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                                                                   EXHIBIT 10.32

                               SECURITY AGREEMENT

                       (Stock, Bonds and Other Securities)



                                       by

                           QUEEN SAND RESOURCES, INC.


                                   in favor of


                                BANK OF MONTREAL,
                                    as Agent



                              as of August 1, 1997

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<TABLE>
<CAPTION>
                                TABLE OF CONTENTS
                                                                                                      Page
                                                                                                      ----

                                    ARTICLE I
                                   Definitions

<S>                                                                                                      <C>
Section 1.01 Terms Defined Above or in the Credit Agreement..............................................1
Section 1.02 Certain Definitions.........................................................................1

                                   ARTICLE II
                                Security Interest

Section 2.01 Pledge......................................................................................2
Section 2.02 Transfer of Collateral......................................................................2

                                   ARTICLE III
                         Representations and Warranties

Section 3.01 Ownership of Collateral; Encumbrances.......................................................3
Section 3.02 No Required Consent.........................................................................3
Section 3.03 Pledged Securities..........................................................................3
Section 3.04 First Priority Security Interest............................................................3

                                   ARTICLE IV
                            Covenants and Agreements

Section 4.01 Sale, Disposition or Encumbrance of Collateral..............................................3
Section 4.02 Dividends or Distributions..................................................................4
Section 4.03 Stock Powers................................................................................4
Section 4.04 Voting and Other Consensual Rights..........................................................4
Section 4.05 Pledged Securities Percentage...............................................................4

                                    ARTICLE V
                   Rights, Duties and Powers of Secured Party

Section 5.01 Discharge Encumbrances......................................................................4
Section 5.02 Transfer of Collateral......................................................................4
Section 5.03 Cumulative and Other Rights.................................................................5
Section 5.04 Disclaimer of Certain Duties................................................................5
Section 5.05 Modification of Obligations; Other Security.................................................5
Section 5.06 Waiver of Notice; Demand and Presentment....................................................6
Section 5.07 Custody and Preservation of the Collateral..................................................6

                                   ARTICLE VI
                                Events of Default

Section 6.01 Events......................................................................................6
Section 6.02 Remedies....................................................................................6
Section 6.03 Attorney-in-Fact............................................................................7
Section 6.04 Liability for Deficiency....................................................................7
Section 6.05 Reasonable Notice...........................................................................8
Section 6.06 Pledged Securities..........................................................................8
</TABLE>

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<TABLE>
<S>                                                                                                     <C>
Section 6.07 Non-judicial Enforcement....................................................................9
Section 6.08 Private Sale of Collateral..................................................................9

                                   ARTICLE VII
                                  Miscellaneous

Section 7.01 Notices.....................................................................................9
Section 7.02 Amendments and Waivers......................................................................9
Section 7.03 Copy as Financing Statement.................................................................9
Section 7.04 Possession of Collateral...................................................................10
Section 7.05 Redelivery of Collateral...................................................................10
Section 7.06 GOVERNING LAW..............................................................................10
Section 7.07 Effectiveness..............................................................................10
Section 7.08 Continuing Security Agreement..............................................................10
Section 7.09 Termination................................................................................10
</TABLE>



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                               SECURITY AGREEMENT
                       (Stock, Bonds and Other Securities)

         This Security Agreement (this "Agreement") is made as of August 1, 1997
by QUEEN SAND RESOURCES, INC., a Nevada corporation ("Pledgor"), in favor of
BANK OF MONTREAL, as Agent (together with any successor agent, the "Secured
Party") for the Lenders.

                                    RECITALS

         A. Pledgor, each of the financial institutions that is now or hereafter
a signatory thereto (collectively, the "Lenders"); and Secured Party, as agent
for the Lenders (in such capacity, the "Agent"), have entered into that certain
Credit Agreement dated of even date herewith (as amended from time to time, the
"Credit Agreement").

         B. One of the terms and conditions stated in the Credit Agreement for
the Lenders becoming signatories to the Credit Agreement thereto and agreeing to
make extensions of credit to or on behalf of the Pledgor thereunder is the
execution and delivery to Secured Party of this Security Agreement.

         C. NOW, THEREFORE, (i) in order to comply with the terms and conditions
of the Credit Agreement, (ii) to induce the Lenders, at any time or from time to
time, to loan monies, with or without security to or for the account of the
Pledgor in accordance with 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 Above or in the Credit Agreement. As used in
this Security Agreement, the terms defined above 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 Texas. 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 of the following types or items of
Property:

                  (a) the securities 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 securities, (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

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         securities, (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.

                  (c) Additional securities 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
         securities and Property, together with all other Property of the types
         described above related thereto.

         "Obligations" shall mean (a) the payment and performance of all present
and future indebtedness, obligations and liabilities of Pledgor to the Agent and
the Lenders under the Credit Agreement or any other Security Instrument,
including but not limited to, (i) the full and punctual payment of the Notes
issued thereunder, and any and all promissory notes given in substitution for
such Notes or in modification, renewal, extension or rearrangement thereof in
whole or in part, and (ii) the reimbursement and other obligations of the
Pledgor under and with respect to Letters of Credit and Letter of Credit
Agreements now outstanding or hereafter issued under the Credit Agreement; (b)
all obligations of Pledgor under this Security Agreement; 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 any Lender in connection
with the enforcement of their rights and remedies hereunder or any other
Security Instrument.

         "Pledged Securities" shall mean all of the securities 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 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 to
Secured Party, for the benefit of the Lenders, a security interest in and right
of set-off against the Collateral 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 Securities 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 Securities
to Secured Party. Notwithstanding the preceding sentence, at Secured Party's
discretion, all Pledged Securities must be delivered or transferred in such
manner as to permit Secured Party to 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

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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 Securities, 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 Securities 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 Lenders, 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 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 Securities. The Pledged Securities have been duly
authorized and validly issued, and are fully paid and non-assessable. The
Pledged Securities 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
Securities 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.

         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.

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         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 (c) 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 Securities Percentage. The Pledged Securities 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 Securities 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 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

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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 any Lender 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
wilful 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 any Lender to proceed against any
Guarantor or other Person, exhaust any Collateral or enforce any other remedy
which Secured Party or any Lender 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 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.

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         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 any Lender 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 any Lender 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 or any Lender
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
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

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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 Lenders.

         (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 any Lender; (ii) all claims of Pledgor against Secured Party
or any Lender, 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 any Lender; and (iv) the proceeds of any of the
foregoing as if the same were included in the Collateral. Secured Party agrees
to notify Pledgor promptly after any such set-off or application (or after
learning thereof in the case of such action by a Lender); 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 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
Lender hereunder or under any other Security Instrument results in reduction of
the Obligations, such action will not release

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Pledgor from its liability to Secured Party and the Lenders 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 Agent at its Principal Office for the benefit of the Lenders.

         Section 6.05 Reasonable Notice. If any applicable provision of any law
requires Secured Party or any Lender 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 Securities. 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 Lenders), 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 Securities as if it were the absolute owner thereof,
including, without limitation, the right to exchange at its discretion, any and
all of the Pledged Securities upon the merger, consolidation, reorganization,
recapitalization or other readjustment of any issuer of such Pledged Securities
or upon the exercise by any such issuer or Secured Party of any right, privilege
or option pertaining to any of the Pledged Securities, and in connection
therewith, to deposit and deliver any and all of the Pledged Securities 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 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 Securities 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
Securities 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.

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         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 securities 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 Houston, 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
texas, notwithstanding that such sale may not constitute a "public offering"
under the Securities Act and that Secured Party or any lender 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.

         Section 7.02 Amendments and Waivers. The acceptance of partial or
delinquent payments by any Lender or any forbearance, failure or delay by them
in exercising any right, power or remedy under any Security Instrument shall not
be deemed a waiver of any obligation of Pledgor or of any of their rights,
powers or remedies; and no partial exercise of any right, power or remedy shall
preclude any other or further exercise thereof. The Lenders 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 Lenders 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 Securities to Secured Party
or its designee or assignee.

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<PAGE>   13
         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 any Lender
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 TEXAS.

         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 any Lender 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 Lenders
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 Lenders 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 Lenders; and their respective security interests, rights,
powers and remedies hereunder and under the other Security Instruments 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 Securities, 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

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<PAGE>   14
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.



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<PAGE>   15
PLEDGOR:                                   QUEEN SAND RESOURCES, INC., a
                                           Nevada corporation



                                           By:   /s/   Robert P. Lindsay
                                                 -------------------------------
                                                    Robert P. Lindsay
                                                    Vice President


                                           By:   /s/   Ronald Benn
                                                 -------------------------------
                                                    Ronald Benn
                                                    Vice President and Treasurer



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<PAGE>   16
                                    EXHIBIT A

                               PLEDGED SECURITIES

Corrida Resources, Inc., a Nevada corporation

         One hundred thousand shares (100,000) 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. 001.

Northland Operating Co., a Nevada corporation

         One thousand shares (1000) of the capital stock, par value $0.01 per
         share, of Northland Operating Co., standing in the name of the Pledgor
         and being evidenced by Certificate No. 001.


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