<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 SEPTEMBER 30, 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
Incorporation or Organization) Identification Nos.)
13760 NOEL ROAD, SUITE 1030
L.B. #31, DALLAS, TEXAS 75240-7336
(Address of principal executive offices)(Zip code)
--------------------------------------------------
(REGISTRANTS' TELEPHONE NUMBER, INCLUDING AREA CODE) (972) 233-9906
Indicate by check mark whether the registrant (1) has 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) has 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 classes of common stock, as of November 10, 1999:
34,089,901
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
QUEEN SAND RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
------------- -------------
<S> <C> <C>
Assets
Current assets:
Cash $ 3,577,000 $ 9,367,000
Other current assets 4,008,000 4,652,000
------------- -------------
Total current assets 7,585,000 14,019,000
Net property and equipment 95,367,000 97,198,000
Other assets 8,208,000 7,993,000
------------- -------------
$ 111,160,000 $ 119,210,000
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and other $ 5,283,000 $ 11,100,000
Current portion of long-term debt 903,000 42,000
------------- -------------
Total current liabilities 6,186,000 11,142,000
Long-term obligations, net of current portion 133,000,000 133,852,000
Commitments
Stockholders' deficit:
Preferred stock, $.01 par value, authorized 50,000,000 shares:
issued and outstanding 9,604,288 and 9,604,698 shares at 96,000 96,000
September 30 and June 30, 1999, respectively Common stock, $.0015 par value,
authorized 100,000,000 shares:
issued and outstanding 34,729,283 and 33,442,210 shares at 66,000 65,000
September 30 and June 30, 1999, respectively
Additional paid-in capital 64,945,000 64,912,000
Accumulated deficit (85,882,000) (83,606,000)
Treasury stock (7,251,000) (7,251,000)
------------- -------------
Total stockholders' deficit (28,026,000) (25,784,000)
------------- -------------
$ 111,160,000 $ 119,210,000
============= =============
</TABLE>
See accompanying notes to unaudited interim period consolidated condensed
financial statements.
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<PAGE> 3
QUEEN SAND RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended September 30,
---------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Oil and gas sales $ 360,000 $ 1,354,000
Net profits and royalties interests 5,162,000 5,925,000
Interest and other income 21,000 74,000
------------ ------------
5,543,000 7,353,000
------------ ------------
Expenses:
Oil and gas production expenses 158,000 1,165,000
Depreciation, depletion and amortization 2,270,000 3,036,000
General and administrative 720,000 670,000
Interest and financing expense 4,637,000 4,586,000
------------ ------------
7,785,000 9,457,000
------------ ------------
Net loss from operations (2,242,000) (2,104,000)
Extraordinary loss -- (3,549,000)
------------
Net loss $ (2,242,000) $ (5,653,000)
Net loss before extraordinary loss per common share $ (0.07) $ (0.07)
============ ============
Net loss per common share $ (0.07) $ (0.19)
============ ============
Weighted average common shares outstanding 33,842,000 29,619,000
============ ============
</TABLE>
See accompanying notes to unaudited interim period consolidated condensed
financial statements.
Pg. 3
<PAGE> 4
QUEEN SAND RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended September 30,
-----------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,242,000) $ (5,653,000)
Depreciation, depletion and amortization 2,721,000 3,466,000
Unrealized gains in foreign currencies (45,000) (56,000)
Net change in operating assets and liabilities (5,174,000) (561,000)
------------- -------------
Net cash used in operating activities (4,740,000) (2,804,000)
------------- -------------
Cash flows used in investing activities
Additions to property and equipment (412,000) (3,131,000)
------------- -------------
Cash flows from financing activities:
Debt issuance and other deferred costs (638,000) (4,278,000)
Proceeds from long-term obligations -- 125,000,000
Payments on long-term obligations -- (142,385,000)
Payments on capital lease obligations -- (18,000)
Issuance of common stock -- 30,210,000
------------- -------------
Net cash provided from (used in) financing activities (638,000) 8,529,000
------------- -------------
Net increase (decrease) in cash (5,790,000) 2,594,000
Cash at beginning of period 9,367,000 1,029,000
------------- -------------
Cash at end of period $ 3,577,000 $ 3,623,000
============= =============
</TABLE>
See accompanying notes to unaudited period consolidated condensed financial
statements.
Pg. 4
<PAGE> 5
QUEEN SAND RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 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 months ended
September 30, 1999 are not necessarily indicative of the operating
results for the full fiscal year ending June 30, 2000. 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 10-K
for the fiscal year ended June 30, 1999, as amended.
Subsequent to March 31, 1999, the Company determined that the costs
associated with the termination of a LIBOR interest rate swap agreement
in the first quarter of fiscal year 1999 should have been expensed upon
termination. Consequently, the interim financial information for the
first quarter of 1999 has been restated from the information contained in
the Company's Form 10-Q for the quarter ended September 30, 1998, as
previously filed with the Securities and Exchange Commission, as if the
costs of the LIBOR interest rate swap termination were expensed during
the first quarter.
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 months ended September 30, 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, 2000. The Company has not yet determined what the
effect of FAS 133 will be on the earnings and financial position of the
Company.
(2) Debt Issuance
During October 1999, the Company entered into a credit agreement with new
lenders which will allow the Company to borrow up to $25 million until
March 31, 2000 and, if there has not been an event of default during that
period, $30 million thereafter. The loan bears interest at prime plus 2%
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on loan balances under $25 million and prime plus 4.5% on the loan
balance if the amount outstanding is $25 million or greater. The loan
matures on October 22, 2001. Pursuant to the credit agreement, we are
subject to certain affirmative and negative financial and operating
covenants that are usual and customary for transactions of this nature
including maintaining a minimum interest coverage ratio of 1.0x, based on
the last 12 months operating results. On October 28, 1999 the Company
borrowed $12.8 million under this credit facility, which was used as
follows: (i) $8.0 million to repay the principal amounts owed to the
former lenders; (ii) $0.3 million to pay accrued interest charges and
outstanding fees to the former lenders; (iii) $3.3 million to unwind the
ceiling component of a hedging contract with Bank of Montreal; and (iv)
$1.2 million to fund the costs of the transaction.
The Company's payment obligations under its 12.5% Senior Notes due 2008
are fully, unconditionally and jointly and severally guaranteed on a
senior subordinated basis by all of the 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.
(3) Common Stock Issuance
During the three months ended September 30, 1999 the Company issued
266,720 shares of its common stock pursuant to the repricing rights held
by certain stockholders. In addition, certain holders of the Company's
Series `C' preferred stock converted 410 shares of the Series `C'
preferred stock into 940,394 shares of the Company's common stock. A
further 79,959 shares of the Company's common stock was issued as a stock
dividend in conjunction with this conversion.
(4) Hedging Activities
During the three months ended September 30, 1999 the Company paid
$358,000 in cash settlements on its crude oil hedges and $227,000 in cash
settlements on it natural gas hedges and amortized $27,000 of deferred
natural gas hedging costs. In conjunction with the execution of the new
credit agreement in October 1999 (see note 2), the Company unwound the
ceiling portion of one of its natural gas hedge contracts at a cost of
$3.3 million.
Pg. 6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
All statements in this document concerning the Company other than purely
historical information (collectively "Forward-Looking Statements") reflect the
current expectation of management and are based on the Company's historical
operating trends, estimates of proved reserves and other information currently
available to management. These statements assume, among other things, (i) that
no significant changes will occur in the operating environment for the Company's
oil and gas properties, gas plants and gathering systems, and (ii) that there
will be no material acquisitions or divestitures. The Company cautions that the
Forward-Looking Statements are subject to all of 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-K for the fiscal year
ended June 30, 1999 filed with the Securities and Exchange Commission in October
1999, as amended. 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,
presented as if our net profits interests had been accounted for as working
interests. 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
results of operations for the three months ended September 30, 1999 will not
necessarily be indicative of the operating results for the full fiscal year
ending June 30, 2000.
<TABLE>
<CAPTION>
Three Months Ended September 30,
1999 1998
----------- -----------
<S> <C> <C>
Oil and gas sales (1) $ 6,873,000 $ 9,104,000
Oil and gas production expenses (1) 1,536,000 2,956,000
General and administrative expenses 720,000 670,000
----------- -----------
EBITDA 4,617,000 5,478,000
Interest expense, excluding amortization
of deferred charges (2) 4,159,000 4,190,000
Depreciation, depletion and amortization (3) 2,721,000 3,466,000
Interest and other income (21,000 (74,000)
----------- -----------
Net loss from operations (2,242,000) (2,104,000)
----------- -----------
Extraordinary loss -- (3,549,000)
----------- -----------
Net loss $(2,242,000) $(5,653,000)
=========== ===========
</TABLE>
(1) Oil and gas sales and production expenses related to net profits interests
have been presented as if such net profits interests had been accounted for
as working interests.
(2) Interest charges payable on outstanding debt obligations.
(3) Depreciation, depletion and amortization includes $478,000 and $510,000 of
amortized deferred charges related to debt obligations and $27,000 and
$33,000 of amortized deferred charges related to the Company's gas price
hedging program for the three months ended September 30, 1999 and 1998,
respectively.
Pg. 7
<PAGE> 8
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1999 1998
---------- ----------
<S> <C> <C>
PRODUCTION DATA:
Gas (MMcf) 2,669,000 3,308,000
Oil (MBbls) 60,000 153,000
MMcfe 3,027,000 4,227,000
AVERAGE SALES PRICE:
Gas ($/Mcf) $ 2.26 $ 2.17
Oil ($/Bbl) $ 13.93 $ 12.58
Mcfe ($/Mcfe) $ 2.27 $ 2.15
AVERAGE COST ($/MCFE) DATA:
Production and operating costs $ 0.42 $ 0.60
Production and severance taxes $ 0.09 $ 0.10
Depreciation, depletion and amortization of oil
and gas properties $ 0.74 $ 0.75
General and administrative expenses $ 0.24 $ 0.16
Interest and financing charges $ 1.37 $ 0.99
</TABLE>
The following discussion of the results of operations and financial condition
should be read in conjunction with the Consolidated Condensed Financial
Statements and related Notes thereto included herein.
THE THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1998
The following discussion and analysis reflects the operating results as if the
net profits interests were accounted for as working interests. We believe that
this presentation will provide you with a more meaningful understanding of the
underlying operating results and conditions for the period.
RESULTS OF OPERATIONS
REVENUES: Our total revenues declined by $2.2 million (24%) to $6.9 million for
the three months ended September 30, 1999, from $9.1 million during the
comparable period in 1998.
We produced 60,000 barrels of crude oil during the three months ended September
30, 1999, a decrease of 93,000 barrels (61%) from the 153,000 barrels produced
during the comparable period in 1998. This decrease was comprised of a decrease
of 34,000 barrels (37%) from the properties that we owned during both periods
and a decrease of 59,000 barrels from the properties sold at the end of June
1999. The decrease in production of crude oil from the properties owned during
the comparative quarters is a combination of the decision to reduce production
from certain high operating cost properties in light of the low oil prices being
paid during the first half of 1999 and the natural depletion of the crude oil
producing reservoirs. Those high operating cost properties where production was
reducedk are now back in production.
We produced 2,669,000 Mcf of natural gas during the three months ended September
30, 1999, a decrease of 639,000 Mcf (19%) from the 3,308,000 Mcf produced during
the comparable period in 1998. This decrease consists of a decrease of 337,000
Mcf from the properties that we owned during both periods and a decrease of
303,000 Mcf from the properties sold at the end of June 1999. The decrease in
production from the properties owned during the comparative quarters is
primarily the result of natural depletion of natural gas producing reservoirs.
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On a thousand cubic feet of gas equivalent ("Mcfe") basis, production for the
three months ended September 30, 1999 was 3,027,000 Mcfe, down 1,200,000 Mcfe
(28%) from the 4,227,000 Mcfe produced during the comparable period in 1998.
The decrease in revenues resulting from the decreased production has been
buffered by the recent increase in oil and natural gas prices. The average price
per barrel of crude oil we sold during the three months ended September 30, 1999
was $13.93, an increase of $1.35 per barrel (11%) from the $12.58 per barrel
during the three months ended September 30, 1998. The average price per Mcf of
natural gas we sold was $2.26 during the three months ended September 30, 1999,
an increase of $0.09 per Mcf (4%) from the $2.17 per Mcf during the comparable
period in 1998. Crude oil and natural gas prices have continued to increase
subsequent to September 30, 1999. On a Mcfe basis, the average price received by
us during the three months ended September 30, 1999 was $2.27, a $0.12 increase
(5%) from the $2.15 we received during the comparable period in 1998.
During the three months ended September 30, 1999 we paid $227,000 in cash
settlements and amortized $27,000 of deferred hedging costs, as a result of our
natural gas price hedging program. The net negative effect on the average
natural gas prices received by us during the period was $0.08 per Mcf. We paid
an additional $358,000 pursuant to our oil price hedging program. The net
negative effect on average oil prices received by us during the period was $6.00
per barrel. The last of our oil price hedging contracts expired on September 30,
1999. During the comparable period in 1998 we received $458,000 in cash
settlements and amortized $33,000 of deferred hedging costs, as a result of our
natural gas price hedging program. The net positive effect on the average
natural gas prices we received during the comparable period in 1998 was $0.13
per Mcf. We received $85,000 in cash settlements from our oil price hedging
program during the three months ended September 30, 1998. The impact of this
payment was to increase the average price received on our oil sales during the
comparable period in 1998 by $0.56 per barrel.
PRODUCTION EXPENSES: Our lease operating expenses fell to $1.3 million for the
three months ended September 30, 1999, a decrease of $1.2 million (50%) from the
$2.5 million incurred during the comparable period in 1998. This decrease
resulted from the decreased production of crude oil and natural gas and the sale
of higher operating cost properties at the end of June 1999. Lease operating
expenses were $0.42 per Mcfe during the three months ended September 30, 1999, a
decrease of $0.18 (30%) from the $0.60 per Mcfe incurred during the comparable
period in 1998. This improvement is a result of improved efficiencies at an
operating level and the June 1999 sale of properties that had higher average
operating costs per Mcfe than the remaining properties.
SEVERANCE AND PRODUCTION TAXES: Severance and production taxes were $258,000
($0.09 per Mcfe) during the three months ended September 30, 1999, as compared
to $411,000 ($0.10 per Mcfe) during the comparable period in 1998. The decrease
of $153,000 (37%) is primarily a result of the 28% decrease in Mcfe production
for the three month period ended September 30, 1999, as compared to the same
period for 1998. as the decrease in the average rate per Mcfe is a result of the
June 1999 sale of properties, as our remaining properties are generally in areas
that have lower production and severance tax assessments, as a result of certain
tax abatements.
DEPLETION, DEPRECIATION AND AMORTIZATION EXPENSE: Depletion and oil field
equipment related depreciation costs were $2.2 million ($0.74 per Mcfe) during
the three months ended September 30, 1999, a decrease of $934,000 (30%) from the
$3.2 million ($0.75 per Mcfe) charged to income during the comparable period in
1998. The decrease in the provision is a result of the 28% decrease in
production for the three month period ended September 30, 1999, as compared to
the same period for 1998.
GENERAL AND ADMINISTRATIVE EXPENSES: The increase of $50,000 in general and
administrative costs is a result of the increased management support
requirements of the Company as it continues to evaluate the opportunity 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> 10
INTEREST EXPENSE: Interest charges on outstanding debt obligations during the
three months ended September 30, 1999 decreased by $31,000 (1%) from the $4.2
million for the three months ended September 30, 1998. This decrease is a
combination of a reduction in the average interest bearing debt carried during
the comparable periods offset by the higher marginal cost of funds borrowed
during the quarter ended September 30, 1999.
NET LOSS: The Company has incurred losses since its inception, including $2.2
million ($0.07 per common share) for the three months ended September 30, 1999
compared to $2.1 million ($0.07 per common share) before an extraordinary loss
of $3.5 million for the three months ended September 30, 1998. We believe, but
cannot assure, that as a result of entering into a new credit agreement during
October 1999, that we now have the liquidity needed to develop and exploit our
existing oil and natural gas reserves and that the success of this program, in
conjunction with the return of normal commodity prices, will generate sufficient
revenues to cover our production costs and operating expenses. Our revenues,
profitability and future rate of growth are substantially dependent on
prevailing prices for oil and natural gas and the volumes of oil and natural gas
that we produce (see "Changes in Prices and Hedging Activities"). In addition,
our proved reserves will decline as oil and natural gas are produced unless we
are successful in acquiring additional properties containing proved reserves or
we conduct successful exploration and development activities.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
Consistent with our strategy of acquiring and developing reserves, we have an
objective of maintaining as much financing flexibility as is practicable. Since
we commenced our oil and natural gas operations, we have utilized a variety of
sources of capital to fund our acquisitions and development and exploitation
programs, and to fund our operations.
Our general financial strategy is to use cash flow from operations, debt
financings and the issuance of equity securities to service interest on our
indebtedness, to pay ongoing operating expenses, and to contribute toward
further development of our existing proved reserves as well as additional
acquisitions. There can be no assurance that cash from operations will be
sufficient in the future to cover all such purposes.
We have planned development and exploitation activities for all of our major
operating areas. In addition, we are continuing to evaluate oil and natural gas
properties for future acquisition. Historically, we have used the proceeds from
the sale of our securities in the private equity market and borrowings under our
credit facilities to raise cash to fund acquisitions or repay indebtedness
incurred for acquisitions. We have also used our securities as a medium of
exchange for other companies' assets in connection with acquisitions. However,
there can be no assurance that such sources will be available to us to meet our
budgeted capital spending. Furthermore, our ability to borrow other than under
the Amended and Restated Credit Agreement dated as of October 22, 1999 with
Ableco Finance LLP (`Ableco') and Foothill Capital Corporation (`Foothill') (the
`Credit Agreement') is subject to restrictions imposed by that Credit Agreement.
If we cannot secure additional funds for our planned development and
exploitation activities, then we will be required to delay or reduce
substantially our development and exploitation efforts.
SOURCES OF CAPITAL: Our principal sources of capital for funding our business
activities have been cash flow from operations, debt financings and the issuance
of equity securities. Historically, our sources of funds from debt financings
included funds available under the Credit Agreement, DM denominated bonds issued
to European investors, the 12.5% Senior Notes and a capital lease.
On October 22, 1999 Ableco and Foothill acquired our outstanding note from Bank
of Montreal, as agent for the lenders party to the Amended and Restated Credit
Agreement. We then entered into an Amended and Restated Credit Agreement dated
October 22, 1999 with Ableco and Foothill. The Credit Agreement, in which we
provide a first secured lien on all of our assets, allows for borrowings of up
to $50 million (subject to borrowing base limitations) from such lenders to
fund, among other things, development and
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exploitation expenditures, acquisitions and general working capital. Our
borrowing base is currently $25 million, of which $12.8 million is outstanding
as of November 10, 1999. The funds were used as follows:
o $8.0 million to repay the principal outstanding to Bank of Montreal, as
agent for the lenders;
o $0.3 million to pay accrued interest charges and outstanding restructuring
fees to the former lenders;
o $3.3 million to unwind the ceiling component of a natural gas hedging
contract with Bank of Montreal;
o $1.2 million to fund the costs (principally fees paid to the lenders and
their counsel) of the transaction
In addition, we issued a letter of credit in the amount of $2.6. million to an
affiliate of Enron to secure a swap exposure.
Pursuant to the credit agreement, we are subject to certain affirmative and
negative financial and operating covenants that are usual and customary for
transactions of this nature. The affirmative covenants include, but are not
limited to, covenants to:
o provide financial information;
o provide notices of the occurrence of certain material events affecting us;
o promptly provide notice of all legal or arbital proceedings affecting us or
our subsidiaries which could reasonably be expected to have a material
adverse effect;
o maintain and preserve our existence, oil and gas properties and other
material properties;
o implement and comply with certain environmental procedures;
o perform our obligations under the credit agreement;
o provide reserve reports;
o deliver certain title information;
o grant a security interest in oil and gas properties that we acquire in the
future; and
o deliver certain information relating to compliance with ERISA laws and
regulations.
The negative covenants include, but are not limited to, covenants to:
o not to incur any indebtedness except as expressly permitted under the
credit agreement;
o not to incur any lien on any of its properties except as expressly
permitted under the credit agreement;
o not to make any loans or advances to or investments in any person except as
expressly permitted under the credit agreement;
o with respect to the parent company, not to declare or pay any dividends or
redeem or otherwise acquire for value any capital stock of the parent
company except for stock dividends;
o not to enter into sale and leaseback transactions;
o not to materially change the character of our business as an independent
oil and natural gas exploration and production company;
o not to enter into lease agreements except as expressly permitted under the
credit agreement;
o not to merge with or sell all or substantially all of our property or
assets to any other person;
o not to permit the borrowed proceeds under the credit agreement to be used
for any purpose except as expressly permitted under the credit agreement;
o not to violate ERISA laws and regulations;
o not to discount or sell any notes or accounts receivable;
o not to maintain a working capital ratio of less than 1.5 to 1.0;
o to pay our trade accounts payable when due;
o not maintain a fixed charge coverage ratio of less than 1.0 to 1.0;
o not to sell, assign or otherwise transfer any interest in any oil or
natural gas properties except as expressly permitted under the credit
agreement;
o not to violate environmental laws and regulations;
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o not to enter into transactions with affiliates other than those entered
into in the ordinary course of business on fair and reasonable terms;
o not to create any additional subsidiaries unless such subsidiaries
guarantee the obligations under the credit agreement or issue stock of any
subsidiaries to third parties;
o not to enter into negative pledge agreements;
o not to enter into any contracts which warrant production of oil and natural
gas and not allow gas imbalances, take-or-pay or other prepayments which
would require the delivery of oil or natural gas at some future time
without receiving full payment therefor to exceed 5% of the current
aggregate monthly gas production from the mortgaged oil and natural gas
properties;
o not to amend or modify any material agreements;
o not to repay other indebtedness except as expressly permitted under the
credit agreement; and
o not make or pay capital expenditures more than specified amounts.
The credit agreement also contains usual and customary events of default and
provides remedies to the lenders in the event of default. The events of default
include:
o default in payment when due of any principal of or interest on indebtedness
under the credit agreement;
o default in payment when due of any principal of or interest on any other
indebtedness aggregating $500,000 or more or an event shall occur which
requires us to mandatorily redeem any of our existing preferred stock;
o breach of a representation and warranty under the credit agreement;
o default in performance of obligations under the credit agreement;
o our admitting in writing our inability to pay debts as they become due;
o voluntary or involuntary bankruptcy;
o a judgment in excess of $100,000 shall be entered and not vacated within 30
days;
o the security agreements under the credit agreement shall cease to be in
full force and effect; and
o we discontinue our usual business or any person or group of persons (other
than JEDI, Enron or its affiliates) shall have acquired beneficial
ownership of 30% or more of the outstanding shares of voting stock the
parent company or individuals who constitute the Board of Directors of the
parent company cease to constitute a majority of the then-current Board of
Directors of the parent company.
In conjunction with the closing of the Ableco and Foothill credit facility our
existing ECT Subordinated Revolving Credit Agreement was terminated.
Although we believe that our cash flows and available sources of financing will
be sufficient to satisfy the interest payments on our debt at currently
prevailing interest rates and oil and natural gas prices, our level of debt may
adversely affect our ability:
o to obtain additional financing for working capital, capital expenditures or
other purposes, should we need to so do; or
o to acquire additional oil and natural gas properties or to make
acquisitions utilizing new borrowings.
We are currently exploring the opportunity to raise additional equity. However,
there can be no assurances that we will be able to obtain additional financing,
if required, or that such financing, if obtained, will be on terms favorable to
us.
USES OF CAPITAL
Since commencing our oil and natural gas operations in August 1994 we have
completed 19 acquisitions of oil and natural gas producing properties. Through
September 30, 1999 we have expended a total of $179 million in acquiring,
developing and exploiting oil and natural gas producing properties. Initially,
our operations represented a net use of funds. As demonstrated in the operating
results for the year ended June 30, 1999 and the quarter ended September 30,
1999 we currently generate a positive cash flow from operations. During the
quarter ended September 30, 1999 we spent $412,000 on developing and exploiting
Pg. 12
<PAGE> 13
our oil and natural gas producing properties. We expect to spend a further $5.1
million on discretionary capital expenditures through June 2000 for exploitation
and development projects. We are not contractually obligated to fund any capital
expenditures through June 2000. During the quarter ended September 30, 1999 we
incurred debt issuance and other deferred costs of $638,000.
We continue to evaluate acquisition opportunities, however there are no existing
agreements regarding any acquisitions. An acquisition would require the issuance
of additional debt and or equity securities. There are no assurances that we
will be able to obtain additional financing, or that such financing, if
obtained, will be on terms favorable to us.
INFLATION
During the past several years, we have experienced moderate increases in
property acquisition and development costs. During the fiscal year ended June
30, 1999 we received somewhat lower commodity prices for the natural resources
produced from our properties. Oil and gas prices have increased during the three
months ended September 30, 1999. Our results of operations and cash flow have
been, and will continue to be, affected to a certain extent by the volatility in
oil and natural gas prices. Should we experience a significant increase in oil
and natural gas prices that is sustained over a prolonged period, we could
expect that there would be also be a corresponding increase in oil and natural
as finding and development 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
last two years. The table below sets out our weighted average price per barrel
of oil and the weighted average price per Mcf of natural gas, the impact of our
hedging programs and the related NYMEX indices.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30
1999 1998
------ ------
<S> <C> <C>
Gas (per Mcf)
Price received at wellhead $ 2.34 $ 2.11
Effect of hedge contracts $(0.08) $ 0.06
Effective price received, including hedge contracts $ 2.26 $ 2.17
Average NYMEX Henry Hub $ 2.60 $ 2.02
Average basis differential including hedge contracts $(0.34) $ 0.15
Average basis differential excluding hedge contracts $(0.26) $ 0.09
Oil (per barrel)
Price received at wellhead $19.93 $11.62
Effect of hedge contracts $(6.00) $ 0.96
Effective price received, including hedge contracts $13.93 $12.58
Average NYMEX Sweet Light Oil $21.72 $14.15
Average basis differential including hedge contracts $(7.79) $(1.57)
Average basis differential excluding hedge contracts $(1.79) $(2.53)
</TABLE>
The operator of a significant natural gas producing property in which we hold a
net profits interest had placed a fixed price contract for the period January 1
through September 30, 1999. The prices for this contract, from a retrospective
perspective when compared to Henry Hub prices, were favorable during the three
months ended March 31, 1999 but became, in the fullness of time, unfavorable for
the following six months. Largely as a result of this fixed price contract, the
average basis differential excluding hedge contracts was reduced by $0.35 during
the three months ended September 30, 1999 compared to the three months ended
September 30, 1998. This fixed price contract expired during October 1999.
Pg. 13
<PAGE> 14
We had a contract with an affiliate of Enron involving the hedging of a portion
of our future natural gas production involving floor and ceiling prices as set
out in the table below. We shared 50% of the price of NYMEX Henry Hub in excess
of the ceiling price. This contract has expired. The volumes presented in this
table are divided equally over the months during the period.
<TABLE>
<CAPTION>
Volume Floor Ceiling
Period Beginning Period Ending (MMBtu) Price Price
---------------- ------------- ------- ----- -----
<S> <C> <C> <C> <C>
September 1, 1997 August 31, 1998 600,000 $1.90 $2.66
</TABLE>
We had a contract with an affiliate of Enron involving the hedging of a portion
of our future crude oil production involving floor and ceiling prices as set out
in the table below. We shared 50% of the price of NYMEX Henry Hub in excess of
the ceiling price. This contract has expired. The volumes presented in this
table are divided equally over the months during the period.
<TABLE>
<CAPTION>
Volume Floor Ceiling
Period Beginning Period Ending (Barrels) Price Price
---------------- ------------- --------- ----- -----
<S> <C> <C> <C> <C>
September 1, 1997 August 31, 1998 120,000 $18.00 $20.40
</TABLE>
Effective May 1, 1998 through October 31, 1999 we had a contract with Bank of
Montreal involving the hedging of a portion of our 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 Beginning Period Ending (MMBtu) Price Price
---------------- ------------- ------- ----- -----
<S> <C> <C> <C> <C>
January 1, 1999 October 31, 1999 3,608,333 $2.00 $2.70
</TABLE>
Effective November 1, 1999 we unwound the ceiling price limitation on our
natural gas price hedging contract with Bank of Montreal at a cost of $3.3
million. The table below sets out the volume of natural gas that remains under
contract with the Bank of Montreal at a floor price of $2.00 per MMBtu. The
volumes set out in this table are divided equally over the months during the
period:
<TABLE>
<CAPTION>
Volume
Period Beginning Period Ending (MMBtu)
- ---------------- ------------- -------
<S> <C> <C>
November 1, 1999 December 31, 1999 721,667
January 1, 2000 December 31, 2000 3,520,000
January 1, 2001 December 31, 2001 2,970,000
January 1, 2002 December 31, 2002 2,550,000
January 1, 2003 December 31, 2003 2,250,000
</TABLE>
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>
Pg. 14
<PAGE> 15
The table below sets out volume of crude oil hedged with a swap with Enron. All
of these contracts have expired. The volumes presented in this table are divided
equally over the months during the period:
<TABLE>
<CAPTION>
Volume
Period Beginning Period Ending (Barrels) Price per barrel
---------------- ------------- -------- ----------------
<S> <C> <C> <C>
March 1, 1999 August 31, 1999 60,000 $13.50
April 1, 1999 September 30, 1999 30,000 $14.35
April 1, 1999 September 30, 1999 30,000 $14.82
</TABLE>
INTEREST RATE HEDGING
We 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. We entered
into this interest rate swap at a time when interest rates were rising. Our
objective was to mitigate the risk of our having to pay higher than expected
interest rates on what eventually became our 12 1/2% Senior Notes due 2008. The
swap would have also served as an interest hedge on our indebtedness under the
credit agreement and certain short term loans used to finance the April 1998
acquisition of our net profit and royalty interests in the event that we failed
to complete the private placement of the unsecured notes. Once the private
placement of the 12 1/2% Senior Notes was completed we no longer had the
variable rate debt required to offset the interest rate hedge position. On July
9, 1998, we unwound this swap at a cost to us of approximately $3.5 million,
using a portion of the proceeds from the Notes proceeds. This cost was expensed
as an extraordinary loss during the year ended June 30, 1999.
YEAR 2000 COMPUTER ISSUE
GENERAL. We are addressing the potential impact of the Year 2000 ("Y2K") issue
on our operations. A review of internal systems and a review of the state of
readiness of significant suppliers and customers is substantially complete. We
have determined that, subject to the validity of the responses we have received
from external suppliers of services and the purchasers of our products, the
impact of Y2K will not have a material affect on our financial condition or
results of operations.
STATE OF READINESS. We currently use commercially available software for our
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. We have not taken any steps
to independently verify the truth of such warranties but we have no reason to
believe that the software is not as warranted.
COSTS OF COMPLIANCE. Our IT systems were warranted to be Y2K compliant when
purchased, as such we have not incurred any significant incremental costs to
modify or replace such systems to make them compliant. Our products do not
contain any microprocessors.
We have been in communication with our major operators, suppliers and customers
to determine whether they will be Y2K compliant. We have determined that,
subject to the validity of the responses we have received, our major suppliers
and customers are or will be materially unaffected by the Y2K issue. The cost of
seeking verification was minimal. We believe that it was not practical to
independently verify the responses because we do not believe that we would be
given access to carry out such verification or that the costs of doing so would
be affordable.
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. We have established contingency plans regarding the replacement of
our major suppliers and customers in the event that any of them are affected
materially by the Y2K issue.
Pg. 15
<PAGE> 16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Item 3. "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Changes in Prices and Hedging Activities".
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
OTHER ISSUANCES OF COMMON STOCK. During the quarter ended September 30, 1999,
pursuant to Section 3(a)(9) of the Securities Act, the Company issued an
aggregate of 266,720 shares of Common Stock to stockholders who exercised 23,000
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 a 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 September 30, 1999, pursuant to Section 3(a)(9) of the
Securities Act, the Company issued an aggregate of 1,020,353 shares upon
conversion of 410 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 5. OTHER INFORMATION
AMENDED CREDIT FACILITY Please see Part I - Item 2 "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" for a discussion of the amended Credit Facility and the
termination of the ECT Revolving Credit Facility.
NASDAQ SMALLCAP MARKET LISTING At the close of business November 10, 1999 our
common stock was delisted from the Nasdaq SmallCap Market. This action was
solely attributable to our inability to satisfy the Nasdaq SmallCap Market
maintenance standards for the continued listing of common stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
10.1 Fifth Amendment to Amended and 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 October 13, 1999.
10.2 Amended and Restated Credit Agreement among the Company, Queen
Sand Resources, Inc., A Nevada corporation, Ableco Finance
LLC, as Collateral Agent, and the lenders signatory thereto,
effective as of October 22, 1999.
10.3 Second Amended And Restated Guaranty Agreement dated as of
October 22, 1999 by Queen Sand Resources, Inc. as Guarantor in
favor of Ableco Finance LLC, as Collateral Agent for the
lender group and the lenders signatory thereto.
Pg. 16
<PAGE> 17
================================================================================
10.4 Second Amended And Restated Guaranty Agreement dated as of
October 22, 1999 by Queen Sand Operating Co., as Guarantor, in
favor of Ableco Finance LLC, as Collateral Agent for the
lender group, and the lenders signatory thereto.
10.5 Second Amended And Restated Guaranty Agreement dated as of
October 22, 1999 by Corrida Resources, Inc. as Guarantor, in
favor of Ableco Finance LLC, as Collateral Agent for the
lender group, and the lenders signatory thereto.
10.6 Security Agreement dated as of October 22, 1999, by and among
the Company, Queen Sand Resources, Inc. (Nevada), Queen Sand
Operating Co., Corrida Resources, Inc. and Ableco Finance LLC,
as collateral agent for the lender group, and the lenders
signatory thereto.
10.7 Second Amended and Restated Pledge and Security Agreement
dated as of October 22, 1999, by Queen Sand Resources, Inc., a
Nevada corporation in favor of Ableco Finance LLC, as
Collateral Agent for the lender group, and the lenders
signatory thereto.
10.8 Second Amended and Restated Pledge and Security Agreement
dated as of October 22, 1999, by Queen Sand Resources, Inc., a
Delaware corporation, in favor of Ableco Finance LLC, as
Collateral Agent for the lender group, and the lenders
signatory thereto.
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K.
NONE
Pg. 17
<PAGE> 18
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. (DELAWARE)
By: /s/ Edward J. Munden
-------------------------------
Edward. J. Munden
President and Chief Executive
Officer
By: /s/ Ronald Benn
-------------------------------
Ronald Benn
Chief Financial Officer
QUEEN SAND RESOURCES, INC. (NEVADA)
By: /s/ Edward J. Munden
-------------------------------
Edward. J. Munden
President and Chief Executive
Officer
By: /s/ Ronald Benn
-------------------------------
Ronald Benn
Vice President (Principal
Financial Officer)
QUEEN SAND OPERATING COMPANY
By: /s/ Edward J. Munden
-------------------------------
Edward. J. Munden
President and Chief Executive
Officer
By: /s/ Ronald Benn
-------------------------------
Ronald Benn
Vice President (Principal
Financial Officer)
CORRIDA RESOURCES, INC.
By: /s/ Edward J. Munden
-------------------------------
Edward. J. Munden
President and Chief Executive
Officer
By: /s/ Ronald Benn
-------------------------------
Ronald Benn
Treasurer (Principal Financial
Officer)
Pg. 18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No Description
------- -----------
<S> <C>
10.1 Fifth Amendment to Amended and 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 October 11, 1999.
10.2 Amended and Restated Credit Agreement among the Company, Queen
Sand Resources, Inc., A Nevada corporation, Ableco Finance
LLC, as Collateral Agent, and the lenders signatory thereto,
effective as of October 22, 1999.
10.3 Second Amended And Restated Guaranty Agreement dated as of
October 22, 1999 by Queen Sand Resources, Inc. as Guarantor in
favor of Ableco Finance LLC, as Collateral Agent for the
lender group and the lenders signatory thereto.
10.4 Second Amended And Restated Guaranty Agreement dated as of
October 22, 1999 by Queen Sand Operating Co., as Guarantor, in
favor of Ableco Finance LLC, as Collateral Agent for the
lender group, and the lenders signatory thereto.
10.5 Second Amended And Restated Guaranty Agreement dated as of
October 22, 1999 by Corrida Resources, Inc. as Guarantor, in
favor of Ableco Finance LLC, as Collateral Agent for the
lender group, and the lenders signatory thereto.
10.6 Security Agreement dated as of October 22, 1999, by and among
the Company, Queen Sand Resources, Inc. (Nevada), Queen Sand
Operating Co., Corrida Resources, Inc. and Ableco Finance LLC,
as collateral agent for the lender group, and the lenders
signatory thereto.
10.7 Second Amended and Restated Pledge and Security Agreement
dated as of October 22, 1999, by Queen Sand Resources, Inc., a
Nevada corporation in favor of Ableco Finance LLC, as
Collateral Agent for the lender group, and the lenders
signatory thereto.
10.8 Second Amended and Restated Pledge and Security Agreement
dated as of October 22, 1999, by Queen Sand Resources, Inc., a
Delaware corporation, in favor of Ableco Finance LLC, as
Collateral Agent for the lender group, and the lenders
signatory thereto.
27 Financial Data Schedule
</TABLE>
Pg. 16
<PAGE> 1
EXHIBIT 10.1
FIFTH AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
FIFTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT,
dated as of October 13, 1999 (this "Fifth 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 the
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 and by that certain Fourth Amendment
to Amended and Restated Credit Agreement, dated as of May 14, 1999 (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 Fifth 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. "Lending Relationship" shall refer to the Credit Agreement
and the other Loan Documents, including, without limitation, this Fifth
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 Fifth Amendment and the instruments and documents executed
and delivered in connection herewith or relating hereto.
B. "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.
C. "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").
D. "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
2
<PAGE> 3
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 Fifth
Amendment" after the reference "Fourth Amendment" in the
definition of the term "Agreement";
(ii) by inserting the following definitions where
alphabetically appropriate:
"Fifth Amendment" shall mean that certain Fifth Amendment to
Amended and Restated Credit Agreement dated as of October 13, 1999
among the Borrower, QSRD, the Agent and the Lenders.
"Fifth Amendment Effective Date" shall mean October 13, 1999.
(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 November 1999 (or such earlier time as the
Borrowing Base is redetermined in accordance with Section 2.08(d))
shall equal $8,000,000 as reduced in accordance with Section 2.03(b)
and/or by prepayments made pursuant to Section 2.07(d)(2) and (3), 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).";
(iv) by deleting the definition of the term
"Consolidated Tangible Net Worth" in its entirety and
substituting the following therefor:
""Consolidated Tangible Net Worth" shall mean, with respect
to QSRD and its Subsidiaries, the sum of the par value of preferred
stock, par value of common stock, additional paid in capital and
retained earnings, less treasury stock plus the amount of noncash
write downs attributable to any period ending on or before January 1,
1999 if in compliance with GAAP or SEC guidelines, and plus or minus,
as appropriate, foreign currency translation adjustments, all as
determined on a consolidated basis."; and
(v) by deleting the reference "October 1, 2000" in
the definition of the term "Maturity Date" and substituting
therefor the reference "July 1, 2000".
3
<PAGE> 4
B. Section 2.07(d) of the Credit Agreement is amended hereby
by deleting the reference "the 15th Business Day of September 1999" and
substituting therefor the reference "the 15th Business Day of November 1999."
C. Section 9.12(b) of the Credit Agreement is amended hereby
by deleting the text of subsection (b) in its entirety and substituting the
following therefor:
"Consolidated Tangible Net Worth. As of the last day of the
fiscal quarter ending June 30, 1999 and as of the last day of each
fiscal quarter occurring thereafter, QSRD will not permit its
Consolidated Tangible Net Worth to be less than $33,000,000."
Section 3. Waiver.
A. QSR and the Borrower have requested that the Agent and the
Lenders waive the March 1999 Scheduled Redetermination Date and the September
1999 Redetermination Date until November 15, 1999, and the Agent and each
Lender signatory hereto, by the execution and delivery of this Fifth Amendment,
hereby agree to waive such Scheduled Redetermination Dates until November 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 November 15, 1999, provided that until the first
redetermination of the Borrowing Base after the Fifth Amendment Effective Date,
borrowings under the Credit Agreement (as amended hereby) are limited to the
Aggregate Maximum Credit Amounts then in effect.
B. 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. Conditions Precedent. This Fifth Amendment shall
become binding upon receipt by the Agent of the following documents and
satisfaction of the other conditions provided in this Section 4, each of which
must be satisfactory to the Agent in form and substance:
A. counterparts of this Fifth Amendment executed by QSRD, the
Borrower, Corrida, Northland, 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 Fifth Amendment and to consummate the transactions
contemplated hereby; (ii) the Responsible Officer of such entity authorized to
sign this Fifth Amendment, and (iii) the signature of such authorized
Responsible Officer of such entity;
4
<PAGE> 5
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 7.B. hereof; and
E. such other documents as the Agent may reasonably request.
Section 5. 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;
(ii) the execution, delivery and performance by QSRD,
the Borrower, Corrida and Northland of this Fifth 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 Fifth 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;
5
<PAGE> 6
(iii) pursuant to and in accordance with Section
2.08(d) of the Credit Agreement and subject to the limitations in Section 3.A.
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 Fifth 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 Fifth
Amendment after consultation with counsel of his or its own choosing, (ii) has
read and understands the release granted by Section 6 hereof, (iii) desires to
execute this Fifth Amendment and (iv) has the requisite authority to enter into
and be bound by this Fifth Amendment, including the release granted by Section
6 hereof.
Section 6. 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 Fifth 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 6 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 6 will be effective
upon execution of this Fifth Amendment by all of the parties hereto.
D. Each party executing this Fifth Amendment understands and
agrees that the release granted in this Section 6 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
6
<PAGE> 7
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 6 does not have any effect with respect to relationships between
QSRD, the Borrower and each Subsidiary Guarantor and the Lenders and the Agent
other than in connection with the Lending Relationship.
Section 7. 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") in two installments
payable as follows: (i) on November 1, 1999, an amount equal to two and a half
percent (2 1/2%) of the outstanding balance of the Loans on November 1, 1999
and (ii) on December 1, 1999, an amount equal to two and a half percent
(2 1/2%) of the outstanding balance of the Loans on December 1, 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 Fifth Amendment and the other Loan Documents to
be delivered in connection herewith.
C. All payments to be made by the Borrower under this Fifth
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 8. 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.
7
<PAGE> 8
Section 9. Ratification and Affirmation of Obligors. Each of
the Obligors hereby expressly (i) acknowledges the terms of this Fifth
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 10. 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 Fifth
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 Fifth 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 Fifth 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 11. Governing Law. This Fifth 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 12. Descriptive Headings, etc. The descriptive
headings of the several Sections of this Fifth Amendment are inserted for
convenience only and shall not be deemed to affect the meaning or construction
of any of the provisions hereof.
Section 13. Counterparts. This Fifth 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.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this Fifth
Amendment to be executed as of the date first written above.
NOTICE PURSUANT TO TEX. BUS. & COMM. CODE SECTION 26.02
THIS FIFTH 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.
<TABLE>
<S> <C>
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
</TABLE>
<PAGE> 10
<TABLE>
<S> <C>
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
</TABLE>
<PAGE> 11
<TABLE>
<S> <C>
LENDER: SOCIETE GENERALE, SOUTHWEST AGENCY
By:
-----------------------------------
Mark A. Cox
Director
LENDER: ENRON NORTH AMERICA CORP. F/K/A
ENRON CAPITAL & TRADE RESOURCES CORP.
By:
-----------------------------------
---------------------------------
---------------------------------
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:
-----------------------------------
---------------------------------
---------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.2
AMENDED AND RESTATED
CREDIT AGREEMENT
Dated as of October 22, 1999
Among
QUEEN SAND RESOURCES, INC.,
a Delaware corporation,
as Guarantor,
QUEEN SAND RESOURCES, INC.,
a Nevada corporation,
as Borrower,
FOOTHILL CAPITAL CORPORATION,
as Administrative Agent,
and
ABLECO FINANCE LLC,
as Collateral Agent
and
The Lenders Signatory Hereto
<PAGE> 2
TABLE OF CONTENTS
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ARTICLE I Definitions and Accounting Matters......................................................................2
Section 1.01.Terms Defined in Recitals...................................................................2
Section 1.02.Certain Defined Terms.......................................................................2
Section 1.03.Accounting Terms and Determinations........................................................26
ARTICLE II Commitments...........................................................................................26
Section 2.01.Loans......................................................................................26
Section 2.02.Borrowings.................................................................................27
Section 2.03.Changes of Commitments.....................................................................29
Section 2.04.Fees.......................................................................................29
Section 2.05.Several Obligations........................................................................30
Section 2.06.Loan Account...............................................................................30
Section 2.07.Prepayments................................................................................30
Section 2.08.Borrowing Base.............................................................................31
Section 2.09.Registered Notes...........................................................................33
Section 2.10.Securitization.............................................................................33
Section 2.11.Administrative Procedures and Settlement...................................................34
Section 2.12.Administrative Agent Advances..............................................................36
Section 2.13.Optional Overadvances......................................................................36
Section 2.14.Apportionment, Application, and Reversal of Payments.......................................37
Section 2.15.Cash Management............................................................................38
Section 2.16.Letter of Credit Subfacility...............................................................40
ARTICLE III Payments of Principal and Interest...................................................................44
Section 3.01.Repayment of Loans.........................................................................44
Section 3.02.Interest...................................................................................44
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ARTICLE IV Payments; Pro Rata Treatment; Computations; Etc.......................................................44
Section 4.01.Payments...................................................................................44
Section 4.02.Pro Rata Treatment.........................................................................45
Section 4.03.Computations...............................................................................45
Section 4.04.Non-receipt of Funds by the Administrative Agent...........................................45
Section 4.05.Set-off- Sharing of Payments, Etc..........................................................46
Section 4.06.Taxes......................................................................................47
Section 4.07.Disposition of Proceeds ...................................................................50
ARTICLE V [intentionally omitted]................................................................................50
ARTICLE VI Conditions Precedent and Subsequent...................................................................50
Section 6.01.Initial Funding............................................................................50
Section 6.02.Initial and Subsequent Loans...............................................................52
Section 6.03.Conditions Relating to Letters of Credit...................................................53
Section 6.04.Certificate Regarding Incurrence of Debt under Senior Indenture............................53
Section 6.05.Conditions Subsequent......................................................................53
ARTICLE VII Representations and Warranties.......................................................................54
Section 7.01.Corporate Existence........................................................................54
Section 7.02.Financial Condition........................................................................55
Section 7.03.Litigation.................................................................................56
Section 7.04.No Breach..................................................................................56
Section 7.05.Authority..................................................................................56
Section 7.06.Approvals..................................................................................57
Section 7.07.Use of Loans...............................................................................57
Section 7.08.ERISA......................................................................................57
</TABLE>
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Section 7.09.Taxes......................................................................................58
Section 7.10.Titles, etc................................................................................58
Section 7.11.No Material Misstatements..................................................................59
Section 7.12.Investment Company Act.....................................................................59
Section 7.13.Public Utility Holding Company Act.........................................................59
Section 7.14.Subsidiaries and Partnership...............................................................59
Section 7.15.Location of Business and Offices...........................................................60
Section 7.16.Defaults...................................................................................60
Section 7.17.Environmental Matters......................................................................60
Section 7.18.Compliance with the Law....................................................................61
Section 7.19.Insurance..................................................................................62
Section 7.20.Risk Management Agreements.................................................................62
Section 7.21.Restriction on Liens.......................................................................62
Section 7.22.Gas Imbalances.............................................................................62
Section 7.23.Material Agreements........................................................................63
Section 7.24.Solvency...................................................................................63
Section 7.25.Brokerage Fees.............................................................................63
ARTICLE VIII Affirmative Covenants...............................................................................63
Section 8.01.Financial Statements and Collateral Reports................................................64
Section 8.02.Litigation.................................................................................67
Section 8.03.Maintenance, Etc...........................................................................67
Section 8.04.Environmental Matters......................................................................69
Section 8.05.Further Assurances.........................................................................69
Section 8.06.Performance of Obligations.................................................................70
</TABLE>
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Section 8.07.Engineering Reports........................................................................70
Section 8.08.Title Information..........................................................................71
Section 8.09.Additional Collateral......................................................................72
Section 8.10.ERISA Information and Compliance...........................................................73
Section 8.11.Hedging Program............................................................................73
ARTICLE IX Negative Covenants....................................................................................74
Section 9.01.Debt.......................................................................................74
Section 9.02.Liens......................................................................................75
Section 9.03.Investments, Loans and Advances............................................................75
Section 9.04.Dividends, Distributions and Redemptions...................................................76
Section 9.05.Sales and Leasebacks.......................................................................77
Section 9.06.Nature of Business.........................................................................77
Section 9.07.Limitation on Leases.......................................................................77
Section 9.08.Mergers, Etc...............................................................................77
Section 9.09.Proceeds of Loans..........................................................................77
Section 9.10.ERISA Compliance...........................................................................78
Section 9.11.Sale or Discount of Receivables............................................................79
Section 9.12.Current Ratio and Interest Coverage Ratio..................................................79
Section 9.13.Accounts Payable...........................................................................79
Section 9.14.Sale of Oil and Gas Properties.............................................................80
Section 9.15.Environmental Matters......................................................................80
Section 9.16.Transactions with Affiliates...............................................................80
Section 9.17.Subsidiaries and Partnerships..............................................................80
Section 9.18.Negative Pledge Agreements.................................................................81
</TABLE>
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Section 9.19.Gas Imbalances, Take-or-Pay or Other Prepayments...........................................81
Section 9.20.Material Agreements........................................................................81
Section 9.21.Repayment of Other Debt....................................................................81
Section 9.22.Limitations on Capital Expenditures........................................................82
Section 9.23.Preferred Stock............................................................................82
Section 9.24.Securities Accounts........................................................................82
Section 9.25.QSR Canada.................................................................................82
ARTICLE X Events of Default; Remedies............................................................................83
Section 10.01.Events of Default.........................................................................83
Section 10.02.Remedies..................................................................................84
ARTICLE XI The Agent.............................................................................................85
Section 11.01.Appointment, Powers and Immunities........................................................85
Section 11.02.Reliance by Agent.........................................................................87
Section 11.03.Defaults..................................................................................87
Section 11.04.Rights as a Lender........................................................................88
Section 11.05.COSTS AND EXPENSES; INDEMNIFICATION.......................................................88
Section 11.06.Non-Reliance on Agent and other Lenders...................................................89
Section 11.07.Action by Agents..........................................................................90
Section 11.08.Resignation or Removal of Agent...........................................................90
Section 11.09.Collateral Sub-Agents.....................................................................91
Section 11.10.Communications by Obligors................................................................91
Section 11.11.Collateral Matters........................................................................92
Section 11.12.Restrictions on Actions by the Agents and the Lenders; Sharing Payments...................92
Section 11.13.Several Obligations; No Liability.........................................................93
</TABLE>
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ARTICLE XII Miscellaneous........................................................................................94
Section 12.01.Waiver....................................................................................94
Section 12.02.Notices...................................................................................94
Section 12.03.Payment of Expenses, Indemnities, etc.....................................................94
Section 12.04.Amendments, Etc...........................................................................96
Section 12.05.Successors and Assigns....................................................................97
Section 12.06.Assignments and Participations............................................................97
Section 12.07.Invalidity................................................................................99
Section 12.08.Counterparts..............................................................................99
Section 12.09.References................................................................................99
Section 12.10.Survival..................................................................................99
Section 12.11.Captions.................................................................................100
Section 12.12.NO ORAL AGREEMENTS.......................................................................100
Section 12.13.GOVERNING LAW; SUBMISSION TO JURISDICTION................................................100
Section 12.14.Interest.................................................................................101
Section 12.15.Confidentiality..........................................................................103
Section 12.16.EXCULPATION PROVISIONS...................................................................104
Section 12.17.Designated Senior Indebtedness...........................................................104
Section 12.18.Amendments to Prior Loan Documents.......................................................105
</TABLE>
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<TABLE>
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Schedule C-1 - List of Commitments
Schedule S-1 - List of Security Instruments
Schedule P-1 List of Principal Properties
Exhibit B - Form of Borrowing, Continuation and Conversion Request
Exhibit C - Form of Compliance Certificate
Exhibit D - List of Security Instruments
Exhibit E-1 - Form of Assignment Agreement
Exhibit 2.02 - Notices
Exhibit N-1 Form of NYMEX Quote
Exhibit PV-1 Basis Differential to NYMEX Swap Price
Exhibit T-1 Form of Transfer Order Letters
Schedule 2.15 Cash Management Bank Accounts
Schedule 7.01 Capitalization
Schedule 7.02 - Liabilities
Schedule 7.03 - Litigation
Schedule 7.10 - Titles, etc.
Schedule 7.14 - Subsidiaries and Partnerships
Schedule 7.17 - Environmental Matters
Schedule 7.19 - Insurance
Schedule 7.20 - Risk Management Agreements
Schedule 7.21 - Restrictions of Liens
Schedule 7.22 - Gas Imbalances
Schedule 7.23 - Material Agreements
Schedule 9.01 - Debt
Schedule 9.02 - Liens
Schedule 9.03 - Investments, Loans and Advances
</TABLE>
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<PAGE> 9
THIS AMENDED AND RESTATED CREDIT AGREEMENT, dated as of October 22,
1999, is among: QUEEN SAND RESOURCES, INC., a corporation formed under the laws
of the State of Delaware ("QSRD"); QUEEN SAND RESOURCES, INC., a corporation
formed under the laws of the State of Nevada (the "Borrower"); each of the
lenders that is a signatory hereto or which becomes a signatory hereto as
provided in Section 12.06 (individually, together with its successors and
assigns, a "Lender" and, collectively, the "Lenders"); FOOTHILL CAPITAL
CORPORATION, as administrative agent for the Lenders (in such capacity, together
with its successors in such capacity, the "Administrative Agent"); and ABLECO
FINANCE LLC, as collateral agent for the Lenders (in such capacity, together
with its successors in such capacity, the "Collateral Agent").
R E C I T A L S
A. QSRD, the Borrower, certain lenders (the "Prior Lenders") and the
Bank of Montreal, as agent for the Prior Lenders (the "Prior 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, as further amended by that certain
Second Amendment to Amended and Restated Credit Agreement dated as of November
10, 1998, as further amended by that certain Third Amendment to Amended and
Restated Credit Agreement dated as of November 13, 1998, and as further amended
by that certain Fourth Amendment to Credit Agreement dated as of May 14, 1999
(such credit agreement, as amended, the "Prior Credit Agreement").
B. QSRD, the Borrower, certain lenders and the Prior Agent were parties
to that certain Credit Agreement dated as of August 1, 1997, as amended by that
certain First Amendment to Credit Agreement dated as of December 3, 1997, as
further amended by that certain Second Amendment to Credit Agreement dated as of
December 29, 1997, as further amended by that certain Third Amendment to Credit
Agreement dated as of February 10, 1998, and as further amended by that certain
Fourth Amendment to Credit Agreement dated as of March 20, 1998 (such credit
agreement, as amended, the "Original Credit Agreement"). The Original Credit
Agreement was amended and restated, in its entirety, by the Prior Credit
Agreement.
C. QSRD and the Borrower have requested that (i) the Lenders assume the
obligations of the Prior Lenders under the Prior Credit Agreement, (ii) the
Administrative Agent and the Collateral Agent assume the agency responsibilities
of the Prior Agent under the Prior Credit Agreement, and (iii) the
Administrative Agent, the Collateral Agent, and the Lenders amend and restate
the Prior Credit Agreement and make credit available to the Borrower on the
terms and conditions stated herein.
D. The Administrative Agent, the Collateral Agent, and the Lenders,
subject to the terms and conditions stated herein, are willing to amend and
restate the Prior Credit Agreement and to make such credit facilities available.
E. NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are acknowledged, the parties agree as follows:
<PAGE> 10
ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS
Section 1.01. Terms Defined in Recitals. As used in this Agreement, the
terms defined in the Recitals, shall have the meanings indicated in the
Recitals.
Section 1.02. Certain Defined Terms. As used herein, including the
Recitals, the following terms shall have the following meanings (all terms
defined in this Article I or in other provisions of this Agreement in the
singular to have the same meanings when used in the plural and vice versa):
"Account Debtor" shall mean any Person who is or who may become
obligated under, with respect to, or on account of, an Account.
"Accounts" shall mean all currently and hereafter arising accounts,
contract rights, and all other forms of obligations owing to an Obligor whether
arising out of the sale of goods or the rendition of services by an Obligor,
irrespective of whether earned by performance, or from any other transaction,
and any and all credit insurance, guaranties, or security therefor.
"Acquisition" shall mean (a) the acquisition of all or substantially
all of the Stock of any Person or all or substantially all of the Property of
any Person, so long as the Property of such Person is Oil and Gas Property and
other Property reasonably related thereto, or (b) the acquisition of Oil and Gas
Properties from Persons other than Affiliates; provided that the term
"Acquisition" shall not include capital expenditures made in the ordinary course
of business.
"Additional Liquidity Reserve" shall mean a reserve against each
alternative determination of the Borrowing Base in an initial amount of
$5,000,000, as such amount may be decreased from time to time by the consent of
the Agents, such amount to reduce to zero (0) on March 31, 2000 in the event
that no Event of Default shall have occurred on or prior to such date.
"Administrative Agent" shall mean Foothill Capital Corporation, a
California corporation, solely in its capacity as administrative agent for the
Lenders, and shall include any successor administrative agent.
"Administrative Agent's Account" shall mean an account at a bank
designated by Administrative Agent from time to time as the account into which
the Borrower shall make all payments to Administrative Agent for the benefit of
the Lender Group, and into which the Lender Group shall make all payments to
Administrative Agent, under this Agreement and the other Loan Documents.
Initially, until Administrative Agent notifies Borrower and the Lender Group to
the contrary, the Administrative Agent Account shall be that certain deposit
account bearing account number 323-266193 and maintained by Administrative Agent
with The Chase Manhattan Bank, N.A., 4 New York Plaza, 15th Floor, New York, New
York 10004, ABA #021-000-021.
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<PAGE> 11
"Administrative Agent Advances" has the meaning set forth in Section
2.12.
"Agent" shall mean the Administrative Agent or the Collateral Agent, or
either or both, as the context requires.
"Affiliate" of any Person shall mean (i) any Person directly or
indirectly controlled by, controlling or under common control with such first
Person, (ii) any director or officer of such first Person or of any Person
referred to in clause (i) above, and (iii) if any Person in clause (i) above is
an individual, any member of the immediate family (including parents, spouse and
children) of such individual and any trust whose principal beneficiary is such
individual or one or more members of such immediate family and any Person who is
controlled by any such member or trust. As used in this definition, "control"
(including, with its correlative meanings, "controlled by" and "under common
control with") shall mean any Person which owns directly or indirectly 10% or
more of the securities having ordinary voting power for the election of
directors or other governing body of a corporation or 10% or more of the
partnership or other ownership interests of any other Person (other than as a
limited partner of such other Person) will be deemed to control such corporation
or other Person.
"Agent-Related Person" shall mean Administrative Agent and any
successor agents thereto, and Collateral Agent and any successor agents thereto,
together with their respective Affiliates, and the officers, directors,
employees, counsel, accountants, experts, agents, and attorneys-in-fact of such
Persons and their Affiliates.
"Agent Reserves" shall have the meaning assigned to such term in the
definition of "Borrowing Base".
"Agreement" shall mean this Amended and Restated Credit Agreement, as
amended from time to time.
"Aggregate Commitments" at any time shall equal the amount calculated
in accordance with Section 2.03(a).
"Aggregate Maximum Credit Amount" at any time shall equal the sum of
the Maximum Credit Amounts of the Lenders, as the same may be reduced pursuant
to Section 2.03(b).
"Applicable Margin" shall mean, for each day a Loan is outstanding, the
following rate per annum as applicable:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
REVOLVING FACILITY
USAGE APPLICABLE MARGIN
----------------------------------------------------------------------------------
<S> <C> <C>
Less than $25,000,000 2.00%
----------------------------------------------------------------------------------
Equal to or greater than 4.50%
$25,000,000
----------------------------------------------------------------------------------
</TABLE>
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<PAGE> 12
"Assignment" shall have the meaning assigned such term in Section
12.06(d).
"Availability" shall mean, as of any date of determination, the amount
of Loans that the Borrower is entitled to borrow hereunder, such amount being
the difference derived when (a) the Revolving Facility Usage (including any
amounts that the Lender Group may have paid for the account of the Borrower
pursuant to any of the Loan Documents and that have not been reimbursed by the
Borrower) is subtracted from (b) the lesser of (i) the Borrowing Base and (ii)
the Maximum Credit Amount. If the Revolving Facility Usage is equal to or
greater than the lesser of the Borrowing Base or the Maximum Credit Amount,
Availability is zero (-0-).
"Base Rate" shall mean, with respect to any Base Rate Loan, for any
day, the higher of (i) the Federal Funds Rate for any such day plus 1/2 of 1%,
(ii) seven and three quarters percent (7.75%) per annum, or (iii) the Reference
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.
"Base Rate Loans" shall mean Loans that bear interest at rates based
upon the Base Rate.
"Borrowing Base" shall mean at any time an amount (which, in the
absence of the occurrence and continuation of an Event of Default, shall be
determined no less frequently than monthly), determined in accordance with
Section 2.08, equal to the least of:
(a) $50,000,000 minus the Liquidity Reserve and minus the
Additional Liquidity Reserve,
(b) an amount equal to the result of (i) sum of (A) 65% of the
PV-10 Value of the Borrower's Proved Developed Producing Reserves, as reflected
in the most recent report delivered pursuant to Section 8.07(a), (b) or (e),
that are subject to a recorded mortgage or deed of trust that creates a first
priority perfected Lien in such Oil and Gas Properties in favor of Collateral
Agent for the benefit of the Lender Group, (B) 45% of the PV-10 Value of the
Borrower's Proved Developed Non-producing Reserves, as reflected in the most
recent report delivered pursuant to Section 8.07(a), (b) or (e), that are
subject to a recorded mortgage or deed of trust that creates a first priority
perfected Lien in such Oil and Gas Properties in favor of Collateral Agent for
the benefit of the Lender Group, and (C) 40% of the PV-10 Value of the
Borrower's Proved Undeveloped Reserves, as reflected in the most recent report
delivered pursuant to Section 8.07(a), (b) or (e), that are subject to a
recorded mortgage or deed of trust that creates a first priority perfected Lien
in such Oil and Gas Properties in favor of Collateral Agent for the benefit of
the Lender Group., minus (ii) the sum of (A) the aggregate amount of Agent
Reserves (as hereinafter defined), (B) the
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<PAGE> 13
Liquidity Reserve, and (C) the Additional Liquidity Reserve, and
(c) the maximum aggregate amount of Indebtedness permitted to
be incurred by the Borrower pursuant to the terms and conditions of the Senior
Indenture minus the Liquidity Reserve and minus the Additional Liquidity
Reserve.
Anything to the contrary in this Agreement notwithstanding, the
Administrative Agent may, and shall at the request of the Required Lenders,
create reserves against the Borrowing Base or reduce the advance rates against
the stated categories of oil and gas reserves without declaring an Event of
Default as Administrative Agent determines, in its reasonable judgment (from the
perspective of an asset-based lender), as being appropriate to reflect
impediments to Collateral Agent's ability to realize upon the Collateral or
impairments or reductions to the value of the Collateral (in each case, an
"Agent Reserve", and collectively, the "Agent Reserves"). Without limiting the
generality of the foregoing, Agent Reserves may include (but are not limited to)
reserves based upon (i) past due or accrued taxes or other governmental changes,
including ad valorem, personal property and other taxes which may have priority
over the Liens or security interests of Collateral Agent in the Collateral; (ii)
Liens in favor of third Persons (whether or not such Liens are Excepted Liens);
(iii) estimates of present and future costs, expenses, deposits and liabilities
related to the plugging and abandonment of the Oil and Gas Properties (net of
the amount thereof which has been taken into account in the most recent Reserve
Report or is fully secured by an escrow arrangement acceptable to Agents), and
(iv) without duplication of the foregoing, amounts owing by such Borrower to any
Person to the extent secured by a Lien (whether or not such Lien is a Excepted
Lien) on, or trust (constructive or otherwise) over, any of the Collateral
(including proceeds thereof or collections from the sale of Hydrocarbons which
may from time to time come into the possession of any of the Lender Group or its
agents), which Lien or trust, in the reasonable determination of Administrative
Agent (from the perspective of an asset-based lender), has a reasonable
possibility of having a priority superior to the Collateral Agent's Liens (such
as landlord liens, ad valorem taxes, production taxes, severance taxes, sales
taxes, collections attributable to sale of Hydrocarbons of Persons other than
Borrower) in and to such item of Collateral, proceeds or collection.. Borrower
and Agent understand and agree that any amount of Agent Reserves shall not be
considered a disbursement bearing interest hereunder, but rather simply shall be
an amount that is not available for borrowing by Borrower.
"Business Day" shall mean any day other than a day on which commercial
banks are authorized or required to close in New York, New York or Los Angeles,
California.
"Change of Control" shall mean each occurrence of any of the following:
(a) the acquisition, directly or indirectly, by any person or group
(within the meaning of Section 13(d)(3) of the Exchange Act), other than the
Permitted Holders, of beneficial ownership of more than 30% of the aggregate
outstanding voting power of the Stock of QSRD; or
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<PAGE> 14
(b) during any period of two consecutive years, individuals, other than
directors elected by the Permitted Holders), who at the beginning of such period
constituted the Board of Directors of QSRD (together with any new directors
whose election or appointment by such board or whose nomination for election by
the stockholders of QSRD was approved by a vote of a majority of the directors
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Board of Directors of QSRD then
in office other than directors elected by the Permitted Holders; or
(c) less than 100% of all of the Stock of any Obligor (other than QSRD)
shall be owned and controlled, beneficially, directly, and of record, by QSRD or
the Borrower.
"Closing Date" shall mean October 22, 1999.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time and any successor statute.
"Collateral" shall mean all present or hereafter acquired Property
(including the Mortgage Property) that is the subject of Liens in favor of the
Collateral Agent for the benefit of the Lender Group pursuant to the terms and
provisions of the Security Instruments.
"Collateral Agent" shall mean Ableco Finance LLC, a Delaware limited
liability company, solely in its capacity as collateral agent for the Lenders,
and shall include any successor collateral agent.
"Commitment" shall mean, for any Lender, its obligation to make Loans
up to the lesser of such Lender's Maximum Credit Amount or the Lender's
Percentage Share of the then effective Borrowing Base.
"Confidential Information" shall mean any confidential, proprietary, or
non-public information supplied to any member of the Lender Group by the
Obligors pursuant to this Agreement or the other Loan Documents which is
identified in writing by Borrower on behalf of the Obligors as being
confidential pursuant to this definition or otherwise at, or reasonably
concurrent with, the time the same is delivered to such member of the Lender
Group (and which at the time is not, and does not thereafter become, publicly
available or available to such member of the Lender Group from another source
not known by such member of the Lender Group to be subject to a confidentiality
obligation not to disclose such information). The foregoing provision relative
to timing of Borrower's identification of such information as being confidential
notwithstanding, the following categories of information that is confidential,
proprietary, or non-public hereby are designated by Borrower as confidential for
purposes of this definition (subject to the same not being publicly available or
available to such member of the Lender Group from another source not known by
such member of the Lender Group to be subject to a confidentiality obligation
not to disclose such information): all non-public geological, seismic,
geophysical, engineering, and reserve data related to the oil and gas
acquisition, exploration and production activities of the Obligors.
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<PAGE> 15
"Consolidated Net Income" shall mean with respect to QSRD and its
Consolidated Subsidiaries, for any period, the aggregate of the net income (or
loss) of QSRD and its Consolidated Subsidiaries after allowances for taxes for
such period, determined on a consolidated basis in accordance with GAAP;
provided that there shall be excluded from such net income (to the extent
otherwise included therein) the following: (i) the net income of any Person in
which QSRD or any Consolidated Subsidiary has an interest (which interest does
not cause the net income of such other Person to be consolidated with the net
income of QSRD and its Consolidated Subsidiaries in accordance with GAAP),
except to the extent of the amount of dividends or distributions actually paid
in such period by such other Person to QSRD or to a Consolidated Subsidiary, as
the case may be; (ii) the net income (but not loss) of any Consolidated
Subsidiary to the extent that the declaration or payment of dividends or similar
distributions or transfers or loans by that Consolidated Subsidiary is not at
the time permitted by operation of the terms of its charter or any agreement,
instrument or Governmental Requirement applicable to such Consolidated
Subsidiary, or is otherwise restricted or prohibited in each case determined in
accordance with GAAP; (iii) the net income (or loss) of any Person acquired in a
pooling-of-interests transaction for any period prior to the date of such
transaction; (iv) any extraordinary gains, including gains attributable to
Property sales not in the ordinary course of business and any gains or losses
attributable to the termination or liquidation of Risk Management Agreements;
(v) the cumulative effect of a change in accounting principles and any gains or
losses attributable to write-ups or writedowns of assets; and (vi) any
writedowns of non-current assets, provided however, that any ceiling limitation
writedowns under SEC guidelines shall be treated as capitalized costs, as if
such writedowns had not occurred.
"Consolidated Subsidiaries" shall mean each Subsidiary of QSRD or other
Person owned by QSRD, whether now existing or hereafter created or acquired,
which are not Non-Recourse Subsidiaries and the financial statements of which
shall be (or should have been) consolidated with the financial statements of
QSRD in accordance with GAAP.
"Control Agreement" shall mean a control agreement, in form and
substance reasonably satisfactory to Collateral Agent, among the applicable
Obligor, Collateral Agent, and the applicable securities intermediary with
respect to the applicable Securities Account and related Investment Property.
"Debt" shall mean, for any Person the sum of the following (without
duplication): (i) all obligations of such Person for borrowed money or evidenced
by bonds, debentures, notes or other similar instruments (including principal,
interest, fees and charges); (ii) all obligations of such Person (whether
contingent or otherwise) in respect of bankers' acceptances, letters of credit,
surety or other bonds and similar instruments; (iii) all obligations of such
Person to pay the deferred purchase price of Property or services (other than
for borrowed money); (iv) all obligations under leases which shall have been, or
should have been, in accordance with GAAP, recorded as capital leases in respect
of which such Person is liable (whether contingent or otherwise); (v) all Debt
and other obligations of others secured by a Lien on any asset of such Person,
whether or not such Debt is assumed by such Person; (vi) all Debt and other
obligations of others guaranteed by such Person or in
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<PAGE> 16
which such Person otherwise assures a creditor against loss of the debtor or
obligations of others; (vii) all obligations or undertakings of such Person to
maintain or cause to be maintained the financial position or covenants of others
or to purchase the Debt or Property of others (other than the purchase of
Property in the ordinary course of business); (viii) the undischarged balance of
any production payment created by such Person or for the creation of which such
Person directly or indirectly received payment; (ix) all obligations of such
Person or any of its Subsidiaries to deliver goods or services including
Hydrocarbons in consideration of advance payments; (x) the undischarged balance
of any production payment or net profits interest created by such Person or any
of its Subsidiaries or for the creation of which such Person or any of its
Subsidiaries directly or indirectly received payment; and (xi) the net mark to
market value of all obligations of such Person under Risk Management Agreements.
"Default" shall mean an Event of Default or an event which with notice
or lapse of time or both would become an Event of Default.
"Defaulting Lender" shall mean any Lender with a Commitment that fails
to make any payment to Administrative Agent that it is required to make
hereunder on any Settlement Date and that has not cured such failure by making
such payment within 1 Business Day after written demand upon it by
Administrative Agent to do so.
"Defaulting Lenders Rate" shall mean the Federal Funds Rate for the
first 3 days from and after the date the relevant payment is due and,
thereafter, at the interest rate then applicable to the relevant Loan.
"DEM Subordinated Debt" shall mean the Series A DEM 5,000,000 12% notes
issued by QSRD and being due and payable on July 15, 2000, and any renewals,
extensions or replacements (but not increases in principal amount) thereof.
"Designated Account" shall mean account number 7701-7429 of the
Borrower maintained with the Borrower's Designated Account Bank, or such other
deposit account of the Borrower (located within the United States) for the
benefit of the Borrower that has been designated as such, in writing, by
Borrower to Administrative Agent.
"Designated Account Bank" shall mean Compass Bank, whose office is
located at 8080 N. Central Expressway, Dallas, Texas 75206, whose mailing
address is P. O. Box 650561, Dallas, Texas 75265-0561, and whose ABA number is
113 010 547.
"Dollars" and "$" shall mean lawful money of the United States of
America.
"EBITDA" shall mean, for any period, the sum, determined (without
duplication) for QSRD and its Consolidated Subsidiaries of (i) Consolidated Net
Income plus (ii) Interest Expense for such period to the extent deducted in the
determination of Consolidated Net Income plus (iii) depreciation, depletion,
amortization and other similar non-cash items (with the exception of non-cash
charges that require an accrual or reserve for cash charges for any future
period and normally recurring accruals) to the extent deducted in the
determination of
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<PAGE> 17
Consolidated Net Income plus (iv) all taxes accrued for such period on or
measured by income to the extent deducted in the determination of Consolidated
Net Income.
"ECT" shall mean Enron North America Corp., formerly known as Enron
Capital & Trade Resources Corp.
"ECT Subordinated Debt" shall mean collectively, (i) the Subordinated
Revolving Credit Loan Agreement dated as of December 29, 1997 among the
Borrower, ECT, as agent for itself and the other lenders from time to time
parties thereto, and such lenders, (ii) the promissory note(s) in the aggregate
principal amount of $10,000,000 issued by the Borrower thereunder, and (iii) all
agreements, instruments and documents given by the Borrower, QSRD or any Obligor
to secure the obligations of the Borrower under the agreement and instruments
described in clauses (i) and (ii).
"Eligible Counterparty" shall mean ECT, Statoil Energy, Inc., Bank of
Montreal, any bank or trust company meeting the requirements contained in
Section 9.03(e) hereof, or any investment grade counterparty, rated BBB+ or
better or the equivalent, engaged (as one of its principle businesses) in
entering into Risk Management Agreements.
"Engineering Reports" shall have the meaning assigned such term in
Section 2.08(b).
"Environmental Laws" shall mean any and all Governmental Requirements
pertaining to health, safety or the environment in effect in any and all
jurisdictions in which QSRD or any of its Subsidiaries is conducting or at any
time has conducted business, or where any Property of any such Person is
located, including without limitation, the Oil Pollution Act of 1990 ("OPA"),
the Clean Air Act, as amended, the Comprehensive Environmental, Response,
Compensation, and Liability Act of 1980 ("CERCLA"), as amended, the Federal
Water Pollution Control Act, as amended, the Occupational Safety and Health Act
of 1970, as amended, the Resource Conservation and Recovery Act of 1976
("RCRA"), as amended, the Safe Drinking Water Act, as amended, the Toxic
Substances Control Act, as amended, the Superfund Amendments and Reauthorization
Act of 1986, as amended, the Hazardous Materials Transportation Act, as amended,
and other environmental conservation or protection laws. The term "oil" shall
have the meaning specified in OPA, the terms "hazardous substance" and "release"
(or "threatened release") have the meanings specified in CERCLA, and the terms
"solid waste" and "disposal" (or "disposed") have the meanings specified in
RCRA; provided, however, that (i) in the event either OPA, CERCLA or RCRA is
amended so as to broaden the meaning of any term defined thereby, such broader
meaning shall apply subsequent to the effective date of such amendment and (ii)
to the extent the laws of the state in which any Property of QSRD or any of its
Subsidiaries is located establish a meaning for "oil," "hazardous substance,"
"release," "solid waste" or "disposal" which is broader than that specified in
either OPA, CERCLA or RCRA, such broader meaning shall apply.
"Equity Offering" shall mean any sale or issuance for cash of any
equity securities of QSRD or warrants or options with respect thereto (whether
done by a registered public offering or an exempt private placement of such
securities) occurring after the Closing Date;
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<PAGE> 18
provided the foregoing shall not include any warrants, options, rights or class
of Preferred Stock or Debt outstanding prior to the Closing Date or which arise
after the Closing Date but are attributable to agreements in effect prior to the
Closing Date.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time and any successor statute.
"ERISA Affiliate" shall mean each trade or business (whether or not
incorporated) which together with QSRD or any of its Affiliates would be deemed
to be a "single employer" within the meaning of section 4001(b)(1) of ERISA or
subsections (b), (c), (m) or (o) of section 414 of the Code.
"ERISA Event" shall mean (i) a "Reportable Event" described in Section
4043 of ERISA and the regulations issued thereunder, (ii) the withdrawal of QSRD
or any ERISA Affiliate from a Plan during a plan year in which it was a
"substantial employer" as defined in Section 4001(a)(2) of ERISA, (iii) the
filing of a notice of intent to terminate a Plan or the treatment of a Plan
amendment as a termination under Section 4041 of ERISA, (iv) the institution of
proceedings to terminate a Plan by the PBGC or (v) any other event or condition
which might constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Plan.
"Escrow Agreement" shall mean the Escrow Agreement entered into among
Morgan Guaranty Trust Company of New York, as trustee, the Borrower, and Chase
Bank of Texas, National Association, as escrow agent, pursuant to Section 2.2 of
the Purchase and Sale Agreement.
"Estoppel Letter" shall mean that certain Estoppel Letter, dated as of
the Closing Date, executed and delivered to the Agents and the Lenders by each
of the Obligors in connection with the transactions contemplated by the Purchase
Agreements.
"Event of Default" shall have the meaning assigned such term in Section
10.01.
"Excepted Liens" shall mean: (i) Liens for taxes, assessments or other
governmental charges or levies not yet due or which are being contested in good
faith by appropriate action and for which appropriate reserves have been
maintained; (ii) Liens in connection with workmen's compensation, unemployment
insurance or other social security, old age pension or public liability
obligations not yet due or which are being contested in good faith by
appropriate action and for which appropriate reserves have been maintained in
accordance with GAAP; (iii) operators', vendors', carriers', warehousemen's,
repairmen's, mechanics', workmen's, materialmen's, construction or other like
Liens arising by operation of law in the ordinary course of business or incident
to the exploration, development, operation and maintenance of Oil and Gas
Properties or statutory landlord's Liens, each of which is in respect of
obligations that have not been outstanding more than 90 days or which are being
contested in good faith by appropriate proceedings and for which appropriate
reserves have been maintained in accordance with GAAP; (iv) any Liens reserved
in leases or farmout agreements for rent or royalties and for compliance with
the terms of the farmout agreements
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<PAGE> 19
or leases in the case of leasehold estates, to the extent that any such Lien
referred to in this clause does not materially impair the use of the Property
covered by such Lien for the purposes for which such Property is held by QSRD or
any of its Subsidiaries or materially impair the value of such Property subject
thereto; (v) Liens (on cash collateral deposit accounts or other cash equivalent
collateral in an amount not to exceed $4,000,000 minus Letter of Credit Usage)
securing Borrower's obligations under Risk Management Agreements outstanding as
of the Closing Date and other Risk Management Accounts entered into by Borrower
after the Closing Date in compliance with Section 8.11; and (vi) encumbrances
(other than to secure the payment of borrowed money or the deferred purchase
price of Property or services), easements, restrictions, servitudes, permits,
conditions, covenants, exceptions or reservations in any rights of way or other
Property of QSRD or any of its Subsidiaries for the purpose of roads, pipelines,
transmission lines, transportation lines, distribution lines for the removal of
gas, oil, coal or other minerals or timber, and other like purposes, or for the
joint or common use of real estate, rights of way, facilities and equipment, and
defects, irregularities, zoning restrictions and deficiencies in title of any
rights of way or other Property which in the aggregate do not materially impair
the use of such rights of way or other Property for the purposes of which such
rights of way and other Property are held by any such Person or materially
impair the value of such Property subject thereto.
"Excess Availability" shall mean the amount, as of the date any
determination thereof is to be made, equal to Availability minus the aggregate
amount, if any, of all trade payables of the Borrower in excess of 60 days past
due and all book overdrafts in excess of its historical practices, in each case
as determined by Administrative Agent in its reasonable credit judgment.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to, and any successor act thereto.
"Existing Preferred Stock" shall mean (i) QSRD's Series A Participating
Convertible Preferred Stock, par value $0.01 per share; (ii) QSRD's Series B
Participating Convertible Preferred Stock; and (iii) QSRD's Series C Convertible
Preferred Stock issued pursuant to the Certificate of Designation of Series C
Convertible Preferred Stock adopted as of December 23, 1997, together with any
and all amendments and modifications thereto up to the Closing Date and such
other amendments or modifications entered into after the Closing Date in
compliance with Section 9.21(a).
"Federal Funds Rate" shall mean, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the
weighted average of the rates on overnight federal funds transactions with a
member of the Federal Reserve System arranged by federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, provided that (i) if the date for which such rate is
to be determined is not a Business Day, the Federal Funds Rate for such day
shall be such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day, and (ii) if such rate is not so
published for any day, the
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<PAGE> 20
Federal Funds Rate for such day shall be the average rate charged to the
Affiliates of the Administrative Agent on such day on such transactions as
determined by the Administrative Agent.
"Fee Letter" shall mean that certain letter agreement, dated as of the
Closing Date, between the Borrower and Collateral Agent, setting forth certain
fees payable to Collateral Agent.
"Fee Split Letter" shall mean that certain letter agreement, dated as
of the Closing Date, between Foothill Capital Corporation, in its individual
capacity, and Collateral Agent, setting forth the allocation to Foothill Capital
Corporation of certain fees payable by Borrower to Collateral Agent pursuant to
the Fee Letter.
"Financial Statements" shall mean the financial statement or statements
of QSRD and its Consolidated Subsidiaries described or referred to in Section
7.02(a).
"GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time.
"Governmental Authority" shall include the country, the state, county,
city and political subdivisions in which any Person or such Person's Property is
located or which exercises valid jurisdiction over any such Person or such
Person's Property, and any court, agency, department, commission, board, bureau
or instrumentality of any of them including monetary authorities which exercises
valid jurisdiction over any such Person or such Person's Property. Unless
otherwise specified, all references to Governmental Authority herein shall mean
a Governmental Authority having jurisdiction over, where applicable, QSRD or any
of its Subsidiaries or any of their Properties or the Agents or any Lender.
"Governmental Requirement" shall mean any law, statute, code,
ordinance, order, determination, rule, regulation, judgment, decree, injunction,
franchise, permit, certificate, license, authorization or other directive or
requirement (whether or not having the force of law), including, without
limitation, Environmental Laws, energy regulations and occupational, safety and
health standards or controls, of any Governmental Authority.
"Highest Lawful Rate" shall mean, with respect to the Agents or a
Lender, the maximum non-usurious interest rate, if any, that at any time or from
time to time may be contracted for, taken, reserved, charged or received on the
Indebtedness under laws applicable to the Agents or such Lender which are
currently in effect or, to the extent allowed by law, under such applicable laws
which may hereafter be in effect and which allow a higher maximum non-usurious
interest rate than applicable laws now allow.
"Hydrocarbon Interests" shall mean all rights, titles, interests and
estates now or hereafter acquired in and to oil and gas leases, oil, gas and
mineral leases, or other liquid or gaseous hydrocarbon leases, mineral fee
interests, overriding royalty and royalty interests, net profit interests and
production payment interests, including any reserved or residual interests of
whatever nature.
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"Hydrocarbons" shall mean oil, gas, casinghead gas, drip gasoline,
natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous
hydrocarbons and all constituents, elements and compounds thereof, and all
products refined or separated therefrom.
"Indebtedness" shall mean any and all amounts owing or to be owing by
QSRD, the Borrower or any Obligor to the Agents and/or Lenders in connection
with the Loan Documents now or hereafter arising between QSRD or the Borrower
and any Lender, and all renewals, extensions and/or rearrangements of any of the
above.
"Indemnified Parties" shall have the meaning assigned such term in
Section 12.03(b).
"Indemnity Matters" shall mean any and all actions, suits, proceedings
(including any investigations, litigation or inquiries), claims, demands and
causes of action made or threatened against an Indemnified Party and, in
connection therewith, all losses, liabilities, damages (including, without
limitation, consequential damages) or reasonable costs and expenses of any kind
or nature whatsoever incurred by such Indemnified Party whether caused by the
sole or concurrent negligence of the Indemnified Party seeking indemnification.
"Initial Funding" shall mean the date of the consummation of the
transactions contemplated by the Purchase Agreement.
"Initial Reserve Report" shall mean collectively, (i) the report of H.
J. Gruy & Associates dated August 2, 1999 with respect to the Oil and Gas
Properties set forth therein as of June 30, 1999, and (ii) the report of Ryder
Scott Company dated July 26, 1999 with respect to the Oil and Gas Properties set
forth therein as of June 30, 1999.
"Insolvency Proceeding" shall mean any proceeding commenced by or
against any Person under any provision of the Bankruptcy Code or under any other
bankruptcy or insolvency law, assignments for the benefit of creditors, or
proceedings seeking reorganization, arrangement, liquidation or other similar
relief, or formal or informal moratoria, compositions, or extensions made or
agreed to generally with such Person's creditors.
"Intercompany Subordination Agreement" shall mean a Subordination
Agreement, dated as of the Closing Date, in form and substance satisfactory to
the Agents, by each of the Obligors in favor of the Lender Group.
"Interest Expense" shall mean, for any period, the sum (determined
without duplication) of the aggregate amount of interest expense accruing during
such period on Debt of QSRD and its Consolidated Subsidiaries, including the
interest portion of payments under capitalized leases and any capitalized
interest, but excluding amortization of debt discount and expense.
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"Investment Property" shall mean "investment property" as that term is
defined in of the New York Uniform Commercial Code, whether now owned or
hereafter acquired by the Obligors.
"JEDI" shall mean Joint Energy Development Investments Limited
Partnership, a Delaware limited partnership.
"L/C" has the meaning set forth in Section 2.16(a).
"L/C Commitment" at any time shall mean $5,000,000.
"L/C Guaranty" has the meaning set forth in Section 2.16(a).
"Lender" and "Lenders" have the respective meanings set forth in the
preamble hereto, and shall include any other Person made a party to this
Agreement in accordance with the provisions of Section 12.06.
"Lender Group" shall mean, individually and collectively, each of the
individual Lenders, Administrative Agent, and Collateral Agent.
"Lender Group Expenses" shall mean all (a) costs or expenses (including
taxes, and insurance premiums) required to be paid by any Obligor under any of
the Loan Documents that are paid or incurred by the Lender Group, (b) fees or
charges paid or incurred by one or more members of the Lender Group in
connection with one or more members of the Lender Group's transactions with any
Obligor, including, fees or charges for photocopying, notarization, couriers and
messengers, telecommunication, public record searches (including tax lien,
litigation, and UCC searches and including searches with the patent and
trademark office, the copyright office, or the department of motor vehicles),
filing, recording, publication, appraisal, real estate title policies and
endorsements, allocated internal collateral examination and monitoring charges,
and environmental audits, (c) costs and expenses incurred by one or more members
of the Lender Group in the disbursement of funds to the Borrower (by wire
transfer or otherwise), (d) charges paid or incurred by one or more members of
the Lender Group resulting from the dishonor of checks, (e) costs and expenses
paid or incurred by one or members of the Lender Group to correct any default or
enforce any provision of the Loan Documents, or in gaining possession of,
maintaining, handling, preserving, storing, shipping, selling, preparing for
sale, or advertising to sell the Collateral, or any portion thereof,
irrespective of whether a sale is consummated, (f) costs and expenses paid or
incurred by one or more members of the Lender Group in examining the books and
records of any Obligor, (g) costs and expenses of third party claims or any
other suit paid or incurred by one or more members of the Lender Group in
enforcing or defending the Loan Documents or in connection with the transactions
contemplated by the Loan Documents or one or more members of the Lender Group's
relationship with any Obligor, and (h) fees and expenses (including
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attorneys fees) incurred by one or more members of the Lender Group in advising,
structuring, drafting, reviewing, negotiating, syndicating, investigating,
preparing, executing and delivering, recording or filing of, enforcement of, and
refinancing, renegotiating or restructuring, administering, amending,
terminating, enforcing (including attorneys fees and expenses, and expenses of
third party consultants or advisors, incurred in connection with a "workout," a
"restructuring," or an Insolvency Proceeding concerning any Obligor), defending,
or concerning the Loan Documents, irrespective of whether suit is brought.
"Lender Group Side Letter" shall mean a side letter, dated as of the
Closing Date, between and among the Lenders, the Collateral Agent, and the
Administrative Agent.
"Letter of Credit" shall mean an L/C or an L/C Guaranty, as the context
requires.
"Letter of Credit Agreements" shall mean the written agreements with
the Administrative Agent, as issuing bank for any Letter of Credit, executed or
hereafter executed in connection with the issuance by the Administrative Agent
of the Letters of Credit, such agreements to be on the Administrative Agent's
customary form for letters of credit of comparable amount and purpose as from
time to time in effect or as otherwise agreed to by the Borrower and the
Administrative Agent.
"Letter of Credit Usage" shall mean the sum of (a) the undrawn amount
of uncancelled Letters of Credit, plus (b) the amount of unreimbursed drawings
under Letters of Credit, minus (c) the aggregate amount of cash collateral
securing outstanding Letters of Credit pursuant to Section 2.16(e).
"Lien" shall mean any interest in Property securing an obligation owed
to, or a claim by, a Person other than the owner of the Property, whether such
interest is based on the common law, statute or contract, and whether such
obligation or claim is fixed or contingent, and including but not limited to (i)
the lien or security interest arising from a mortgage, charge, encumbrance,
pledge, lien (statutory or otherwise), security agreement, conditional sale or
trust receipt or a lease, consignment or bailment for security purposes, or
preferential arrangement of any kind or nature whatsoever (including, any
agreement to give or grant a lien), or (ii) production payments and the like
payable out of Oil and Gas Properties. The term "Lien" shall include
reservations, exceptions, encroachments, easements, rights of way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting Property. For the purposes of this Agreement, QSRD or any of its
Subsidiaries shall be deemed to be the owner of any Property which it has
acquired or holds subject to a conditional sale agreement, or leases under a
financing lease or other arrangement pursuant to which title to the Property has
been retained by or vested in some other Person in a transaction intended to
create a financing.
"Liquidity Reserve" shall mean a reserve against each alternative
determination of the Borrowing Base in the amount of $5,000,000, as such amount
may be decreased from time to time by the consent of the Agents.
"Loan" shall mean the loans as provided for by Section 2.01 (a).
"Loan Account" has the meaning set forth in Section 2.06.
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<PAGE> 24
"Loan Documents" shall mean this Agreement, the Fee Letter, the Side
Letter, the Intercompany Subordination Agreement, the Security Instruments, and
any note or notes executed by the Borrower and payable to a Lender including any
Registered Note, and any other agreement entered into, now or in the future, in
connection with this Agreement.
"Majority Lenders" shall mean, at any time while no Loans are
outstanding, Lenders having at least fifty-one percent (51%) of the Aggregate
Commitments and, at any time while Loans are outstanding, Lenders holding at
least fifty-one percent (51%) of the outstanding aggregate principal amount of
the Loans (without regard to any sale by a Lender of a participation in any Loan
under Section 12.06(e)).
"Material Adverse Effect" shall mean (i) any material and adverse
effect on the assets, liabilities, financial condition, business, operations,
prospects or affairs of QSRD and its Consolidated Subsidiaries taken as a whole
different from those reflected in the financial statements most recently
delivered pursuant to Sections 7.02(a) or 8.01 hereof or from the facts
represented or warranted in this Agreement or any Loan Document, or (ii) any
material and adverse effect on the ability of QSRD and its Consolidated
Subsidiaries, taken as a whole, to carry out its business as at the Closing Date
or as proposed as of the Closing Date to be conducted or meet its obligations
under the Loan Documents on a timely basis. The foregoing notwithstanding, the
failure of QSRD to maintain a listing on the NASDAQ Small Cap Exchange in and of
itself shall not be deemed a Material Adverse Effect.
"Material Agreements" shall mean each of the instruments, contracts or
agreements described in Schedule 7.23, as the same may be amended, modified or
replaced from time to time in accordance with the terms of Section 9.21.
"Maturity Date" shall mean, unless the Aggregate Maximum Credit Amounts
are sooner terminated under Section 2.03(b) or the Indebtedness is sooner
accelerated under Section 10.02 hereof, October 22, 2001.
"Maximum Credit Amount" shall mean, as to each Lender, the amount set
forth opposite such Lender's name on Annex I under the caption "Maximum Credit
Amounts" (as the same may be reduced pursuant to Section 2.03(b) pro rata to
each Lender based on its Percentage Share), as modified from time to time to
reflect any assignments permitted by Section 12.06(d) or amendments to this
Agreement.
"Moody's" shall mean Moody's Investors Service, Inc. and any successor
thereto.
"Mortgaged Property" shall mean the Property owned by any Obligor and
which is subject to the Liens existing and to exist under the terms of the
Security Instruments.
"Multiemployer Plan" shall mean a Plan defined as such in Section 3(37)
or 4001(a)(3) of ERISA.
"Non-Recourse Debt" shall mean Debt of any Non-Recourse Subsidiary (i)
as to which neither QSRD, Borrower, nor any Subsidiary Guarantor is directly or
indirectly liable
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<PAGE> 25
(by virtue of such Person or any Subsidiary Guarantor being the primary obligor
on, guarantor of, or otherwise liable in any respect to, such Debt); (ii) which,
upon the occurrence of a default with respect thereto, does not result in, or
permit any holder of any Debt of QSRD, the Borrower or any Subsidiary Guarantor
to declare a default on such Debt of such Person or cause the payment thereof to
be accelerated or payable prior to its stated maturity; and (iii) that is not
secured by a Lien upon any Property of QSRD, the Borrower or any Subsidiary
Guarantor (other than stock or other equity interests of a Non-Recourse
Subsidiary).
"Non-Recourse Subsidiary" shall mean any Subsidiary of QSRD organized
or acquired after the Closing Date as to which all of the following conditions
apply: (i) neither such Subsidiary nor any of its Subsidiaries provides credit
support for any of the Indebtedness or any other Debt of QSRD, the Borrower or
any Subsidiary Guarantor; (ii) neither QSRD, the Borrower nor any Subsidiary
Guarantor is liable, directly or indirectly, with respect to any Debt of such
Subsidiary; (iii) no Oil and Gas Properties of such Non-Recourse Subsidiary is
included in the Borrowing Base; and (iv) the Board of Directors of QSRD shall
have designated such Subsidiary to be a Non-Recourse Subsidiary by a written
resolution. Any such designation by the Board of Directors of QSRD shall be
evidenced to the Agents by delivering to them a resolution giving effect to such
designation and an officers' certificate certifying that such designation
complies with the foregoing conditions. The Board of Directors of QSRD may (i)
designate any of its Subsidiaries as a Non-Recourse Subsidiary or (ii) designate
any Non-Recourse Subsidiary to be a Subsidiary Guarantor; provided that, in
either such case, no Default or Event of Default would occur or be continuing
after giving effect to such designation. Any Subsidiary of a Non-Recourse
Subsidiary shall be a Non-Recourse Subsidiary for purposes of this Agreement,
provided that, with respect to such Subsidiary, each of the conditions set forth
in the first sentence of this paragraph are applicable.
"NYMEX Swap Price" shall mean, as of the date of the determination
thereof, the lower of the fixed price side of a 5 year swap (using the NYMEX
Henry Hub (for gas) and West Texas Intermediate, Cushing (for crude oil) as the
floating price indexes) as quoted by (i) ECT, or (ii) Statoil Energy Inc., Risk
Management Services, in each case delivered by Borrower to Agents in the form
attached hereto as Exhibit N-1, (or in either case, as quoted by another
Eligible Counterparty on its standard quote sheet).
"Obligor" shall mean any or all of QSRD, the Borrower or the Subsidiary
Guarantors, as appropriate.
"Oil and Gas Properties" shall mean Hydrocarbon Interests; the
Properties now or hereafter pooled or unitized with Hydrocarbon Interests; all
presently existing or future unitization, pooling agreements and declarations of
pooled units and the units created thereby (including without limitation all
units created under orders, regulations and rules of any Governmental Authority)
which may affect all or any portion of the Hydrocarbon Interests; all operating
agreements, contracts and other agreements which relate to any of the
Hydrocarbon Interests or the production, sale, purchase, exchange or processing
of
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Hydrocarbons from or attributable to such Hydrocarbon Interests; all
Hydrocarbons in and under and which may be produced and saved or attributable to
the Hydrocarbon Interests, including all oil in tanks, the lands covered thereby
and all rents, issues, profits, proceeds, products, revenues and other incomes
from or attributable to the Hydrocarbon Interests; all tenements, hereditaments,
appurtenances and Properties in any manner appertaining, belonging, affixed, or
incidental to the Hydrocarbon Interests; and all Properties, rights, titles,
interests and estates described or referred to above, including any and all
Property, real or personal, now owned or hereinafter acquired and situated upon,
used, held for use or useful in connection with the operating, working or
development of any such Hydrocarbon Interests or Property (excluding drilling
rigs, automotive equipment or other personal property which may be on such
premises for the purpose of drilling a well or for other similar temporary uses)
and including any and all oil wells, gas wells, injection wells or other wells,
buildings, structures, fuel separators, liquid extraction plants, plant
compressors, pumps, pumping units, field gathering systems, tanks and tank
batteries, fixtures, valves, fittings, machinery and parts, engines, boilers,
meters, apparatus, equipment, appliances, tools, implements, cables, wires,
towers, casing, tubing and rods, surface leases, rights-of-way, easements and
servitudes together with all additions, substitutions, replacements, accessions
and attachments to any and all of the foregoing.
"Other Taxes" shall have the meaning assigned such term in Section
4.06(b).
"Overadvance" shall mean the amount, if any, by which the Revolving
Facility Usage exceeds the lesser of (a) the Borrowing Base, or (b) the Maximum
Credit Amount.
"Pay-Off Letter" shall mean a letter, in form and substance reasonably
satisfactory to Agents, from ECT respecting the amount necessary to repay in
full all of the obligations of Borrower owing to ECT related to the ECT
Subordinated Debt, the termination of the ECT Subordinated Debt credit facility
by ECT, and the agreement by ECT to provide the Agents with duly executed
terminations or releases of all Liens existing in favor of ECT in and to the
properties or assets of QSRD, Borrower, or any other Subsidiary of QSRD.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions.
"Percentage Share" shall mean the percentage of the Aggregate
Commitments to be provided by a Lender under this Agreement as indicated on
Schedule C-1 hereto, as modified from time to time to reflect any assignments
permitted by Section 12.06(b) or amendments to this Agreement.
"Permitted Acquisition" shall mean an Acquisition to be consummated by
the Borrower if each of the following conditions shall have been satisfied:
(A) after giving effect to the payment of the cash
portion of the purchase price of such Acquisition, there shall be
Excess Availability of not less than $10,000,000;
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(B) the Borrower shall have furnished to the Lender
Group at least 10 Business Days prior to the consummation of such
Acquisition (1) an executed term sheet and/or commitment letter
(setting forth in reasonable detail the terms and conditions of such
Acquisition) and, at the request of Administrative Agent or Collateral
Agent, such other information and documents that Administrative Agent
or Collateral Agent may reasonably request, including, without
limitation, executed counterparts of the respective agreements,
documents or instruments pursuant to which such Acquisition is to be
consummated (including, without limitation, any related management,
non-compete, employment, option or other material agreements), any
schedules to such agreements, documents or instruments and all other
material ancillary agreements, instruments and documents to be executed
or delivered in connection therewith, (2) pro forma financial
statements (for the 12 month period ending as of the last day of the
month preceding the date of such Acquisition) of QSRD and its
Subsidiaries giving effect to the consummation of such Acquisition, (3)
a certificate of a Responsible Officer of the Borrower demonstrating on
a pro forma basis (for the 12 month period ending as of the last day of
the month preceding the date of such Acquisition) compliance with all
covenants set forth in Section 9.12 after the consummation of such
Acquisition, and (4) copies of such other agreements, instruments and
other documents (including, without limitation, the Loan Documents
required by Section 8.05) as Collateral Agent shall reasonably request;
(C) the agreements, instruments and other documents
referred to in paragraph (B) above shall provide that (1) neither any
Obligor nor any of its Subsidiaries shall, in connection with such
Acquisition, assume or remain liable in respect of any Debt of the
Seller or Sellers (nor shall any Person that is the subject of an
Acquisition remain obligated with respect to such Debt) (except for
obligations incurred in the ordinary course of business in operating
the property so acquired and necessary and desirable to the continued
operation of such property and except for Debt that the Lender Group
otherwise expressly consents to in writing (in its sole discretion)
after its review of the terms of the proposed Acquisition), and (2) all
property to be so acquired in connection with such Acquisition shall be
free and clear of any and all Liens, except for Permitted Liens (and,
if any such property is subject to any Lien not permitted by this
clause (2) then, concurrently with such Acquisition such Lien shall be
released);
(D) the Person or property to be acquired as a result
of such Acquisition shall be engaged in the same business as the
Borrower and any Person to be acquired shall be a direct wholly-owned
Subsidiary of the Borrower;
(E) such Acquisition shall be effected in such a
manner so that the acquired Stock or property are owned either by the
Borrower or a wholly-owned Subsidiary of the Borrower and, if effected
by merger involving the Borrower, the Borrower shall be the surviving
Person;
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(F) any such acquired Person shall execute and
deliver the agreements, instruments and other documents required by
Section 8.05; and
(G) the Majority Lenders, Administrative Agent, and
Collateral Agent shall have consented (in their sole discretion) to the
Acquisition; provided, however, in the event that the proposed
Acquisition involves only the direct acquisition of Oil and Gas
Properties and the consideration paid or payable for the proposed
Acquisition, or series of related transactions, is less than
$2,000,000, and the aggregate consideration paid or payable with
respect to all Acquisitions made by Borrower without the consent of the
Majority Lenders, Administrative Agent and Collateral Agent during the
12 month period ending as of the last day of the month during which
such Acquisition is to occur has not exceeded or would not exceed,
after giving effect to such Acquisition, $10,000,000, the consent of
Majority Lenders, Administrative Agent, and Collateral Agent shall not
be required.
"Permitted Holders" shall mean each of JEDI or Enron Corp. or its
Affiliates or the controlling persons thereof.
"Permitted Preferred Stock" shall mean, collectively, (a) the Existing
Preferred Stock, and (b) any other Preferred Stock issued by QSRD that is not
Prohibited Preferred Stock.
"Person" shall mean any individual, corporation, limited liability
company, voluntary association, partnership, joint venture, trust,
unincorporated organization or government or any agency, instrumentality or
political subdivision thereof, or any other form of entity.
"Plan" shall mean any employee pension benefit plan, as defined in
Section 3(2) of ERISA, which (i) is currently or hereafter sponsored, maintained
or contributed to by QSRD or any of its Subsidiaries or an ERISA Affiliate or
(ii) was at any time during the preceding six calendar years sponsored,
maintained or contributed to, by QSRD or any of its ERISA Affiliates.
"Pledge Agreement" shall mean a Pledge Agreement, dated as of the
Closing Date, made by the Obligors in favor of Collateral Agent for the benefit
of the Lender Group, in form and substance satisfactory to Collateral Agent.
"Post-Default Rate" shall mean a rate per annum, equal to the sum of
(a) 3.00% per annum, (b) the Applicable Margin, and (c) the Base Rate, but in no
event to exceed the Highest Lawful Rate.
"Preferred Stock" shall mean, with respect to any Person, any class or
series of Stock of such Person that is entitled, upon distribution of assets of
such Person, whether by dividend or liquidation, to a preference over another
class or series of Stock of such Person.
"Principal Properties" shall mean those Oil and Gas Properties listed
on Schedule P-1, as such Schedule may be revised from time to time by the
Administrative Agent to include
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significant Oil and Gas Properties included in the Borrowing Base through
Acquisitions by the Borrower.
"Prohibited Preferred Stock" shall mean (a) any Preferred Stock of any
Obligor (other than QSRD), and (b) any Preferred Stock of QSRD (other than
Existing Preferred Stock) the terms and conditions of issuance, and rights and
preferences, of which are not approved in writing by the Majority Lenders in
their sole discretion, including any Preferred Stock of an Obligor that by its
terms is mandatorily redeemable or subject to any other payment obligation
(including any obligation to pay dividends, other than dividends of Preferred
Stock of the same class and series payable in kind or dividends of common stock)
on or before a date not earlier than 1 year after the Maturity Date or, on or
before a date not earlier than 1 year after the Maturity Date, is redeemable at
the option of the holder thereof for cash (or assets or securities other than
distributions in kind of Preferred Stock of the same class and series or of
common stock).
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Proved Developed Non-Producing Reserves" shall mean those Oil and Gas
Properties designated as "proved developed non-producing" (in accordance with
the Definitions for Oil and Gas Reserves approved by the Board of Directors of
the Society for Petroleum Engineers, Inc. from time to time) in the Reserve
Report and used in establishing the Borrowing Base.
"Proved Developed Producing Reserves" shall mean those Oil and Gas
Properties designated as "proved developed producing" (in accordance with the
Definitions for Oil and Gas Reserves approved by the Board of Directors of the
Society for Petroleum Engineers, Inc. from time to time) in the Reserve Report
and used in establishing the Borrowing Base.
"Proved Reserves" shall mean those Oil and Gas Properties designated as
"proved" (in accordance with the Definitions for Oil and Gas Reserves approved
by the Board of Directors of the Society for Petroleum Engineers, Inc. from time
to time) in the Reserve Report and used in establishing the Borrowing Base.
"Proved Undeveloped Reserves" shall mean those Oil and Gas Properties
designated as "proved undeveloped" (in accordance with the Definitions for Oil
and Gas Reserves approved by the Board of Directors of the Society for Petroleum
Engineers, Inc. from time to time) in the Reserve Report and used in
establishing the Borrowing Base.
"Purchase Agreement" shall mean that certain Assignment and Acceptance,
dated as of the Closing Date, executed and delivered among each of the Prior
Lenders and each of the Lenders relative to the assignment and delegation by the
Prior Lenders and the acceptance and assumption by the Lenders of the rights and
duties of the Prior Lenders under the Prior Credit Agreement.
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"Purchase and Sale Agreement" shall mean that certain Purchase and Sale
Agreement dated as of March 19, 1998 among Morgan Guaranty Trust Company of New
York, as Trustee, Investment Royalty Corporation and Milam Royalty Corporation,
as sellers, and the Borrower, as purchaser.
"PV-10 Value" shall mean the future net revenues before income taxes
from Proved Reserves, estimated utilizing the NYMEX Swap Price for the
appropriate category of oil or gas as of the date of determination of PV-10
Value, as such price is further increased or decreased, as applicable, adjusted
by the appropriate "Basis Differential" with respect to Hydrocarbons produced
from specific Oil and Gas Properties of the Borrower as set forth on Exhibit
PV-1, as such Exhibit may from time to time be amended at the request of the
Borrower with the consent of the Agents, which consent shall not be unreasonably
withheld, conditioned or delayed, and assuming that oil and natural gas prices
and production costs thereafter remain constant, then discounted at the rate of
10% per year to obtain the present value, and otherwise applying the financial
accounting and reporting standards prescribed by the SEC for application of the
full cost method of accounting under Rule 4-10 of Regulation S-X as promulgated
by the SEC from time to time.
"Quarterly Dates" shall mean the last day of each March, June,
September and December, in each year, the first of which shall be December 31,
1999; provided, however, that if any such day is not a Business Day, such
Quarterly Date shall be the next succeeding Business Day.
"QSR Canada" shall mean Queen Sand Resources (Canada), Inc., an
Ontario, Canada corporation.
"Rating Agencies" has the meaning specified therefor in Section 2.10.
"Reference Bank" shall mean Wells Fargo Bank, National Association and
its successors or any other commercial bank designated by written notice from
the Collateral Agent to Borrower from time to time.
"Reference Rate" shall mean the rate of interest publicly announced by
the Reference Bank from time to time as its prime rate or base rate. The prime
rate or base rate is determined from time to time by the Reference Bank as a
means of pricing some loans to its borrowers and neither is tied to any external
rate of interest or index nor necessarily reflects the lowest rate of interest
actually charged by the Reference Bank to any particular class or category of
customers. Each change in the Reference Rate shall be effective from and
including the date such change is publicly announced as being effective.
"Re-determination Date" shall have the meaning assigned such term in
Section 2.08(a).
"Registered Loan" has the meaning specified therefor in Section 2.09.
"Registered Note" has the meaning specified therefor in Section 2.09.
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"Required Lenders" shall mean with respect to any re-determination of
the Borrowing Base: (i) all of the Lenders in the case of any increase in the
Borrowing Base, and (ii) the Majority Lenders in all other cases.
"Required Payment" shall have the meaning assigned such term in Section
4.04.
"Reserve Report" shall mean a report, in form and substance
satisfactory to the Agents, setting forth, as of each June 30 or December 31, as
applicable (or such other date in the event of an unscheduled re-determination):
(i) for the December 31st Reserve Report, the volumetric quantity and the PV-10
Value, and for the June 30th Reserve Report, the volumetric quantity and both
the PV-10 Value and the SEC Value, of the oil and gas reserves attributable to
the Oil and Gas Properties to compose the Borrowing Base together with a
projection of the rate of production and future net income, taxes, operating
expenses and capital expenditures with respect thereto as of such date, and (ii)
such other information as the Agents may reasonably request.
"Resignation and Appointment Letter" shall mean that certain Agreement,
dated as of the Closing Date, executed and delivered to the Prior Agent and the
Agents in connection with the transactions contemplated by the Purchase
Agreements.
"Responsible Officer" shall mean, as to any Person, the Chief Executive
Officer, the President or any Vice President of such Person and, with respect to
financial matters, the term "Responsible Officer" shall include the Chief
Financial Officer or Vice President-Finance of such Person. Unless otherwise
specified, all references to a Responsible Officer herein shall mean a
Responsible Officer of QSRD or the Borrower, as applicable.
"Revolving Credit Period" shall mean the period commencing on the
Closing Date and ending on the Revolving Credit Termination Date.
"Revolving Credit Termination Date" shall mean, unless the Commitments
are sooner terminated pursuant to Sections 2.03(b) or 10.02 hereof, the Business
Day immediately prior to the Maturity Date.
"Revolving Facility Usage" shall mean, as of any date of determination,
the sum of (a) the aggregate amount of Loans outstanding, plus (b) the Letter of
Credit Usage.
"Risk Management Agreements" shall mean any commodity, interest rate or
currency swap, rate cap, rate floor, rate collar, forward agreement or other
exchange, price or rate protection agreements or any option with respect to any
such transaction.
"Scheduled Re-determination Date" shall have the meaning assigned such
term in Section 2.08(d).
"SEC" shall mean the Securities and Exchange Commission or any
successor Governmental Authority.
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"SEC Value" shall mean the future net revenues before income taxes from
Proved Reserves, estimated utilizing the spot price for the appropriate category
of oil or gas as of the date of determination and assuming that oil and natural
gas prices and production costs thereafter remain constant, then discounted at
the rate of 10% per year to obtain the present value, and otherwise applying the
financial accounting and reporting standards prescribed by the SEC for
application of the full cost method of accounting under Rule 4-10 of Regulation
S-X as promulgated by the SEC from time to time.
"Securities Account" shall mean a "securities account" as that term is
defined in Section 8-501 of the New York Uniform Commercial Code.
"Securitization" has the meaning specified therefor in Section 2.11.
"Securitization Party" has the meaning specified therefor in Section
2.11.
"Security Agreement" shall mean a Security Agreement, dated as of the
Closing Date, between each of the Obligors, as debtors, and Collateral Agent,
for the benefit of the Lender Group, in form and substance satisfactory to
Collateral Agent.
"Security Instruments" shall mean the Letters of Credit, the Letter of
Credit Agreements, the Pledge Agreement, the Security Agreement, and all of the
agreements or instruments described or referred to in Schedule S-1, and any and
all other agreements or instruments now or hereafter executed and delivered by
QSRD, the Borrower, any Obligor or any other Person (other than Assignments,
participation or similar agreements between any Lender and any other lender or
creditor with respect to any Indebtedness pursuant to this Agreement) in
connection with, or as security for the payment or performance of the
Indebtedness or this Agreement, as such agreements may be amended, supplemented
or restated from time to time.
"Seller" shall mean any Person that sells Stock or other property to
the Borrower or a Subsidiary of the Borrower in a Permitted Acquisition.
"Senior Indenture" shall mean the Indenture, dated as of July 1, 1998,
among QSRD, as issuer, the Borrower, Queen Sand Operating Co. (formerly known as
Northland Operating Co.), a Nevada corporation, and Corrida Resources, Inc., a
Nevada corporation, as initial subsidiary guarantors, and Harris Trust & Savings
Bank, as trustee, pursuant to which the Senior Notes were issued, as modified,
amended or replaced from time to time in a manner permitted by this Agreement.
"Senior Indenture Indebtedness" shall mean the Senior Notes, the
guarantees thereof and any other Indebtedness of any Obligor under the Senior
Indenture, together with any refinancings thereof permitted by the terms of
Section 9.22(a).
"Senior Note Documents" shall mean the collective reference to the
Senior Notes, the Senior Indenture, the Senior Note Offering Memorandum and each
agreement, instrument
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and document delivered in connection therewith or relating thereto, as modified,
amended or replaced from time to time in a manner permitted by this Agreement.
"Senior Notes" shall mean the 12-1/2 % $125,000,000 Senior Notes due
2008 of QSRD issued pursuant to the Senior Indenture, as modified, amended or
replaced from time to time in a manner permitted by this Agreement.
"Side Letter" shall mean a Side Letter Agreement, dated as of the
Closing Date, between and among QSRD, the Borrower, and each of the Lenders, the
form and substance of which is satisfactory to the Lenders.
"Standard & Poor's" shall mean Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc., and any successor thereto.
"Stock" shall mean all shares, options, warrants, interests,
participations, or other equivalents (regardless of how designated) of or in a
corporation, a limited liability company, or equivalent entity, whether voting
or nonvoting, including common stock, preferred stock, or any other "equity
security" (as such term is defined in Rule 3a11-1 of the General Rules and
Regulations promulgated by the SEC under the Exchange Act).
"Subordinated Debt" shall mean the DEM Subordinated Debt; provided that
the characterization of any such Debt as "Subordinated Debt" for purposes of
this Agreement and the Loan Documents shall not affect the characterization of
such Debt for purposes of any other agreement or instrument or as between the
holders of any such Debt and others; the concept herein expressed being that for
purposes of this Agreement and the Loan Documents, the parties hereto expect all
such Debt to be junior and subordinated to the Indebtedness either contractually
or by virtue of junior Lien positions, but only to the extent such Debt is
expressly contractually subordinated or junior by operation of law.
"Subsidiary" shall mean, for any Person, any Person of which at least a
majority of the outstanding shares of stock or other equity interests having by
the terms thereof ordinary voting power to elect a majority of the board of
directors or manager of such Person (irrespective of whether or not at the time
stock or other interests of any other class or classes of such Person shall have
or might have voting power by reason of the happening of any contingency) is at
the time directly or indirectly owned or controlled by such Person or one or
more of its Subsidiaries or by such Person and one or more of its Subsidiaries.
Unless otherwise indicated, a reference to a Subsidiary in any Loan Document is
to a Subsidiary of QSRD.
"Subsidiary Guarantor" shall mean each of Queen Sand Operating Co.
(formerly known as Northland Operating Co.), a Nevada corporation, Corrida
Resources, Inc., a Nevada corporation, and all future Subsidiaries of QSRD
executing and delivering a guarantee under Section 9.17 other than the Borrower
and the Non-Recourse Subsidiaries.
"Taxes" shall have the meaning assigned such term in Section 4.06(a).
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"Termination Agreement" shall mean that certain Termination Agreement,
dated as of the Closing Date, between ECT, QSRD, Borrower, Queen Sand Operating
Co. (formerly known as Northland Operating Co.), a Nevada corporation, and
Corrida Resources, Inc., a Nevada corporation
"Transfer Order Letters" shall mean transfer order letters in the form
of Exhibit T-1 attached hereto containing the information as provided for
therein.
"Triggering Event" shall mean the occurrence of one or more of the
following: (a) a Default or an Event of Default, or (b) Borrower shall have had
Excess Availability of less than $5,000,000, or (c) a Material Adverse Effect.
Section 1.03. Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
determinations with respect to accounting matters hereunder shall be made, and
all financial statements and certificates and reports as to financial matters
required to be furnished to the Agents or the Lenders hereunder shall be
prepared, in accordance with GAAP, applied on a basis consistent with the
Financial Statements (except for changes concurred with by QSRD's independent
certified public accountants). Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter forms. The words
"include", "includes" and "including" shall be deemed to be followed by the
phrase "without limitation". The word "will" shall be construed to have the same
meaning and effect as the word "shall". Unless the context requires otherwise,
(a) any definition of or reference to any agreement, instrument or other
document herein shall be construed as referring to such agreement, instrument or
other document as from time to time amended, supplemented or otherwise modified
(subject to any restrictions on such amendments, supplements or modifications
set forth herein), (b) any reference herein to any Person shall be construed to
include such Person's successors and assigns, (c) the words "herein", "hereof'"
and "hereunder", and words of similar import, shall be construed to refer to
this Agreement in its entirety and not to any particular provision hereof, (d)
all references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules to,
this Agreement and (e) the words "asset" and "property" shall be construed to
have the same meaning and effect and to refer to any and all tangible and
intangible assets and properties, including cash, securities, accounts and
contract rights.
ARTICLE II
COMMITMENTS
Section 2.01. Loans.
(a) Loans. Each Lender severally agrees, on the terms of this
Agreement, to make Loans to the Borrower during the Revolving Credit Period in
an aggregate principal amount at any one time outstanding up to but not
exceeding the amount of such Lender's Commitment as then in effect; provided,
however, that the sum of (i) the aggregate principal
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amount of all Loans by all Lenders hereunder at any one time outstanding plus
(ii) the Letter of Credit Usage shall not exceed the Aggregate Commitments.
Subject to the terms of this Agreement, during the Revolving Credit Period, the
Borrower may borrow, repay and reborrow the amount described in this Section
2.01(a).
(b) Letters of Credit. During the Revolving Credit Period, the
Administrative Agent, as issuer for the Lenders, agrees to extend credit for the
account of the Borrower at any time and from time to time by issuing renewing,
extending or reissuing Letters of Credit; provided however, the Letter of Credit
Usage at any one time outstanding shall not exceed the lesser of (i) the LC
Commitment or (ii) the Aggregate Commitments, as then in effect, minus the
aggregate principal amount of all Loans then outstanding. Each Lender shall
participate in such Letters of Credit according to its Percentage Share.
(c) [intentionally omitted].
(d) Loans under Prior Credit Agreement. On the Closing Date:
(i) the Borrower shall pay all accrued and unpaid
commitment fees outstanding under the Prior Credit Agreement for the
account of each Prior Lender under the Prior Credit Agreement;
(ii) each "Base Rate Loan" under the Prior Credit
Agreement shall be deemed to be a Base Rate Loan under this Agreement;
and
(iii) each "Eurodollar Loan" under the Prior Credit
Agreement shall be deemed to be converted into a Base Rate Loan under
this Agreement; and
(iv) the Prior Credit Agreement and the commitments
thereunder shall be superseded by this Agreement and such commitments
shall terminate.
Section 2.02. Borrowings.
(a) Borrowings. The Borrower shall give the Administrative
Agent (which shall promptly notify the Lenders) advance notice as hereinafter
provided of each borrowing hereunder, which shall specify the aggregate amount
of such borrowing, and the date (which shall be a Business Day) of the Loans to
be borrowed.
(b) Minimum Amounts. All Base Rate Loan borrowings shall be in
amounts of at least $1,000,000 or the remaining balance of the Aggregate
Commitments, if less, or any whole multiple of $100,000 in excess thereof.
(c) Notices. All borrowings shall require advance written
notice to the Administrative Agent (which shall promptly notify the Lenders) in
the form of Exhibit 2.02 hereto (or telephonic notice promptly confirmed by such
a written notice), which in each case shall be irrevocable, from the Borrower to
be received by the Administrative Agent
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either (i) not later than 10:00 a.m. (Los Angeles time) at least 5 Business Days
prior to the date of each borrowing, provided that not more than one such
borrowing request shall be made in any period of 7 consecutive days, or (ii) on
such shorter period of prior notice or with greater frequency of requests as to
which the Administrative Agent shall, in its discretion, consent. Without in any
way limiting the Borrower's obligation to confirm in writing any telephonic
notice, the Administrative Agent may act without liability upon the basis of
telephonic notice believed by the Administrative Agent in good faith to be from
the Borrower prior to receipt of written confirmation. In each such case, the
Borrower hereby waives the right to dispute the Administrative Agent's record of
the terms of such telephonic notice except in the case of manifest error, gross
negligence or willful misconduct by the Administrative Agent.
(d) [intentionally omitted].
(e) [intentionally omitted].
(f) Advances. With respect to a funding meeting the prior
notice and frequency conditions set forth in Section 2.02(c)(i), not later than
12:00 p.m. (Los Angeles time) on the date specified for each borrowing
hereunder, each Lender shall make available the amount of the Loan to be made by
it on such date to the Administrative Agent, to the Administrative Agent's
Account in immediately available funds, for the account of the Borrower. The
amounts so received by the Administrative Agent shall, subject to the terms and
conditions of this Agreement, be made available to the Borrower by depositing
the same not later than 1:00 p.m. (Los Angeles time), in immediately available
funds, in the Designated Account. With respect to a funding not meeting the
prior notice and frequency conditions set forth in Section 2.02(c)(i), the
Administrative Agent shall, subject to the terms and conditions of this
Agreement, deposit the amount of the Loan to be made on the date specified for
such borrowing not later than 1:00 p.m. (Los Angeles time), in immediately
available funds, in the Designated Account.
(g) Letters of Credit. The Borrower shall give the
Administrative Agent (which shall promptly notify the Collateral Agent and the
Lenders of such request and advise the Lenders of their Percentage Share of such
Letter of Credit) advance notice to be received by the Agent not later than
12:00 p.m. (Los Angeles time) not less than three (3) Business Days prior
thereto of each request for the issuance, the renewal or extension of a Letter
of Credit hereunder which request shall specify the amount of such Letter of
Credit, the date (which shall be a Business Day) such Letter of Credit is to be
issued, renewed or extended, the duration thereof, the name and address of the
beneficiary thereof, the form of the Letter of Credit and such other information
as the Administrative Agent may reasonably request all of which shall be
reasonably satisfactory to the Administrative Agent. Subject to the terms and
conditions of this Agreement, on the date specified for the issuance, renewal or
extension of a Letter of Credit, the Administrative Agent shall issue such
Letter of Credit to the beneficiary thereof.
In conjunction with the issuance of each Letter of Credit, the Borrower
shall execute a Letter of Credit Agreement. In the event of any conflict between
any provision of a Letter of
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Credit Agreement and this Agreement, QSRD, the Borrower, the Agents and the
Lenders hereby agree that the provisions of this Agreement shall govern.
The Administrative Agent will send to the Borrower, the Collateral
Agent, and each Lender, immediately upon issuance of any Letter of Credit, or an
amendment thereto, a true and complete copy of such Letter of Credit, or such
amendment thereto.
Section 2.03. Changes of Commitments.
(a) The Aggregate Commitments shall at all times be equal to
the lesser of (i) the Aggregate Maximum Credit Amounts, after adjustments
resulting from reductions pursuant to Sections 2.03(b), or (ii) the Borrowing
Base as determined from time to time.
(b) The Borrower shall have the right to terminate or to
reduce the amount of the Aggregate Maximum Credit Amounts at any time or from
time to time upon not less than three (3) Business Days prior notice to the
Administrative Agent (which shall promptly notify the Lenders) of each such
termination or reduction, which notice shall specify the effective date thereof
and the amount of any such reduction (which shall not be less than $5,000,000 or
any whole multiple of $1,000,000 in excess thereof) and shall be irrevocable and
effective only upon receipt by the Administrative Agent.
(c) The Aggregate Maximum Credit Amounts once terminated or
reduced may not be reinstated.
Section 2.04. Fees.
(a) Financial Examination and Appraisal Fees. The Borrower
shall pay to the Administrative Agent, for the sole and separate account of
Administrative Agent: (i) Administrative Agent's customary fee of $750 per day
per examiner, plus Administrative Agent's reasonable out-of-pocket expenses for
each financial analysis and examination (i.e., audits) of the Obligors performed
by personnel employed by Administrative Agent; and (ii) Administrative Agent's
out-of-pocket expenses for each appraisal of the Collateral performed by
personnel employed by Administrative Agent; and (iii) the actual charges paid or
incurred by Administrative Agent if it elects to employ the services of one or
more third Persons to perform such financial analyses and examinations (i.e.,
audits) of the Obligors or to appraise the Collateral.
(b) Fee Letter Fees. Borrower shall pay to the Collateral
Agent the fees set forth in the Fee Letter in accordance with the terms thereof,
and such fees constitute Indebtedness hereunder.
(c) Letter of Credit Fee. Borrower shall pay Administrative
Agent, for the sole and separate account of the Collateral Agent, a fee (in
addition to the charges, commissions, fees, and costs set forth in Section
2.16(d)) equal to 3.0% per annum times the amount of the undrawn Letters of
Credit. Notwithstanding the foregoing, at any time that an Event of Default has
occurred and is continuing and Borrower has not provided cash collateral to the
Administrative Agent pursuant to Section 2.16(e), the Letter of Credit fee
payable by the
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Borrower pursuant to this Section 2.04(c) shall equal to 6.0% per annum times
the amount of the undrawn Letters of Credit. Such fees shall be due and payable
monthly, in arrears, on the first day of each month during the term hereof.
Section 2.05. Several Obligations. The failure of any Lender to make
any Loan to be made by it or to provide disbursements or reimbursements under
Letters of Credit on the date specified therefor shall not relieve any other
Lender of its obligation to make its Loan or provide funds 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 or to provide funds to be provided by such other
Lender.
Section 2.06. Loan Account. The Administrative Agent shall maintain an
account on its books in the name of the Borrower (the "Loan Account") on which
the Borrower will be charged with all Loans made by Administrative Agent or the
Lenders to the Borrower or for the Borrower's account, including, accrued
interest, Lender Group Expenses, and any other Indebtedness. Administrative
Agent shall render monthly statements regarding the Loan Account to the Borrower
(with copies to the Lenders), including principal, interest, fees, and including
an itemization of all charges and expenses constituting Lender Group Expenses
owing, and such statements shall be conclusively presumed to be correct and
accurate and constitute an account stated between the Borrower and the Lender
Group unless, within 30 days after receipt thereof by the Borrower and the
Lenders, the Borrower or any Lender shall deliver to Administrative Agent
written objection thereto describing the error or errors contained in any such
statements. The Borrower hereby authorizes Administrative Agent to, and
Administrative Agent may, from time to time charge the Loan Account with all
Indebtedness (including all Loans as and when advanced and all interest accrued
thereon as and when due and payable hereunder and all Lender Group Expenses as
and when incurred) and any other amount due and payable under any Loan Document
to which the Borrower is a party, whether or not any Event of Default or Default
shall have occurred or be continuing or whether any of the conditions precedent
in Section 6.02 have been satisfied. Any amount charged to the Loan Account
shall be deemed a Loan hereunder made by the Lenders to the Borrower. The
Borrower confirms that any charges which Administrative Agent may so make to the
Loan Account as herein provided will be made as an accommodation to the Borrower
and solely at Administrative Agent's discretion. Whenever any payment to be made
under any such Loan Document shall be stated to be due on a day other than a
Business Day, such payment shall be made on the next succeeding Business Day and
such extension of time shall in such case be included in the computation of
interest or fees, as the case may be, provided that, if any such payment is made
by a charge to the Loan Account, such charge may be made by Administrative Agent
for the benefit of the Lender Group on any day, whether or not a Business Day.
Section 2.07. Prepayments.
(a) Generally. The Borrower may prepay Base Rate Loans upon
written or telephonic notice to the Administrative Agent (which shall promptly
notify the Lenders) on or prior to 11:00 a.m. (Los Angeles time) on the date of
prepayment, which notice, if
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telephonic, shall be immediately confirmed in writing. The notice shall specify
the prepayment date (which shall be a Business Day) and the amount of the
prepayment and shall be irrevocable and effective only upon receipt by the
Administrative Agent, provided that interest on the principal prepaid, accrued
to the prepayment date, shall be paid on the prepayment date. Prepayments shall
be by wire transfer of immediately available federal funds and if received by
the Administrative Agent on a non-Business Day or after 11:00 a.m. (Los Angeles
time) on a Business Day shall be deemed to have been received by the
Administrative Agent as of the opening of business on the immediately following
Business Day.
(b) Following Reduction of Credit Amounts. If, after giving
effect to any termination or reduction of the Aggregate Maximum Credit Amounts
pursuant to Section 2.03(b), the outstanding aggregate principal amount of the
Loans plus the Letter of Credit Usage exceeds the Aggregate Maximum Credit
Amounts, the Borrower shall prepay the Loans on the date of such termination or
reduction in an aggregate principal amount equal to the excess, together with
interest on the principal amount paid accrued to the date of such prepayment.
(c) Following Re-determination. Upon any re-determination or
adjustment of the amount of the Borrowing Base in accordance with Section 2.08
or adjustment in accordance with Sections 8.08(b) or 9.14, if the re-determined
or adjusted Borrowing Base is less than the sum of the aggregate outstanding
principal amount of the Loans plus the Letter of Credit Usage, then the Borrower
shall, within 3 Business Days of such determination or adjustment, prepay the
Loans in an aggregate principal amount equal to such excess, together with
interest on the principal amount paid accrued to the date of such prepayment.
(d) No Premium; Penalty. Prepayments permitted or required
under this Section 2.07 shall be without premium or penalty. Any prepayment may
be reborrowed during the Revolving Credit Period subject to the then effective
Aggregate Commitments.
Section 2.08. Borrowing Base.
(a) The Borrowing Base shall be determined (as to reserve
quantities and price) in accordance with Section 2.08(b) by the Administrative
Agent with the concurrence of the Required Lenders and is subject to
re-determination in accordance with Section 2.08(d). Upon any re-determination
of the Borrowing Base, such re-determination shall remain in effect until the
next successive Re-determination Date. "Re-determination Date" shall mean the
date that the re-determined Borrowing Base becomes effective subject to the
notice requirements specified in Section 2.08(e) both for scheduled
re-determinations and unscheduled re-determinations. So long as any of the
Commitments are in effect or any Loans are outstanding hereunder, this Agreement
shall be governed by the then effective Borrowing Base. During the period from
and after the Closing Date until the first Re-determination Date to occur after
the Closing Date, unless re-determined pursuant to Section 2.08(d) or adjusted
pursuant to Sections 2.08(c), 8.08(b) or 9.14, the amount of the
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Borrowing Base shall be $25,000,000, subject to monthly price adjustment as
provided in Section 2.08(f).
(b) Upon receipt of the reports required by Section 8.07(a)
through (d) and such other reports, data and supplemental information as may
from time to time be reasonably requested by the Agents (the "Engineering
Reports"), the Administrative Agent will calculate a re-determination of the
Borrowing Base. Such calculation will be in accordance with the provisions
contained in the definition of the term "Borrowing Base" in Section 1.02;
provided, however, the effect of any Risk Management Agreements or fixed price
sales contracts with investment grade counterparties, or purchasers shall be
taken into consideration by the Administrative Agent in making such calculation
and the resulting Borrowing Base shall be increased or decreased as the
Administrative Agent shall reasonably determined based upon such consideration.
The Administrative Agent shall notify the Lenders of the new Borrowing Base by
no later than the earlier of (i) 30 days following receipt by the Administrative
Agent of the Engineering Reports or (ii) 10 days prior to the next Scheduled
Re-determination Date, in each case assuming its receipt of the Engineering
Reports in a timely and complete manner.
(c) The Administrative Agent may exclude any Oil and Gas
Property or portion of production therefrom or any income from any other
Property from the Borrowing Base, at any time, because title information is not
reasonably satisfactory or such Property is not Mortgaged Property. Without
limitation of the forgoing, if the Escrow Agreement is terminated and the
Property subject thereof is not vested with the Borrower, then the Borrowing
Base shall be reduced by an amount equal to the value assigned such Property in
the most recently determined Borrowing Base.
(d) So long as any of the Commitments are in effect and until
payment in full of all Loans hereunder, on or around the 15th day of each March
and September, commencing March 15, 2000 (each being a "Scheduled
Re-determination Date"), the amount of the Borrowing Base shall be determined in
accordance with Section 2.08(b). Without limitation of the foregoing, the
Majority Lenders may initiate two (2) unscheduled re-determinations of the
Borrowing Base during any consecutive twelve (12) month period by specifying in
writing to the Borrower, with a copy to the Administrative Agent, the date on
which the Borrower is to furnish a Reserve Report in accordance with Section
8.07(b) and the date on which such re-determination is to occur. The Borrower
may also request two (2) unscheduled re-determinations during any consecutive
twelve (12) month period.
(e) The Administrative Agent shall promptly notify in writing
QSRD, the Borrower and the Lenders of the new Borrowing Base. Any
re-determination of the Borrowing Base shall not be in effect until written
notice is received by the Borrower.
(f) In addition to the re-determination of the Borrowing Base
as provided above, the valuation of the oil and gas reserves set forth in the
most recent Reserve Report shall be adjusted monthly by the Administrative Agent
with the concurrence of the Required Lenders, based upon the monthly pricing
report provided by the Borrower to the Administrative Agent pursuant to Section
8.07(e), such revaluation to be made by the
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Administrative Agent within 5 Business Days of its receipt of each such report,
and the Administrative Agent shall promptly notify in writing QSRD, the Borrower
and the Lenders of the revalued Borrowing Base. Any revaluation of the Borrowing
Base shall not be in effect until written notice is received by the Borrower.
Section 2.09. Registered Notes. The Borrower agrees to record each Loan
on the Register referred to in Section 12.06. Each Loan recorded on the Register
(the "Registered Loan") may not be evidenced by promissory notes other than
Registered Notes. Upon the registration of any Loan, the Borrower agrees, at the
request of any Lender, to execute and deliver to such Lender a promissory note,
in conformity with the terms of this Agreement, in registered form to evidence
such Registered Loan, in form and substance reasonably satisfactory to such
Lender, and registered as provided in Section 12.06(a) (a "Registered Note"),
payable to the order of such Lender and otherwise duly completed. Once recorded
on the Register, the Loan or Loans evidenced by such Registered Note may not be
removed from the Register so long as it remains outstanding, and a Registered
Note may not be exchanged for a promissory note that is not a Registered Note.
Section 2.10. Securitization.
The Borrower hereby acknowledges that the Lenders and any of their
Affiliates may sell or securitize the Loans (a "Securitization") through the
pledge of the Loans as collateral security for loans to such Lenders or their
Affiliates or through the sale of the Loans or the issuance of direct or
indirect interests in the Loans, which loans to such Lenders or their Affiliates
or direct or indirect interests will be rated by Moody's, Standard & Poor's or
one or more other rating agencies (the "Rating Agencies"). The Borrower (and
QSRD, if applicable) shall cooperate reasonably with such Lenders and their
Affiliates to effect the Securitization including, without limitation, by (a)
amending this Agreement and the other Loan Documents, and executing such
additional documents, as reasonably requested by such Lenders, in connection
with the Securitization; provided that (i) any such amendment or additional
documentation does not impose material additional costs on the Obligors, and
(ii) any such amendment or additional documentation does not materially
adversely affect the rights, or materially increase the obligations (including
administrative duties or reporting obligations), of the Obligors under the Loan
Documents or change or affect in a manner adverse to the Borrower the financial
terms of the Loans, (b) providing such information as may be reasonably
requested by such Lenders in connection with the rating of the Loans or the
Securitization, (c) providing in connection with any rating of the Loans, a
certificate (i) agreeing to indemnify such Lenders and any of their Affiliates,
any of the Rating Agencies, or any party providing credit support or otherwise
participating in the Securitization (collectively, the "Securitization Parties")
for any losses, claims, damages or liabilities (the "Liabilities") to which such
Lenders, their Affiliates or such Securitization Parties may become subject
insofar as the Liabilities arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any Loan Document
or in any writing delivered by or on behalf of the Obligors and their respective
Affiliates to the Lender Group in connection with any Loan Document or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary
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in order to make the statements therein, in light of the circumstances under
which they were made, not misleading and such indemnity shall survive any
transfer by such Lenders or their successors or assigns of the Loans and (ii)
agreeing to reimburse such Lenders and any of their Affiliates and other
Securitization Parties for any legal or other expenses reasonably incurred by
such Persons in connection with defending the Liabilities; and (d) providing
such information regarding the Obligors, the Collateral and other property,
assets and business of the Obligors (including appraisals and valuations) as may
be reasonably requested by such Lenders or their successors or assignees.
Section 2.11. Administrative Procedures and Settlement.
(a) Anything contained herein to the contrary notwithstanding,
the becoming due of any amount required to be paid under this Agreement, the Fee
Letter, any Registered Note, or any other Loan Document, whether of principal or
interest or fees or expenses or for any other Indebtedness, shall be deemed
irrevocably to be a request by the Borrower for a Loan on the due date in the
amount required to pay such principal, interest, fee, expense, or other
Indebtedness.
(b) Administrative Agent shall from time to time, but no less
frequently than weekly, notify each Lender of the date such Lender is to fund
its Loans, and the amount to be made available by it. If and to the extent that
a Lender and Administrative Agent so agree, at Administrative Agent's
discretion, the amount to be made available by such Lender on any date may be
netted against any amount owing to such Lender and otherwise payable by
Administrative Agent on account of payments received by it from the Borrower on
such date. The amount to be made available by each Lender on any date (which
date shall be a Business Day) shall be made available by it on such date to
Administrative Agent at the Administrative Agent Account, in immediately
available funds, not later than 12:00 p.m. (Los Angeles time). The obligation of
each Lender to Administrative Agent (as opposed to the Borrower) to fund its
Loans on the date specified by Administrative Agent is absolute and
unconditional and shall not be affected by any circumstance whatsoever,
including (i) any set off, counterclaim, recoupment, defense or other right
which such Lender may have against Administrative Agent, the Borrower or any
other Person for any reason whatsoever, (ii) the financial condition or
prospects of the Borrower, (iii) the failure of any other such Lender to make
funds available to Administrative Agent with respect to its Loans, (iv) the
occurrence or continuation of an Event of Default, whether the same shall occur
before or after Administrative Agent shall have made the Loans, or (v) any other
circumstance, happening or event whatsoever, whether or not similar to any of
the foregoing.
(c) The Borrower and the Lender Group hereby irrevocably
authorize Administrative Agent to disburse the proceeds of each Loan requested,
or deemed to be requested, pursuant to this Agreement as follows: (i) the
proceeds of each Loan requested shall (if Administrative Agent so requires,
subject to receipt by Administrative Agent of funds from the Lenders) be
disbursed by Administrative Agent in lawful money of the United States of
America in immediately available funds, in the case of the initial borrowing, in
accordance with the terms of a written disbursement letter from the Borrower,
and in the
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case of each subsequent borrowing, by wire transfer to the Designated Account or
such other bank account as may be agreed upon in writing by Borrower and
Administrative Agent from time to time, and (ii) the proceeds of each Loan
deemed made pursuant to Section 2.06 hereof shall be charged to the Loan Account
and disbursed by Administrative Agent by way of direct payment of the relevant
interest or other Indebtedness. The Borrower agrees to establish and maintain
the Designated Account with the Designated Account Bank for the purpose of
receiving the proceeds of the Loans requested by Borrower and made by
Administrative Agent or the Lenders hereunder.
(d) The Borrower and the Lender Group hereby irrevocably
authorizes and directs Administrative Agent to charge to the Borrower's Loan
Account hereunder, as a Loan deemed made to the Borrower, a sum sufficient to
pay all interest accrued on the Indebtedness during the immediately preceding
month and to pay all Lender Group Expenses at any time owed by any Obligor to
the Lender Group hereunder or under any of the Loan Documents; provided,
however, that Administrative Agent may, but shall not be required to, so charge
the Borrower's Loan Account during the existence of an Event of Default or if a
Default would result therefrom. Amounts so charged pursuant to this Section
shall be deemed Loans requested by the Borrower pursuant hereto.
(e) (i) Loans and payments will be settled among
Administrative Agent and the Lenders according to such procedures as
Administrative Agent and such Lenders may agree from time to time. These
procedures notwithstanding, each such Lender's obligation to fund its portion of
the Loans shall commence on the date such Loans are made by Administrative
Agent; however, if the Administrative Agent makes a Loan in compliance with
Section 2.02(c)(ii), such Lender's obligation to remit its portion of the Loans
shall occur on that date on which its obligation to remit its portion of the
Loans otherwise would have occurred had the prior notice and frequency
requirements of Section 2.02(c)(i) been satisfied. The foregoing shall not
relieve any Lender of its obligations to fund hereunder, but merely affects the
time within which it is to perform such obligations. Such payments to
Administrative Agent will be made by such Lenders without set-off, counterclaim
or reduction of any kind.
(ii) Subject to subsection (e)(i) above, Administrative
Agent may require the Lenders to settle Loans and payments on a daily basis (or
such lesser frequency as Administrative Agent may determine) (each day of
settlement being a "Settlement Date"). Administrative Agent will advise each
Lender by telephone or telecopy of the amount of each such Lender's Percentage
Share (in accordance with its Commitment) of the Revolving Facility Usage as of
the close of business of the Business Day immediately preceding the Settlement
Date. In the event that payments are necessary to adjust such Lender's actual
Percentage Share (in accordance with its Commitment) of the Revolving Facility
Usage as of any Settlement Date to equal the amount of such Lender's required
Percentage Share (in accordance with its Commitment) of the Revolving Facility
Usage, the party from which such payment is due will pay the other, in same day
funds, by wire transfer to the other's account not later than the applicable
time set forth in subsection (b) above.
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(iii) If any such payment is not made to
Administrative Agent by any such Lender on the Settlement Date applicable
thereto to the extent required by the terms hereof, such Lender shall be a
Defaulting Lender and Administrative Agent shall be entitled to recover for its
account such amount on demand from such Lender together with interest thereon at
the Defaulting Lenders Rate. Administrative Agent shall not be obligated to
transfer to a Defaulting Lender any payments made by Borrower to Administrative
Agent for the Defaulting Lender's benefit on account of its Loans. Any such
amounts payable to a Defaulting Lender shall instead be paid to or retained by
Administrative Agent. Administrative Agent may hold and, in its discretion,
re-lend to Borrower as Loans the amount of any or all such payments received or
retained by it for the account of such Defaulting Lender. Solely for the
purposes of voting or consenting to matters with respect to the Loan Documents
and determining Required Lenders, Defaulting Lender shall be deemed not to be a
"Lender" (in respect of its Loans and Commitment). This section shall remain
effective with respect to such Lender until (x) the Indebtedness under this
Agreement shall have been declared or shall have become immediately due and
payable or (y) the Lenders that are non-Defaulting Lenders and Administrative
Agent shall have waived such Lender's default in writing. The operation of this
section shall not be construed to increase or otherwise affect the Commitments
of any Lender other than such Defaulting Lender, or relieve or excuse the
performance by the Borrower of its duties and obligations hereunder.
Section 2.12. Administrative Agent Advances.
(a) Subject to the limitations set forth in the proviso
contained in this Section 2.12, Administrative Agent hereby is authorized by the
Borrower and the Lenders, from time to time in Administrative Agent's sole
discretion, (i) after the occurrence and during the continuance of a Default, or
(ii) at any time that any of the other applicable conditions precedent set forth
in Section 6.02 have not been satisfied, to make Loans to the Borrower on behalf
of the Lenders that Administrative Agent, in its discretion, deems necessary or
desirable (A) to preserve or protect the Collateral, or any portion thereof, (B)
to enhance the likelihood of repayment of the Indebtedness, or (C) to pay any
other amount chargeable to the Borrower pursuant to the terms of this Agreement,
including Lender Group Expenses and the costs, fees, and expenses described
herein (any of the Loans described in this Section 2.12 being hereinafter
referred to as "Administrative Agent Advances"); provided, however, that at no
time shall the aggregate amount of outstanding Administrative Agent Advances
under this Section 2.12(a) exceed the result of (1) the lesser of (A)
$2,500,000, and (B) 7.5% of the Borrowing Base then in effect, minus (2) the
amount of optional Overadvance Loans made by the Administrative Agent to the
Borrower pursuant to Section 2.13(a).
(b) Administrative Agent Advances shall be repayable on
demand, shall be secured by the Collateral Agent's Liens on the Collateral,
shall constitute Loans and Indebtedness hereunder, shall be allocated between
the Lenders (based upon their respective Percentage Shares), and shall bear
interest at the rate applicable from time to time to the Loans pursuant to
Section 3.02 hereof.
Section 2.13. Optional Overadvances.
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(a) Any contrary provision of this Agreement notwithstanding,
if the condition precedent set forth in Section 6.02(d) will not be satisfied in
respect to a particular Borrowing, the Lenders nonetheless hereby authorize
Administrative Agent and Administrative Agent may, but is not obligated to,
knowingly and intentionally continue to make Loans (on behalf of the Lenders) to
the Borrower such failure of condition notwithstanding, so long as, at any time,
(i) the outstanding Revolving Facility Usage does not exceed the Borrowing Base
by the result of (A) the lesser of (1) $2,500,000, and (2) 7.5% of the Borrowing
Base then in effect, minus (B) the amount of Administrative Agent Advances made
by the Administrative Agent to the Borrower pursuant to Section 2.12(a), and
(ii) the outstanding Revolving Facility Usage (except for and excluding amounts
charged to the Loan Account for interest, fees, or Lender Group Expenses) does
not exceed $50,000,000. The foregoing provisions are for the sole and exclusive
benefit of the Agents and the Lenders and are not intended to benefit the
Obligors in any way. The Loans that are made pursuant to this Section shall be
subject to the same terms and conditions as any other Loan, except that the rate
of interest applicable thereto shall be the Post-Default Rate without regard to
the presence or absence of a Default or Event of Default and the Administrative
Agent may make any such Loan without regard to the 5 Business Day notice
requirement set forth in Section 2.02(c).
(b) In the event Administrative Agent obtains actual knowledge
that the Revolving Facility Usage exceeds the amounts permitted by the preceding
paragraph, regardless of the amount of or reason for such excess, Administrative
Agent shall notify Lenders as soon as practicable (and prior to making any (or
any further) intentional Overadvances (except for and excluding amounts charged
to the Loan Account for interest, fees, or Lender Group Expenses) unless
Administrative Agent determines that prior notice would result in imminent harm
to the Collateral, or its value, and the Lenders thereupon shall, together with
Administrative Agent, jointly determine the terms of arrangements that shall be
implemented with the Borrower intended to reduce, within a reasonable time, the
outstanding principal amount of the Loans to an amount permitted by the
preceding paragraph. In the event any Lender disagrees over the terms of
reduction or repayment of any Overadvance, the terms of reduction or repayment
thereof shall be implemented according to the determination of the Majority
Lenders.
Each Lender shall be obligated to settle with
Administrative Agent as provided in Section 2.12 for the amount of such Lender's
Percentage Share of any unintentional Overadvances by Administrative Agent
reported to such Lender, any intentional Overadvances made as permitted under
this Section, and any Overadvances resulting from the charging to the Loan
Account of interest, fees, or Lender Group Expenses.
Section 2.14. Apportionment, Application, and Reversal of Payments. (i)
Except as otherwise provided with respect to Defaulting Lenders, and subject to
the Administrative Agent reservation of the right, in its sole discretion, to
exclude from any such payment collections that the Administrative Agent
determines may constitute amounts attributable to trust fund taxes or
Hydrocarbon Interests of third persons and subject to any other agreement among
the Lenders regarding the application of payments, aggregate principal and
interest payments shall be apportioned ratably among the Lenders (according to
the unpaid principal balance of the Indebtedness to which such payments relate
held by each individual Lender, but subject to the Fee Split Letter) and
payments of fees and expenses (other than fees
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designated for Administrative Agent's or Collateral Agent's sole and separate
accounts) shall, as applicable, be apportioned ratably among the Lenders (in
accordance with their applicable Percentage Share, but subject to the Fee Split
Letter). All payments on account of the payment of the Indebtedness shall be
remitted to Administrative Agent and all such payments and all proceeds of
Collateral received by any Agent, shall be applied as follows:
first, to pay any fees or Lender Group Expenses then due to
the Agents under the Loan Documents until paid in full,
second, to pay any fees or Lender Group Expenses then due
under the Loan Documents to the Lenders, in respect of their
Percentage Share thereof,
third, ratably to pay interest due in respect of all Loans
until paid in full;
fourth, ratably to pay principal of all Loans until paid in
full;
fifth, to be held by Administrative Agent as cash collateral
in accordance with Section 2.16(e) hereof with respect to
unreimbursed obligations in respect of Letters of Credit;
sixth, if an Event of Default has occurred and is continuing,
to pay any other Indebtedness due to the Agents or any Lender,
on a ratable basis, and
seventh, to Borrower and wired to its Designated Account.
Administrative Agent shall promptly distribute to each Lender, pursuant
to the applicable wire transfer instructions received from each Lender in
writing, such funds as it may be entitled to receive as provided above, subject
to a settlement delay as provided in Section 2.11.
(ii) For purposes of the foregoing,
"paid in full" with respect to interest shall include interest accrued after the
commencement of any Insolvency Proceeding irrespective of whether a claim for
such interest is allowable in such Insolvency Proceeding.
(iii) In the event of a direct
conflict between the priority provisions of this Section 2.14 and other
provisions contained in any other Loan Document, it is the intention of the
parties hereto that both such priority provisions in such documents shall be
read together and construed, to the fullest extent possible, to be in concert
with each other. In the event of any actual, irreconcilable conflict that cannot
be resolved as aforesaid, the terms and provisions of this Section 2.14 shall
control and govern.
Section 2.15. Cash Management.
(a) The Borrower shall (i) establish and maintain lock boxes
("Lockboxes") at one or more banks set forth on Schedule 2.15, and shall request
in writing and otherwise take
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such reasonable steps to ensure that all Account Debtors forward payment
directly to such Lockboxes, and (ii) deposit and cause QSRD and the Subsidiary
Guarantors to deposit or cause to be deposited promptly, and in any event no
later than the first Business Day after the date of receipt thereof, all cash,
checks, drafts or other similar items of payment made in respect of any and all
Collateral (whether or not otherwise delivered to a Lockbox) into bank accounts
in such Obligor's name (each a "Collection Account" and, collectively, the
"Collection Accounts") at banks set forth on Schedule 2.15 (each a "Collection
Account Bank" and, collectively, the "Collection Account Banks"). Each Obligor
shall establish and maintain a concentration account in its name (each a
"Concentration Account" and, collectively, the "Concentration Accounts") at the
bank or banks which shall be designated as the concentration account bank for
each such Obligor on Schedule 2.15 (each a "Concentration Account Bank" and,
collectively, the "Concentration Account Banks"), which banks shall be
satisfactory to the Administrative Agent.
(b) Each Concentration Account Bank, the Designated Account
Bank, and all Collection Account Banks shall establish and maintain tri-party
blocked account agreements with the Administrative Agent and the applicable
Obligor, in form and substance acceptable to the Administrative Agent. Each such
blocked account agreement shall provide, among other things, that (i) all items
of payment deposited in such accounts and proceeds thereof deposited in the
applicable Concentration Account are held by such banks as agent or
bailee-in-possession for the Administrative Agent, (ii) the bank executing such
agreement has no rights of setoff or recoupment or any other claim against such
account, as the case may be, other than for payment of its service fee and other
charges directly related to the administration of such account and for returned
checks or other items of payment, and (iii)(A) with respect to each bank at
which a Collection Account is located, such bank agrees, from and after a
receipt of a notice (an "Activation Notice") from the Administrative Agent
(which Activation Notice may be given by Administrative Agent at any time at
which a Triggering Event shall have occurred and is continuing), to forward
immediately all amounts in each Collection Account to such Obligor's
Concentration Account Bank and to commence the process of daily sweeps from such
Collection Account into the applicable Concentration Account, and (B) with
respect to each Concentration Account Bank, such bank agrees from and after the
receipt of an Activation Notice from Administrative Agent upon the occurrence
and during the continuance of a Triggering Event, to immediately forward all
amounts received in the applicable Concentration Account to the Administrative
Agent's Account; provided, however, that Administrative Agent reserves the
right, in its sole discretion, to require that collections representing amounts
attributable to trust fund taxes or Hydrocarbon Interests of third Persons be
segregated by the Collection Account Banks and held in a separate account, (it
being the intent of the Administrative Agent, to the extent it has sufficient
information to do so, to so segregate trust fund taxes or Hydrocarbon Interests
of third Persons, and avoid the deposit of such funds into the Administrative
Agent's Account). From and after the date Administrative Agent has delivered an
Activation Notice to any bank with respect to any Collection's Account(s), no
Obligor shall, or shall cause or permit any Subsidiary thereof to, accumulate or
maintain cash in disbursement or payroll accounts as of any date of
determination in excess of checks outstanding against such accounts as of that
date and amounts necessary to meet minimum balance requirements.
(c) So long as no Default or Event of Default has occurred and
is continuing, the Obligors may amend Schedule 2.15 to add or replace a
Collection Account Bank, Lockbox or Collection Account or to replace any
Concentration Account or the Designated Account;
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provided, however, that (i) Administrative Agent shall have consented in writing
in advance to the opening of such account or Lockbox with the relevant bank and
(ii) prior to the time of the opening of such account or Lockbox, the applicable
Obligor or the Subsidiaries thereof, as applicable, and such bank shall have
executed and delivered to Administrative Agent a tri-party blocked account
agreement, in form and substance satisfactory to Administrative Agent. The
Obligors shall close any of their accounts (and establish replacement accounts
in accordance with the foregoing sentence) promptly and in any event within 30
days of notice from Agent that the creditworthiness of any bank holding an
account is no longer acceptable in Administrative Agent's reasonable judgment,
or as promptly as practicable and in any event within 60 days of notice from
Administrative Agent that the operating performance, funds transfer or
availability procedures or performance with respect to accounts or lockboxes of
the bank holding such accounts or Administrative Agent's liability under any
tri-party blocked account agreement with such bank is no longer acceptable in
Administrative Agent's reasonable judgment.
(d) The Lockboxes, Collection Accounts, Designated Account and
the Concentration Accounts shall be cash collateral accounts, with all cash,
checks and similar items of payment in such accounts securing payment of the
Loans and all other Indebtedness, and in which each Obligor and each Subsidiary
Guarantor shall have granted a Lien to Administrative Agent pursuant to the
Security Agreement.
(e) Each Obligor shall and shall cause its Affiliates,
officers, employees, agents, directors or other Persons acting for or in concert
with such Obligor (each a "Related Person") to (i) hold in trust for
Administrative Agent all checks, cash and other items of payment received by
Obligor or any such Related Person, and (ii) within one (1) Business day after
receipt by such Obligor or any Related Person of any checks, cash or other items
of payment, deposit the same into an Obligor Account of such Obligor. Each
Obligor and each Related Person thereof acknowledges and agrees that all cash,
checks or items of payment constituting proceeds of Collateral are the property
of Collateral Agent for the benefit of the Lenders. All proceeds of the sale or
other disposition of any Collateral, shall be deposited directly into the
applicable Obligor Account.
Section 2.16. Letter of Credit Subfacility.
(a) Subject to the terms and conditions of this Agreement,
Administrative Agent agrees to issue letters of credit for the account of
Borrower (each, an "L/C") or to issue guarantees of payment, indemnities,
participations and/or undertakings (each such guaranty, indemnity, participation
or undertaking an "L/C Guaranty") with respect to letters of credit issued by an
issuing bank for the account of Borrower. Agent shall have no obligation to
issue a Letter of Credit if any of the following would result:
(i) the aggregate amount of all Letter of Credit Usage
would exceed the Borrowing Base minus the amount of all outstanding
Loans; or
(ii) the aggregate amount of all Letter of Credit Usage
would exceed the Maximum Credit Amount minus the amount of all
outstanding Loans; or
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(iii) the outstanding Indebtedness would exceed the
Maximum Credit Amount; or
(iv) the aggregate amount of all Letters of Credit Usage
would exceed the L/C Commitment.
Borrower expressly understands and agrees that Administrative Agent shall have
no obligation to arrange for the issuance by issuing banks of the letters of
credit that are to be the subject of L/C Guarantees. Borrower and the Lender
Group acknowledge and agree that certain of the letters of credit that are to be
the subject of L/C Guarantees may be outstanding on the Closing Date. Each
Letter of Credit shall have an expiry date no later than as provided in Section
6.03 and all such Letters of Credit shall be in form and substance acceptable to
Administrative Agent in its sole discretion. If the Lender Group is obligated to
advance funds under a Letter of Credit, Borrower immediately shall reimburse
such amount to Administrative Agent and, in the absence of such reimbursement,
the amount so advanced immediately and automatically shall be deemed to be a
Loan hereunder and, thereafter, shall bear interest at the rate then applicable
to such Advances under Section 3.02.
(b) Borrower hereby agrees to indemnify, save, defend, and
hold the Lender Group harmless from any loss, cost, expense, or liability,
including payments made by the Lender Group, expenses, and reasonable attorneys
fees incurred by the Lender Group arising out of or in connection with any
Letter of Credit, other than those resulting from the gross negligence or
willful misconduct of any member of the Lender Group. Borrower agrees to be
bound by the issuing bank's regulations and interpretations of any Letters of
Credit guaranteed by the Lender Group and opened to or for Borrower's account or
by Administrative Agent's interpretations of any L/C issued by the Lender Group
to or for Borrower's account, even though this interpretation may be different
from Borrower's own, and Borrower understands and agrees that the Lender Group
shall not be liable for any error, negligence, or mistake, whether of omission
or commission, in following Borrower's instructions or those contained in the
Letter of Credit or any modifications, amendments, or supplements thereto.
Borrower understands that the L/C Guarantees may require the Lender Group to
indemnify the issuing bank for certain costs or liabilities arising out of
claims by Borrower against such issuing bank. Borrower hereby agrees to
indemnify, save, defend, and hold the Lender Group harmless with respect to any
loss, cost, expense (including reasonable attorneys fees), or liability incurred
by the Lender Group under any L/C Guaranty as a result of the Lender Group's
indemnification of any such issuing bank, other than those resulting from the
gross negligence or willful misconduct of any member of the Lender Group.
(c) Borrower hereby authorizes and directs any bank that
issues a letter of credit guaranteed by the Lender Group to deliver to
Administrative Agent all instruments, documents, and other writings and property
received by the issuing bank pursuant to such letter of credit, and to accept
and rely upon Administrative Agent's instructions and agreements with respect to
all matters arising in connection with such letter of credit and the related
application. Borrower may or may not be the "applicant" or "account party" with
respect to such letter of credit.
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(d) Any and all charges, commissions, fees, and costs incurred
by Administrative Agent relating to the letters of credit guaranteed by the
Lender Group shall be considered Lender Group Expenses for purposes of this
Agreement and immediately shall be reimbursable by Borrower to Administrative
Agent.
(e) Immediately upon the termination of this Agreement,
Borrower agrees to either (i) provide cash collateral to be held by
Administrative Agent in an amount equal to 105% of the maximum amount of the
Lender Group's obligations under outstanding Letters of Credit, or (ii) cause to
be delivered to Administrative Agent releases of all of the Lender Group's
obligations under outstanding Letters of Credit. At Administrative Agent's
discretion, any proceeds of Collateral received by Administrative Agent after
the occurrence and during the continuation of an Event of Default may be held as
the cash collateral required by this Section 2.16(e).
(f) If by reason of (i) any change in any applicable law,
treaty, rule, or regulation or any change in the interpretation or application
by any governmental authority of any such applicable law, treaty, rule, or
regulation, or (ii) compliance by the issuing bank or Administrative Agent with
any direction, request, or requirement (irrespective of whether having the force
of law) of any governmental authority or monetary authority including, without
limitation, Regulation D of the Board of Governors of the Federal Reserve System
as from time to time in effect (and any successor thereto):
(A) any reserve, deposit, or similar
requirement is or shall be imposed or modified in respect of any Letters of
Credit issued hereunder, or
(B) there shall be imposed on any Agent, the
issuing bank, or any member of the Lender Group any other condition regarding
any letter of credit, or Letter of Credit, as applicable, issued pursuant
hereto;
and the result of the foregoing is to increase, directly or indirectly, the cost
to the issuing bank or the Lender Group of issuing, making, guaranteeing, or
maintaining any letter of credit, or Letter of Credit, as applicable, or to
reduce the amount receivable in respect thereof by such issuing bank or the
Lender Group, then, and in any such case, the Lender Group may, at any time
within a reasonable period after the additional cost is incurred or the amount
received is reduced, notify Borrower, and Borrower shall pay on demand such
amounts as the issuing bank or Administrative Agent may specify to be necessary
to compensate the issuing bank or the Lender Group for such additional cost or
reduced receipt, together with interest on such amount from the date of such
demand until payment in full thereof at the rate set forth in Section 3.02(a) or
(b), as applicable. The determination by the issuing bank or Administrative
Agent, as the case may be, of any amount due pursuant to this Section 2.16(f),
as set forth in a certificate setting forth the calculation thereof in
reasonable detail, shall, in the absence of manifest or demonstrable error, be
final and conclusive and binding on all of the parties hereto.
(g) Participations:
(i) Immediately upon issuance of any Letter of Credit in
accordance with this Section 2.16, each Lender shall be deemed to have
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irrevocably and unconditionally purchased and received without recourse
or warranty, an undivided interest and participation in the credit
support or enhancement provided through Administrative Agent to such
issuer in connection with the issuance of such Letter of Credit, equal
to such Lender's Percentage Share of the face amount of such Letter of
Credit (including, without limitation, all obligations of Borrower with
respect thereto, and any security therefor or guaranty pertaining
thereto).
(ii) Upon the request of any Lender, Administrative Agent
shall furnish to such Lender copies of any Letter of Credit,
reimbursement agreements executed in connection therewith, application
for any Letter of Credit and credit support or enhancement provided
through Administrative Agent in connection with the issuance of any
Letter of Credit, and such other documentation as may reasonably be
requested by such Lender.
(iii) The obligations of each Lender to make payments to
Administrative Agent with respect to any Letter of Credit or with
respect to any credit support or enhancement provided through
Administrative Agent with respect to a Letter of Credit, and the
obligations of Borrower to make payments to Administrative Agent, for
the account of the Lenders, shall be irrevocable, not subject to any
qualification or exception whatsoever, including any of the following
circumstances:
(A) any lack of validity or
enforceability of this Agreement or any of the other Loan Documents;
(B) the existence of any claim,
setoff, defense or other right which Borrower may have at any time against a
beneficiary named in a Letter of Credit or any transferee of any Letter of
Credit (or any Person for whom any such transferee may be acting), any Lender,
any Agent, the issuer of such Letter of Credit, or any other Person, whether in
connection with this Agreement, any Letter of Credit, the transactions
contemplated herein or any unrelated transactions (including any underlying
transactions between Borrower or any other Person and the beneficiary named in
any Letter of Credit);
(C) any draft, certificate or any
other document presented under the Letter of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect or any statement therein
being untrue or inaccurate in any respect;
(D) the surrender or impairment of
any security for the performance or observance of any of the terms of any of the
Loan Documents; or
(E) the occurrence of any Default or
Event of Default.
(h) In the event any payment by or on behalf of Borrower
received by Administrative Agent with respect to any Letter of Credit (or any
guaranty by Borrower or reimbursement obligation of Borrower relating thereto)
and distributed by the Administrative Agent to the Lenders on account of their
respective participations therein, is thereafter set aside,
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avoided or recovered from Administrative Agent in connection with any
receivership, liquidation or bankruptcy proceeding, the Lenders shall, upon
demand by Administrative Agent, pay to Administrative Agent their respective
Percentage Shares of such amount set aside, avoided or recovered, together with
interest at the rate required to be paid by Administrative Agent upon the amount
required to be repaid by it.
ARTICLE III
PAYMENTS OF PRINCIPAL AND INTEREST
Section 3.01. Repayment of Loans. The Borrower will pay to the
Administrative Agent, for the account of each Lender, the entire amount of the
Indebtedness on the Maturity Date.
Section 3.02. Interest.
(a) The Borrower will pay to the Administrative Agent, for
account of each Lender, interest on the unpaid principal amount of each Loan
made by such Lender for the period commencing on the date such Loan is made to
but excluding the date such Loan shall be paid in full, at the Base Rate (as in
effect from time to time) plus the Applicable Margin, but in no event to exceed
the Highest Lawful Rate; provided, however, that, so long as no Default has
occurred and is continuing, that portion, if any, of the Applicable Margin in
excess of 2.00% per annum shall, in the absence of an election by the Borrower
to pay such interest in cash, be paid-in-kind by being added to the principal
balance of the Loans; provided further, however, that the Borrower may, on or
prior to the date that is 5 Business Days prior to the due date thereof, elect
to pay all accrued and unpaid interest under this Section 3.02(a) in cash.
(b) Notwithstanding the foregoing, at any time that an Event
of Default has occurred and is continuing, the Borrower will pay to the
Administrative Agent, for the account of each Lender, interest at the applicable
Post-Default Rate on the unpaid principal of each Loan made by such Lender, and
(to the fullest extent permitted by law) on each other amount payable by the
Borrower hereunder or under any other Loan Document to or for account of such
Lender.
(c) Accrued interest on Base Rate Loans shall be payable
monthly, in arrears, on the first day of each month and on the Maturity Date.
ARTICLE IV
PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC.
Section 4.01. Payments. Except to the extent otherwise provided herein,
all payments of principal, interest, Letter of Credit fees, and other amounts to
be made by the Borrower under this Agreement and any other Loan Document shall
be made in Dollars, in immediately available funds, to the Administrative Agent
at the Administrative Agent's
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Account, not later than 10:00 a.m. Los Angeles time on the date on which such
payments shall become due (each such payment made after such time on such due
date to be deemed to have been made on the next succeeding Business Day). Such
payments shall be made without (to the fullest extent permitted by applicable
law) defense, set-off or counterclaim, but shall not constitute a waiver,
release or estoppel with respect to any such defense, set-off or counterclaim.
Each payment to be made to the Administrative Agent under this Agreement or any
other Loan Document for account of a Lender shall be paid promptly by
Administrative Agent to such Lender in immediately available funds.
Section 4.02. Pro Rata Treatment. Except to the extent otherwise
provided herein (or otherwise agreed to between the Lenders), each Lender agrees
that: (i) each borrowing from the Lenders under Section 2.01 shall be made from
each Lender pro rata in accordance with its Percentage Share and each
termination or reduction of the amount of the Aggregate Maximum Credit Amounts
under Section 2.03(b) shall be applied to the Commitment of each Lender, pro
rata in accordance with its Percentage Share; (ii) each payment of principal of
Loans by the Borrower shall be made for account of the Lenders pro rata in
accordance with the respective unpaid principal amount of the Loans held by the
Lenders; (iii) each payment of interest on Loans by the Borrower shall be made
for account of the Lenders pro rata in accordance with the amounts of interest
due and payable to the respective Lenders; and (iv) each reimbursement by the
Borrower of disbursements under Letters of Credit shall be made for account of
the Administrative 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.
Section 4.03. Computations. Interest on Loans shall be computed on the
basis of a year of 360 days and actual days elapsed (including the first day but
excluding the last day) occurring in the period for which such interest is
payable, unless such calculation would exceed the Highest Lawful Rate, in which
case interest shall be calculated on the per annum basis of a year of 365 or 366
days, as the case may be.
Section 4.04. Non-receipt of Funds by the Administrative Agent. Unless
the Administrative Agent shall have been notified by a Lender or the Borrower
prior to the date on which such notifying party is scheduled to make payment to
the Administrative Agent (in the case of a Lender) of the proceeds of a Loan or
a payment under a Letter of Credit to be made by it hereunder or (in the case of
the Borrower) a payment to the Administrative Agent for account of one or more
of the Lenders hereunder (such payment being herein called the "Required
Payment"), which notice shall be effective upon receipt, that it does not intend
to make the Required Payment to the Administrative Agent, the Administrative
Agent may assume that the Required Payment has been made and may, in reliance
upon such assumption (but shall not be required to), make the amount thereof
available to the intended recipient(s) on such date; and, if such Lender or the
Borrower (as the case may be) has not in fact made the Required Payment to the
Administrative Agent, the recipient(s) of such payment shall, on demand, repay
to the Administrative Agent the amount so made available together with interest
thereon in respect of each day during the period commencing on the date such
amount was so made available by the Administrative Agent until but excluding the
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date the Administrative Agent recovers such amount at a rate per annum which,
for any Lender as recipient, will be equal to the Federal Funds Rate, and for
the Borrower as recipient, will be equal to the Base Rate plus the Applicable
Margin.
Section 4.05. Set-off- Sharing of Payments, Etc.
(a) The Borrower agrees that, in addition to (and without
limitation of) any right of set-off, bankers' lien or counterclaim a Lender may
otherwise have, after the occurrence and during the continuation of a Default,
each Lender shall have the right and be entitled (after consultation with the
Collateral Agent), at its option, to offset balances held by it or by any of its
Affiliates for account of any Obligor at any of its offices, in Dollars or in
any other currency, against any principal of or interest on any of such Lender's
Loans, or any other amount payable to such Lender hereunder, which is not paid
when due (regardless of whether such balances are then due to such Obligor), in
which case it shall promptly notify such Obligor and the Collateral Agent
thereof, provided that such Lender's failure to give such notice shall not
affect the validity thereof.
(b) If any Lender shall obtain payment of any principal of or
interest on any Loan made by it to any Obligor under this Agreement or any other
Loan Document through the exercise of any right of set-off, banker's lien or
counterclaim or similar right or otherwise, and, as a result of such payment,
such Lender shall have received a greater percentage of the principal or
interest then due hereunder by the Borrower to such Lender than the percentage
received by any other Lenders, it shall promptly (i) notify the Administrative
Agent and each other Lender thereof and (ii) purchase from such other Lenders
participations in (or, if and to the extent specified by such Lender, direct
interests in) the Loans made by such other Lenders (or in interest due thereon,
as the case may be) in such amounts, and make such other adjustments from time
to time as shall be equitable, to the end that all the Lenders shall share the
benefit of such excess payment (net of any expenses which may be incurred by
such Lender in obtaining, or preserving such excess payment) pro rata in
accordance with the unpaid principal and/or interest on the Loans held by each
of the Lenders. To such end all the Lenders shall make appropriate adjustments
among themselves (by the resale of participations sold or otherwise) if such
payment is rescinded or must otherwise be restored. QSRD and the Borrower agree
that any Lender so purchasing a participation (or direct interest) in the Loans
made by other Lenders (or in interest due thereon, as the case may be) may
exercise all rights of set-off, banker's lien, counterclaim or similar rights
with respect to such participation as fully as if such Lender were a direct
holder of Loans in the amount of such participation. Nothing contained herein
shall require any Lender to exercise any such right or shall affect the right of
any Lender to exercise, and retain the benefits of exercising, any such right
with respect to any other indebtedness or obligation of such Obligor. If under
any applicable bankruptcy, insolvency or other similar law, any Lender receives
a secured claim in lieu of a set-off to which this Section 4.05 applies, such
Lender shall, to the extent practicable, exercise its rights in respect of such
secured claim in a manner consistent with the rights of the Lenders entitled
under this Section 4.05 to share the benefits of any recovery on such secured
claim.
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Section 4.06. Taxes.
(a) Payments Free and Clear. Any and all payments by any
Obligor hereunder or under any other Loan Document shall be made, in accordance
with Section 4.01, free and clear of and without deduction for any and all
present or future taxes, levies, imposts, deductions, charges or withholdings,
and all liabilities with respect thereto, excluding, in the case of each Lender
and the Agents, taxes imposed on its income, and franchise or similar taxes
imposed on it, by (i) any jurisdiction (or political subdivision thereof) of
which the Agents or such Lender, as the case may be, is a citizen or resident
(ii) the jurisdiction (or any political subdivision thereof) in which the Agents
or such Lender is organized, or (iii) any jurisdiction (or political subdivision
thereof) in which such Lender or the Agents is presently doing business which
taxes are imposed solely as a result of doing business in such jurisdiction (all
such non-excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes"). If such Obligor shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder to the Lenders or the Agents: (i) the sum payable shall be increased
by the amount necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section 4.06) such
Lender or the Agents (as the case may be) shall receive an amount equal to the
sum it would have received had no such deductions been made, (ii) such Obligor
shall make such deductions and (iii) such Obligor shall pay the full amount
deducted to the relevant taxing authority or other Governmental Authority in
accordance with applicable law.
(b) Other Taxes. In addition, to the fullest extent permitted
by applicable law, the Borrower agrees to pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies that arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement, any
Assignment or any other Loan Document (hereinafter referred to as "Other
Taxes").
(c) INDEMNIFICATION. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, THE BORROWER WILL INDEMNIFY EACH LENDER AND THE AGENTS FOR THE
FULL AMOUNT OF TAXES AND OTHER TAXES (INCLUDING, BUT NOT LIMITED TO, ANY TAXES
OR OTHER TAXES IMPOSED BY ANY GOVERNMENTAL AUTHORITY ON AMOUNTS PAYABLE UNDER
THIS SECTION 4.06) PAID BY SUCH LENDER OR THE AGENTS (ON THEIR BEHALF OR ON
BEHALF OF ANY LENDER), AS THE CASE MAY BE, AND ANY LIABILITY (INCLUDING
PENALTIES, INTEREST AND EXPENSES) ARISING THEREFROM OR WITH RESPECT THERETO,
WHETHER OR NOT SUCH TAXES OR OTHER TAXES WERE CORRECTLY OR LEGALLY ASSERTED
UNLESS THE PAYMENT OF SUCH TAXES WAS NOT CORRECTLY OR LEGALLY ASSERTED AND SUCH
LENDER'S PAYMENT OF SUCH TAXES OR OTHER TAXES WAS THE RESULT OF ITS GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT. ANY PAYMENT PURSUANT TO SUCH INDEMNIFICATION
SHALL BE MADE WITHIN THIRTY ~30) DAYS
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AFTER THE DATE ANY LENDER OR THE AGENTS, AS THE CASE MAY BE, MAKES WRITTEN
DEMAND THEREFOR. IF ANY LENDER OR THE AGENTS RECEIVES A REFUND OR CREDIT IN
RESPECT OF ANY TAXES OR OTHER TAXES FOR WHICH SUCH LENDER OR THE AGENTS HAS
RECEIVED PAYMENT FROM THE BORROWER IT SHALL PROMPTLY NOTIFY THE BORROWER OF SUCH
REFUND OR CREDIT AND SHALL, IF NO DEFAULT HAS OCCURRED AND IS CONTINUING, WITHIN
THIRTY (30) DAYS AFTER RECEIPT OF A REQUEST BY THE BORROWER (OR PROMPTLY UPON
RECEIPT, IF THE BORROWER HAS REQUESTED APPLICATION FOR SUCH REFUND OR CREDIT
PURSUANT HERETO), PAY AN AMOUNT EQUAL TO SUCH REFUND OR CREDIT TO THE BORROWER
WITHOUT INTEREST (BUT WITH ANY INTEREST SO REFUNDED OR CREDITED), PROVIDED THAT
THE BORROWER, UPON THE REQUEST OF SUCH LENDER OR THE AGENTS, AGREES TO RETURN
SUCH REFUND OR CREDIT (PLUS PENALTIES, INTEREST OR OTHER CHARGES) TO SUCH LENDER
OR THE AGENTS IN THE EVENT SUCH LENDER OR THE AGENTS ARE REQUIRED TO REPAY SUCH
REFUND OR CREDIT.
(d) Lender Representations.
(i) Each Lender represents that it is either (i) organized
under the laws of the United States of America or any state thereof or
(ii) it is entitled to complete exemption from United States
withholding tax imposed on or with respect to any payments, including
fees, to be made to it pursuant to this Agreement and the other Loan
Documents (A) under an applicable provision of a tax convention to
which the United States of America is a party or (B) because it is
acting through a branch, agency or office in the United States of
America and any payment to be received by it hereunder is effectively
connected with a trade or business in the United States of America.
Each Lender that is not a corporation organized under the laws of the
United States of America or any state thereof agrees to provide to the
Borrower and the Administrative Agent on the Closing Date, or on the
date of its delivery of the Assignment pursuant to which it becomes a
Lender, and at such other times as required by United States law or as
the Borrower or the Administrative Agent shall reasonably request, two
accurate and complete original signed copies of either (A) Internal
Revenue Service Form 4224 (or successor form) certifying that all
payments to be made to it hereunder will be effectively connected to a
United States trade or business (the "Form 4224 Certification") or (B)
Internal Revenue Service Form 1001 (or successor form) certifying that
it is entitled to the benefit of a provision of a tax convention to
which the United States of America is a party which completely exempts
from United States withholding tax all payments to be made to it
hereunder (the "Form 1001 Certification"). In addition, each Lender
agrees that if it previously filed a Form 4224 Certification, it will
deliver to the Borrower and the Administrative Agent a new Form 4224
Certification prior to the first
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payment date occurring in each of its subsequent taxable years; and if
it previously filed a Form 1001 Certification, it will deliver to the
Borrower and the Administrative Agent a new certification prior to the
first payment date falling in the third year following the previous
filing of such certification. Each Lender also agrees to deliver to the
Borrower and the Administrative Agent such other or supplemental forms
as may at any time be required as a result of changes in applicable law
or regulation in order to confirm or maintain in effect its entitlement
to exemption from United States withholding tax on any payments
hereunder, provided that the circumstances of such Lender at the
relevant time and applicable laws permit it to do so. If a Lender
determines, as a result of any change in either (i) a Governmental
Requirement or (ii) its circumstances, that it is unable to submit any
form or certificate that it is obligated to submit pursuant to this
Section 4.06, or that it is required to withdraw or cancel any such
form or certificate previously submitted, it shall promptly notify the
Borrower and the Administrative Agent of such fact. If a Lender is
organized under the laws of a jurisdiction outside the United States of
America, unless the Borrower and the Administrative Agent have received
a Form 1001 Certification or Form 4224 Certification satisfactory to
them indicating that all payments to be made to such Lender hereunder
are not subject to United States withholding tax, the Administrative
Agent (in consultation with the Borrower) shall withhold taxes from
such payments at the applicable statutory rate. Each Lender agrees to
indemnify and hold harmless from any United States taxes, penalties,
interest and other expenses, costs and losses incurred or payable by
(i) the Borrower or the Administrative Agent as a result of such
Lender's failure to submit any form or certificate that it is required
to provide pursuant to this Section 4.06 or (ii) the Borrower or the
Administrative Agent as a result of their reliance on any such form or
certificate which such Lender has provided to them pursuant to this
Section 4.06.
(ii) For any period with respect to which a Lender has
failed to provide the Borrower with the form required pursuant to this
Section 4.06, if any (other than if such failure is due to a change in
a Governmental Requirement occurring subsequent to the date on which a
form originally was required to be provided), such Lender shall not be
entitled to indemnification under Section 4.06 with respect to taxes
imposed by the United States which taxes would not have been imposed
but for such failure to provide such forms; provided, however, that
should a Lender, which is otherwise exempt from or subject to a reduced
rate of withholding tax becomes subject to taxes because of its failure
to deliver a form required hereunder, the Borrower shall take such
steps as such Lender shall reasonably request to assist such Lender to
recover such taxes.
(iii) Any Lender claiming any additional amounts payable
pursuant to this Section 4.06 shall use reasonable efforts (consistent
with legal
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and regulatory restrictions) to file any certificate or document
requested by the Borrower or the Administrative Agent or to change the
jurisdiction of its lending office or to contest any tax imposed if the
making of such a filing or change or contesting such tax would avoid
the need for or reduce the amount of any such additional amounts that
may thereafter accrue and would not, in the sole determination of such
Lender, be otherwise disadvantageous to such Lender.
Section 4.07. Disposition of Proceeds . The Security Instruments
contain an assignment unto and in favor of the Collateral Agent for the benefit
of the Lenders of all production and all proceeds attributable thereto which may
be produced from or allocated to the Mortgaged Property, and the Security
Instruments further provide in general for the application of such proceeds to
the satisfaction of the Indebtedness and other obligations described therein and
secured thereby. Notwithstanding the assignment contained in such Security
Instruments, until the occurrence of an Event of Default, the Lenders agree that
they will neither notify the purchaser or purchasers of such production nor take
any other action to cause such proceeds to be remitted to the Lenders, but the
Lenders will instead permit such proceeds to be paid to QSRD and its
Subsidiaries. In addition, until the occurrence of an Event of Default, the
Lenders will, upon written request of the Borrower given to the Collateral
Agent, execute and deliver, at the Borrower's expense, such transfer orders and
other instruments reasonably necessary to allow payment of production proceeds
directly to QSRD and its Subsidiaries.
ARTICLE V
[INTENTIONALLY OMITTED]
ARTICLE VI
CONDITIONS PRECEDENT AND SUBSEQUENT
Section 6.01. Initial Funding. The obligation of the Lenders to make
the Initial Funding is subject to: (i) the receipt by the Agents of all fees
payable pursuant to Section 2.04 or otherwise payable under this Agreement, and
(ii) the receipt by the Agents of the following documents and satisfaction of
the other conditions provided in this Section 6.01, each of which shall be
satisfactory to the Agents in form and substance:
(a) A certificate of the Secretary or an Assistant Secretary
of the Borrower setting forth (i) resolutions of its board of directors with
respect to the authorization of the Borrower to execute and deliver the Loan
Documents to which it is a party and to enter into the transactions contemplated
in the Loan Documents, (ii) the officers of the Borrower (y) who are authorized
to sign the Loan Documents to which Borrower is a party and (z) who will, until
replaced by another officer or officers duly authorized for that purpose, act as
its representative for the purposes of signing Loan Documents and giving notices
and other communications in connection with this Agreement, the other Loan
Documents and the transactions contemplated hereby, (iii) specimen signatures of
the authorized officers, and (iv) the articles or certificate of incorporation
and bylaws of the Borrower, certified as being
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true and complete. The Agents and the Lenders may conclusively rely on such
certificate until the Agents receive notice in writing from the Borrower to the
contrary.
(b) A certificate of the Secretary or an Assistant Secretary
of QSRD and each Subsidiary Guarantor setting forth (i) resolutions of its board
of directors with respect to the authorization of such Person to execute and
deliver the Loan Documents to which it is a party and to enter into the
transactions contemplated in the Loan Documents, (ii) its officers (y) who are
authorized to sign the Loan Documents to which it is a party and (z) who will,
until replaced by another officer or officers duly authorized for that purpose,
act as its representative for the purposes of signing Loan Documents and giving
notices and other communications in connection with this Agreement, the other
Loan Documents and the transactions contemplated hereby, (iii) specimen
signatures of the authorized officers, and (iv) the articles or certificate of
incorporation and bylaws of such Person, certified as being true and complete.
The Agents and the Lenders may conclusively rely on such certificate until the
Agents receive notice in writing from the Borrower to the contrary.
(c) Certificates of the appropriate state agencies with
respect to the existence, qualification and good standing of QSRD, the Borrower
and each Subsidiary Guarantor.
(d) A compliance certificate which shall be substantially in
the form of Exhibit C-1, duly and properly executed by a Responsible Officer and
dated as of the date of the Initial Funding.
(e) The Security Instruments described on Schedule S-1 duly
completed and executed in sufficient number of counterparts for recording, if
necessary.
(f) The Transfer Order Letters to the purchasers, the holders
of the working interests (with respect to payments due to the holders of net
revenue, overriding royalty and similar Hydrocarbon Interests), paying agents or
others responsible for the payment of the proceeds of Hydrocarbon production
with respect to each Oil and Gas Property of the Borrower, in each case in form
and substance satisfactory to the Agents.
(g) The following opinions:
(i) an opinion of Haynes and Boone, L.L.P., special
counsel to the Borrower, in form and substance reasonably satisfactory
to the Agents.
(ii) an opinion of local counsel in each of the following
jurisdictions: Louisiana, Oklahoma, Nevada, Kansas, Wyoming, Kentucky,
(if available, and, if not, as a condition subsequent under Section
6.05), and New Mexico, in each case in form and substance satisfactory
to the Agents.
(h) A certificate of insurance coverage of QSRD evidencing
that QSRD and its Subsidiaries are carrying insurance in accordance with Section
7.19 hereof.
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(i) The Agents and the Lenders shall be reasonably satisfied
with the status of title and the environmental condition of the Properties of
the Borrower and the Subsidiary Guarantors.
(j) Multiple originals of the Security Instruments and
accompanying financing statements covering the Collateral for filing and
recordation in the appropriate offices to establish and perfect the Liens
created thereby; and the Agents shall be reasonably satisfied that, upon such
filing and recordation, the Security Instruments create valid and perfected,
first priority Liens on not less than 95% of each of proved producing and the
total proved PV-10 Value of the Oil and Gas Properties included in the Initial
Reserve Report, and on 100% of the Principal Properties.
(k) The Agents shall have been furnished with appropriate UCC
search certificates reflecting no prior Liens except those contemplated by
Section 9.02.
(l) The Initial Reserve Reports.
(m) The Pay-Off Letter together with the Termination
Agreement, in each case in form and substance satisfactory to the Agents, duly
executed and delivered by all parties thereto.
(n) The Estoppel Letter duly executed and delivered by all
parties thereto.
(o) The Fee Letter duly executed and delivered by all parties
thereto.
(p) The Side Letter duly executed and delivered by all parties
thereto.
(q) The Purchase Agreement duly executed and delivered by all
parties thereto.
(r) The Resignation and Appointment Agreement duly executed
and delivered by all parties thereto.
(s) The Intercompany Subordination Agreement duly executed and
delivered to all parties thereto.
(t) Borrower shall have Excess Availability of no less than
$5,000,000.
(u) Such other documents as the Agents or any Lender or
special counsel to the Agents may reasonably request.
Section 6.02. Initial and Subsequent Loans. The obligation of the
Lenders to make Loans to the Borrower upon the occasion of each borrowing
hereunder and to issue, renew, extend or reissue Letters of Credit for the
account of the Borrower (including the Initial Funding) is subject to the
further conditions precedent that, as of the date of such Loans or issuance,
renewal, extension, or reissuance of a Letter of Credit, and after giving effect
thereto: (a) no Default shall have occurred and be continuing; (b) no Material
Adverse Effect
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shall have occurred; (c) the representations and warranties made by QSRD and its
Subsidiaries in Article VII and in the Loan Documents shall be true on and as of
the date of the making of such Loans or issuance, renewal, extension, or
reissuance of a Letter of Credit with the same force and effect as if made on
and as of such date and following such new borrowing or issuance, renewal,
extension, or reissuance of a Letter of Credit, except to the extent such
representations and warranties are expressly limited to an earlier date or the
Agents and the Majority Lenders may expressly consent in writing to the
contrary; and (d) after giving effect to any proposed borrowing or issuance,
renewal, extension, or reissuance of a Letter of Credit, the amount of the
Availability is greater than zero (0).
Section 6.03. Conditions Relating to Letters of Credit. In addition to
the satisfaction of all other conditions precedent set forth in this Article VI,
the issuance, renewal, extension or reissuance of the Letters of Credit referred
to in Section 2.01(b) hereof is subject to the following conditions precedent:
(a) At least three (3) Business Days prior to the date of the
issuance, renewal, extension or reissuance of each Letter of Credit, the
Administrative Agent shall have received a written request for a Letter of
Credit.
(b) Each of the Letters of Credit shall (i) be issued by the
Administrative Agent, (ii) contain such terms and provisions as are reasonably
required by the Administrative Agent, (iii) be for the account of the Borrower,
and (iv) expire not later than the Maturity Date.
(c) The Borrower shall have duly and validly executed and
delivered to the Agent a Letter of Credit Agreement pertaining to the Letter of
Credit.
Section 6.04. Certificate Regarding Incurrence of Debt under Senior
Indenture. The obligation of the Lenders to make Loans plus Letter of Credit
Usage to the Borrower in an aggregate amount in excess of $35,000,000 is subject
to the further condition precedent that QSRD deliver a certificate from a
Responsible Officer of QSRD, in form and substance reasonably satisfactory to
the Administrative Agent, certifying that, as of the date of such incurrence,
QSRD and the Borrower are permitted to incur such Indebtedness (including
outstanding Letter of Credit Usage) under the Senior Indenture (because either
(i) such Indebtedness will constitute "Permitted Indebtedness" under the Senior
Indenture or (ii) such Indebtedness (including outstanding Letter of Credit
Usage) may be incurred without violation of the then applicable Consolidated
Interest Coverage Ratio set forth in the Senior Indenture) and setting forth
in reasonable detail calculations to support the certification.
Section 6.05. Conditions Subsequent. As a condition subsequent to the
Initial Funding, Borrower shall perform or cause to be performed the following
(the failure by Borrower to so perform or cause to be performed constituting an
Event of Default):
(a) Within 15 days of the Closing Date, deliver to Collateral
Agent mortgages or deeds of trust, as appropriate, duly executed and in
recordable form, and in form and substance satisfactory to the Agents, granting
a first priority Lien in favor of Collateral Agent for
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the benefit of the Lender Group, in the NasGas Property in Breckinridge, Meade
and Hardin Counties, Kentucky (the "New Mortgage").
(b) Within 15 days of the Closing Date, deliver to Collateral
Agent the opinion of local counsel in Kentucky with respect to the New Mortgage,
in form and substance satisfactory to the Agents.
(c) Within 15 days of the Closing Date, either deliver to
Collateral Agent a Control Agreement in form and substance satisfactory to the
Agents, with respect to the Dreyfus Cash Management Accounts set forth on
Schedule 9.03, duly executed and delivered by all parties thereto, or terminate
the Dreyfus Cash Management Accounts.
(d) Within 15 days of the Closing Date, deliver to Collateral
Agent a notification letter, in form and substance satisfactory to Agents, duly
acknowledged by Chase Bank of Texas, National Association, as escrow agent under
the Escrow Agreement, with respect to the security interest of the Collateral
Agent for the benefit of the Lender Group in such rights, title and interests
Borrower may have in the escrow account which is the subject of the Escrow
Agreement.
(e) Within 15 days of the Closing Date, establish a cash
management system in compliance with the requirements of Section 2.15, to the
satisfaction of the Agents.
(f) Within 30 days of the Closing Date, either deliver to
Collateral Agent duly executed Lien releases or terminations terminating all of
ECT's Liens in the Property of QSRD and its Subsidiaries to the satisfaction of
the Agents, or demonstrate to the satisfaction of the Agents that Borrower is
diligently pursuing its remedies to enforce ECT's further assurance obligations
under the Termination Agreement..
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
QSRD and the Borrower represent and warrant to the Agents and the
Lenders that (each representation and warranty herein is given as of the Closing
Date and shall be deemed repeated and reaffirmed on the dates of each borrowing
and issuance, renewal, extension or reissuance of a Letter of credit as provided
in Section 6.02, except that the representations contained in Section 7.02 shall
be deemed to be made with respect to the most recent financial statements
delivered to the Administrative Agent pursuant to Section 8.01):
Section 7.01. Corporate Existence.
(a) Each of QSRD, the Borrower and its Subsidiaries: (i) is a
corporation duly organized, legally existing and in good standing under the laws
of the jurisdiction of its incorporation; (ii) has all requisite corporate
power, and has all material governmental licenses, authorizations, consents and
approvals necessary to own its assets and carry on its business as now being or
as proposed to be conducted; and (iii) is qualified to do business in all
jurisdictions
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in which the nature of the business conducted by it makes such qualification
necessary and where failure so to qualify would have a Material Adverse Effect.
(b) Set forth on Schedule 7.01, is a complete and accurate
description of the authorized capital Stock of Borrower, by class, and, as of
the Closing Date, a description of the number of shares of each such class that
are issued and outstanding and the number of such shares that are held in
Borrower's treasury. All such outstanding shares have been validly issued and,
as of the Closing Date, are fully paid, nonassessable shares free of contractual
preemptive rights. The issuance and sale of all such shares have been in
compliance with all applicable federal and state securities laws. Other than as
described on Schedule 7.01, there are no subscriptions, options, warrants, or
calls relating to any shares of Borrower's capital Stock, including any right of
conversion or exchange under any outstanding security or other instrument.
Neither Borrower nor any of its Subsidiaries is subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of its capital Stock or any security convertible into or exchangeable for
any of its capital Stock.
(c) Set forth on Schedule 7.01, is a complete and accurate
list of Borrower's direct and indirect Subsidiaries as of the Closing Date,
showing: (i) the jurisdiction of their incorporation; (ii) the number of shares
of each class of common and preferred Stock authorized for each of such
Subsidiaries; and (iii) the number and the percentage of the outstanding shares
of each such class owned directly or indirectly by Borrower. All of the
outstanding capital Stock of each such Subsidiary has been validly issued and is
fully paid and non-assessable. As of the Closing Date, Borrower has no interest
in any partnerships (other than tax partnerships which are not partnerships
under applicable state law). QSR Canada has no assets in excess of $200,000 in
the aggregate or liabilities in excess of $150,000 in the aggregate, and its
business operations are limited to providing general and administrative
services, including management services, to QSRD and its Subsidiaries.
(d) Except as set forth on Schedule 7.01, no capital Stock (or
any securities, instruments, warrants, options, purchase rights, conversion or
exchange rights, calls, commitments or claims of any character convertible into
or exercisable for capital Stock) of any direct or indirect Subsidiary of
Borrower is subject to the issuance of any security, instrument, warrant,
option, purchase right, conversion or exchange right, call, commitment or claim
of any right, title, or interest therein or thereto.
Section 7.02. Financial Condition.
(a) The audited consolidated balance sheet of QSRD and its
Consolidated Subsidiaries, as at June 30, 1999 and the related consolidated
statement of operations, stockholders' equity and cash flow of QSRD and its
Consolidated Subsidiaries, for the fiscal year ended on said date, with the
audit report thereon of Ernst & Young L.L.P. heretofore furnished to each of the
Lenders, and the unaudited consolidated balance sheet of QSRD and its
Consolidated Subsidiaries as at August 31, 1999 and their related consolidated
statements of operations, and cash flow of QSRD and its Consolidated
Subsidiaries for the 2-month period ended on such date heretofore furnished to
the Lenders are complete and correct in all material respects and fairly present
the consolidated financial condition of QSRD and its Consolidated Subsidiaries
as at said dates and the results of its operations for the fiscal year
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and the 2-month period ending on said dates, in accordance with GAAP with
respect to the audited financial statements, and on a modified accrual basis
with respect to interim financial statements, in each case applied on a
consistent basis (subject, in the case of the interim financial statements, to
normal year-end adjustments).
(b) Neither QSRD nor any of its Subsidiaries has on the
Closing Date any material Debt, contingent liabilities interpreted in accordance
with GAAP, liabilities for taxes, unusual forward or long-term commitments for
the purchase or sale of Oil and Gas Properties, or unrealized or anticipated
losses from any unfavorable commitments, in each case except for customary
purchase price adjustments, prorations, indemnities, and other typical
obligations arising under or in connection with the purchase or sale of Oil and
Gas Properties or the acquisition or issuance of securities, and except as
referred to or reflected or provided for in the Financial Statements or in
Schedule 7.02 which could reasonably be expected to have a Material Adverse
Effect. Since June 30, 1999, there has been no change or event having a Material
Adverse Effect. Since June 30, 1999, neither the business nor the Properties of
QSRD or any of its Subsidiaries have been materially and adversely affected as a
result of any fire, explosion, earthquake, flood, drought, windstorm, accident,
strike or other labor disturbance, embargo, requisition or taking of Property or
cancellation of contracts, permits or concessions by any Governmental Authority,
riot, activities of armed forces or acts of God or of any public enemy.
Section 7.03. Litigation. Except as disclosed to the Lenders in
Schedule 7.03 hereto, at the Closing Date there is no litigation, legal,
administrative or arbitration proceeding, investigation or other action of any
nature pending or, to the knowledge of QSRD and the Borrower threatened against
or affecting QSRD or any of its Subsidiaries which involves the possibility of
any judgment or liability against QSRD or any of its Subsidiaries not fully
covered by insurance (except for normal deductibles), and which would have a
Material Adverse Effect.
Section 7.04. No Breach. Neither the execution and delivery of the Loan
Documents nor compliance with the terms and provisions hereof will conflict with
or result in a breach of, or require any consent which has not been obtained as
of the Closing Date or which if not obtained would have a Material Adverse
Effect under, the respective charter or by-laws of QSRD or any of its
Subsidiaries, including the Borrower, or any material Governmental Requirement,
agreement or instrument to which QSRD or any of its Subsidiaries, including the
Borrower, is a party or by which it is bound or to which it or its Properties
are subject, or constitute a default under any such agreement or instrument, or
result in the creation or imposition of any Lien upon any of the revenues or
assets of QSRD or any of its Subsidiaries, including the Borrower, pursuant to
the terms of any such agreement or instrument other than the Liens created by
the Loan Documents.
Section 7.05. Authority. QSRD and each of its Subsidiaries, including
the Borrower, have all necessary corporate power and authority to execute,
deliver and perform its obligations under the Loan Documents to which it is a
party; and the execution, delivery and performance by QSRD and each of its
Subsidiaries, including the Borrower, of the Loan
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Documents to which it is a party have been duly authorized by all necessary
corporate action on its part; and the Loan Documents constitute the legal, valid
and binding obligations of each such Person, enforceable against it in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization or other similar laws affecting creditors' rights and general
principles of equity.
Section 7.06. Approvals. No authorizations, approvals or consents of,
and no filings or registrations with, any Governmental Authority are necessary
for the execution, delivery or performance by QSRD or any of its Subsidiaries,
including the Borrower, of the Loan Documents or for the validity or
enforceability thereof.
Section 7.07. Use of Loans. The proceeds of the Loans shall be used for
general corporate purposes (consistent with the covenants contained herein and
in the other Loan Documents), including the following: i) to meet the Borrower's
capital expenditure requirements, ii) to finance Permitted Acquisitions, and
iii) to repay, in full, the DEM Subordinated Debt (in a maximum amount of DEM
1,700,000). The Borrower is not engaged principally, or as one of its important
activities, in the business of extending credit for the purpose, whether
immediate, incidental or ultimate, of buying or carrying margin stock (within
the meaning of Regulation T, U or X of the Board of Governors of the Federal
Reserve System) and no part of the proceeds of any Loan or Letter of Credit
hereunder will be used to buy or carry any margin stock.
Section 7.08. ERISA.
(a) QSRD and its ERISA Affiliates have complied in all
material respects with ERISA and, where applicable, the Code regarding each
Plan.
(b) Each Plan is, and has been, maintained in substantial
compliance with ERISA and, where applicable, the Code.
(c) To the best knowledge of QSRD, no act, omission or
transaction has occurred which could result in imposition on QSRD or any of its
ERISA Affiliates (whether directly or indirectly) of (i) either a civil penalty
assessed pursuant to section 502(c), (i) or (1) of ERISA or a tax imposed
pursuant to Chapter 43 of Subtitle D of the Code or (ii) breach of fiduciary
duty liability damages under section 4.09 of ERISA.
(d) No Plan (other than a defined contribution plan) or any
trust created under any such Plan has been terminated since September 2, 1974.
No liability to the PBGC (other than for the payment of current premiums which
are not past due) by QSRD or any of its ERISA Affiliates has been or is expected
by QSRD to be incurred with respect to any Plan. No ERISA Event with respect to
any Plan has occurred.
(e) Full payment when due has been made of all amounts which
QSRD and/or its ERISA Affiliates is required under the terms of each Plan or
applicable law to have paid as contributions to such Plan, and no accumulated
funding deficiency (as defined in
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section 302 of ERISA and section 412 of the Code), whether or not waived, exists
with respect to any Plan.
(f) The actuarial present value of the benefit liabilities
under each Plan which is subject to Tide IV of ERISA does not, as of the end of
QSRD's most recently ended fiscal year, exceed the current value of the assets
(computed on a plan termination basis in accordance with Title IV of ERISA) of
such Plan allocable to such benefit liabilities. The term "actuarial present
value of the benefit liabilities" shall have the meaning specified in section
4041 of ERISA.
(g) None of QSRD or its ERISA Affiliates sponsors, maintains,
or contributes to an employee welfare benefit plan, as defined in section 3(l)
of ERISA, including, without limitation, any such plan maintained to provide
benefits to former employees of such entities, that may not be terminated by
QSRD or any of its ERISA Affiliates in its sole discretion at any time without
any material liability.
(h) None of QSRD or its ERISA Affiliates sponsors, maintains
or contributes to, or has at any time in the preceding six calendar years,
sponsored, maintained or contributed to, any Multiemployer Plan.
(i) None of QSRD or its ERISA Affiliates is required to
provide security under section 401(a)(29) of the Code due to a Plan amendment
that results in an increase in current liability for the Plan.
Section 7.09. Taxes. Each of QSRD and its Subsidiaries, including the
Borrower, has filed all required United States Federal income tax returns that
are currently due and, to the best of QSRD's knowledge, all other tax returns
which are required to be filed by them and have paid all material taxes due
pursuant to such returns or pursuant to any assessment received by QSRD or any
of its Subsidiaries, including the Borrower, except for those being contested in
good faith by appropriate proceedings and for which adequate reserves have been
provided in accordance with GAAP. The charges, accruals and reserves on the
books of QSRD and its Subsidiaries in respect of taxes and other governmental
charges are, in the opinion of QSRD, adequate. No tax Lien has been filed and,
to the knowledge of QSRD, no claim is being asserted with respect to any such
tax, fee or other charge which could reasonably be expected to have a Material
Adverse Effect.
Section 7.10. Titles, etc.
(a) Except as set out in Schedule 7.10, each of QSRD and its
Subsidiaries has good and defensible title to its material (individually or in
the aggregate) Properties, free and clear of all Liens except Liens permitted by
Section 9.02. Except as set forth in Schedule 7.10, after giving full effect to
the Excepted Liens, QSRD and its Subsidiaries, as applicable, owns the net
interests in production attributable to the lands and leases reflected in the
most recently delivered Reserve Report and the ownership of such Properties
shall not in any material respect obligate such Person to bear the costs and
expenses relating to the maintenance, development and operations of each such
Property in an amount in excess of
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the working interest of each Property set forth in the most recently delivered
Reserve Report. All information contained in the most recently delivered Reserve
Report is true and correct in all material respects as of the date thereof.
(b) All material leases and agreements necessary for the
conduct of the business of QSRD and its Subsidiaries are valid and subsisting
and are in full force and effect. There exists no default or event or
circumstance which with the giving of notice or the passage of time or both
would give rise to a default under any such lease or leases which would affect
in any material respect the conduct of the business of QSRD and its Subsidiaries
taken as a whole or which would have a Material Adverse Effect.
(c) The rights, properties and other assets presently owned,
leased or licensed by QSRD and its Subsidiaries including, without limitation,
all easements and rights of way, include all rights, Properties and other assets
reasonably necessary to permit QSRD and its Subsidiaries to conduct their
business in all material respects in the same manner as its business has been
conducted prior to the Closing Date.
(d) All of the assets and Properties of QSRD and its
Subsidiaries which are reasonably necessary for the operation of its business
are in good working condition and are maintained in accordance with prudent
business standards.
Section 7.11. No Material Misstatements. No written information,
statement, exhibit, certificate, document or report furnished to the Agents or
the Lenders (or any of them) by QSRD or any of its Subsidiaries in connection
with the negotiation of this Agreement contained any material misstatement of
fact or omitted to state a material fact or any fact necessary to make the
statement contained therein not materially misleading in the light of the
circumstances in which made. There is no fact known to QSRD which has a Material
Adverse Effect or in the future is reasonably likely to have (so far as QSRD can
now foresee) a Material Adverse Effect and which has not been set forth in this
Agreement or the other documents, certificates and statements furnished to the
Agents by or on behalf of QSRD or any of its Subsidiaries prior to, or on, the
Closing Date in connection with the transactions contemplated hereby.
Section 7.12. Investment Company Act. Neither QSRD nor any of its
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
Section 7.13. Public Utility Holding Company Act. QSRD and its
Subsidiaries are not subject to regulation, or are exempt from regulation, as a
"holding company," or a "subsidiary company" of a "holding company," or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company," or a "public utility" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
Section 7.14. Subsidiaries and Partnership. Except as set forth on
Schedule 7.14, as such Schedule shall from time to time be revised to reflect
the creation of additional Subsidiaries by QSRD or the Borrower or their
Subsidiaries in accordance with Section 9.17,
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QSRD has no Subsidiaries and has no interest in any partnerships; and the
Borrower has no Subsidiaries and has no interest in any partnerships. Schedule
7.14 sets forth the principal place of business of each such Subsidiary and the
ownership interest of QSRD and the Borrower in such Subsidiary.
Section 7.15. Location of Business and Offices. Each of QSRD and the
Borrower's principal place of business and chief executive offices are located
at the address stated on the signature page of this Agreement. The principal
place of business and chief executive office of each Subsidiary are located at
the addresses stated on Schedule 7.14.
Section 7.16. Defaults. Neither QSRD nor any of its Subsidiaries is in
default nor has any event or circumstance occurred which, but for the expiration
of any applicable grace period or the giving of notice, or both, would
constitute a default under any Material Agreement to which any such Person is a
party or by which any such Person is bound which default would have a Material
Adverse Effect. No Default hereunder has occurred and is continuing.
Section 7.17. Environmental Matters. Except (i) as provided in Schedule
7.17 or (ii) as would not have a Material Adverse Effect (or with respect to
(c), (d) and (e) below, where the failure to take such actions would not have a
Material Adverse Effect):
(a) Neither any Property of QSRD or any of its Subsidiaries
nor the operations conducted thereon violate any order or requirement of any
court or Governmental Authority or any Environmental Laws.
(b) Without limitation of clause (a) above, no Property of
QSRD or any of its Subsidiaries nor the operations currently conducted thereon
or, to the best knowledge of QSRD, by any prior owner or operator of such
Property or operation, are in violation of or subject to any existing, pending
or (to the knowledge of QSRD) threatened action, suit, investigation, inquiry or
proceeding by or before any court or Governmental Authority or to any remedial
obligations under Environmental Laws.
(c) All notices, permits, licenses or similar authorizations,
if any, required to be obtained or filed in connection with the operation or use
of any and all Property of QSRD and each of its Subsidiaries, including without
limitation past or present treatment, storage, disposal or release of a
hazardous substance or solid waste into the environment, have been duly obtained
or filed, and QSRD and each of its Subsidiaries are in compliance with the terms
and conditions of all such notices, permits, licenses and similar
authorizations.
(d) All hazardous substances, solid waste, and oil and gas
exploration and production wastes, if any, generated at any and all Property of
QSRD or any of its Subsidiaries have in the past been transported, treated and
disposed of in accordance with Environmental Laws and so as not to pose an
imminent and substantial endangerment to public health or welfare or the
environment, and, to the best knowledge of QSRD, all such transport carriers and
treatment and disposal facilities have been and are operating in compliance with
Environmental Laws and so as not to pose an imminent and substantial
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endangerment to public health or welfare or the environment, and are not the
subject of any existing, pending or (to the knowledge of QSRD) threatened
action, investigation or inquiry by any Governmental Authority in connection
with any Environmental Laws.
(e) QSRD has taken all steps reasonably necessary to determine
and has determined that no hazardous substances, solid waste, or oil and gas
exploration and production wastes, have been disposed of or otherwise released
and there has been no threatened release of any hazardous substances on or to
any Property of QSRD or any of its Subsidiaries except in compliance with
Environmental Laws and so as not to pose an imminent and substantial
endangerment to public health or welfare or the environment.
(f) To the extent applicable, all Property of QSRD and each of
its Subsidiaries currently satisfies all design, operation, and equipment
requirements imposed by OPA or scheduled as of the Closing Date to be imposed by
OPA during the term of this Agreement, and QSRD does not have any reason to
believe that such Property, to the extent subject to OPA, will not be able to
maintain compliance with the OPA requirements during the term of this Agreement.
(g) Neither QSRD nor any of its Subsidiaries has any known
contingent liability in connection with any release or threatened release of any
oil, hazardous substance or solid waste into the environment.
Section 7.18. Compliance with the Law. Neither QSRD nor any of its
Subsidiaries has violated any Governmental Requirement or failed to obtain any
license, permit, franchise or other governmental authorization necessary for the
ownership of any of its Properties or the conduct of its business, which
violation or failure would have (in the event such violation or failure were
asserted by any Person through appropriate action) a Material Adverse Effect.
Except for such acts, or failures to act as would not have a Material Adverse
Effect, the Oil and Gas Properties (and Properties unitized therewith) have been
maintained, operated and developed in a good and workmanlike manner and in
substantial conformity with all applicable laws and all rules, regulations and
orders of all duly constituted authorities having jurisdiction and in
substantial conformity with the provisions of all leases, subleases or other
contracts comprising a part of the Hydrocarbon Interests and other contracts and
agreements forming a part of the Oil and Gas Properties; specifically in this
connection, (i) after the Closing Date, no Oil and Gas Property is subject to
having allowable production reduced below the full and regular allowable
(including the maximum permissible tolerance) because of any overproduction
(whether or not the same was permissible at the time) prior to the Closing Date
and (ii) none of the wells comprising a part of the Oil and Gas Properties (or
properties unitized therewith) are deviated from the vertical more than the
maximum permitted by applicable laws, regulations, rules and orders, and such
wells are, in fact, bottomed under and are producing from, and the well bores
are wholly within, the Oil and Gas Properties (or in the case of wells located
on Properties unitized therewith, such unitized Properties).
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Section 7.19. Insurance. Schedule 7.19 attached hereto contains an
accurate and complete description of all material policies of fire, liability,
workmen's compensation and other forms of insurance owned or held by QSRD and
each of its Subsidiaries. All such policies are in full force and effect, all
premiums with respect thereto covering all periods up to and including the
Closing Date have been paid, and no notice of cancellation or termination has
been received with respect to any such policy. Such policies are sufficient for
substantial compliance with all requirements of law and of all agreements to
which QSRD or any of its Subsidiaries is a party; are valid, outstanding and
enforceable policies; provide adequate insurance coverage in at least such
amounts and against at least such risks (but including in any event public
liability) as are usually insured against in the same general area by similarly
situated companies engaged in the same or a similar business for the assets and
operations of QSRD and each of its Subsidiaries; will remain in full force and
effect through the respective dates set forth in Schedule 7.19 without the
payment of additional premiums; and will not in any way be affected by, or
terminate or lapse by reason of, the transactions contemplated by this
Agreement. Schedule 7.19 identifies all material risks, if any, which QSRD and
its Subsidiaries and their respective Board of Directors or officers have
designated as being self insured. Neither QSRD nor any of its Subsidiaries has
been refused any insurance with respect to its assets or operations, nor has its
coverage been limited below usual and customary policy limits, by an insurance
carrier to which it has applied for any such insurance or with which it has
carried insurance during the last three years.
Section 7.20. Risk Management Agreements. Schedule 7.20 sets forth, as
of the Closing Date, a true and complete list of all Risk Management Agreements
(including commodity price swap agreements, forward agreements or contracts of
sale which provide for prepayment for deferred shipment or delivery of oil, gas
or other commodities) of QSRD and each of its Subsidiaries, the material terms
thereof (including the type, term, effective date, termination date and notional
amounts or volumes), all credit support agreements relating thereto (including
any margin required or supplied), and the counterparty to each such agreement.
Section 7.21. Restriction on Liens. Except as set forth on Schedule
7.21, neither QSRD nor any of its Subsidiaries (other than Non-Recourse
Subsidiaries) is a party to any agreement or arrangement or subject to any
order, judgment, writ or decree, which either restricts or purports to restrict
its ability to grant Liens to other Persons on or in respect of their respective
assets or Properties; provided that such restrictions do not impair the ability
of QSRD or any of its Subsidiaries (other than Non-Recourse Subsidiaries) to
grant Liens to the Collateral Agent for the benefit of the Lender Group.
Section 7.22. Gas Imbalances. Except as set forth on Schedule 7.22 or
on the most recent certificate delivered pursuant to Section 8.07(c), on a net
basis there are no gas imbalances, take or pay or other prepayments with respect
to QSRD and its Subsidiaries' Oil and Gas Properties which would require such
Person to either make cash settlements for such production or deliver
Hydrocarbons produced from such Oil and Gas Properties at some future time
without then or thereafter receiving full payment therefor exceeding five
percent
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(5%) of the then current monthly production of gas from the Oil and Gas
Properties of QSRD and its Subsidiaries in the aggregate.
Section 7.23. Material Agreements.
(a) Set forth on Schedule 7.23 hereto is a complete and
correct list of all Material Agreements in effect or to be in effect as of the
Closing Date (other than Risk Management Agreements) providing for, evidencing,
securing or otherwise relating to any Debt of QSRD or any of its Subsidiaries,
and such list correctly sets forth the names of the debtor or lessee and
creditor or lessor with respect to the Debt or lease obligations outstanding or
to be outstanding and the Property subject to any Lien securing such Debt or
lease obligation. Also set forth on Schedule 7.23 hereto is a complete and
correct list of all material agreements and other instruments of QSRD and its
Subsidiaries relating to the purchase, transportation by pipeline, gas
processing, marketing, sale and supply of natural gas and other Hydrocarbons,
but in any event, any such agreement or other instrument that will account for
more than 20% of the sales of QSRD and its Subsidiaries during QSRD's current
fiscal year.
(b) QSRD has delivered to the Agents true and complete copies
of each of the agreements evidencing the Subordinated Debt and each Material
Agreement, as each may have been amended, that have been requested by the
Agents.
Section 7.24. Solvency. QSRD and its Consolidated Subsidiaries, taken
as a whole, (i) are not insolvent as of the date hereof and will not be rendered
insolvent as a result of the transactions contemplated by this Agreement and the
other Loan Documents, (ii) are not engaged in business or a transaction, or
about to engage in a business or a transaction, for which any Property or assets
remaining with QSRD and its Consolidated Subsidiaries constitutes unreasonably
small capital, and (iii) do not intend to incur, or believe any of them will
incur, debts that will be beyond their ability to pay as such debts mature.
Section 7.25. Brokerage Fees. Except for any and all brokerage fees
payable by Borrower to Durham Capital Corporation ("Durham") on the Closing Date
for the services rendered to Borrower by Durham, no brokerage commission or
finders fees has or shall be incurred or payable in connection with or as a
result of Borrower's obtaining financing from the Lender Group under this
Agreement, and neither QSRD, Borrower nor any of their Subsidiaries has utilized
the services of any broker or finder in connection with Borrower's obtaining
financing from the Lender Group under this Agreement.
ARTICLE VIII
AFFIRMATIVE COVENANTS
QSRD and the Borrower covenant and agree that, so long as any of the
Commitments are in effect and until payment in full of all Loans hereunder, all
interest thereon and all other amounts payable by the Borrower hereunder and any
Obligor under any Loan Document:
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Section 8.01. Financial Statements and Collateral Reports. QSRD shall
deliver, or shall cause to be delivered, to each Agent with sufficient copies of
each for the Lenders:
(a) As soon as available and in any event within 120 days
after the end of each fiscal year of QSRD, the audited consolidated statements
of operations, stockholders' equity, and cash flow of QSRD and its Consolidated
Subsidiaries for such fiscal year, and the related consolidated and unaudited
consolidating balance sheets of QSRD and its Consolidated Subsidiaries as at the
end of such fiscal year, and setting forth in each case in comparative form the
corresponding figures for the preceding fiscal year, and accompanied by the
related audit report of independent certified public accountants of recognized
national standing acceptable to the Agents which audit report shall state that
said financial statements fairly present, in all material respects, the
consolidated financial condition and results of operations of QSRD and its
Consolidated Subsidiaries as at the end of, and for, such fiscal year and that
such financial statements have been prepared in accordance with GAAP except for
such changes in such principles with which the independent certified public
accountants shall have concurred and such audit report shall be consistent with
the standard audit report format promulgated by the relevant regulatory
authorities governing such reports and shall not contain a "going concern" or
like qualification or exception.
(b) As soon as available and in any event within 30 days after
the end of each of the fiscal monthly periods of each fiscal year of QSRD not
constituting a fiscal quarter end, consolidated statements of operations and
cash flow of QSRD and its Consolidated Subsidiaries for such period and for the
period from the beginning of the respective fiscal year to the end of such
period, and the related consolidated balance sheets as at the end of such
period, and setting forth in each case in comparative form the corresponding
figures for the corresponding period in the preceding fiscal year, together with
management's discussion and analysis of such results, all of which shall be in
form and substance reasonably satisfactory to the Agents, and accompanied by the
certificate of a Responsible Officer, which certificate shall state that said
financial statements fairly present the consolidated financial condition and
results of operations of QSRD and its Consolidated Subsidiaries as prepared by
QSRD on a modified accrual basis and consistent with the August 31, 1999 interim
financial statements heretofore furnished to the Lenders, as at the end of, and
for, such period (subject to normal year-end audit adjustments).
(c) Within 30 days following the end of each fiscal month, a
summary of the operating and financial results of QSRD and its Subsidiaries
(other than Non-Recourse Subsidiaries) for such preceding calendar month,
together with management's discussion and analysis of such results if not
duplicative of management's discussion and analysis provided in conjunction with
the delivery of the monthly financial statements pursuant to Section 8.01(b),
all of which shall be in form and substance reasonably satisfactory to the
Agents, and, in conjunction with the report delivered pursuant to Section
8.07(e), shall include: (i) a detailed statement of sales and revenues derived
from all products produced from the Oil and Gas Properties, for the previous
month, including prices received, prior period adjustments to such revenues and
prices, and any Material Adverse Effect affecting the sales or marketing
agreements or arrangements with the purchasers of such products; (ii) a detailed
aging of QSRD's and each of its Subsidiaries' unpaid lease operating expenses
and unpaid other
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liabilities, for the previous month, with respect to which a mineral lien,
subcontractor's lien, mechanic's lien, materialmen's lien or other Lien against
any of the Collateral may arise which may have a priority superior to Collateral
Agent's Lien on such Collateral; (iii) notice of all claims, disputes, and
litigation that have arisen since the date of the most recent statement to
Agents pursuant to this Section 8.01(c); except (A) ongoing collection matters
in which QSRD or any of its Subsidiaries is the claimant or plaintiff; and (B)
matters that, if decided adversely to QSRD or any of its Subsidiaries, do not
result in and reasonably could not be expected to result in a Material Adverse
Effect; (iv) (A) a listing the total amount actually paid by QSRD and its
Subsidiaries during the preceding month for: (1) plugging and abandonment costs
for previous or ongoing plugging and abandonment operations pertaining to the
Oil and Gas Properties, and (2) general bond and supplemental bond payments
pertaining to plugging and abandonment costs; and (B) estimating the future
payments for (1) and (2), above, for the succeeding 6 month period; and (v) a
statement of the balances remaining on hand in any prepaid development or other
deposit or trust account of funds previously delivered to QSRD or any of its
Subsidiaries.
(d) As soon as available and in any event within 45 days after
the end of each of the first three fiscal quarters of each fiscal year of QSRD,
consolidated statements of operations and cash flow of QSRD and its Consolidated
Subsidiaries for such period and for the period from the beginning of the
respective fiscal year to the end of such period, and the related consolidated
balance sheets as at the end of such period, and setting forth in each case in
comparative form the corresponding figures for the corresponding period in the
preceding fiscal year, accompanied by the certificate of a Responsible Officer,
which certificate shall state that said financial statements fairly present the
consolidated financial condition and results of operations of QSRD and its
Consolidated Subsidiaries as prepared in accordance with GAAP, as at the end of,
and for, such period (subject to normal year-end audit adjustments).
(e) Promptly after QSRD or the Borrower knows that any Default
or Material Adverse Effect has occurred, a notice of such Default or Material
Adverse Effect, describing the same in reasonable detail and the action QSRD or
the Borrower proposes to take with respect thereto.
(f) Promptly upon receipt thereof, a copy of each other
material report or letter submitted to QSRD by its independent accountants in
connection with any annual, interim or special audit made by them of the books
of QSRD and its Consolidated Subsidiaries and a copy of any response by QSRD or
its Board of Directors to such letter or report.
(g) Promptly upon its becoming available, each financial
statement, report, notice or proxy statement sent by QSRD to stockholders
generally and each regular or periodic report and any registration statement,
prospectus or written communication (other than transmittal letters) in respect
thereof filed by QSRD with or received by QSRD in connection therewith from any
securities exchange or the SEC.
(h) Upon request of Administrative Agent, copies of well files
and well reports (including information regarding the locations of and equipment
located on each well) in
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the possession or control of QSRD or any of its Subsidiaries or which otherwise
can be obtained without commercially unreasonable cost or expense.
(i) From time to time such other information regarding the
business, affairs or financial condition of QSRD or any of its Subsidiaries,
including the Borrower (including, without limitation, any Plan or Multiemployer
Plan and any reports or other information required to be filed under ERISA), as
any Lender or any Agent may reasonably request.
(j) As soon as available and in any event within 45 days after
each Quarterly Date, a report, in form and substance satisfactory to the
Administrative Agent, setting forth as of the last Business Day of such
Quarterly Date, (i) a summary of its hedging positions under all Risk Management
Agreements (including commodity price swap agreements, forward agreements or
contracts of sale which provide for prepayment for deferred shipment or delivery
of oil, gas or other commodities) of QSRD and each of its Subsidiaries,
including the type, term, effective date, termination date and notional
principal amounts or volumes, the hedged price(s), interest rate(s) or exchange
rates(s), as applicable, and any new credit support agreements relating thereto,
and (ii) a listing of the identity and address of any person remitting to the
Borrower proceeds from the sale of Hydrocarbon production from or attributable
to any Oil and Gas Properties, which listing shall include a general description
of the Oil and Gas Properties for which such Person is remitting proceeds,
together with such additional information that Administrative Agent may
reasonably request in order to keep current and accurate the addressees for the
Transfer Order Letters.
(k) Within two (2) Business Days following receipt by QSRD or
the Borrower, a copy of the notice from JEDI of its intent to sell, or otherwise
dispose of, to any Person its interests in the Series A Preferred Stock of QSRD
if such sale or disposition reduces the aggregate remaining shares of such class
of Preferred Stock owned by JEDI or its Affiliates below 75% of the total
shares of such class of Preferred Stock owned by JEDI as of the Closing Date.
(l) Promptly after QSRD knows that any "mandatory redemption
event" in respect of any class of Permitted Preferred Stock has occurred, a
notice thereof, describing the same in reasonable detail and the action QSRD
proposes to take with respect thereto; and if any mandatory redemption notices
are given or received in respect of any class of Permitted Preferred Stock, a
copy thereof.
(m) With the delivery of the June 30th Reserve Report, the
Borrower shall also provide projections and budgets of QSRD and its Subsidiaries
for the forthcoming fiscal year, which shall include, on a monthly basis for the
forthcoming fiscal year, an operating and capital budget, income and cash flow
statements and balance sheets, in each case together with the analysis and
discussion of management of such projections, all certified by a Responsible
Officer of the Borrower as being prepared based on the assumptions and
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assessments believed by the Borrower to be reasonable and appropriate both as of
the date of such projections and as of the date of submission thereof to the
Administrative Agent.
QSRD and the Borrower will furnish to the Administrative Agent, at the
time QSRD furnishes each set of financial statements pursuant to paragraph (a)
or (b) above, a certificate substantially in the form of Exhibit C-1 hereto
executed by a Responsible Officer (i) certifying as to the matters set forth
therein and stating that no Default has occurred and is continuing (or, if any
Default has occurred and is continuing, describing the same in reasonable
detail), and (ii) setting forth in reasonable detail the computations necessary
to determine whether QSRD and the Borrower are in compliance with Sections 9.12,
9.13 and 9.22 as of the end of the respective fiscal month or fiscal year.
Section 8.02. Litigation. QSRD shall promptly give to the
Administrative Agent notice of all legal or arbitration proceedings, and of all
proceedings before any Governmental Authority affecting QSRD or any of its
Subsidiaries, including the Borrower, except proceedings which, if adversely
determined, could not reasonably be expected to have a Material Adverse Effect.
QSRD will, and will cause each of its Subsidiaries to, promptly notify the
Administrative Agent and each of the Lenders of any claim, judgment, Lien or
other encumbrance affecting any Property of QSRD or any of its Subsidiaries if
the value of the claim, judgment, Lien or other encumbrance affecting such
Property shall exceed $250,000.
Section 8.03. Maintenance, Etc.
(a) The Borrower and QSRD shall, and QSRD shall cause each of
its Subsidiaries to: preserve and maintain its corporate existence and all of
its material rights, privileges and franchises (except for mergers or
dissolutions upon transfer of all or substantially all assets permitted pursuant
to Section 9.08); keep books of record and account in which full, true and
correct entries will be made of all dealings or transactions in relation to its
business and activities in accordance with GAAP; comply with all Governmental
Requirements if failure to comply with such requirements will have a Material
Adverse Effect; pay and discharge all taxes, assessments and governmental
charges or levies imposed on it or on its income or profits or on any of its
Property prior to the date on which penalties attach thereto, except for any
such tax, assessment, charge or levy (other than production taxes, severance
taxes, payroll taxes or taxes that are the subject of a United States federal
tax lien) the payment of which is being contested in good faith and by proper
proceedings and against which adequate reserves are being maintained; permit
representatives of the Agents or any Lender, during normal business hours, to
examine, copy and make extracts from its books and records, to inspect its
Properties, and to discuss its business and affairs with its officers, all to
the extent reasonably requested by such Lender or the Agents (as the case may
be); and keep, or cause to be kept, insured by financially sound and reputable
insurers all Property of a character usually insured by Persons engaged in the
same or similar business similarly situated against loss or damage of the kinds
and in the amounts customarily insured against by such Persons, and reasonably
acceptable to the Agents, and carry such other insurance as is usually carried
by such Persons, or as may be reasonably required by the Agents,
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including, without limitation, environmental risk insurance to the extent
reasonably available.
(b) Contemporaneously with the delivery of the financial
statements required by Section 8.01(a) to be delivered for each year, QSRD will
furnish or cause to be furnished to the Administrative Agent and the Lenders a
certificate of insurance coverage from its insurer(s) in form and substance
satisfactory to the Administrative Agent and, if requested, will furnish the
Administrative Agent and the Lenders copies of the applicable policies.
(c) The Borrower and QSRD shall, and shall cause each of its
Subsidiaries to, operate its Properties or cause such Properties to be operated
in a careful and efficient manner in accordance with the usual and customary
practices of the industry and in substantial compliance with all applicable
contracts and agreements and in compliance in all material respects with all
Governmental Requirements.
(d) The Borrower and QSRD shall, and shall cause each of its
Subsidiaries to, at its own expense, do or cause to be done all things
reasonably necessary to preserve and keep in good repair, working order and
efficiency all of its Oil and Gas Properties and other material Properties
including, without limitation, all equipment, machinery and facilities, and from
time to time will make all the reasonably necessary repairs, renewals and
replacements so that at all times the state and condition of its Oil and Gas
Properties and other material Properties will be fully preserved and maintained,
except to the extent a portion of such Properties is no longer capable of
producing Hydrocarbons in economically reasonable amounts. The Borrower and
QSRD, shall and QSRD shall cause each of its Subsidiaries to, promptly: (i) pay
and discharge in accordance with the usual and customary practices of the
industry, or make reasonable and customary efforts to cause to be paid and
discharged, all delay rentals, royalties, expenses and indebtedness accruing
under the leases or other agreements affecting or pertaining to its Oil and Gas
Properties, (ii) perform or make reasonable and customary efforts to cause to be
performed, in accordance with usual and customary industry standards, the
obligations required by each and all of the assignments, deeds, leases,
sub-leases, contracts and agreements affecting its interests in its Oil and Gas
Properties and other material Properties, (iii) will and will cause each of its
Subsidiaries to do all other things necessary to keep unimpaired, except for
Liens described in Section 9.02, its rights with respect thereto and prevent any
forfeiture thereof or a default thereunder, except to the extent a portion of
such Properties is no longer capable of producing Hydrocarbons in economically
reasonable amounts. The Borrower and QSRD shall, and QSRD shall, cause each of
its Subsidiaries to, operate its Oil and Gas Properties and other material
Properties or cause or make reasonable and customary efforts to cause such Oil
and Gas Properties and other material Properties to be operated in a careful and
efficient manner in accordance with the usual and customary practices of the
industry and in substantial compliance with all applicable contracts and
agreements and in compliance in all material respects with all Governmental
Requirements.
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(e) In the event that all or any portion of any Oil and Gas
Property owned by QSRD and its Subsidiaries is composed of interests in the
Hydrocarbon Property which are not working interests or which are operated by a
Person or Persons other than QSRD or one of its Subsidiaries, then, with respect
to such interests and Properties, QSRD shall, and shall cause such Subsidiary
to, use reasonable efforts consistent with usual and customary industry practice
to obtain compliance with the foregoing covenants contained in this Section 8.03
by the working interest owners or the operator or operators of such interests or
Properties.
Section 8.04. Environmental Matters.
(a) QSRD will, and will cause each of its Subsidiaries to,
establish and implement such procedures as may be reasonably necessary,
consistent with its ownership interests, to continuously determine and assure
that any failure of the following does not have a Material Adverse Effect: (i)
all Property of such Persons and the operations conducted thereon are in
compliance with and do not violate the requirements of any Environmental Laws,
(ii) no oil, hazardous substances or solid wastes are disposed of or otherwise
released on or to any Property owned by any such party except in compliance with
Environmental Laws, (iii) no hazardous substance will be released on or to any
such Property in a quantity equal to or exceeding that quantity which requires
reporting pursuant to Section 103 of CERCLA, and (iv) no oil, oil and gas
exploration and production wastes or hazardous substance is released on or to
any such Property so as to pose an imminent and substantial endangerment to
public health or welfare or the environment.
(b) QSRD will promptly notify the Agents and the Lenders in
writing of any threatened action, investigation or inquiry by any Governmental
Authority of which QSRD has knowledge in connection with any Environmental Laws,
excluding routine testing and corrective action.
(c) QSRD will, and will cause each of its Subsidiaries to,
provide environmental audits and tests in accordance with American Society of
Testing and Mechanics standards as reasonably requested by the Agents or the
Lenders or as otherwise required to be obtained by the Agents or the Lenders by
any Governmental Authority in connection with any future acquisitions of Oil and
Gas Properties or other material Properties.
Section 8.05. Further Assurances. QSRD and the Borrower will and will
cause each of its respective Subsidiaries to cure promptly any defects in the
execution and delivery of the Loan Documents and this Agreement. QSRD at its
expense will, and will cause each of its Subsidiaries to, promptly execute and
deliver to the Collateral Agent upon request all such other documents,
agreements and instruments to comply with or accomplish the covenants and
agreements of QSRD or any of its Subsidiaries, as the case may be, in the Loan
Documents and this Agreement, or to further evidence and more fully describe the
collateral intended as security for the Indebtedness, or to correct any
omissions in the Security Instruments, or to state more fully the security
obligations set out herein or in any of the
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Security Instruments, or to perfect, protect or preserve any Liens created
pursuant to any of the Security Instruments, or to make any recordings, to file
any notices or obtain any consents, all as may be reasonably necessary or
appropriate in connection therewith.
Section 8.06. Performance of Obligations. The Borrower will pay the
Indebtedness according to the terms and conditions of the Loan Documents; and
QSRD will and will cause each of its Subsidiaries, including the Borrower, to do
and perform every act and discharge all of the obligations to be performed and
discharged by them under the Loan Documents, at the time or times and in the
manner specified.
Section 8.07. Engineering Reports.
(a) No later than 30 days prior to each Scheduled
Re-determination Date, commencing with the Scheduled Re-determination Date to
occur on March 15, 2000 the Borrower shall furnish to the Agents and the Lenders
a Reserve Report. The June 30 Reserve Report of each year shall be prepared by
certified independent petroleum engineers or other independent petroleum
consultant(s) acceptable to the Administrative Agent and the December 31 Reserve
Report of each year shall be prepared by or under the supervision of the chief
engineer of the Borrower who shall certify such Reserve Report to be true and
accurate and to have been prepared in accordance with the procedures used in the
immediately proceeding June 30 Reserve Report.
(b) In the event of an unscheduled re-determination, the
Borrower shall, at the Administrative Agent's request (or at the request of the
Majority Lenders pursuant to Section 2.08(d)), furnish to the Administrative
Agent and the Lenders a Reserve Report prepared by or under the supervision of
the chief engineer of the Borrower who shall certify such Reserve Report to be
true and accurate and to have been prepared in accordance with the procedures
used in the immediately preceding Reserve Report. For any unscheduled
re-determination requested by the Administrative Agent (or as requested by the
Majority Lenders pursuant to Section 2.08(d)), the Borrower shall provide such
Reserve Report with an "as of" date as required by the Majority Lenders as soon
as possible, but in any event no later than 45 days following the receipt of the
request by the Administrative Agent (or receipt of the request of the Majority
Lenders pursuant to Section 2.08(d)).
(c) With the delivery of each Reserve Report, the Borrower
shall provide to the Administrative Agent and the Lenders, a certificate from a
Responsible Officer certifying that, to the best of his knowledge and in all
material respects: (i) the information contained in the Reserve Report and any
other information delivered in connection therewith is true and correct, (ii)
the Borrower or a Subsidiary Guarantor, as applicable, owns good and defensible
title to its Oil and Gas Properties evaluated in such Reserve Report and such
Properties are free of all Liens except for Liens permitted by Section 9.02,
(iii) except as set forth on an exhibit to the certificate, on a net basis there
are no gas imbalances, take or pay or other prepayments with respect to its Oil
and Gas Properties evaluated in such Reserve Report which would require the
Borrower or a Subsidiary to deliver Hydrocarbons produced from such Oil and Gas
Properties at some future time without then or thereafter receiving full
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payment therefor, (iv) none of its Oil and Gas Properties have been sold since
the date of the last Borrowing Base determination except as set forth on an
exhibit to the certificate, which certificate shall list all of its Oil and Gas
Properties sold and in such detail as reasonably required by the Agents, (v)
attached to the certificate is a list of its Oil and Gas Properties added to and
deleted from the immediately prior Reserve Report and a list of all Persons
disbursing proceeds to the Borrower or a Subsidiary Guarantor, as applicable,
from its Oil and Gas Properties, (vi) except as set forth on a schedule attached
to the certificate all of the Oil and Gas Properties evaluated by such Reserve
Report are Mortgaged Property and (vii) any change in working interest or net
revenue interest in its Oil and Gas Properties occurring and the reason for such
change.
(d) As soon as available and in any event within 45 days after
the end of each fiscal quarter, the Borrower shall provide (i) a production
report, in the form currently prepared internally by the Borrower and which has
been approved by the Administrative Agent, and (ii) a summary of all general and
administrative costs of QSRD and its Consolidated Subsidiaries for such quarter
which are not reflected in the Consolidated Net Income for such quarter for its
Oil and Gas Properties, which reports shall include quantities or volume of
production, revenue, realized product prices, operating expenses, taxes, capital
expenditures and lease operating costs which have accrued to the account of
QSRD, the Borrower or any Subsidiary (other than Non-Recourse Subsidiaries) in
such period, and such other information with respect thereto as the Agents or
any Lender may reasonably require.
(e) As soon as available and in any event within 30 days after
the end of each month ending after the Closing Date, a report setting forth, in
form reasonably acceptable to the Agents, the revaluation of the PV-10 Value of
the oil and gas reserves composing the Borrowing Base as determined by the most
recently delivered Reserve Report provided by Borrower under Section 8.07(a) or
(b), as applicable, such revaluation calculated by multiplying the volumetric
quantity of the categories of estimated Proved Reserves provided in such Reserve
Report less aggregate projected production of Proved Reserves since the date of
and as provided in such Reserve Report by the applicable NYMEX Swap Price as of
last Business Day of the month preceding the date of the delivery by Borrower of
such report to the Agents; each such monthly report shall also include a
discussion of any changes since the date of the most recent Reserve Report in
the categorization of any or all Oil and Gas Properties among Proved Developed
Non-Producing Reserves, Proved Developed Producing Reserves, Proved Undeveloped
Reserves, and "other", any changes in any Obligor's working interest or net
revenue interest in the Oil and Gas Properties, and such other information as
the Administrative Agent shall reasonably consider appropriate or necessary from
the perspective of an asset-based lender; each such monthly report shall be
accompanied by a certificate of a Responsible Officer of the Borrower certifying
to the completeness and accuracy of the report including the calculations of the
revalued Proved Reserves.
Section 8.08. Title Information.
(a) On or before the delivery to the Agent and the Lenders of
each Reserve Report required by Section 8.07(a) or (b), as applicable, the
Borrower will deliver title information in form and substance reasonably
satisfactory to the Administrative Agent
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covering the Oil and Gas Properties evaluated by such Reserve Report and
included in the Borrowing Base that were not included in the immediately
preceding Borrowing Base evaluation, so that the Administrative Agent shall have
received together with title information previously delivered to the
Administrative Agent, satisfactory title information on at least 85% of the
PV-10 Value of the Oil and Gas Properties (to include 100% of the Principal
Properties) evaluated by such Reserve Report and included in the Borrowing Base.
The Borrower shall cure any title defects or exceptions which are not Excepted
Liens raised by the title information within 60 days after a request by the
Administrative Agent or the Lenders to cure such defects or exceptions.
(b) If the Borrower is unable to cure any title defect
requested by the Administrative Agent or the Lenders to be cured within the 60
day period, such default shall not be a Default or an Event of Default, but
instead the Administrative Agent and the Lenders shall have the right to
exercise the following remedy in their sole discretion from time to time, and
any failure to so exercise this remedy at any time shall not be a waiver as to
future exercise of the remedy by the Administrative Agent or the Lenders. To the
extent that the Administrative Agent or the Lenders are not satisfied with title
to any Oil and Gas Property after the time period in Section 8.08(a) has
elapsed, such unacceptable Oil and Gas Property shall not count towards the 85%
requirement (or the 100% of Principal Properties requirement), and the
Administrative Agent may send a notice to the Borrower and the Lenders that the
then outstanding Borrowing Base shall be reduced by an amount as determined by
all of the Lenders to cause the Borrower to be in compliance with the
requirement to provide acceptable title information on 85% of the PV-10 Value of
the Oil and Gas Properties (including 100% of the Principal Properties) included
in the Borrowing Base. This new Borrowing Base shall become effective
immediately after receipt of such notice.
Section 8.09. Additional Collateral.
(a) QSRD and the Borrower will, and will cause each Subsidiary
Guarantor to, grant to the Collateral Agent as security for the Indebtedness a
first-priority Lien (subject only to Excepted Liens and to the extent
applicable, Liens permitted by Section 9.02) on such Person's interest in any
Oil and Gas Properties not already subject to a Lien of the Security Instruments
such that the Mortgaged Property shall include at least 85% (including 100% of
the Principal Properties) (and will use reasonable efforts to maintain 95%
(including 100% of the Principal Properties)) of its and such Subsidiaries'
PV-10 Value of each of proved producing and the total Proved Reserves at all
times, which Lien will be created and perfected by and in accordance with the
provisions of deeds of trust, security agreements and financing statements, or
other Security Instruments, all in form and substance satisfactory to the Agent
in its sole discretion and in sufficient executed (and acknowledged where
necessary or appropriate) counterparts for recording purposes. If the Collateral
Agent so requests in writing, QSRD and the Borrower will, and will cause each
Subsidiary Guarantor to, within 30 days following such request, grant to the
Collateral Agent as security for the Indebtedness a first-priority Lien interest
(subject only to Excepted Liens and, to the extent applicable, Liens permitted
by Section 9.02) on such Person's interest in
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any Oil, and Gas Properties not already subject to a Lien of the Security
Instruments such that the Mortgaged Property shall include a percentage
requested by the Collateral Agent (not to exceed 95% (but including 100% of the
Principal Properties)) of its and such Subsidiaries' PV-10 Value of each of
proved producing and the total Proved Reserves at all times.
(b) Concurrently with the granting of the Lien or other action
referred to in Section 8.09(a) above, the Borrower will (i) provide to the
Collateral Agent title information in form and substance satisfactory to the
Collateral Agent in its sole discretion with respect to the relevant Obligor's
interests in such Oil and Gas Properties; and (ii) promptly after the filing of
any new Security Instrument in any state, upon the reasonable request of the
Collateral Agent, provide to the Collateral Agent an opinion addressed to the
Collateral Agent for the benefit of the Lenders in form and substance
satisfactory to the Collateral Agent in its sole discretion from counsel
acceptable to Collateral Agent, stating that the Security Instrument is valid,
binding and enforceable in accordance with its terms and in legally sufficient
form for such jurisdiction.
Section 8.10. ERISA Information and Compliance. QSRD will promptly
furnish and will cause its ERISA Affiliates to promptly furnish to the Agents
with sufficient copies to the Lenders (i) promptly after the filing thereof with
the United States Secretary of Labor, the Internal Revenue Service or the PBGC,
copies of each annual and other report with respect to each Plan or any trust
created thereunder, (ii) immediately upon becoming aware of the occurrence of
any ERISA Event or of any prohibited transaction," as described in section 406
of ERISA or in section 4975 of the Code, in connection with any Plan or any
trust created thereunder, a written notice signed by a Responsible Officer
specifying the nature thereof, what action QSRD or any ERISA Affiliate is taking
or proposes to take with respect thereto, and, when known, any action taken or
proposed by the Internal Revenue Service, the Department of Labor or the PBGC
with respect thereto, and (iii) immediately upon receipt thereof, copies of any
notice of the PBGC's intention to terminate or to have a trustee appointed to
administer any Plan. With respect to each Plan (other than a Multiemployer
Plan), QSRD will, and will cause each of its ERISA Affiliates to, (i) satisfy in
full and in a timely manner, without incurring any late payment or underpayment
charge or penalty and without giving rise to any Lien, all of the contribution
and funding requirements of section 412 of the Code (determined without regard
to subsections (d), (e), (0 and (k) thereof) and of section 302 of ERISA
(determined without regard to sections 303, 304 and 306 of ERISA), and (ii) pay,
or cause to be paid, to the PBGC in a timely manner, without incurring any late
payment or underpayment charge or penalty, all premiums required pursuant to
sections 4006 and 4007 of ERISA.
Section 8.11. Hedging Program. The Borrower shall maintain in effect
one or more Risk Management Agreements with one or more Eligible Counterparties,
the effective term of such Risk Management Agreements to expire no earlier than
March 31, 2002, and the aggregate notional volumes of Hydrocarbons subject of
such Risk Management Agreements shall constitute, (i) in the event that the Risk
Management Agreements with Prior Agent as counterparty are terminated on or
prior to the Closing Date, for the period from the Closing
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Date through December 10, 1999, not less than thirty-five percent (35%), and
thereafter not less than fifty percent (50%), or (ii) in the event that the Risk
Management Agreements with Prior Agent as counterparty are not terminated on or
prior to the Closing Date, not less than fifty percent (50%), of the Obligors'
forecasted production for such period from Oil and Gas Properties classified as
Proved Developed Producing Reserves.
ARTICLE IX
NEGATIVE COVENANTS
QSRD and the Borrower covenant and agree that, so long as any of the
Commitments are in effect and until payment in full of Loans hereunder, all
interest thereon and all other amounts payable by the Borrower hereunder or any
Obligor under any Loan Document:
Section 9.01. Debt. Neither QSRD nor any of its Subsidiaries, including
the Borrower, will incur, create, assume or suffer to exist any Debt, except:
(a) the Indebtedness or any guaranty of or suretyship
arrangement for the Indebtedness including Debt to issuers of letters of credit
that are the subject of L/C Guarantees;
(b) the Debt of any Obligor existing on and not repaid on the
Closing Date which is disclosed in Schedule 9.01, and any renewals or extensions
(but not increases) thereof,
(c) accounts payable (for the deferred purchase price of
Property or services) from time to time incurred in the ordinary course of
business which, if greater than 90 days past the invoice or billing date, are
being contested in good faith by appropriate proceedings if reserves adequate
under GAAP shall have been established therefor;
(d) Debt under capital leases (as required to be reported on
the financial statements of QSRD pursuant to GAAP) and other Debt of QSRD and
the Borrower not otherwise permitted under this Section 9.01 in an aggregate
principal amount not to exceed $500,000 at any one time outstanding;
(e) Debt of the Borrower under Risk Management Agreements with
any Eligible Counterparty;
(f) Debt associated with bonds or surety obligations required
by Governmental Requirements in connection with the operation of the Oil and Gas
Properties;
(g) the Subordinated Debt;
(h) intercompany Debt to the extent permitted by Section 9.03;
(i) Debt arising from or related to any of the Liens described
in clauses (iii) to (v) of the definition of "Excepted Liens";
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(j) Non-Recourse Debt of any Non-Recourse Subsidiary; and
(k) Debt of QSRD and its Subsidiaries, including the Borrower,
incurred pursuant to the Senior Note Documents.
Section 9.02. Liens. Neither QSRD nor any of its Subsidiaries,
including the Borrower, will create, incur, assume or permit to exist any Lien
on any of its Properties (now owned or hereafter acquired), except:
(a) Liens securing the payment of any Indebtedness;
(b) Excepted Liens;
(c) Liens securing capital leases (but not other Debt) allowed
under Section 9.01(d) but only on the Property under lease;
(d) Liens disclosed on Schedule 9.02;
(e) Liens on cash or securities of the Borrower securing the
Debt described in Section 9.01(f); and
(f) Liens on Property of a Non-Recourse Subsidiary to secure
Debt permitted by Section 9.01(j) and Liens on stock or other equity interests
of any Non-Recourse Subsidiary.
Section 9.03. Investments, Loans and Advances. Neither QSRD nor any of
its Subsidiaries, including the Borrower, will make or permit to remain
outstanding any loans or advances to or investments in any Person, except that
the foregoing restriction shall not apply to:
(a) investments, loans or advances reflected in the Financial
Statements or which are disclosed to the Lenders in Schedule 9.03;
(b) accounts receivable arising in the ordinary course of
business;
(c) direct obligations of the United States or any agency
thereof, or obligations guaranteed by the United States or any agency thereof,
in each case maturing within one year from the date of creation thereof;
(d) commercial paper maturing within 180 days from the date of
creation thereof rated in the highest grade by Standard & Poor's Ratings Service
or Moody's Investors Service, Inc.;
(e) deposits maturing within one year from the date of
creation thereof with, including certificates of deposit issued by, any Lender
or any office located in the United States or any other bank or trust company
which is organized under the laws of the United States or any state thereof, has
capital, surplus and undivided profits aggregating at
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least $100,000,000 (as of the date of such Lender's or bank or trust company's
most recent financial reports) and has a short term deposit rating of no lower
than A2 or P2, as such rating is set forth from time to time, by Standard &
Poor's Rating Service or Moody's Investors Service, Inc., respectively;
(f) in money market funds investing exclusively in investments
described in Section 9.03(c), 9.03(d) or 9.03(e);
(g) investments, loans or advances made by (i) QSRD in or to
the Borrower or any Subsidiary Guarantor, (ii) the Borrower in or to QSRD or any
Subsidiary Guarantor, and (iii) any Subsidiary of QSRD (other than the Borrower)
in or to any Subsidiary Guarantor, QSRD or the Borrower;
(h) investments by the Borrower in Permitted Acquisitions;
(i) investments by the Borrower in Oil and Gas Properties
through indirect ownership such as joint venture, partnership or other
participation arrangements in an amount not to exceed $2,000,000 outstanding at
any one time;
(j) advances to operators under operating agreements entered
into by QSRD or any of its Subsidiaries in the ordinary course of business;
(k) investments, loans or advances made by (i) the Borrower or
any Subsidiary Guarantor to any Non-Recourse Subsidiary not to exceed at any one
time outstanding $100,000 in the aggregate, or (ii) a Non-Recourse Subsidiary to
any other Non-Recourse Subsidiary; provided that QSRD may make loans, advances
or investments to QSR Canada to satisfy its obligations under any employment
agreements to which it is a party and for (A) fixtures, furniture and equipment,
provided that the aggregate amount spent under this clause (A) shall not exceed
$150,000 in the aggregate during any twelve-month period and (B) normal general
and administrative expenses incurred in the ordinary course of its business and
for which QSR Canada is ultimately entitled to reimbursement from QSRD and/or
its Subsidiaries; and
(l) loans or advances to officers, directors and employees of
QSRD or any Subsidiary in the ordinary course of business not to exceed $250,000
in the aggregate outstanding at any time.
Section 9.04. Dividends, Distributions and Redemptions. QSRD shall not
declare or pay any dividend, purchase, redeem or otherwise acquire for value any
of its capital stock now or hereafter outstanding, return any capital to its
stockholders or make any distribution of its assets to its stockholders, except
for (i) dividends or distributions payable solely in capital stock of QSRD; and
(ii) the repurchase or redemption of any shares of the Series C Preferred Stock
with the aggregate net cash proceeds in excess of $50,000,000 of any Equity
Offering(s) occurring after the Closing Date, provided that (A) no Default or
Event of Default has occurred at the time such shares are repurchased or
redeemed or would result
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from such repurchase or redemption and (B) the Excess Availability is not less
than $10,000,000 prior and after giving effect to such repurchase or redemption.
Section 9.05. Sales and Leasebacks. Neither QSRD nor any of its
Subsidiaries will enter into any arrangement, directly or indirectly, with any
Person whereby QSRD or any of its Subsidiaries shall sell or transfer any of its
Property, whether now owned or hereafter acquired, and whereby QSRD or any of
its Subsidiaries shall then or thereafter rent or lease as lessee such Property
or any part thereof or other Property which QSRD or any of its Subsidiaries
intends to use for substantially the same purpose or purposes as the Property
sold or transferred.
Section 9.06. Nature of Business. Neither QSRD, nor any of its
Subsidiaries will allow any material change to be made in the character of its
business as an independent oil and gas exploration and production company.
Section 9.07. Limitation on Leases. Neither QSRD nor any of its
Subsidiaries will create, incur, assume or suffer to exist any obligation for
the payment of rent or hire of Property of any kind whatsoever (real or
personal, including capital leases but excluding leases of Hydrocarbon Interests
and leases directly related to oil and gas field operations), under leases or
lease agreements which would cause the aggregate amount of all payments made by
such Persons pursuant to such leases or lease agreements to exceed $500,000 in
any period of twelve consecutive calendar months in the aggregate. Neither QSRD
nor any of its Subsidiaries will create, incur, assume or suffer to exist any
obligation for the payment of rent or hire of Property of any kind whatsoever
(real or personal, including capital leases but excluding royalty payments under
leases of Hydrocarbon Interests), for oil and gas field operations under leases
or lease agreements (other than leases for any drilling, workover or other rig
related activities, but including leases of vehicles, compressors, and the like)
which would cause the aggregate amount of all payments made by such Persons
pursuant to such leases or lease agreements to exceed $4,000,000 in any period
of twelve consecutive calendar months.
Section 9.08. Mergers, Etc. Neither QSRD nor any of its Subsidiaries
will merge into or with or consolidate with any other Person, or sell, lease or
otherwise dispose of (whether in one transaction or in a series of transactions)
all or substantially all of its Property or assets to any other Person; provided
that (i) any Subsidiary Guarantor may merge with any other Subsidiary Guarantor
or may merge with the Borrower so long as the Borrower is the surviving entity,
and (ii) any Non-Recourse Subsidiary may merge with any Person; provided that if
such Non-Recourse Subsidiary merges with QSRD, the Borrower or any Subsidiary
Guarantor, no Default or Event of Default would occur or be continuing after
giving effect to such merger and QSRD, the Borrower or such Subsidiary
Guarantor, as the case may be, shall be the surviving entity.
Section 9.09. Proceeds of Loans. The Borrower will not permit the
proceeds of the Loans to be used for any purpose other than those permitted by
Section 7.07. Neither the Borrower nor any Person acting on behalf of the
Borrower has taken or will take any action
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which might cause any of the Loan Documents to violate Regulation T, U or X or
any other regulation of the Board of Governors of the Federal Reserve System or
to violate Section 7 of the Securities Exchange Act of 1934 or any rule or
regulation thereunder, in each case as now in effect or as the same may
hereinafter be in effect.
Section 9.10. ERISA Compliance. QSRD will not at any time:
(a) Engage in, or permit any of its ERISA Affiliates to engage
in, any transaction in connection with which QSRD or any of its ERISA Affiliates
could be subjected to either a civil penalty assessed pursuant to section
502(c), (i) or (t) of ERISA or a tax imposed by Chapter 43 of Subtitle D of the
Code;
(b) Terminate, or permit any of its ERISA Affiliates to
terminate, any Plan in a manner, or take any other action with respect to any
Plan, which could reasonably be expected result in any liability to QSRD or any
of its ERISA Affiliates to the PBGC in excess of $100,000;
(c) Fail to make, or permit any of its ERISA Affiliates to
fail to make, full payment when due of all amounts which, under the provisions
of any Plan, agreement relating thereto or applicable law, QSRD or any of its
ERISA Affiliates is required to pay as contributions thereto;
(d) Permit to exist, or allow any of its ERISA Affiliates to
permit to exist, any accumulated funding deficiency within the meaning of
Section 302 of ERISA or section 412 of the Code in excess of $ 100,000, whether
or not waived, with respect to any Plan;
(e) Permit, or allow any of its ERISA Affiliates to permit,
the actuarial present value of the benefit liabilities under any Plan maintained
by QSRD of its ERISA Affiliates which is regulated under Title IV of ERISA to
exceed the current value of the assets (computed on a plan termination basis in
accordance with Title IV of ERISA) of such Plan allocable to such benefit
liabilities in an amount which exceeds $100,000; and for purposes of this
Agreement, the term "actuarial present value of the benefit liabilities" shall
have the meaning specified in section 4041 of ERISA;
(f) Contribute to or assume an obligation to contribute to, or
permit any of its ERISA Affiliates to contribute to or assume an obligation to
contribute to, any Multiemployer Plan;
(g) Acquire, or permit any of its ERISA Affiliates to acquire,
an interest in any Person that causes such Person to become an ERISA Affiliate
with respect to QSRD or any of its ERISA Affiliates if such Person sponsors,
maintains or contributes to, or at any time in the six-year period preceding
such acquisition has sponsored, maintained, or contributed to, (1) any
Multiemployer Plan, or (2) any other Plan that is subject to Title IV of ERISA
under which the actuarial present value of the benefit liabilities under such
Plan exceeds the current value of the assets (computed on a plan termination
basis in accordance
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with Title IV of ERISA) of such Plan allocable to such benefit liabilities in an
amount which exceeds $100,000;
(h) Incur, or permit any of its ERISA Affiliates to incur, a
liability to or on account of a Plan under sections 515, 4062, 4063, 4064, 4201
or 4204 of ERISA in an amount which exceeds $100,000;
(i) Contribute to or assume an obligation to contribute to, or
permit any of its ERISA Affiliates to contribute to or assume an obligation to
contribute to, any employee welfare benefit plan, as defined in section 3(1) of
ERISA, including, without limitation, any such plan maintained to provide
benefits to former employees of such entities, that may not be terminated by
such entities in their sole discretion at any time without any material
liability; or
(j) Amend or permit any of its ERISA Affiliates to amend, a
Plan resulting in an increase in current liability such that QSRD or any of its
ERISA Affiliates is required to provide security to such Plan under section
401(a)(29) of the Code.
Section 9.11. Sale or Discount of Receivables. Neither QSRD nor any of
its Subsidiaries will discount or sell (with or without recourse) any of its
notes receivable or accounts receivable.
Section 9.12. Current Ratio and Interest Coverage Ratio.
(a) Consolidated Current Ratio. QSRD's ratio of (i)
consolidated current assets plus unused availability under the Aggregate
Commitments to (ii) consolidated current liabilities (excluding current
maturities of the Indebtedness) shall not be less than 1.50 to 1.00 as of the
last day of any month commencing October 31, 1999.
(b) Consolidated Interest Coverage Ratio. QSRD's ratio, as of
the last day of any month commencing October 31, 1999, of (i) consolidated
EBITDA for the 12 month period then ended, to (ii) the sum of (a) consolidated
Interest Expense for such 12 month period (but excluding any costs or expenses
incurred in terminating any Risk Management Agreements involving the Bank of
Montreal to the extent included in the determination of consolidated Interest
Expense), and (b) dividends paid in cash on Permitted Preferred Stock during
such 12 month period, shall not be less than 1.00 to 1.00.
Section 9.13. Accounts Payable. QSRD will, and will cause its
Subsidiaries to, pay their respective trade account payables when due in
accordance with their terms and usual and customary industry practices (which
shall not, in any event exceed 90 days from the date of invoice), except for
such payable which are being contested in good faith by appropriate proceedings
diligently pursued and for which adequate reserves under GAAP are being
maintained. QSRD and its Subsidiaries will not permit the weighted average
maturity of their trade accounts payables (excluding payables being contested
pursuant to the foregoing sentence) to exceed 60 days (measured quarterly as of
the last day of each fiscal quarter).
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Section 9.14. Sale of Oil and Gas Properties. QSRD and the Borrower
will not, and will not permit any Subsidiary to, sell, assign, farm-out, convey
or otherwise transfer any Oil and Gas Property or any interest in any Oil and
Gas Property except for (i) sales of Hydrocarbons in the ordinary course of
business, (ii) sales of assets which are worn-out or obsolete and are not
material to the continuation of its business, (iii) intercompany sales or other
dispositions by any Obligor to the Borrower or by any Subsidiary Guarantor to
another Subsidiary Guarantor, provided the foregoing shall not permit
dispositions to Non-Recourse Subsidiaries, except to the extent permitted by
Section 9.03(j)), (iv) dispositions of equipment when substantially similar
equipment has been or will be acquired, (v) any transfer or conveyance required
pursuant to the terms of the Escrow Agreement, and (vi) so long as no Event of
Default has occurred and is continuing, and no Overadvance would result
therefrom, sales or other dispositions of Oil and Gas Properties or other assets
which shall not exceed $1,000,000 in the aggregate in any fiscal year; provided
that the Borrowing Base shall be adjusted by an amount equal to the value, if
any, assigned such Property or asset in the most recently determined Borrowing
Base; and provided, further, at or prior to the effective date of any such sale,
assignment, farm-out, conveyance or other transfer of any Oil and Gas
Properties, and as a condition to Borrower's authority to do so, Borrower shall
deliver to the Administrative Agent a certificate executed by a Responsible
Officer of Borrower certifying (i) that no Event of Default has occurred and is
continuing, (ii) to the valuation of the Oil and Gas Properties involved
utilizing the NYMEX Swap Price for valuation purposes, (iii) that the
disposition proposed will not violate any of the Dollar limitations or other
conditions set forth in this Section 9.14, (iv) that the disposition will not
result in an Overadvance, and (v) the consideration and manner of the payment
thereof to be received by Borrower for the disposition of the Oil and Gas
Properties involved.
Section 9.15. Environmental Matters. Neither QSRD nor any of its
Subsidiaries will cause or permit any of its Property to be in violation of, or
do anything or permit anything to be done which will subject any such Property
to any remedial obligations under any Environmental Laws, assuming disclosure to
the applicable Governmental Authority of all relevant facts, conditions and
circumstances, if any, pertaining to such Property where such violations or
remedial obligations would have a Material Adverse Effect.
Section 9.16. Transactions with Affiliates. Neither QSRD nor any
Subsidiary will enter into any transaction, including, without limitation, any
purchase, sale, lease or exchange of Property or the rendering of any service,
with any Affiliate (other than QSRD, the Borrower or any Subsidiary Guarantor)
unless such transactions are in the ordinary course of its business and are upon
fair and reasonable terms no less favorable to it than it would obtain in a
comparable arm's length transaction with a Person not an Affiliate.
Section 9.17. Subsidiaries and Partnerships. Without the prior written
consent of the Agent, QSRD and the Borrower shall not, and shall not permit any
of its respective Subsidiaries to, create any additional Subsidiaries or
partnerships, unless such Subsidiary or partnership becomes a Subsidiary
Guarantor hereunder or is designated by QSRD to be Non-Recourse Subsidiary. QSRD
shall not and shall not permit any of its Subsidiaries to sell or issue any
shares of stock of any class of one of its Subsidiaries or any interest in a
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partnership except to QSRD or any of its Subsidiaries (other than Non-Recourse
Subsidiaries).
Section 9.18. Negative Pledge Agreements. Neither QSRD nor any of its
Subsidiaries will create, incur, assume or suffer to exist any contract,
agreement or understanding (other than this Agreement, the Security Instruments
and the documents and agreements listed on Schedule 7.23) which in any way
prohibits or restricts the granting, conveying, creation or imposition of any
Lien on any of its Property or restricts any of its Subsidiaries from paying
dividends to QSRD or the Borrower, or which requires the consent of other
Persons in connection therewith.
Section 9.19. Gas Imbalances, Take-or-Pay or Other Prepayments. QSRD
and the Borrower will not, and will not permit any Subsidiary Guarantor to,
enter into any contracts or agreements which warrant production of Hydrocarbons
(other than Risk Management Agreements otherwise permitted hereunder) and will
not hereafter allow gas imbalances, take-or-pay or other prepayments with
respect to their Oil and Gas Properties which would require such Person to
deliver Hydrocarbons produced on Oil and Gas Properties at some future time
without then or thereafter receiving full payment therefor to exceed, during any
monthly period, five percent (5%) of the current aggregate monthly gas
production for such monthly period from the Mortgaged Properties.
Section 9.20. Material Agreements. QSRD and the Borrower shall not, and
shall not permit any Subsidiary to, amend or modify in any material respect or
terminate any of the Material Agreements. Without limitation of the generality
of the foregoing, the Borrower will not amend, modify or supplement in any
material respect the Purchase and Sale Agreement or the Escrow Agreement
referred to therein; and neither QSRD nor the Borrower will waive any condition
precedent or requirement associated with the release of funds held in escrow
pursuant to the terms of the Escrow Agreement. QSRD and the Borrower will, and
will cause each of their Subsidiaries to, perform and comply in all material
respects with all of their obligations under each Material Agreement in such a
manner as to at all times not be in default of any material provisions
thereunder.
Section 9.21. Repayment of Other Debt.
(a) QSRD and the Borrower shall not, and shall not permit any
Subsidiary to, amend, supplement or modify any Senior Note Document or repay the
principal of, or make any other payment in relation to, the Senior Notes;
provided, so long as no Borrowing Base deficiency then exists under Section
2.07(c) or would result therefrom, and no Default or Event of Default has
occurred and is continuing or would result therefrom, the foregoing shall not
prohibit (i) the payment of interest on the Senior Notes, (ii) the repayment of
the Senior Notes with the proceeds of any refinancing thereof (provided that
such refinancing Debt is on terms substantially similar to the Senior Notes),
(iii) modifications or amendments to the Senior Notes or the Senior Note
Documents if the effect thereof could not be expected to have a Material Adverse
Effect and otherwise do not involve the amendment or modification of provisions
which would increase interest rates, principal or interest payment
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amounts, total principal amounts, or require payment of any such amounts at
earlier times, or similar terms and provisions, and (iv) the consummation of the
transactions permitted under the Side Letter.
(b) QSRD and the Borrower shall not, and shall not permit any
Subsidiary to, amend, supplement, or modify the DEM Subordinated Debt in any
material respect; provided, however, that nothing contained herein shall
prohibit the prepayment of the DEM Subordinated Debt prior to its scheduled
maturity upon terms not more onerous that those contained in the agreements
governing the DEM Subordinated Debt as in effect on the Closing Date.
Section 9.22. Limitations on Capital Expenditures. QSRD and the
Borrower shall not, and shall not permit any Subsidiaries to, make or pay any
capital expenditures (other than maintenance and emergency capital expenditures
and capital expenditures constituting Permitted Acquisitions) if, after giving
effect thereto, the aggregate of all such expenditures would exceed (i) in the
aggregate during any 12 month period, on a cumulative basis for the first 12
months commencing July 1, 1999, and for each 12 month period ending at the end
of each month thereafter, $12,000,000, or (ii) in the aggregate, for the period
from the Closing Date through the Maturity Date, $18,000,000.
Section 9.23. Preferred Stock. QSRD and the Borrower shall not, and
shall not permit any Subsidiary to, issue any Preferred Stock other than
Permitted Preferred Stock.
Section 9.24. Securities Accounts. Borrower shall not establish or
maintain any Securities Account unless Agent shall have received a Control
Agreement, duly executed and in full force and effect, in respect of such
Securities Account. Borrower agrees that it will not transfer assets out of any
Securities Accounts; provided, however, that, so long as no Event of Default has
occurred and is continuing or would result therefrom, Borrower may use such
assets to the extent permitted by this Agreement. Upon the occurrence and during
the continuance of a Default or Event of Default, Collateral Agent may notify
any securities intermediary to liquidate or transfer the applicable Securities
Account or any related investment property maintained or held thereby and remit
the proceeds thereof to the Administrative Agent's Account.
Section 9.25. QSR Canada. Borrower shall not permit QSR Canada to
acquire any assets in the aggregate amount in excess of $200,000, incur any
indebtedness or other liabilities in the aggregate amount in excess of $150,000
to any Persons other than the Lender Group, or conduct any business other than
the provision of general and administrative services, including management
services, to QSRD and its Subsidiaries. Borrower shall not, and shall not permit
any of its Subsidiaries to, conduct any transactions with or make any loans or
advances to or investment in QSR Canada.
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ARTICLE X
EVENTS OF DEFAULT; REMEDIES
Section 10.01. Events of Default. One or more of the following events
shall constitute an "Event of Default":
(a) the Borrower or any Obligor shall default in the payment
or prepayment when due of any principal of or interest on any Loan, or the
Borrower or any Obligor shall default in the payment of any fees or other amount
payable by it hereunder or under any Loan Document and such default shall
continue unremedied for a period of 3 Business Days; or
(b) QSRD, the Borrower or any Subsidiary Guarantor shall
default in the payment when due of any principal of or interest on any of its
Debt (including the Subordinated Debt) aggregating $500,000 or more, or any
event specified in any note, agreement, indenture or other document evidencing
or relating to any such Debt shall occur if the effect of such event is to
permit, or (with the giving of any notice or the lapse of time or both) to
permit the holder or holders of such Debt (or a trustee or agent on behalf of
such holder or holders) to cause, such Debt to become due prior to its stated
maturity; or QSRD shall become obligated to mandatorily redeem any of the
Preferred Stock or a "mandatory redemption event" shall occur under the
Certificate of Designation for any class of Preferred Stock; or
(c) any representation, warranty or certification made or
deemed made herein or in any Security instrument by QSRD, the Borrower or any
Subsidiary Guarantor, or any certificate furnished to any Lender or the Agent
pursuant to the provisions hereof or any Loan Document, shall prove to have been
false or misleading as of the time made or furnished in any material respect; or
(d) QSRD or the Borrower shall default in the performance of
any of its obligations or any requirement shall not be complied with under
Article IX; or QSRD, the Borrower or any Subsidiary Guarantor shall default in
the performance of any of its obligations under Article VIII, under any other
Article of this Agreement other than under Article IX or any Loan Document
(other than the payment of amounts due which shall be governed by Section
10.01(a)) and such default shall continue unremedied for a period of 15 days
after the occurrence thereof, with the exception of those provisions that
contain separately stated time periods during which performance is to occur, as
to which the permissible period for such default to continue unremedied shall be
5 days; or
(e) QSRD or the Borrower shall admit in writing its inability
to, or be generally unable to, pay its debts as such debts become due; or
(f) QSRD or the Borrower shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian, trustee
or liquidator of itself or of all or a substantial part of its Property, (ii)
make a general assignment for the benefit of its creditors, (iii) commence a
voluntary case under the Federal Bankruptcy Code (as now or
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hereafter in effect), (iv) file a petition seeking to take advantage of any
other law relating to bankruptcy, insolvency, reorganization, winding-up, or
composition or readjustment of debts, (v) fail to controvert in a timely and
appropriate manner, or acquiesce in writing to, any petition filed against it in
an involuntary case under the Federal Bankruptcy Code, or (vi) take any
corporate action for the purpose of effecting any of the foregoing; or
(g) a proceeding or case shall be commenced, without the
application or consent of QSRD or the Borrower, in any court of competent
jurisdiction, seeking (i) its liquidation, reorganization, dissolution or
winding-up, or the composition or readjustment of its debts, (ii) the
appointment of a trustee, receiver, custodian, liquidator or the like of either
QSRD or the Borrower of all or any substantial part of its assets, or (iii)
similar relief in respect of such Person under any law relating to bankruptcy,
insolvency, reorganization, winding-up, or composition or adjustment of debts,
and such proceeding or case shall continue undismissed, or an order, judgment or
decree approving or ordering any of the foregoing shall be entered and continue
unstayed and in effect, for a period of 60 days; or (iv) an order for relief
against either QSRD or the Borrower shall be entered in an involuntary case
under the Federal Bankruptcy Code; or
(h) a judgment or judgments for the payment of money in excess
of $100,000 in the aggregate shall be rendered by a court against QSRD, the
Borrower or any Subsidiary Guarantor and the same shall not be discharged (or
provision shall not be made for such discharge), or a stay of execution thereof
shall not be procured, within thirty (30) days from the date of entry thereof
and QSRD, the Borrower or such Subsidiary shall not, within said period of 30
days, or such longer period during which execution of the same shall have been
stayed, appeal therefrom and cause the execution thereof to be stayed during
such appeal; or
(i) the Security Instruments after delivery thereof shall for
any reason, except to the extent permitted by the terms thereof, cease to be in
full force and effect and valid, binding and enforceable in accordance with
their terms, or cease to create a valid and perfected Lien of the priority
required thereby on any of the collateral purported to be covered thereby,
except to the extent permitted by the terms of this Agreement, or QSRD, the
Borrower, any Subsidiary Guarantor or any Person on their behalf shall so state
in writing; or
(j) any Subsidiary Guarantor takes, suffers or permits to
exist any of the events or conditions referred to in paragraphs (e), (f) or (g)
hereof; or
(k) the occurrence of a Change of Control.
Section 10.02. Remedies. If any Event of Default shall have occurred
and be continuing, or, with respect to clause (d) below, also upon the
occurrence and during the continuance of any other Triggering Event, then:
(a) in the case of an Event of Default other than one referred
to in clauses (e), (f) or (g) of Section 10.01 or in clause (j) to the extent it
relates to clauses (e), (f) or (g), the Administrative Agent may and, upon
request of the Majority Lenders, shall, by notice to
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the Borrower, cancel the Commitments and/or declare the principal amount then
outstanding of, and the accrued interest on, the Loans and all other amounts
payable by the Borrower hereunder and under the other Loan Documents to be
forthwith due and payable, whereupon such amounts shall be immediately due and
payable without presentment, demand, protest, notice of intent to accelerate,
notice of acceleration or other formalities of any kind, all of which are hereby
expressly waived by the Borrower.
(b) in the case of the occurrence of an Event of Default
referred to in clauses (e), (f) or (g) of Section 10.01 or in clause (j) to the
extent it relates to clauses (e), (f) or (g), the Commitments shall be
automatically canceled and the principal amount then outstanding of, and the
accrued interest on, the Loans and all other amounts payable by the Borrower
hereunder and under the other Loan Documents shall become automatically
immediately due and payable without presentment, demand, protest, notice of
intent to accelerate, notice of acceleration or other formalities of any kind,
all of which are hereby expressly waived by the Borrower.
(c) All proceeds received after maturity of the Indebtedness,
whether by acceleration or otherwise shall be applied in accordance with the
provisions of Section 2.15 hereof.
(d) Administrative Agent may distribute the Transfer Order
Letters to the addressees thereof as it shall determine.
ARTICLE XI
THE AGENT
Section 11.01. Appointment, Powers and Immunities.
(a) Each member of the Lender Group hereby designates and
appoints Administrative Agent as its administrative agent under this Agreement
and the other Loan Documents and Collateral Agent as its collateral agent under
this Agreement and the other Loan Documents. Each member of the Lender Group
hereby irrevocably authorizes each such Agent to take such action on its behalf
under the provisions of this Agreement and each other Loan Document and to
exercise such powers and perform such duties as are expressly delegated to it by
the terms of this Agreement or any other Loan Document, together with such
powers as are reasonably incidental thereto. Each such Agent agrees to act as
such on the express conditions contained in this Article XI. The provisions of
this Article XI are solely for the benefit of the Administrative Agent,
Collateral Agent, and the Lenders. No Obligor shall have any rights as a third
party beneficiary of any of the provisions contained herein. Any provision to
the contrary contained elsewhere in this Agreement or in any other Loan Document
notwithstanding, each such Agent shall not have any duties or responsibilities,
except those expressly set forth herein, nor shall each such Agent have or be
deemed to have any fiduciary relationship with any other member of the Lender
Group, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or any other Loan
Document or otherwise exist against each such Agent; it being expressly
understood and agreed that the use of the word "Agent" is for convenience only
and that each such Agent is merely the representative
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of the other members of the Lender Group, and has only the contractual duties
set forth in this Agreement and the other Loan Documents. Except as expressly
otherwise provided in this Agreement, each such Agent shall have and may use its
sole discretion with respect to exercising or refraining from exercising any
discretionary rights or taking or refraining from taking any actions which such
Agent is expressly entitled to take or assert under or pursuant to this
Agreement and the other Loan Documents. No member of the Lender Group shall have
any right of action whatsoever against each such Agent as a result of such Agent
acting or failing to act hereunder pursuant to such discretion (other than any
action taken or failure to act arising out of such Agent's gross negligence or
willful misconduct) and any such action taken or failure to act pursuant to such
discretion shall be binding on the Lender Group. Without limiting the generality
of the foregoing, or of any other provision of the Loan Documents that provides
rights or powers to Administrative Agent or Collateral Agent, each of the
members of the Lender Group agree that, as long as this Agreement remains in
effect: (i) (A) Administrative Agent shall have the right to maintain, in
accordance with its customary business practices, ledgers and records reflecting
the status of the Indebtedness, the Loans, the Letters of Credit, payments made
by the Borrower, and related matters, and (B) Collateral Agent shall have the
right to maintain, in accordance with its customary business practices, ledgers
and records reflecting the status of the Collateral and related matters; (ii)
Collateral Agent shall have the right to execute or file any and all financing
or similar statements or notices, amendments, renewals, supplements, documents,
instruments, proofs of claim, notices and other written agreements with respect
to the Loan Documents; (iii) Administrative Agent shall have the right to make
the Loans, and the Letters of Credit, for itself or on behalf of the applicable
Lenders as provided in the Loan Documents; (iv) [intentionally omitted]; (v)
[intentionally omitted]; (vi) (A) Administrative Agent shall have the right to
perform, exercise, and enforce any and all other rights and remedies of the
Lender Group with respect to the Obligors, the Indebtedness, or otherwise
related to any of same to the extent reasonably incidental to the exercise by
Administrative Agent of the rights and remedies specifically authorized to be
exercised by Administrative Agent by the terms of the Loan Documents, and (B)
Collateral Agent shall have the right to perform, exercise, and enforce such
other rights and remedies of the Lender Group with respect to the Obligors, the
Indebtedness, the Collateral, or otherwise related to any of same to the extent
reasonably incidental to the exercise by Collateral Agent of the rights and
remedies specifically authorized to be exercised by Collateral Agent by the
terms of the Loan Documents ; and (vii) Administrative Agent and Collateral
Agent each shall have the right to incur and pay such fees and Lender Group
Expenses under the Loan Documents as such Agent reasonably may deem necessary or
appropriate for the performance and fulfillment of its functions and powers
pursuant to the Loan Documents. Administrative Agent may deem and treat the
payee of any Indebtedness as the holder thereof for all purposes of the Loan
Documents unless and until a notice of the assignment or transfer of such
Indebtedness shall have been filed with Administrative Agent. Each member of the
Lender Group further consents to (y) the execution, delivery, and performance by
Administrative Agent or Collateral Agent of each Loan Document entered into by
such Agent on behalf of the Lender Group as contemplated by this Agreement, and
(z) the terms of such Loan Documents.
(b) Except as otherwise provided in this section, each of
Administrative Agent and Collateral Agent may execute any of its duties under
this Agreement or any other Loan Document by or through agents, employees or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. Each of Administrative Agent and
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Collateral Agent shall not be responsible for the negligence or misconduct of
any agent or attorney-in-fact that it selects as long as such selection was made
in compliance with this section and without gross negligence or willful
misconduct.
(c) None of the Agent-Related Persons shall (i) be liable for
any action taken or omitted to be taken by any of them under or in connection
with this Agreement or any other Loan Document or the transactions contemplated
hereby (except for its own gross negligence or willful misconduct), or (ii) be
responsible in any manner to any members of the Lender Group for any recital,
statement, representation or warranty made by any Obligor or any Subsidiary or
Affiliate thereof, or any officer or director thereof, contained in this
Agreement or in any other Loan Document, or in any certificate, report,
statement or other document referred to or provided for in, or received by
Administrative Agent or Collateral Agent under or in connection with, this
Agreement or any other Loan Document, or the validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other Loan
Document, or for any failure of any Obligor or any other party to any Loan
Document to perform its obligations hereunder or thereunder. No Agent-Related
Person shall be under any obligation to any member of the Lender Group to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of any Obligor or any
of its Subsidiaries or Affiliates.
Section 11.02. Reliance by Agent. Each Agent shall be entitled to rely,
and shall be fully protected in relying, upon any writing, resolution, notice,
consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone
message, statement or other document or conversation believed by it to be
genuine and correct and to have been signed, sent, or made by the proper Person,
and upon advice and statements of legal counsel (including counsel to the
Obligors or counsel to any member of the Lender Group), independent accountants
and other experts selected by such Agent. Each Agent shall be fully justified in
failing or refusing to take any action under this Agreement or any other Loan
Document unless it first shall receive such advice or concurrence of the Lenders
as it deems appropriate and until such instructions are received, such Agent
shall act, or refrain from acting, as it deems advisable. If any Agent so
requests, it first shall be indemnified to its reasonable satisfaction by the
Lender Group against any and all liability and expense that may be incurred by
it by reason of taking or continuing to take any such action. Each Agent in all
cases shall be fully protected in acting, or in refraining from acting, under
this Agreement or any other Loan Document in accordance with a request or
consent of the Lender Group and such request and any action taken or failure to
act pursuant thereto shall be binding upon all members of the Lender Group.
Section 11.03. Defaults. Administrative Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default,
except with respect to defaults in the payment of principal, interest, fees, and
Lender Group Expenses required to be paid to Administrative Agent for the
account of the Lender Group or the failure of Borrower to reimburse for Letter
of Credit drawings, except with respect to Events of Default of which
Administrative Agent has actual knowledge, and unless Administrative Agent shall
have received written notice from a Lender or Borrower referring to this
Agreement, describing such Default or Event of Default, and stating that such
notice is a
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"Notice of Default." Administrative Agent promptly will notify the Lender Group
of its receipt of any such notice or of any Event of Default of which
Administrative Agent has actual knowledge. If any Lender obtains actual
knowledge of any Event of Default, such Lender promptly shall notify the other
Lenders and each Agent of such Event of Default. Each Lender shall be solely
responsible for giving any notices to its Participants, if any. Subject to
Sections 11.02 and 11.07, each Agent shall take such action with respect to such
Default or Event of Default as may be requested by the Required Lenders in
accordance with Article X; provided, however, that unless and until such Agent
has received any such request, such Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem advisable.
Section 11.04. Rights as a Lender.
(a) With respect to its Commitment and the Loans made by it
and its participation in the issuance of Letters of Credit, Foothill Capital
Corporation (and any successor acting as Administrative Agent, if any, as
permitted by Section 11.08(a) hereof) in its capacity as a Lender under the Loan
Documents shall have the same rights, privileges and powers under the Loan
Documents as any other Lender and may exercise the same as though it were not
acting as Administrative Agent, and the term "Lender" or "Lenders" shall, unless
the context otherwise indicates, include Administrative Agent in its individual
capacity. Foothill Capital Corporation (and any successor acting as
Administrative Agent) and its affiliates may (without having to account for the
same to any member of the Lender Group) accept deposits from, lend money to,
make investments in and generally engage in any kind of banking, trust or other
business with Borrower (and any of its Subsidiaries or Affiliates) as if it were
not acting as Administrative Agent, and Foothill Capital Corporation (and its
successors) and its affiliates may accept fees and other consideration from
Borrower for services in connection with this Agreement or otherwise without
having to account for the same to the Lender Group.
(b) With respect to its Commitment and the Loans made by it,
Ableco Finance LLC (and any successor acting as Collateral Agent, if any, as
permitted by Section 11.08(b) hereof) in its capacity as a Lender under the Loan
Documents shall have the same rights, privileges and powers under the Loan
Documents as any other Lender and may exercise the same as though it were not
acting as Collateral Agent, and the term "Lender" or "Lenders" shall, unless the
context otherwise indicates, include Collateral Agent in its individual
capacity. Ableco Finance LLC (and any successor acting as Collateral Agent) and
its affiliates may (without having to account for the same to any member of the
Lender Group) accept deposits from, lend money to, make investments in and
generally engage in any kind of banking, trust or other business with Borrower
(and any of its Subsidiaries or Affiliates) as if it were not acting as
Collateral Agent, and Ableco Finance LLC and its affiliates may accept fees and
other consideration from Borrower for services in connection with this Agreement
or otherwise without having to account for the same to the Lender Group.
Section 11.05. COSTS AND EXPENSES; INDEMNIFICATION. EACH AGENT MAY
INCUR AND PAY FEES, COSTS, AND LENDER GROUP EXPENSES UNDER THE LOAN DOCUMENTS TO
THE EXTENT SUCH AGENT DEEMS
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REASONABLY NECESSARY OR APPROPRIATE FOR THE PERFORMANCE AND FULFILLMENT OF ITS
FUNCTIONS, POWERS, AND OBLIGATIONS PURSUANT TO THE LOAN DOCUMENTS, INCLUDING
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, COURT COSTS, REASONABLE
ATTORNEYS FEES AND EXPENSES, COSTS OF COLLECTION BY OUTSIDE COLLECTION AGENCIES
AND AUCTIONEER FEES AND COSTS OF SECURITY GUARDS OR INSURANCE PREMIUMS PAID TO
MAINTAIN THE COLLATERAL, WHETHER OR NOT BORROWER IS OBLIGATED TO REIMBURSE THE
LENDER GROUP FOR SUCH EXPENSES PURSUANT TO THE LOAN AGREEMENT OR OTHERWISE. EACH
LENDER HEREBY AGREES THAT IT IS AND SHALL BE OBLIGATED TO PAY TO OR REIMBURSE
AGENT FOR THE AMOUNT OF SUCH LENDER'S PERCENTAGE SHARE THEREOF. WHETHER OR NOT
THE TRANSACTIONS CONTEMPLATED HEREBY ARE CONSUMMATED, THE LENDERS SHALL
INDEMNIFY UPON DEMAND THE AGENT-RELATED PERSONS (WITHOUT LIMITING THE OBLIGATION
OF THE OBLIGORS TO DO SO), ACCORDING TO THEIR PERCENTAGE SHARES, FROM AND
AGAINST ANY AND ALL INDEMNIFIED LIABILITIES (INCLUDING WITHOUT LIMITATION
INDEMNIFIED LIABILITIES ARISING UNDER ANY ENVIRONMENTAL LAW AS PROVIDED HEREIN);
PROVIDED, HOWEVER, THAT NO LENDER SHALL BE LIABLE FOR THE PAYMENT TO THE
AGENT-RELATED PERSONS OF ANY PORTION OF SUCH INDEMNIFIED LIABILITIES RESULTING
SOLELY FROM SUCH PERSON'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT
LIMITATION OF THE FOREGOING, EACH LENDER SHALL REIMBURSE ADMINISTRATIVE AGENT OR
COLLATERAL AGENT, AS THE CASE MAY BE, UPON DEMAND FOR SUCH LENDER'S RATABLE
SHARE OF ANY COSTS OR OUT-OF-POCKET EXPENSES (INCLUDING ATTORNEYS FEES AND
EXPENSES) INCURRED BY SUCH AGENT IN CONNECTION WITH THE PREPARATION, EXECUTION,
DELIVERY, ADMINISTRATION, MODIFICATION, AMENDMENT OR ENFORCEMENT (WHETHER
THROUGH NEGOTIATIONS, LEGAL PROCEEDINGS OR OTHERWISE) OF, OR LEGAL ADVICE IN
RESPECT OF RIGHTS OR RESPONSIBILITIES UNDER, THIS AGREEMENT, ANY OTHER LOAN
DOCUMENT, OR ANY DOCUMENT CONTEMPLATED BY OR REFERRED TO HEREIN . THE
UNDERTAKING IN THIS SECTION SHALL SURVIVE THE PAYMENT OF ALL INDEBTEDNESS AND
OTHER OBLIGATIONS HEREUNDER AND THE RESIGNATION OR REPLACEMENT OF ANY AGENT.
Section 11.06. Non-Reliance on Agent and other Lenders. Each
Lender acknowledges that none of the Agent-Related Persons has made any
representation or warranty to it, and that no act by any Agent hereinafter
taken, including any review of the affairs or Property of the Obligors and their
Subsidiaries or Affiliates, shall be deemed to constitute any representation or
warranty by any Agent-Related Person to any Lender. Each Lender represents to
each Agent that it has, independently and without reliance upon any
Agent-Related Person and based on such documents and information as it has
deemed
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appropriate, made its own appraisal of and investigation into the business,
prospects, operations, Property, financial and other condition and
creditworthiness of QSRD and its Subsidiaries, including the Borrower, and any
other Person (other than the Lender Group) party to a Loan Document, and all
applicable bank regulatory laws relating to the transactions contemplated
hereby, and made its own decision to enter into this Agreement and to extend
credit to Borrower. Each Lender also represents that it will, independently and
without reliance upon any Agent-Related Person and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement and the other Loan Documents, and to make such investigations as
it deems necessary to inform itself as to the business, prospects, operations,
property, financial and other condition and creditworthiness of Borrower and any
other Person (other than the Lender Group) party to a Loan Document. Except for
notices, reports and other documents expressly herein required to be furnished
to the Lender Group by an Agent, no Agent shall have any duty or responsibility
to provide any member of the Lender Group with any credit or other information
concerning the business, prospects, operations, Property, financial and other
condition or creditworthiness of QSRD and its Subsidiaries, including the
Borrower, and any other Person (other than the Lender Group) party to a Loan
Document that may come into the possession of any of the Agent-Related Persons.
Section 11.07. Action by Agents. Except for action or other matters
expressly required of any Agent hereunder, such Agent shall in all cases be
fully justified in failing or refusing to take any action under this Agreement
or any other Loan Document unless it shall (i) receive written instructions from
the Majority Lenders specifying the action to be taken, and (ii) be indemnified
to its satisfaction by the Lenders against any and all liability and expenses
which may be incurred by it by reason of taking, not taking or continuing to
take any such action. The instructions of the Majority Lenders and any action
taken or failure to act pursuant thereto by such Agent shall be binding on all
of the Lenders. If a Default has occurred and is continuing, such Agent shall
take such action with respect to such Default as shall be directed by the
Majority Lenders in the written instructions (with indemnities) described in
this Section 11.07, provided that, unless and until such Agent shall have
received such directions, such Agent may (but shall not be obligated to) take
such action, or refrain from taking such action, with respect to such Default as
it shall deem advisable in the best interests of the Lenders. In no event,
however, shall any Agent be required to take any action which exposes such Agent
to personal liability or which is contrary to this Agreement and the Loan
Documents or applicable law.
Section 11.08. Resignation or Removal of Agent. Subject to the
appointment and acceptance of a successor Administrative Agent as provided
below, Administrative Agent may resign at any time by notice to the Lender Group
and Borrower (for the benefit of the Obligors). Upon any such resignation, the
Majority Lenders shall have the right to appoint a successor Administrative
Agent. If no successor Administrative Agent shall have been appointed by the
Majority Lenders and have accepted such appointment within 30 days after the
retiring Administrative Agent's giving of notice of resignation, then the
retiring Administrative Agent may, on behalf of Lenders, appoint a successor
Administrative Agent. Upon the acceptance of
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any appointment as Administrative Agent by a successor Administrative Agent,
such successor Administrative Agent shall thereupon succeed to and become vested
with all the rights, remedies, powers, privileges, duties and obligations of the
retiring Administrative Agent, and the retiring Administrative Agent shall be
discharged from its duties and obligations, under the Loan Documents. After any
retiring Administrative Agent's resignation as Administrative Agent, the
provisions of this Article XI and Section 12.03 shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as Administrative Agent. If no successor Administrative Agent has
accepted appointment as Administrative Agent by the date which is 45 days
following a retiring Administrative Agent's notice of resignation, the retiring
Administrative Agent's resignation shall nevertheless become effective and the
Majority Lenders shall perform all of the duties of Administrative Agent until
such time, if any, as the Majority Lenders appoint a successor Administrative
Agent as provided above.
(b) Subject to the appointment and acceptance of a successor
Collateral Agent as provided below, Collateral Agent may resign at any time by
notice to the Lender Group and Borrower (for the benefit of the Obligors). Upon
any such resignation, the Majority Lenders shall have the right to appoint a
successor Collateral Agent. If no successor Collateral Agent shall have been
appointed by the Majority Lenders and have accepted such appointment within 30
days after the retiring Collateral Agent's giving of notice of resignation, then
the retiring Collateral Agent may, on behalf of Lenders, appoint a successor
Collateral Agent. Upon the acceptance of any appointment as Collateral Agent by
a successor Collateral Agent, such successor Collateral Agent shall thereupon
succeed to and become vested with all the rights, remedies, powers, privileges,
duties and obligations of the retiring Collateral Agent, and the retiring
Collateral Agent shall be discharged from its duties and obligations, under the
Loan Documents. After any retiring Collateral Agent's resignation as Collateral
Agent, the provisions of this Article XI and Section 12.03 shall continue in
effect for its benefit in respect of any actions taken or omitted to be taken by
it while it was acting as Collateral Agent. If no successor Collateral Agent has
accepted appointment as Collateral Agent by the date which is 45 days following
a retiring Collateral Agent's notice of resignation, the retiring Collateral
Agent's resignation shall nevertheless become effective and the Majority Lenders
shall perform all of the duties of Collateral Agent until such time, if any, as
the Majority Lenders appoint a successor Collateral Agent as provided above.
Section 11.09. Collateral Sub-Agents. Each member of the Lender Group
by its execution and delivery of this Agreement (or any joinder hereto or any
Assignment hereunder) agrees that, in the event it shall hold any monies or
other investments on account of Borrower or any other Obligor, such monies or
other investments shall be held in the name and under the control of such member
of the Lender Group, and such member of the Lender Group shall hold such monies
or other investments as a collateral sub-agent for Collateral Agent under this
Agreement and the other Loan Documents. Each Obligor by its execution and
delivery of this Agreement hereby consents to the foregoing.
Section 11.10. Communications by Obligors. Except as otherwise provided
in this Agreement, the Obligors' communications with respect to the Loan
Documents shall be with Administrative Agent or Collateral Agent, as the case
may be, and the Obligors shall not be under any obligation to communicate
directly with the Lenders.
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Section 11.11. Collateral Matters.
(a) The Lenders hereby irrevocably authorize Collateral Agent,
at its option and in its sole discretion, to release any Lien on any Collateral
(i) upon the termination of the Commitments and payment and satisfaction in full
of all Indebtedness; (ii) constituting property being sold or disposed of if a
release is required or desirable in connection therewith and if Borrower
certifies in writing to Collateral Agent that the sale or disposition is
permitted under this Agreement or the other Loan Documents (and Collateral Agent
may rely conclusively on any such certificate, without further inquiry); (iii)
constituting property in which Borrower and the other Obligors owned no interest
at the time the security interest was granted or at any time thereafter; (iv)
constituting property leased to Borrower or any other Obligor under a lease that
has expired or is terminated in a transaction permitted under this Agreement, or
(v) which, in the aggregate with all other dispositions of Collateral, has a
fair market value or book value, whichever is less, of $1,000,000 or less.
Except as provided above or expressly provided in any other Loan Document,
Collateral Agent will not execute and deliver a release of any Lien on any
Collateral without the prior written authorization of all of the Lenders. Upon
request by Collateral Agent or Borrower at any time, Administrative Agent and
the Lenders will confirm in writing Collateral Agent's authority to release any
such Liens on particular types or items of Collateral pursuant to this Section
11.11; provided, however, that (1) Collateral Agent shall not be required to
execute any document necessary to evidence such release on terms that, in
Collateral Agent's opinion, would expose Collateral Agent to liability or create
any obligation or entail any consequence other than the release of such Lien
without recourse, representation, or warranty, and (2) such release shall not in
any manner discharge, affect, or impair the Indebtedness or any Liens (other
than those expressly being released) upon (or obligations of Borrower or the
other Obligors in respect of) all interests retained by Borrower or the other
Obligors, including, the proceeds of any sale, all of which shall continue to
constitute part of the Collateral.
(b) Collateral Agent shall have no obligation whatsoever to
any other member of the Lender Group to assure that the Collateral exists or is
owned by Borrower or any other Obligor or is cared for, protected, or insured or
has been encumbered, or that the Collateral Agent's Liens have been properly or
sufficiently or lawfully created, perfected, protected, or enforced or are
entitled to any particular priority, or to exercise at all or in any particular
manner or under any duty of care, disclosure or fidelity, or to continue
exercising, any of the rights, authorities and powers granted or available to
Collateral Agent pursuant to any of the Loan Documents, it being understood and
agreed that in respect of the Collateral, or any act, omission or event related
thereto, subject to the terms and conditions contained herein, Collateral Agent
may act in any manner it may deem appropriate, absent the Collateral Agent's
gross negligence or willful misconduct, in its sole discretion given Collateral
Agent's own interest in the Collateral in its capacity as one of the Lenders and
that Collateral Agent shall have no other duty or liability whatsoever to any
other member of the Lender Group as to any of the foregoing, except as otherwise
provided herein.
Section 11.12. Restrictions on Actions by the Agents and the Lenders;
Sharing Payments.
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(a) Each of the Agents and each of the Lenders agrees that it
shall not, without the express consent of the Agents, and that it shall, to the
extent it is lawfully entitled to do so, upon the request of Collateral Agent,
set off against the Indebtedness, any amounts owing by such member of the Lender
Group to Borrower or any other Obligor or any accounts of Borrower or any other
Obligor now or hereafter maintained with such member of the Lender Group. Each
of the Agents and each of the Lenders further agrees that it shall not, unless
specifically requested to do so by Collateral Agent , take or cause to be taken
any action, including, the commencement of any legal or equitable proceedings,
to foreclose any Lien on, or otherwise enforce any security interest in, any of
the Collateral the purpose of which is, or could be, to give such member of the
Lender Group any preference or priority against the other members of the Lender
Group with respect to the Collateral.
(b) Subject to Section 11.04, if, at any time or times any
Lender shall receive (i) by payment, foreclosure, setoff or otherwise, any
proceeds of Collateral or any payments with respect to the Indebtedness arising
under, or relating to, this Agreement or the other Loan Documents, except for
any such proceeds or payments received by such Lender from Administrative Agent
pursuant to the terms of this Agreement, or (ii) payments from Administrative
Agent in excess of such Lender's ratable portion of all such distributions by
Administrative Agent, such Lender promptly shall turn the same over to
Administrative Agent, in kind, and with such endorsements as may be required to
negotiate the same to Administrative Agent, or in same day funds, as applicable,
for the account of the Lender Group and for apportionment and application to the
Indebtedness in accordance with Section 2.14 hereof.
Section 11.13. Several Obligations; No Liability. Notwithstanding that
certain of the Loan Documents now or hereafter may have been or will be executed
only by or in favor of an Agent in its capacity as such, and not by or in favor
of the Lenders, any and all obligations on the part of Administrative Agent (if
any) to make any credit available hereunder shall constitute the several (and
not joint) obligations of the respective Lenders on a ratable basis, according
to their Percentage Shares, to make an amount of such credit not to exceed, in
principal amount, at any one time outstanding, the amount of their respective
Commitments. Nothing contained herein shall confer upon any member of the Lender
Group any interest in, or subject any member of the Lender Group to any
liability for, or in respect of, the business, assets, profits, losses, or
liabilities of any other member of the Lender Group. Each Lender shall be solely
responsible for notifying its participants of any matters relating to the Loan
Documents to the extent any such notice may be required, and no member of the
Lender Group shall have any obligation, duty, or liability to any participant of
any other Lender. Except as provided in Section 11.05, no Agent or any Lender
shall have any liability for the acts of the other Agent or any other Lender. No
Lender shall be responsible to Borrower, any other Obligor, or any other Person
for any failure by any other Lender to fulfill its obligations to make credit
available hereunder, nor to advance for it or on its behalf in connection with
its Commitment, nor to take any other action on its behalf hereunder or in
connection with the financing contemplated herein.
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ARTICLE XII
MISCELLANEOUS
Section 12.01. Waiver. No failure on the part of the Agents or any
Lender to exercise and no delay in exercising, and no course of dealing with
respect to, any right, power or privilege under any of the Loan Documents shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege under any of the Loan Documents preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
Section 12.02. Notices. All notices and other communications provided
for herein and in the Loan Documents (including, without Limitation, any
modifications of, or waivers or consents under, this Agreement or the Loan
Documents) shall be given or made by telecopy, courier or U.S. Mail or in
writing and telecopied, mailed or delivered to the intended recipient at the
"Address for Notices" specified below its name on the signature pages hereof or
in the Loan Documents or, as to any party, at such other address as shall be
designated by such party in a notice to each other party. Except as otherwise
provided in this Agreement or in the Loan Documents, all such communications
shall be deemed to have been duly given when transmitted by telecopier,
delivered to the telegraph or cable office or personally delivered or, in the
case of a mailed notice, three (3) Business Days after the date deposited in the
mails, postage prepaid, or in the case of overnight courier, one (1) Business
Day after the date deposited with such courier, in each case given or addressed
as aforesaid.
Section 12.03. PAYMENT OF EXPENSES, INDEMNITIES, ETC. THE BORROWER
AGREES:
(a) WHETHER OR NOT THE TRANSACTIONS HEREBY CONTEMPLATED ARE
CONSUMMATED, TO PAY ALL LENDER GROUP EXPENSES; AND PROMPTLY REIMBURSE THE AGENTS
FOR ALL AMOUNTS EXPENDED, ADVANCED OR INCURRED BY THE AGENTS OR THE LENDERS TO
SATISFY ANY OBLIGATION OF ANY OBLIGOR UNDER THIS AGREEMENT OR ANY SECURITY
INSTRUMENT;
(b) TO INDEMNIFY THE AGENTS AND EACH LENDER AND EACH OF THEIR
AFFILIATES AND EACH OF THEIR OFFICERS, DIRECTORS, EMPLOYEES, REPRESENTATIVES AND
AGENTS ("INDEMNIFIED PARTIES") FROM, HOLD EACH OF THEM HARMLESS AGAINST AND
PROMPTLY UPON DEMAND PAY OR REIMBURSE EACH OF THEM FOR, THE INDEMNITY MATTERS
WHICH MAY BE INCURRED BY OR ASSERTED AGAINST OR INVOLVE ANY OF THEM (WHETHER OR
NOT ANY OF THEM IS DESIGNATED A PARTY THERETO) AS A RESULT OF, ARISING OUT OF OR
IN ANY WAY RELATED TO (1) ANY ACTUAL OR PROPOSED USE BY THE BORROWER OF THE
PROCEEDS OF ANY OF THE LOANS, (11) THE EXECUTION, DELIVERY AND PERFORMANCE OF
THE LOAN DOCUMENTS, (III) THE OPERATIONS OF THE BUSINESS OF QSRD AND ITS
SUBSIDIARIES, (IV) THE FAILURE OF QSRD OR ANY OF ITS SUBSIDIARIES TO COMPLY WITH
THE TERMS OF ANY LOAN DOCUMENT, THIS AGREEMENT OR WITH
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ANY GOVERNMENTAL REQUIREMENT, (V) ANY INACCURACY OF ANY REPRESENTATION OR ANY
BREACH OF ANY WARRANTY OF ANY OBLIGOR SET FORTH IN ANY OF THE LOAN DOCUMENTS,
(VI) ANY ASSERTION THAT THE LENDERS WERE NOT ENTITLED TO RECEIVE ANY AMOUNTS
RECEIVED PURSUANT TO THE LOAN DOCUMENTS OR (VII) ANY OTHER ASPECT OF THE LOAN
DOCUMENTS, INCLUDING, WITHOUT LIMITATION, THE REASONABLE FEES AND DISBURSEMENTS
OF COUNSEL AND ALL OTHER EXPENSES INCURRED IN CONNECTION WITH INVESTIGATING,
DEFENDING OR PREPARING TO DEFEND ANY SUCH ACTION, SUIT, PROCEEDING (INCLUDING
ANY INVESTIGATIONS, LITIGATION OR INQUIRIES) OR CLAIM AND INCLUDING ALL
INDEMNITY MATTERS ARISING BY REASON OF THE ORDINARY NEGLIGENCE OF ANY
INDEMNIFIED PARTY, BUT EXCLUDING ALL INDEMNITY MATTERS ARISING SOLELY BY REASON
OF CLAIMS BETWEEN THE LENDERS OR ANY LENDER AND THE AGENTS OR A LENDER'S
SHAREHOLDERS AGAINST THE AGENTS OR LENDER OR BY REASON OF THE GROSS NEGLIGENCE
OR WILLFUL MISCONDUCT ON THE PART OF THE INDEMNIFIED PARTY; AND
(c) TO INDEMNIFY AND HOLD HARMLESS FROM TIME TO TIME THE
INDEMNIFIED PARTIES FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, COST RECOVERY
ACTIONS, ADMINISTRATIVE ORDERS OR PROCEEDINGS, DAMAGES AND LIABILITIES TO WHICH
ANY SUCH PERSON MAY BECOME SUBJECT (I) UNDER ANY ENVIRONMENTAL LAW APPLICABLE TO
QSRD OR ANY OF ITS SUBSIDIARIES OR ANY OF THEIR PROPERTIES, INCLUDING WITHOUT
IMITATION, THE TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES ON ANY OF THEIR
PROPERTIES, (II) AS A RESULT OF THE BREACH OR NON-COMPLIANCE BY QSRD OR ANY OF
ITS SUBSIDIARIES WITH ANY ENVIRONMENTAL LAW APPLICABLE TO QSRD OR ANY OF ITS
SUBSIDIARIES, (III) DUE TO PAST OWNERSHIP BY QSRD OR ANY OF ITS SUBSIDIARIES OF
ANY OF THEIR PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR PROPERTIES WHICH,
THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD RESULT IN PRESENT
LIABILITY, (IV) THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT OR DISPOSAL OF
HAZARDOUS SUBSTANCES ON OR AT ANY OF THE PROPERTIES OWNED OR OPERATED BY QSRD OR
ANY OF ITS SUBSIDIARIES, OR (V) ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY
CONDITION IN CONNECTION WITH THE LOAN DOCUMENTS, PROVIDED, HOWEVER, NO INDEMNITY
SHALL BE AFFORDED UNDER THIS SECTION 12.03(C) IN RESPECT OF ANY PROPERTY FOR ANY
OCCURRENCE ARISING FROM THE ACTS OR OMISSIONS OF THE AGENTS OR ANY LENDER DURING
THE PERIOD AFTER WHICH SUCH PERSON, ITS SUCCESSORS OR ASSIGNS SHALL HAVE
OBTAINED POSSESSION OF SUCH PROPERTY (WHETHER BY FORECLOSURE OR DEED IN LIEU OF
FORECLOSURE, AS MORTGAGEE-IN-POSSESSION OR OTHERWISE).
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(d) NO INDEMNIFIED PARTY MAY SETTLE ANY CLAIM TO BE
INDEMNIFIED WITHOUT THE CONSENT OF THE INDEMNITOR, SUCH CONSENT NOT TO BE
UNREASONABLY WITHHELD; PROVIDED, THAT THE INDEMNITOR MAY NOT REASONABLY WITHHOLD
CONSENT TO ANY SETTLEMENT THAT AN INDEMNIFIED PARTY PROPOSES IF THE INDEMNITOR
DOES NOT HAVE THE FINANCIAL ABILITY TO PAY ALL ITS OBLIGATIONS OUTSTANDING AND
ASSERTED AGAINST THE INDEMNITOR AT THAT TIME, INCLUDING THE MAXIMUM POTENTIAL
CLAIMS AGAINST THE INDEMNIFIED PARTY TO BE INDEMNIFIED PURSUANT TO THIS SECTION
12.03.
(e) IN THE CASE OF ANY INDEMNIFICATION HEREUNDER, THE AGENTS
OR LENDERS, AS APPROPRIATE, SHALL GIVE NOTICE TO THE BORROWER OF ANY SUCH CLAIM
OR DEMAND BEING MADE AGAINST THE INDEMNIFIED PARTY AND THE BORROWER SHALL HAVE
THE NON-EXCLUSIVE RIGHT TO JOIN IN THE DEFENSE AGAINST ANY SUCH CLAIM OR DEMAND.
(f) THE FOREGOING INDEMNITIES SHALL EXTEND TO THE INDEMNIFIED
PARTIES NOTWITHSTANDING THE SOLE OR CONCURRENT NEGLIGENCE OF EVERY KIND OR
CHARACTER WHATSOEVER, WHETHER ACTIVE OR PASSIVE, WHETHER AN AFFIRMATIVE ACT OR
AN OMISSION, INCLUDING WITHOUT LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT
IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF ONE OR MORE OF THE
INDEMNIFIED PARTIES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT FAULT ON
ANY ONE OR MORE OF THE INDEMNIFIED PARTIES. TO THE EXTENT THAT AN INDEMNIFIED
PARTY IS FOUND TO HAVE COMMITTED AN ACT OF GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT, THIS CONTRACTUAL OBLIGATION OF INDEMNIFICATION SHALL CONTINUE BUT
SHALL ONLY EXTEND TO THE PORTION OF THE CLAIM THAT IS DEEMED TO HAVE OCCURRED BY
REASON OF EVENTS OTHER THAN THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE
INDEMNIFIED PARTY.
(g) THE BORROWER'S OBLIGATIONS UNDER THIS SECTION 12.03 SHALL
SURVIVE ANY TERMINATION OF THIS AGREEMENT AND THE PAYMENT OF THE INDEBTEDNESS
AND SHALL CONTINUE THEREAFTER IN FULL FORCE AND EFFECT.
(h) THE BORROWER SHALL PAY ANY AMOUNTS DUE UNDER THIS SECTION
12.03 WITHIN 30 DAYS OF THE RECEIPT BY THE BORROWER OF NOTICE OF THE AMOUNT DUE.
Section 12.04. Amendments, Etc. Any provision of this Agreement, or any
Security Instrument may be amended, modified or waived with QSRD's, the
Borrower's and the Majority Lenders' prior written consent; provided that (i) no
amendment, modification or waiver which extends or delays the date fixed by this
Agreement or any other Loan Document for any payment of principal, interest,
fees or other payments due to Lenders (or any of them) hereunder or under any
other Loan Document, increases the Aggregate Maximum Credit Amounts, modifies
any term herein providing for the determination of the Borrowing Base, forgives
any Indebtedness outstanding under this Agreement, releases any Obligor from any
obligation for the payment of money, releases the Collateral Agent's Lien
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upon Collateral (except as expressly required by the terms of this Agreement)
the aggregate PV-10 Value of which exceeds $1,000,000 during any fiscal year,
reduces the interest rate applicable to the Loans or the fees payable to the
Lenders generally, affects Section 2.03(a), 2.9, 2.10, 2.14, , this Section
12.04 or Section 12.06, subordinates the Collateral Agent's Liens to the Liens
of any other creditor of an Obligor, or modifies the definition of "Borrowing
Base", "Majority Lenders", "Percentage Share" or "Required Lenders" shall be
effective without consent of all Lenders; (ii) no amendment, modification or
waiver which changes the Maximum Credit Amount or extends the Commitments of any
Lender shall be effective without the consent of such Lender; and (iii) no
amendment, modification or waiver which modifies the rights, duties or
obligations of any Agent shall be effective without the consent of such Agent.
Section 12.05. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
Section 12.06. Assignments and Participations.
(a) Borrower shall maintain, or cause to be maintained, a
register (the "Register") on which it enters the name of each Lender as the
registered owner of the Loans held by such Lender. A Registered Loan (and the
Registered Note, if any, evidencing the same) may be assigned or sold in whole
or in part only by registration of such assignment or sale on the Register (and
each Registered Note shall expressly so provide). Any assignment or sale of all
or part of such Registered Loan (and the Registered Note, if any, evidencing the
same) may be effected only by registration of such assignment or sale on the
Register, together with the surrender of the Registered Note, if any, evidencing
the same duly endorsed by (or accompanied by a written instrument of assignment
or sale duly executed by) the holder of such Registered Note, whereupon, at the
request of the designated assignee(s) or transferee(s), one or more new
Registered Notes in the same aggregate principal amount shall be issued to the
designated assignee(s) or transferee(s). Prior to the registration of assignment
or sale of any Registered Loan (and the Registered Note, if any evidencing the
same), the Borrower shall treat the Person in whose name such Loan (and the
Registered Note, if any, evidencing the same) is registered as the owner thereof
for the purpose of receiving all payments thereon and for all other purposes,
notwithstanding notice to the contrary.
(b) In the event that any Lender sells participations in the
Registered Loan, such Lender shall maintain a register on which it enters the
name of all participants in the Registered Loans held by it (the "Participant
Register"). A Registered Loan (and the Registered Note, if any, evidencing the
same) may be participated in whole or in part only by registration of such
participation on the Participant Register (and each Registered Note shall
expressly so provide). Any participation of such Registered Loan (and the
Registered Note, if any, evidencing the same) may be effected only by the
registration of such participation on the Participant Register.
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(c) No Obligor, including the Borrower, may assign its rights
or obligations hereunder or under any other Loan Documents without the prior
consent of all of the Lenders and the Agents.
(d) Any Lender may, upon the written consent of the Agents
and, unless an Event of Default has occurred and is continuing, the written
consent Borrower (which consent will not be unreasonably withheld and which
consent is not required for assignments to Affiliates of a Lender), assign to
one or more assignees all or a portion of its rights and obligations under this
Agreement pursuant to an Assignment Agreement substantially in the form of
Exhibit E-1 (an "Assignment") provided, however, that (i) any such assignment
shall be in the amount of at least $5,000,000 or such lesser amount to which the
Borrower has consented and (ii) the assignee shall pay to the Administrative
Agent a processing and recordation fee of $5,000 for each assignment. Any such
assignment will become effective upon the execution and delivery to the
Administrative Agent of the Assignment and the consent of the Agents. Promptly
after receipt of an executed Assignment, the Administrative Agent shall send to
the Borrower a copy of such executed Assignment. Upon the effectiveness of any
assignment pursuant to this Section 12.06(b), the assignee will become a
"Lender," if not already a "Lender," for all purposes of this Agreement and the
Security Instruments. The assignor shall be relieved of its obligations
hereunder to the extent of such assignment (and if the assigning Lender no
longer holds any rights or obligations under this Agreement, such assigning
Lender shall cease to be a "Lender" hereunder except that its rights under
Sections 4.06 and 12.03 shall not be affected). The Administrative Agent will
prepare on the last Business Day of each month during which an assignment has
become effective pursuant to this Section 12.06(b), a new Schedule C-1 giving
effect to all such assignments effected during such month, and will promptly
provide the same to the Borrower and each of the Lenders. Anything contained
herein to the contrary notwithstanding, the consent of the Agents or the
Borrower shall not be required (and payment of any fees shall not be required)
if such assignment is in connection with any merger, consolidation, sale,
transfer, or other disposition of all or any substantial portion of the business
or loan portfolio of such Lender or the assignee is an Affiliate (other than
individuals) of, or a fund, money market account, investment account or other
account managed by, a Lender.
(e) Each Lender may transfer, grant or assign participations
in all or any part of such Lender's interests hereunder pursuant to this Section
12.06(e) to any Person, provided that: (i) such Lender shall remain a "Lender"
for all purposes of this Agreement and the transferee of such participation
shall not constitute a "Lender" hereunder; and (ii) no participant under any
such participation shall have rights to approve any amendment to or waiver of
any of the Loan Documents except to the extent such amendment or waiver would
(w) forgive or reduce the amount of principal due hereunder, (x) extend the
Revolving Credit Termination Date or the Maturity Date, (y) reduce the interest
rate (other than as a result of waiving the applicability of any post-default
increases in interest rates) or fees applicable to any of the Commitments or
Loans in which such participant is participating, or postpone the payment of any
thereof, or (z) release all or substantially all of the Collateral or any
guarantor (except as expressly provided herein or in any Loan Document)
supporting any of the Commitments or Loans in which such participant is
participating. In the case of any such
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participation, the participant shall not have any rights under this Agreement or
any of the Loan Documents (the participant's rights against the granting Lender
in respect of such participation to be those set forth in the agreement with
such Lender creating such participation), and all amounts payable by the
Borrower hereunder shall be determined as if such Lender had not sold such
participation, provided that such participant shall be entitled to be
indemnified under Section 12.03 as if it were a Lender. In addition, each
agreement creating any participation must include an agreement by the
participant to be bound by the provisions of Section 12.15.
(f) The Lenders may furnish any information concerning the
Obligors in the possession of the Lenders from time to time to assignees and
participants (including prospective assignees and participants); provided that,
such Persons agree to be bound by the provisions of Section 12.15 hereof.
(g) Notwithstanding anything in this Section 12.06 to the
contrary, any Lender may assign and pledge its portion of the Indebtedness to
any Federal Reserve Bank or the United States Treasury as collateral security
pursuant to Regulation A of the Board of Governors of the Federal Reserve System
and any operating circular issued by such Federal Reserve System and/or such
Federal Reserve Bank. No such assignment and/or pledge shall release the
assigning and/or pledging Lender from its obligations hereunder.
(h) Notwithstanding any other provisions of this Section
12.06, no transfer or assignment of the interests or obligations of any Lender
or any grant of participations therein shall be permitted if such transfer,
assignment or grant would require QSRD or the Borrower to file a registration
statement with the SEC or to qualify the Loans under the "Blue Sky" laws of any
state.
Section 12.07. Invalidity. In the event that any one or more of the
provisions contained in any of the Loan Documents shall, for any reason, be held
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement or any
other Loan Document.
Section 12.08. Counterparts. Each Loan Document may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and any of the parties hereto may execute this Agreement by
signing any such counterpart.
Section 12.09. References. The words "herein," "hereof," "hereunder"
and other words of similar import when used in this Agreement refer to this
Agreement as a whole, and not to any particular article, section or subsection.
Any reference herein to a Section shall be deemed to refer to the applicable
Section of this Agreement unless otherwise stated herein. Any reference herein
to an exhibit or schedule shall be deemed to refer to the applicable exhibit or
schedule attached hereto unless otherwise stated herein.
Section 12.10. Survival. The obligations of the parties under Section
4.06, and Sections 11.05 and 12.03 shall survive the repayment of the Loans and
the termination of the Commitments. To the extent that any payments on the
Indebtedness or proceeds of any
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collateral are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, debtor in
possession, receiver or other Person under any bankruptcy law, common law or
equitable cause, then to such extent, the Indebtedness so satisfied shall be
revived and continue as if such payment or proceeds had not been received and
the Collateral Agent's Liens, security interests, rights, powers and remedies
under this Agreement and each Loan Document shall continue in full force and
effect. In such event, each Loan Document shall be automatically reinstated and
QSRD and the Borrower shall take and shall cause each Subsidiary Guarantor to
take, such action as may be reasonably requested by the Agents and the Lenders
to effect such reinstatement.
Section 12.11. Captions. Captions and section headings appearing herein
are included solely for convenience of reference and are not intended to affect
the interpretation of any provision of this Agreement.
Section 12.12. NO ORAL AGREEMENTS. THE LOAN DOCUMENTS EMBODY THE ENTIRE
AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES AND SUPERSEDE ALL OTHER
AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT
MATTER HEREOF AND THEREOF. THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 12.13. GOVERNING LAW; SUBMISSION TO JURISDICTION.
(a) THIS AGREEMENT HAS BEEN NEGOTIATED, EXECUTED, AND
DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN NEW YORK, NEW YORK. THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK; PROVIDED, HOWEVER, THAT IF ANY OF THE COLLATERAL SHALL BE
LOCATED IN ANY JURISDICTION OTHER THAN NEW YORK, THE LAWS OF SUCH JURISDICTION
SHALL GOVERN THE METHOD, MANNER, AND PROCEDURE FOR FORECLOSURE OF COLLATERAL
AGENT'S LIEN UPON SUCH COLLATERAL AND THE ENFORCEMENT OF THE LENDER GROUP'S
OTHER REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE EXTENT THAT THE LAWS OF SUCH
JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT WITH THE LAWS OF NEW YORK. AS
PART OF THE CONSIDERATION FOR NEW VALUE RECEIVED, AND REGARDLESS OF ANY PRESENT
OR FUTURE DOMICILE OR PRINCIPAL PLACE OF BUSINESS OF QSRD, BORROWER OR THE
LENDER GROUP, QSRD AND BORROWER HEREBY CONSENT AND AGREE THAT THE SUPREME COURT
OF NEW YORK, NEW YORK, OR, AT AGENTS' OPTION, THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR
AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN QSRD, BORROWER AND THE LENDER GROUP
PERTAINING TO THIS AGREEMENT OR TO ANY MATTER
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ARISING OUT OF OR RELATED TO THIS AGREEMENT. QSRD AND BORROWER EXPRESSLY SUBMIT
AND CONSENT IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN
ANY SUCH COURT, AND QSRD AND BORROWER HEREBY WAIVE ANY OBJECTION THAT QSRD OR
BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE, OR
FORUM NON CONVENIENS, HEREBY CONSENT TO THE EXERCISE OF PERSONAL JURISDICTION OF
SUCH COURT, AND HEREBY CONSENT TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF
AS IS DEEMED APPROPRIATE BY SUCH COURT. QSRD AND BORROWER HEREBY WAIVE PERSONAL
SERVICE OF THE SUMMONS, COMPLAINT, AND OTHER PROCESS ISSUED IN ANY SUCH ACTION
OR SUIT AND AGREE THAT SERVICE OF SUCH SUMMONS, COMPLAINT, AND OTHER PROCESS MAY
BE MADE UPON BOTH QSRD AND BORROWER BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO
BORROWER AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND THAT SERVICE SO MADE
SHALL BE DEEMED COMPLETED UPON THE EARLIER OF BORROWER'S ACTUAL RECEIPT THEREOF
OR 3 DAYS AFTER DEPOSIT IN THE U.S. MAIL, PROPER POSTAGE PREPAID. NOTHING IN
THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHT OF THE LENDER
GROUP TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR TO
PRECLUDE THE ENFORCEMENT BY THE LENDER GROUP OF ANY JUDGMENT OR ORDER OBTAINED
IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE SAME
IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION.
(b) EACH OF QSRD, THE BORROWER AND EACH LENDER HEREBY (I)
IRREVOCABLY AND UNCONDITIONALLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW,
TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR
ANY SECURITY INSTRUMENT AND FOR ANY COUNTERCLAIM THEREIN; (II) IRREVOCABLY
WAIVE, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO
CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR
CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES;
(III) CERTIFY THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL
FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT
SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVERS, AND (IV) ACKNOWLEDGE THAT IT HAS BEEN INDUCED TO ENTER INTO THIS
AGREEMENT, THE SECURITY INSTRUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND
THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED
IN THIS SECTION 12.13.
Section 12.14. Interest. It is the intention of the parties hereto that
the Agent or each Lender shall conform strictly to usury laws applicable to it.
Accordingly, if the transactions contemplated hereby or by any other Loan
Document would be usurious as to the Agent or
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any Lender under laws applicable to it-(including the laws of the United States
of America and the State of New York or any other jurisdiction whose laws may be
mandatorily applicable to such Lender notwithstanding the other provisions of
this Agreement), then, in that event, notwithstanding anything to the contrary
in any of the Loan Documents or any agreement entered into in connection with or
as security for the Indebtedness, it is agreed as follows: (i) the aggregate of
all consideration which constitutes interest under law applicable to the Agents
or any Lender that is contracted for, taken, reserved, charged or received by
the Agents or such Lender under any of the Loan Documents or agreements or
otherwise in connection with the Indebtedness shall under no circumstances
exceed the maximum amount allowed by such applicable law, and any excess shall
be canceled automatically and if theretofore paid shall be credited by the Agent
or such Lender on the principal amount of the Indebtedness (or, to the extent
that the principal amount of the Indebtedness shall have been or would thereby
be paid in full, refunded by the Agent or such Lender, as applicable, to the
Borrower); and (ii) in the event that the maturity of the Indebtedness is
accelerated by reason of any Event of Default under this Agreement or otherwise,
or in the event of any required or permitted prepayment, then such consideration
that constitutes interest under law applicable to the Agents or any Lender may
never include more than the maximum amount allowed by such applicable law, and
excess interest, if any, provided for in this Agreement or otherwise shall be
canceled automatically by the Agents or such Lender, as applicable, as of the
date of such acceleration or prepayment and, if theretofore paid, shall be
credited by the Agents or such Lender, as applicable, on the principal amount of
the Indebtedness (or, to the extent that the principal amount of the
Indebtedness shall have been or would thereby be paid in full, refunded by the
Agents or such Lender to the Borrower). All sums paid or agreed to be paid to
the Agents or any Lender for the use, forbearance or detention of sums due
hereunder shall, to the extent permitted by law applicable to the Agents or such
Lender, be amortized, prorated, allocated and spread throughout the full term of
the Loans until payment in full so that the rate or amount of interest on
account of any Loans hereunder does not exceed the maximum amount allowed by
such applicable law. If at any time and from time to time (i) the amount of
interest payable to the Agents or any Lender on any date shall be computed at
the Highest Lawful Rate applicable to the Agents or such Lender pursuant to this
Section 12.14 and (ii) in respect of any subsequent interest computation period
the amount of interest otherwise payable to the Agents or such Lender would be
less than the amount of interest payable to the Agents or such Lender computed
at the Highest Lawful Rate applicable to the Agents or such Lender, then the
amount of interest payable to the Agents or such Lender in respect of such
subsequent interest computation period shall continue to be computed at the
Highest Lawful Rate applicable to the Agents or such Lender until the total
amount of interest payable to the Agents or such Lender shall equal the total
amount of interest which would have been payable to the Agents or such Lender if
the total amount of interest had been computed without giving effect to this
Section 12.14
For purposes of this Section 12.14, the term "applicable law" shall
mean that law in effect from time to time and applicable to the loan transaction
between Borrower and the Lender Group that lawfully permits the charging and
collection of the highest permissible, lawful non-usurious rate of interest on
such loan transaction and this Agreement, including laws of the State of New
York and, to the extent controlling, laws of the United States of
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America. It is intended that, in the event that, notwithstanding the parties'
express choice of other law to be applicable to this Agreement, the laws of the
State of Texas are included in determining applicable law, Chapters 301 through
306 of the Texas Finance Code shall be included in any such determination, and
that, for the purpose of applying the Texas Finance Code to this Agreement, the
maximum interest rate shall be the "weekly ceiling" (as such term is used in
Chapter 303 of the Texas Finance Code) from time to time in effect. Any Lender
may, from time to time, as to current and future balances, implement any other
ceiling under Chapter 303 of the Texas Finance Code by notice to Borrower, if
and to the extent permitted by Chapter 303 of the Texas Finance Code. The
parties hereto expressly agree, pursuant to Section 346.004 of the Texas Finance
Code, that Chapter 346 of the Texas Finance Code shall not apply to this
Agreement or to any Loan and that neither this Agreement nor any Loan shall be
governed by or subject to the provisions of Chapter 346 in any manner
whatsoever.
The right to accelerate the maturity of the Indebtedness does not
include the right to accelerate any interest that has not accrued as of the date
of acceleration.
Section 12.15. Confidentiality. Each member of the Lender Group agrees
(on behalf of itself and each of its affiliates, directors, officers, employees
and representatives) to use reasonable precautions to keep confidential, in
accordance with its customary procedures for handling confidential information
of this nature and in accordance with safe and sound practices of comparable
commercial finance companies, the Confidential Information and to use reasonable
precautions to prevent such member of the Lender Group's unauthorized use of the
Confidential Information; provided, however, that nothing herein shall limit the
disclosure of any Confidential Information (a) to the extent required by
statute, rule, regulation or judicial process, (b) (i) to any other member of
the Lender Group, (ii) to counsel for such member of the Lender Group on a "need
to know" basis if such disclosure is reasonably determined by the disclosing
party to be reasonably necessary to such Person in connection with the
Indebtedness or the Loan Documents or the transactions contemplated thereunder,
or (iii) to counsel for any other member of the Lender Group on a "need to know"
basis if such disclosure is reasonably determined by the disclosing party to be
reasonably necessary to such Person in connection with the Indebtedness or the
Loan Documents or the transactions contemplated thereunder, (c) to examiners,
auditors, accountants or Securitization Parties on a "need to know" basis if
such disclosure is reasonably determined by the disclosing party to be
reasonably necessary to such Person in connection with the Indebtedness or the
Loan Documents or the transactions contemplated thereunder and the disclosing
party is reasonably certain that such Person will hold the Confidential
Information in confidence as if such Person were bound by confidentiality
provisions similar in substance to this Section 12.15 in all material respects,
(d) in connection with any litigation to which the Lender Group is a party, (e)
to any assignee or participant (or prospective assignee or participant) so long
as such assignee or participant (or prospective assignee or participant) first
agrees, in writing, to be bound by confidentiality provisions similar in
substance to this Section 12.15 in all material respects, or (f) pursuant to the
sale of the relevant Collateral by the Lender Group in connection with the
exercise of the Lender Group's remedies upon the occurrence and during the
continuation of an Event of Default.
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The Lender Group agrees that, upon receipt of a request or identification of the
requirement for disclosure pursuant to clauses (a) or (d) hereof, it will make
reasonable efforts to keep Borrower on behalf of the Obligors informed of such
request or identification (and, unless prohibited by applicable law, statute,
regulation, or court order, concurrently with, or where practicable, prior to
the disclosure thereof); provided, however, that each Obligor acknowledges that
the Lender Group may make disclosure as required or requested by any
Governmental Authority or representative thereof and that the Lender Group may
be subject to review by Securitization Parties or other regulatory agencies and
may be required to provide to, or otherwise make available for review by, the
representatives of such parties or agencies any such non-public information, and
that Borrower shall be kept informed reasonably of such requests and review of
Confidential Information.
Section 12.16. EXCULPATION PROVISIONS. EACH OF THE PARTIES HERETO
SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS
OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; THAT IT HAS IN FACT READ THIS
AGREEMENT AND IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS,
CONDITIONS AND EFFECTS OF THIS AGREEMENT; THAT IT HAS BEEN REPRESENTED BY
INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE NEGOTIATIONS PRECEDING
ITS EXECUTION OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND RAS RECEIVED
THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS; AND THAT IT RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS AGREEMENT
AND THE OTHER LOAN DOCUMENTS RESULT IN ONE PARTY ASSUMING THE LIABILITY INHERENT
IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING THE OTHER PARTY OF ITS
RESPONSIBILITY FOR SUCH LIABILITY. EACH PARTY HERETO AGREES AND COVENANTS THAT
IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION
OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS ON THE BASIS THAT THE PARTY HAD
NO NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT
"CONSPICUOUS."
Section 12.17. Designated Senior Indebtedness. QSRD and the Borrower
hereby designate all Indebtedness outstanding under this Agreement and the other
Loan Documents to be "Designated Senior Indebtedness" (as defined in the
Offering Memorandum dated July 15, 1995 relating to the DEM Subordinated Debt)
for purposes of the DEM Subordinated Debt and to be "designated senior
indebtedness," "guarantor senior indebtedness," "designated guarantor senior
indebtedness" or any other similar or equivalent classification under any debt
instrument or agreement to which either QSRD or the Borrower is now or hereafter
a party.
-104-
<PAGE> 113
Section 12.18. Amendments to Prior Loan Documents. The loan documents
executed and delivered in connection with the Prior Credit Agreement are being
amended and restated contemporaneously with this Agreement. Each Lender hereby
consents to such action.
The parties hereto have caused this Agreement to be duly executed as of
the day and year first above written.
[SIGNATURES BEGIN ON THE NEXT PAGE]
-105-
<PAGE> 114
QUEEN SAND RESOURCES, INC.,
a Delaware corporation
By:
------------------------------------
Robert P. Lindsay
Chief Operating Officer
By:
------------------------------------
Ronald I. Benn
Chief Financial Officer
QUEEN SAND RESOURCES, INC.,
a Nevada corporation
By:
------------------------------------
Robert P. Lindsay
Vice President
By:
------------------------------------
Ronald I. Benn
Vice President
Address for Notices for QSRD and the Borrower:
Queen Sand Resources, Inc.
13760 Noel Road, Suite 1030
Dallas, Texas 75240
Attention: Robert P. Lindsay
Telephone: (972) 233-9906
Facsimile: (972) 233-9575
S-1
<PAGE> 115
with a copy to:
Queen Sand Resources, Inc.
30 Metcalfe Street
Ottawa, Canada KIP 5L4
Attention: Mr. Ronald Benn
Telephone: (613) 230-7211
Facsimile: (613) 230-6055
and
Haynes & Boone LLP
901 Main Street, Suite 3100
Dallas, Texas 75202-3789
Attention: Mr. William L. Boeing
Telephone: (214) 651-5553
Facsimile: (214) 651-5940
S-2
<PAGE> 116
COLLATERAL AGENT: ABLECO FINANCE LLC, as Collateral Agent
By:
------------------------------------
Kevin P. Genda
Senior Vice President and
Chief Credit Officer
Address for Notices:
450 Park Avenue.
New York, New York 10022
Attention: Kevin P. Genda
Telephone: (212) 891-2117
Facsimile: (212) 755-3009
with a copy to:
BROBECK PHLEGER & HARRISON LLP
550 South Hope Street, Suite 2100
Los Angeles, California 90071
Telephone: (213) 489-4060
Facsimile: (213) 745-3345
Attention: John Francis Hilson, Esq.
S-3
<PAGE> 117
ADMINISTRATIVE AGENT: FOOTHILL CAPITAL CORPORATION
By:
------------------------------------
Brian Duffy
Vice President
Address for Notices
11111 Santa Monica Boulevard
Los Angeles, California 90025
Attention: Business Finance Division Manager
Telephone: (310) 996-7000
Facsimile: (310) 478-9788
S-4
<PAGE> 118
LENDER: ABLECO FINANCE LLC
By:
------------------------------------
Kevin P. Genda
Senior Vice President and
Chief Credit Officer
S-5
<PAGE> 119
LENDER: FOOTHILL CAPITAL CORPORATION
By:
------------------------------------
Brian Duffy
Vice President
S-6
<PAGE> 120
ANNEX I
MAXIMUM CREDIT AMOUNTS AND PERCENTAGE SHARES
<TABLE>
<CAPTION>
Lender Max. Credit Amt. Percentage Share
<S> <C> <C>
Ableco Finance LLC $27,500,000 55.00%
Foothill Capital $22,500,000 45.00%
Corporation
- --------------------------------------------------------------------------------------------------
Total $50,000,000 100%
</TABLE>
Annex I-1
<PAGE> 1
EXHIBIT 10.3
SECOND AMENDED AND RESTATED
GUARANTY AGREEMENT
Dated as of October 22, 1999
By
QUEEN SAND RESOURCES, INC.,
as the Guarantor
in favor of
ABLECO FINANCE LLC,
as Collateral Agent,
for the benefit of the Lender Group
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I Definitions and Accounting Matters..................................2
Section 1.01 Terms Defined in Recitals............................2
Section 1.02 Certain Definitions..................................2
Section 1.03 Credit Agreement Definitions.........................2
ARTICLE II The Guaranty.......................................................3
Section 2.01 Obligations Guaranteed...............................3
Section 2.02 Nature of Guaranty...................................3
Section 2.03 Lender Group's Rights................................3
Section 2.04 Guarantor's Waivers..................................3
Section 2.05 Maturity of Obligations; Payment.....................4
Section 2.06 Lender Group's Expenses..............................4
Section 2.07 Obligation...........................................4
Section 2.08 Events and Circumstances Not Reducing or
Discharging the Guarantor's Obligations..............4
Section 2.09 Subrogation..........................................6
ARTICLE III Representations and Warranties....................................6
Section 3.01 Representations and Warranties.......................6
ARTICLE IV Subordination of Indebtedness......................................8
Section 4.01 Subordination of All Guarantor Claims................8
Section 4.02 Claims in Bankruptcy.................................8
Section 4.03 Payments Held in Trust...............................8
Section 4.04 Liens Subordinate....................................9
Section 4.05 Notation of Records..................................9
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE V Miscellaneous.......................................................9
Section 5.01 Successors and Assigns...............................9
Section 5.02 Notices..............................................9
Section 5.03 Authority of Collateral Agent........................9
Section 5.04 Governing Law; Submission to Jurisdiction............9
Section 5.05 Entire Agreement....................................11
Section 5.06 Survival of Obligations.............................11
Section 5.07 Designated Senior Indebtedness......................11
Section 5.08 Prior Guaranty......................................11
</TABLE>
ii
<PAGE> 4
SECOND AMENDED AND RESTATED
GUARANTY AGREEMENT
This SECOND AMENDED AND RESTATED GUARANTY AGREEMENT, dated as of
October 22, 1999 is by QUEEN SAND RESOURCES, INC., a corporation duly organized
and validly existing under the laws of the state of Delaware ("Guarantor"), in
favor of ABLECO FINANCE LLC, as Collateral Agent for the Lender Group (together
with any successor collateral agent, "Collateral Agent").
RECITALS
A. QUEEN SAND RESOURCES, INC., a corporation duly organized and
validly existing under the laws of the state of Nevada ("Borrower"), Guarantor,
certain lenders (the "Prior Lenders") and the Bank of Montreal, as agent (the
"Prior 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, as
further amended by that certain Second Amendment to Amended and Restated Credit
Agreement dated as of November 10, 1998, as further amended by that certain
Third Amendment to Amended and Restated Credit Agreement dated as of November
13, 1998, and as further amended by that certain Fourth Amendment to Amended
and Restated Credit Agreement dated as of May 14, 1999 (such credit agreement,
as amended, restated, supplemented, or otherwise modified from time to time
prior to the date hereof, the "Prior Credit Agreement").
B. Pursuant to the terms and conditions of the Prior Credit Agreement,
Guarantor entered into that certain Amended and Restated Guaranty Agreement,
dated as of April 17, 1998 (such guaranty agreement, as amended, restated,
supplemented, or otherwise modified from time to time prior to the date hereof,
the "Prior Guaranty Agreement"), in favor of the Prior Agent and the Prior
Lenders, pursuant to which Guarantor guaranties the obligations therein
described.
C. Concurrently herewith: (i) pursuant to that certain Assignment and
Acceptance, dated as of the Closing Date, among each of the Prior Lenders and
each of the Lender Group (the "Purchase Agreement"), the Prior Lenders are
assigning and delegating to the Lender Group, and the Lender Group are
accepting and assuming, the rights and duties of the Prior Lenders under the
Prior Credit Agreement and the other "Loan Documents" (as such term is defined
in the Prior Credit Agreement, the "Prior Loan Documents"); (ii) pursuant to
the Purchase Agreement and the Resignation and Appointment Letter, the Prior
Agent is resigning as "Agent" under the Prior Credit Agreement and the other
Prior Loan Documents and Administrative Agent and Collateral Agent are being
appointed as successor "Agents" for the Lender Group under the Prior Credit
Agreement and the other Prior Loan Documents; and (iii) the Prior Credit
Agreement is being amended and restated in its entirety by that certain Amended
and Restated Credit Agreement, dated as of the date hereof (as it may be
amended, restated, supplemented, or otherwise modified from time to time, the
"Credit Agreement"), among Borrower, Guarantor, the financial institutions
identified therein as the "Lenders," Foothill Capital Corporation, a California
corporation, as administrative agent thereunder (in such capacity, together
with its successors, if any, in such capacity, "Administrative Agent"), and
Ableco Finance LLC, as collateral agent thereunder (in such capacity, together
with its successors, if any, in such capacity, "Collateral Agent"), it being
understood that no repayment of the obligations under the Prior Credit
<PAGE> 5
Agreement is being effected thereby, but merely an amendment and restatement in
accordance with the terms thereof.
D. Pursuant to the Credit Agreement and as one of the conditions
thereof, Guarantor and the Lender Group have agreed to amend and restate the
Prior Guarantor Agreement in its entirety as provided in this Guaranty
Agreement, it being understood that no satisfaction of the "Obligations" (as
such term is defined in the Prior Guaranty Agreement) under the Prior Guaranty
Agreement is being effected hereby, but merely an amendment and restatement in
accordance with the terms hereof.
E. NOW, THEREFORE, (i) in order to comply with the terms and
conditions of the Credit Agreement, (ii) to induce the Lender Group to enter
into the terms of the Credit Agreement, and (iii) for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
Guarantor hereby agrees as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS
SECTION 1.01 TERMS DEFINED IN RECITALS. As used in this Guaranty
Agreement, the terms defined in the Recitals shall have the meanings indicated
in the Recitals.
SECTION 1.02 CERTAIN DEFINITIONS. As used in this Guaranty Agreement,
the following terms shall have the following meanings, unless the context
otherwise requires:
"Guarantor Claims" shall have the meaning indicated in Section 4.01.
"Guaranty Agreement" shall mean this Second Amended and Restated
Guaranty Agreement, as the same may from time to time be amended or
supplemented.
"Lender Group" means, individually and collectively, each of the
Lenders, Administrative Agent, and Collateral Agent.
"Obligations" shall mean (a) the payment and performance of all
present and future Indebtedness, obligations and liabilities of the Borrower
and/or the Guarantor to Collateral Agent and the Lender Group under the Credit
Agreement and the other Loan Documents; (b) all obligations of the Guarantor
under this Guaranty Agreement and the other Loan Documents; and (c) all
interest (whether pre or post petition), charges, expenses, reasonable
attorneys' or other fees and any other sums payable to or incurred by the
Lender Group in connection with the execution or enforcement of any of their
rights and remedies hereunder or any other Loan Document.
SECTION 1.03 CREDIT AGREEMENT DEFINITIONS. Unless otherwise defined
herein, all terms beginning with a capital letter which are defined in the
Credit Agreement shall have the same meanings herein as therein.
2
<PAGE> 6
ARTICLE II
THE GUARANTY
SECTION 2.01 OBLIGATIONS GUARANTEED. The Guarantor hereby irrevocably
and unconditionally guarantees to Collateral Agent, as and for its own debt,
until final and indefeasible payment thereof has been made, (a) the prompt
payment of the Obligations, in each case when and as the same shall become due
and payable, whether at maturity, pursuant to a mandatory prepayment
requirement, by acceleration, or otherwise; it being the intent of the
Guarantor that the guaranty set forth herein shall be a guaranty of payment and
not a guaranty of collection.
SECTION 2.02 NATURE OF GUARANTY. This guaranty is an absolute,
irrevocable, completed and continuing guaranty of payment and not a guaranty of
collection, and no notice of the Obligations or any extension of credit already
or hereafter contracted by or extended to the Borrower need be given to the
Guarantor. The guaranty evidenced hereby is joint and several with all other
guarantees of the Obligations. This guaranty may not be revoked by the
Guarantor and shall continue to be effective with respect to debt under the
Obligations arising or created after any attempted revocation by the Guarantor
and shall remain in full force and effect until the Obligations are paid in
full and the Aggregate Commitments are terminated, notwithstanding that from
time to time prior thereto no Obligations may be outstanding. The Borrower and
the Lender Group may modify, alter, rearrange, extend for any period and/or
renew from time to time, the Obligations and the Lender Group may waive any
Default or Events of Default without notice to the Guarantor and in such event
the Guarantor will remain fully bound hereunder on the Obligations. This
Guaranty Agreement may be enforced by Collateral Agent, on behalf of the Lender
Group and any subsequent holder of the Obligations, and shall not be discharged
by the assignment or negotiation of all or part of the Obligations. The
Guarantor hereby expressly waives presentment, demand, notice of non-payment,
protest and notice of protest and dishonor, notice of Event of Default, notice
of intent to accelerate the maturity and notice of acceleration of the maturity
and any other notice in connection with the Obligations, and also notice of
acceptance of this Guaranty Agreement, acceptance on the part of Collateral
Agent for the benefit of the Lender Group being conclusively presumed by their
request for this Guaranty Agreement and delivery of the same to Collateral
Agent.
SECTION 2.03 LENDER GROUP'S RIGHTS. Subject to the terms of the Credit
Agreement, the Guarantor authorizes the Lender Group (or Collateral Agent on
behalf of the Lender Group), without notice or demand and without affecting the
Guarantor's obligation hereunder, to take and hold security for the payment of
the Obligations, and exchange, enforce, waive and release any such security;
and to apply such security and direct the order or manner of sale thereof as
Collateral Agent and the Lender Group in their discretion may determine; and to
obtain a guaranty of the Obligations from any one or more Persons and at any
time or times to enforce, waive, rearrange, modify, limit or release any of
such other Persons from their obligations under such guaranties.
SECTION 2.04 GUARANTOR'S WAIVERS. The Guarantor waives any right to
require Collateral Agent and the Lender Group to (a) proceed against the
Borrower or any other Person liable on the Obligations, (b) enforce their
rights against any other guarantor of the Obligations,
3
<PAGE> 7
(c) proceed or enforce their rights against or exhaust any security given to
secure the Obligations, (d) have the Borrower or any other guarantor or other
Person joined with the Guarantor in any suit arising out of this Guaranty
Agreement and/or the Obligations, or (e) pursue any other remedy whatsoever.
Neither Collateral Agent nor the Lender Group shall be required to mitigate
damages or take any action to reduce, collect or enforce the Obligations. The
Guarantor waives any defense arising by reason of any disability, lack of
corporate authority or power, or other defense of the Borrower, any other
guarantor of the Obligations, or any other Person liable on the Obligations,
and shall remain liable hereon regardless of whether the Borrower or any other
guarantor or any such other Person be found not liable thereon for any reason.
SECTION 2.05 MATURITY OF OBLIGATIONS; PAYMENT. The Guarantor agrees
that if the maturity of the Obligations is accelerated by bankruptcy or
otherwise, such maturity shall also be deemed accelerated for the purpose of
this Guaranty Agreement without demand or notice to the Guarantor. The
Guarantor will, forthwith upon notice from Collateral Agent on behalf of the
Lender Group of the Borrower's failure to pay the Obligations at maturity, pay
to Administrative Agent for the benefit of the Lender Group the amount due and
unpaid by the Borrower and guaranteed hereby. The failure of Collateral Agent
or the Lender Group to give this notice shall not in any way release the
Guarantor hereunder.
SECTION 2.06 LENDER GROUP'S EXPENSES. If the Guarantor fails to pay
the Obligations after notice from Collateral Agent of the Borrower's failure to
pay any Obligations at maturity (whether by acceleration or otherwise), and if
thereafter Collateral Agent or the Lender Group obtains the services of an
attorney for collection of amounts owing by the Guarantor hereunder or if suit
is filed to enforce this Guaranty Agreement, or if proceedings are had in any
bankruptcy, receivership or other judicial proceedings for the establishment or
collection of any amount owing by the Guarantor hereunder, or if any amount
owing by the Guarantor hereunder is collected through such proceedings, the
Guarantor agrees to pay to Administrative Agent the reasonable attorneys' fees
and expenses of Collateral Agent and the Lender Group.
SECTION 2.07 OBLIGATION. It is expressly agreed that the obligation of
the Guarantor for the payment of the Obligations guaranteed hereby shall be
primary and not secondary.
SECTION 2.08 EVENTS AND CIRCUMSTANCES NOT REDUCING OR DISCHARGING THE
GUARANTOR'S OBLIGATIONS. The Guarantor hereby consents and agrees to each of
the following to the fullest extent permitted by law, agrees its obligations
under this Guaranty Agreement shall not be released, diminished, impaired,
reduced or adversely affected by any of the following, and waives any rights
(including without limitation rights to notice) which it might otherwise have
as a result of or in connection with any of the following:
(a) Modifications, etc. Any renewal, extension, modification, or
increase in the amount of the Aggregate Commitments as in effect on the
Effective Date, decrease, alteration or rearrangement of all or any part of the
Obligations, any Loan Document or any instrument executed in connection
therewith, or any contract or understanding between or among any one or more of
the Borrower, Collateral Agent or the Lender Group or any member thereof, or
any other Person, pertaining to the Obligations;
4
<PAGE> 8
(b) Adjustment, etc. Any adjustment, indulgence, forbearance or
compromise that might be granted or given by the Lender Group to the Borrower
or the Guarantor or any Person liable on the Obligations;
(c) Condition of the Borrower or the Guarantor. The insolvency,
bankruptcy arrangement, reorganization, adjustment, composition, liquidation,
disability, dissolution or lack of power of the Borrower or the Guarantor or
any other Person at any time liable for the payment of all or part of the
Obligations; or any sale, lease or transfer of any or all of the assets of the
Borrower or the Guarantor, or any changes in the shareholders of the Borrower
or the Guarantor;
(d) Invalidity of Obligations. The invalidity, illegality or
unenforceability of all or any part of the Obligations or any Loan Document for
any reason whatsoever, including without limitation the fact that the
Obligations, or any part thereof, exceed the amount permitted by law, the act
of creating the Obligations or any part thereof is ultra vires, the officers or
representatives executing any Loan Document acted in excess of their authority,
the Obligations violate applicable usury laws, the Borrower has valid defenses,
claims or offsets (whether at law, in equity or by agreement) which render the
Obligations wholly or partially uncollectible from the Borrower, the creation,
performance or repayment of the Obligations (or the execution, delivery and
performance of any Loan Document) is illegal, uncollectible, legally impossible
or unenforceable, or the Credit Agreement or other Loan Documents have been
forged or otherwise are irregular or not genuine or authentic;
(e) Release of Obligors. Any full or partial release of the obligation
of the Borrower on the Obligations or any part thereof, of any co-guarantors,
or any other Person now or hereafter liable, whether directly or indirectly,
jointly, severally, or jointly and severally, to pay, perform, guarantee or
assure the payment of the Obligations or any part thereof, it being recognized,
acknowledged and agreed by the Guarantor that the Guarantor may be required to
pay the Obligations in full without assistance or support of any other Person,
and the Guarantor has not been induced to enter into this Guaranty Agreement on
the basis of a contemplation, belief, understanding or agreement that other
parties other than the Borrower will be liable to perform the Obligations, or
that the Lender Group will look to other parties to perform the Obligations;
(f) Other Security. The taking or accepting of any other security,
collateral or guaranty, or other assurance of payment, for all or any part of
the Obligations;
(g) Release of Collateral, etc. Any release, surrender, exchange,
subordination, deterioration, waste, loss or impairment (including without
limitation negligent, willful, unreasonable or unjustifiable impairment) of any
collateral, Property or security, at any time existing in connection with, or
assuring or securing payment of, all or any part of the Obligations;
(h) Care and Diligence. The failure of any of Collateral Agent or the
Lender Group or any other Person to exercise diligence or reasonable care in
the preservation, protection, enforcement, sale or other handling or treatment
of all or any part of such collateral, Property or security;
5
<PAGE> 9
(i) Status of Liens. The fact that any collateral, security or Lien
contemplated or intended to be given, created or granted as security for the
repayment of the Obligations shall not be properly perfected or created, or
shall prove to be unenforceable or subordinate to any other Lien, it being
recognized and agreed by the Guarantor that the Guarantor is not entering into
this Guaranty Agreement in reliance on, or in contemplation of the benefits of,
the validity, enforceability, collectability or value of any of the collateral
for the Obligations;
(j) Payments Rescinded. Any payment by the Borrower to the Lender
Group is held to constitute a preference under the bankruptcy laws, or for any
reason the Lender Group is required to refund such payment or pay such amount
to the Borrower or someone else; or
(k) Other Actions Taken or Omitted. Any other action taken or omitted
to be taken with respect to the Credit Agreement or the other Loan Documents,
the Obligations, or the security and collateral therefor, whether or not such
action or omission prejudices the Guarantor or increases the likelihood that
the Guarantor will be required to pay the Obligations pursuant to the terms
hereof, it being the unambiguous and unequivocal intention of the Guarantor
that the Guarantor shall be obligated to pay the Obligations when due,
notwithstanding any occurrence, circumstance, event, action, or omission
whatsoever, whether contemplated or uncontemplated, and whether or not
otherwise or particularly described herein, except for the full and final
payment and satisfaction of the Obligations.
SECTION 2.09 SUBROGATION. The Guarantor shall not exercise any rights
which it may acquire by way of subrogation, reimbursement, exoneration,
indemnification or participation, by any payment made under this Guaranty
Agreement, under any other Loan Document or otherwise until the Obligations
have been paid in full and the Aggregate Commitments are terminated; provided
that, notwithstanding the foregoing, the Guarantor reserves its rights of
contribution and reimbursement, if any, from its co-guarantors and other
Persons liable on the Obligations or otherwise. Except as described in this
Section 2.9, the Guarantor further waives any benefit of any right to
participate in any security now or hereafter held by Collateral Agent or the
Lender Group.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01 REPRESENTATIONS AND WARRANTIES. In order to induce
Collateral Agent for the benefit of the Lender Group to accept this Guaranty
Agreement, the Guarantor represents and warrants to Collateral Agent and the
Lender Group (which representations and warranties will survive the creation of
the Obligations and any extension of credit thereunder) that:
(a) Benefit to the Guarantor. The Borrower is a wholly-owned
Subsidiary of the Guarantor and the Guarantor's guaranty pursuant to this
Guaranty Agreement reasonably may be expected to benefit, directly or
indirectly, the Guarantor; and the Guarantor has determined that this Guaranty
Agreement is necessary and convenient to the conduct, promotion and attainment
of the business of the Guarantor and the Borrower.
(b) Corporate Existence. The Guarantor: (i) is duly organized and
validly existing under the laws of the jurisdiction of its formation; (ii) has
all requisite power, and has all material
6
<PAGE> 10
governmental licenses, authorizations, consents and approvals necessary to own
its assets and carry on its business as now being conducted; and (iii) is
qualified to do business in all jurisdictions in which the nature of the
business conducted by it makes such qualification necessary and where failure
so to qualify would have a Material Adverse Effect.
(c) No Breach. The execution and delivery by the Guarantor of this
Guaranty Agreement and the other Loan Documents to which it is a party, the
consummation of the transactions herein or therein contemplated, and the
compliance with the terms and provisions hereof will not (i) conflict with or
result in a breach of, or require any consent which has not been obtained as of
the Closing Date or which, if not obtained, would have a Material Adverse
Effect under (A) the respective charter or by-laws of the Guarantor, or (B) any
applicable law or regulation, or any order, writ, injunction or decree of any
court or other Governmental Authority, or any material agreement or instrument
to which the Guarantor is a party or by which it is bound or to which it is
subject in each case in such manner as could reasonably be expected to have a
Material Adverse Effect; or (ii) constitute a default under any such agreement
or instrument, or result in the creation or imposition of any Lien upon any of
the revenues or Property of the Guarantor in each case in such manner as could
reasonably be expected to have a Material Adverse Effect.
(d) Corporate Action. The Guarantor has all necessary corporate power
and authority to execute, deliver and perform its obligations under this
Guaranty Agreement and the other Loan Documents to which it is a party; and the
execution, delivery and performance by the Guarantor of this Guaranty Agreement
and the other Loan Documents to which such Person is a party have been duly
authorized by all necessary corporate action on its part. This Guaranty
Agreement and the other Loan Documents to which the Guarantor is a party
constitute the legal, valid and binding obligation of the Guarantor,
enforceable against the Guarantor in accordance with their terms, except as may
be limited by applicable bankruptcy, insolvency, reorganization or other
similar laws affecting creditors' rights and general principles of equity.
(e) Approvals. Other than consents heretofore obtained or described in
the Credit Agreement, no authorizations, approvals or consents of, and no
filings or registrations with, any Governmental Authority are necessary for the
execution, delivery or performance by the Guarantor of this Guaranty Agreement
or the other Loan Documents to which it is a party or for the validity or
enforceability thereof. It is understood that continued performance by the
Guarantor of this Guaranty Agreement and the other Loan Documents to which it
is a party will require various filings, such as filings related to
environmental matters, ERISA matters, Taxes and intellectual property, filings
required to maintain corporate and similar standing and existence, filings
pursuant to the Uniform Commercial Code and other security filings and
recordings and filings required by the SEC, routine filings in the ordinary
course of business, and filings required in connection with the exercise by
Collateral Agent on behalf of the Lender Group of remedies in connection with
the Loan Documents.
(f) Solvency. The Guarantor (i) is not insolvent as of the date hereof
and will not be rendered insolvent as a result of this Guaranty Agreement, (ii)
is not engaged in business or a transaction, or about to engage in a business
or a transaction, for which any Property or assets remaining with the Guarantor
constitute unreasonably small capital, and (iii) does not intend to incur, or
believe it will incur, debts that will be beyond its ability to pay as such
debts mature.
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<PAGE> 11
(g) No Representation by Collateral Agent or the Lender Group. Neither
any of Collateral Agent, the Lender Group, or any member thereof nor any other
Person has made any representation, warranty or statement to the Guarantor in
order to induce the Guarantor to execute this Guaranty Agreement.
ARTICLE IV
SUBORDINATION OF INDEBTEDNESS
SECTION 4.01 SUBORDINATION OF ALL GUARANTOR CLAIMS. As used herein,
the term "Guarantor Claims" shall mean all debts and obligations of the
Borrower to the Guarantor, whether such debts and obligations now exist or are
hereafter incurred or arise, or whether the obligation of the Borrower thereon
be direct, contingent, primary, secondary, several, joint and several, or
otherwise, and irrespective of whether such debts or obligations be evidenced
by note, contract, open account, or otherwise, and irrespective of the Person
or Persons in whose favor such debts or obligations may, at their inception,
have been, or may hereafter be created, or the manner in which they have been
or may hereafter be acquired by. Except for payments permitted by the Credit
Agreement, until the Obligations shall be paid and satisfied in full, the
Aggregate Commitments are terminated and the Guarantor shall have performed all
of its obligations hereunder and under the other Loan Documents to which it is
a party, the Guarantor shall not receive or collect, directly or indirectly,
from the Borrower any amount upon the Guarantor Claims.
SECTION 4.02 CLAIMS IN BANKRUPTCY. In the event of receivership,
bankruptcy, reorganization, arrangement, debtor's relief, or other insolvency
proceedings involving the Borrower, Collateral Agent on behalf of the Lender
Group shall have the right to prove their claim in any proceeding, so as to
establish their rights hereunder and receive directly from the receiver,
trustee or other court custodian, dividends and payments which would otherwise
be payable upon Guarantor Claims. The Guarantor hereby assigns such dividends
and payments to Collateral Agent for the benefit of the Lender Group. Should
the Lender Group receive, for application upon the Obligations, any such
dividend or payment which is otherwise payable to the Guarantor, and which, as
between the Borrower and the Guarantor, shall constitute a credit upon the
Guarantor Claims, then upon payment in full of the Obligations, the Guarantor
shall become subrogated to the rights of the Lender Group to the extent that
such payments to the Lender Group on the Guarantor Claims have contributed
toward the liquidation of the Obligations, and such subrogation shall be with
respect to that proportion of the Obligations which would have been unpaid if
the Lender Group had not received dividends or payments upon the Guarantor
Claims.
SECTION 4.03 PAYMENTS HELD IN TRUST. In the event that notwithstanding
Sections 4.01 and 4.02, the Guarantor should receive any funds, payments,
claims or distributions which is prohibited by such Sections, the Guarantor
agrees: (a) to hold in trust for the Lender Group an amount equal to the amount
of all funds, payments, claims or distributions so received, and (b) that it
shall have absolutely no dominion over the amount of such funds, payments,
claims or distributions except to pay them promptly to Administrative Agent for
the benefit of the Lender Group; and the Guarantor covenants promptly to pay
the same to Administrative Agent for the benefit of the Lender Group.
8
<PAGE> 12
SECTION 4.04 LIENS SUBORDINATE. The Guarantor agrees that, until the
Obligations are paid in full and the Aggregate Commitments terminated, any
Liens upon the Borrower's assets securing payment of the Guarantor Claims shall
be and remain inferior and subordinate to any Liens upon the Borrower's assets
securing payment of the Obligations, regardless of whether such encumbrances in
favor of the Guarantor, Collateral Agent, or the Lender Group presently exist
or are hereafter created or attach. Without the prior written consent of the
Lender Group, the Guarantor, during the period in which any of the Obligations
are outstanding or the Aggregate Commitments are in effect, shall not (a)
exercise or enforce any creditor's right it may have against the Borrower, or
(b) foreclose, repossess, sequester or otherwise take steps or institute any
action or proceeding (judicial or otherwise, including without limitation the
commencement of or joinder in any liquidation, bankruptcy, rearrangement,
debtor's relief or insolvency proceeding) to enforce any Lien on assets of the
Borrower held by the Guarantor.
SECTION 4.05 NOTATION OF RECORDS. All promissory notes and, upon the
request of Collateral Agent on behalf of the Lender Group, all accounts
receivable ledgers or other evidence of the Guarantor Claims accepted by or
held by the Guarantor shall contain a specific written notice thereon that the
indebtedness evidenced thereby is subordinated under the terms of this Guaranty
Agreement.
ARTICLE V
MISCELLANEOUS
SECTION 5.01 SUCCESSORS AND ASSIGNS. This Guaranty Agreement is and
shall be in every particular available to the successors and assigns of
Collateral Agent and the Lender Group and is and shall always be fully binding
upon the legal representatives, successors and assigns of the Guarantor,
notwithstanding that some or all of the monies, the repayment of which this
Guaranty Agreement applies, may be actually advanced after any bankruptcy,
receivership, reorganization or other event affecting either the Borrower or
the Guarantor.
SECTION 5.02 NOTICES. Any notice or demand to the Guarantor under or
in connection with this Guaranty Agreement may be given and shall conclusively
be deemed and considered to have been given and received in the manner and to
the address of the Guarantor set forth on the signature page hereto as provided
for in Section 12.02 of the Credit Agreement.
SECTION 5.03 AUTHORITY OF COLLATERAL AGENT. The Guarantor acknowledges
that the rights and responsibilities of Collateral Agent under this Guaranty
Agreement with respect to any action taken by Collateral Agent or the exercise
or non-exercise by Collateral Agent of any option, right, request, judgment or
other right or remedy provided for herein or resulting or arising out of this
Guaranty Agreement shall, as between Collateral Agent and the other members of
the Lender Group, be governed by the Credit Agreement and by such other
agreements with respect thereto as may exist from time to time among them, but,
as between Collateral Agent and the Guarantor, Collateral Agent shall be
conclusively presumed to be acting as agent for the Lender Group with full and
valid authority so to act or refrain from acting; and the Guarantor shall not
be under any obligation, or entitlement, to make any inquiry respecting such
authority.
SECTION 5.04 GOVERNING LAW; SUBMISSION TO JURISDICTION
9
<PAGE> 13
(a) THIS GUARANTY AGREEMENT (INCLUDING, BUT NOT LIMITED TO, THE
VALIDITY AND ENFORCEABILITY HEREOF) SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTY
AGREEMENT OR THE OTHER LOAN DOCUMENTS TO WHICH THE GUARANTOR IS A PARTY MAY BE
BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF
AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY
OF THIS GUARANTY AGREEMENT, THE GUARANTOR HEREBY ACCEPTS FOR ITSELF AND (TO THE
EXTENT PERMITTED BY LAW) IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. THE GUARANTOR HEREBY
IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION
TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING
IN SUCH RESPECTIVE JURISDICTIONS. THIS SUBMISSION TO JURISDICTION IS
NONEXCLUSIVE AND DOES NOT PRECLUDE COLLATERAL AGENT OR THE LENDER GROUP FROM
OBTAINING JURISDICTION OVER THE GUARANTOR IN ANY COURT OTHERWISE HAVING
JURISDICTION.
(c) THE GUARANTOR IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF
ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE
MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO
IT, AS THE CASE MAY BE, AT ITS SAID ADDRESS, SUCH SERVICE TO BECOME EFFECTIVE
UPON THE EARLIER OF VERIFICATION OF THE GUARANTOR'S RECEIPT THEREOF OR 30 DAYS
AFTER SUCH MAILING.
(d) NOTHING HEREIN SHALL AFFECT THE RIGHT OF COLLATERAL AGENT OR THE
LENDER GROUP TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO
COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE GUARANTOR IN ANY
OTHER JURISDICTION.
(e) THE GUARANTOR AND THE LENDER GROUP HEREBY (I) IRREVOCABLY AND
UNCONDITIONALLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, TRIAL BY JURY IN
ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS GUARANTY AGREEMENT OR ANY LOAN
DOCUMENTS TO WHICH IT IS A PARTY OR RECEIVES THE BENEFIT OF AND FOR ANY
COUNTERCLAIM THEREIN; (II) IRREVOCABLY WAIVE, TO THE MAXIMUM EXTENT NOT
PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH
LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR
DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (III) CERTIFY THAT NO
PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT,
IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (IV)
ACKNOWLEDGE THAT IT HAS BEEN
10
<PAGE> 14
INDUCED TO ENTER INTO OR ACCEPT THIS GUARANTY AGREEMENT, THE LOAN DOCUMENTS TO
WHICH IT IS A PARTY AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS
SECTION 5.04.
(f) THE GUARANTOR AGREES THAT, IN ADDITION TO (AND WITHOUT LIMITATION
OF) ANY RIGHT OF SET-OFF, BANKERS' LIEN OR COUNTERCLAIM COLLATERAL AGENT OR THE
LENDER GROUP OR ANY MEMBER THEREOF MAY OTHERWISE HAVE, AFTER THE OCCURRENCE AND
DURING THE CONTINUATION OF AN EVENT OF DEFAULT, EACH LENDER (TO THE EXTENT
PERMITTED OR REQUIRED BY THE CREDIT AGREEMENT) SHALL HAVE THE RIGHT AND BE
ENTITLED, AT ITS OPTION, TO OFFSET BALANCES HELD BY IT OR BY ANY OF ITS
AFFILIATES FOR ACCOUNT OF THE GUARANTOR AT ANY OF ITS OFFICES, IN DOLLARS OR IN
ANY OTHER CURRENCY, AGAINST ANY PRINCIPAL OF OR INTEREST ON ANY OF SUCH
LENDER'S LOANS, OR ANY OTHER AMOUNT PAYABLE TO SUCH LENDER HEREUNDER, WHICH IS
NOT PAID WHEN DUE (REGARDLESS OF WHETHER SUCH BALANCES ARE THEN DUE TO THE
GUARANTOR), IN WHICH CASE IT SHALL PROMPTLY NOTIFY THE GUARANTOR AND
ADMINISTRATIVE AGENT AND COLLATERAL AGENT THEREOF, PROVIDED THAT SUCH LENDER'S
FAILURE TO GIVE SUCH NOTICE SHALL NOT AFFECT THE VALIDITY THEREOF.
SECTION 5.05 ENTIRE AGREEMENT. This Guaranty Agreement and the other
Loan Documents embody the entire agreement and understanding between the Lender
Group and the Guarantor and supersede all prior agreements and understandings
between such parties relating to the subject matter hereof and thereof. There
are no unwritten oral agreements between the parties.
SECTION 5.06 SURVIVAL OF OBLIGATIONS. To the extent that any payments
on the Obligations or proceeds of any collateral are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid
to a trustee, debtor in possession, receiver or other Person under any
bankruptcy law, common law or equitable cause, then to such extent, the
Obligations so satisfied shall be revived and continue as if such payment or
proceeds had not been received and the Collateral Agent's and the Lender
Group's Liens, rights, powers and remedies under this Guaranty Agreement and
each Loan Document to which the Guarantor is a party shall continue in full
force and effect. In such event, each Loan Document shall be automatically
reinstated and the Guarantor shall take such action as may be reasonably
requested by Collateral Agent and the Lender Group to effect such
reinstatement.
SECTION 5.07 DESIGNATED SENIOR INDEBTEDNESS. The Guarantor hereby
designates all Obligations outstanding under this Guaranty Agreement, the
Registered Notes, and the other Loan Documents to be "Designated Senior
Indebtedness" for all purposes in respect of the DEM Subordinated Debt and
"senior indebtedness", "designated senior indebtedness" or any similar or
equivalent classification for all purposes in any other debt instrument or
agreement to which Guarantor is now or hereafter a party.
SECTION 5.08 PRIOR GUARANTY. This Guaranty Agreement supersedes and
replaces the Prior Guaranty Agreement.
[remainder of page intentionally left blank]
11
<PAGE> 15
WITNESS THE EXECUTION HEREOF, effective as of the date first written
above.
QUEEN SANDS RESOURCES, INC.,
a Delaware corporation
By:
--------------------------------
Robert P. Lindsay
Chief Operating Officer
By:
--------------------------------
Ronald I. Benn
Chief Financial Officer
Address for Notices:
Queen Sand Resources, Inc.
13760 Noel Road, Suite 1030
Dallas, TX 75240
Attention: Robert P. Lindsay
Telephone: (972) 233-9906
Facsimile: (972) 233-9575
with a copy to:
Queen Sand Resources, Inc.
60 Queen Street, Suite 1400
Ottawa, Canada KIP 5Y7
Attention: Mr. Ronald Benn
Telephone: (613) 230-7211
Facsimile: (613) 230-6055
and
Haynes & Boone LLP
901 Main Street, Suite 3100
Dallas, Texas 75202-3789
Attention: Mr. William L. Boeing
Telephone: (214) 651-5553
Facsimile: (214) 651-5940
S-1
<PAGE> 1
EXHIBIT 10.4
SECOND AMENDED AND RESTATED
PLEDGE AND SECURITY AGREEMENT
(Stock, Bonds and Other Interests)
by
QUEEN SAND RESOURCES, INC.
in favor of
ABLECO FINANCE LLC,
as Collateral Agent,
as of October 22, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I Definitions.............................................................................................2
Section 1.01 Terms Defined in Recitals or in the Credit Agreement.................................2
Section 1.02 Certain Definitions..................................................................2
ARTICLE II Security Interest......................................................................................3
Section 2.01 Pledge...............................................................................3
Section 2.02 Transfer of Collateral...............................................................3
ARTICLE III Representations and Warranties........................................................................4
Section 3.01 Ownership of Collateral, Encumbrances................................................4
Section 3.02 No Required Consent..................................................................4
Section 3.03 Pledged Interests....................................................................4
Section 3.04 First Priority Security Interest.....................................................4
ARTICLE IV Covenants and Agreements...............................................................................4
Section 4.01 Sale, Disposition or Encumbrance of Collateral.......................................5
Section 4.02 Dividends or Distributions...........................................................5
Section 4.03 Stock Powers.........................................................................5
Section 4.04 Voting and Other Consensual Rights...................................................5
Section 4.05 Pledged Interests Percentage.........................................................5
ARTICLE V Rights, Duties and Powers of Secured Party..............................................................5
Section 5.01 Discharge Encumbrances...............................................................5
Section 5.02 Transfer of Collateral...............................................................6
Section 5.03 Cumulative and Other Rights..........................................................6
Section 5.04 Disclaimer of Certain Duties.........................................................6
Section 5.05 Modification of Obligations; Other Security..........................................6
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 5.06 Waiver of Notice, Demand and Presentment.............................................7
Section 5.07 Custody and Preservation of the Collateral...........................................7
ARTICLE VI Events of Default......................................................................................7
Section 6.01 Events...............................................................................7
Section 6.02 Remedies.............................................................................7
Section 6.03 Attorney-in-Fact.....................................................................8
Section 6.04 Liability for Deficiency.............................................................9
Section 6.05 Reasonable Notice....................................................................9
Section 6.06 Pledged Interests....................................................................9
Section 6.07 Non-Judicial Enforcement............................................................10
Section 6.08 Private Sale of Collateral..........................................................10
ARTICLE VII Miscellaneous........................................................................................10
Section 7.01 Notices.............................................................................10
Section 7.02 Amendments and Waivers..............................................................11
Section 7.03 Copy as Financing Statement.........................................................11
Section 7.04 Possession of Collateral............................................................11
Section 7.05 Redelivery of Collateral............................................................11
Section 7.06 GOVERNING LAW.......................................................................11
Section 7.07 Effectiveness.......................................................................11
Section 7.08 Continuing Security Agreement.......................................................11
Section 7.09 Termination.........................................................................12
Section 7.10 Prior Security Agreement............................................................12
</TABLE>
ii
<PAGE> 4
SECOND AMENDED AND RESTATED
PLEDGE AND SECURITY AGREEMENT
This Second Amended and Restated Pledge and Security Agreement is made,
as of October 22, 1999, by QUEEN SAND RESOURCES, INC., a Nevada corporation
("Pledgor"), in favor of ABLECO FINANCE LLC, as Collateral Agent for the Lender
Group (together with any successor collateral agent, "Secured Party").
RECITALS
A. QUEEN SAND RESOURCES, INC., a corporation duly organized and validly
existing under the laws of the state of Delaware ("QSRD"), Pledgor, certain
lenders (the "Prior Lenders") and the Bank of Montreal, as agent (the "Prior
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, as further amended by that
certain Second Amendment to Amended and Restated Credit Agreement dated as of
November 10, 1998, as further amended by that certain Third Amendment to Amended
and Restated Credit Agreement dated as of November 13, 1998, as further amended
by that certain Fourth Amendment to Amended and Restated Credit Agreement dated
as of May 14, 1999, and as further amended by that certain Fifth Amendment to
Amended and Restated Credit Agreement dated as of October 13, 1999 (such credit
agreement, as amended, restated, supplemented, or otherwise modified from time
to time prior to the date hereof, the "Prior Credit Agreement").
B. Pursuant to the terms and conditions of the Prior Credit Agreement,
Pledgor entered into that certain Amended and Restated Security Agreement
(Stocks, Bonds, and Other Securities), dated as of April 17, 1998 (such security
agreement, as amended, restated, supplemented, or otherwise modified from time
to time prior to the date hereof, the "Prior Security Agreement"), in favor of
the Prior Agent, pursuant to which Pledgor granted security interests to the
Prior Agent for the benefit of the Prior Lenders in the collateral therein
described.
C. Concurrently herewith: (i) pursuant to that certain Assignment and
Acceptance, dated as of the Closing Date, among each of the Prior Lenders and
each of the Lender Group (the "Purchase Agreement"), the Prior Lenders are
assigning and delegating to the Lender Group, and the Lender Group are accepting
and assuming, the rights and duties of the Prior Lenders under the Prior Credit
Agreement and the other "Loan Documents" (as such term is defined in the Prior
Credit Agreement, the "Prior Loan Documents"); (ii) pursuant to the Purchase
Agreement and the Resignation and Appointment Letter, the Prior Agent is
resigning as "Agent" under the Prior Credit Agreement and the other Prior Loan
Documents and Administrative Agent and Collateral Agent are being appointed as
successor "Agents" for the Lender Group under the Prior Credit Agreement and the
other Prior Loan Documents; and (iii) the Prior Credit Agreement is being
amended and restated in its entirety by that certain Amended and Restated Credit
Agreement, dated as of the date hereof (as it may be amended, restated,
supplemented, or otherwise modified from time to time, the "Credit Agreement"),
among QSRD, Pledgor, the financial institutions identified therein as the
"Lenders," Foothill Capital Corporation, a California corporation, as
administrative agent thereunder (in such capacity, together with its successors,
if any, in such capacity, "Administrative Agent"), and Ableco Finance LLC, as
collateral agent thereunder (in
<PAGE> 5
such capacity, together with its successors, if any, in such capacity,
"Collateral Agent"), it being understood that no repayment of the obligations
under the Prior Credit Agreement is being effected thereby, but merely an
amendment and restatement in accordance with the terms thereof.
D. Pursuant to the Credit Agreement and as one of the conditions
thereof, Pledgor and the Lender Group have agreed to amend and restate the Prior
Security Agreement in its entirety as provided in this Security Agreement, it
being understood that no satisfaction of the "Obligations" (as such term is
defined in the Prior Security Agreement) under the Prior Security Agreement is
being effected hereby, but merely an amendment and restatement in accordance
with the terms hereof.
E. NOW, THEREFORE, (i) in order to comply with the terms and conditions
of the Credit Agreement, (ii) to induce the Lender Group to enter into the terms
of the Credit Agreement, and (iii) for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, Pledgor hereby
agrees as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 TERMS DEFINED IN RECITALS OR IN THE CREDIT AGREEMENT. As
used in this Security Agreement, the terms defined in the Recitals shall have
the meanings respectively assigned to them. Other capitalized terms which are
defined in the Credit Agreement but which are not defined herein shall have the
same meanings as defined in the Credit Agreement.
SECTION 1.02 CERTAIN DEFINITIONS. As used in this Security Agreement,
the following terms shall have the following meanings, unless the context
otherwise requires:
"Code" shall mean the Uniform Commercial Code as presently in effect in
the State of New York. Unless otherwise indicated by the context herein, all
uncapitalized terms which are defined in the Code shall have their respective
meanings as used in Articles 8 and 9 of the Code.
"Collateral" shall mean any and all of the following types or items of
property:
(a) the Interests described or referred to in Exhibit A attached hereto
and made a part hereof; and
(b) (i) the certificates or instruments, if any, representing such
Interests, (ii) all dividends (cash, stock or otherwise), cash, instruments,
rights to subscribe, purchase or sell and all other rights and property from
time to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of such Interests, (iii) all replacements, additions to
and substitutions for any of the property referred to in this definition,
including, without limitation, claims against third parties, (iv) the proceeds,
interest, profits and other income of or on any of the property referred to in
this definition and (v) all books and records relating to any of the property
referred to in this definition.
2
<PAGE> 6
(c) additional Interests or other Property may from time to time be
pledged, assigned or granted to Secured Party as additional security for the
Obligations and the term "Collateral" as used herein shall be deemed for all
purposes to include all such additional Interests and Property, together with
all other Property of the types described above related thereto.
"Interests" means all shares, units, options, warrants, interests,
securities, participations, or other equivalents (regardless of how designated)
of or in a corporation, partnership, limited liability company, or equivalent
entity, whether voting or nonvoting, including general partner partnership
interests, limited partner partnership interests, common stock, preferred stock,
or any other "equity security" (as such term is defined in Rule 3a11-1 of the
General Rules and Regulations promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended).
"Lender Group" means, individually and collectively, each of the
Lenders, Administrative Agent, and Collateral Agent.
"Obligations" shall mean (a) the payment and performance of all present
and future Indebtedness, obligations and liabilities of QSRD or the Pledgor to
Secured Party and the Lender Group under the Credit Agreement and the other Loan
Documents; (b) all obligations of the Pledgor under this Security Agreement and
the other Loan Documents; and (c) all interest (whether pre or post petition),
charges, expenses, reasonable attorneys' or other fees and any other sums
payable to or incurred by the Lender Group in connection with the execution or
enforcement of any of their rights and remedies hereunder or any other Loan
Document.
"Pledged Interests" shall mean all of the Interests and other property
(whether or not the same constitutes a "security" under the Code) referred to in
the definition of "Collateral" and all additional securities (as that term is
defined in the Code), if any, constituting Collateral under this Security
Agreement.
"Security Agreement" shall mean this Second Amended and Restated Pledge
and Security Agreement, as the same may from time to time be amended or
supplemented.
ARTICLE II
SECURITY INTEREST
SECTION 2.01 PLEDGE. Pledgor hereby pledges, assigns, and grants a
security interest in and right of set-off against all of Pledgor's right, title,
and interest in and to the Collateral to and in favor of Secured Party, for the
benefit of the Lender Group, to secure the prompt payment and performance of the
Obligations.
SECTION 2.02 TRANSFER OF COLLATERAL. All certificates or instruments
representing or evidencing the Pledged Interests shall be delivered to and held
pursuant hereto by Secured Party or a Person designated by Secured Party and
shall be in suitable form for transfer by delivery, or shall be accompanied by
duly executed instruments of transfer or assignment in blank, and accompanied by
any required transfer tax stamps to effect the pledge of the Pledged Interests
to Secured Party. Notwithstanding the preceding sentence, at Secured Party's
discretion, all Pledged Interests must be delivered or transferred in such
manner as to permit Secured Party to
3
<PAGE> 7
be a "protected purchaser" to the extent of its security interest as provided in
Section 8-303 of the Code (if Secured Party otherwise qualifies as a protected
purchaser). During the continuance of an Event of Default, Secured Party shall
have the right, at any time in its discretion and without notice to Pledgor, to
transfer to or to register in the name of Secured Party or any of its nominees
any or all of the Pledged Interests, subject only to the revocable rights
specified in Section 6.06. In addition, during the continuance of an Event of
Default, Secured Party shall have the right at any time to exchange certificates
or instruments representing or evidencing Pledged Interests for certificates or
instruments of smaller or larger denominations.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
In order to induce Secured Party to accept this Security Agreement on
behalf of the Lender Group, Pledgor represents and warrants to Secured Party
(which representations and warranties will survive the creation and payment of
the Obligations) that:
SECTION 3.01 OWNERSHIP OF COLLATERAL, ENCUMBRANCES. Pledgor is the
legal and beneficial owner of the Collateral free and clear of any adverse
claim, lien, security interest, option or other charge or encumbrance except for
the security interest created by this Security Agreement. Pledgor has full
right, power and authority to pledge, assign and grant a security interest in
the Collateral to Secured Party.
SECTION 3.02 NO REQUIRED CONSENT. No authorization, consent, approval
or other action by, and no notice to or filing with, any Person (other than the
filing of any financing statements required to be filed under the Code) is
required for (a) the due execution, delivery and performance by Pledgor of this
Security Agreement, (b) the grant by Pledgor of the security interest granted by
this Security Agreement, (c) the perfection of such security interest or (d) the
exercise by Secured Party of its rights and remedies under this Security
Agreement, including the transfer of the Collateral upon foreclosure.
SECTION 3.03 PLEDGED INTERESTS. The Pledged Interests have been duly
authorized and validly issued, and are fully paid and non-assessable. The
Pledged Interests constitute 100% of the capital stock of the issuer thereof
outstanding together with the number of shares subject to issuance pursuant to
any warrants, options or other stock rights.
SECTION 3.04 FIRST PRIORITY SECURITY INTEREST. The pledge of Pledged
Interests pursuant to this Security Agreement creates a valid and perfected
first priority security interest in the Collateral, enforceable against Pledgor
and all third parties and securing payment of the Obligations.
ARTICLE IV
COVENANTS AND AGREEMENTS
Pledgor will at all times comply with the covenants and agreements
contained in this Article IV, from the date hereof and for so long as any part
of the Obligations are outstanding.
4
<PAGE> 8
SECTION 4.01 SALE, DISPOSITION OR ENCUMBRANCE OF COLLATERAL. Pledgor
will not in any way encumber any of the Collateral (or permit or suffer any of
the Collateral to be encumbered) or sell, pledge, assign, lend or otherwise
dispose of or transfer any of the Collateral to or in favor of any Person other
than Secured Party.
SECTION 4.02 DIVIDENDS OR DISTRIBUTIONS. So long as no Event of Default
shall have occurred and be continuing: Pledgor shall be entitled to receive and
retain any and all dividends and interest paid in respect of the Collateral,
provided, however, that any and all (a) dividends and interest paid or payable
other than in cash in respect of, and instruments and other property received,
receivable or otherwise distributed in respect of, or in exchange for
(including, without limitation, any certificate or share purchased or exchanged
in connection with a tender offer or merger agreement), any Collateral, (b)
dividends and other distributions paid or payable in cash in respect of any
Collateral in connection with a partial or total liquidation or dissolution or
in connection with a reduction of capital, capital surplus or paid-in surplus,
or reclassification, and (e) cash paid, payable or otherwise distributed in
respect of principal of, or in redemption of, or in exchange for, any
Collateral, shall be, and shall be forthwith delivered to Secured Party to hold
as, Collateral and shall, if received by Pledgor, be received in trust for the
benefit of Secured Party, be segregated from the other property or funds of
Pledgor, and be forthwith delivered to Secured Party as Collateral in the same
form as so received (with any necessary indorsement).
SECTION 4.03 STOCK POWERS. Pledgor shall furnish to Secured Party such
stock powers and other instruments as may be required by Secured Party to assure
the transferability of the Collateral when and as often as may be reasonably
requested by Secured Party.
SECTION 4.04 VOTING AND OTHER CONSENSUAL RIGHTS. Except to the extent
otherwise provided in subsection 6.06(d), Pledgor shall be entitled to exercise
any and all voting and other consensual rights pertaining to the Collateral or
any part thereof for any purpose not inconsistent with the terms of this
Security Agreement; provided however, that Pledgor shall not exercise or refrain
from exercising any such right if such action would have a Material Adverse
Effect.
SECTION 4.05 PLEDGED INTERESTS PERCENTAGE. The Pledged Interests will
at all times constitute not less than 100% of the capital stock of the issuer
thereof outstanding, together with the number of shares subject to issuance
pursuant to any warrants, options or other stock rights. Pledgor will not permit
any issuer of any of the Pledged Interests to issue any new shares of any class
of capital stock of such issuer without the prior written consent of Secured
Party.
ARTICLE V
RIGHTS, DUTIES AND POWERS OF SECURED PARTY
The following rights, duties and powers of Secured Party are applicable
irrespective of whether an Event of Default occurs and is continuing:
SECTION 5.01 DISCHARGE ENCUMBRANCES. Secured Party may, at its option,
discharge any taxes or Liens at any time levied or placed on the Collateral and
not paid by the Pledgor when due, except for those items being contested in good
faith, by appropriate proceedings, diligently pursued and for which adequate
reserves have been provided in accordance with
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GAAP. Pledgor agrees to reimburse Secured Party upon demand for any payment so
made, plus interest thereon from the date of Secured Party's demand at the
Post-Default Rate.
SECTION 5.02 TRANSFER OF COLLATERAL. To the extent permitted and in the
manner required by the Credit Agreement, Secured Party may transfer any or all
of the Obligations, and upon any such transfer Secured Party may transfer its
interest in any or all of the Collateral and shall be fully discharged
thereafter from all liability therefor. Any transferee of the Collateral shall
be vested with all rights, powers and remedies of Secured Party hereunder.
SECTION 5.03 CUMULATIVE AND OTHER RIGHTS. The rights, powers and
remedies of Secured Party hereunder are in addition to all rights, powers and
remedies given by law or in equity. The exercise by Secured Party of any one or
more of the rights, powers and remedies herein shall not be construed as a
waiver of any other rights, powers and remedies, including, without limitation,
any other rights of set-off. If any of the Obligations are given in renewal,
extension for any period or rearrangement, or applied toward the payment of debt
secured by any lien, Secured Party shall be, and is hereby, subrogated to all
the rights, titles, interests and liens securing the debt so renewed, extended,
rearranged or paid.
SECTION 5.04 DISCLAIMER OF CERTAIN DUTIES.
(a) The powers conferred upon Secured Party by this Security Agreement
are to protect its interest in the Collateral and shall not impose any duty upon
Secured Party or the Lender Group to exercise any such powers. Pledgor hereby
agrees that Secured Party shall not be liable for, nor shall the indebtedness
evidenced by the Obligations be diminished by, Secured Party's delay or failure
to collect upon, foreclose, sell, take possession of or otherwise obtain value
for the Collateral (other than for acts or omissions that constitute gross
negligence or willful misconduct).
(b) To the fullest extent permitted by applicable law, Secured Party
shall be under no duty whatsoever to make or give any presentment, notice of
dishonor, protest, demand for performance, notice of non-performance, notice of
intent to accelerate, notice of acceleration, or other notice or demand in
connection with any Collateral or the Obligations, or to take any steps
necessary to preserve any rights against any Guarantor or other Person. Pledgor
waives any right of marshaling in respect of any and all Collateral, and waives
any right to require Secured Party or the Lender Group to proceed against any
Guarantor or other Person, exhaust any Collateral or enforce any other remedy
which Secured Party or the Lender Group now has or may hereafter have against
the Pledgor, any Guarantor or other Person.
SECTION 5.05 MODIFICATION OF OBLIGATIONS; OTHER SECURITY. Pledgor
waives: (a) any and all notice of acceptance, creation, modification,
rearrangement, renewal or extension for any period of any instrument executed by
the Pledgor, any Guarantor or any other Person in connection with the
Obligations and (b) any defense of the Pledgor, any Guarantor or any such Person
by reason of disability, lack of authorization, cessation of the liability of
the Pledgor, any Guarantor or any such Person or for any other reason. Pledgor
authorizes Secured Party, without notice or demand and without any reservation
of rights against Pledgor and without affecting Pledgor's liability hereunder or
on the Obligations, from time to time to (i) take and hold other property, other
than the Collateral, as security for the Obligations, and exchange, enforce,
waive
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<PAGE> 10
and release any or all of the Collateral, (ii) apply the Collateral in the
manner permitted by this Security Agreement and (iii) renew, extend for any
period, accelerate, amend or modify, supplement, enforce, compromise, settle,
waive or release the obligations of the Pledgor, any Guarantor or any other
Person or any instrument or Agreement of such other Person with respect to any
or all of the Obligations or Collateral.
SECTION 5.06 WAIVER OF NOTICE, DEMAND AND PRESENTMENT. Except as may be
expressly required in the Credit Agreement, this Security Agreement or the Code,
Pledgor hereby waives any demand, notice of default, notice of acceleration of
the maturity of the Obligations, notice of intention to accelerate the maturity
of the Obligations, presentment, protest and notice of dishonor as to any action
taken by Secured Party or the Lender Group in connection with this Security
Agreement, or any instrument or document.
SECTION 5.07 CUSTODY AND PRESERVATION OF THE COLLATERAL. Secured Party
shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral in its possession if the Collateral is accorded
treatment substantially equal to that which comparable secured parties accord
comparable collateral, it being understood and agreed, however, that neither
Secured Party nor the Lender Group shall have responsibility for (a)
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Collateral, whether or not
such Person has or is deemed to have knowledge of such matters, or (b) taking
any necessary steps to preserve rights against Persons or entities with respect
to any Collateral.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01 EVENTS. The occurrence of any Event of Default under the
Credit Agreement shall constitute an Event of Default under this Security
Agreement.
SECTION 6.02 REMEDIES. During the continuance of any Event of Default,
Secured Party may take any or all of the following actions without notice
(except where expressly required below or in the Credit Agreement) or demand to
Pledgor:
(a) Sell, in one or more sales and in one or more parcels, or otherwise
dispose of any or all of the Collateral in any commercially reasonable manner as
Secured Party may elect, in a public or private transaction, at any location as
deemed reasonable by Secured Party either for cash or credit or for future
delivery at such price as Secured Party may deem fair, and (unless prohibited by
the Code, as adopted in any applicable jurisdiction) Secured Party on behalf of
the Lender Group may be the purchaser of any or all Collateral so sold and may
apply upon the purchase price therefor any Obligations secured hereby. Any such
sale or transfer by Secured Party either to itself or to any other Person shall
be absolutely free from any claim of right by Pledgor, including any equity or
right of redemption, stay or appraisal which Pledgor has or may have under any
rule of law, regulation or statute now existing or hereafter adopted. Upon any
such sale or transfer, Secured Party shall have the right to deliver, assign and
transfer to the purchaser or transferee thereof the Collateral so sold or
transferred. If Secured Party deems it advisable to do so, it may restrict the
bidders or purchasers of any such sale or transfer to Persons or entities who
will represent and agree that they are purchasing the Collateral for their own
7
<PAGE> 11
account and not with the view to the distribution or resale of any of the
Collateral. Secured Party may, at its discretion, provide for a public sale, and
any such public sale shall be held at such time or times within ordinary
business hours and at such place or places as Secured Party may fix in the
notice of such sale. Secured Party shall not be obligated to make any sale
pursuant to any such notice. Secured Party may, without notice or publication,
adjourn any public or private sale by announcement at any time and place fixed
for such sale, and such sale may be made at any time or place to which the same
may be so adjourned. In the event any sale or transfer hereunder is not
completed or is defective in the opinion of Secured Party, such sale or transfer
shall not exhaust the rights of Secured Party hereunder, and Secured Party shall
have the right to cause one or more subsequent sales or transfers to be made
hereunder. If only part of the Collateral is sold or transferred such that the
Obligations remain outstanding (in whole or in part), Secured Party's rights and
remedies hereunder shall not be exhausted, waived or modified, and Secured Party
is specifically empowered to make one or more successive sales or transfers
until all the Collateral shall be sold or transferred and all the Obligations
are paid. In the event that Secured Party elects not to sell the Collateral,
Secured Party retains its rights to dispose of or utilize the Collateral or any
part or parts thereof in any manner authorized or permitted by law or in equity,
and to apply the proceeds of the same towards payment of the Obligations. Each
and every method of disposition of the Collateral described in this Section
6.02(a) or in Section 6.02(d) shall constitute disposition in a commercially
reasonable manner.
(b) Apply proceeds of the disposition of the Collateral to the
Obligations in any manner elected by Secured Party and permitted by the Credit
Agreement, the Code or otherwise permitted by law or in equity. Such application
may include, without limitation, the reasonable attorneys' fees and legal
expenses incurred by Secured Party and the Lender Group.
(c) Appoint any Person as agent to perform any act or acts necessary or
incident to any sale or transfer by Secured Party of the Collateral.
(d) Apply and set-off (i) any deposits of Pledgor now or hereafter held
by Secured Party or the Lender Group; (ii) all claims of Pledgor against Secured
Party or the Lender Group, now or hereafter existing; (iii) any other property,
rights or interests of Pledgor which comes into the possession or custody or
under the control of Secured Party or the Lender Group; and (iv) the proceeds of
any of the foregoing as if the same were included in the Collateral. Secured
Party agrees to use reasonable efforts to notify Pledgor promptly after any such
set-off or application (or after learning thereof in the case of such action by
the Lender Group); provided, however, the failure of Secured Party to give any
notice shall not affect the validity of such set-off or application.
(e) Execute, assign and endorse negotiable and other instruments for
the payment of money, documents of title or other evidences of payment, shipment
or storage for any form of Collateral on behalf of and in the name of Pledgor.
(f) Exercise all other rights and remedies permitted by law or in
equity.
SECTION 6.03 ATTORNEY-IN-FACT. Pledgor hereby irrevocably appoints
Secured Party as Pledgor's attorney-in-fact, with full authority in the place
and stead of Pledgor and in the name of Pledgor or otherwise, from time to time
in Secured Party's discretion during the continuance of
8
<PAGE> 12
an Event of Default, but at Pledgor's cost and expense and without notice to
Pledgor, to take any action and to execute any assignment, certificate,
financing statement, stock power, notification, document or instrument which
Secured Party may deem necessary or advisable to accomplish the purposes of this
Security Agreement, including, without limitation, to receive, endorse and
collect all instruments made payable to Pledgor representing any dividend,
interest payment or other distribution in respect of the Collateral or any part
thereof and to give full discharge for the same.
SECTION 6.04 LIABILITY FOR DEFICIENCY. If any sale or other disposition
of Collateral by Secured Party or any other action of Secured Party or any the
Lender Group hereunder or under any other Loan Document results in reduction of
the Obligations, such action will not release Pledgor from its liability to
Secured Party and the Lender Group for any unpaid Obligations, including costs,
charges and expenses incurred in the liquidation of Collateral, together with
interest thereon, and the same shall be immediately due and payable to
Administrative Agent for the benefit of the Lender Group.
SECTION 6.05 REASONABLE NOTICE. If any applicable provision of any law
requires Secured Party or the Lender Group to give reasonable notice of any sale
or disposition or other action, Pledgor hereby agrees that 10 days' prior
written notice shall constitute reasonable notice thereof. Such notice, in the
case of public sale, shall state the time and place fixed for such sale and, in
the case of private sale, the time after which such sale is to be made.
SECTION 6.06 PLEDGED INTERESTS. During the continuance of an Event of
Default:
(a) All rights of Pledgor to receive the dividends and interest
payments which it would otherwise be authorized to receive and retain pursuant
to Section 4.02 shall cease, and all such rights shall thereupon become vested
in Secured Party who shall thereupon have the sole right to receive and hold as
Collateral such dividends and interest payments, but Secured Party shall have no
duty to receive and hold such dividends and interest payments and shall not be
responsible for any failure to do so or delay in so doing.
(b) All dividends and interest payments which are received by Pledgor
contrary to the provisions of this Section 6.06 shall be received in trust for
the benefit of Secured Party (on behalf of the Lender Group), shall be
segregated from other funds of Pledgor and shall be forthwith paid over to
Secured Party as Collateral in the same form as so received (with any necessary
indorsement).
(c) Secured Party may exercise any and all rights of conversion,
exchange, subscription or any other rights, privileges or options pertaining to
any of the Pledged Interests as if it were the absolute owner thereof,
including, without limitation, the right to exchange at its discretion, any and
all of the Pledged Interests upon the merger, consolidation, reorganization,
recapitalization or other readjustment of any issuer of such Pledged Interests
or upon the exercise by any such issuer or Secured Party of any right, privilege
or option pertaining to any of the Pledged Interests, and in connection
therewith, to deposit and deliver any and all of the Pledged Interests with any
committee, depository, transfer agent, registrar or other designated agency upon
such terms and conditions as it may determine, all without liability except to
account for property actually received by it, but Secured Party shall have no
duty to exercise any of the
9
<PAGE> 13
aforesaid rights, privileges or options and shall not be responsible for any
failure to do so or delay in so doing.
(d) If the issuer of any Pledged Interests is the subject of
bankruptcy, insolvency, receivership, custodianship or other proceedings under
the supervision of any Governmental Authority, then all rights of Pledgor to
exercise the voting and other consensual rights which Pledgor would otherwise be
entitled to exercise pursuant to Section 4.04 with respect to the Pledged
Interests issued by such issuer shall cease, and all such rights shall thereupon
become vested in Secured Party who shall thereupon have the sole right to
exercise such voting and other consensual rights, but Secured Party shall have
no duty to exercise any such voting or other consensual rights and shall not be
responsible for any failure to do so or delay in so doing.
SECTION 6.07 NON-JUDICIAL ENFORCEMENT. Secured Party may enforce its
rights hereunder without prior judicial process or judicial hearing, and to the
extent permitted by law, Pledgor expressly waives any and all legal rights which
might otherwise require Secured Party to enforce its rights by judicial process.
SECTION 6.08 PRIVATE SALE OF COLLATERAL. Pledgor recognizes that
Secured Party may deem it impracticable to effect a public sale of all or any
part of the Collateral and that Secured Party may, therefore, determine to make
one or more private sales of any such Collateral to a restricted group of
purchasers who will be obligated to agree, among other things, to acquire such
Collateral for their own account, for investment and not with a view to the
distribution or resale thereof. Pledgor acknowledges that any such private sale
may be at prices and on terms less favorable to the seller than the prices and
other terms which might have been obtained at a public sale and, notwithstanding
the foregoing, agrees that such private sale shall be deemed to have been made
in a commercially reasonably manner and that Secured Party shall have no
obligation to delay sale of any such Interests for the period of time necessary
to permit Pledgor to register such Collateral for public sale under the
Securities Act of 1933, as amended (the "Securities Act"). Pledgor further
acknowledges and agrees that any offer to sell such Collateral which has been
(i) publicly advertised on a bona fide basis in a newspaper or other publication
of general circulation in the financial community of New York, New York and
Dallas, Texas (to the extent that such an offer may be so advertised without
prior registration under the Securities Act), or (ii) made privately in the
manner described above to not less than fifteen (15) bona fide offerees shall be
deemed to involve a "Public sale" for the purposes of Section 9-504(c) of the
Code (or any successor or similar, applicable statutory provision) as then in
effect in the State of New York, notwithstanding that such sale may not
constitute a "public offering" under the Securities Act and that Secured Party
on behalf of the Lender Group may, in such event, bid for the purchase of such
Collateral.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01 NOTICES. Any notice required or permitted to be given
under or in connection with this Security Agreement shall be in writing and
shall be given as provided in the Credit Agreement at the address set forth
therein.
10
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SECTION 7.02 AMENDMENTS AND WAIVERS. The acceptance of partial or
delinquent payments by the Lender Group or any forbearance, failure or delay by
them in exercising any right, power or remedy under any Loan Document shall not
be deemed a waiver of any obligation of Pledgor or of any of Secured Party's or
the Lender Group's rights, powers or remedies; and no partial exercise of any
right, power or remedy shall preclude any other or further exercise thereof. The
Lender Group may remedy any Event of Default hereunder or in connection with the
Obligations without waiving the Event of Default so remedied. Pledgor hereby
agrees that if the Lender Group agrees to a waiver of any provision hereunder,
or an exchange of or release of the Collateral, or the addition or release of
any other Person, any such action shall not constitute a waiver of any of
Secured Party's other rights or of Pledgor's obligations hereunder. This
Agreement may be amended only by an instrument in writing as set forth in
Section 12.04 of the Credit Agreement.
SECTION 7.03 COPY AS FINANCING STATEMENT. A photocopy or other
reproduction of this Security Agreement may be delivered by Pledgor or Secured
Party to any financial intermediary or other third party for the purpose of
transferring or perfecting any or all of the Pledged Interests to Secured Party
or its designee or assignee.
SECTION 7.04 POSSESSION OF COLLATERAL. Secured Party shall be deemed to
have possession of any Collateral in transit to it or set apart for it (or, in
either case, any of its agents, affiliates or correspondents).
SECTION 7.05 REDELIVERY OF COLLATERAL. If any sale or transfer of
Collateral by Secured Party results in full satisfaction of the Obligations, and
after such sale or transfer and discharge there remains a surplus of proceeds,
Secured Party will deliver to Pledgor such excess proceeds in a commercially
reasonable time; provided, however, that neither Secured Party nor the Lender
Group shall have any liability for any interest, cost or expense in connection
with any reasonable delay in delivering such proceeds to Pledgor.
SECTION 7.06 GOVERNING LAW. THIS SECURITY AGREEMENT (INCLUDING, BUT NOT
LIMITED TO, THE VALIDITY AND ENFORCEABILITY HEREOF) SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 7.07 EFFECTIVENESS. This Security Agreement becomes effective
upon the execution hereof by Pledgor and delivery of the same to Secured Party;
and it is not necessary for Secured Party or the Lender Group to execute any
acceptance hereof or otherwise signify or express its acceptance hereof.
SECTION 7.08 CONTINUING SECURITY AGREEMENT.
(a) Except as may be expressly applicable pursuant to Section 9-505 of
the Code, no action taken or omission to act by Secured Party or the Lender
Group hereunder, including, without limitation, any exercise of voting or
consensual rights pursuant to Section 4.04 or any other action taken or inaction
pursuant to Section 6.02, shall be deemed to constitute a retention of the
Collateral in satisfaction of the Obligations or otherwise to be in full
satisfaction of the Obligations, and the Obligations shall remain in full force
and effect, until Secured Party and the
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Lender Group shall have applied payments (including, without limitation,
collections from Collateral) towards the Obligations in the full amount then
outstanding or until such subsequent time as is hereinafter provided in Section
7.09.
(b) To the extent that any payments on the Obligations or proceeds of
the Collateral are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, debtor in
possession, receiver or other Person under any bankruptcy law, common law or
equitable cause, then to such extent the Obligations so satisfied shall be
revived and continue as if such payment or proceeds had not been received by
Secured Party or the Lender Group; and their respective security interests,
rights, powers and remedies hereunder and under the other Loan Documents shall
continue in full force and effect. In such event, this Security Agreement shall
be automatically reinstated if it shall theretofore have been terminated
pursuant to Section 7.09.
SECTION 7.09 TERMINATION. The grant of a security interest hereunder
and all of rights, powers and remedies in connection herewith shall remain in
full force and effect until Secured Party has (a) retransferred and delivered
all Collateral in its possession to Pledgor, (b) executed a registration of
release with respect to all Pledged Interests, if any, as to which Secured Party
held a registered pledge; and (c) executed a written release or termination
statement and reassigned to Pledgor without recourse or warranty any remaining
Collateral and all rights conveyed hereby. Upon the complete payment of the
Obligations and the compliance by Pledgor with all covenants and agreements
hereof, Secured Party, at the written request and expense of Pledgor, will
release, reassign and transfer the Collateral to Pledgor and declare this
Security Agreement to be of no further force or effect. Notwithstanding the
foregoing, the provisions of subsection 7.08(b) shall survive the termination of
this Security Agreement unless such provisions are specifically terminated by a
written release thereof.
SECTION 7.10 PRIOR SECURITY AGREEMENT. This Security Agreement
supersedes and replaces the Prior Security Agreement.
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PLEDGOR: QUEEN SAND RESOURCES, INC.,
a Nevada corporation
By:
------------------------------
Robert P. Lindsay
Vice President
By:
------------------------------
Ronald I. Benn
Vice President
S-1
<PAGE> 17
EXHIBIT A
PLEDGED INTERESTS
Corrida Resources, Inc., a Nevada corporation
One hundred thousand (100,000) shares of the capital stock, par value
$0.01 per share, of Corrida Resources, Inc., standing in the name of
the Pledgor and being evidenced by Certificate No. 00 1.
Queen Sand Operating Co., a Nevada corporation formerly known as Northland
Operating Co.
One thousand (1000) shares of the capital stock, par value $0.01 per
share, of Queen Sand Operating Co. (formerly known as Northland
Operating Co.), standing in the name of the Pledgor and being evidenced
by Certificate No. 2.
<PAGE> 1
EXHIBIT 10.5
SECOND AMENDED AND RESTATED
GUARANTY AGREEMENT
Dated as of October 22, 1999
By
CORRIDA RESOURCES, INC.,
as the Guarantor
in favor of
ABLECO FINANCE LLC,
as Collateral Agent,
for the benefit of the Lender Group
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I Definitions and Accounting Matters..................................2
Section 1.01 Terms Defined in Recitals.............................2
Section 1.02 Certain Definitions...................................2
Section 1.03 Credit Agreement Definitions..........................3
ARTICLE II The Guaranty.......................................................3
Section 2.01 Obligations Guaranteed................................3
Section 2.02 Nature of Guaranty....................................3
Section 2.03 Lender Group's Rights.................................3
Section 2.04 Guarantor's Waivers...................................4
Section 2.05 Maturity of Obligations; Payment......................4
Section 2.06 Lender Group's Expenses...............................4
Section 2.07 Obligation............................................4
Section 2.08 Events and Circumstances Not Reducing or
Discharging the Guarantor's Obligations...............4
Section 2.09 Limitations on Obligation of the Guarantor
Hereunder.............................................6
Section 2.10 Subrogation...........................................6
ARTICLE III Representations and Warranties....................................7
Section 3.01 Representations and Warranties........................7
ARTICLE IV Subordination of Indebtedness......................................8
Section 4.01 Subordination of All Guarantor Claims.................8
Section 4.02 Claims in Bankruptcy..................................8
Section 4.03 Payments Held in Trust................................9
Section 4.04 Liens Subordinate.....................................9
</TABLE>
i
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<TABLE>
<S> <C>
Section 4.05 Notation of Records...................................9
ARTICLE V Miscellaneous.......................................................9
Section 5.01 Successors and Assigns................................9
Section 5.02 Notices...............................................9
Section 5.03 Authority of Collateral Agent........................10
Section 5.04 Governing Law; Submission to Jurisdiction............10
Section 5.05 Entire Agreement.....................................11
Section 5.06 Survival of Obligations..............................11
Section 5.07 Designated Senior Indebtedness.......................12
Section 5.08 Prior Guaranty.......................................12
</TABLE>
ii
<PAGE> 4
SECOND AMENDED AND RESTATED
GUARANTY AGREEMENT
This SECOND AMENDED AND RESTATED GUARANTY AGREEMENT, dated as of
October 22, 1999 is by CORRIDA RESOURCES, INC., a corporation duly organized
and validly existing under the laws of the state of Nevada ("Guarantor"), in
favor of ABLECO FINANCE LLC, as Collateral Agent for the Lender Group (together
with any successor collateral agent, "Collateral Agent").
RECITALS
A. QUEEN SAND RESOURCES, INC., a corporation duly organized and
validly existing under the laws of the state of Delaware ("QSRD"), as
"Guarantor", QUEEN SAND RESOURCES, INC., a corporation duly organized and
validly existing under the laws of the state of Nevada ("Borrower"), certain
lenders (the "Prior Lenders") and the Bank of Montreal, as agent (the "Prior
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, as further
amended by that certain Second Amendment to Amended and Restated Credit
Agreement dated as of November 10, 1998, as further amended by that certain
Third Amendment to Amended and Restated Credit Agreement dated as of November
13, 1998, and as further amended by that certain Fourth Amendment to Amended
and Restated Credit Agreement dated as of May 14, 1999 (such credit agreement,
as amended, restated, supplemented, or otherwise modified from time to time
prior to the date hereof, the "Prior Credit Agreement").
B. Pursuant to the terms and conditions of the Prior Credit Agreement,
Guarantor entered into that certain Amended and Restated Guaranty Agreement,
dated as of April 17, 1998 (such guaranty agreement, as amended, restated,
supplemented, or otherwise modified from time to time prior to the date hereof,
the "Prior Guaranty Agreement"), in favor of the Prior Agent and the Prior
Lenders, pursuant to which Guarantor guaranties the obligations therein
described.
C. Concurrently herewith: (i) pursuant to that certain Assignment and
Acceptance, dated as of the Closing Date, among each of the Prior Lenders and
each of the Lender Group (the "Purchase Agreement"), the Prior Lenders are
assigning and delegating to the Lender Group, and the Lender Group are
accepting and assuming, the rights and duties of the Prior Lenders under the
Prior Credit Agreement and the other "Loan Documents" (as such term is defined
in the Prior Credit Agreement, the "Prior Loan Documents"); (ii) pursuant to
the Purchase Agreement and the Resignation and Appointment Letter, the Prior
Agent is resigning as "Agent" under the Prior Credit Agreement and the other
Prior Loan Documents and Administrative Agent and Collateral Agent are being
appointed as successor "Agents" for the Lender Group under the Prior Credit
Agreement and the other Prior Loan Documents; and (iii) the Prior Credit
Agreement is being amended and restated in its entirety by that certain Amended
and Restated Credit Agreement, dated as of the date hereof (as it may be
amended, restated, supplemented, or otherwise modified from time to time, the
"Credit Agreement"), among Borrower, QSRD, the financial institutions
identified therein as the "Lenders," Foothill Capital Corporation, a California
corporation, as administrative agent thereunder (in such capacity, together
with its successors, if any, in such capacity, "Administrative Agent"), and
Ableco Finance LLC, as collateral agent thereunder (in
<PAGE> 5
such capacity, together with its successors, if any, in such capacity,
"Collateral Agent"), it being understood that no repayment of the obligations
under the Prior Credit Agreement is being effected thereby, but merely an
amendment and restatement in accordance with the terms thereof.
D. Pursuant to the Credit Agreement and as one of the conditions
thereof, Guarantor and the Lender Group have agreed to amend and restate the
Prior Guarantor Agreement in its entirety as provided in this Guaranty
Agreement, it being understood that no satisfaction of the "Obligations" (as
such term is defined in the Prior Guaranty Agreement) under the Prior Guaranty
Agreement is being effected hereby, but merely an amendment and restatement in
accordance with the terms hereof.
E. NOW, THEREFORE, (i) in order to comply with the terms and
conditions of the Credit Agreement, (ii) to induce the Lender Group to enter
into the terms of the Credit Agreement, and (iii) for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
Guarantor hereby agrees as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS
SECTION 1.01 TERMS DEFINED IN RECITALS. As used in this Guaranty
Agreement, the terms defined in the Recitals shall have the meanings indicated
in the Recitals.
SECTION 1.02 CERTAIN DEFINITIONS. As used in this Guaranty Agreement,
the following terms shall have the following meanings, unless the context
otherwise requires:
"Guarantor Claims" shall have the meaning indicated in Section 4.01.
"Guaranty Agreement" shall mean this Second Amended and Restated
Guaranty Agreement, as the same may from time to time be amended or
supplemented.
"Lender Group" means, individually and collectively, each of the
Lenders, Administrative Agent, and Collateral Agent.
"Obligations" shall mean (a) the payment and performance of all
present and future Indebtedness, obligations and liabilities of QSRD, the
Borrower and/or the Guarantor to Collateral Agent and the Lender Group under
the Credit Agreement and the other Loan Documents; (b) all obligations of the
Guarantor under this Guaranty Agreement and the other Loan Documents; and (c)
all interest (whether pre or post petition), charges, expenses, reasonable
attorneys' or other fees and any other sums payable to or incurred by the
Lender Group in connection with the execution or enforcement of any of their
rights and remedies hereunder or any other Loan Document.
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SECTION 1.03 CREDIT AGREEMENT DEFINITIONS. Unless otherwise defined
herein, all terms beginning with a capital letter which are defined in the
Credit Agreement shall have the same meanings herein as therein.
ARTICLE II
THE GUARANTY
SECTION 2.01 OBLIGATIONS GUARANTEED. The Guarantor hereby irrevocably
and unconditionally guarantees to Collateral Agent, as and for its own debt,
until final and indefeasible payment thereof has been made, (a) the prompt
payment of the Obligations, in each case when and as the same shall become due
and payable, whether at maturity, pursuant to a mandatory prepayment
requirement, by acceleration, or otherwise; it being the intent of the
Guarantor that the guaranty set forth herein shall be a guaranty of payment and
not a guaranty of collection.
SECTION 2.02 NATURE OF GUARANTY. This guaranty is an absolute,
irrevocable, completed and continuing guaranty of payment and not a guaranty of
collection, and no notice of the Obligations or any extension of credit already
or hereafter contracted by or extended to the Borrower need be given to the
Guarantor. The guaranty evidenced hereby is joint and several with all other
guarantees of the Obligations. This guaranty may not be revoked by the
Guarantor and shall continue to be effective with respect to debt under the
Obligations arising or created after any attempted revocation by the Guarantor
and shall remain in full force and effect until the Obligations are paid in
full and the Aggregate Commitments are terminated, notwithstanding that from
time to time prior thereto no Obligations may be outstanding. The Borrower and
the Lender Group may modify, alter, rearrange, extend for any period and/or
renew from time to time, the Obligations and the Lender Group may waive any
Default or Events of Default without notice to the Guarantor and in such event
the Guarantor will remain fully bound hereunder on the Obligations. This
Guaranty Agreement may be enforced by Collateral Agent, on behalf of the Lender
Group and any subsequent holder of the Obligations, and shall not be discharged
by the assignment or negotiation of all or part of the Obligations. The
Guarantor hereby expressly waives presentment, demand, notice of non-payment,
protest and notice of protest and dishonor, notice of Event of Default, notice
of intent to accelerate the maturity and notice of acceleration of the maturity
and any other notice in connection with the Obligations, and also notice of
acceptance of this Guaranty Agreement, acceptance on the part of Collateral
Agent for the benefit of the Lender Group being conclusively presumed by their
request for this Guaranty Agreement and delivery of the same to Collateral
Agent.
SECTION 2.03 LENDER GROUP'S RIGHTS. Subject to the terms of the Credit
Agreement, the Guarantor authorizes the Lender Group (or Collateral Agent on
behalf of the Lender Group), without notice or demand and without affecting the
Guarantor's obligation hereunder, to take and hold security for the payment of
the Obligations, and exchange, enforce, waive and release any such security;
and to apply such security and direct the order or manner of sale thereof as
Collateral Agent and the Lender Group in their discretion may determine; and to
obtain a guaranty of the Obligations from any one or more Persons and at any
time or times to enforce, waive, rearrange, modify, limit or release any of
such other Persons from their obligations under such guaranties.
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SECTION 2.04 GUARANTOR'S WAIVERS. The Guarantor waives any right to
require Collateral Agent and the Lender Group to (a) proceed against the
Borrower or any other Person liable on the Obligations, (b) enforce their
rights against any other guarantor of the Obligations, (c) proceed or enforce
their rights against or exhaust any security given to secure the Obligations,
(d) have the Borrower or any other guarantor or other Person joined with the
Guarantor in any suit arising out of this Guaranty Agreement and/or the
Obligations, or (e) pursue any other remedy whatsoever. Neither Collateral
Agent nor the Lender Group shall be required to mitigate damages or take any
action to reduce, collect or enforce the Obligations. The Guarantor waives any
defense arising by reason of any disability, lack of corporate authority or
power, or other defense of the Borrower, any other guarantor of the
Obligations, or any other Person liable on the Obligations, and shall remain
liable hereon regardless of whether the Borrower or any other guarantor or any
such other Person be found not liable thereon for any reason.
SECTION 2.05 MATURITY OF OBLIGATIONS; PAYMENT. The Guarantor agrees
that if the maturity of the Obligations is accelerated by bankruptcy or
otherwise, such maturity shall also be deemed accelerated for the purpose of
this Guaranty Agreement without demand or notice to the Guarantor. The
Guarantor will, forthwith upon notice from Collateral Agent on behalf of the
Lender Group of the Borrower's failure to pay the Obligations at maturity, pay
to Administrative Agent for the benefit of the Lender Group the amount due and
unpaid by the Borrower and guaranteed hereby. The failure of Collateral Agent
or the Lender Group to give this notice shall not in any way release the
Guarantor hereunder.
SECTION 2.06 LENDER GROUP'S EXPENSES. If the Guarantor fails to pay
the Obligations after notice from Collateral Agent of the Borrower's failure to
pay any Obligations at maturity (whether by acceleration or otherwise), and if
thereafter Collateral Agent or the Lender Group obtains the services of an
attorney for collection of amounts owing by the Guarantor hereunder or if suit
is filed to enforce this Guaranty Agreement, or if proceedings are had in any
bankruptcy, receivership or other judicial proceedings for the establishment or
collection of any amount owing by the Guarantor hereunder, or if any amount
owing by the Guarantor hereunder is collected through such proceedings, the
Guarantor agrees to pay to Administrative Agent the reasonable attorneys' fees
and expenses of Collateral Agent and the Lender Group.
SECTION 2.07 OBLIGATION. It is expressly agreed that the obligation of
the Guarantor for the payment of the Obligations guaranteed hereby shall be
primary and not secondary.
SECTION 2.08 EVENTS AND CIRCUMSTANCES NOT REDUCING OR DISCHARGING THE
GUARANTOR'S OBLIGATIONS. The Guarantor hereby consents and agrees to each of
the following to the fullest extent permitted by law, agrees its obligations
under this Guaranty Agreement shall not be released, diminished, impaired,
reduced or adversely affected by any of the following, and waives any rights
(including without limitation rights to notice) which it might otherwise have
as a result of or in connection with any of the following:
(a) Modifications, etc. Any renewal, extension, modification, or
increase in the amount of the Aggregate Commitments as in effect on the
Effective Date, decrease, alteration or rearrangement of all or any part of the
Obligations, any Loan Document or any instrument executed in connection
therewith, or any contract or understanding between or among any one or
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more of the Borrower, Collateral Agent or the Lender Group or any member
thereof, or any other Person, pertaining to the Obligations;
(b) Adjustment, etc. Any adjustment, indulgence, forbearance or
compromise that might be granted or given by the Lender Group to the Borrower
or the Guarantor or any Person liable on the Obligations;
(c) Condition of the Borrower or the Guarantor. The insolvency,
bankruptcy arrangement, reorganization, adjustment, composition, liquidation,
disability, dissolution or lack of power of the Borrower or the Guarantor or
any other Person at any time liable for the payment of all or part of the
Obligations; or any sale, lease or transfer of any or all of the assets of the
Borrower or the Guarantor, or any changes in the shareholders of the Borrower
or the Guarantor;
(d) Invalidity of Obligations. The invalidity, illegality or
unenforceability of all or any part of the Obligations or any Loan Document for
any reason whatsoever, including without limitation the fact that the
Obligations, or any part thereof, exceed the amount permitted by law, the act
of creating the Obligations or any part thereof is ultra vires, the officers or
representatives executing any Loan Document acted in excess of their authority,
the Obligations violate applicable usury laws, the Borrower has valid defenses,
claims or offsets (whether at law, in equity or by agreement) which render the
Obligations wholly or partially uncollectible from the Borrower, the creation,
performance or repayment of the Obligations (or the execution, delivery and
performance of any Loan Document) is illegal, uncollectible, legally impossible
or unenforceable, or the Credit Agreement or other Loan Documents have been
forged or otherwise are irregular or not genuine or authentic;
(e) Release of Obligors. Any full or partial release of the obligation
of the Borrower on the Obligations or any part thereof, of any co-guarantors,
or any other Person now or hereafter liable, whether directly or indirectly,
jointly, severally, or jointly and severally, to pay, perform, guarantee or
assure the payment of the Obligations or any part thereof, it being recognized,
acknowledged and agreed by the Guarantor that the Guarantor may be required to
pay the Obligations in full without assistance or support of any other Person,
and the Guarantor has not been induced to enter into this Guaranty Agreement on
the basis of a contemplation, belief, understanding or agreement that other
parties other than the Borrower will be liable to perform the Obligations, or
that the Lender Group will look to other parties to perform the Obligations;
(f) Other Security. The taking or accepting of any other security,
collateral or guaranty, or other assurance of payment, for all or any part of
the Obligations;
(g) Release of Collateral, etc. Any release, surrender, exchange,
subordination, deterioration, waste, loss or impairment (including without
limitation negligent, willful, unreasonable or unjustifiable impairment) of any
collateral, Property or security, at any time existing in connection with, or
assuring or securing payment of, all or any part of the Obligations;
(h) Care and Diligence. The failure of any of Collateral Agent or the
Lender Group or any other Person to exercise diligence or reasonable care in
the preservation, protection,
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enforcement, sale or other handling or treatment of all or any part of such
collateral, Property or security;
(i) Status of Liens. The fact that any collateral, security or Lien
contemplated or intended to be given, created or granted as security for the
repayment of the Obligations shall not be properly perfected or created, or
shall prove to be unenforceable or subordinate to any other Lien, it being
recognized and agreed by the Guarantor that the Guarantor is not entering into
this Guaranty Agreement in reliance on, or in contemplation of the benefits of,
the validity, enforceability, collectability or value of any of the collateral
for the Obligations;
(j) Payments Rescinded. Any payment by the Borrower to the Lender
Group is held to constitute a preference under the bankruptcy laws, or for any
reason the Lender Group is required to refund such payment or pay such amount
to the Borrower or someone else; or
(k) Other Actions Taken or Omitted. Any other action taken or omitted
to be taken with respect to the Credit Agreement or the other Loan Documents,
the Obligations, or the security and collateral therefor, whether or not such
action or omission prejudices the Guarantor or increases the likelihood that
the Guarantor will be required to pay the Obligations pursuant to the terms
hereof, it being the unambiguous and unequivocal intention of the Guarantor
that the Guarantor shall be obligated to pay the Obligations when due,
notwithstanding any occurrence, circumstance, event, action, or omission
whatsoever, whether contemplated or uncontemplated, and whether or not
otherwise or particularly described herein, except for the full and final
payment and satisfaction of the Obligations.
SECTION 2.09 LIMITATIONS ON OBLIGATION OF THE GUARANTOR HEREUNDER. The
parties hereto (i) intend that the obligation of the Guarantor hereunder be
limited to the maximum amount that would not result in the obligation created
hereby being avoidable under Section 548 of the Federal Bankruptcy Code (11
U.S.C. ss. 548; hereinafter "Section 548") or other applicable state fraudulent
conveyance or transfer law and (ii) agree that this Guaranty Agreement shall be
so construed. Accordingly, the obligation of the Guarantor hereunder is limited
to an amount that is the greater of (x) the "reasonably equivalent value" or
"fair consideration" received by the Guarantor in exchange for the obligation
incurred hereunder, within the meaning of Section 548, as amended, or any
applicable state fraudulent conveyance or transfer law, as amended; or (y) the
lesser of (1) the maximum amount that will not render the Guarantor insolvent
or (2) the maximum amount that will not leave the Guarantor with any Property
deemed an unreasonably small capital. Clauses (1) and (2) are and shall be
determined pursuant to Section 548, as amended, or other applicable state
fraudulent conveyance or transfer law, as amended.
SECTION 2.10 SUBROGATION. The Guarantor shall not exercise any rights
which it may acquire by way of subrogation, reimbursement, exoneration,
indemnification or participation, by any payment made under this Guaranty
Agreement, under any other Loan Document or otherwise until the Obligations
have been paid in full and the Aggregate Commitments are terminated; provided
that, notwithstanding the foregoing, the Guarantor reserves its rights of
contribution and reimbursement, if any, from its co-guarantors and other
Persons liable on the Obligations or otherwise. Except as described in this
Section 2.10, the Guarantor further waives any benefit of any right to
participate in any security now or hereafter held by Collateral Agent or the
Lender Group.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01 REPRESENTATIONS AND WARRANTIES. In order to induce
Collateral Agent for the benefit of the Lender Group to accept this Guaranty
Agreement, the Guarantor represents and warrants to Collateral Agent and the
Lender Group (which representations and warranties will survive the creation of
the Obligations and any extension of credit thereunder) that:
(a) Benefit to the Guarantor. The Guarantor is a wholly-owned
Subsidiary of the Borrower and the Guarantor's guaranty pursuant to this
Guaranty Agreement reasonably may be expected to benefit, directly or
indirectly, the Guarantor; and the Guarantor has determined that this Guaranty
Agreement is necessary and convenient to the conduct, promotion and attainment
of the business of the Guarantor and the Borrower.
(b) Corporate Existence. The Guarantor: (i) is duly organized and
validly existing under the laws of the jurisdiction of its formation; (ii) has
all requisite power, and has all material governmental licenses,
authorizations, consents and approvals necessary to own its assets and carry on
its business as now being conducted; and (iii) is qualified to do business in
all jurisdictions in which the nature of the business conducted by it makes
such qualification necessary and where failure so to qualify would have a
Material Adverse Effect.
(c) No Breach. The execution and delivery by the Guarantor of this
Guaranty Agreement and the other Loan Documents to which it is a party, the
consummation of the transactions herein or therein contemplated, and the
compliance with the terms and provisions hereof will not (i) conflict with or
result in a breach of, or require any consent which has not been obtained as of
the Closing Date or which, if not obtained, would have a Material Adverse
Effect under (A) the respective charter or by-laws of the Guarantor, or (B) any
applicable law or regulation, or any order, writ, injunction or decree of any
court or other Governmental Authority, or any material agreement or instrument
to which the Guarantor is a party or by which it is bound or to which it is
subject in each case in such manner as could reasonably be expected to have a
Material Adverse Effect; or (ii) constitute a default under any such agreement
or instrument, or result in the creation or imposition of any Lien upon any of
the revenues or Property of the Guarantor in each case in such manner as could
reasonably be expected to have a Material Adverse Effect.
(d) Corporate Action. The Guarantor has all necessary corporate power
and authority to execute, deliver and perform its obligations under this
Guaranty Agreement and the other Loan Documents to which it is a party; and the
execution, delivery and performance by the Guarantor of this Guaranty Agreement
and the other Loan Documents to which such Person is a party have been duly
authorized by all necessary corporate action on its part. This Guaranty
Agreement and the other Loan Documents to which the Guarantor is a party
constitute the legal, valid and binding obligation of the Guarantor,
enforceable against the Guarantor in accordance with their terms, except as may
be limited by applicable bankruptcy, insolvency, reorganization or other
similar laws affecting creditors' rights and general principles of equity.
(e) Approvals. Other than consents heretofore obtained or described in
the Credit Agreement, no authorizations, approvals or consents of, and no
filings or registrations with, any Governmental Authority are necessary for the
execution, delivery or performance by the
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Guarantor of this Guaranty Agreement or the other Loan Documents to which it is
a party or for the validity or enforceability thereof. It is understood that
continued performance by the Guarantor of this Guaranty Agreement and the other
Loan Documents to which it is a party will require various filings, such as
filings related to environmental matters, ERISA matters, Taxes and intellectual
property, filings required to maintain corporate and similar standing and
existence, filings pursuant to the Uniform Commercial Code and other security
filings and recordings and filings required by the SEC, routine filings in the
ordinary course of business, and filings required in connection with the
exercise by Collateral Agent on behalf of the Lender Group of remedies in
connection with the Loan Documents.
(f) Solvency. The Guarantor (i) is not insolvent as of the date hereof
and will not be rendered insolvent as a result of this Guaranty Agreement, (ii)
is not engaged in business or a transaction, or about to engage in a business
or a transaction, for which any Property or assets remaining with the Guarantor
constitute unreasonably small capital, and (iii) does not intend to incur, or
believe it will incur, debts that will be beyond its ability to pay as such
debts mature.
(g) No Representation by Collateral Agent or the Lender Group. Neither
any of Collateral Agent, the Lender Group, or any member thereof nor any other
Person has made any representation, warranty or statement to the Guarantor in
order to induce the Guarantor to execute this Guaranty Agreement.
ARTICLE IV
SUBORDINATION OF INDEBTEDNESS
SECTION 4.01 SUBORDINATION OF ALL GUARANTOR CLAIMS. As used herein,
the term "Guarantor Claims" shall mean all debts and obligations of the
Borrower to the Guarantor, whether such debts and obligations now exist or are
hereafter incurred or arise, or whether the obligation of the Borrower thereon
be direct, contingent, primary, secondary, several, joint and several, or
otherwise, and irrespective of whether such debts or obligations be evidenced
by note, contract, open account, or otherwise, and irrespective of the Person
or Persons in whose favor such debts or obligations may, at their inception,
have been, or may hereafter be created, or the manner in which they have been
or may hereafter be acquired by. Except for payments permitted by the Credit
Agreement, until the Obligations shall be paid and satisfied in full, the
Aggregate Commitments are terminated and the Guarantor shall have performed all
of its obligations hereunder and under the other Loan Documents to which it is
a party, the Guarantor shall not receive or collect, directly or indirectly,
from the Borrower any amount upon the Guarantor Claims.
SECTION 4.02 CLAIMS IN BANKRUPTCY. In the event of receivership,
bankruptcy, reorganization, arrangement, debtor's relief, or other insolvency
proceedings involving the Borrower, Collateral Agent on behalf of the Lender
Group shall have the right to prove their claim in any proceeding, so as to
establish their rights hereunder and receive directly from the receiver,
trustee or other court custodian, dividends and payments which would otherwise
be payable upon Guarantor Claims. The Guarantor hereby assigns such dividends
and payments to Collateral Agent for the benefit of the Lender Group. Should
the Lender Group receive, for application upon the Obligations, any such
dividend or payment which is otherwise payable to the Guarantor, and which, as
between the Borrower and the Guarantor, shall constitute a credit
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upon the Guarantor Claims, then upon payment in full of the Obligations, the
Guarantor shall become subrogated to the rights of the Lender Group to the
extent that such payments to the Lender Group on the Guarantor Claims have
contributed toward the liquidation of the Obligations, and such subrogation
shall be with respect to that proportion of the Obligations which would have
been unpaid if the Lender Group had not received dividends or payments upon the
Guarantor Claims.
SECTION 4.03 PAYMENTS HELD IN TRUST. In the event that notwithstanding
Sections 4.01 and 4.02, the Guarantor should receive any funds, payments,
claims or distributions which is prohibited by such Sections, the Guarantor
agrees: (a) to hold in trust for the Lender Group an amount equal to the amount
of all funds, payments, claims or distributions so received, and (b) that it
shall have absolutely no dominion over the amount of such funds, payments,
claims or distributions except to pay them promptly to Administrative Agent for
the benefit of the Lender Group; and the Guarantor covenants promptly to pay
the same to Administrative Agent for the benefit of the Lender Group.
SECTION 4.04 LIENS SUBORDINATE. The Guarantor agrees that, until the
Obligations are paid in full and the Aggregate Commitments terminated, any
Liens upon the Borrower's assets securing payment of the Guarantor Claims shall
be and remain inferior and subordinate to any Liens upon the Borrower's assets
securing payment of the Obligations, regardless of whether such encumbrances in
favor of the Guarantor, Collateral Agent, or the Lender Group presently exist
or are hereafter created or attach. Without the prior written consent of the
Lender Group, the Guarantor, during the period in which any of the Obligations
are outstanding or the Aggregate Commitments are in effect, shall not (a)
exercise or enforce any creditor's right it may have against the Borrower, or
(b) foreclose, repossess, sequester or otherwise take steps or institute any
action or proceeding (judicial or otherwise, including without limitation the
commencement of or joinder in any liquidation, bankruptcy, rearrangement,
debtor's relief or insolvency proceeding) to enforce any Lien on assets of the
Borrower held by the Guarantor.
SECTION 4.05 NOTATION OF RECORDS. All promissory notes and, upon the
request of Collateral Agent on behalf of the Lender Group, all accounts
receivable ledgers or other evidence of the Guarantor Claims accepted by or
held by the Guarantor shall contain a specific written notice thereon that the
indebtedness evidenced thereby is subordinated under the terms of this Guaranty
Agreement.
ARTICLE V
MISCELLANEOUS
SECTION 5.01 SUCCESSORS AND ASSIGNS. This Guaranty Agreement is and
shall be in every particular available to the successors and assigns of
Collateral Agent and the Lender Group and is and shall always be fully binding
upon the legal representatives, successors and assigns of the Guarantor,
notwithstanding that some or all of the monies, the repayment of which this
Guaranty Agreement applies, may be actually advanced after any bankruptcy,
receivership, reorganization or other event affecting either the Borrower or
the Guarantor.
SECTION 5.02 NOTICES. Any notice or demand to the Guarantor under or
in connection with this Guaranty Agreement may be given and shall conclusively
be deemed and considered to
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have been given and received in the manner and to the address of the Guarantor
set forth on the signature page hereto as provided for in Section 12.02 of the
Credit Agreement.
SECTION 5.03 AUTHORITY OF COLLATERAL AGENT. The Guarantor acknowledges
that the rights and responsibilities of Collateral Agent under this Guaranty
Agreement with respect to any action taken by Collateral Agent or the exercise
or non-exercise by Collateral Agent of any option, right, request, judgment or
other right or remedy provided for herein or resulting or arising out of this
Guaranty Agreement shall, as between Collateral Agent and the other members of
the Lender Group, be governed by the Credit Agreement and by such other
agreements with respect thereto as may exist from time to time among them, but,
as between Collateral Agent and the Guarantor, Collateral Agent shall be
conclusively presumed to be acting as agent for the Lender Group with full and
valid authority so to act or refrain from acting; and the Guarantor shall not
be under any obligation, or entitlement, to make any inquiry respecting such
authority.
SECTION 5.04 GOVERNING LAW; SUBMISSION TO JURISDICTION
(a) THIS GUARANTY AGREEMENT (INCLUDING, BUT NOT LIMITED TO, THE
VALIDITY AND ENFORCEABILITY HEREOF) SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTY
AGREEMENT OR THE OTHER LOAN DOCUMENTS TO WHICH THE GUARANTOR IS A PARTY MAY BE
BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF
AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY
OF THIS GUARANTY AGREEMENT, THE GUARANTOR HEREBY ACCEPTS FOR ITSELF AND (TO THE
EXTENT PERMITTED BY LAW) IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. THE GUARANTOR HEREBY
IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION
TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING
IN SUCH RESPECTIVE JURISDICTIONS. THIS SUBMISSION TO JURISDICTION IS
NONEXCLUSIVE AND DOES NOT PRECLUDE COLLATERAL AGENT OR THE LENDER GROUP FROM
OBTAINING JURISDICTION OVER THE GUARANTOR IN ANY COURT OTHERWISE HAVING
JURISDICTION.
(c) THE GUARANTOR IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF
ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE
MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO
IT, AS THE CASE MAY BE, AT ITS SAID ADDRESS, SUCH SERVICE TO BECOME EFFECTIVE
UPON THE EARLIER OF VERIFICATION OF THE GUARANTOR'S RECEIPT THEREOF OR 30 DAYS
AFTER SUCH MAILING.
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(d) NOTHING HEREIN SHALL AFFECT THE RIGHT OF COLLATERAL AGENT OR THE
LENDER GROUP TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO
COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE GUARANTOR IN ANY
OTHER JURISDICTION.
(e) THE GUARANTOR AND THE LENDER GROUP HEREBY (I) IRREVOCABLY AND
UNCONDITIONALLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, TRIAL BY JURY IN
ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS GUARANTY AGREEMENT OR ANY LOAN
DOCUMENTS TO WHICH IT IS A PARTY OR RECEIVES THE BENEFIT OF AND FOR ANY
COUNTERCLAIM THEREIN; (II) IRREVOCABLY WAIVE, TO THE MAXIMUM EXTENT NOT
PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH
LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR
DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (III) CERTIFY THAT NO
PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT,
IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (IV)
ACKNOWLEDGE THAT IT HAS BEEN INDUCED TO ENTER INTO OR ACCEPT THIS GUARANTY
AGREEMENT, THE LOAN DOCUMENTS TO WHICH IT IS A PARTY AND THE TRANSACTIONS
CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS CONTAINED IN THIS SECTION 5.04.
(f) THE GUARANTOR AGREES THAT, IN ADDITION TO (AND WITHOUT LIMITATION
OF) ANY RIGHT OF SET-OFF, BANKERS' LIEN OR COUNTERCLAIM COLLATERAL AGENT OR THE
LENDER GROUP OR ANY MEMBER THEREOF MAY OTHERWISE HAVE, AFTER THE OCCURRENCE AND
DURING THE CONTINUATION OF AN EVENT OF DEFAULT, EACH LENDER (TO THE EXTENT
PERMITTED OR REQUIRED BY THE CREDIT AGREEMENT) SHALL HAVE THE RIGHT AND BE
ENTITLED, AT ITS OPTION, TO OFFSET BALANCES HELD BY IT OR BY ANY OF ITS
AFFILIATES FOR ACCOUNT OF THE GUARANTOR AT ANY OF ITS OFFICES, IN DOLLARS OR IN
ANY OTHER CURRENCY, AGAINST ANY PRINCIPAL OF OR INTEREST ON ANY OF SUCH
LENDER'S LOANS, OR ANY OTHER AMOUNT PAYABLE TO SUCH LENDER HEREUNDER, WHICH IS
NOT PAID WHEN DUE (REGARDLESS OF WHETHER SUCH BALANCES ARE THEN DUE TO THE
GUARANTOR), IN WHICH CASE IT SHALL PROMPTLY NOTIFY THE GUARANTOR AND
ADMINISTRATIVE AGENT AND COLLATERAL AGENT THEREOF, PROVIDED THAT SUCH LENDER'S
FAILURE TO GIVE SUCH NOTICE SHALL NOT AFFECT THE VALIDITY THEREOF.
SECTION 5.05 ENTIRE AGREEMENT. This Guaranty Agreement and the other
Loan Documents embody the entire agreement and understanding between the Lender
Group and the Guarantor and supersede all prior agreements and understandings
between such parties relating to the subject matter hereof and thereof. There
are no unwritten oral agreements between the parties.
SECTION 5.06 SURVIVAL OF OBLIGATIONS. To the extent that any payments
on the Obligations or proceeds of any collateral are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid
to a trustee, debtor in possession, receiver or other Person under any
bankruptcy law, common law or equitable cause, then to such extent, the
Obligations so satisfied shall be revived and continue as if such payment or
proceeds had not been received and the Collateral Agent's and the Lender
Group's Liens, rights, powers and
11
<PAGE> 15
remedies under this Guaranty Agreement and each Loan Document to which the
Guarantor is a party shall continue in full force and effect. In such event,
each Loan Document shall be automatically reinstated and the Guarantor shall
take such action as may be reasonably requested by Collateral Agent and the
Lender Group to effect such reinstatement.
SECTION 5.07 DESIGNATED SENIOR INDEBTEDNESS. The obligations of the
Guarantor under this Guaranty Agreement are, and are intended to be, "guarantor
senior indebtedness", "designated guarantor senior indebtedness" or any other
similar or equivalent classification for all purposes in any other debt
instrument or agreement to which QSRD, the Borrower, or the Guarantor is now or
hereafter a party.
SECTION 5.08 PRIOR GUARANTY. This Guaranty Agreement supersedes and
replaces the Prior Guaranty Agreement.
[remainder of page intentionally left blank]
12
<PAGE> 16
WITNESS THE EXECUTION HEREOF, effective as of the date first written
above.
CORRIDA RESOURCES, INC.,
a Nevada corporation
By:
--------------------------------
Robert P. Lindsay
Vice President
By:
--------------------------------
Ronald I. Benn
Vice President
Address for Notices:
Corrida Resources, Inc.
c/o Queen Sand Resources, Inc.
13760 Noel Road, Suite 1030
Dallas, TX 75240
Attention: Robert P. Lindsay
Telephone: (972) 233-9906
Facsimile: (972) 233-9575
with a copy to:
Queen Sand Resources, Inc.
60 Queen Street, Suite 1400
Ottawa, Canada KIP 5Y7
Attention: Mr. Ronald Benn
Telephone: (613) 230-7211
Facsimile: (613) 230-6055
and
Haynes & Boone LLP
901 Main Street, Suite 3100
Dallas, Texas 75202-3789
Attention: Mr. William L. Boeing
Telephone: (214) 651-5553
Facsimile: (214) 651-5940
S-1
<PAGE> 1
EXHIBIT 10.6
SECURITY AGREEMENT
This SECURITY AGREEMENT (this "Agreement"), is entered into as
of October 22, 1999, by and among QUEEN SAND RESOURCES, INC., a Delaware
corporation ("QSRD"), QUEEN SAND RESOURCES, INC., a Nevada corporation
("Borrower"), QUEEN SAND OPERATING CO., a Nevada corporation formerly known as
Northland Operating Co. ("QS OpCo"), CORRIDA RESOURCES, INC. ("Corrida"; and
together with QSRD, Borrower, QS OpCo, and any Person that becomes an Additional
Debtor hereunder, each a "Debtor" and individually and collectively, jointly and
severally, "Debtors"), on the one hand, and, on the other hand, ABLECO FINANCE
LLC, a Delaware limited liability company, as collateral agent for the Lender
Group (in such capacity, together with its successors, if any, in such capacity,
"Collateral Agent"), with reference to the following:
WHEREAS, each of QSRD and Borrower is a party to that certain
Amended and Restated Credit Agreement, dated as of the date hereof (as it may be
amended, restated, supplemented, or otherwise modified from time to time, the
"Credit Agreement"), among QSRD, Borrower, the financial institutions identified
therein as the "Lenders," Foothill Capital Corporation, a California
corporation, as administrative agent thereunder (in such capacity, together with
its successors, if any, in such capacity, "Administrative Agent"), and
Collateral Agent, pursuant to which the Lender Group has agreed to make certain
financial accommodations to Borrower;
WHEREAS, each Debtor other than Borrower has executed and
delivered to Collateral Agent for the benefit of the Lender Group a guaranty of
the obligations therein described; and
WHEREAS, to induce the Lender Group to make the financial
accommodations provided to Debtors pursuant to the Credit Agreement, each Debtor
desires to pledge, grant, transfer, and assign to Collateral Agent a security
interest in the Collateral (as hereinafter defined) to secure the Secured
Obligations (as hereinafter defined), as provided herein.
NOW THEREFORE, in consideration of the premises set forth
above, the terms and conditions contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
each intending to be bound hereby, Collateral Agent and Debtors agree as
follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1. DEFINITIONS. All capitalized terms used herein and
not otherwise defined herein shall have the meanings ascribed to them in the
Credit Agreement. As used in this Agreement, the following terms shall have the
following definitions:
"Accounts" all currently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to one or
more of the Debtors arising out of the sale, license, or lease of goods,
Hydrocarbons, Hydrocarbon Interests, Oil and Gas Properties, or
<PAGE> 2
General Intangibles or the rendition of services by the Debtors, irrespective of
whether earned by performance, any and all such rights or obligations evidenced
by chattel paper, instruments or documents, and any and all credit insurance,
guaranties, or security therefor.
"Account Debtor" means any Person who is or who may become
obligated under, with respect to, or on account of, an Account.
"Administrative Agent" has the meaning ascribed thereto in the
preamble to this Agreement.
"Agreement" means this Security Agreement and any joinders,
extensions, riders, supplements, notes, amendments, or modifications to or in
connection with this Security Agreement.
"Bankruptcy Code" means the United States Bankruptcy Code (11
U.S.C. Section 101 et seq.), as amended, and any successor statute.
"Code" means the New York Uniform Commercial Code.
"Collateral" means all of the Debtors' right, title, and
interest in and to each of the following: the Accounts; Debtors' Books; the
Equipment; the General Intangibles; the Inventory; the Investment Property; the
Negotiable Collateral; any money, or other assets of any Debtor which now or
hereafter come into the possession, custody, or control of Collateral Agent or
any other member of the Lender Group; and the proceeds and products, whether
tangible or intangible, of any of the foregoing, including proceeds of insurance
covering any or all of the Collateral, and any and all Accounts, Debtors' Books,
Equipment, General Intangibles, Inventory, Investment Property, Negotiable
Collateral, real property, money, deposit accounts, or other tangible or
intangible property resulting from the sale, exchange, collection, or other
disposition of any of the foregoing, or any portion thereof or interest therein,
and the proceeds thereof.
"Collateral Access Agreement" means a landlord waiver,
mortgagee waiver, bailee letter, or acknowledgment agreement of, or a letter in
lieu of transfer order to, any warehouseman, processor, lessor, consignee, or
other Person in possession of, having a Lien upon, or having rights or interests
in the Oil and Gas Properties, Equipment, or Inventory, in each case, in form
and substance satisfactory to Collateral Agent.
"Collateral Agent" has the meaning ascribed thereto in the
preamble to this Agreement.
"Credit Agreement" has the meaning ascribed thereto in the
preamble to this Agreement.
"Debtor" means, individually and collectively, and jointly and
severally, QSRD, Borrower, QS OpCo, Corrida, and any other Person that now or in
the future that becomes an Additional Debtor hereunder.
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<PAGE> 3
"Debtors' Books" means all of Debtors' books and records,
including: ledgers; records indicating, summarizing, or evidencing Debtors'
properties or assets (including the Collateral) or liabilities; all information
relating to Debtors' business operations or financial condition; and all
computer programs, disc or tape files, printouts, runs, or other computer
prepared information in respect of such books and records.
"Equipment" means all of Debtors' present and hereafter
acquired machinery, machine tools, motors, equipment, furniture, drill site
equipment (including separators, dehydrators, meters), compressors, gathering
lines, pipelines, furnishings, fixtures, vehicles (including motor vehicles and
trailers), tools, parts, dies, jigs, goods (other than consumer goods, farm
products, or Inventory), wherever located, and any interest of any Debtor in any
of the foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions, and improvements to any of the foregoing, wherever
located.
"Event of Default" has the meaning ascribed to it in
Section 6.
"FEIN" means Federal Employer Identification Number.
"General Intangibles" means all of Debtors' present and future
general intangibles and other personal property (including contract rights,
unitization, communication, and pooling declarations, orders, and agreements,
oil sales contracts, casinghead gas sale contracts, gas sales contracts,
processing contracts, gathering contracts, transportation contracts, farm-out
contracts, farm-in contracts, operating agreements, areas of mutual interest
contracts, and all other contracts, agreements, and instruments), rights arising
under common law, statutes, or regulations, choses or things in action,
Hydrocarbons, Hydrocarbon Interests, Oil and Gas Properties, goodwill, patents,
trade names, trademarks, servicemarks, copyrights, source code, mask works,
internet-related general intangibles (including domain names, web sites, and all
contents contained therein and located thereat), blueprints, drawings, purchase
orders, customer lists, monies due or recoverable from pension funds, route
lists, rights to payment and other rights under any agreements (whether royalty
agreements, licensing agreements, or any other agreements), infringements
claims, computer programs, information contained in or on computer discs or
computer tapes or other information storage media, all reservoir, reserve,
seismic, geologic or geophysical information and data, all partnerships,
literature, reports, catalogs, deposit accounts, insurance premium rebates, tax
refunds, and tax refund claims), other than goods, Accounts, and Negotiable
Collateral.
"Guarantied Obligations" shall mean, with respect to each
Debtor other than Borrower, the "Obligations" (as such term is defined in each
of the Second Amended and Restated Guaranty Agreements executed and delivered by
such Debtor to the Lender Group or the Collateral Agent for the benefit
thereof).
"Hydrocarbon Interests" shall mean all rights, titles,
interests and estates now or hereafter acquired in and to oil and gas leases,
oil, gas and mineral leases, or other liquid or gaseous hydrocarbon leases,
mineral fee interests, overriding royalty and royalty interests, net profit
interests and production payment interests, including any reserved or residual
interests of whatever nature.
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<PAGE> 4
"Hydrocarbons" shall mean oil, gas, casinghead gas, drip
gasoline, natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous
hydrocarbons and all products refined or separated therefrom.
"Inventory" means all present and future inventory in which
any Debtor has any interest, including goods held for sale, license, or lease or
to be furnished under a contract of service and all of the Debtors' present and
future raw materials, work in process, piece goods, trim and finished goods, and
packing and shipping materials, wherever located, and any documents of title
representing any of the above, and all such other property the sale, license,
lease, or other disposition of which would give rise to an Account or cash
(including intellectual property the license of which would give rise to an
Account or cash).
"Investment Property" means "investment property" as that term
is defined in Section 9-115 of the Code.
"Insolvency Proceeding" means any proceeding commenced by or
against any Person under any provision of the Bankruptcy Code or under any other
bankruptcy or insolvency law, assignments for the benefit of creditors, formal
or informal moratoria, compositions, extensions generally with creditors, or
proceedings seeking reorganization, arrangement, or other similar relief.
"Lender Group" means, individually and collectively, each of
the Lenders, Administrative Agent, and Collateral Agent.
"Negotiable Collateral" means all of Debtors' present and
future letters of credit, notes, drafts, instruments, Investment Property,
documents, personal property leases (wherein any Debtor is the lessor), chattel
paper, and Debtors' Books relating to any of the foregoing.
"Obligations" shall have the meaning ascribed to the term
"Indebtedness" in the Credit Agreement.
"Oil and Gas Properties" shall mean: Hydrocarbon Interests;
the Properties now or hereafter pooled or unitized with Hydrocarbon Interests;
all presently existing or future unitization, pooling agreements and
declarations of pooled units and the units created thereby (including without
limitation all units created under orders, regulations and rules of any
Governmental Authority) which may affect all or any portion of the Hydrocarbon
Interests; all operating agreements, contracts and other agreements which relate
to any of the Hydrocarbon Interests or the production, sale, purchase, exchange
or processing of Hydrocarbons from or attributable to such Hydrocarbon
Interests; all Hydrocarbons in and under and which may be produced and saved or
attributable to the Hydrocarbon Interests, including all oil in tanks, the lands
covered thereby and all rents, issues, profits, proceeds, products, revenues and
other incomes from or attributable to the Hydrocarbon Interests; all tenements,
hereditaments, appurtenances and Properties in any manner appertaining,
belonging, affixed, or incidental to the Hydrocarbon Interests; and all
Properties, rights, titles, interests and estates described or referred to
above, including any and all Property, real or personal, now owned or
hereinafter acquired and situated upon, used, held for use or useful in
connection with the operating, working or development of any such Hydrocarbon
Interests or Property (excluding drilling rigs, automotive
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<PAGE> 5
equipment or other personal property which may be on such premises for the
purpose of drilling a well or for other similar temporary uses) and including
any and all oil wells, gas wells, injection wells or other wells, buildings,
structures, fuel separators, liquid extraction plants, plant compressors, pumps,
pumping units, field gathering systems, tanks and tank batteries, fixtures,
valves, fittings, machinery and parts, engines, boilers, meters, apparatus,
equipment, appliances, tools, implements, cables, wires, towers, casing, tubing
and rods, surface leases, rights-of-way, easements and servitudes together with
all additions, substitutions, replacements, accessions and attachments to any
and all of the foregoing.
"Permitted Protest" means the right of Debtors to protest any
Lien other than any such Lien that secures the Secured Obligations, tax (other
than payroll taxes or taxes that are the subject of a United States federal tax
lien), or rental payment, provided that (a) a reserve with respect to such
obligation is established on the books of Debtors in an amount that is
reasonably satisfactory to Collateral Agent, (b) any such protest is instituted
and diligently prosecuted by Debtors in good faith, and (c) Collateral Agent is
satisfied that, while any such protest is pending, there will be no impairment
of the enforceability, validity, or priority of any of the Liens of Collateral
Agent in and to the Collateral for the benefit of the Lender Group.
"Property" shall mean any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or intangible.
"Secured Obligations" means the Obligations and the Guarantied
Obligations.
1.2. CODE. Any terms used in this Agreement which are
defined in the Code shall be construed and defined as set forth in the Code
unless otherwise defined herein.
1.3. CONSTRUCTION. Unless the context of this Agreement
clearly requires otherwise, references to the plural include the singular,
references to the singular include the plural, the term "including" is not
limiting, and the term "or" has, except where otherwise indicated, the inclusive
meaning represented by the phrase "and/or." The words "hereof," "herein,"
"hereby," "hereunder," and similar terms in this Agreement refer to this
Agreement as a whole and not to any particular provision of this Agreement.
Section, subsection, clause, schedule, and exhibit references are to this
Agreement unless otherwise specified. Any reference in this Agreement or in any
of the other Loan Documents to this Agreement or any of the other Loan Documents
shall include all alterations, amendments, restatements, changes, extensions,
modifications, renewals, replacements, substitutions, and supplements, thereto
and thereof, as applicable. In the event of a direct conflict between the terms
and provisions of this Agreement and the Credit Agreement, it is the intention
of the parties hereto that both such documents shall be read together and
construed, to the fullest extent possible, to be in concert with each other. In
the event of any actual, irreconcilable conflict that cannot be resolved as
aforesaid, the terms and provisions of the Credit Agreement shall control and
govern; provided, however, that the inclusion herein of additional obligations
on the part of Debtors and supplemental rights and remedies in favor of
Collateral Agent, in each case in respect of the Collateral, shall not be deemed
a conflict with the Credit Agreement.
1.4. SCHEDULES AND EXHIBITS. All of the schedules and
exhibits attached to this Agreement shall be deemed incorporated herein by
reference.
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<PAGE> 6
2. CREATION OF SECURITY INTEREST.
2.1. GRANT OF SECURITY INTEREST.
(a) Each Debtor, in order to secure the prompt
payment of all of such Debtor's Secured Obligations and the prompt performance
of all covenants and duties of such Debtor under the Loan Documents, hereby
grants to Collateral Agent, for the benefit of the Lender Group, continuing
security interests in all currently existing and hereafter acquired or arising
Collateral.
(b) Collateral Agent's security interests in the
Collateral for the benefit of the Lender Group shall attach to all Collateral
without further act on the part of the Lender Group or Debtors.
(c) Except as expressly set forth in this Agreement
or any other Loan Document, no Debtor has any authority, express or implied, to
dispose of any item or portion of the Collateral.
2.2. NEGOTIABLE COLLATERAL. In the event that any
Collateral, including proceeds, is evidenced by or consists of Negotiable
Collateral, Debtors shall, immediately upon the request of Collateral Agent,
endorse and assign such Negotiable Collateral to Collateral Agent and deliver
physical possession of such Negotiable Collateral to Collateral Agent.
2.3. COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES,
NEGOTIABLE COLLATERAL. Upon the occurrence and during the continuation of an
Event of Default, Collateral Agent or Collateral Agent's designee may: (a)
notify customers or Account Debtors of Debtors that the Accounts, General
Intangibles, or Negotiable Collateral have been assigned to Collateral Agent or
that Collateral Agent has a security interest therein for the benefit of the
Lender Group ; and (b) collect the Accounts, General Intangibles, and Negotiable
Collateral directly and charge, or cause Administrative Agent to charge for the
benefit of Collateral Agent, the collection costs and expenses incurred by
Collateral Agent in connection with any such collection of the Accounts to
Debtors' Loan Account. Debtors agree that they will hold in trust for Collateral
Agent, as Collateral Agent's trustee, any cash receipts, checks, and other items
of payment (including, insurance proceeds, proceeds of cash sales, rental
proceeds, and tax refunds) that any Debtor receives and immediately will deliver
or deposit said cash receipts, checks, and other items of payment as and in the
manner required pursuant to the Credit Agreement.
2.4. DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED.
Debtors shall execute, and deliver to Collateral Agent, prior to or concurrently
with Debtors' execution and delivery of this Agreement and at any time
thereafter at the request of Collateral Agent, all financing statements,
continuation financing statements, fixture filings, security agreements, chattel
mortgages, pledges, mortgages, deeds of trust, assignments, endorsements of
certificates of title, applications for title, affidavits, reports, notices,
schedules of accounts, letters of authority, and all other documents that
Collateral Agent may reasonably request, in form satisfactory to Collateral
Agent, to perfect and continue perfected Collateral Agent's security interests
in the Collateral for the benefit of the Lender Group and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
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2.5. POWER OF ATTORNEY. Each Debtor hereby irrevocably
makes, constitutes, and appoints Collateral Agent (and any of Collateral Agent's
officers, employees, or agents (including Administrative Agent) designated by
Collateral Agent) as Debtor's true and lawful attorney, with power to: (a) if
any Debtor refuses to, or fails timely to execute and deliver any of the
documents described in Section 2.4, sign the name of Debtor on any of the
documents described in Section 2.4 to perfect and continue perfection of the
security interests in the Collateral; (b) at any time that an Event of Default
has occurred and is continuing, (i) sign Debtor's name on any invoice or bill of
lading relating to any Account, drafts against Account Debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to Account
Debtors; (ii) send requests for verification of Accounts; (iii) endorse Debtor's
name on any checks, notices, acceptances, money orders, drafts, or other item of
payment or security that may come into Collateral Agent's or any other member of
the Lender Group's possession; (iv) notify the post office authorities to change
the address for delivery of Debtor's mail to an address designated by Collateral
Agent, to receive and open all mail addressed to Debtor, and to retain all mail
relating to the Collateral and forward all other mail to Debtor; (v) make,
settle, and adjust all claims under Debtor's policies of insurance and make all
determinations and decisions with respect to such policies of insurance; and
(vi) settle and adjust disputes and claims respecting the Accounts directly with
Account Debtors, for amounts and upon terms which Collateral Agent determines to
be reasonable, and Collateral Agent may cause to be executed and delivered any
documents and releases which Collateral Agent determines to be necessary. The
appointment of Collateral Agent as each Debtor's attorney, and each and every
one of Collateral Agent's rights and powers, being coupled with an interest, is
irrevocable until all of the Secured Obligations have been fully and finally
performed and paid in cash and the obligations of the Lender Group to extend
credit under the Credit Agreement have been irrevocably terminated.
2.6. RIGHT TO INSPECT. Collateral Agent (through any of
its officers, employees, or agents) shall have the right, from time to time
hereafter to inspect Debtors' Books and to check, test, and appraise the
Collateral in order to verify Debtors' financial condition or the amount,
quality, value, condition of, or any other matter relating to, the Collateral.
3. REPRESENTATIONS AND WARRANTIES.
Each of the Debtors represents and warrants as follows:
3.1. NO PRIOR ENCUMBRANCES. Each Debtor has good and
marketable title to the Collateral, free and clear of all Liens except Liens
expressly permitted in writing by the Lender Group (including Section 9.02 of
the Credit Agreement).
3.2. FEIN. Each Debtor's FEIN is set forth on Schedule
3.2 attached hereto.
3.3. [INTENTIONALLY OMITTED].
3.4. LOCATION OF INVENTORY AND EQUIPMENT. The Inventory
and Equipment (other than such Inventory and Equipment related to or associated
with the Oil and Gas Properties) are not stored with a bailee, warehouseman, or
similar party (without Collateral
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Agent's prior written consent) and are located only at the locations identified
on Schedule 3.4 attached hereto or otherwise permitted by Section 4.3.
3.5. INVENTORY RECORDS. Each Debtor now keeps, and
hereafter at all times shall keep, correct and accurate records itemizing and
describing the kind, type, quality, and quantity of the Inventory, and each
Debtor's cost therefor.
3.6. RELIANCE BY COLLATERAL AGENT; CUMULATIVE. The
warranties, representations, and agreements set forth herein shall be
conclusively presumed to have been relied upon by Collateral Agent and the
Lender Group, and shall be cumulative and in addition to any and all other
warranties, representations, and agreements which Debtors shall now or
hereinafter give, or cause to be given, to Collateral Agent or the Lender Group.
4. AFFIRMATIVE COVENANTS.
Each of the Debtors covenants and agrees that, until payment
in full in cash of the Secured Obligations, and unless Collateral Agent shall
otherwise consent in writing, each of the Debtors shall do all of the following:
4.1. [INTENTIONALLY OMITTED]
4.2. [INTENTIONALLY OMITTED]
4.3. LOCATION OF INVENTORY AND EQUIPMENT. Keep the
Inventory and Equipment (other than such Inventory and Equipment related to or
associated with the Oil and Gas Properties) only at the locations identified on
Schedule 3.4 attached hereto; provided, however, that Borrower on behalf of the
Debtors may amend such schedule so long as such amendment occurs by written
notice to Collateral Agent not less than 30 days prior to the date on which the
Inventory or Equipment (other than such Inventory and Equipment related to or
associated with the Oil and Gas Properties) are moved to such new location, so
long as such new location is within the continental United States, and so long
as, at the time of such written notification, Debtors provide any Security
Instruments, financing statements or fixture filings necessary to perfect and
continue perfected Collateral Agent's security interests in such assets and also
provide to Collateral Agent a Collateral Access Agreement.
4.4. TITLE TO EQUIPMENT. Upon Collateral Agent's
reasonable request, deliver to Collateral Agent, properly endorsed, any and all
evidences of ownership of, certificates of title, or applications for title to
any items of Equipment.
4.5. MAINTENANCE OF EQUIPMENT. Keep and maintain the
Equipment in good operating condition and repair (ordinary wear and tear
excepted), and make all necessary replacements thereto so that the value and
operating efficiency thereof shall at all times be maintained and preserved. No
Debtor shall permit any item of Equipment to become a fixture to real estate or
an accession to other property, and the Equipment is now and shall at all times
remain personal property.
4.6. TAXES. Cause all assessments and taxes, whether
real, personal, or otherwise, due or payable by, or imposed, levied, or assessed
against any Debtor or any of its
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<PAGE> 9
property to be paid in full, before delinquency or before the expiration of any
extension period, except to the extent that the validity of such assessment or
tax shall be the subject of a Permitted Protest. Each Debtor shall make due and
timely payment or deposit of all taxes, assessments, or contributions required
of it by law, and will execute and deliver to Collateral Agent, on demand,
appropriate certificates attesting to the payment or deposit thereof. Each
Debtor will make timely payment or deposit of all tax payments and withholding
taxes required of it by applicable laws, and will, upon request, furnish
Collateral Agent with proof satisfactory to Collateral Agent indicating that
each Debtor has made such payments or deposits, other than assessments or taxes
that are the subject of a Permitted Protest. Each Debtor shall deliver
satisfactory evidence of payment of applicable excise taxes in each
jurisdictions in which (a) such Debtor conducts business or is required to pay
any such excise tax, (b) where such Debtor's failure to pay any such applicable
excise tax would result in a Lien on the properties or assets of such Debtor, or
(c) where such Debtor's failure to pay any such applicable excise tax would have
a Material Adverse Effect.
4.7. LENDER GROUP EXPENSES. Debtors shall immediately
and without demand reimburse Collateral Agent for all sums expended by
Collateral Agent which constitute Lender Group Expenses and Debtors hereby
authorize and approve all advances and payments by Collateral Agent for items
constituting Lender Group Expenses.
4.8. INSURANCE. (a) The Debtors shall maintain such
insurance as is required by the Credit Agreement.
(b) All such policies of insurance shall be in such
form, with such companies, and in such amounts as may be reasonably satisfactory
to Collateral Agent. All such policies of insurance (except those of public
liability and property damage) shall contain a 438BFU lender's loss payable
endorsement, or an equivalent endorsement in a form satisfactory to Collateral
Agent, showing Collateral Agent as a loss payee thereof as its interest may
appear, shall contain a waiver of warranties, and shall specify that the insurer
must give at least ten (10) days prior written notice to Collateral Agent before
canceling its policy for any reason. Debtors shall deliver to Collateral Agent,
promptly upon Collateral Agent's request therefor, certified copies of such
policies of insurance and evidence of the payment of all premiums therefor. All
proceeds payable under any such policy shall be payable to Collateral Agent for
the benefit of the Lender Group and shall be paid or deposited into a Collection
Account or Concentration Account for application to the Secured Obligations or
disbursed to the applicable Debtor, in each case, in accordance with the terms
and provisions of the Credit Agreement.
5. NEGATIVE COVENANTS.
Each of the Debtors covenants and agrees that until payment in
full of the Secured Obligations, it will not do any of the following without the
prior written consent of the Lender Group:
5.1. CHANGE NAME. Change any Debtor's name, FEIN,
business structure, or identity, or add any new fictitious name.
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5.2. CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE.
Without thirty (30) days prior written notification to Collateral Agent,
relocate its chief executive office to a new location, unless, at the time of
such written notification, Debtor provides any financing statements or fixture
filings necessary to perfect and continue perfected Collateral Agent's security
interests and also provides to Collateral Agent a Collateral Access Agreement.
None of the Inventory and Equipment (other than such Inventory and Equipment
related to or associated with the Oil and Gas Properties) shall be stored, at
any time now or hereafter, with a bailee, warehouseman, or similar party without
a Collateral Access Agreement in respect thereof in full force and effect in
favor of Collateral Agent or without Collateral Agent's prior written consent.
6. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an
event of default (each, an "Event of Default") under this Agreement:
6.1. The occurrence of an Event of Default (as defined
in the Credit Agreement).
6.2. If a notice of lien, levy, or assessment is filed
of record with respect to any of Debtor's properties or assets by the United
States Government, or any department, agency, or instrumentality thereof, or by
any state, county, municipal, or governmental agency, or if any taxes or debts
owing at any time hereafter to any one or more of such entities becomes a lien,
whether choate or otherwise, upon any Debtor's properties or assets and the same
is not paid on the payment date thereof.
6.3. If any Debtor makes any payment on account of
indebtedness that has been contractually subordinated in right of payment to the
payment of the Secured Obligations, except to the extent such payment is
permitted by the terms of the Credit Agreement.
7. COLLATERAL AGENT'S RIGHTS AND REMEDIES.
7.1. RIGHTS AND REMEDIES. Upon the occurrence, and
during the continuation, of an Event of Default, the Majority Lenders (at their
election but without notice of their election and without demand) may, except to
the extent otherwise expressly provided or required below, authorize and
instruct Collateral Agent to do any one or more of the following on behalf of
the Lender Group (and Collateral Agent, acting upon the instructions of the
Majority Lenders, shall do the same on behalf of the Lender Group), all of which
are authorized by Debtors:
(a) Proceed directly and at once, without notice,
against the any Debtor to collect and recover the full amount or any portion of
the Secured Obligations, without first proceeding against any other Debtor, or
against any security or collateral for the Secured Obligations.
(b) Without notice to Debtors (such notice being
expressly waived), and without constituting a retention of any collateral in
satisfaction of an obligation (within the meaning of Section 9-505 of the Code),
set off and apply to the Secured Obligations
-10-
<PAGE> 11
any and all (i) balances and deposits of any Debtor held by the Lender Group
(including any amounts received in any lockbox or other cash dominion accounts),
or (ii) indebtedness at any time owing to or for the credit or the account of
any Debtor held by the Lender Group;
(c) Hold or cause to be held, as cash collateral, any
and all balances and deposits of any Debtor held by the Lender Group, and any
amounts received in any lockbox or other cash dominion accounts, to secure the
full and final repayment in cash of all of the Secured Obligations;
(d) May exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein and in the Credit
Agreement and the other Loan Documents or otherwise available to it, all the
rights and remedies available to it at law (including those of a secured party
under the Code) or in equity.
(e) Settle or adjust disputes and claims directly
with Account Debtors for amounts and upon terms which Collateral Agent considers
reasonable, and in such cases, Collateral Agent shall credit, or shall cause
Administrative Agent to credit, Debtors' loan account with only the net amounts
received by Collateral Agent in payment of such disputed Accounts after
deducting all Lender Group Expenses incurred or expended in connection
therewith;
(f) Cause Debtors to hold all returned Inventory in
trust for Collateral Agent, segregate all returned Inventory from all other
property of Debtors or in Debtors' possession and conspicuously label said
returned Inventory as the property of Collateral Agent;
(g) Without notice or demand, make such payments and
do such acts as Collateral Agent considers necessary or reasonable to protect
its security interest in the Collateral. Debtors agree to assemble the
Collateral if Collateral Agent so requires, and to make the Collateral available
to Collateral Agent as Collateral Agent may designate. Debtors authorize
Collateral Agent to enter the premises where the Collateral is located, to take
and maintain possession of the Collateral, or any part of it, and to pay,
purchase, contest, or compromise any encumbrance, charge, or lien which in
Collateral Agent's determination appears to be prior or superior to its security
interest and to pay all expenses incurred in connection therewith. With respect
to any Debtor's owned premises, each of the Debtors hereby grants Collateral
Agent a license to enter such premises and to occupy the same, without charge,
for up to one hundred twenty (120) days in order to exercise any of Collateral
Agent's rights or remedies provided herein, at law, in equity, or otherwise;
(h) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the manner provided
for herein) the Collateral. Collateral Agent is hereby granted a license or
other right to use, without charge, each Debtor's labels, patents, copyrights,
rights of use of any name, trade secrets, trade names, trademarks, service
marks, and advertising matter, or any property of a similar nature, as it
pertains to the Collateral, in completing production of advertising for sale and
selling any Collateral, and each Debtor's rights under all licenses and all
franchise agreements shall inure to the Lender Group's benefit;
-11-
<PAGE> 12
(i) Sell all or any part of the Collateral at either
a public or private sale, or both, by way of one or more contracts or
transactions, for cash or on terms, in such manner and at such places (including
each Debtor's premises) as Collateral Agent determines is commercially
reasonable. It is not necessary that the Collateral be present at any such sale.
Collateral Agent on behalf of the Lender Group shall have the right upon any
such public sale or sales, and, to the extent permitted by law, upon any such
private sale or sales, to purchase the whole or any part of the Collateral so
sold, free of any right or equity of redemption in any Debtor, which right or
equity is hereby waived or released to the extent permitted by law;
(j) Collateral Agent shall give notice of any
disposition of the Collateral as follows:
(i) Collateral Agent shall give Borrower
(for the benefit of Debtors) and each holder of a security
interest in the Collateral who has filed with Collateral
Agent a written request for notice, a notice in writing of
the time and place of public sale, or, if the sale is a
private sale or some other disposition other than a public
sale is to be made of the Collateral, then the time on or
after which the private sale or other disposition is to be
made;
(ii) The notice shall be personally
delivered or mailed, postage prepaid, to Borrower (for the
benefit of Debtors) as provided in Section 12.02 of the
Credit Agreement, at least 10 days before the date fixed for
the sale, or at least 10 days before the date on or after
which the private sale or other disposition is to be made;
no notice needs to be given prior to the disposition of any
portion of the Collateral that is perishable or threatens to
decline speedily in value or that is of a type customarily
sold on a recognized market. Notice to Persons other than
Debtors claiming an interest in the Collateral shall be sent
to such addresses as they have furnished in writing to
Collateral Agent;
(iii) If the sale is to be a public
sale, Collateral Agent also shall give notice of the time
and place by publishing a notice one time at least 5 days
before the date of the sale in a newspaper of general
circulation in the county in which the sale is to be held;
(k) By an instrument in writing, appoint a receiver
(which term shall include a receiver and manager) of all or any part of the
Collateral and may remove or replace such receiver from time to time or may
institute proceedings in any court of competent jurisdiction for the appointment
of such receiver;
(l) [intentionally omitted]
(m) Notify customers or Account Debtors of Debtors
that the Accounts of Debtors, General Intangibles, or Negotiable Collateral have
been assigned to Collateral Agent or that Collateral Agent has a security
interest therein;
(n) Collect the Accounts of Debtors, General
Intangibles, and Negotiable Collateral directly, and charge the collection costs
and expenses as Lender Group Expenses; but, unless and until the Lender Group
does so or gives Debtors other written
-12-
<PAGE> 13
instructions, each Debtor shall collect all Accounts of such Debtor, General
Intangibles, and Negotiable Collateral for the Lender Group, receive in trust
all payments thereon as the Lender Group's trustee, and immediately deliver said
payments to Administrative Agent for the benefit of the Lender Group in their
original form as received from such Account Debtor;
(o) Any deficiency which exists after disposition of
the Collateral as provided above will be paid immediately by Debtors up to the
maximum amount, if any, of Debtors' liability under the Credit Agreement or any
other Loan Document. Any excess will be returned to Debtors, without interest
and subject to the rights of third parties, by Collateral Agent as provided in
the Loan Documents.
Except as required by law or to the extent (if any) required by the Credit
Agreement, Collateral Agent may take any or all of the foregoing action without
demand, presentment, protest, advertisement or notice of any kind to or upon
Debtors or any other person.
7.2. REMEDIES CUMULATIVE. The rights and remedies of
Collateral Agent and the Lender Group under this Agreement, the Loan Documents,
and all other agreements shall be cumulative. Collateral Agent and the Lender
Group shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Collateral Agent
or the Lender Group of one right or remedy shall be deemed an election, and no
waiver by Collateral Agent or the Lender Group of any Event of Default on
Debtors' part shall be deemed a continuing waiver. No delay by Collateral Agent
or the Lender Group shall constitute a waiver, election, or acquiescence by it.
8. TAXES AND EXPENSES REGARDING THE COLLATERAL.
If any Debtor fails to pay any monies (whether taxes, rents,
assessments, insurance premiums, or otherwise) due to third persons or entities,
or fails to make any deposits or furnish any required proof of payment or
deposit, all as required under the terms of this Agreement, then, to the extent
that Collateral Agent determines that such failure by such Debtor could have a
Material Adverse Effect on the Lender Group's interests in the Collateral, in
Collateral Agent's discretion and without prior notice to Debtors, Collateral
Agent may do any or all of the following: (a) make payment of the same or any
part thereof; (b) set up, or cause Administrative Agent to set up, such reserves
in Debtors' loan account as Collateral Agent deems necessary to protect the
Lender Group from the exposure created by such failure; or (c) obtain and
maintain insurance policies insuring Debtors' ownership and use of the
Collateral, and take any action with respect to such policies as Collateral
Agent deems prudent. Any amounts paid or deposited by Collateral Agent shall
constitute Lender Group Expenses, shall immediately become additional Secured
Obligations, shall bear interest at the applicable rate described in the Credit
Agreement, and shall be secured by the Collateral. Any payments made by
Collateral Agent shall not constitute an agreement by Collateral Agent to make
similar payments in the future or a waiver by Collateral Agent of any Event of
Default under this Agreement. Collateral Agent need not inquire as to, or
contest the validity of, any such expense, tax, security interest, encumbrance,
or lien and the receipt of the usual official notice for the payment thereof
shall be conclusive evidence that the same was validly due and owing. Collateral
Agent shall use its reasonable efforts to provide notice to Debtors of any
action taken by it under this Section 8.
-13-
<PAGE> 14
9. WAIVERS; INDEMNIFICATION.
9.1. DEMAND; PROTEST; ETC. To the extent permitted by
law and except as otherwise provided in this Agreement or the Credit Agreement,
Debtors waive demand, protest, notice of protest, notice of default or dishonor,
notice of payment and nonpayment, notice of any default, nonpayment at maturity,
release, compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees at any time held by Collateral Agent
on which any Debtor may in any way be liable.
9.2. COLLATERAL AGENT'S LIABILITY FOR COLLATERAL. So
long as Collateral Agent complies with its obligations, if any, under Section
9-207 of the Code, Collateral Agent shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other Person. All risk of loss,
damage, or destruction of the Collateral shall be borne by Debtors except
losses, damages, or destruction of the Collateral proximately caused by
Collateral Agent's gross negligence, intentional misconduct, or failure to
comply with its obligations under 9-207 of the Code.
9.3. [Intentionally Omitted].
10. NOTICES.
All notices and other communications hereunder to Collateral
Agent shall be in writing and shall be mailed, sent or delivered in accordance
with the Credit Agreement and all notices and other communications hereunder to
Debtors shall be in writing and shall be mailed, sent or delivered to Borrower
for the benefit of Debtors in accordance with the Credit Agreement.
11. GOVERNING LAW.
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK.
12. CONSENT TO JURISDICTION, SERVICE OF PROCESS AND VENUE.
ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK
IN THE COUNTY OF NEW YORK OR OF THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT,
EACH DEBTOR HEREBY IRREVOCABLY ACCEPT IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH DEBTOR FURTHER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED
COURTS
-14-
<PAGE> 15
AND IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO DEBTORS IN ACCORDANCE WITH THE
PROVISIONS OF SECTION 10, SUCH SERVICE TO BECOME EFFECTIVE TEN (10) DAYS AFTER
SUCH MAILING. EACH DEBTOR HEREBY IRREVOCABLY APPOINTS THE SECRETARY OF STATE OF
THE STATE OF NEW YORK AS ITS AGENT FOR SERVICE OF PROCESS IN RESPECT OF ANY SUCH
ACTION OR PROCEEDING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE LENDER GROUP
TO SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL
PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY DEBTOR IN ANY OTHER JURISDICTION.
EACH DEBTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
JURISDICTION OR LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT
REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. TO THE EXTENT THAT ANY DEBTOR HAS OR HEREAFTER MAY ACQUIRE
ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER
THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF
EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, EACH DEBTOR
HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS SECURED OBLIGATIONS
UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
13. WAIVER OF JURY TRIAL, ETC.
EACH DEBTOR AND THE LENDER GROUP HEREBY WAIVE ANY RIGHT TO A
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS
UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR UNDER ANY AMENDMENT, WAIVER,
CONSENT, INSTRUMENT, DOCUMENT OR OTHER AGREEMENT DELIVERED OR WHICH IN THE
FUTURE MAY BE DELIVERED IN CONNECTION THEREWITH, OR ARISING FROM ANY FINANCING
RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREE THAT ANY SUCH
ACTION, PROCEEDINGS OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE
A JURY. EACH DEBTOR CERTIFIES THAT NO OFFICER, REPRESENTATIVE, AGENT OR ATTORNEY
OF COLLATERAL AGENT HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT COLLATERAL
AGENT ON BEHALF OF THE LENDER GROUP WOULD NOT, IN THE EVENT OF ANY ACTION,
PROCEEDING OR COUNTERCLAIM, SEEK TO ENFORCE THE FOREGOING WAIVERS. EACH DEBTOR
HEREBY ACKNOWLEDGES THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR COLLATERAL
AGENT'S ENTERING INTO THIS AGREEMENT ON BEHALF OF THE LENDER GROUP.
-15-
<PAGE> 16
14. DESTRUCTION OF DEBTOR'S DOCUMENTS.
All written information, schedules, agings, reports or similar
papers delivered to Collateral Agent may be destroyed or otherwise disposed of
by Collateral Agent four (4) months after they are delivered to or received by
Collateral Agent, unless Debtors request, in writing, the return of said
documents, schedules or other papers and makes arrangements, at Debtors'
expense, for their return.
15. GENERAL PROVISIONS.
15.1. EFFECTIVENESS. This Agreement shall be binding and
deemed effective when executed by each Debtor and accepted and executed by
Collateral Agent.
15.2. SUCCESSORS AND ASSIGNS. This Agreement shall bind
and inure to the benefit of the respective successors and assigns of each of the
parties; provided, however, that Debtors may not assign this Agreement or any
rights or duties hereunder without prior written consent of the Lender Group and
any prohibited assignment shall be absolutely void. No consent to an assignment
by the Lender Group shall release Debtors from their Secured Obligations. On
behalf of the Lender Group, Collateral Agent may assign this Agreement and its
rights and duties hereunder and no consent or approval by Debtors is required in
connection with any such assignment.
15.3. SECTION HEADINGS. Headings and numbers have been
set forth herein for convenience only. Unless the contrary is compelled by the
context, everything contained in each section applies equally to this entire
Agreement.
15.4. INTERPRETATION. Neither this Agreement nor any
uncertainty or ambiguity herein shall be construed or resolved against
Collateral Agent, the Lender Group, or Debtors, whether under any rule of
construction or otherwise. On the contrary, this Agreement has been reviewed by
all parties and shall be construed and interpreted according to the ordinary
meaning of the words used so as to fairly accomplish the purposes and intentions
of all parties hereto.
15.5. SEVERABILITY OF PROVISIONS. Each provision of this
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.
15.6. AMENDMENTS IN WRITING. This Agreement can only be
amended by a writing signed by both Collateral Agent and each Debtor.
15.7. COUNTERPARTS. This Agreement may be executed in
any number of counterparts and by different parties on separate counterparts,
each of which, when executed and delivered, shall be deemed to be an original,
and all of which, when taken together, shall constitute but one and the same
Agreement.
15.8. ADDITIONAL DEBTORS. The initial Debtors hereunder
shall be such of the Obligors as are signatories hereto as of the date hereof.
From time to time subsequent to the date hereof, additional Obligors, as
required by the Credit Agreement or the other Loan
-16-
<PAGE> 17
Documents, may become parties hereto, as additional Debtors (each, an
"Additional Debtor"), by executing and delivering a counterpart of, or joinder
to, this Agreement. Upon delivery of any such counterpart or joinder to
Collateral Agent, notice of which is hereby waived by any other Debtor, each
such Additional Debtor shall be a Debtor and shall be as fully a party hereto as
if such Additional Debtor were an original signatory hereof. Each Debtor
expressly agrees that its obligations arising hereunder shall not be affected or
diminished by the addition or release of any other Debtor hereunder, nor by any
election of the Lender Group not to cause any Obligor to become an Additional
Debtor hereunder. This Agreement shall be fully effective as to any Debtor that
is or becomes a party hereto regardless of whether any other Person becomes or
fails to become or ceases to be a Debtor hereunder.
15.9. REVIVAL AND REINSTATEMENT OF SECURED OBLIGATIONS.
If the incurrence or payment of the Secured Obligations by Debtors or the
transfer by any Debtor to Collateral Agent or the Lender Group of any property
of any Debtor should for any reason subsequently be declared to be void or
voidable under any state or federal law relating to creditors' rights, including
provisions of the Bankruptcy Code relating to fraudulent conveyances,
preferences, and other voidable or recoverable payments of money or transfers of
property (collectively, a "Voidable Transfer"), and if Collateral Agent or the
Lender Group is required to repay or restore, in whole or in part, any such
Voidable Transfer, or elects to do so upon the reasonable advice of its counsel,
then, as to any such Voidable Transfer, or the amount thereof that Collateral
Agent or the Lender Group is required or elects to repay or restore, and as to
all reasonable costs, expenses, and attorneys fees of Collateral Agent or the
Lender Group related thereto, the liability of Debtors automatically shall be
revived, reinstated, and restored and shall exist as though such Voidable
Transfer had never been made.
-17-
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered as of the date first above written.
QUEEN SAND RESOURCES, INC., a Delaware corporation
By:
---------------------------------------------------
Name: Robert P. Lindsay
Title: Chief Operating Officer
QUEEN SAND RESOURCES, INC., a Nevada corporation
By:
---------------------------------------------------
Name: Ronald I. Benn
Title: Vice President
QUEEN SAND OPERATING CO., a Nevada corporation
By:
---------------------------------------------------
Name: Ronald I. Benn
Title: Vice President
CORRIDA RESOURCES, INC., a Nevada corporation
By:
---------------------------------------------------
Name: Ronald I. Benn
Title: Vice President
ABLECO FINANCE LLC, a Delaware limited liability
company, as Collateral Agent
By:
---------------------------------------------------
Name: Kevin P. Genda
Title: Senior Vice President/Chief Credit Officer
<PAGE> 19
SCHEDULE 3.2
[to be prepared by Debtors and attached hereto]
<PAGE> 20
SCHEDULE 3.4
[to be prepared by Debtors and attached hereto]
<PAGE> 1
EXHIBIT 10.7
SECOND AMENDED AND RESTATED
PLEDGE AND SECURITY AGREEMENT
(Stock, Bonds and Other Interests)
by
QUEEN SAND RESOURCES, INC.,
a Delaware corporation
in favor of
ABLECO FINANCE LLC,
as Collateral Agent,
as of October 22, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I Definitions.............................................................................................2
Section 1.01 Terms Defined in Recitals or in the Credit Agreement.................................2
Section 1.02 Certain Definitions..................................................................2
ARTICLE II Security Interest......................................................................................3
Section 2.01 Pledge...............................................................................3
Section 2.02 Transfer of Collateral...............................................................3
ARTICLE III Representations and Warranties........................................................................4
Section 3.01 Ownership of Collateral, Encumbrances................................................4
Section 3.02 No Required Consent..................................................................4
Section 3.03 Pledged Interests....................................................................4
Section 3.04 First Priority Security Interest.....................................................4
ARTICLE IV Covenants and Agreements...............................................................................4
Section 4.01 Sale, Disposition or Encumbrance of Collateral.......................................5
Section 4.02 Dividends or Distributions...........................................................5
Section 4.03 Stock Powers.........................................................................5
Section 4.04 Voting and Other Consensual Rights...................................................5
Section 4.05 Pledged Interests Percentage.........................................................5
ARTICLE V Rights, Duties and Powers of Secured Party..............................................................5
Section 5.01 Discharge Encumbrances...............................................................5
Section 5.02 Transfer of Collateral...............................................................6
Section 5.03 Cumulative and Other Rights..........................................................6
Section 5.04 Disclaimer of Certain Duties.........................................................6
Section 5.05 Modification of Obligations; Other Security..........................................6
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 5.06 Waiver of Notice, Demand and Presentment.............................................7
Section 5.07 Custody and Preservation of the Collateral...........................................7
ARTICLE VI Events of Default......................................................................................7
Section 6.01 Events...............................................................................7
Section 6.02 Remedies.............................................................................7
Section 6.03 Attorney-in-Fact.....................................................................8
Section 6.04 Liability for Deficiency.............................................................9
Section 6.05 Reasonable Notice....................................................................9
Section 6.06 Pledged Interests....................................................................9
Section 6.07 Non-Judicial Enforcement............................................................10
Section 6.08 Private Sale of Collateral..........................................................10
ARTICLE VII Miscellaneous........................................................................................10
Section 7.01 Notices.............................................................................10
Section 7.02 Amendments and Waivers..............................................................11
Section 7.03 Copy as Financing Statement.........................................................11
Section 7.04 Possession of Collateral............................................................11
Section 7.05 Redelivery of Collateral............................................................11
Section 7.06 GOVERNING LAW.......................................................................11
Section 7.07 Effectiveness.......................................................................11
Section 7.08 Continuing Security Agreement.......................................................11
Section 7.09 Termination.........................................................................12
Section 7.10 Prior Security Agreement............................................................12
</TABLE>
ii
<PAGE> 4
SECOND AMENDED AND RESTATED
PLEDGE AND SECURITY AGREEMENT
This Second Amended and Restated Pledge and Security Agreement is made,
as of October 22, 1999, by QUEEN SAND RESOURCES, INC., a Delaware corporation
("Pledgor"), in favor of ABLECO FINANCE LLC, as Collateral Agent for the Lender
Group (together with any successor collateral agent, "Secured Party").
RECITALS
A. QUEEN SAND RESOURCES, INC., a corporation duly organized and validly
existing under the laws of the state of Nevada ("Borrower"), Pledgor, certain
lenders (the "Prior Lenders") and the Bank of Montreal, as agent (the "Prior
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, as further amended by that
certain Second Amendment to Amended and Restated Credit Agreement dated as of
November 10, 1998, as further amended by that certain Third Amendment to Amended
and Restated Credit Agreement dated as of November 13, 1998, as further amended
by that certain Fourth Amendment to Amended and Restated Credit Agreement dated
as of May 14, 1999, and as further amended by that certain Fifth Amendment to
Amended and Restated Credit Agreement dated as of October 13, 1999 (such credit
agreement, as amended, restated, supplemented, or otherwise modified from time
to time prior to the date hereof, the "Prior Credit Agreement").
B. Pursuant to the terms and conditions of the Prior Credit Agreement,
Pledgor entered into that certain Amended and Restated Security Agreement
(Stocks, Bonds, and Other Securities), dated as of April 17, 1998 (such security
agreement, as amended, restated, supplemented, or otherwise modified from time
to time prior to the date hereof, the "Prior Security Agreement"), in favor of
the Prior Agent, pursuant to which Pledgor granted security interests to the
Prior Agent for the benefit of the Prior Lenders in the collateral therein
described.
C. Concurrently herewith: (i) pursuant to that certain Assignment and
Acceptance, dated as of the Closing Date, among each of the Prior Lenders and
each of the Lender Group (the "Purchase Agreement"), the Prior Lenders are
assigning and delegating to the Lender Group, and the Lender Group are accepting
and assuming, the rights and duties of the Prior Lenders under the Prior Credit
Agreement and the other "Loan Documents" (as such term is defined in the Prior
Credit Agreement, the "Prior Loan Documents"); (ii) pursuant to the Purchase
Agreement and the Resignation and Appointment Letter, the Prior Agent is
resigning as "Agent" under the Prior Credit Agreement and the other Prior Loan
Documents and Administrative Agent and Collateral Agent are being appointed as
successor "Agents" for the Lender Group under the Prior Credit Agreement and the
other Prior Loan Documents; and (iii) the Prior Credit Agreement is being
amended and restated in its entirety by that certain Amended and Restated Credit
Agreement, dated as of the date hereof (as it may be amended, restated,
supplemented, or otherwise modified from time to time, the "Credit Agreement"),
among Borrower, Pledgor, the financial institutions identified therein as the
"Lenders," Foothill Capital Corporation, a California corporation, as
administrative agent thereunder (in
<PAGE> 5
such capacity, together with its successors, if any, in such capacity,
"Administrative Agent"), and Ableco Finance LLC, as collateral agent thereunder
(in such capacity, together with its successors, if any, in such capacity,
"Collateral Agent"), it being understood that no repayment of the obligations
under the Prior Credit Agreement is being effected thereby, but merely an
amendment and restatement in accordance with the terms thereof.
D. Pursuant to the Credit Agreement and as one of the conditions
thereof, Pledgor and the Lender Group have agreed to amend and restate the Prior
Security Agreement in its entirety as provided in this Security Agreement, it
being understood that no satisfaction of the "Obligations" (as such term is
defined in the Prior Security Agreement) under the Prior Security Agreement is
being effected hereby, but merely an amendment and restatement in accordance
with the terms hereof.
E. NOW, THEREFORE, (i) in order to comply with the terms and conditions
of the Credit Agreement, (ii) to induce the Lender Group to enter into the terms
of the Credit Agreement, and (iii) for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, Pledgor hereby
agrees as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 TERMS DEFINED IN RECITALS OR IN THE CREDIT AGREEMENT. As
used in this Security Agreement, the terms defined in the Recitals shall have
the meanings respectively assigned to them. Other capitalized terms which are
defined in the Credit Agreement but which are not defined herein shall have the
same meanings as defined in the Credit Agreement.
SECTION 1.02 CERTAIN DEFINITIONS. As used in this Security Agreement,
the following terms shall have the following meanings, unless the context
otherwise requires:
"Code" shall mean the Uniform Commercial Code as presently in effect in
the State of New York. Unless otherwise indicated by the context herein, all
uncapitalized terms which are defined in the Code shall have their respective
meanings as used in Articles 8 and 9 of the Code.
"Collateral" shall mean any and all of the following types or items of
property:
(a) the Interests described or referred to in Exhibit A attached hereto
and made a part hereof; and
(b) (i) the certificates or instruments, if any, representing such
Interests, (ii) all dividends (cash, stock or otherwise), cash, instruments,
rights to subscribe, purchase or sell and all other rights and property from
time to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of such Interests, (iii) all replacements, additions to
and substitutions for any of the property referred to in this definition,
including, without limitation, claims against third parties, (iv) the proceeds,
interest, profits and other income of or on any of the property referred to in
this definition and (v) all books and records relating to any of the property
referred to in this definition.
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(c) additional Interests or other Property may from time to time be
pledged, assigned or granted to Secured Party as additional security for the
Obligations and the term "Collateral" as used herein shall be deemed for all
purposes to include all such additional Interests and Property, together with
all other Property of the types described above related thereto.
"Interests" means all shares, units, options, warrants, interests,
securities, participations, or other equivalents (regardless of how designated)
of or in a corporation, partnership, limited liability company, or equivalent
entity, whether voting or nonvoting, including general partner partnership
interests, limited partner partnership interests, common stock, preferred stock,
or any other "equity security" (as such term is defined in Rule 3a11-1 of the
General Rules and Regulations promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended).
"Lender Group" means, individually and collectively, each of the
Lenders, Administrative Agent, and Collateral Agent.
"Obligations" shall mean (a) the payment and performance of all present
and future Indebtedness, obligations and liabilities of Borrower or the Pledgor
to Secured Party and the Lender Group under the Credit Agreement and the other
Loan Documents; (b) all obligations of the Pledgor under this Security Agreement
and the other Loan Documents; and (c) all interest (whether pre or post
petition), charges, expenses, reasonable attorneys' or other fees and any other
sums payable to or incurred by the Lender Group in connection with the execution
or enforcement of any of their rights and remedies hereunder or any other Loan
Document.
"Pledged Interests" shall mean all of the Interests and other property
(whether or not the same constitutes a "security" under the Code) referred to in
the definition of "Collateral" and all additional securities (as that term is
defined in the Code), if any, constituting Collateral under this Security
Agreement.
"Security Agreement" shall mean this Second Amended and Restated Pledge
and Security Agreement, as the same may from time to time be amended or
supplemented.
ARTICLE II
SECURITY INTEREST
SECTION 2.01 PLEDGE. Pledgor hereby pledges, assigns, and grants a
security interest in and right of set-off against all of Pledgor's right, title,
and interest in and to the Collateral to and in favor of Secured Party, for the
benefit of the Lender Group, to secure the prompt payment and performance of the
Obligations.
SECTION 2.02 TRANSFER OF COLLATERAL. All certificates or instruments
representing or evidencing the Pledged Interests shall be delivered to and held
pursuant hereto by Secured Party or a Person designated by Secured Party and
shall be in suitable form for transfer by delivery, or shall be accompanied by
duly executed instruments of transfer or assignment in blank, and accompanied by
any required transfer tax stamps to effect the pledge of the Pledged Interests
to Secured Party. Notwithstanding the preceding sentence, at Secured Party's
discretion, all Pledged Interests must be delivered or transferred in such
manner as to permit Secured Party to
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be a "protected purchaser" to the extent of its security interest as provided in
Section 8-303 of the Code (if Secured Party otherwise qualifies as a protected
purchaser). During the continuance of an Event of Default, Secured Party shall
have the right, at any time in its discretion and without notice to Pledgor, to
transfer to or to register in the name of Secured Party or any of its nominees
any or all of the Pledged Interests, subject only to the revocable rights
specified in Section 6.06. In addition, during the continuance of an Event of
Default, Secured Party shall have the right at any time to exchange certificates
or instruments representing or evidencing Pledged Interests for certificates or
instruments of smaller or larger denominations.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
In order to induce Secured Party to accept this Security Agreement on
behalf of the Lender Group, Pledgor represents and warrants to Secured Party
(which representations and warranties will survive the creation and payment of
the Obligations) that:
SECTION 3.01 OWNERSHIP OF COLLATERAL, ENCUMBRANCES. Pledgor is the
legal and beneficial owner of the Collateral free and clear of any adverse
claim, lien, security interest, option or other charge or encumbrance except for
the security interest created by this Security Agreement. Pledgor has full
right, power and authority to pledge, assign and grant a security interest in
the Collateral to Secured Party.
SECTION 3.02 NO REQUIRED CONSENT. No authorization, consent, approval
or other action by, and no notice to or filing with, any Person (other than the
filing of any financing statements required to be filed under the Code) is
required for (a) the due execution, delivery and performance by Pledgor of this
Security Agreement, (b) the grant by Pledgor of the security interest granted by
this Security Agreement, (c) the perfection of such security interest or (d) the
exercise by Secured Party of its rights and remedies under this Security
Agreement, including the transfer of the Collateral upon foreclosure.
SECTION 3.03 PLEDGED INTERESTS. The Pledged Interests have been duly
authorized and validly issued, and are fully paid and non-assessable. The
Pledged Interests constitute 100% of the capital stock of the issuer thereof
outstanding together with the number of shares subject to issuance pursuant to
any warrants, options or other stock rights.
SECTION 3.04 FIRST PRIORITY SECURITY INTEREST. The pledge of Pledged
Interests pursuant to this Security Agreement creates a valid and perfected
first priority security interest in the Collateral, enforceable against Pledgor
and all third parties and securing payment of the Obligations.
ARTICLE IV
COVENANTS AND AGREEMENTS
Pledgor will at all times comply with the covenants and agreements
contained in this Article IV, from the date hereof and for so long as any part
of the Obligations are outstanding.
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SECTION 4.01 SALE, DISPOSITION OR ENCUMBRANCE OF COLLATERAL. Pledgor
will not in any way encumber any of the Collateral (or permit or suffer any of
the Collateral to be encumbered) or sell, pledge, assign, lend or otherwise
dispose of or transfer any of the Collateral to or in favor of any Person other
than Secured Party.
SECTION 4.02 DIVIDENDS OR DISTRIBUTIONS. So long as no Event of Default
shall have occurred and be continuing: Pledgor shall be entitled to receive and
retain any and all dividends and interest paid in respect of the Collateral,
provided, however, that any and all (a) dividends and interest paid or payable
other than in cash in respect of, and instruments and other property received,
receivable or otherwise distributed in respect of, or in exchange for
(including, without limitation, any certificate or share purchased or exchanged
in connection with a tender offer or merger agreement), any Collateral, (b)
dividends and other distributions paid or payable in cash in respect of any
Collateral in connection with a partial or total liquidation or dissolution or
in connection with a reduction of capital, capital surplus or paid-in surplus,
or reclassification, and (e) cash paid, payable or otherwise distributed in
respect of principal of, or in redemption of, or in exchange for, any
Collateral, shall be, and shall be forthwith delivered to Secured Party to hold
as, Collateral and shall, if received by Pledgor, be received in trust for the
benefit of Secured Party, be segregated from the other property or funds of
Pledgor, and be forthwith delivered to Secured Party as Collateral in the same
form as so received (with any necessary indorsement).
SECTION 4.03 STOCK POWERS. Pledgor shall furnish to Secured Party such
stock powers and other instruments as may be required by Secured Party to assure
the transferability of the Collateral when and as often as may be reasonably
requested by Secured Party.
SECTION 4.04 VOTING AND OTHER CONSENSUAL RIGHTS. Except to the extent
otherwise provided in subsection 6.06(d), Pledgor shall be entitled to exercise
any and all voting and other consensual rights pertaining to the Collateral or
any part thereof for any purpose not inconsistent with the terms of this
Security Agreement; provided however, that Pledgor shall not exercise or refrain
from exercising any such right if such action would have a Material Adverse
Effect.
SECTION 4.05 PLEDGED INTERESTS PERCENTAGE. The Pledged Interests will
at all times constitute not less than 100% of the capital stock of the issuer
thereof outstanding, together with the number of shares subject to issuance
pursuant to any warrants, options or other stock rights. Pledgor will not permit
any issuer of any of the Pledged Interests to issue any new shares of any class
of capital stock of such issuer without the prior written consent of Secured
Party.
ARTICLE V
RIGHTS, DUTIES AND POWERS OF SECURED PARTY
The following rights, duties and powers of Secured Party are applicable
irrespective of whether an Event of Default occurs and is continuing:
SECTION 5.01 DISCHARGE ENCUMBRANCES. Secured Party may, at its option,
discharge any taxes or Liens at any time levied or placed on the Collateral and
not paid by the Pledgor when due, except for those items being contested in good
faith, by appropriate proceedings, diligently pursued and for which adequate
reserves have been provided in accordance with
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GAAP. Pledgor agrees to reimburse Secured Party upon demand for any payment so
made, plus interest thereon from the date of Secured Party's demand at the
Post-Default Rate.
SECTION 5.02 TRANSFER OF COLLATERAL. To the extent permitted and in the
manner required by the Credit Agreement, Secured Party may transfer any or all
of the Obligations, and upon any such transfer Secured Party may transfer its
interest in any or all of the Collateral and shall be fully discharged
thereafter from all liability therefor. Any transferee of the Collateral shall
be vested with all rights, powers and remedies of Secured Party hereunder.
SECTION 5.03 CUMULATIVE AND OTHER RIGHTS. The rights, powers and
remedies of Secured Party hereunder are in addition to all rights, powers and
remedies given by law or in equity. The exercise by Secured Party of any one or
more of the rights, powers and remedies herein shall not be construed as a
waiver of any other rights, powers and remedies, including, without limitation,
any other rights of set-off. If any of the Obligations are given in renewal,
extension for any period or rearrangement, or applied toward the payment of debt
secured by any lien, Secured Party shall be, and is hereby, subrogated to all
the rights, titles, interests and liens securing the debt so renewed, extended,
rearranged or paid.
SECTION 5.04 DISCLAIMER OF CERTAIN DUTIES.
(a) The powers conferred upon Secured Party by this Security Agreement
are to protect its interest in the Collateral and shall not impose any duty upon
Secured Party or the Lender Group to exercise any such powers. Pledgor hereby
agrees that Secured Party shall not be liable for, nor shall the indebtedness
evidenced by the Obligations be diminished by, Secured Party's delay or failure
to collect upon, foreclose, sell, take possession of or otherwise obtain value
for the Collateral (other than for acts or omissions that constitute gross
negligence or willful misconduct).
(b) To the fullest extent permitted by applicable law, Secured Party
shall be under no duty whatsoever to make or give any presentment, notice of
dishonor, protest, demand for performance, notice of non-performance, notice of
intent to accelerate, notice of acceleration, or other notice or demand in
connection with any Collateral or the Obligations, or to take any steps
necessary to preserve any rights against any Guarantor or other Person. Pledgor
waives any right of marshaling in respect of any and all Collateral, and waives
any right to require Secured Party or the Lender Group to proceed against any
Guarantor or other Person, exhaust any Collateral or enforce any other remedy
which Secured Party or the Lender Group now has or may hereafter have against
the Pledgor, any Guarantor or other Person.
SECTION 5.05 MODIFICATION OF OBLIGATIONS; OTHER SECURITY. Pledgor
waives: (a) any and all notice of acceptance, creation, modification,
rearrangement, renewal or extension for any period of any instrument executed by
the Pledgor, any Guarantor or any other Person in connection with the
Obligations and (b) any defense of the Pledgor, any Guarantor or any such Person
by reason of disability, lack of authorization, cessation of the liability of
the Pledgor, any Guarantor or any such Person or for any other reason. Pledgor
authorizes Secured Party, without notice or demand and without any reservation
of rights against Pledgor and without affecting Pledgor's liability hereunder or
on the Obligations, from time to time to (i) take and hold other property, other
than the Collateral, as security for the Obligations, and exchange, enforce,
waive
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and release any or all of the Collateral, (ii) apply the Collateral in the
manner permitted by this Security Agreement and (iii) renew, extend for any
period, accelerate, amend or modify, supplement, enforce, compromise, settle,
waive or release the obligations of the Pledgor, any Guarantor or any other
Person or any instrument or Agreement of such other Person with respect to any
or all of the Obligations or Collateral.
SECTION 5.06 WAIVER OF NOTICE, DEMAND AND PRESENTMENT. Except as may be
expressly required in the Credit Agreement, this Security Agreement or the Code,
Pledgor hereby waives any demand, notice of default, notice of acceleration of
the maturity of the Obligations, notice of intention to accelerate the maturity
of the Obligations, presentment, protest and notice of dishonor as to any action
taken by Secured Party or the Lender Group in connection with this Security
Agreement, or any instrument or document.
SECTION 5.07 CUSTODY AND PRESERVATION OF THE COLLATERAL. Secured Party
shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral in its possession if the Collateral is accorded
treatment substantially equal to that which comparable secured parties accord
comparable collateral, it being understood and agreed, however, that neither
Secured Party nor the Lender Group shall have responsibility for (a)
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Collateral, whether or not
such Person has or is deemed to have knowledge of such matters, or (b) taking
any necessary steps to preserve rights against Persons or entities with respect
to any Collateral.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01 EVENTS. The occurrence of any Event of Default under the
Credit Agreement shall constitute an Event of Default under this Security
Agreement.
SECTION 6.02 REMEDIES. During the continuance of any Event of Default,
Secured Party may take any or all of the following actions without notice
(except where expressly required below or in the Credit Agreement) or demand to
Pledgor:
(a) Sell, in one or more sales and in one or more parcels, or otherwise
dispose of any or all of the Collateral in any commercially reasonable manner as
Secured Party may elect, in a public or private transaction, at any location as
deemed reasonable by Secured Party either for cash or credit or for future
delivery at such price as Secured Party may deem fair, and (unless prohibited by
the Code, as adopted in any applicable jurisdiction) Secured Party on behalf of
the Lender Group may be the purchaser of any or all Collateral so sold and may
apply upon the purchase price therefor any Obligations secured hereby. Any such
sale or transfer by Secured Party either to itself or to any other Person shall
be absolutely free from any claim of right by Pledgor, including any equity or
right of redemption, stay or appraisal which Pledgor has or may have under any
rule of law, regulation or statute now existing or hereafter adopted. Upon any
such sale or transfer, Secured Party shall have the right to deliver, assign and
transfer to the purchaser or transferee thereof the Collateral so sold or
transferred. If Secured Party deems it advisable to do so, it may restrict the
bidders or purchasers of any such sale or transfer to Persons or entities who
will represent and agree that they are purchasing the Collateral for their own
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account and not with the view to the distribution or resale of any of the
Collateral. Secured Party may, at its discretion, provide for a public sale, and
any such public sale shall be held at such time or times within ordinary
business hours and at such place or places as Secured Party may fix in the
notice of such sale. Secured Party shall not be obligated to make any sale
pursuant to any such notice. Secured Party may, without notice or publication,
adjourn any public or private sale by announcement at any time and place fixed
for such sale, and such sale may be made at any time or place to which the same
may be so adjourned. In the event any sale or transfer hereunder is not
completed or is defective in the opinion of Secured Party, such sale or transfer
shall not exhaust the rights of Secured Party hereunder, and Secured Party shall
have the right to cause one or more subsequent sales or transfers to be made
hereunder. If only part of the Collateral is sold or transferred such that the
Obligations remain outstanding (in whole or in part), Secured Party's rights and
remedies hereunder shall not be exhausted, waived or modified, and Secured Party
is specifically empowered to make one or more successive sales or transfers
until all the Collateral shall be sold or transferred and all the Obligations
are paid. In the event that Secured Party elects not to sell the Collateral,
Secured Party retains its rights to dispose of or utilize the Collateral or any
part or parts thereof in any manner authorized or permitted by law or in equity,
and to apply the proceeds of the same towards payment of the Obligations. Each
and every method of disposition of the Collateral described in this Section
6.02(a) or in Section 6.02(d) shall constitute disposition in a commercially
reasonable manner.
(b) Apply proceeds of the disposition of the Collateral to the
Obligations in any manner elected by Secured Party and permitted by the Credit
Agreement, the Code or otherwise permitted by law or in equity. Such application
may include, without limitation, the reasonable attorneys' fees and legal
expenses incurred by Secured Party and the Lender Group.
(c) Appoint any Person as agent to perform any act or acts necessary or
incident to any sale or transfer by Secured Party of the Collateral.
(d) Apply and set-off (i) any deposits of Pledgor now or hereafter held
by Secured Party or the Lender Group; (ii) all claims of Pledgor against Secured
Party or the Lender Group, now or hereafter existing; (iii) any other property,
rights or interests of Pledgor which comes into the possession or custody or
under the control of Secured Party or the Lender Group; and (iv) the proceeds of
any of the foregoing as if the same were included in the Collateral. Secured
Party agrees to use reasonable efforts to notify Pledgor promptly after any such
set-off or application (or after learning thereof in the case of such action by
the Lender Group); provided, however, the failure of Secured Party to give any
notice shall not affect the validity of such set-off or application.
(e) Execute, assign and endorse negotiable and other instruments for
the payment of money, documents of title or other evidences of payment, shipment
or storage for any form of Collateral on behalf of and in the name of Pledgor.
(f) Exercise all other rights and remedies permitted by law or in
equity.
SECTION 6.03 ATTORNEY-IN-FACT. Pledgor hereby irrevocably appoints
Secured Party as Pledgor's attorney-in-fact, with full authority in the place
and stead of Pledgor and in the name of Pledgor or otherwise, from time to time
in Secured Party's discretion during the continuance of
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an Event of Default, but at Pledgor's cost and expense and without notice to
Pledgor, to take any action and to execute any assignment, certificate,
financing statement, stock power, notification, document or instrument which
Secured Party may deem necessary or advisable to accomplish the purposes of this
Security Agreement, including, without limitation, to receive, endorse and
collect all instruments made payable to Pledgor representing any dividend,
interest payment or other distribution in respect of the Collateral or any part
thereof and to give full discharge for the same.
SECTION 6.04 LIABILITY FOR DEFICIENCY. If any sale or other disposition
of Collateral by Secured Party or any other action of Secured Party or any the
Lender Group hereunder or under any other Loan Document results in reduction of
the Obligations, such action will not release Pledgor from its liability to
Secured Party and the Lender Group for any unpaid Obligations, including costs,
charges and expenses incurred in the liquidation of Collateral, together with
interest thereon, and the same shall be immediately due and payable to
Administrative Agent for the benefit of the Lender Group.
SECTION 6.05 REASONABLE NOTICE. If any applicable provision of any law
requires Secured Party or the Lender Group to give reasonable notice of any sale
or disposition or other action, Pledgor hereby agrees that 10 days' prior
written notice shall constitute reasonable notice thereof. Such notice, in the
case of public sale, shall state the time and place fixed for such sale and, in
the case of private sale, the time after which such sale is to be made.
SECTION 6.06 PLEDGED INTERESTS. During the continuance of an Event of
Default:
(a) All rights of Pledgor to receive the dividends and interest
payments which it would otherwise be authorized to receive and retain pursuant
to Section 4.02 shall cease, and all such rights shall thereupon become vested
in Secured Party who shall thereupon have the sole right to receive and hold as
Collateral such dividends and interest payments, but Secured Party shall have no
duty to receive and hold such dividends and interest payments and shall not be
responsible for any failure to do so or delay in so doing.
(b) All dividends and interest payments which are received by Pledgor
contrary to the provisions of this Section 6.06 shall be received in trust for
the benefit of Secured Party (on behalf of the Lender Group), shall be
segregated from other funds of Pledgor and shall be forthwith paid over to
Secured Party as Collateral in the same form as so received (with any necessary
indorsement).
(c) Secured Party may exercise any and all rights of conversion,
exchange, subscription or any other rights, privileges or options pertaining to
any of the Pledged Interests as if it were the absolute owner thereof,
including, without limitation, the right to exchange at its discretion, any and
all of the Pledged Interests upon the merger, consolidation, reorganization,
recapitalization or other readjustment of any issuer of such Pledged Interests
or upon the exercise by any such issuer or Secured Party of any right, privilege
or option pertaining to any of the Pledged Interests, and in connection
therewith, to deposit and deliver any and all of the Pledged Interests with any
committee, depository, transfer agent, registrar or other designated agency upon
such terms and conditions as it may determine, all without liability except to
account for property actually received by it, but Secured Party shall have no
duty to exercise any of the
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aforesaid rights, privileges or options and shall not be responsible for any
failure to do so or delay in so doing.
(d) If the issuer of any Pledged Interests is the subject of
bankruptcy, insolvency, receivership, custodianship or other proceedings under
the supervision of any Governmental Authority, then all rights of Pledgor to
exercise the voting and other consensual rights which Pledgor would otherwise be
entitled to exercise pursuant to Section 4.04 with respect to the Pledged
Interests issued by such issuer shall cease, and all such rights shall thereupon
become vested in Secured Party who shall thereupon have the sole right to
exercise such voting and other consensual rights, but Secured Party shall have
no duty to exercise any such voting or other consensual rights and shall not be
responsible for any failure to do so or delay in so doing.
SECTION 6.07 NON-JUDICIAL ENFORCEMENT. Secured Party may enforce its
rights hereunder without prior judicial process or judicial hearing, and to the
extent permitted by law, Pledgor expressly waives any and all legal rights which
might otherwise require Secured Party to enforce its rights by judicial process.
SECTION 6.08 PRIVATE SALE OF COLLATERAL. Pledgor recognizes that
Secured Party may deem it impracticable to effect a public sale of all or any
part of the Collateral and that Secured Party may, therefore, determine to make
one or more private sales of any such Collateral to a restricted group of
purchasers who will be obligated to agree, among other things, to acquire such
Collateral for their own account, for investment and not with a view to the
distribution or resale thereof. Pledgor acknowledges that any such private sale
may be at prices and on terms less favorable to the seller than the prices and
other terms which might have been obtained at a public sale and, notwithstanding
the foregoing, agrees that such private sale shall be deemed to have been made
in a commercially reasonably manner and that Secured Party shall have no
obligation to delay sale of any such Interests for the period of time necessary
to permit Pledgor to register such Collateral for public sale under the
Securities Act of 1933, as amended (the "Securities Act"). Pledgor further
acknowledges and agrees that any offer to sell such Collateral which has been
(i) publicly advertised on a bona fide basis in a newspaper or other publication
of general circulation in the financial community of New York, New York and
Dallas, Texas (to the extent that such an offer may be so advertised without
prior registration under the Securities Act), or (ii) made privately in the
manner described above to not less than fifteen (15) bona fide offerees shall be
deemed to involve a "Public sale" for the purposes of Section 9-504(c) of the
Code (or any successor or similar, applicable statutory provision) as then in
effect in the State of New York, notwithstanding that such sale may not
constitute a "public offering" under the Securities Act and that Secured Party
on behalf of the Lender Group may, in such event, bid for the purchase of such
Collateral.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01 NOTICES. Any notice required or permitted to be given
under or in connection with this Security Agreement shall be in writing and
shall be given as provided in the Credit Agreement at the address set forth
therein.
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SECTION 7.02 AMENDMENTS AND WAIVERS. The acceptance of partial or
delinquent payments by the Lender Group or any forbearance, failure or delay by
them in exercising any right, power or remedy under any Loan Document shall not
be deemed a waiver of any obligation of Pledgor or of any of Secured Party's or
the Lender Group's rights, powers or remedies; and no partial exercise of any
right, power or remedy shall preclude any other or further exercise thereof. The
Lender Group may remedy any Event of Default hereunder or in connection with the
Obligations without waiving the Event of Default so remedied. Pledgor hereby
agrees that if the Lender Group agrees to a waiver of any provision hereunder,
or an exchange of or release of the Collateral, or the addition or release of
any other Person, any such action shall not constitute a waiver of any of
Secured Party's other rights or of Pledgor's obligations hereunder. This
Agreement may be amended only by an instrument in writing as set forth in
Section 12.04 of the Credit Agreement.
SECTION 7.03 COPY AS FINANCING STATEMENT. A photocopy or other
reproduction of this Security Agreement may be delivered by Pledgor or Secured
Party to any financial intermediary or other third party for the purpose of
transferring or perfecting any or all of the Pledged Interests to Secured Party
or its designee or assignee.
SECTION 7.04 POSSESSION OF COLLATERAL. Secured Party shall be deemed to
have possession of any Collateral in transit to it or set apart for it (or, in
either case, any of its agents, affiliates or correspondents).
SECTION 7.05 REDELIVERY OF COLLATERAL. If any sale or transfer of
Collateral by Secured Party results in full satisfaction of the Obligations, and
after such sale or transfer and discharge there remains a surplus of proceeds,
Secured Party will deliver to Pledgor such excess proceeds in a commercially
reasonable time; provided, however, that neither Secured Party nor the Lender
Group shall have any liability for any interest, cost or expense in connection
with any reasonable delay in delivering such proceeds to Pledgor.
SECTION 7.06 GOVERNING LAW. THIS SECURITY AGREEMENT (INCLUDING, BUT NOT
LIMITED TO, THE VALIDITY AND ENFORCEABILITY HEREOF) SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 7.07 EFFECTIVENESS. This Security Agreement becomes effective
upon the execution hereof by Pledgor and delivery of the same to Secured Party;
and it is not necessary for Secured Party or the Lender Group to execute any
acceptance hereof or otherwise signify or express its acceptance hereof.
SECTION 7.08 CONTINUING SECURITY AGREEMENT.
(a) Except as may be expressly applicable pursuant to Section 9-505 of
the Code, no action taken or omission to act by Secured Party or the Lender
Group hereunder, including, without limitation, any exercise of voting or
consensual rights pursuant to Section 4.04 or any other action taken or inaction
pursuant to Section 6.02, shall be deemed to constitute a retention of the
Collateral in satisfaction of the Obligations or otherwise to be in full
satisfaction of the Obligations, and the Obligations shall remain in full force
and effect, until Secured Party and the
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Lender Group shall have applied payments (including, without limitation,
collections from Collateral) towards the Obligations in the full amount then
outstanding or until such subsequent time as is hereinafter provided in Section
7.09.
(b) To the extent that any payments on the Obligations or proceeds of
the Collateral are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, debtor in
possession, receiver or other Person under any bankruptcy law, common law or
equitable cause, then to such extent the Obligations so satisfied shall be
revived and continue as if such payment or proceeds had not been received by
Secured Party or the Lender Group; and their respective security interests,
rights, powers and remedies hereunder and under the other Loan Documents shall
continue in full force and effect. In such event, this Security Agreement shall
be automatically reinstated if it shall theretofore have been terminated
pursuant to Section 7.09.
SECTION 7.09 TERMINATION. The grant of a security interest hereunder
and all of rights, powers and remedies in connection herewith shall remain in
full force and effect until Secured Party has (a) retransferred and delivered
all Collateral in its possession to Pledgor, (b) executed a registration of
release with respect to all Pledged Interests, if any, as to which Secured Party
held a registered pledge; and (c) executed a written release or termination
statement and reassigned to Pledgor without recourse or warranty any remaining
Collateral and all rights conveyed hereby. Upon the complete payment of the
Obligations and the compliance by Pledgor with all covenants and agreements
hereof, Secured Party, at the written request and expense of Pledgor, will
release, reassign and transfer the Collateral to Pledgor and declare this
Security Agreement to be of no further force or effect. Notwithstanding the
foregoing, the provisions of subsection 7.08(b) shall survive the termination of
this Security Agreement unless such provisions are specifically terminated by a
written release thereof.
SECTION 7.10 PRIOR SECURITY AGREEMENT. This Security Agreement
supersedes and replaces the Prior Security Agreement.
12
<PAGE> 16
PLEDGOR: QUEEN SAND RESOURCES, INC.,
a Delaware corporation
By:
---------------------------------
Robert P. Lindsay
Chief Operating Officer
By:
---------------------------------
Ronald I. Benn
Chief Financial Officer
S-1
<PAGE> 17
EXHIBIT A
PLEDGED INTERESTS
Queen Sands Resources, Inc., a Nevada corporation
Three hundred twenty six thousand two hundred and thirteen (326,213)
shares of the capital stock, par value $0.01 per share, of Queen Sands
Resources, Inc., a Nevada corporation, standing in the name of the
Pledgor and being evidenced by Certificate No. 4.
<PAGE> 1
EXHIBIT 10.8
SECOND AMENDED AND RESTATED
GUARANTY AGREEMENT
Dated as of October 22, 1999
By
QUEEN SAND OPERATING CO.,
as the Guarantor
in favor of
ABLECO FINANCE LLC,
as Collateral Agent,
for the benefit of the Lender Group
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <S> <C>
ARTICLE I Definitions and Accounting Matters......................................................................2
Section 1.01 Terms Defined in Recitals............................................................2
Section 1.02 Certain Definitions..................................................................2
Section 1.03 Credit Agreement Definitions.........................................................3
ARTICLE II The Guaranty...........................................................................................3
Section 2.01 Obligations Guaranteed...............................................................3
Section 2.02 Nature of Guaranty...................................................................3
Section 2.03 Lender Group's Rights................................................................3
Section 2.04 Guarantor's Waivers..................................................................4
Section 2.05 Maturity of Obligations; Payment.....................................................4
Section 2.06 Lender Group's Expenses..............................................................4
Section 2.07 Obligation...........................................................................4
Section 2.08 Events and Circumstances Not Reducing or Discharging the Guarantor's Obligations.....4
Section 2.09 Limitations on Obligation of the Guarantor Hereunder.................................6
Section 2.10 Subrogation..........................................................................6
ARTICLE III Representations and Warranties........................................................................7
Section 3.01 Representations and Warranties.......................................................7
ARTICLE IV Subordination of Indebtedness..........................................................................8
Section 4.01 Subordination of All Guarantor Claims................................................8
Section 4.02 Claims in Bankruptcy.................................................................8
Section 4.03 Payments Held in Trust...............................................................9
Section 4.04 Liens Subordinate....................................................................9
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <S> <C>
Section 4.05 Notation of Records..................................................................9
ARTICLE V Miscellaneous...........................................................................................9
Section 5.01 Successors and Assigns...............................................................9
Section 5.02 Notices..............................................................................9
Section 5.03 Authority of Collateral Agent.......................................................10
Section 5.04 Governing Law; Submission to Jurisdiction...........................................10
Section 5.05 Entire Agreement....................................................................11
Section 5.06 Survival of Obligations.............................................................11
Section 5.07 Designated Senior Indebtedness......................................................12
Section 5.08 Prior Guaranty......................................................................12
</TABLE>
ii
<PAGE> 4
SECOND AMENDED AND RESTATED
GUARANTY AGREEMENT
This SECOND AMENDED AND RESTATED GUARANTY AGREEMENT, dated as of
October 22, 1999 is by QUEEN SAND OPERATING CO., a corporation duly organized
and validly existing under the laws of the state of Nevada and formerly known as
Northland Operating Co. ("Guarantor"), in favor of ABLECO FINANCE LLC, as
Collateral Agent for the Lender Group (together with any successor collateral
agent, "Collateral Agent").
RECITALS
A. QUEEN SAND RESOURCES, INC., a corporation duly organized and validly
existing under the laws of the state of Delaware ("QSRD"), as "Guarantor", QUEEN
SAND RESOURCES, INC., a corporation duly organized and validly existing under
the laws of the state of Nevada ("Borrower"), certain lenders (the "Prior
Lenders") and the Bank of Montreal, as agent (the "Prior 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, as further amended by that certain Second
Amendment to Amended and Restated Credit Agreement dated as of November 10,
1998, as further amended by that certain Third Amendment to Amended and Restated
Credit Agreement dated as of November 13, 1998, and as further amended by that
certain Fourth Amendment to Amended and Restated Credit Agreement dated as of
May 14, 1999 (such credit agreement, as amended, restated, supplemented, or
otherwise modified from time to time prior to the date hereof, the "Prior Credit
Agreement").
B. Pursuant to the terms and conditions of the Prior Credit Agreement,
Guarantor entered into that certain Amended and Restated Guaranty Agreement,
dated as of April 17, 1998 (such guaranty agreement, as amended, restated,
supplemented, or otherwise modified from time to time prior to the date hereof,
the "Prior Guaranty Agreement"), in favor of the Prior Agent and the Prior
Lenders, pursuant to which Guarantor guaranties the obligations therein
described.
C. Concurrently herewith: (i) pursuant to that certain Assignment and
Acceptance, dated as of the Closing Date, among each of the Prior Lenders and
each of the Lender Group (the "Purchase Agreement"), the Prior Lenders are
assigning and delegating to the Lender Group, and the Lender Group are accepting
and assuming, the rights and duties of the Prior Lenders under the Prior Credit
Agreement and the other "Loan Documents" (as such term is defined in the Prior
Credit Agreement, the "Prior Loan Documents"); (ii) pursuant to the Purchase
Agreement and the Resignation and Appointment Letter, the Prior Agent is
resigning as "Agent" under the Prior Credit Agreement and the other Prior Loan
Documents and Administrative Agent and Collateral Agent are being appointed as
successor "Agents" for the Lender Group under the Prior Credit Agreement and the
other Prior Loan Documents; and (iii) the Prior Credit Agreement is being
amended and restated in its entirety by that certain Amended and Restated Credit
Agreement, dated as of the date hereof (as it may be amended, restated,
supplemented, or otherwise modified from time to time, the "Credit Agreement"),
among Borrower, QSRD, the financial institutions identified therein as the
"Lenders," Foothill Capital Corporation, a California corporation, as
administrative agent thereunder (in such capacity, together with its successors,
if any, in such capacity, "Administrative Agent"), and Ableco Finance LLC, as
collateral agent thereunder (in
<PAGE> 5
such capacity, together with its successors, if any, in such capacity,
"Collateral Agent"), it being understood that no repayment of the obligations
under the Prior Credit Agreement is being effected thereby, but merely an
amendment and restatement in accordance with the terms thereof.
D. Pursuant to the Credit Agreement and as one of the conditions
thereof, Guarantor and the Lender Group have agreed to amend and restate the
Prior Guarantor Agreement in its entirety as provided in this Guaranty
Agreement, it being understood that no satisfaction of the "Obligations" (as
such term is defined in the Prior Guaranty Agreement) under the Prior Guaranty
Agreement is being effected hereby, but merely an amendment and restatement in
accordance with the terms hereof.
E. NOW, THEREFORE, (i) in order to comply with the terms and conditions
of the Credit Agreement, (ii) to induce the Lender Group to enter into the terms
of the Credit Agreement, and (iii) for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, Guarantor hereby
agrees as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS
SECTION 1.01 TERMS DEFINED IN RECITALS. As used in this Guaranty
Agreement, the terms defined in the Recitals shall have the meanings indicated
in the Recitals.
SECTION 1.02 CERTAIN DEFINITIONS. As used in this Guaranty Agreement,
the following terms shall have the following meanings, unless the context
otherwise requires:
"Guarantor Claims" shall have the meaning indicated in Section 4.01.
"Guaranty Agreement" shall mean this Second Amended and Restated
Guaranty Agreement, as the same may from time to time be amended or
supplemented.
"Lender Group" means, individually and collectively, each of the
Lenders, Administrative Agent, and Collateral Agent.
"Obligations" shall mean (a) the payment and performance of all present
and future Indebtedness, obligations and liabilities of QSRD, the Borrower
and/or the Guarantor to Collateral Agent and the Lender Group under the Credit
Agreement and the other Loan Documents; (b) all obligations of the Guarantor
under this Guaranty Agreement and the other Loan Documents; (c) all interest
(whether pre or post petition), charges, expenses, reasonable attorneys' or
other fees and any other sums payable to or incurred by the Lender Group in
connection with the execution or enforcement of any of their rights and remedies
hereunder or any other Loan Document.
2
<PAGE> 6
SECTION 1.03 CREDIT AGREEMENT DEFINITIONS. Unless otherwise defined
herein, all terms beginning with a capital letter which are defined in the
Credit Agreement shall have the same meanings herein as therein.
ARTICLE II
THE GUARANTY
SECTION 2.01 OBLIGATIONS GUARANTEED. The Guarantor hereby irrevocably
and unconditionally guarantees to Collateral Agent, as and for its own debt,
until final and indefeasible payment thereof has been made, (a) the prompt
payment of the Obligations, in each case when and as the same shall become due
and payable, whether at maturity, pursuant to a mandatory prepayment
requirement, by acceleration, or otherwise; it being the intent of the Guarantor
that the guaranty set forth herein shall be a guaranty of payment and not a
guaranty of collection.
SECTION 2.02 NATURE OF GUARANTY. This guaranty is an absolute,
irrevocable, completed and continuing guaranty of payment and not a guaranty of
collection, and no notice of the Obligations or any extension of credit already
or hereafter contracted by or extended to the Borrower need be given to the
Guarantor. The guaranty evidenced hereby is joint and several with all other
guarantees of the Obligations. This guaranty may not be revoked by the Guarantor
and shall continue to be effective with respect to debt under the Obligations
arising or created after any attempted revocation by the Guarantor and shall
remain in full force and effect until the Obligations are paid in full and the
Aggregate Commitments are terminated, notwithstanding that from time to time
prior thereto no Obligations may be outstanding. The Borrower and the Lender
Group may modify, alter, rearrange, extend for any period and/or renew from time
to time, the Obligations and the Lender Group may waive any Default or Events of
Default without notice to the Guarantor and in such event the Guarantor will
remain fully bound hereunder on the Obligations. This Guaranty Agreement may be
enforced by Collateral Agent, on behalf of the Lender Group and any subsequent
holder of the Obligations, and shall not be discharged by the assignment or
negotiation of all or part of the Obligations. The Guarantor hereby expressly
waives presentment, demand, notice of non-payment, protest and notice of protest
and dishonor, notice of Event of Default, notice of intent to accelerate the
maturity and notice of acceleration of the maturity and any other notice in
connection with the Obligations, and also notice of acceptance of this Guaranty
Agreement, acceptance on the part of Collateral Agent for the benefit of the
Lender Group being conclusively presumed by their request for this Guaranty
Agreement and delivery of the same to Collateral Agent.
SECTION 2.03 LENDER GROUP'S RIGHTS. Subject to the terms of the Credit
Agreement, the Guarantor authorizes the Lender Group (or Collateral Agent on
behalf of the Lender Group), without notice or demand and without affecting the
Guarantor's obligation hereunder, to take and hold security for the payment of
the Obligations, and exchange, enforce, waive and release any such security; and
to apply such security and direct the order or manner of sale thereof as
Collateral Agent and the Lender Group in their discretion may determine; and to
obtain a guaranty of the Obligations from any one or more Persons and at any
time or times to enforce, waive, rearrange, modify, limit or release any of such
other Persons from their obligations under such guaranties.
3
<PAGE> 7
SECTION 2.04 GUARANTOR'S WAIVERS. The Guarantor waives any right to
require Collateral Agent and the Lender Group to (a) proceed against the
Borrower or any other Person liable on the Obligations, (b) enforce their rights
against any other guarantor of the Obligations, (c) proceed or enforce their
rights against or exhaust any security given to secure the Obligations, (d) have
the Borrower or any other guarantor or other Person joined with the Guarantor in
any suit arising out of this Guaranty Agreement and/or the Obligations, or (e)
pursue any other remedy whatsoever. Neither Collateral Agent nor the Lender
Group shall be required to mitigate damages or take any action to reduce,
collect or enforce the Obligations. The Guarantor waives any defense arising by
reason of any disability, lack of corporate authority or power, or other defense
of the Borrower, any other guarantor of the Obligations, or any other Person
liable on the Obligations, and shall remain liable hereon regardless of whether
the Borrower or any other guarantor or any such other Person be found not liable
thereon for any reason.
SECTION 2.05 MATURITY OF OBLIGATIONS; PAYMENT. The Guarantor agrees
that if the maturity of the Obligations is accelerated by bankruptcy or
otherwise, such maturity shall also be deemed accelerated for the purpose of
this Guaranty Agreement without demand or notice to the Guarantor. The Guarantor
will, forthwith upon notice from Collateral Agent on behalf of the Lender Group
of the Borrower's failure to pay the Obligations at maturity, pay to
Administrative Agent for the benefit of the Lender Group the amount due and
unpaid by the Borrower and guaranteed hereby. The failure of Collateral Agent or
the Lender Group to give this notice shall not in any way release the Guarantor
hereunder.
SECTION 2.06 LENDER GROUP'S EXPENSES. If the Guarantor fails to pay the
Obligations after notice from Collateral Agent of the Borrower's failure to pay
any Obligations at maturity (whether by acceleration or otherwise), and if
thereafter Collateral Agent or the Lender Group obtains the services of an
attorney for collection of amounts owing by the Guarantor hereunder or if suit
is filed to enforce this Guaranty Agreement, or if proceedings are had in any
bankruptcy, receivership or other judicial proceedings for the establishment or
collection of any amount owing by the Guarantor hereunder, or if any amount
owing by the Guarantor hereunder is collected through such proceedings, the
Guarantor agrees to pay to Administrative Agent the reasonable attorneys' fees
and expenses of Collateral Agent and the Lender Group.
SECTION 2.07 OBLIGATION. It is expressly agreed that the obligation of
the Guarantor for the payment of the Obligations guaranteed hereby shall be
primary and not secondary.
SECTION 2.08 EVENTS AND CIRCUMSTANCES NOT REDUCING OR DISCHARGING THE
GUARANTOR'S OBLIGATIONS. The Guarantor hereby consents and agrees to each of the
following to the fullest extent permitted by law, agrees its obligations under
this Guaranty Agreement shall not be released, diminished, impaired, reduced or
adversely affected by any of the following, and waives any rights (including
without limitation rights to notice) which it might otherwise have as a result
of or in connection with any of the following:
(a) Modifications, etc. Any renewal, extension, modification, or
increase in the amount of the Aggregate Commitments as in effect on the
Effective Date, decrease, alteration or rearrangement of all or any part of the
Obligations, any Loan Document or any instrument executed in connection
therewith, or any contract or understanding between or among any one or
4
<PAGE> 8
more of the Borrower, Collateral Agent or the Lender Group or any member
thereof, or any other Person, pertaining to the Obligations;
(b) Adjustment, etc. Any adjustment, indulgence, forbearance or
compromise that might be granted or given by the Lender Group to the Borrower or
the Guarantor or any Person liable on the Obligations;
(c) Condition of the Borrower or the Guarantor. The insolvency,
bankruptcy arrangement, reorganization, adjustment, composition, liquidation,
disability, dissolution or lack of power of the Borrower or the Guarantor or any
other Person at any time liable for the payment of all or part of the
Obligations; or any sale, lease or transfer of any or all of the assets of the
Borrower or the Guarantor, or any changes in the shareholders of the Borrower or
the Guarantor;
(d) Invalidity of Obligations. The invalidity, illegality or
unenforceability of all or any part of the Obligations or any Loan Document for
any reason whatsoever, including without limitation the fact that the
Obligations, or any part thereof, exceed the amount permitted by law, the act of
creating the Obligations or any part thereof is ultra vires, the officers or
representatives executing any Loan Document acted in excess of their authority,
the Obligations violate applicable usury laws, the Borrower has valid defenses,
claims or offsets (whether at law, in equity or by agreement) which render the
Obligations wholly or partially uncollectible from the Borrower, the creation,
performance or repayment of the Obligations (or the execution, delivery and
performance of any Loan Document) is illegal, uncollectible, legally impossible
or unenforceable, or the Credit Agreement or other Loan Documents have been
forged or otherwise are irregular or not genuine or authentic;
(e) Release of Obligors. Any full or partial release of the obligation
of the Borrower on the Obligations or any part thereof, of any co-guarantors, or
any other Person now or hereafter liable, whether directly or indirectly,
jointly, severally, or jointly and severally, to pay, perform, guarantee or
assure the payment of the Obligations or any part thereof, it being recognized,
acknowledged and agreed by the Guarantor that the Guarantor may be required to
pay the Obligations in full without assistance or support of any other Person,
and the Guarantor has not been induced to enter into this Guaranty Agreement on
the basis of a contemplation, belief, understanding or agreement that other
parties other than the Borrower will be liable to perform the Obligations, or
that the Lender Group will look to other parties to perform the Obligations;
(f) Other Security. The taking or accepting of any other security,
collateral or guaranty, or other assurance of payment, for all or any part of
the Obligations;
(g) Release of Collateral, etc. Any release, surrender, exchange,
subordination, deterioration, waste, loss or impairment (including without
limitation negligent, willful, unreasonable or unjustifiable impairment) of any
collateral, Property or security, at any time existing in connection with, or
assuring or securing payment of, all or any part of the Obligations;
(h) Care and Diligence. The failure of any of Collateral Agent or the
Lender Group or any other Person to exercise diligence or reasonable care in the
preservation, protection,
5
<PAGE> 9
enforcement, sale or other handling or treatment of all or any part of such
collateral, Property or security;
(i) Status of Liens. The fact that any collateral, security or Lien
contemplated or intended to be given, created or granted as security for the
repayment of the Obligations shall not be properly perfected or created, or
shall prove to be unenforceable or subordinate to any other Lien, it being
recognized and agreed by the Guarantor that the Guarantor is not entering into
this Guaranty Agreement in reliance on, or in contemplation of the benefits of,
the validity, enforceability, collectability or value of any of the collateral
for the Obligations;
(j) Payments Rescinded. Any payment by the Borrower to the Lender Group
is held to constitute a preference under the bankruptcy laws, or for any reason
the Lender Group is required to refund such payment or pay such amount to the
Borrower or someone else; or
(k) Other Actions Taken or Omitted. Any other action taken or omitted
to be taken with respect to the Credit Agreement or the other Loan Documents,
the Obligations, or the security and collateral therefor, whether or not such
action or omission prejudices the Guarantor or increases the likelihood that the
Guarantor will be required to pay the Obligations pursuant to the terms hereof,
it being the unambiguous and unequivocal intention of the Guarantor that the
Guarantor shall be obligated to pay the Obligations when due, notwithstanding
any occurrence, circumstance, event, action, or omission whatsoever, whether
contemplated or uncontemplated, and whether or not otherwise or particularly
described herein, except for the full and final payment and satisfaction of the
Obligations.
SECTION 2.09 LIMITATIONS ON OBLIGATION OF THE GUARANTOR HEREUNDER. The
parties hereto (i) intend that the obligation of the Guarantor hereunder be
limited to the maximum amount that would not result in the obligation created
hereby being avoidable under Section 548 of the Federal Bankruptcy Code (11
U.S.C. Section 548; hereinafter "Section 548") or other applicable state
fraudulent conveyance or transfer law and (ii) agree that this Guaranty
Agreement shall be so construed. Accordingly, the obligation of the Guarantor
hereunder is limited to an amount that is the greater of (x) the "reasonably
equivalent value" or "fair consideration" received by the Guarantor in exchange
for the obligation incurred hereunder, within the meaning of Section 548, as
amended, or any applicable state fraudulent conveyance or transfer law, as
amended; or (y) the lesser of (1) the maximum amount that will not render the
Guarantor insolvent or (2) the maximum amount that will not leave the Guarantor
with any Property deemed an unreasonably small capital. Clauses (1) and (2) are
and shall be determined pursuant to Section 548, as amended, or other applicable
state fraudulent conveyance or transfer law, as amended.
SECTION 2.10 SUBROGATION. The Guarantor shall not exercise any rights
which it may acquire by way of subrogation, reimbursement, exoneration,
indemnification or participation, by any payment made under this Guaranty
Agreement, under any other Loan Document or otherwise until the Obligations have
been paid in full and the Aggregate Commitments are terminated; provided that,
notwithstanding the foregoing, the Guarantor reserves its rights of contribution
and reimbursement, if any, from its co-guarantors and other Persons liable on
the Obligations or otherwise. Except as described in this Section 2.10, the
Guarantor further waives any benefit of any right to participate in any security
now or hereafter held by Collateral Agent or the Lender Group.
6
<PAGE> 10
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01 REPRESENTATIONS AND WARRANTIES. In order to induce
Collateral Agent for the benefit of the Lender Group to accept this Guaranty
Agreement, the Guarantor represents and warrants to Collateral Agent and the
Lender Group (which representations and warranties will survive the creation of
the Obligations and any extension of credit thereunder) that:
(a) Benefit to the Guarantor. The Guarantor is a wholly-owned
Subsidiary of the Borrower and the Guarantor's guaranty pursuant to this
Guaranty Agreement reasonably may be expected to benefit, directly or
indirectly, the Guarantor; and the Guarantor has determined that this Guaranty
Agreement is necessary and convenient to the conduct, promotion and attainment
of the business of the Guarantor and the Borrower.
(b) Corporate Existence. The Guarantor: (i) is duly organized and
validly existing under the laws of the jurisdiction of its formation; (ii) has
all requisite power, and has all material governmental licenses, authorizations,
consents and approvals necessary to own its assets and carry on its business as
now being conducted; and (iii) is qualified to do business in all jurisdictions
in which the nature of the business conducted by it makes such qualification
necessary and where failure so to qualify would have a Material Adverse Effect.
(c) No Breach. The execution and delivery by the Guarantor of this
Guaranty Agreement and the other Loan Documents to which it is a party, the
consummation of the transactions herein or therein contemplated, and the
compliance with the terms and provisions hereof will not (i) conflict with or
result in a breach of, or require any consent which has not been obtained as of
the Closing Date or which, if not obtained, would have a Material Adverse Effect
under (A) the respective charter or by-laws of the Guarantor, or (B) any
applicable law or regulation, or any order, writ, injunction or decree of any
court or other Governmental Authority, or any material agreement or instrument
to which the Guarantor is a party or by which it is bound or to which it is
subject in each case in such manner as could reasonably be expected to have a
Material Adverse Effect; or (ii) constitute a default under any such agreement
or instrument, or result in the creation or imposition of any Lien upon any of
the revenues or Property of the Guarantor in each case in such manner as could
reasonably be expected to have a Material Adverse Effect.
(d) Corporate Action. The Guarantor has all necessary corporate power
and authority to execute, deliver and perform its obligations under this
Guaranty Agreement and the other Loan Documents to which it is a party; and the
execution, delivery and performance by the Guarantor of this Guaranty Agreement
and the other Loan Documents to which such Person is a party have been duly
authorized by all necessary corporate action on its part. This Guaranty
Agreement and the other Loan Documents to which the Guarantor is a party
constitute the legal, valid and binding obligation of the Guarantor, enforceable
against the Guarantor in accordance with their terms, except as may be limited
by applicable bankruptcy, insolvency, reorganization or other similar laws
affecting creditors' rights and general principles of equity.
(e) Approvals. Other than consents heretofore obtained or described in
the Credit Agreement, no authorizations, approvals or consents of, and no
filings or registrations with, any Governmental Authority are necessary for the
execution, delivery or performance by the
7
<PAGE> 11
Guarantor of this Guaranty Agreement or the other Loan Documents to which it is
a party or for the validity or enforceability thereof. It is understood that
continued performance by the Guarantor of this Guaranty Agreement and the other
Loan Documents to which it is a party will require various filings, such as
filings related to environmental matters, ERISA matters, Taxes and intellectual
property, filings required to maintain corporate and similar standing and
existence, filings pursuant to the Uniform Commercial Code and other security
filings and recordings and filings required by the SEC, routine filings in the
ordinary course of business, and filings required in connection with the
exercise by Collateral Agent on behalf of the Lender Group of remedies in
connection with the Loan Documents.
(f) Solvency. The Guarantor (i) is not insolvent as of the date hereof
and will not be rendered insolvent as a result of this Guaranty Agreement, (ii)
is not engaged in business or a transaction, or about to engage in a business or
a transaction, for which any Property or assets remaining with the Guarantor
constitute unreasonably small capital, and (iii) does not intend to incur, or
believe it will incur, debts that will be beyond its ability to pay as such
debts mature.
(g) No Representation by Collateral Agent or the Lender Group. Neither
any of Collateral Agent, the Lender Group, or any member thereof nor any other
Person has made any representation, warranty or statement to the Guarantor in
order to induce the Guarantor to execute this Guaranty Agreement.
ARTICLE IV
SUBORDINATION OF INDEBTEDNESS
SECTION 4.01 SUBORDINATION OF ALL GUARANTOR CLAIMS. As used herein, the
term "Guarantor Claims" shall mean all debts and obligations of the Borrower to
the Guarantor, whether such debts and obligations now exist or are hereafter
incurred or arise, or whether the obligation of the Borrower thereon be direct,
contingent, primary, secondary, several, joint and several, or otherwise, and
irrespective of whether such debts or obligations be evidenced by note,
contract, open account, or otherwise, and irrespective of the Person or Persons
in whose favor such debts or obligations may, at their inception, have been, or
may hereafter be created, or the manner in which they have been or may hereafter
be acquired by. Except for payments permitted by the Credit Agreement, until the
Obligations shall be paid and satisfied in full, the Aggregate Commitments are
terminated and the Guarantor shall have performed all of its obligations
hereunder and under the other Loan Documents to which it is a party, the
Guarantor shall not receive or collect, directly or indirectly, from the
Borrower any amount upon the Guarantor Claims.
SECTION 4.02 CLAIMS IN BANKRUPTCY. In the event of receivership,
bankruptcy, reorganization, arrangement, debtor's relief, or other insolvency
proceedings involving the Borrower, Collateral Agent on behalf of the Lender
Group shall have the right to prove their claim in any proceeding, so as to
establish their rights hereunder and receive directly from the receiver, trustee
or other court custodian, dividends and payments which would otherwise be
payable upon Guarantor Claims. The Guarantor hereby assigns such dividends and
payments to Collateral Agent for the benefit of the Lender Group. Should the
Lender Group receive, for application upon the Obligations, any such dividend or
payment which is otherwise payable to the Guarantor, and which, as between the
Borrower and the Guarantor, shall constitute a credit
8
<PAGE> 12
upon the Guarantor Claims, then upon payment in full of the Obligations, the
Guarantor shall become subrogated to the rights of the Lender Group to the
extent that such payments to the Lender Group on the Guarantor Claims have
contributed toward the liquidation of the Obligations, and such subrogation
shall be with respect to that proportion of the Obligations which would have
been unpaid if the Lender Group had not received dividends or payments upon the
Guarantor Claims.
SECTION 4.03 PAYMENTS HELD IN TRUST. In the event that notwithstanding
Sections 4.01 and 4.02, the Guarantor should receive any funds, payments, claims
or distributions which is prohibited by such Sections, the Guarantor agrees: (a)
to hold in trust for the Lender Group an amount equal to the amount of all
funds, payments, claims or distributions so received, and (b) that it shall have
absolutely no dominion over the amount of such funds, payments, claims or
distributions except to pay them promptly to Administrative Agent for the
benefit of the Lender Group; and the Guarantor covenants promptly to pay the
same to Administrative Agent for the benefit of the Lender Group.
SECTION 4.04 LIENS SUBORDINATE. The Guarantor agrees that, until the
Obligations are paid in full and the Aggregate Commitments terminated, any Liens
upon the Borrower's assets securing payment of the Guarantor Claims shall be and
remain inferior and subordinate to any Liens upon the Borrower's assets securing
payment of the Obligations, regardless of whether such encumbrances in favor of
the Guarantor, Collateral Agent, or the Lender Group presently exist or are
hereafter created or attach. Without the prior written consent of the Lender
Group, the Guarantor, during the period in which any of the Obligations are
outstanding or the Aggregate Commitments are in effect, shall not (a) exercise
or enforce any creditor's right it may have against the Borrower, or (b)
foreclose, repossess, sequester or otherwise take steps or institute any action
or proceeding (judicial or otherwise, including without limitation the
commencement of or joinder in any liquidation, bankruptcy, rearrangement,
debtor's relief or insolvency proceeding) to enforce any Lien on assets of the
Borrower held by the Guarantor.
SECTION 4.05 NOTATION OF RECORDS. All promissory notes and, upon the
request of Collateral Agent on behalf of the Lender Group, all accounts
receivable ledgers or other evidence of the Guarantor Claims accepted by or held
by the Guarantor shall contain a specific written notice thereon that the
indebtedness evidenced thereby is subordinated under the terms of this Guaranty
Agreement.
ARTICLE V
MISCELLANEOUS
SECTION 5.01 SUCCESSORS AND ASSIGNS. This Guaranty Agreement is and
shall be in every particular available to the successors and assigns of
Collateral Agent and the Lender Group and is and shall always be fully binding
upon the legal representatives, successors and assigns of the Guarantor,
notwithstanding that some or all of the monies, the repayment of which this
Guaranty Agreement applies, may be actually advanced after any bankruptcy,
receivership, reorganization or other event affecting either the Borrower or the
Guarantor.
SECTION 5.02 NOTICES. Any notice or demand to the Guarantor under or in
connection with this Guaranty Agreement may be given and shall conclusively be
deemed and considered to
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<PAGE> 13
have been given and received in the manner and to the address of the Guarantor
set forth on the signature page hereto as provided for in Section 12.02 of the
Credit Agreement.
SECTION 5.03 AUTHORITY OF COLLATERAL AGENT. The Guarantor acknowledges
that the rights and responsibilities of Collateral Agent under this Guaranty
Agreement with respect to any action taken by Collateral Agent or the exercise
or non-exercise by Collateral Agent of any option, right, request, judgment or
other right or remedy provided for herein or resulting or arising out of this
Guaranty Agreement shall, as between Collateral Agent and the other members of
the Lender Group, be governed by the Credit Agreement and by such other
agreements with respect thereto as may exist from time to time among them, but,
as between Collateral Agent and the Guarantor, Collateral Agent shall be
conclusively presumed to be acting as agent for the Lender Group with full and
valid authority so to act or refrain from acting; and the Guarantor shall not be
under any obligation, or entitlement, to make any inquiry respecting such
authority.
SECTION 5.04 GOVERNING LAW; SUBMISSION TO JURISDICTION
(a) THIS GUARANTY AGREEMENT (INCLUDING, BUT NOT LIMITED TO, THE
VALIDITY AND ENFORCEABILITY HEREOF) SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTY
AGREEMENT OR THE OTHER LOAN DOCUMENTS TO WHICH THE GUARANTOR IS A PARTY MAY BE
BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF
AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF
THIS GUARANTY AGREEMENT, THE GUARANTOR HEREBY ACCEPTS FOR ITSELF AND (TO THE
EXTENT PERMITTED BY LAW) IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. THE GUARANTOR HEREBY
IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION
TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT
MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN
SUCH RESPECTIVE JURISDICTIONS. THIS SUBMISSION TO JURISDICTION IS NONEXCLUSIVE
AND DOES NOT PRECLUDE COLLATERAL AGENT OR THE LENDER GROUP FROM OBTAINING
JURISDICTION OVER THE GUARANTOR IN ANY COURT OTHERWISE HAVING JURISDICTION.
(c) THE GUARANTOR IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY
OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF
COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT, AS THE
CASE MAY BE, AT ITS SAID ADDRESS, SUCH SERVICE TO BECOME EFFECTIVE UPON THE
EARLIER OF VERIFICATION OF THE GUARANTOR'S RECEIPT THEREOF OR 30 DAYS AFTER SUCH
MAILING.
10
<PAGE> 14
(d) NOTHING HEREIN SHALL AFFECT THE RIGHT OF COLLATERAL AGENT OR THE
LENDER GROUP TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO
COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE GUARANTOR IN ANY
OTHER JURISDICTION.
(e) THE GUARANTOR AND THE LENDER GROUP HEREBY (I) IRREVOCABLY AND
UNCONDITIONALLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, TRIAL BY JURY IN
ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS GUARANTY AGREEMENT OR ANY LOAN
DOCUMENTS TO WHICH IT IS A PARTY OR RECEIVES THE BENEFIT OF AND FOR ANY
COUNTERCLAIM THEREIN; (II) IRREVOCABLY WAIVE, TO THE MAXIMUM EXTENT NOT
PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH
LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES
OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (III) CERTIFY THAT NO PARTY
HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (IV)
ACKNOWLEDGE THAT IT HAS BEEN INDUCED TO ENTER INTO OR ACCEPT THIS GUARANTY
AGREEMENT, THE LOAN DOCUMENTS TO WHICH IT IS A PARTY AND THE TRANSACTIONS
CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS CONTAINED IN THIS SECTION 5.04.
(f) THE GUARANTOR AGREES THAT, IN ADDITION TO (AND WITHOUT LIMITATION
OF) ANY RIGHT OF SET-OFF, BANKERS' LIEN OR COUNTERCLAIM COLLATERAL AGENT OR THE
LENDER GROUP OR ANY MEMBER THEREOF MAY OTHERWISE HAVE, AFTER THE OCCURRENCE AND
DURING THE CONTINUATION OF AN EVENT OF DEFAULT, EACH LENDER (TO THE EXTENT
PERMITTED OR REQUIRED BY THE CREDIT AGREEMENT) SHALL HAVE THE RIGHT AND BE
ENTITLED, AT ITS OPTION, TO OFFSET BALANCES HELD BY IT OR BY ANY OF ITS
AFFILIATES FOR ACCOUNT OF THE GUARANTOR AT ANY OF ITS OFFICES, IN DOLLARS OR IN
ANY OTHER CURRENCY, AGAINST ANY PRINCIPAL OF OR INTEREST ON ANY OF SUCH LENDER'S
LOANS, OR ANY OTHER AMOUNT PAYABLE TO SUCH LENDER HEREUNDER, WHICH IS NOT PAID
WHEN DUE (REGARDLESS OF WHETHER SUCH BALANCES ARE THEN DUE TO THE GUARANTOR), IN
WHICH CASE IT SHALL PROMPTLY NOTIFY THE GUARANTOR AND ADMINISTRATIVE AGENT AND
COLLATERAL AGENT THEREOF, PROVIDED THAT SUCH LENDER'S FAILURE TO GIVE SUCH
NOTICE SHALL NOT AFFECT THE VALIDITY THEREOF.
SECTION 5.05 ENTIRE AGREEMENT. This Guaranty Agreement and the other
Loan Documents embody the entire agreement and understanding between the Lender
Group and the Guarantor and supersede all prior agreements and understandings
between such parties relating to the subject matter hereof and thereof. There
are no unwritten oral agreements between the parties.
SECTION 5.06 SURVIVAL OF OBLIGATIONS. To the extent that any payments
on the Obligations or proceeds of any collateral are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid to
a trustee, debtor in possession, receiver or other Person under any bankruptcy
law, common law or equitable cause, then to such extent, the Obligations so
satisfied shall be revived and continue as if such payment or proceeds had not
been received and the Collateral Agent's and the Lender Group's Liens, rights,
powers and
11
<PAGE> 15
remedies under this Guaranty Agreement and each Loan Document to which the
Guarantor is a party shall continue in full force and effect. In such event,
each Loan Document shall be automatically reinstated and the Guarantor shall
take such action as may be reasonably requested by Collateral Agent and the
Lender Group to effect such reinstatement.
SECTION 5.07 DESIGNATED SENIOR INDEBTEDNESS. The obligations of the
Guarantor under this Guaranty Agreement are, and are intended to be, "guarantor
senior indebtedness", "designated guarantor senior indebtedness" or any other
similar or equivalent classification for all purposes in any other debt
instrument or agreement to which QSRD, the Borrower, or the Guarantor is now or
hereafter a party.
SECTION 5.08 PRIOR GUARANTY. This Guaranty Agreement supersedes and
replaces the Prior Guaranty Agreement.
[remainder of page intentionally left blank]
12
<PAGE> 16
WITNESS THE EXECUTION HEREOF, effective as of the date first written
above.
QUEEN SAND OPERATING CO.,
a Nevada corporation
By:
---------------------------
Robert P. Lindsay
Vice President
By:
--------------------------
Ronald I. Benn
Vice President
Address for Notices:
Queen Sand Operating Co.
c/o Queen Sand Resources, Inc.
13760 Noel Road, Suite 1030
Dallas, TX 75240
Attention: Robert P. Lindsay
Telephone: (972) 233-9906
Facsimile: (972) 233-9575
with a copy to:
Queen Sand Resources, Inc.
60 Queen Street, Suite 1400
Ottawa, Canada KIP 5Y7
Attention: Mr. Ronald Benn
Telephone: (613) 230-7211
Facsimile: (613) 230-6055
and
Haynes & Boone LLP
901 Main Street, Suite 3100
Dallas, Texas 75202-3789
Attention: Mr. William L. Boeing
Telephone: (214) 651-5553
Facsimile: (214) 651-5940
S-1
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<CIK> 0000943548
<NAME> QUEENSAND RESOURCES INC
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,577,000
<SECURITIES> 0
<RECEIVABLES> 4,008,000
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<BONDS> 133,000,000
0
96,000
<COMMON> 66,000
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<TOTAL-LIABILITY-AND-EQUITY> 111,160,000
<SALES> 360,000
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