended hereby by
deleting the title and text of such section in its entirety and substituting
therefor the reference "Intentionally left blank.".
K. Section 3.01 of the Credit Agreement is amended hereby by
deleting the text of such section in its entirety and substituting the
following therefor:
"In addition to prepayments of principal required by the
provisions of this Agreement, on the Maturity Date the Borrower shall
repay the aggregate outstanding principal and accrued and unpaid interest
under the Notes.".
8
<PAGE> 9
L. Section 3.02 of the Credit Agreement is amended hereby as
follows:
(i) by deleting the reference "(i) during any curative
period for a Borrowing Base deficiency under Section 2.07(c)(ii), the Borrower
will pay to the Agent, for the account of each Lender interest at the
applicable Post-Default Rate on any principal of each Loan made by such Lender;
and (ii) in all other cases," in subsection (b);
(ii) by deleting the text of subsection (c) in its
entirety and substituting the following therefor:
"Commencing on June 30, 1998 and through and including March 31,
1999, accrued interest on Base Rate Loans shall be payable on each
Quarterly Date. Interest accrued in April and May of 1999 shall be
payable on May 31, 1999. Commencing June 30, 1999, accrued interest on
Base Rate Loans shall be payable monthly on the last day of each month.
Accrued interest on each Eurodollar Loan shall be payable on the last day
of the Interest Period therefor and, if such Interest Period is longer
than three months at three-month intervals following the first day of
such Interest Period and interest on any Eurodollar Loan that is
converted into a Base Rate Loan (pursuant to Section 5.04) shall be
payable on the date of conversion (but only to the extent so converted).
All Eurodollar Loans listed on Schedule 3.02 to the Fourth Amendment
shall be converted into Base Rate Loans on their respective maturity
dates and on such maturity dates the Borrower shall pay to the Agent for
the account of each Lender all accrued interest on such Loans. All
interest payable at the Post-Default Rate shall be payable from time to
time on demand."; and
(iii) by deleting the reference "during the Revolving
Credit Period" and the reference "(including the LC Exposure)" in subsection
(d).
M. Section 4.01 of the Credit Agreement is amended hereby by
deleting the reference ", the Letter of Credit Agreements" in the first
sentence thereof.
N. Section 4.02 of the Credit Agreement is amended hereby as
follows:
(i) by inserting the reference "and/or Section 2.07(b)(i)"
after the reference "Section 2.03(b)" therein; and
(ii) by deleting the reference "; and (iv) each
reimbursement by the Borrower of disbursements under Letters of Credit shall be
made for the account of the Agent or, if funded by the Lenders, pro rata for
the account of the Lenders in accordance with the amounts of reimbursement
obligations due and payable to each respective Lender".
9
<PAGE> 10
O. Section 4.04 of the Credit Agreement is amended hereby by
deleting the reference "or a payment under a Letter of Credit" therein.
P. Section 5.01 of the Credit Agreement is amended hereby as
follows:
(i) by deleting the reference "or any interest held by it
in any Letter of Credit" in subsection (c);
(ii) by deleting the reference "or issue or participate in
Letters of Credit," and the reference "or Letters of Credit" in subsection (d).
Q. Section 5.06 of the Credit Agreement is amended hereby by
deleting the reference "and participation interests in Letters of Credit (if
any) then outstanding pro rata as aforesaid" in subsection (d).
R. Section 6.02 of the Credit Agreement is amended hereby as
follows:
(i) by deleting the reference "and to issue, renew, extend
or reissue Letters of Credit for the account of the Borrower";
(ii) by deleting all references "or issuance, renewal,
extension or reissuance of a Letter of Credit"; and
(iii) by deleting the reference "or of the Agent to issue
Letters of Credit" in the final paragraph of such section..
S. Section 6.03 of the Credit Agreement is amended hereby by
deleting the title and text of such section in its entirety and substituting
therefor the reference "Intentionally left blank.".
T. The introductory language to Article VII of the Credit
Agreement is amended hereby by deleting the reference "and issuance, renewal,
extension or reissuance of a Letter of Credit".
U. Section 9.01 of the Credit Agreement is amended hereby by
deleting the reference "in an aggregate principal amount not to exceed $500,000
at any one time outstanding" in subsection (d) and substituting therefor the
reference "other than as disclosed on Schedule 9.01 to the Fourth Amendment".
V. Section 9.03(k) of the Credit Agreement is amended hereby by
deleting the text of subsection (k) in its entirety and substituting the
following therefor:
"loans or advances to officers and employees of QSRD or any
Subsidiary that are disclosed on Schedule 9.03(k) to the Fourth
Amendment".
10
<PAGE> 11
W. Section 9.09 of the Credit Agreement is amended hereby by
deleting the reference "or the Letters of Credit".
X. Section 9.14 of the Credit Agreement is amended hereby by
deleting the text of such section in its entirety and substituting the
following therefor:
"QSRD's Fixed Charge Coverage Ratio as of the end of any full
fiscal quarter shall be at not less than the following for the period
then applicable:
(i) for the three month period ending on June 30, 1999,
1.15 to 1.0;
(ii) for the six month period ending on September 30,
1999, 1.15 to 1.0;
(iii) the nine month period ending on December 31, 1999,
1.15 to 1.0;
(iv) for each rolling period of four fiscal quarters
thereafter, 1.15 to 1.0.
Y. Section 9.15 of the Credit Agreement is amended hereby as
follows:
(i) by deleting the reference "Oil and Gas" in the title
of such section;
(ii) by inserting the reference "Property, including,
without limitation, any" after the reference "convey or otherwise transfer
any"; and
(iii) by deleting the reference ", and (v) sales or other
dispositions of Oil and Gas Properties or other assets which shall not exceed
$2,500,000 in the aggregate in any fiscal year".
Z. Section 10.01 of the Credit Agreement is amended hereby by
deleting in subsection (a) the reference ", or any reimbursement obligation for
a disbursement made under any Letter of Credit".
AA. Section 10.02 of the Credit Agreement is amended hereby as
follows:
(i) by deleting in subsections (a) and (b) the reference
"(including without limitation the payment of cash collateral to secure the LC
Exposure as provided in Section 2.10(b) hereof)"; and
(ii) by deleting in subsection (c) the reference "fifth to
serve as cash collateral to be held by the Agent to secure the LC Exposure;".
11
<PAGE> 12
BB. Section 11.03 of the Credit Agreement is amended hereby by
deleting the reference "or failure to reimburse for Letter of Credit
drawings)".
CC. Section 11.04 of the Credit Agreement is amended hereby by
deleting the reference "and its participation in the issuance of Letters of
Credit".
DD. Section 12.03 of the Credit Agreement is amended hereby as
follows:
(i) by deleting the reference "(VI) THE ISSUANCE,
EXECUTION AND DELIVERY OR TRANSFER OF OR PAYMENT OR FAILURE TO PAY UNDER ANY
LETTER OF CREDIT, OR (VII) THE PAYMENT OF A DRAWING UNDER ANY LETTER OF CREDIT
NOTWITHSTANDING THE NON-COMPLIANCE, NON-DELIVERY OR OTHER IMPROPER PRESENTATION
OF THE MANUALLY EXECUTED DRAFT(S) AND CERTIFICATIONS(S)" in subsection (b); and
(ii) by renumbering subsections (b)(viii) and (b)(ix) as
(b)(vi) and (b)(vii), respectively.
EE. Section 12.06 of the Credit Agreement is amended hereby as
follows:
(i) by deleting the reference ", any Letter of Credit" in
subsection (a);
(ii) by inserting the following sentence after the first
sentence in subsection (b):
"Notwithstanding anything in the preceding sentence to the
contrary, upon the occurrence and during the continuation of a Default or Event
of Default, any Lender may sell, assign, transfer or negotiate to one or more
other lenders, commercial banks, insurance companies, other financial
institutions or any other Person all or any portion of its rights and
obligations hereunder, and acceptance of such assignment by any assignee shall
constitute the agreement of such assignee to be bound by the terms of this
Agreement applicable to the assigning Lender."; and
(iii) by deleting the following references in subsection
(c): "the Revolving Credit Termination Date or", "or Letters of Credit" and "or
Letters of Credit".
FF. Section 12.07 of the Credit Agreement is amended hereby by
deleting the reference "or the Letters of Credit, the Letter of Credit
Agreements".
12
<PAGE> 13
Section 3. Waivers.
A. QSRD and the Borrower have informed the Agent and the Lenders
that QSRD has failed to comply with the Fixed Charge Coverage Ratio set forth
in Section 9.14 of the Credit Agreement (as in effect prior to this Fourth
Amendment) for the fiscal quarter ending March 31, 1999. QSRD and the Borrower
have requested that the Agent and each Lender waive any Default or Event of
Default associated with the foregoing failure, and the Agent and each Lender
signatory hereto, by the execution and delivery of this Fourth Amendment,
hereby agrees to waive any Default or Event of Default associated with the
failure to comply with the Fixed Charge Coverage Ratio for the fiscal quarter
ending March 31, 1999.
B. QSRD and the Borrower have requested that the Agent and the
Lenders waive the March 1999 Scheduled Redetermination Date until July 15,
1999, and the Agent and each Lender signatory hereto, by the execution and
delivery of this Fourth Amendment, hereby agree to waive such Scheduled
Redetermination Date until July 15, 1999, and the Lenders will not initiate an
unscheduled redetermination of the Borrowing Base pursuant to Section 2.08(d)
of the Credit Agreement (as amended hereby) prior to July 15, 1999, provided
that:
(i) if the aggregate outstanding principal of the Loans is
less than or equal to $12, 500,000 on or before July 1, 1999, then the July 15,
1999 Scheduled Redetermination Date provided for above shall be waived and no
Scheduled Redetermination Date shall occur prior to the September 1999
Scheduled Redetermination Date; and
(ii) until the first redetermination of the Borrowing Base
after the Fourth Amendment Effective Date, borrowings under the Credit
Agreement (as amended hereby) are limited to the Aggregate Maximum Credit
Amounts then in effect.
C. Nothing contained herein shall be deemed to constitute a
consent or waiver with respect to any other term, provision or condition of the
Credit Agreement and the other Loan Documents or shall prejudice any right or
remedy that the Agent and/or the Lenders may now have or may have in the future
under or in connection with the Credit Agreement or any Loan Document.
Section 4. Covenants.
A. Covenants of the Borrower and the Parent. The Borrower and/or
QSRD, as the case may be, covenant and agree as follows:
(i) The Borrower shall use its best reasonable efforts to
consummate the O'Brien Transaction and to dispose of the Divestment Properties
for fair value in one or more arm's length transactions.
13
<PAGE> 14
B. The Lenders and the Agent Covenants. Each of the Lenders and
the Agent, as the case may be, covenants and agrees as follows:
(i) the Agent will release any Lien that it may have on
assets of the Borrower sold by the Borrower in one or more arms length
transactions for fair value by the Borrower in accordance with the terms of the
Credit Agreement as amended hereby, the net cash proceeds of which sales are
paid to the Agent for the ratable benefit of the Lenders to the extent required
under Section 2.07(d) of the Credit Agreement as amended hereby.
Section 5. Conditions Precedent. This Fourth Amendment shall
become binding upon receipt by the Agent of the following documents and
satisfaction of the other conditions provided in this Section 5, each of which
must be satisfactory to the Agent in form and substance:
A. counterparts of this Fourth Amendment executed by QSRD, the
Borrower, the Agent and the Lenders;
B. certificates of the Secretary or an Assistant Secretary of
QSRD, the Borrower, Corrida and Northland setting forth for each of them (i)
the resolutions of its board of directors with respect to the authorization to
execute and deliver this Fourth Amendment and to consummate the transactions
contemplated hereby; (ii) the Responsible Officer of such entity authorized to
sign this Fourth Amendment, and (iii) the signature of such authorized
Responsible Officer of such entity;
C. an opinion of counsel to the Borrower substantially in the form
attached hereto as Exhibit A;
D. payment of the fees and expenses of the Agent and the Lenders
in accordance with Section 8.B. hereof; and
E. such other documents as the Agent may reasonably request.
Section 6. Representations and Warranties.
A. Each of QSRD, the Borrower, Corrida and Northland hereby
reaffirms that the representations and warranties made it in the Credit
Agreement and the other Loan Documents were true and correct when made and are
true and correct as though made on and as of the date hereof, and further
represents and/or acknowledges, as applicable, that,
(i) as of the date hereof, no Default or Material Adverse
Effect has occurred and is continuing except as previously disclosed to the
Agent in writing;
14
<PAGE> 15
(ii) the execution, delivery and performance by QSRD, the
Borrower, Corrida and Northland of this Fourth Amendment and the other Loan
Documents and all instruments and documents to be delivered by QSRD, the
Borrower, Corrida and Northland to the extent a party thereto, hereunder and
thereunder and the creation of all Liens provided for herein and therein: (a)
are within QSRD's, the Borrower's, Corrida's or Northland's corporate power;
(b) have been duly authorized by all necessary or proper corporate action,
including the consent of stockholders thereof; (c) are not in contravention of
any provision of QSRD's, the Borrower's, Corrida's or Northland's certificate
of incorporation, bylaws or similar organizational and/or governing documents;
(d) will not violate (1) any law or regulation or (2) any order or decree of
any court or governmental instrumentality; (e) will not conflict with or result
in the breach or termination of, constitute a default under or accelerate any
performance required by, any indenture, mortgage, deed of trust, lease,
agreement or other instrument to which QSRD, the Borrower, Corrida or Northland
is a party or by which QSRD, the Borrower, Corrida or Northland or any of their
respective Property is bound; (f) will not result in the creation or imposition
of any Lien upon any of the Property of QSRD, the Borrower, Corrida and
Northland other than those in favor of the Agent pursuant to the terms of any
Loan Documents to be delivered in connection herewith; and (g) do not require
the consent or approval of any governmental body, agency, authority or any
other Person that has not been duly obtained, made or complied with prior to
the date hereof. At or prior to the date hereof, each of this Fourth Amendment
and the other Loan Documents to be delivered in connection herewith shall have
been duly executed and delivered for the benefit of or on behalf of QSRD, the
Borrower, Corrida and Northland, in each case to the extent a party thereto,
and each shall then constitute a legal, valid and binding obligation of QSRD,
the Borrower, Corrida and Northland enforceable against it in accordance with
its terms;
(iii) pursuant to and in accordance with Section 2.08(d)
of the Credit Agreement and subject to the limitations in Section 3B(i) hereof,
the Majority Lenders may initiate two unscheduled redeterminations of the
Borrowing Base during any consecutive twelve (12) month period;
(iv) until the first redetermination of the Borrowing Base
after the Fourth Amendment Effective Date, borrowings under the Credit
Agreement (as amended hereby) are limited to the Aggregate Maximum Credit
Amounts then in effect.
B. Each of QSRD, the Borrower, Corrida and Northland further
represents and warrants, for itself only that it (i) is executing this Fourth
Amendment after consultation with counsel of his or its own choosing, (ii) has
read and understands the release granted by Section 7 hereof, (iii) desires to
execute this Fourth Amendment and (iv) has the requisite authority to enter
into and be bound by this Fourth Amendment, including the release granted by
Section 7 hereof.
15
<PAGE> 16
Section 7. Release.
A. Each of the Releasing Parties desires and intends fully to
compromise, release and settle any and all of the Released Claims; and each of
the Releasing Parties hereby covenants, warrants and represents unto each of
the Released Parties that such Releasing Party does hereby FOREVER RELEASE,
ACQUIT, WAIVE AND DISCHARGE each of the Released Parties of and from the
Released Claims and each of the Releasing Parties hereby declares the same
FOREVER RELEASED, ACQUITTED, WAIVED, SETTLED AND DISCHARGED. This release is
effective without regard to whether (i) such Released Claims are known or
unknown, (ii) damages arising out of such Released Claims have yet accrued,
(iii) such Released Claims arose collaterally, directly, derivatively, or
otherwise between the parties hereto or (iv) an ordinary person in the same or
similar circumstances would or would not, through the exercise of due care,
have discovered such claims by the date of this Fourth Amendment. In connection
with the foregoing release.
B. Each of the Borrower, QSRD and each Subsidiary Guarantor
represents and warrants that it has the full power and authority to perform the
release granted in this Section 7 and that it has not in any manner made any
assignment of any Released Claim to any third party.
C. The release granted in this Section 7 will be effective upon
execution of this Fourth Amendment by all of the parties hereto.
D. Each party executing this Fourth Amendment understands and
agrees that the release granted in this Section 7 is a full, final and complete
release of the Released Claims and that such release may be pleaded as an
absolute and final bar to any or all suits which may hereafter be filed or
prosecuted by any one or more of the Releasing Parties or anyone claiming by,
through or under any one or more of the Releasing Parties in respect of any of
the matters released hereby, and that no recovery on account of the Released
Claims may hereafter be had from any of the Released Parties; and that the
consideration given for such release is not an admission of liability or fault
on the part of any of the Released Parties (it being the express intent of the
parties hereto to obtain peace of mind and avoid the expense and uncertainty of
potential litigation), and that none of the Releasing Parties or those claiming
by, through or under any of them will ever claim that it is.
E. The parties hereto acknowledge that the release granted by this
Section 7 does not have any effect with respect to relationships between QSRD
and the Borrower and the Lenders and the Agent other than in connection with
the Lending Relationship.
Section 8. Payment of Fees and Expenses; Form of Payment.
A. The Borrower agrees to pay to the Agent for the benefit of the
Lenders signatory hereto a fee (the "Amendment Fee") equal to 2% of the
Aggregate Maximum
16
<PAGE> 17
Credit Amounts in effect on June 2, 1999, payable monthly in 10 equal
installments commencing June 2, 1999.
B. The Borrower agrees, whether or not the transactions
contemplated hereby are consummated, to pay all reasonable expenses of the
Agent and the Lenders (including, without limitation, all reasonable fees and
disbursements of counsel and other outside consultants for the Agent and/or the
Lenders) in connection with the negotiation, investigation, preparation,
execution and delivery of, recording and filing of, preservation of rights
under and enforcement of this Fourth Amendment and the other Loan Documents to
be delivered in connection herewith.
C. All payments to be made by the Borrower under this Fourth
Amendment shall be made in Dollars, in immediately available funds, to the
Agent at such account as the Agent shall specify by notice in accordance with
Section 4.01 of the Credit Agreement.
Section 9. Limitations. The amendments set forth herein are
limited precisely as written and shall not be deemed to (a) be a consent to, or
waiver or modification of, any other term or condition of the Credit Agreement
or any of the other Loan Documents, or (b) prejudice any right or rights that
the Lenders or the Agent may have at any time under or in connection with the
Credit Agreement as amended hereby or any of the other Loan Documents. Except
as expressly supplemented, amended or modified hereby, the terms and provisions
of the Credit Agreement or any other Loan Documents are and shall remain in
full force and effect. In the event of a conflict between this Amendment and
any of the foregoing documents, the terms of this Amendment shall be
controlling.
Section 10. Ratification and Affirmation of Obligors. Each of the
Obligors hereby expressly (i) acknowledges the terms of this Fourth Amendment,
(ii) ratifies and affirms its obligations under the Loan Documents to which it
is a party, (iii) acknowledges, renews and extends its continued liability
under its respective Guaranty Agreement, if applicable, and other Security
Instruments to which it is a party and agrees that its respective Guaranty
Agreement, if applicable, and the other Security Instruments to which it is a
party remain in full force and effect with respect to the Indebtedness as
amended hereby.
Section 11. Non-Reliance on Agent and Other Lenders. Each Lender
acknowledges and agrees that it has, independently and without reliance on the
Agent or any other Lender, and based on such documents and information as it
has deemed appropriate, made its own decision to enter into this Fourth
Amendment, and 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 analysis and decisions
in taking or not taking action under this Fourth Amendment or the Credit
Agreement. The Agent shall not be required to keep itself informed as to the
performance or observance by QSRD or the Borrower of this Fourth
17
<PAGE> 18
Amendment or any other Loan Document or any other document referred to or
provided for herein or therein or to inspect the properties or books of QSRD or
the Borrower. Except for notices, reports and other documents and information
expressly required to be furnished to the Lenders by the Agent hereunder and
under the Credit Agreement, the Agent shall not have any duty or responsibility
to provide any Lender with any credit or other information concerning the
affairs, financial condition or business of QSRD or the Borrower (or any of its
Affiliates) which may come into the possession of the Agent or any of its
Affiliates. In this regard, each Lender acknowledges that Weil, Gotshal &
Manges LLP is acting in this transaction as special counsel to the Agent only.
Each Lender will consult with its own legal counsel to the extent that it deems
necessary in connection with this Amendment and the matters contemplated
herein.
Section 12. Governing Law. This Fourth Amendment and the rights
and obligations of the parties hereunder and under the Credit Agreement shall
be construed in accordance with and be governed by the laws of the State of
Texas and the United States of America.
Section 13. Descriptive Headings, etc. The descriptive headings of
the several Sections of this Fourth Amendment are inserted for convenience only
and shall not be deemed to affect the meaning or construction of any of the
provisions hereof.
Section 14. Counterparts. This Fourth Amendment may be executed in
any number of counterparts and by different parties on separate counterparts
and all of such counterparts shall together constitute one and the same
instrument.
18
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Amendment to be executed as of the date first written above.
NOTICE PURSUANT TO TEX. BUS. & COMM. CODE SECTION 26.02
THIS FOURTH AMENDMENT AND OTHER LOAN DOCUMENTS EXECUTED BY ANY OF
THE PARTIES BEFORE OR SUBSTANTIALLY CONTEMPORANEOUSLY WITH THE EXECUTION HEREOF
TOGETHER CONSTITUTE A WRITTEN LOAN AGREEMENT AND 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.
QSRD: QUEEN SAND RESOURCES, INC., a Delaware
corporation
By:
------------------------------
Robert P. Lindsay
Chief Operating Officer
By:
-----------------------------
Edward J. Munden
President
BORROWER: QUEEN SAND RESOURCES, INC., a Nevada
corporation
By:
------------------------------
Robert P. Lindsay
Vice President
By:
-----------------------------
Edward J. Munden
President
<PAGE> 20
GUARANTORS: QUEEN SAND OPERATING CO. (formerly
known as 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:
-----------------------------
Thomas E. McGraw
Director
LENDER: BANK OF MONTREAL
By:
-----------------------------
Thomas E. McGraw
Director
<PAGE> 21
LENDER: SOCIETE GENERALE, SOUTHWEST AGENCY
By:
-----------------------------
Mark A. Cox
Director
LENDER: ENRON CAPITAL & TRADE RESOURCES CORP.
By:
-----------------------------
Jesse E. Neyman
Vice President
LENDER: JOINT ENERGY DEVELOPMENT INVESTMENTS II
LIMITED PARTNERSHIP
By: Enron Capital Management II
Limited Partnership, its sole
general partner
By: Enron Capital II Corp., its
sole general partner
By:
-----------------------------
Jesse E. Neyman
Agent and Attorney-In-Fact
<PAGE> 22
Schedule 3.02
Outstanding Eurodollar Loans
<TABLE>
<CAPTION>
Principal Amount Maturity
---------------- ---------
<S> <C>
$8,000,000 June 7, 1999
</TABLE>
<PAGE> 23
Schedule 9.01(d)
Capital Leases
Leases on certain oil field service equipment with Circle Ridge
Equipment Co., Inc. with lease payments totaling $7,500 per month and
with the final payment due on March 31, 2000.
<PAGE> 24
Schedule 9.03(k)
Loans and Advances
1. That certain loan to Ed Butler existing on the Fourth Amendment
Effective Date, together with all accrued and unpaid interest thereon,
in an amount not to exceed $100,000.
2. Advances to officers and employees for expenses incurred in the
ordinary course of business not to exceed in the aggregate at any one
time outstanding $10,000.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000943548
<NAME> QUEEN SAND RESOURCES, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 5,411,000
<SECURITIES> 0
<RECEIVABLES> 4,646,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,057,000
<PP&E> 108,011,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 129,773,000
<CURRENT-LIABILITIES> 6,765,000
<BONDS> 143,190,000
0
96,000
<COMMON> 62,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 129,773,000
<SALES> 0
<TOTAL-REVENUES> 21,063,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,605,000
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (42,018,000)
<EPS-PRIMARY> (1.36)
<EPS-DILUTED> 0
</TABLE>
